As filed with the Securities and Exchange Commission on March 1, 1996
Registration Nos. 33-7647 and 811-4782
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 36
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 37
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)
[ ] on January 26, 1996 pursuant to paragraph (b)
[X] 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
PART A; INFORMATION REQUIRED IN PROSPECTUS
ITEM NUMBER PROSPECTUS CAPTION
Item 1. Cover Page Cover Page
Item 2. Synopsis Highlights
Item 3. Condensed Financial Financial Highlights
Information (if applicable)
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
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>
EXPLANATORY NOTE
This post-effective amendment no. 36 (the "Amendment") to the
Registrant's registration statement on Form N-1A (File no. 33-7647) is being
filed with respect to 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 (collectively, the "Funds"), each a series of shares of the
Registrant, to add disclosure regarding a new multiple class share structure to
the Prospectuses and the Statements of Additional Information which describe the
Funds. As a result, the Amendment does not affect any of the Registrant's other
currently effective prospectuses or statements of additional information, each
of which is hereby incorporated herein by reference as most recently filed
pursuant to Rule 497 under the Securities Act of 1933, as amended.
<PAGE>
PART A
REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
CLASS Y SHARES / TRUST CLASS
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 portfolios, each of which has
different and distinct investment objectives and policies. Class Y shares of the
Fund (the "Shares") are being offered by this Prospectus. The Trust offers one
other class of shares of the Fund pursuant to a separate 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") 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 (each a
"Shareholder Servicing Agent").
AN INVESTOR SHOULD OBTAIN FROM HIS SHAREHOLDER SERVICING AGENT, AND SHOULD
READ IN CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE
SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER WHICH SHARES OF THE
FUND MAY BE PURCHASED AND REDEEMED THROUGH SUCH 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 , 1996, with respect to the Fund, containing
additional and more detailed information about the Fund (see page 15) 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.
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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 , 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 4
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 5
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. See "Management of the Trust."
PURCHASES AND REDEMPTIONS PAGES 9 AND 11
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 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 (EACH A "SHAREHOLDER SERVICING AGENT"). AT PRESENT, THE
ONLY SHAREHOLDER SERVICING AGENTS ARE REPUBLIC AND ITS AFFILIATES. THE MINIMUM
INITIAL INVESTMENT IS $ AND THE MINIMUM SUBSEQUENT INVESTMENT IS $ . THE TRUST
OFFERS TO BUY BACK (REDEEM) SHARES FROM SHAREHOLDERS OF THE FUND AT ANY TIME AT
NET ASSET VALUE. SEE "PURCHASE OF SHARES" AND "REDEMPTION OF SHARES".
DIVIDENDS AND DISTRIBUTIONS PAGE 11
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 Fund Shares, 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 Fund Shares. 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 .............................. None
Annual Fund Operating Expenses
Investment Advisory Fee after waiver* ..................... 0.10%
Distribution Fees (Rule 12b-1 fees) ....................... None
Other Expenses after waiver** ............................. 0.30%
-----
-- Administrative Services Fee after waiver** ............. 0.12%
-- Other Operating Expenses ............................... 0.18%
Total Fund Operating Expenses after expense limitation
and fee waivers*** ........................................... 0.40%
=====
- ----------
*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 0.38%, 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 0.58% 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 Fund Shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year .......................................... $
3 years ......................................... $
5 years ......................................... $
10 years ......................................... $
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.
Some Shareholder Servicing Agents 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. Each Shareholder Servicing Agent 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 6 and (ii) administrative
services fee - page 7.
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.
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, commitments to
purchase such obligations, and repurchase agreements collateralized by 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 invests 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 Investment Company Act of 1940, as amended (the
"1940 Act").
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 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 5% 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 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. Signature and its affiliates also serve as administrator or
distributor to other investment companies. Signature is a wholly owned
subsidiary of Signature Financial Group, Inc.
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 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.
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 holders of
Shares 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.
Expenses attributable to the Shares shall be allocated to the Shares only. In
the event a particular expense is not reasonably allocable by class or to a
particular class, it shall be treated as a Fund expense or a Trust expense.
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.
CLASSES OF SHARES
In addition to the Shares, the Trust currently offers one other class of
shares, the Class C shares, of the Fund pursuant to a separate prospectus. Other
classes of shares may have different class expenses, which may affect
performance. Investors may obtain information concerning other classes of shares
of the Fund directly from their Shareholder Servicing Agent, or by calling
1-800-782-8183.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares 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 outstanding at the time the determination is made. It is
anticipated that the net asset value of each Share 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 11, is declared each Fund
Business Day as a dividend.
PURCHASE OF SHARES
Shares may be purchased without a sales load at their net asset value next
determined after an order is received by a Shareholder Servicing Agent 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 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 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, his
Shareholder Servicing Agent, 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.
All purchase payments are invested in full and fractional Shares. The Trust
reserves the right to cease offering Shares for sale at any time or to reject
any order for the purchase of Shares of the Fund.
An investor may purchase Shares by authorizing his Shareholder Servicing
Agent to purchase such Shares on his behalf through the Distributor.
EXCHANGE PRIVILEGE. By contacting his Shareholder Servicing Agent, a shareholder
may exchange some or all of his Shares for shares of an identical class of one
or more of the following investment companies at net asset value without a sales
charge: Republic New York Tax Free Bond Fund, Republic New York Tax Free Money
Market Fund, Republic Equity Fund and such other Republic Funds or other
registered investment companies for which Republic serves as investment adviser
as Republic may determine. 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 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.
THROUGH A SHAREHOLDER SERVICING AGENT
Shares are being offered only to customers of Shareholder Servicing Agents.
Shareholder Servicing Agents may offer services to their customers, including
specialized procedures for the purchase and redemption of Shares, such as
pre-authorized or automatic purchase and redemption programs and "sweep"
checking programs. Each Shareholder Servicing Agent 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. 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 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 Shareholder Servicing Agent to
purchase Shares, an investor should contact his Shareholder Servicing Agent (see
back cover for address and phone number).
RETIREMENT PLANS
Shares 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 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 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 his
Shareholder Servicing Agent, and is transmitted to and 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 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.
A shareholder may redeem Shares only by authorizing 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 Shareholder
Servicing Agent). For further information as to how to direct a Shareholder
Servicing Agent to redeem Shares, a shareholder should contact his Shareholder
Servicing Agent (see back cover for address and phone number).
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 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 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 six series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares. The Trust may authorize the
creation of multiple classes of shares of separate series of the Trust.
Currently, the Fund is divided into two classes of shares.
Each share of each class of the Fund represents an equal proportionate
interest in the Fund with each other share of that class. 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. Shares of each class of a
series represent an equal pro rata interest in such series and, generally, have
identical voting, dividend, liquidation, and other rights, preferences, powers,
terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any class expenses; and (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relate solely to its distribution arrangement, and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
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 subscribed to 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 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. 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 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 _________, 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
, 1996
<PAGE>
REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
CLASS C SHARES / RETAIL CLASS
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 portfolios, each of which
has different and distinct investment objectives and policies. Class C shares
of the Fund (the "Shares") are being offered by this Prospectus. The Trust
offers one other class of shares of the Fund pursuant to a separate
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 , 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 , 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
Class C shares of the Fund (the "Shares") pursuant to a Distribution Plan
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). Pursuant to the terms of the Distribution Plan, the
Distributor is reimbursed from the Fund (in amounts equal to an annual rate of
up to 0.25% of the average daily net assets represented by Shares outstanding
during the period for which payment is being made) for marketing costs and
payments to other organizations for services rendered in distributing the
Shares. See "Management of the Trust".
PURCHASES AND REDEMPTIONS PAGES 12 AND 15
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 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 FROM SHAREHOLDERS OF THE
FUND 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 Fund Shares, 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 Fund Shares. 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,................................ None
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 Fund Shares, 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 Fund Shares. 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
represented by Shares outstanding during the period for which payment is being
made. Long-term shareholders may pay more than the economic equivalent of the
maximum distribution charges permitted by the National Association of Securities
Dealers, Inc.
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.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Shares 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.
<TABLE>
<CAPTION>
SELECTED DATA FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND FOR THE PERIOD
FINANCIAL HIGHLIGHTS MAY 3, 1990
(COMMENCEMENT
OF OPERATIONS) TO
YEARS ENDED SEPTEMBER 30, 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,
commitments to purchase such obligations, and repurchase agreements
collateralized by 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 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 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 5% 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 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 Shares. Signature and its
affiliates also serve as administrator or distributor to 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 on an annual
basis of 0.25% of the Fund's average daily net assets represented by Shares
outstanding during the period for which payment is being made) for costs and
expenses incurred by the Distributor in connection with the distribution of
Shares and for the provision of certain shareholder services with respect to
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
on an annual basis of up to 0.25% of the Fund's average daily net assets
represented by Shares outstanding during the period for which payment is being
made. 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
represented by Shares outstanding) 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 Fund Shares which provides that the Trust may
obtain the services of an administrator, transfer agent, custodian and one or
more Shareholder Servicing Agents, 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, including Republic,
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 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.
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 holders of Shares 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. Expenses attributable to the Shares shall be allocated to the
Shares only. Class expenses must include payments made pursuant to the Plan
and Shareholder Servicing Agent fees paid pursuant to the Administrative
Services Plan. In the event a particular expense is not reasonably allocable
by class or to a particular class, it shall be treated as a Fund expense or a
Trust expense. 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 on an annual basis 0.58% of
its average daily net assets.
CLASSES OF SHARES
In addition to the Shares, the Trust currently offers one other class of
shares, the Class Y Shares, of the Fund pursuant to a separate prospectus.
Class Y shares may have different class expenses, which may affect
performance. Investors may obtain information concerning other classes of
shares of the Fund directly from their Shareholder Servicing Agent or
securities broker, or by calling 1-800-782-8183.
The Shares have exclusive voting rights with respect to the Plan and the
Shareholder Servicing Agent fees paid pursuant to the Administrative Services
Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares 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 outstanding at the time the determination is made. It is
anticipated that the net asset value of each Share 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 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 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. The
Trust reserves the right to cease offering Shares for sale at any time or to
reject any order for the purchase of Shares.
An investor may purchase Shares 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 Shares for shares of an identical class of one or more of the
following investment companies at net asset value without a sales charge:
Republic New York Tax Free Bond Fund, Republic New York Tax Free Money Market
Fund, Republic Equity Fund, and such other Republic Funds or other registered
investment companies for which Republic serves as investment adviser as
Republic may determine. 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 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 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 Retail Class, 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 procedures to prepare, process and to forward
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 from the Distributor, an
investor should contact the Distributor directly (see back cover for address
and phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shares 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 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, an investor should contact his
securities broker or his Shareholder Servicing Agent (see back cover for
address and phone number).
RETIREMENT PLANS
Shares 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 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 to and 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 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 have been purchased directly from the Distributor, a
shareholder may redeem Shares 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, 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 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 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 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 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 six series of shares, each of which constitutes a separately managed fund.
The Trust reserves the right to create additional series of shares. The Trust
may authorize the creation of multiple classes of shares of separate series of
the Trust. Currently, the Fund is divided into two classes of shares.
Each share of each class of the Fund represents an equal proportionate
interest in the Fund with each other share of that class. 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.
Shares of each class of a series represent an equal pro rata interest in such
series and, generally, have identical voting, dividend, liquidation, and other
rights, preferences, powers, terms and conditions, except that: (a) each class
shall have a different designation; (b) each class of shares shall bear any
class expenses; and (c) each class shall have exclusive voting rights on any
matter submitted to shareholders that relate solely to its distribution
arrangement, and each class shall have separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class.
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 subscribed to 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 , 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 MANAGER
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 U.S. GOVERNMENT MONEY MARKET FUND
PROSPECTUS
, 1996
<PAGE>
REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
CLASS Y SHARES / TRUST CLASS
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
portfolios, each of which has different and distinct investment objectives and
policies. Class Y shares of the Fund (the "Shares") are being offered by this
Prospectus. The Trust offers one other class of shares of the Fund pursuant to a
separate 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") 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 (each a
"Shareholder Servicing Agent").
AN INVESTOR SHOULD OBTAIN FROM HIS SHAREHOLDER SERVICING AGENT, AND SHOULD
READ IN CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE
SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER WHICH SHARES OF THE
FUND MAY BE PURCHASED AND REDEEMED THROUGH SUCH 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 ______, 1996, with respect to the Fund, containing additional
and more detailed information about the Fund (see page 19) 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 _________ , 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 4
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 9
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. See "Management of the Trust."
PURCHASES AND REDEMPTIONS PAGES 12 AND 14 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 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 (each a "Shareholder Servicing Agent"). At
present, the only Shareholder Servicing Agents are Republic and its affiliates.
The minimum initial investment is $ and the minimum subsequent investment is $ .
The Trust offers to buy back (redeem) Shares from shareholders of the Fund at
any time at net asset value. See "Purchase of Shares" and "Redemption of
Shares".
DIVIDENDS AND DISTRIBUTIONS PAGE 14
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".
FEE TABLE
The following table provides (i) a summary of expenses relating to purchases
and sales of Fund Shares, 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 Shares. 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 ........................................ None
Annual Fund Operating Expenses
Investment Advisory Fee after waiver* ............................... 0.10%
Distribution Fees (Rule 12b-1 fees) ................................. None
Other Expenses after waiver** ....................................... 0.25%
----
-- Administrative Services Fee after waiver** ....................... 0.10%
-- Other Operating Expenses ......................................... 0.15%
Total Fund Operating Expenses after expense limitation and fee waivers*** 0.35%
====
- ----------
*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 equal on an annual
basis to 0.15% and 0.30%, 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 % 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 Fund Shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year .................................................... $
3 years ................................................... $
5 years ................................................... $
10 years ................................................... $
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.
Some Shareholder Servicing Agents 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. Each Shareholder Servicing Agent 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 9 and (ii) administrative
services fee -- page 10.
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.
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 4, 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 5% 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 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 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. Signature and its affiliates also serve as administrator or
distributor to other investment companies. Signature is a wholly owned
subsidiary of Signature Financial Group, Inc.
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 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.
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 holders of
Shares 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.
Expenses attributable to the Shares shall be allocated to the Shares only. In
the event a particular expense is not reasonably allocable by class or to a
particular class, it shall be treated as a Fund expense or a Trust expense.
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.
CLASSES OF SHARES
In addition to the Shares, the Trust currently offers one other class of
shares of the Fund, the Class C shares, pursuant to a separate prospectus. Other
classes of shares may have different class expenses, which may affect
performance. Investors may obtain information concerning other classes of shares
of the Fund directly from their Shareholder Servicing Agent or by calling
1-800-782-8183.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares 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 outstanding at the time the determination is made. It is anticipated that
the net asset value of each Share 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 14, is declared each Fund Business
Day as a dividend.
PURCHASE OF SHARES
Shares may be purchased without a sales load at their net asset value next
determined after an order is received by a Shareholder Servicing Agent 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 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, his
Shareholder Servicing Agent, 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.
All purchase payments are invested in full and fractional Shares. The Trust
reserves the right to cease offering Shares for sale at any time or to reject
any order for the purchase of Shares.
An investor may purchase Shares by authorizing his Shareholder Servicing
Agent to purchase such Shares on his behalf through the Distributor.
Exchange Privilege. By contacting his Shareholder Servicing Agent, a
shareholder may exchange some or all of his Shares for shares of an identical
class of one or more of the following investment companies at net asset value
without a sales charge: Republic U.S. Government Money Market Fund, Republic New
York Tax Free Bond Fund, Republic Equity Fund, and such other Republic Funds or
other registered investment companies for which Republic serves as investment
adviser as Republic may determine. 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 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.
THROUGH A SHAREHOLDER SERVICING AGENT
Shares are being offered only to customers of Shareholder Servicing Agents.
Shareholder Servicing Agents may offer services to their customers, including
specialized procedures for the purchase and redemption of Shares, such as
pre-authorized or automatic purchase and redemption programs and "sweep"
checking programs. Each Shareholder Servicing Agent 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. 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 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 Shareholder Servicing Agent to
purchase Shares, an investor should contact 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 his
Shareholder Servicing Agent, and is transmitted to and 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 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.
A shareholder may redeem Shares only by authorizing 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 Shareholder
Servicing Agent). For further information as to how to direct a Shareholder
Servicing Agent to redeem Shares, a shareholder should contact his Shareholder
Servicing Agent (see back cover for address and phone number).
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 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 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 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 six series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares. The Trust may authorize the
creation of multiple classes of shares of separate series of the Trust.
Currently, the Fund is divided into two classes of shares.
Each share of each class of the Fund represents an equal proportionate
interest in the Fund with each other share of that class. 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. Shares of each class of a
series represent an equal pro rata interest in such series and, generally, have
identical voting, dividend, liquidation, and other rights, preferences, powers,
terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any class expenses; and (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relate solely to its distribution arrangement, and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
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 subscribed to 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 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. 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 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 _________, 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.)
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.
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.
*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>
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 based upon the applicable 1995
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. For cases in which two
or more state (or city) brackets fall within a federal bracket, the highest
state (or city) bracket is combined with the federal bracket. The combined
income tax brackets shown reflect the fact that state and city income taxes are
currently deductible as an itemized deduction for federal tax purposes (however,
a taxpayer's itemized deductions may be subject to an overall limitation, the
effect of which has not been taken into account in preparing these tables).
<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>
$ 0-$ 23,350 $ 0-$ 39,000 21.45% 2.55% 3.18% 3.82% 4.46% 5.09% 5.73% 6.37% 7.00% 7.64% 8.27%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 33.47% 3.01% 3.76% 4.51% 5.26% 6.01% 6.76% 7.52% 8.27% 9.02% 9.77%
$ 56,551-$117,950 $ 94,251-$143,600 36.24% 3.14% 3.92% 4.71% 5.49% 6.27% 7.06% 7.84% 8.63% 9.41% 10.19%
$117,951-$256,500 $143,601-$256,500 40.86% 3.38% 4.23% 5.07% 5.92% 6.76% 7.61% 8.45% 9.30% 10.15% 10.99%
Over $256,500 Over $256,500 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. This table does not take into account: (i) any taxes other than the regular
federal income tax and the regular New York State personal income tax; or (ii) the New York State tax table benefit recapture
tax. Also, it is assumed that: (i) there are no federal or New York State minimum taxes applicable; (ii) a shareholder has no net
capital gain; and (iii) a shareholder's taxable income for federal income tax purposes is the same as his or her taxable income
for New York State income tax purposes. Also, this table does not reflect the fact that, due to factors including the federal
phase-out of personal exemptions and reduction of certain itemized deductions for taxpayers whose adjusted gross income exceed
specified thresholds, a shareholder's effective marginal tax rate may differ from his or her tax bracket 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>
$ 0 23,350 $ 0-$ 39,000 25.19% 2.67% 3.34% 4.01% 4.68% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 36.64% 3.16% 3.96% 4.73% 5.52% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26%
$ 56,551-$117,950 $ 94,251-$143,600 37.32% 3.30% 4.12% 4.94% 5.77% 6.59% 7.42% 8.24% 9.06% 9.89% 10.71%
$117,951-$256,500 $143,601-$256,500 43.71% 3.55% 4.44% 5.33% 6.22% 7.11% 7.99% 8.88% 9.77% 10.66% 11.55%
Over $256,500 Over $256,500 46.88% 3.77% 4.71% 5.65% 6.59% 7.53% 8.47% 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. This table does not take into account: (i) any taxes other than the
regular federal income tax, the regular New York State personal income tax, and the regular New York City personal income tax
(including the temporary tax surcharge and the additional tax); or (ii) the New York State tax table benefit recapture tax. Also,
it is assumed that: (i) there are no federal, state or city minimum taxes applicable; (ii) a shareholder has no net capital gain;
and (iii) a shareholder's taxable income for federal income tax purposes is the same as his or her income for state and city tax
purposes. Also, this table does not reflect the fact that, due to factors including the federal phase-out of personal exemptions
and reduction of certain itemized deductions for taxpayers whose adjusted gross income exceed specified thresholds, a
shareholder's effective marginal tax rate may differ from his or her tax bracket rate.
</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.
<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
, 1996
<PAGE>
REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
CLASS C SHARES / RETAIL CLASS
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
portfolios, each of which has different and distinct investment objectives and
policies. Class C shares of the Fund (the "Shares") are being offered by this
Prospectus. The Trust offers one other class of shares of the Fund pursuant to a
separate 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 , 1996, with respect to the Fund, containing additional
and more detailed information about the Fund (see page 24) 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 , 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
Class C shares of the Fund (the "Shares") pursuant to a Distribution Plan
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). Pursuant to the terms of the Distribution Plan, the
Distributor is reimbursed from the Fund (in amounts equal to an annual rate of
up to 0.25% of the Fund's average daily net assets represented by Shares
outstanding during the period for which payment is being made) for marketing
costs and payments to other organizations for services rendered in distributing
the Shares. See "Management of the Trust".
PURCHASES AND REDEMPTIONS PAGES 15 AND 18
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 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 from shareholders of the Fund 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 Fund Shares, 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 Fund Shares. 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 .............................. None
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 equal 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 Fund Shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year ............................................... $
3 years .............................................. $
5 years .............................................. $
10 years .............................................. $
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 Fund Shares. 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 represented by
Shares outstanding during the period for which payment is being made. Long-term
shareholders may pay more than the economic equivalent of the maximum
distribution charges permitted by the National Association of Securities
Dealers, Inc.
<PAGE>
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.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Shares 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 CLASS C 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 5% 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 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 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 Shares. Signature and its
affiliates also serve as administrator or distributor to 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 on an annual
basis of 0.25% of the Fund's average daily net assets represented by Shares
outstanding during the period for which payment is being made) 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
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
on an annual basis of up to 0.25% of the Fund's average daily net assets
represented by Shares outstanding during the period for which payment is being
made. 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 on an annual basis 0.25% of the
Fund's average daily net assets represented by Shares outstanding during the
period for which payment is being made. 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 represented by
the Shares outstanding) 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 Fund Shares which provides that the Trust may
obtain the services of an administrator, transfer agent, custodian and one or
more Shareholder Servicing Agents, 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, including Republic, 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 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 or an annual basis 0.25% of the Fund's average
daily net assets represented by Shares outstanding during the period for which
payment is being made.
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 holders of
Shares 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.
Expenses attributable to the Shares shall be allocated to the Shares only. Class
expenses must include payments made pursuant to the Plan and Shareholder
Servicing Agent fees paid pursuant to the Administrative Services Plan. In the
event a particular expense is not reasonably allocable by class or to a
particular class, it shall be treated as a Fund expense or a Trust expense.
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 on an annual basis 0.41% of its average daily net assets.
CLASSES OF SHARES
In addition to the Shares, the Trust currently offers one other class of
shares of the Fund, the Class Y shares, pursuant to a separate prospectus. Other
classes of shares may have different class expenses, which may effect
performance. Investors may obtain information concerning other classes of shares
of the Fund directly from their Shareholder Servicing Agent or securities
broker, or by calling 1-800-782-8183.
The Shares have exclusive voting rights with respect to the Plan and the
Shareholder Servicing Agent fees paid pursuant to the Administrative Services
Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares 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 outstanding at the time the determination is made. It is anticipated that
the net asset value of each Share 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 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 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. The Trust
reserves the right to cease offering Shares for sale at any time or to reject
any order for the purchase of Shares.
An investor may purchase Shares 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 Shares for shares of an identical class of one or more of the following
investment companies at net asset value without a sales charge: Republic U.S.
Government Money Market Fund, Republic New York Tax Free Bond Fund, Republic
Equity Fund, and such other Republic Funds or other registered investment
companies for which Republic serves as investment adviser as Republic may
determine. 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 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 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 Retail Class, 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 procedures to prepare, process and forward 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 from the Distributor, an
investor should contact the Distributor directly (see back cover for address and
phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shares 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 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, 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 to and 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 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 have been purchased directly from the Distributor, a
shareholder may redeem Shares 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, 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 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 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 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 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 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 six series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares. The Trust may authorize the
creation of multiple classes of shares of separate series of the Trust.
Currently, the Fund is divided into two classes of shares.
Each share of each class of the Fund represents an equal proportionate
interest in the Fund with each other share of that class. 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. Shares of each class of a
series represent an equal pro rata interest in such series and, generally, have
identical voting, dividend, liquidation, and other rights, preferences, powers,
terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any class expenses; and (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relate solely to its distribution arrangement, and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
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 subscribed to 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 , 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.)
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.
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.
- ---------
*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>
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 based upon the applicable 1995
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. For cases in which two
or more state (or city) brackets fall within a federal bracket, the highest
state (or city) bracket is combined with the federal bracket. The combined
income tax brackets shown reflect the fact that state and city income taxes are
currently deductible as an itemized deduction for federal tax purposes (however,
a taxpayer's itemized deductions may be subject to an overall limitation, the
effect of which has not been taken into account in preparing these tables).
<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>
$ 0-$ 23,350 $ 0-$ 39,000 21.45% 2.55% 3.18% 3.82% 4.46% 5.09% 5.73% 6.37% 7.00% 7.64% 8.27%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 33.47% 3.01% 3.76% 4.51% 5.26% 6.01% 6.76% 7.52% 8.27% 9.02% 9.77%
$ 56,551-$117,950 $ 94,251-$143,600 36.24% 3.14% 3.92% 4.71% 5.49% 6.27% 7.06% 7.84% 8.63% 9.41% 10.19%
$117,951-$256,500 $143,601-$256,500 40.86% 3.38% 4.23% 5.07% 5.92% 6.76% 7.61% 8.45% 9.30% 10.15% 10.99%
Over $256,500 Over $256,500 44.19% 3.58% 4.48% 5.38% 6.27% 7.17% 8.06% 8.96% 9.85% 10.75% 11.65%
- ----------
*Net amount subject to federal and New York State personal income tax after deductions and exemptions.
**Effective combined federal and state tax bracket.
This table does not take into account: (i) any taxes other than the regular federal income tax and the regular New
York State personal income tax; or (ii) the New York State tax table benefit recapture tax. Also, it is assumed that:
(i) there are no federal or New York State minimum taxes applicable; (ii) a shareholder has no net capital gain; and
(iii) a shareholder's taxable income for federal income tax purposes is the same as his or her taxable income for New
York State income tax purposes. Also, this table does not reflect the fact that, due to factors including the federal
phase-out of personal exemptions and reduction of certain itemized deductions for taxpayers whose adjusted gross
income exceed specified thresholds, a shareholder's effective marginal tax rate may differ from his or her tax bracket
rate.
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
- ------------------------------------------------------------------------------------------------------------------------
$ 0 23,350 $ 0-$ 39,000 25.19% 2.67% 3.34% 4.01% 4.68% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 36.64% 3.16% 3.96% 4.73% 5.52% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26%
$ 56,551-$117,950 $ 94,251-$143,600 37.32% 3.30% 4.12% 4.94% 5.77% 6.59% 7.42% 8.24% 9.06% 9.89% 10.71%
$117,951-$256,500 $143,601-$256,500 43.71% 3.55% 4.44% 5.33% 6.22% 7.11% 7.99% 8.88% 9.77% 10.66% 11.55%
Over $256,500 Over $256,500 46.88% 3.77% 4.71% 5.65% 6.59% 7.53% 8.47% 9.41% 10.35% 11.30% 12.24%
- ----------
*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. This table does not take into account: (i) any taxes other
than the regular federal income tax, the regular New York State personal income tax, and the regular New York City
personal income tax (including the temporary tax surcharge and the additional tax); or (ii) the New York State tax
table benefit recapture tax. Also, it is assumed that: (i) there are no federal, state or city minimum taxes
applicable; (ii) a shareholder has no net capital gain; and (iii) a shareholder's taxable income for federal income
tax purposes is the same as his or her income for state and city tax purposes. Also, this table does not reflect the
fact that, due to factors including the federal phase-out of personal exemptions and reduction of certain itemized
deductions for taxpayers whose adjusted gross income exceed specified thresholds, a shareholder's effective marginal
tax rate may differ from his or her tax bracket rate.
</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.
<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
, 1996
<PAGE>
REPUBLIC NEW YORK TAX FREE BOND FUND
CLASS Y SHARES / TRUST CLASS
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 portfolios, each
of which has different and distinct investment objectives and policies. Class Y
shares of the Fund (the "Shares") are being offered by this Prospectus. The
Trust offers one other class of shares of the Fund pursuant to a separate
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") 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 (each a
"Shareholder Servicing Agent").
AN INVESTOR SHOULD OBTAIN FROM HIS SHAREHOLDER SERVICING AGENT, AND SHOULD
READ IN CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE
SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER WHICH SHARES OF THE
FUND MAY BE PURCHASED AND REDEEMED THROUGH SUCH 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 __________, 1996, with respect to the Fund, containing
additional and more detailed information about the Fund (see page 18) 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 __________, 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 4
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 9
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. See "Management of the Trust."
PURCHASES AND REDEMPTIONS PAGES 12 AND 14
Shares of the Fund are continuously offered for sale by the Distributor at
net asset value with no sales charge 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 (each a "Shareholder Servicing Agent"). At present, the only Shareholder
Servicing Agents are Republic and its affiliates. The minimum initial investment
is $ and the minimum subsequent investment is $ . The Trust offers to buy
back (redeem) Shares from shareholders of the Fund at any time at net asset
value. See "Purchase of Shares" and "Redemption of Shares".
DIVIDENDS AND DISTRIBUTIONS PAGE 14
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 Fund shares, 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 Fund shares.
Shareholder Transaction Expenses .................................... None
Annual Fund Operating Expenses
Investment Advisory Fee.......................................... 0.25%
Distribution Fees (Rule 12b-1 fees) ............................. None
Other Expenses .................................................. 0.35%
----
-- Administrative Services Fee .................................. 0.20%
-- Other Operating Expenses ..................................... 0.15%
Total Fund Operating Expenses ....................................... 0.60%
====
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in Fund shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year ................................................. $
3 years ................................................ $
5 years ................................................ $
10 years ............................................... $
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 with respect to the Shares for the current fiscal year.* The
expense table shows the expected investment advisory fee and administrative
services 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.
Some Shareholder Servicing Agents 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. Each Shareholder Servicing Agent 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 9 and (ii) administrative
services fee -- page 10.
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.
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 5% 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 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 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. Signature and its affiliates also serve as administrator or
distributor to other investment companies. Signature is a wholly owned
subsidiary of Signature Financial Group, Inc.
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 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.
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 holders of the
Shares 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.
Expenses attributable to the Shares shall be allocated to the Shares only. In
the event a particular expense is not reasonably allocable by class or to a
particular class, it shall be treated as a Fund expense or a Trust expense.
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.
CLASSES OF SHARES
In addition to the Shares, the Trust currently offers one other class of
shares of the Fund, the Class C shares, pursuant to a separate prospectus. Other
classes of shares may have different class expenses, which may affect
performance. Investors may obtain information concerning other classes of shares
of the Fund directly from their Shareholder Servicing Agent or by calling
1-800-782-8183.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares 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 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 may be purchased without a sales load at their net asset value next
determined after an order is received by a Shareholder Servicing Agent 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 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, his
Shareholder Servicing Agent, 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.
All purchase payments are invested in full and fractional Shares. The Trust
reserves the right to cease offering Shares for sale at any time or to reject
any order for the purchase of Shares.
An investor may purchase Shares by authorizing his Shareholder Servicing
Agent to purchase such Shares on his behalf through the Distributor.
Exchange Privilege. By contacting his Shareholder Servicing Agent, a
shareholder may exchange some or all of his Shares for shares of an identical
class of one or more of the following investment companies at net asset value
without a sales charge: Republic U.S. Government Money Market Fund, Republic New
York Tax Free Money Market Fund, Republic Equity Fund, and such other Republic
Funds or other registered investment companies for which Republic serves as
investment adviser as Republic may determine. 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 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.
THROUGH A SHAREHOLDER SERVICING AGENT
Shares are being offered only to customers of Shareholder Servicing Agents.
Shareholder Servicing Agents may offer services to their customers, including
specialized procedures for the purchase and redemption of Shares, such as
pre-authorized or automatic purchase and redemption programs. Each Shareholder
Servicing Agent 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. 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 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 Shareholder Servicing Agent to
purchase Shares, an investor should contact 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 his Shareholder Servicing Agent,
and is transmitted to and 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 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.
A shareholder may redeem Shares only by authorizing 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 Shareholder
Servicing Agent). For further information as to how to direct a Shareholder
Servicing Agent to redeem Shares, a shareholder should contact his Shareholder
Servicing Agent (see back cover for address and phone number).
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 (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 six series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares. The Trust may authorize the
creation of multiple classes of shares of separate series of the Trust.
Currently, the Fund is divided into two classes of shares.
Each share of each class of the Fund represents an equal proportionate
interest in the Fund with each other share of that class. 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. Shares of each class of a
series represent an equal pro rata interest in such series and, generally, have
identical voting, dividend, liquidation, and other rights, preferences, powers,
terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any class expenses; and (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relate solely to its distribution arrangement, and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
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 subscribed to 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 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. 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 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 _________, 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.
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.
- ----------
*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>
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 based upon the applicable 1995
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. For cases in which two
or more state (or city) brackets fall within a federal bracket, the highest
state (or city) bracket is combined with the federal bracket. The combined
income tax brackets shown reflect the fact that state and city income taxes are
currently deductible as an itemized deduction for federal tax purposes (however,
a taxpayer's itemized deductions may be subject to an overall limitation, the
effect of which has not been taken into account in preparing these tables).
<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>
$ 0-$ 23,350 $ 0-$ 39,000 21.45% 2.55% 3.18% 3.82% 4.46% 5.09% 5.73% 6.37% 7.00% 7.64% 8.27%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 33.47% 3.01% 3.76% 4.51% 5.26% 6.01% 6.76% 7.52% 8.27% 9.02% 9.77%
$ 56,551-$117,950 $ 94,251-$143,600 36.24% 3.14% 3.92% 4.71% 5.49% 6.27% 7.06% 7.84% 8.63% 9.41% 10.19%
$117,951-$256,500 $143,601-$256,500 40.86% 3.38% 4.23% 5.07% 5.92% 6.76% 7.61% 8.45% 9.30% 10.15% 10.99%
Over $256,500 Over $256,500 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.
This table does not take into account: (i) any taxes other than the regular federal income tax and the regular New York State
personal income tax; or (ii) the New York State tax table benefit recapture tax. Also, it is assumed that: (i) there are no federal
or New York State minimum taxes applicable; (ii) a shareholder has no net capital gain; and (iii) a shareholder's taxable income for
federal income tax purposes is the same as his or her taxable income for New York State income tax purposes. Also, this table does
not reflect the fact that, due to factors including the federal phase-out of personal exemptions and reduction of certain itemized
deductions for taxpayers whose adjusted gross income exceed specified thresholds, a shareholder's effective marginal tax rate may
differ from his or her tax bracket 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>
$ 0 23,350 $ 0-$ 39,000 25.19% 2.67% 3.34% 4.01% 4.68% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 36.64% 3.16% 3.96% 4.73% 5.52% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26%
$ 56,551-$117,950 $ 94,251-$143,600 37.32% 3.30% 4.12% 4.94% 5.77% 6.59% 7.42% 8.24% 9.06% 9.89% 10.71%
$117,951-$256,500 $143,601-$256,500 43.71% 3.55% 4.44% 5.33% 6.22% 7.11% 7.99% 8.88% 9.77% 10.66% 11.55%
Over $256,500 Over $256,500 46.88% 3.77% 4.71% 5.65% 6.59% 7.53% 8.47% 9.41% 10.35% 11.30% 12.24%
</TABLE>
- ----------
* 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.
This table does not take into account: (i) any taxes other than the regular
federal income tax, the regular New York State personal income tax, and the
regular New York City personal income tax (including the temporary tax surcharge
and the additional tax); or (ii) the New York State tax table benefit recapture
tax. Also, it is assumed that: (i) there are no federal, state or city minimum
taxes applicable; (ii) a shareholder has no net capital gain; and (iii) a
shareholder's taxable income for federal income tax purposes is the same as his
or her income for state and city tax purposes. Also, this table does not reflect
the fact that, due to factors including the federal phase-out of personal
exemptions and reduction of certain itemized deductions for taxpayers whose
adjusted gross income exceed specified thresholds, a shareholder's effective
marginal tax rate may differ from his or her tax bracket rate.
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.
<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
NEW YORK TAX FREE BOND FUND
PROSPECTUS
, 1996
<PAGE>
REPUBLIC NEW YORK TAX FREE BOND FUND
CLASS C SHARES / RETAIL CLASS
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 portfolios, each
of which has different and distinct investment objectives and policies. Class C
shares of the Fund (the "Shares") are being offered by this Prospectus. The
Trust offers one other class of shares of the Fund pursuant to a separate
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 , 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 , 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
Class C shares of the Fund (the "Shares") pursuant to a Distribution Plan
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). Pursuant to the terms of the Distribution Plan, the
Distributor is reimbursed from the Fund (in amounts equal to an annual rate of
up to 0.25% of the average daily net assets represented by Shares outstanding
during the period for which payment is being made) for marketing costs and
payments to other organizations for services rendered in distributing the
Shares. This fee may not exceed 0.25% of the average daily net assets of the
Fund represented by Shares outstanding 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
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 from shareholders of the Fund 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".
FEE TABLE
The following table provides (i) a summary of estimated expenses relating to
purchases and sales of Fund Shares, 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 Fund Shares.
Shareholder Transaction Expenses ............................... None
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%
====
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in Fund Shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year .................................................. $ 9
3 years ................................................. $ 27
5 years ................................................. $ 47
10 years ................................................ $105
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 with respect to the Shares 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 Fund Shares. 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
represented by Shares outstanding during the period for which payment is being
made. Long-term shareholders may pay more than the economic equivalent of the
maximum distribution charges permitted by the National Association of Securities
Dealers, Inc.
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 Shares 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 CLASS C 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 5% 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 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 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 Shares. Signature and its
affiliates also serve as administrator or distributor to 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 Shares. The amount
of this reimbursement may not exceed on an annual basis 0.25% of the average
daily net assets of the Fund represented by Shares outstanding during the period
for which payment is being made. 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 on an annual basis
0.25% of the Fund's average daily net assets represented by Shares outstanding
during the period for which payment is being made. 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 represented by
Shares outstanding) 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 Fund Shares which provides that the Trust may
obtain the services of an administrator, transfer agent, custodian and one or
more Shareholder Servicing Agents, 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, including Republic, 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 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 on an annual basis 0.25% of the Fund's average
daily net assets represented by Shares outstanding during the period for which
payment is being made.
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 holders of
Shares 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.
Expenses attributable to the Shares shall be allocated to the Shares only. Class
expenses must include payments made pursuant to the Plan and shareholder
servicing agent fees paid pursuant to the Administrative Services Plan. In the
event a particular expense is not reasonably allocable by class or to a
particular class, it shall be treated as a Fund expense or a Trust expense.
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 on an annual basis 0.50% of its average daily net assets.
CLASSES OF SHARES
In addition to the Shares, the Trust currently offers one other class of
shares of the Fund, the Class Y shares, pursuant to a separate prospectus. Other
classes of shares may have different class expenses, which may affect
performance. Investors may obtain information concerning other classes of shares
of the Fund directly from their Shareholder Servicing Agent or securities
broker, or by calling 1-800-782-8183.
The Shares have exclusive voting rights with respect to the Plan and the
Shareholder Servicing Agent fees paid pursuant to the Administrative Services
Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares 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 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 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 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. The Trust
reserves the right to cease offering Shares for sale at any time or to reject
any order for the purchase of Shares.
An investor may purchase Shares 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 Shares for shares of an identical class of one or more of the following
investment companies at net asset value without a sales charge: Republic U.S.
Government Money Market Fund, Republic New York Tax Free Money Market Fund,
Republic Equity Fund, and such other Republic Funds or other registered
investment companies for which Republic serves as investment adviser as Republic
may determine. 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 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 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 Retail Class, 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 procedures to prepare, process and forward 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 from the Distributor, an
investor should contact the Distributor directly (see back cover for address and
phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shares 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 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, 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 to and 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 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 have been purchased directly from the Distributor, a
shareholder may redeem Shares 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, 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 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 (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 six series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares. The Trust may authorize the
creation of multiple classes of shares of separate series of the Trust.
Currently, the Fund is divided into two classes of shares.
Each share of each class of the Fund represents an equal proportionate
interest in the Fund with each other share of that class. 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. Shares of each class of a
series represent an equal pro rata interest in such series and, generally, have
identical voting, dividend, liquidation, and other rights, preferences, powers,
terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any class expenses; and (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relate solely to its distribution arrangement, and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
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 subscribed to 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 _________, 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.
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.
- ----------
*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>
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 based upon the applicable 1995
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. For cases in which two
or more state (or city) brackets fall within a federal bracket, the highest
state (or city) bracket is combined with the federal bracket. The combined
income tax brackets shown reflect the fact that state and city income taxes are
currently deductible as an itemized deduction for federal tax purposes (however,
a taxpayer's itemized deductions may be subject to an overall limitation, the
effect of which has not been taken into account in preparing these tables).
<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>
$ 0-$ 23,350 $ 0-$ 39,000 21.45% 2.55% 3.18% 3.82% 4.46% 5.09% 5.73% 6.37% 7.00% 7.64% 8.27%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 33.47% 3.01% 3.76% 4.51% 5.26% 6.01% 6.76% 7.52% 8.27% 9.02% 9.77%
$ 56,551-$117,950 $ 94,251-$143,600 36.24% 3.14% 3.92% 4.71% 5.49% 6.27% 7.06% 7.84% 8.63% 9.41% 10.19%
$117,951-$256,500 $143,601-$256,500 40.86% 3.38% 4.23% 5.07% 5.92% 6.76% 7.61% 8.45% 9.30% 10.15% 10.99%
Over $256,500 Over $256,500 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.
This table does not take into account: (i) any taxes other than the regular federal income tax and the regular New York
State personal income tax; or (ii) the New York State tax table benefit recapture tax. Also, it is assumed that: (i) there
are no federal or New York State minimum taxes applicable; (ii) a shareholder has no net capital gain; and (iii) a
shareholder's taxable income for federal income tax purposes is the same as his or her taxable income for New York State
income tax purposes. Also, this table does not reflect the fact that, due to factors including the federal phase-out of
personal exemptions and reduction of certain itemized deductions for taxpayers whose adjusted gross income exceed
specified thresholds, a shareholder's effective marginal tax rate may differ from his or her tax bracket 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>
$ 0 23,350 $ 0-$ 39,000 25.19% 2.67% 3.34% 4.01% 4.68% 5.35% 6.02% 6.68% 7.35% 8.02% 8.69%
$ 23,351-$ 56,550 $ 39,001-$ 94,250 36.64% 3.16% 3.96% 4.73% 5.52% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26%
$ 56,551-$117,950 $ 94,251-$143,600 37.32% 3.30% 4.12% 4.94% 5.77% 6.59% 7.42% 8.24% 9.06% 9.89% 10.71%
$117,951-$256,500 $143,601-$256,500 43.71% 3.55% 4.44% 5.33% 6.22% 7.11% 7.99% 8.88% 9.77% 10.66% 11.55%
Over $256,500 Over $256,500 46.88% 3.77% 4.71% 5.65% 6.59% 7.53% 8.47% 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.
This table does not take into account: (i) any taxes other than the regular federal income tax, the regular New York State
personal income tax, and the regular New York City personal income tax (including the temporary tax surcharge and the
additional tax); or (ii) the New York State tax table benefit recapture tax. Also, it is assumed that: (i) there are no
federal, state or city minimum taxes applicable; (ii) a shareholder has no net capital gain; and (iii) a shareholder's
taxable income for federal income tax purposes is the same as his or her income for state and city tax purposes. Also,
this table does not reflect the fact that, due to factors including the federal phase-out of personal exemptions and
reduction of certain itemized deductions for taxpayers whose adjusted gross income exceed specified thresholds, a
shareholder's effective marginal tax rate may differ from his or her tax bracket rate.
</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.
<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
, 1996
<PAGE>
REPUBLIC EQUITY FUND
CLASS Y SHARES / TRUST CLASS
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 portfolios, each of which has
different and distinct investment objectives and policies. Class Y shares of the
Fund (the "Shares") are being offered by this Prospectus. The Trust offers one
other class of shares of the Fund pursuant to a separate 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") 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 (each a
"Shareholder Servicing Agent").
AN INVESTOR SHOULD OBTAIN FROM HIS SHAREHOLDER SERVICING AGENT, AND SHOULD
READ IN CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE
SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER WHICH SHARES OF THE
FUND MAY BE PURCHASED AND REDEEMED THROUGH SUCH 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 , 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 , 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 4
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 7
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.
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. See "Management of the Trust."
PURCHASES AND REDEMPTIONS PAGES 10 AND 12
Shares of the Fund are continuously offered for sale by the Distributor at
net asset value with no sales charge 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 (each a "Shareholder Servicing Agent"). At present, the only Shareholder
Servicing Agents are Republic and its affiliates. The minimum initial investment
is $ and the minimum subsequent investment is $ . The Trust offers to buy back
(redeem) Shares from shareholders of the Fund at any time at net asset value.
See "Purchase of Shares" and "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS PAGE 13
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 Fund Shares, 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 Fund Shares.
Shareholder Transaction Expenses ............................... None
Annual Fund Operating Expenses
Investment Management Fee after waiver* .................... 0.10%
Investment Subadvisory Fee ................................. 0.32%
Distribution Fees (Rule 12b-1 fees) ........................ None
Other Expenses after waiver** .............................. 0.63%
------
-- Administrative Services Fee after waiver** .............. 0.10%
-- Other Operating Expenses ................................ 0.53%
Total Fund Operating Expenses after fee waivers*** ............. 1.05%
=====
- ------------
*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 0.73%, 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 % 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 Fund Shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year ................................................ $
3 years ............................................... $
5 years ............................................... $
10 years .............................................. $
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 with respect to the Shares for the current fiscal year.* The
expense table shows the expected investment management fee, investment
subadvisory fee and administrative services 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.
Some Shareholder Servicing Agents 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. Each Shareholder Servicing Agent 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.
<PAGE>
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.
Signature and its affiliates also serve as administrator or distributor to other
investment companies. Signature is a wholly owned subsidiary of Signature
Financial Group, Inc.
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 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.
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 holders of
Shares 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. Expenses attributable to the Shares shall be allocated to the
Shares only. In the event a particular expense is not reasonably allocable by
class or to a particular class, it shall be treated as a Fund expense or a Trust
expense. 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.
CLASSES OF SHARES
In addition to the Shares, the Trust currently offers one other class of
shares of the Fund, the Class C shares, pursuant to a separate prospectus. Other
classes of shares may have different class expenses, which may affect
performance. Investors may obtain information concerning other classes of shares
of the Fund directly from their Shareholder Servicing Agent or by calling
1-800-782-8183.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares 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 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 may be purchased without a sales load at their net asset value next
determined after an order is received by a Shareholder Servicing Agent 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 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, his Shareholder Servicing Agent, 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.
All purchase payments are invested in full and fractional Shares. The Trust
reserves the right to cease offering Shares for sale at any time or to reject
any order for the purchase of Shares.
An investor may purchase Shares by authorizing his Shareholder Servicing
Agent to purchase such Shares on his behalf through the Distributor.
Exchange Privilege. By contacting his Shareholder Servicing Agent, a
shareholder may exchange some or all of his Shares for shares of an identical
class of one or more of the following investment companies at net asset value
without a sales charge: Republic U.S. Government Money Market Fund, Republic New
York Tax Free Money Market Fund, Republic New York Tax Free Bond Fund, and such
other Republic Funds or other registered investment companies for which Republic
serves as investment adviser as Republic may determine. 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
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.
THROUGH A SHAREHOLDER SERVICING AGENT
Shares are being offered only to customers of Shareholder Servicing Agents.
Shareholder Servicing Agents may offer services to their customers, including
specialized procedures for the purchase and redemption of Shares, such as
pre-authorized or automatic purchase and redemption programs. Each Shareholder
Servicing Agent 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. 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 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 Shareholder Servicing Agent to
purchase Shares, an investor should contact his Shareholder Servicing Agent (see
back cover for address and phone number).
RETIREMENT PLANS
Shares 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 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 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 his Shareholder Servicing Agent,
and is transmitted to and 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 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.
A shareholder may redeem Shares only by authorizing 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 Shareholder
Servicing Agent). For further information as to how to direct a Shareholder
Servicing Agent to redeem Shares, a shareholder should contact his Shareholder
Servicing Agent (see back cover for address and phone number).
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 (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. The Trust may authorize the
creation of multiple classes of shares of separate series of the Trust.
Currently, the Fund is divided into two classes of shares.
Each share of each class of the Fund represents an equal proportionate
interest in the Fund with each other share of that class. 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. Shares of each class of a
series represent an equal pro rata interest in such series and, generally, have
identical voting, dividend, liquidation, and other rights, preferences, powers,
terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any class expenses; and (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relate solely to its distribution arrangement, and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
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 subscribed to 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 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. 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 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 , 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) armation, 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
, 1996
<PAGE>
REPUBLIC EQUITY FUND
CLASS C SHARES/RETAIL CLASS
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 portfolios, each of which has
different and distinct investment objectives and policies. Class C shares of the
Fund (the "Shares") are being offered by this Prospectus. The Trust offers one
other class of shares of the Fund pursuant to a separate 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 , 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 , 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 Class C shares of the
Fund (the "Shares") pursuant to a Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"). Pursuant to the
terms of the Distribution Plan, the Distributor is reimbursed from the Fund for
marketing costs and payments to other organizations for services rendered in
distributing the Shares. This fee may not exceed 0.25% of the average daily net
assets of the Fund represented by Shares outstanding 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
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 from shareholders of the Fund at any time at net asset value.
See "Purchase of Shares" and "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS PAGE 17
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 Fund Shares, 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 Fund Shares.
Shareholder Transaction Expenses .......................................... None
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 Fund Shares, 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 with respect to the Shares 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 Fund Shares. 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 represented by
Shares outstanding during the period for which payment is being made. Long-term
shareholders may pay more than the economic equivalent of the maximum
distribution charges permitted by the National Association of Securities
Dealers, Inc.
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 Shares 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 CLASS C 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.
<PAGE>
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 Shares. Signature and its affiliates also serve
as administrator or distributor to 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 Shares. The amount
of this reimbursement may not exceed on an annual basis 0.25% of the average
daily net assets of the Fund represented by Shares outstanding during the period
for which payment is being made. 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 on an annual basis
0.25% of the Fund's average daily net assets represented by Shares outstanding
during the period for which payment is being made. 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 represented by
Shares outstanding) 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 Fund Shares which provides that the Trust may
obtain the services of an administrator, transfer agent, custodian and one or
more Shareholder Servicing Agents, 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, including Republic, 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 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 on an annual basis 0.25% of the Fund's average
daily net assets represented by Shares outstanding during the period for which
payment is being made.
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 holders of
Shares 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. Expenses attributable to the Shares shall be allocated to the
Shares only. Class expenses must include payments made pursuant to the Plan and
shareholder servicing fees paid pursuant to the Administrative Services Plan. In
the event a particular expense is not reasonably allocable by class or to a
particular class, it shall be treated as a Fund expense or a Trust expense.
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 on an annual basis 1.47% of its average daily net assets.
CLASSES OF SHARES
In addition to the Shares, the Trust currently offers one other class of
shares of the Fund, the Class Y shares, pursuant to a separate prospectus. Other
classes of shares may have different class expenses, which may affect
performance. Investors may obtain information concerning other classes of shares
of the Fund directly from their Shareholder Servicing Agent or securities
broker, or by calling 1-800-782-8183.
The Shares have exclusive voting rights with respect to the Plan and the
Shareholder Servicing Agent fees paid pursuant to the Administrative Services
Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares 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 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 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 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. The Trust
reserves the right to cease offering Shares for sale at any time or to reject
any order for the purchase of Shares.
An investor may purchase Shares 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 Shares for shares of an identical class of one or more of the following
investment companies at net asset value without a sales charge: Republic U.S.
Government Money Market Fund, Republic New York Tax Free Money Market Fund,
Republic New York Tax Free Bond Fund and such other Republic Funds or other
registered investment companies for which Republic serves as investment adviser
as Republic may determine. 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 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 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 Retail Class,
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 procedures to prepare, process and forward the
bank withdrawal information to the Trust, there may be a delay between the time
of 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 from the Distributor, an
investor should contact the Distributor directly (see back cover for address and
phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shares 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 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 described above.
For further information on how to direct a securities broker or a
Shareholder Servicing Agent to purchase Shares, an investor should contact his
securities broker or his Shareholder Servicing Agent (see back cover for address
and phone number).
RETIREMENT PLANS
Shares 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 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 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 to and 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 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 have been purchased directly from the Distributor, a
shareholder may redeem Shares 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, 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 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 (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. The Trust may authorize the
creation of multiple classes of shares of separate series of the Trust.
Currently, the Fund is divided into two classes of shares.
Each share of each class of the Fund represents an equal proportionate
interest in the Fund with each other share of that class. 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. Shares of each class of a
series represent an equal pro rata interest in such series and, generally, have
identical voting, dividend, liquidation, and other rights, preferences, powers,
terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any class expenses; and (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relate solely to its distribution arrangement, and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
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 subscribed to 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 , 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
, 1996
<PAGE>
PART B
RF039
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.
Shares of the Fund are divided into two separate classes, the Retail Class and
the Trust Class.
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 A PROSPECTUS
FOR THE RETAIL CLASS OR THE TRUST CLASS OF THE FUND, AS APPROPRIATE, EACH DATED
[ ], 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.
[ ], 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 . . . . . . . . . . . . . . . . . . . . . . . . 16
Registration Statement . . . . . . . . . . . . . . . . . 16
Financial Statements . . . . . . . . . . . . . . . . . . 16
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated [ ] , 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.
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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 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
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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
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
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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 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;
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<PAGE>
(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 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
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<PAGE>
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, 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
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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.
The annualized yield of the Fund for the seven-day period ended
September 30, 1995 was 5.30%. The effective 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
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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).
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
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<PAGE>
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, 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
Pension
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
Frederick C.
Chen $4,096 none none $5,650
Alan S. Parsow $4,096 none none $5,650
Larry M.
Robbins $3,696 none none $5,050
Michael Seely $4,096 none none $5,650
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 [ ], 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
- --------
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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<PAGE>
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
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
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<PAGE>
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 M.D. Hirsch Investment
Management, Inc. 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, the Fund accrued investment advisory fees of
$221,919 to Republic (formerly Republic Asset Management Corporation), of which
$110,959 was waived.
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<PAGE>
ADMINISTRATOR AND SPONSOR
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 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, the Fund accrued administrative services fees of $221,919 to
Signature, of which $104,924 was waived.
DISTRIBUTION PLAN - RETAIL CLASS SHARES ONLY
A Distribution Plan has been adopted by the Trust (the "Distribution
Plan") with respect to the Retail Class shares only, and provides that it may
not be amended to increase materially the costs which the Retail Class shares
may bear pursuant to the Distribution Plan without approval by shareholders of
the Retail Class shares, and that any material amendments of the Distribution
Plan must be approved by the Board of Trustees, and by the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust and have no
direct or indirect financial interest in the operation of the Distribution 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 who are not "interested persons" of the Trust (the
"Independent Trustees") has been committed to the discretion of the Independent
Trustees. The Distribution 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 Distribution
Plan. In adopting the Distribution Plan, the Trustees considered alternative
methods to distribute the Retail Class shares and to reduce the Retail Class
shares' per share expense ratio and concluded that there was a reasonable
likelihood that the Distribution Plan will benefit that class and its
shareholders. The Distribution Plan is terminable with respect to the Retail
Class shares at any time by a vote of a majority of the Qualified Trustees or by
vote of the holders of a majority of the Retail Class shares.
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<PAGE>
Prior to the adoption by the Trustees of a multiple class structure,
effective January 15, 1996, a predecessor distribution plan was in effect with
respect to all shares of the Fund. Pursuant to the predecessor distribution
plan, during the fiscal year ended September 30, 1995, the Fund spent a total of
$198,745 on the following pursuant to the Distribution 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 Distribution Plan as a percentage of average daily
net assets during the same period were 0.18%.
ADMINISTRATIVE SERVICES PLAN
An Administrative Services Plan has been adopted by the Trust with
respect to the Retail Class and the Trust Class, and 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 Trust 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 with respect to the Retail Class or the Trust Class by a
majority vote of shareholders of that class. The Administrative Services Plan
may not be amended to increase materially the amount of permitted expenses
thereunder with respect to the Retail Class or the Trust Class without the
approval of a majority of shareholders of that class, and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees.
SHAREHOLDER SERVICING AGENTS
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 from assets attributable to the
Fund's Retail Class shares, see "Management of the Trust - Shareholder Servicing
Agents" in the Prospectus describing the Retail Class shares.
TRANSFER AGENT AND CUSTODIAN
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.
EXPENSES AND EXPENSE LIMITS
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<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
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. Expenses attributable to a class ("Class
Expenses") shall be allocated to that class only. Class Expenses with respect to
the Retail Class shares must include payments made pursuant to the Distribution
Plan and the Administrative Services Plan. In the event a particular expense is
not reasonably allocable by class or to a particular class, it shall be treated
as a Fund expense or a Trust expense. 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 share of each class 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
- 13 -
<PAGE>
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.
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-
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<PAGE>
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 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
- 15 -
<PAGE>
may be subject to state and local taxes, and their treatment under state and
local 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).
- 16 -
<PAGE>
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) and classes of shares within each series at any time
in the future. Establishment and offering of additional classes or 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 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.
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<PAGE>
INDEPENDENT AUDITORS
For the fiscal year ended September 30, 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 ending
September 30, 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 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.
-18-
<PAGE>
RF038
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. Shares of the Fund are divided into
two separate classes, the Retail Class and the Trust Class.
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 A PROSPECTUS FOR THE
RETAIL CLASS OR THE TRUST CLASS OF THE FUND, AS APPROPRIATE, EACH DATED [ ],
1996 (EACH A "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.
[ ], 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 . . . . . . . . . . . . . . . . . . . . 14
Administrator, Distributor and Sponsor . . . . . . . . . ..15
Shareholder Servicing Agents, Transfer Agent and
Custodian . . . . . . . . . . . . . . . . . . . .16
Expenses and Expense Limits . . . . . . . . . . . . . . .16
Determination of Net Asset Value . . . . . . . . . . . . . . . . .17
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Federal Income Tax . . . . . . . . . . . . . . . . . . . . 18
Alternative Minimum Tax . . . . . . . . . . . . . . . . . 19
Special Tax Considerations . . . . . . . . . . . . . . . .20
Other Information . . . . . . . . . . . . . . . . . . . . . . . . 20
Capitalization . . . . . . . . . . . . . . . . . . . . . . 20
Voting Rights . . . . . . . . . . . . . . . . . . . . . . 20
Independent Auditors . . . . . . . . . . . . . . . . . . . 21
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 21
Registration Statement . . . . . . . . . . . . . . . . . . 21
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 [ ] , 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 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,
- 3 -
<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
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<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
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<PAGE>
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.
On July 10, 1995, Standard & Poor's downgraded its rating on New York
city's outstanding general obligation bonds to BBB+ from A-, citing the city's
chronic structural budget problems and weak economic outlook. Other factors
contributing to Standard & Poor's downgrade include the city's reliance on
one-time revenue measures to close annual budget gaps, a dependence on
unrealized labor savings, overly optimistic estimates of revenues and of state
and federal aid, and the city's continued high debt levels.
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 suchshort-term credit for the
Fund as may be necessary for the clearance of purchases and sales of
securities;
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<PAGE>
(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 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
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<PAGE>
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) 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
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<PAGE>
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 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
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<PAGE>
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.
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
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<PAGE>
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 7-day
period ended October 31, 1995, the yield of the Fund was 3.28%. For the 7-day
period ended October 31, 1995, the effective yield of the Fund was 3.34%.
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 7-day
period ended October 31, 1995, the tax equivalent yield of the Fund was 6.17%.
For the 7-day period ended October 31, 1995, the tax equivalent effective yield
of the Fund was 6.29%.
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 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 from November 17, 1995 (commencement of operations) to October 31,
1995 was 6.23%.
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<PAGE>
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 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).
THOMAS M. LENZ*, SECRETARY
Senior Vice President and Associate General Counsel, SFG
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<PAGE>
(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, 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
Pension
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
Frederick C.
Chen $4,096 none none $5,650
Alan S. Parsow $4,096 none none $5,650
Larry M.
Robbins $3,696 none none $5,050
Michael Seely $4,096 none none $5,650
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 [ ], 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 for 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
- --------
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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<PAGE>
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
.., 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.
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ADMINISTRATOR AND SPONSOR
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, the Fund accrued administration fees of $77,177 to
Signature, of which $46,053 was waived.
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DISTRIBUTION PLAN - RETAIL CLASS SHARES ONLY
A Distribution Plan has been adopted by the Trust (the "Distribution
Plan") with respect to the Retail Class shares only, and provides that it may
not be amended to increase materially the costs which the Retail Class shares
may bear pursuant to the Distribution Plan without approval by shareholders of
the Retail Class shares, and that any material amendments of the Distribution
Plan must be approved by the Board of Trustees, and by the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust and have no
direct or indirect financial interest in the operation of the Distribution 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 who are not "interested persons" of the Trust (the
"Independent Trustees") has been committed to the discretion of the Independent
Trustees. The Distribution 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 Distribution
Plan. In adopting the Distribution Plan, the Trustees considered alternative
methods to distribute the Retail Class shares and to reduce the Retail Class
shares' per share expense ratio and concluded that there was a reasonable
likelihood that the Distribution Plan will benefit that class and its
shareholders. The Distribution Plan is terminable with respect to the Retail
Class shares at any time by a vote of a majority of the Qualified Trustees or by
vote of the holders of a majority of the Retail Class shares.
Prior to the adoption by the Trustees of a multiple class structure,
effective January 15, 1996, a predecessor distribution plan was in effect with
respect to all shares of the Fund. Pursuant to the predecessor distribution
plan, 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 Distribution 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 Distribution Plan
as a percentage of average daily net assets during the same period were 0.10%.
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ADMINISTRATIVE SERVICES PLAN
An Administrative Services Plan has been adopted by the Trust with
respect to the Retail Class and the Trust Class, and 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 Trust 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 with respect to the Retail Class or the Trust Class by a
majority vote of shareholders of that class. The Administrative Services Plan
may not be amended to increase materially the amount of permitted expenses
thereunder with respect to the Retail Class or the Trust Class without the
approval of a majority of shareholders of that class, and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees.
SHAREHOLDER SERVICING AGENTS
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 from assets attributable to the
Fund's Retail Class shares, see "Management of the Trust - Shareholder Servicing
Agents" in the Prospectus describing the Retail Class shares.
TRANSFER AGENT AND CUSTODIAN
The Board of Trustees of the Trust has 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.
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,
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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. Expenses attributable to a class ("Class
Expenses") shall be allocated to that class only. Class Expenses with respect to
the Retail Class shares must include payments made pursuant to the Distribution
Plan and the Administrative Services Plan. In the event a particular expense is
not reasonably allocable by class or to a particular class, it shall be treated
as a Fund expense or a Trust expense. 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 share of each class 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.
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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.
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,
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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 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
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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.
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
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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) and classes of shares within each series at any time
in the future. Establishment and offering of additional classes or 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.
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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 ending
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.
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APPENDIX
Additional Information Concerning
New York Municipal Obligations
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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 a substantial portion of the nation's book publishers.
The City
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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, 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.
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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 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
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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 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
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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
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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 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
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$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
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
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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 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
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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.
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
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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.
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
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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. 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
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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.
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
non-essential 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
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$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 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
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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.
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
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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 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
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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 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"). 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
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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 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.
RF038
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RF035
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. Shares of the Fund are divided into
two separate classes, the Retail Class and the Trust Class.
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 A PROSPECTUS
FOR THE RETAIL CLASS OR THE TRUST CLASS OF THE FUND, AS APPROPRIATE, EACH DATED
______________, 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.
_____________, 1996
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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 . . . . . . . . . . . . . . . . . . . . . 14
Trustees and Officers . . . . . . . . . . . . . . . . . 14
Investment Adviser . . . . . . . . . . . . . . . . . . . 16
Administrator, Distributor and Sponsor . . . . . . . . . 17
Shareholder Servicing Agents, Transfer Agent and
Custodian . . . . . . . . . . . . . . . . . . . 17
Expenses and Expense Limits . . . . . . . . . . . . . . 18
Determination of Net Asset Value . . . . . . . . . . . . . . . . 18
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Federal Income Tax . . . . . . . . . . . . . . . . . . . 19
Alternative Minimum Tax . . . . . . . . . . . . . . . . 22
Special Tax Considerations . . . . . . . . . . . . . . . 22
Other Information . . . . . . . . . . . . . . . . . . . . . . . . 23
Capitalization . . . . . . . . . . . . . . . . . . . . . 23
Voting Rights . . . . . . . . . . . . . . . . . . . . . 23
Independent Auditors . . . . . . . . . . . . . . . . . . 23
Counsel . . . . . . . . . . . . . . . . . . . . . . . . 24
Registration Statement . . . . . . . . . . . . . . . . . 24
Financial Statements . . . . . . . . . . . . . . . . . . 25
Appendix A - Description of Municipal Obligations . . . . . . . 25
Appendix B - Additional Information Concerning New York
Municipal Obligations . . . . . . . . . . . . . . . . . . 27
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated ______________, 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.
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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).
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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.
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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
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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.
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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
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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
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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.
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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
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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.
On July 10, 1995, Standard & Poor's downgraded its rating on New York
city's outstanding general obligation bonds to BBB+ from A-, citing the city's
chronic structural budget problems and weak economic outlook. Other factors
contributing to Standard & Poor's downgrade include the city's reliance on
one-time revenue measures to close annual budget gaps, a dependence on
unrealized labor savings, overly optimistic estimates of revenues and of state
and federal aid, and the city's continued high debt levels.
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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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
(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
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<PAGE>
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 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
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<PAGE>
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 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 4.74%.
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 8.92%.
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 from May 1, 1995 (commencement of operations) to October 31, 1995 was
12.03%.
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<PAGE>
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 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).
THOMAS M. LENZ*, SECRETARY
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, Signature (since February, 1991).
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<PAGE>
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, 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
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
Frederick C.
Chen $4,096 none none $5,650
Alan S. Parsow $4,096 none none $5,650
Larry M.
Robbins $3,696 none none $5,050
Michael Seely $4,096 none none $5,650
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 $1,000(1) for each meeting of the Board of Trustees or committee thereof
attended.
As of ___________, 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
- --------
(1) As 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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<PAGE>
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
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.
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<PAGE>
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 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 AND SPONSOR
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
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<PAGE>
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 ended October 31, 1995, the Fund accrued administrative
services fees of $7,250 to Signature, of which the entire amount was waived.
DISTRIBUTION PLAN - RETAIL CLASS SHARES ONLY
A Distribution Plan has been adopted by the Trust (the "Distribution
Plan") with respect to the Retail Class shares only, and provides that the
Distribution Plan may not be amended to increase materially the costs which the
Retail Class shares may bear pursuant to the Distribution Plan without approval
by shareholders of the Retail Class shares, and that any material amendments to
the Distribution Plan must be approved by the Board of Trustees, and by the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and have no direct or indirect financial interest in the operation of the
Distribution 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 who are not "interested
persons" of the Trust (the "Independent Trustees") has been committed to the
discretion of the Independent Trustees. The Distribution 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 Distribution Plan. In adopting the Distribution Plan, the Trustees
considered alternative methods to distribute the Retail Class shares and to
reduce the Retail Class shares' per share expense ratio and concluded that there
was a reasonable likelihood that the Distribution Plan will benefit that class
and its shareholders. The Distribution Plan is terminable with respect to the
Retail Class shares at any time by a vote of a majority of the Qualified
Trustees or by vote of the holders of a majority of the Retail Class shares.
Prior to the adoption by the Trustees of a multiple class structure,
effective January 15, 1996, a predecessor distribution plan was in effect with
respect to all shares of the Fund. Pursuant to the predecessor distribution
plan, during the period from May 1, 1995 (commencement of operations) to October
31, 1995, the Fund incurred a total of $1,947 in distribution expenses, as
follows: 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 predecessor distribution plan as a percentage of
average daily net assets during the same period were 0.05%.
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<PAGE>
ADMINISTRATIVE SERVICES PLAN
An Administrative Services Plan has been adopted by the Trust with
respect to the Retail Class and the Trust Class, and 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 Trust 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 with respect to the Retail Class or the Trust Class by a
majority vote of shareholders of that class. The Administrative Services Plan
may not be amended to increase materially the amount of permitted expenses
thereunder with respect to the Retail Class or the Trust Class without the
approval of a majority of shareholders of that class, and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees.
SHAREHOLDER SERVICING AGENTS
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 from assets attributable to the
Fund's Retail Class shares, see "Management of the Trust - Shareholder Servicing
Agents" in the Prospectus describing the Retail Class shares.
TRANSFER AGENT AND CUSTODIAN
The Board of Trustees of the Trust has 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.
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.
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Except for the expenses paid by the Adviser and the Distributor, the
Fund bears all costs of its operations. Expenses attributable to a class ("Class
Expenses") shall be allocated to that class only. Class expenses with respect to
the Retail Class shares must include payments made pursuant to the Distribution
Plan and the Administrative Services Plan. In the event a particular expense is
not reasonably allocable by class or to a particular class, it shall be treated
as a Fund expense or a Trust expense. 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 share of each class 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.
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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 regular 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.
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
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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%.
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
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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.
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.
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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.
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) and classes of shares within each series at any time
in the future. Establishment and offering of additional classes or 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
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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 ending
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.
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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 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.
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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, 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
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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 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
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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 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.
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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 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.
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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
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
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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 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.
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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.
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
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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.
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. 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
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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.
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
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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 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
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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.
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
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with the financial 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 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.
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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"). 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 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-14
<PAGE>
RF040
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. Shares of the Fund are divided into two
separate classes, the Retail Class and the Trust Class.
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 A PROSPECTUS
FOR THE RETAIL CLASS OR THE TRUST CLASS OF THE FUND, AS APPROPRIATE, EACH DATED
[ ], 1996 (each a "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.
Dated: [ ], 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Investment Objective, Policies, Risks and Restrictions 1
Convertible Securities ......................................1
Portfolio Securities Loans...................................1
Rule 144A Securities.........................................2
Portfolio Transactions.......................................2
Risk Factors.................................................3
Investment Restrictions .....................................4
Percentage and Rating Restrictions ..........................7
Performance Information ..............................................7
Management of the Trust ..............................................8
Trustees and Officers .......................................8
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
Effect of Foreign Currencies ................................18
Disposition of Shares .......................................18
Other Information ....................................................18
Capitalization ..............................................18
Voting Rights ...............................................19
Independent Auditors ........................................19
Counsel .....................................................19
Registration Statement ......................................20
Financial Statements .................................................20
Appendix .............................................................A-1
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated [ ], 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, 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 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")
- 1 -
<PAGE>
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 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 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.
- 2 -
<PAGE>
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 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.
- 3 -
<PAGE>
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 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
- 4 -
<PAGE>
(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 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
- 5 -
<PAGE>
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) 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 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;
(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
- 6 -
<PAGE>
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 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 1.80%.
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
- 7 -
<PAGE>
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%.
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).
- 8 -
<PAGE>
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).
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, 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
Pension
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
Frederick C.
Chen $4,096 none none $5,650
Alan S. Parsow $4,096 none none $5,650
Larry M.
Robbins $3,696 none none $5,050
Michael Seely $4,096 none none $5,650
- 9A -
<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 [ ], 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.
- 9B -
<PAGE>
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
- --------
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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<PAGE>
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 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.
ADMINISTRATOR AND SPONSOR
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
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<PAGE>
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, the Fund accrued administrative services fees of $6,992 to
Signature, of which the entire amount was waived.
DISTRIBUTION PLAN - RETAIL CLASS SHARES ONLY
A Distribution Plan has been adopted by the Trust (the "Distribution
Plan") with respect to the Retail Class shares only, and provides that it may
not be amended to increase materially the costs which the Retail Class shares
may bear pursuant to the Distribution Plan without approval by shareholders of
the Retail Class shares, and that any material amendments of the Distribution
Plan must be approved by the Board of Trustees, and by the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust and have no
direct or indirect financial interest in the operation of the Distribution 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 who are not "interested persons" of the Trust (the
"Independent Trustees") has been committed to the discretion of the Independent
Trustees. The Distribution 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 Distribution Plan. In adopting the Distribution Plan,
the Trustees considered alternative methods to distribute Retail Class shares
and to reduce the Retail Class shares' per share expense ratio and concluded
that there was a reasonable likelihood that the Distribution Plan will benefit
that class and its shareholders. The Distribution Plan is terminable with
respect to the Retail Class shares at any time by a vote of a majority of the
Qualified Trustees or by vote of the holders of a majority of the Retail Class
shares.
Prior to the adoption by the Trustees of a multiple class structure,
effective January 15, 1996, a predecessor distribution plan was in effect with
respect to all shares of the Fund. Pursuant to the predecessor distribution
plan, 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 Distribution 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 Distribution Plan as a percentage of
average daily net assets during the same period were 0.20%.
ADMINISTRATIVE SERVICES PLAN
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An Administrative Services Plan has been adopted by the Trust with
respect to the Retail Class and the Trust Class, and 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 Trust 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 with respect to the Retail Class or the Trust Class by a
majority vote of shareholders of that class. The Administrative Services Plan
may not be amended to increase materially the amount of permitted expenses
thereunder with respect to the Retail Class or the Trust Class without the
approval of a majority of shareholders of that class, and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees.
SHAREHOLDER SERVICING AGENTS
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 from assets attributable to the
Fund's Retail Class shares, see "Management of the Trust - Shareholder Servicing
Agents" in the Prospectus describing the Retail Class shares.
TRANSFER AGENT AND CUSTODIAN
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.
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
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.
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<PAGE>
Except for the expenses paid by the Manager and the Distributor, the
Fund bears all costs of its operations. Expenses attributable to a class ("Class
Expenses") shall be allocated to that class only. Class Expenses with respect to
the Retail Class shares must include payments made pursuant to the Distribution
Plan and the Administrative Services Plan. In the event a particular expense is
not reasonably allocable by class or to a particular class, it shall be treated
as a Fund expense or a Trust expense. 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 share of each class 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 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.
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<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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 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
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<PAGE>
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.
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
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<PAGE>
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."
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) and classes of shares within each series at any time
in the future. Establishment and offering of additional classes or 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.
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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 ending
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 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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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
A-1
<PAGE>
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 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.
A-2
<PAGE>
Note Moody's applies numerical modifiers, 1,2, and 3 in each generic
rating classification from Aa through Bb in its 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
AAA Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and
fiduciary
A-3
<PAGE>
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(+)
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.
A-4
<PAGE>
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 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.
A-5
<PAGE>
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.
RF040
A-6
<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.5
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.5
18. Multiple Class Plan.5
19. Powers of Attorney of Trustees and Officers of Registrant
and Republic Portfolios.4
- -----------------
1 Incorporated herein by reference from post-effective amendment No. 35 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 January 23, 1996.
2 Incorporated herein by reference from post-effective amendment No. 33 to
the Registration Statement as filed with the SEC on June 27, 1995.
3 Incorporated herein by reference 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 Exhibit 18 to post-effective
amendment No. 28 to the Registration Statement as filed with the SEC on December
2, 1994.
5 Filed herewith.
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 has caused this registration
statement on Form N-1A (File No. 33-7647) (the "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 29th day of February, 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 February 29, 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 29th day of February, 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 February 29, 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
<PAGE>
INDEX TO EXHIBITS
Exhibit No.: Description of Exhibit
11. Consent of Independent Auditors.
17. Financial Data Schedules.
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the incorporation by reference, in Post-Effective
Amendment No. 36 to the Registration Statement (Form N-1A, No. 33-7647) of
Republic Funds, of our reports dated December 8, 1995 for Republic International
Equity and Republic Fixed Income Portfolios of Republic Portfolio Trust, on the
financial statements included in their respective Annual Reports.
/S/ ERNST & YOUNG
ERNST & YOUNG
February 28, 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 "Class C Shares/Retail Class" Prospectuses and "Independent
Auditors" in the Statements of Additional Information in Post-Effective
Amendment No. 36 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, dated November 10, 1995 for the Republic U.S. Government Money Market
Fund portfolio of Republic Funds, and December 8, 1995 for the 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, on the financial statements and financial
highlights included in their respective Annual Reports.
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
February 28, 1996
Boston, Massachusetts
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
FOR
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
WHEREAS, Republic Funds, a Massachusetts business trust (the "Trust"),
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, shares of beneficial interest of the Trust are currently
divided into six separate series, including Republic U.S. Government Money
Market Fund, Republic New York Tax Free Money Market Fund (collectively, the
"Money Market Funds"), Republic New York Tax Free Bond Fund and Republic Equity
Fund (each, a "Fund" and collectively, the "Funds");
WHEREAS, the Trust desires to adopt, on behalf of each of the Funds, a
Multiple Class Plan pursuant to Rule 18f-3 under the 1940 Act (the "Plan") with
respect to each of the Funds;
NOW, THEREFORE, the Trust hereby adopts, on behalf of the Funds, the
Plan, in accordance with Rule 18f-3 under the 1940 Act on the following terms
and conditions:
1. FEATURES OF THE CLASSES. Each of the Funds issues its shares of
beneficial interest in two classes: "Class C Shares," and "Class Y Shares."
Shares of each class of a Fund shall represent an equal pro rata interest in
such Fund and, generally, shall have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any Class Expenses, as defined
in Section 5 below; and (c) each class shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its distribution
arrangement and each class shall have separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class. In addition, Class C and Class Y shares shall have
the features described in Sections 2, 5 and 6 below.
2. SALES CHARGE STRUCTURE.
(a) CLASS C SHARES. Class C shares of a Fund shall be offered
at the then-current net asset value without the imposition of a front-end sales
charge. Class C shares shall not be subject to a contingent deferred sales
charge except that such a charge may be imposed in such cases as the Board may
approve and as is disclosed in a Fund's current prospectus or supplement
thereto.
<PAGE>
(b) CLASS Y SHARES. Class Y shares of a Fund shall be offered
at the then-current net asset value without the imposition of a front-end sales
charge or a contingent deferred sales charge.
3. DISTRIBUTION AND ADMINISTRATIVE SERVICE PLANS.
(a) CLASS C SHARES. Class C shares of each Fund shall be
subject to the terms of the Distribution and Administrative Services Plans
previously adopted by the Board pursuant to Rule 12b-1 under the 1940 Act for
the existing shares of each of the Funds, as such Plans may be amended from time
to time in accordance with the terms thereof and Rule 12b-1 under the 1940 Act.
(b) CLASS Y SHARES. Class Y shares of each Fund shall not be
subject to the Distribution Plan or to any shareholder servicing fees paid
pursuant to the Administrative Services Plan. Except as noted in the previous
sentence, Class Y shares of each Fund shall be subject to the terms of the
Administrative Services Plan previously adopted by the Board pursuant to Rule
12b-1 under the 1940 Act for the existing shares of each of the Funds, as such
Plan may be amended from time to time in accordance with the terms thereof and
Rule 12b-1 under the 1940 Act.
4. ALLOCATION OF INCOME AND EXPENSES.
(a) GENERAL.
(i) MONEY MARKET FUNDS. The Money Market Funds,
which declare distributions of net investment income daily and will maintain the
same net asset value per share in each class, will allocate gross income,
realized and unrealized capital gains and losses and expenses (other than Class
Expenses, as defined below) to each class on the basis of relative net assets
(settled shares). "Relative net assets (settled shares)," for this purpose, are
net assets valued in accordance with generally accepted accounting principles
but excluding the value of subscriptions receivable, in relation to the net
assets of the particular Money Market Fund. Expenses to be so allocated also
include expenses of the Trust that are allocated to a Fund and are not
attributable to a particular Fund or class of a Fund ("Trust Expenses") and
expenses of the particular Fund that are not attributable to a particular class
of the Fund ("Fund Expenses"). Trust Expenses include, but are not limited to,
Trustees' fees, insurance costs and certain legal fees. Fund Expenses include,
but are not limited to, certain registration fees, advisory fees, custodial
fees, and other expenses relating to the management of the Fund's assets.
(ii) NON-MONEY MARKET FUNDS. The gross income,
realized and unrealized capital gains and losses and expenses (other than Class
Expenses, as defined below) of each Fund, other than the Money Market Funds,
shall be allocated to each class on the basis of its net asset value relative to
the net asset value
- 2 -
<PAGE>
of the Fund. Expenses to be so allocated also include expenses of the Trust that
are allocated to a Fund and are not attributable to a particular Fund or class
of a Fund ("Trust Expenses") and expenses of the particular Fund that are not
attributable to a particular class of the Fund ("Fund Expenses"). Trust Expenses
include, but are not limited to, Trustees' fees, insurance costs and certain
legal fees. Fund Expenses include, but are not limited to, certain registration
fees, advisory fees, custodial fees, and other expenses relating to the
management of the Fund's assets.
(b) CLASS EXPENSES. Expenses attributable to a particular
class ("Class Expenses") shall be limited to: (a) payments pursuant to the
Distribution Plan and shareholder servicing fees paid pursuant to the
Administrative Services Plan adopted by that class; (b) transfer agent fees
attributable to that class; (c) printing and postage expenses related to
preparing and distributing material such as shareholder reports, prospectuses
and proxy materials to current shareholders of that class; (d) registration fees
for shares of that class; (e) the expense of administrative personnel and
services as required to support the shareholders of that class; (f) litigation
or other legal expenses relating solely to that class; and (g) Trustees' fees
incurred as a result of issues relating to that class. Expenses described in (a)
of this paragraph must be allocated to the class for which they are incurred.
All other expenses described in this paragraph may be allocated as Class
Expenses, but only if the Trust's President and Treasurer have determined,
subject to Board approval or ratification, which of such categories of expenses
will be treated as Class Expenses, consistent with applicable legal principles
under the 1940 Act and the Internal Revenue Code of 1986, as amended ("Code").
In the event a particular expense is no longer
reasonably allocable by class or to a particular class, it shall be treated as a
Trust Expense or Fund Expense, and in the event a Trust Expense or Fund Expense
becomes allocable at a different level, including as a Class Expense, it shall
be so allocated, subject to compliance with Rule 18f-3 and to approval or
ratification by the Board of Trustees.
The initial determination of expenses that will be
allocated as Class Expenses and any subsequent changes thereto shall be reviewed
by the Board of Trustees and approved by such Board and by a majority of the
Trustees who are not "interested persons" of the Trust, as defined in the 1940
Act.
(c) WAIVERS OR REIMBURSEMENTS OF EXPENSES. Expenses
may be waived or reimbursed by any adviser or any other provider
- 3 -
<PAGE>
of services to a Fund or the Trust without the prior approval of
the Board of Trustees.
5. EXCHANGE AND CONVERSION PRIVILEGES. Shareholders may exchange shares
of one class of a Fund for shares of an identical class of another Fund or
another investment company advised by Republic National Bank of New York, based
upon the net asset value per share of such Fund or other investment company, in
the manner and to the extent set forth in the Funds' then current prospectus.
6. BOARD REVIEW.
(a) INITIAL APPROVAL. The Board of Trustees, including a
majority of the Trustees who are not interested persons (as defined in the 1940
Act) of the Trust or a Fund ("Independent Trustees"), at a meeting held , 1996,
initially approved the Plan based on a determination that the Plan, including
the expense allocation, is in the best interests of each class and Fund
individually and of the Trust. Their determination was based on their review of
information furnished to them which they deemed reasonably necessary and
sufficient to evaluate the Plan.
(b) APPROVAL OF MATERIAL AMENDMENTS. The Plan may not be
amended materially unless the Board of Trustees, including a majority of the
Independent Trustees, have found that the proposed amendment, including any
proposed related expense allocation, is in the best interests of each class and
Fund individually and of the Trust. Such finding shall be based on information
requested by the Board and furnished to them which the Board deems reasonably
necessary to evaluate the proposed amendment.
(c) PERIODIC REVIEW. The Board shall review reports of expense
allocations and such other information as they request at such times, or
pursuant to such schedule, as they may determine consistent with applicable
legal requirements.
7. EFFECTIVE DATE.
The Plan, having been reviewed and approved by the Board of
Trustees and by a majority of the Independent Trustees shall take effect as of ,
1996.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the Trust, on behalf of the Funds, has adopted this
Multiple Class Plan as of the __ day of January, 1996.
REPUBLIC FUNDS
By: _________________________
Name:
Title:
- 5 -
<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>
