<PAGE>
REPUBLIC
U.S. GOVERNMENT
MONEY MARKET FUND
REPUBLIC
NEW YORK TAX-FREE
MONEY MARKET FUND
PROSPECTUS
FEBRUARY 1, 1998
[LOGO]
REPUBLIC
FAMILY OF FUNDS
<PAGE>
REPUBLIC FUNDS:
U.S. GOVERNMENT MONEY MARKET FUND
NEW YORK TAX-FREE MONEY MARKET FUND
3435 STELZER ROAD, COLUMBUS, OHIO 43219-3035
- --------------------------------------------------------------------------------
ACCOUNT AND GENERAL INFORMATION: (888) 525-5757 (TOLL FREE)
The Republic Funds (the "Trust") is an open-end investment management
company (a mutual fund) that currently offers a selection of seven portfolios,
each of which has different and distinct investment objectives and policies.
This prospectus describes two investment portfolios offered by the Trust
(collectively, the "Money Market Funds" or the "Funds"):
REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
REPUBLIC NEW YORK TAX-FREE MONEY MARKET FUND
An investor who is not purchasing directly from the Distributor should
obtain from his securities broker, if applicable, 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 Funds may be purchased and redeemed
through such securities broker or Shareholder Servicing Agent.
This Prospectus sets forth concisely the information concerning the Funds
that a prospective investor ought to know before investing. Investors should
read this Prospectus and retain it for future reference. The Trust has filed
with the Securities and Exchange Commission a Statement of Additional
Information, dated February 1, 1998, with respect to each Fund, containing
additional and more detailed information about the Funds, each of which is
hereby incorporated by reference into this Prospectus. An investor may obtain
a copy of a Statement of Additional Information without charge by contacting
the Distributor or his Shareholder Servicing Agent (see back cover for
addresses and phone numbers).
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUNDS 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. THERE CAN BE NO ASSURANCE THAT THE FUNDS
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
BECAUSE THE NEW YORK TAX-FREE MONEY MARKET FUND WILL CONCENTRATE ITS
INVESTMENTS IN NEW YORK AND MAY CONCENTRATE A SIGNIFICANT PORTION OF ITS
ASSETS IN THE SECURITIES OF A SINGLE ISSUER, AN INVESTMENT IN THIS FUND MAY
POSE INVESTMENT RISKS GREATER THAN THOSE PRESENTED BY A MORE BROADLY
DIVERSIFIED PORTFOLIO.
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 FEBRUARY 1, 1998
<PAGE>
Republic National Bank of New York ("Republic" or the "Adviser")
continuously manages the investment portfolio of each Fund. The Trust offers
three classes of shares of each Fund, Class A shares (formerly designated
Class C shares) (the "Investor Shares") Class B shares (the "Class B Shares")
and Class Y shares (the "Adviser Shares"); (the Investor Shares, Class B
Shares and Adviser Shares are collectively, the "Shares"). Investor Shares are
offered to the public, to customers of Shareholder Servicing Agents and to
customers of a securities broker that has entered into a dealer agreement with
the Distributor. Adviser Shares are being offered only to customers of
Shareholder Servicing Agents. Class B Shares of the Money Market Funds are not
offered for sale but are only offered as an exchange option for Class B
shareholders of the Trust's other investment portfolios who wish to exchange
some or all of those Class B shares for Class B Shares of the Money Market
Funds.
Investor Shares and Adviser Shares of each Fund are continuously offered for
sale at net asset value with no front-end sales charge by BISYS Fund Services
("BISYS" 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 (collectively, "Shareholder Servicing Agents"). At present, the only
Shareholder Servicing Agents for Adviser Shares of the Funds are Republic and
its affiliates. Investor Shares of each Fund are also continuously offered for
sale at net asset value with no front-end sales charge by BISYS directly to
the public and to customers of a securities broker that has entered into a
dealer agreement with the Distributor. Class B Shares of the Fund are not sold
but are only offered as an exchange option for Class B shareholders of the
Trust's other investment portfolios. Although Class B Shares of the Money
Market Funds are not subject to a sales charge when a shareholder exchanges
Class B shares of another Trust portfolio for Class B Shares of the Money
Market Funds, they may be subject to a contingent deferred sales charge
("CDSC") when redeemed.
<PAGE>
HIGHLIGHTS
THE FUNDS PAGE 1
Republic U.S. Government Money Market Fund and Republic New York Tax-Free
Money Market Fund (the "Funds") are separate series (portfolios) of the
Republic Funds (the "Trust"), a Massachusetts business trust organized on
April 22, 1987. The Trust currently consists of seven funds, each of which has
different and distinct investment objectives and policies.
INVESTMENT OBJECTIVES AND POLICIES PAGE 11
The investment objective of the U.S. Government Money Market 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 U.S. Government Money Market Fund by
investing the assets of the Fund in obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities with maturities of 397 days
or less, and repurchase agreements with respect to such obligations.
The investment objective of the New York Tax-Free Money Market 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 New York Tax-Free Money Market 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 with maturities of 397 days or less, 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.
A Fund's performance per share will change daily based on many factors,
including interest rate levels, the quality of the instruments in each Fund's
investment portfolio, national and international economic conditions and
general market conditions. It is expected that the Funds will maintain a net
asset value of $1.00 per share, although there is no assurance that they will
be able to do so on a continuous basis. In addition, because the New York Tax-
Free Money Market Fund will concentrate its investments in New York and may
concentrate a significant portion of its assets in the securities of a single
issuer, an investment in this Fund may pose investment risks greater than
those posed by a more broadly diversified portfolio. There is no assurance
that any Fund will achieve its investment objective. See "Investment
Objectives and Policies."
MANAGEMENT OF THE TRUST PAGE 19
Republic National Bank of New York ("Republic" or the "Adviser") acts as
investment adviser to the Funds. For its services, the Adviser receives from
the U.S. Government Money Market Fund a fee at the annual rate of 0.20% of the
Fund's average daily net assets and from the New York Tax-Free Money Market
Fund a fee at the annual rate of 0.15% of the Fund's daily net assets.
BISYS Fund Services ("BISYS" or the "Sponsor") acts as administrator and
sponsor of each of the Funds. The Sponsor provides certain management and
administrative services to each of the Funds for which it receives from the
U.S. Government Money Market Fund a fee at the annual rate of 0.10% of the
Fund's average daily net assets and from the New York Tax-Free Money Market
Fund a fee at the annual rate of 0.10% of the Fund's average daily net assets.
The Trust has also retained BISYS (the "Distributor") to distribute Investor
Shares and Class B Shares of each of the Funds pursuant to distribution plans
adopted in accordance with Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act") with respect to the Investor Shares of the
Funds (the "Class A Plan") and the Class B Shares of the Funds (the "Class B
Plan" and with the Investor Class Plan, the "Distribution Plans"). Pursuant to
the terms of the Distribution Plans, the Distributor is reimbursed from each
Fund for marketing costs and payments to other organizations for services
rendered in distributing the Investor Shares and Class B Shares. Under the
Class A Plan, this fee may not exceed 0.25% of the average daily net assets of
each Fund represented by Investor Shares outstanding. Under the Class B Plan,
the portion of this fee which may be paid for distribution related activities
may not exceed 0.75% of the average daily net assets of each Fund represented
by Class B Shares outstanding and is expected to be limited to an amount such
that the aggregate fee paid to the Distributor pursuant to the Class B Plan
and to the Shareholder Servicing Agents pursuant to the Administrative
Services Plan do not exceed, on an annual basis, 1.00% of each Fund's average
daily net assets. See "Management of the Trust."
PURCHASES AND REDEMPTIONS PAGES 25 AND 32
The U.S. Government Money Market Fund is a type of mutual fund commonly
referred to as a "money market fund." The New York Tax-Free Money Market Fund
is a type of mutual fund commonly referred to as a "triple tax exempt money
market fund." The net asset value of each 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."
Investor Shares and Adviser Shares of each of the Funds are continuously
offered for sale by the Distributor at net asset value (normally $1.00 per
share) with no front-end 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 (collectively, "Shareholder Servicing Agents"). At present, the only
Shareholder Servicing Agents for Adviser Shares of the Funds are Republic and
its affiliates. Investor Shares of each of the Funds are also continuously
offered for sale at net asset value, normally a dollar, with no front-end
sales charges by BISYS directly to the public and to customers of a securities
broker that has entered into a dealer agreement with the Distributor. Class B
Shares of the Funds are not offered for sale but are only offered as an
exchange option for Class B shareholders of the Trust's other investment
portfolios who wish to exchange some or all of those Class B shares for Class
B Shares of the Money Market Funds. Although not subject to a front-end sales
charge, Class B Shares may be subject to a CDSC at the time of redemption. See
"Contingent Deferred Sales Charge ("CDSC") -- Class B Shares." For investors
who purchase Investor Shares directly from the Distributor or who purchase
Adviser Shares of the Funds, 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 Funds at any time at net asset value. See
"Purchase of Shares" and "Redemption of Shares." Shares of the U.S. Government
Money Market Fund are offered in connection with tax-deferred retirement
plans. See "Retirement Plans."
DIVIDENDS AND DISTRIBUTIONS PAGE 35
The Trust declares all of each Fund's net investment income daily as a
dividend to each Fund's 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 Investor (Class A) Shares, Class B Shares and Adviser Shares of
each Fund, and the aggregate annual operating expenses of Investor Shares,
Class B Shares and Adviser Shares of each of the Funds, expressed as a
percentage of average net assets of each Fund, and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment in
Investor Shares, Class B Shares and Adviser Shares of each of the Funds.
Historical information in the expense table regarding investment advisory fees
and expenses has been restated to reflect expected fee waivers and expenses
for the current fiscal year.
<TABLE>
<CAPTION>
U.S. GOVERNMENT NEW YORK TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND
----------------------------------------------------- --------------------------------------------------
INVESTOR SHARES CLASS B SHARES ADVISER SHARES INVESTOR SHARES CLASS B SHARES ADVISER SHARES
----------------- ---------------- ---------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Charge . None None None None None None
Maximum Contingent
Deferred Sales
Charge ............. None 4.00% None None 4.00% None
Annual Fund Operating Expenses
Investment Advisory
Fee after waiver* .. 0.15% 0.15% 0.15% 0.10% 0.10% 0.10%
Distribution Fee (Rule
12b-1 fee) ......... 0.00% 0.75% None 0.00% 0.75% None
Other Expenses ....... 0.50% 0.50% 0.25% 0.55% 0.55% 0.30%
---- ---- ---- ---- ---- ----
-- Shareholder
Servicing Fee ..... 0.25% 0.25% None 0.25% 0.25% None
-- Administrative
Services Fee ...... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
-- Other Operating
Expenses .......... 0.15% 0.15% 0.15% 0.20% 0.20% 0.20%
Total Fund Operating
Expenses after expense
limitation and fee
waivers** ............. 0.65% 1.40% 0.40% 0.65% 1.40% 0.40%
==== ==== ==== ==== ==== ====
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* Investment Advisory Fee is shown net of expected waiver for the current fiscal year. Without such waiver, the fee would be
equal on an annual basis to 0.20% of the U.S. Government Money Market Fund's average daily net assets and 0.15% of the New
York Tax-Free Money Market Fund's average daily 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 for the Investor Shares, Class B
Shares and Adviser Shares of the U.S. Government Money Market Fund and the Investor Shares, Class B Shares and Adviser
Shares of the New York Tax-Free Money Market Fund would be equal on an annual basis to 0.70%, 1.45%, 0.45%, 0.70%, 1.45%,
and 0.45%, respectively, of each of the Fund's average daily net assets. There can be no assurance that expenses will be
reimbursed or waived in the future.
</TABLE>
<PAGE>
EXAMPLE
A shareholder would pay the following expenses on a $1,000 investment in
Investor Shares, Class B Shares or Adviser Shares, assuming (1) 5% annual
return and (2) redemption at the end of each period:
U.S. GOVERNMENT
MONEY MARKET FUND
---------------------------------------------------------------------
CLASS B SHARES CLASS B SHARES
(WITH (WITHOUT
INVESTOR SHARES REDEMPTION) REDEMPTION) ADVISER SHARES
---------------- -------------- -------------- --------------
1 year ... $ 7 $ 54 $ 14 $ 4
3 years .. $21 $ 64 $ 44 $13
5 years .. $36 $ 77 $ 77 $22
10 years.. $81 $167 $167 $50
NEW YORK TAX-FREE
MONEY MARKET FUND
---------------------------------------------------------------------
CLASS B SHARES CLASS B SHARES
(WITH (WITHOUT
INVESTOR SHARES REDEMPTION) REDEMPTION) ADVISER SHARES
---------------- -------------- -------------- --------------
1 year ... $ 7 $ 54 $ 14 $ 4
3 years .. $21 $ 64 $ 44 $13
5 years .. $36 $ 77 $ 77 $22
10 years.. $81 $167 $167 $50
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. For a more detailed discussion of the costs and
expenses of investing in the Funds, see "Management of the Trust."
For Investor Shares and Class B Shares of each of the Funds, the fees paid
from the Funds 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 Funds to the
Distributor is in anticipation of, or as reimbursement for, expenses incurred
by the Distributor in connection with the sale of Shares of the Funds. The
aggregate fees paid to Shareholder Servicing Agents pursuant to the
Administrative Services Plan and to the Distributor pursuant to the Class B
Plan may not exceed 1.00% of the average daily net assets of the Funds
represented by Class B 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 securities brokers, if applicable, and 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 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 FUNDS; 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 Investor (Class A) Shares and Adviser Shares since
commencement of operations through September 30, 1997 for the U.S. Government
Money Market Fund and October 31, 1997 for the New York Tax-Free Money Market
Fund. The information for the U.S. Government Money Market Fund and New York
Tax-Free Money Market Fund for each of the years or periods ended September
30, 1997 and 1996 and October 31, 1997 and 1996, respectively, in the
following schedules has been derived from information audited by KPMG Peat
Marwick LLP, independent auditors, whose reports on each Fund's financial
statements are incorporated by reference into the Statement of Additional
Information from each Fund's Annual Report dated September 30, 1997 for the
U.S. Government Money Market Fund and October 31, 1997 for the New York Tax-
Free Money Market Fund. The Annual Reports may be obtained without charge upon
request. This information should be read in conjunction with the financial
statements.
The information for the Funds for the years or periods ended September 30,
1995 or prior for the U.S. Government Money Market Fund and for the period ended
October 31, 1995 for the New York Tax-Free Money Market Fund has been audited by
the Funds' former independent auditors who have expressed unqualified opinions
thereon.
Republic became the U.S. Government Money Market 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.
<PAGE>
SELECTED DATA FOR AN INVESTOR SHARE AND ADVISER SHARE OF THE
U.S. GOVERNMENT MONEY MARKET FUND OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
INVESTOR SHARES ADVISER SHARES
------------------------------------------------------------------------------ ---------------------------
FOR THE FOR THE
PERIOD PERIOD
MAY 3, 1990 JULY 1, 1996
(COMMENCEMENT (DATE OF
OF OPERATIONS INITIAL
YEARS ENDED SEPTEMBER 30, TO YEAR ENDED OFFERING) TO
--------------------------------------------------------------- SEPTEMBER 30, SEPTEMBER SEPTEMBER 30,
1997 1996 1995 1994 1993 1992 1991 1990 30, 1997 1996
---- ---- ---- ---- ---- ---- ---- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income* .......... 0.048 0.049 0.052 0.035 0.027 0.038 0.062 0.032 0.050 0.012
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from
investment
operations ...... 0.048 0.049 0.052 0.035 0.027 0.038 0.062 0.032 0.063 0.012
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends to
shareholders from
net investment
income ........... (0.048) (0.049) (0.052) (0.035) (0.027) (0.038) (0.062) (0.032) (0.050) (0.012)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions .. (0.048) (0.049) (0.052) (0.035) (0.027) (0.038) (0.062) (0.032) (0.050) (0.012)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return ....... 4.89% 4.98% 5.27% 3.51% 2.70% 3.82% 6.36% 8.03% 5.15% 5.03%(a)
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratios/supplemental
data:
Net assets, end of
period (in 000's) $505,672 $246,368 $113,218 $100,443 $73,284 $46,499 $55,795 $38,017 $16,180 $ 1,413**
Ratio of expenses to
average net assets* 0.59% 0.57% 0.58% 0.24% 0.56% 0.70% 0.70% 0.57% 0.33% 0.43%**
Ratio of net
investment income to
average net assets*. 4.83% 4.80% 5.17% 3.50% 2.66% 3.76% 5.96% 7.85% 5.06% 4.90%**
- ----------
* Reflects a voluntary expense limitation and waivers of fees by affiliated parties of the Funds. If this limitation and these
waivers had not been in effect, the annualized ratios of net investment income and expenses to average net assets for the
Investor Shares for the years ended September 30, 1997, 1996, 1995, 1994, 1993, 1992, and 1991, and for the period from May 3,
1990 (commencement of operations) to September 30, 1990 would have been 4.68% and 0.71%, 4.62% and 0.75%, 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, and for the Adviser
Shares for the fiscal year ended September 30, 1997 and for the period from July 1, 1996 (date of initial offering) to
September 30, 1996 would have been 4.94% and 0.45%, 4.72% and 0.61%, respectively.
** Annualized.
(a) Represents total return for Investor Shares for the period from October 1, 1995 to June 30, 1996 plus the total return for the
Adviser Shares for the period from July 1, 1996 to September 30, 1996.
</TABLE>
<PAGE>
SELECTED DATA FOR AN INVESTOR SHARE, AND ADVISER
SHARE OF THE NEW YORK TAX-FREE MONEY MARKET
FUND OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
INVESTOR SHARES ADVISER SHARES
------------------------------------------------------ ----------------------------------
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 17, 1994 JULY 1, 1996
(COMMENCEMENT OF (DATE OF INITIAL
YEAR ENDED YEAR ENDED OPERATIONS TO YEAR ENDED OFFERING) TO
OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1997 OCTOBER 31, 1996
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income* ................. 0.030 0.030 0.033 0.032 0.010
Net realized losses on investment
operations ............................ 0.000*** -- -- 0.000***
------ ------ ------ ------ ------
Total income from investment operations 0.030 0.030 0.033 0.032 0.010
------ ------ ------ ------ ------
Less distributions:
Dividends to shareholders from net
investment income ..................... (0.030) (0.030) (0.033) (0.032) (0.010)
------ ------ ------ ------ ------
Total distributions ................... (0.030) (0.030) (0.033) (0.032) (0.010)
------ ------ ------ ------ ------
Net asset value, end of period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total return ............................ 3.01% 3.04% 3.31%(a) 3.27% 1.03%(a)
====== ====== ====== ====== ======
Ratios/supplemental data:
Net assets, end of period (in 000's) .. $123,324 $78,594 $52,652 $8,674 $3,714
Ratio of expenses to average net assets* 0.60% 0.54% 0.41%** 0.35% 0.35%**
Ratio of net investment income to
average net assets* .................... 2.98% 2.97% 3.45%** 3.23% 3.12%**
- ----------
* Reflects a voluntary expense limitation and waivers of fees by affiliated parties of the Funds. If this limitation and these
waivers had not been in effect, the annualized ratios of net investment income and expenses to average net assets for the
Investor Shares for the years ended October 31, 1997 and October 31, 1996 and for the period from November 17, 1994
(commencement of operations) to October 31, 1995 would have been 2.86% and 0.72%, 2.88% and 0.63%, and 3.20% and 0.65%,
respectively, and for the Adviser Shares for the year ended October 31, 1997 and for the period from July 1, 1996 (date of
initial offering) to October 31, 1996, would have been 3.11% and 0.47%, and 3.02% and 0.45%, respectively.
** Annualized.
*** Less than $0.0005 per share.
(a) Not annualized.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Purchasing shares of any Fund shall not be considered a complete investment
program, but an important segment of a well-diversified program.
INVESTMENT OBJECTIVES
The investment objective of the U.S. Government Money Market 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 investment
objective of the New York Tax-Free Money Market 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 objectives of the Funds will be achieved. The investment
objective of a Fund may be changed without approval by the Fund's
shareholders. If there is a change in the investment objective of a Fund,
shareholders should consider whether the Fund remains an appropriate
investment in light of their then-current financial position and needs.
INVESTMENT POLICIES
U.S. GOVERNMENT MONEY MARKET FUND
The Trust seeks to achieve the investment objective of the U.S. Government
Money Market 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 U.S. Government Money Market 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.
NEW YORK TAX-FREE MONEY MARKET FUND
The Trust seeks to achieve the investment objective of the New York Tax-Free
Money Market 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 New York Tax-Free Money Market 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. 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 New York Tax-Free Money Market
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 New York Tax-Free Money Market 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, 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 New York Tax-Free Money Market 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 New York Tax-Free
Money Market 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 New York Tax-Free Money Market 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 New York Tax-Free Money Market Fund's
yield will decline. On the other hand, during periods when prevailing interest
rates increase, the Fund's yield will increase.
In view of the possible "concentration" of the New York Tax-Free Money
Market 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 New York Tax-Free Money Market 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 New York Tax-Free Money Market 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 New York
Tax-Free Money Market 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 New
York Tax-Free Money Market 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 New York Tax-Free Money
Market 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
historically experienced periods of 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 11, the Trust is
authorized to invest on behalf of the New York Tax-Free Money Market 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.
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 each 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 a Fund. The Trust may enter into repurchase agreements on behalf of the
Funds 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 each Fund's assets in
repurchase obligations are designed to minimize a Fund's risk of losses from
those investments. Repurchase agreements are considered collateralized loans
under the 1940 Act.
GENERAL
The Trust may, in the future, seek to achieve the investment objective of a
Fund 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, a 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 a 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 Funds as described above may be changed by
the Board of Trustees of the Trust without approval by the shareholders of the
Funds. Each Fund's 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 each 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 Funds for the purpose of leveraging, these restrictions
permit the Trust to borrow money on behalf of each 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 that Fund's total assets taken at market value). These specific
investment restrictions, as well as the fundamental policy described above for
the New York Tax-Free Money Market Fund, may not be changed without the
approval of a Fund's 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 each Fund's portfolio securities is not considered a violation of
policy.
MANAGEMENT OF THE TRUST
The business and affairs of the Funds 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 Funds. Prior to October 14,
1994, Republic Asset Management Corporation advised the U.S. Government Money
Market Fund. The Adviser manages the investment and reinvestment of the assets
of the Funds and continuously reviews, supervises and administers the
investments of each Fund 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
a 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 fees,
payable monthly, from the U.S. Government Money Market Fund and the New York
Tax-Free Money Market Fund at the annual rate of 0.20% and 0.15%,
respectively, of each Fund's average daily net assets.
Republic is a wholly owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of June 30, 1997, Republic was the 16th
largest commercial bank in the United States measured by deposits. 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 issuers of obligations purchased for the Funds,
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 U.S. Government
and Municipal obligations and are dealers of various types of U.S. Government
and Municipal obligations. Republic and its affiliates may sell U.S.
Government and Municipal obligations to, and purchase them from, other
investment companies sponsored by BISYS. The Adviser does not invest any U.S.
Government Money Market Fund assets in any U.S. Government obligation or any
New York Tax-Free Money Market Fund assets in any Municipal Obligations
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 or
Municipal obligations available to be purchased for the Funds. 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 Funds 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 Funds. If Republic were prohibited from acting as investment
adviser to the Funds, it is expected that the Board of Trustees would
recommend to shareholders of the Funds 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 Funds, 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
BISYS, whose address is 3435 Stelzer Road, Columbus, Ohio 43219-3035, acts
as sponsor and distributor to each Fund under a Distribution Contract with the
Trust. The Distributor may, out of its own resources, make payments to broker-
dealers for their services in distributing Shares. BISYS and its affiliates
also serve as administrator or distributor to other investment companies.
BISYS is a wholly owned subsidiary of BISYS Group, Inc.
Pursuant to the Distribution Plans adopted by the Trust, the Distributor is
reimbursed from the Funds monthly for costs and expenses incurred by the
Distributor in connection with the distribution of Investor Shares and Class B
Shares of each of the Funds and for the provision of certain shareholder
services with respect to these 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 Investor
Shares and Class B Shares of the Funds 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. Pursuant to the Class A Plan, the amount of their reimbursement from
each Fund may not exceed on an annual basis 0.25% of the average daily net
assets of the Fund represented by Investor Shares outstanding during the
period for which payment is being made. Pursuant to the Class B Plan, such
payments by the Distributor to broker-dealers may be in amounts on an annual
basis of up to 0.75% of each Fund's average daily net assets as presented by
Class B Shares outstanding during the period for which payment is being made.
The aggregate fees paid to the Distributor pursuant to the Class B Plan and to
Shareholder Servicing Agents pursuant to the Administrative Services Plan will
not exceed on an annual basis 1.00% of each Fund's average daily net assets
represented by Class B Shares outstanding during the period for which payment
is being made. Salary expense of BISYS 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
Funds made pursuant to the Distribution Plans is contingent upon the Board of
Trustees' approval. The Funds are not liable for distribution and shareholder
servicing expenditures made by the Distributor in any given year in excess of
the maximum amount payable under the Distribution Plans in that year.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan 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 Administration Agreement, BISYS provides the Trust with
general office facilities and supervises the overall administration of the
Trust and the Funds, 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 Funds. BISYS 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 BISYS or its affiliates. For these services and
facilities, BISYS receives from the Funds fees payable monthly at an annual
rate equal to 0.10% of the first $1 billion of a Fund's average daily net
assets, 0.08% of the next $1 billion of such assets; and 0.07% of such assets
in excess of $2 billion.
TRANSFER AGENT
The Trust has entered into Transfer Agency Agreements with Investors Bank &
Trust Company ("IBT") and BISYS, pursuant to which IBT acts as transfer agent
for the Funds with respect to the Investor Shares and Adviser Shares and BISYS
acts as transfer agent for the Funds with respect to the Class B Shares (the
"Transfer Agents"). The Transfer Agents maintain an account for each
shareholder of the Funds (unless such account is maintained by the
shareholder's securities-broker, if applicable, or Shareholder Servicing
Agent), performs other transfer agency functions, and act as dividend
disbursing agent for the Funds.
CUSTODIAN
Pursuant to a Custodian Agreement, Republic also acts as the custodian of each
Fund's assets (the "Custodian"). The Custodian's responsibilities include
safeguarding and controlling each Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on each Fund's investments, maintaining books of original entry for portfolio
and fund accounting and other required books and accounts in order to calculate
the daily net asset value of Shares of the Funds. Securities held for the Funds
may be deposited into the Federal Reserve-Treasury Department Book Entry System
or the Depository Trust Company. The Custodian does not determine the investment
policies of the Funds or decide which securities will be purchased or sold for
the Funds. For its services, Republic 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, exchanges and redemptions of Investor Shares, Class B
Shares and Adviser Shares of the Funds may be effected and certain other matters
pertaining to the Funds; 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 each
Fund's shareholders; receives, tabulates and transmits to the Trust proxies
executed by shareholders with respect to meetings of shareholders of each Fund
or the Trust; and provides such other related services as the Trust or a
shareholder may request. With respect to Investor Shares and Class B Shares,
each Shareholder Servicing Agent receives a fee from each Fund for these
services, 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 aggregate fees paid
to the Distributor pursuant to the Class B Plan and to Shareholder Servicing
Agents pursuant to the Administrative Services Plan will not exceed on an annual
basis 1.00% of each Fund's average daily net assets represented by Class B
Shares outstanding during the period for which payment is being made. Fees are
not currently paid under the terms of the Administrative Services Plan with
respect to Adviser Shares.
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 Funds 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 Funds. The Trust engages banks as Shareholder
Servicing Agents on behalf of the Funds 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 Funds 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 Funds 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 Statements of Additional Information.
Expenses attributable to a particular class of shares shall be allocated to
that class of shares only. Investor Share expenses and Class B Share expenses
must include payments made pursuant to their respective Distribution 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 a 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 operating expenses of the Investor Shares of the U.S. Government
Money Market Fund and the New York Tax-Free Money Market Fund equaled on an
annual basis 0.59% and 0.60%, respectively, of each Fund's average daily net
assets attributable to Investor Shares, and 0.33% and 0.35% respectively, of
each Fund's average daily net assets attributable to Adviser Shares.
CLASSES OF SHARES
The Trust currently offers three classes of shares of the Funds, the
Investor Shares, Class B Shares and Adviser Shares, pursuant to this
prospectus. Investor Shares, Class B Shares and Adviser Shares may have
different class expenses, which may affect performance. Additionally, Adviser
Shares are only being offered to customers of Shareholder Servicing Agents,
while Investor 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. At present, the only
Shareholder Servicing Agents for Adviser Shares of the Funds are Republic and
its affiliates. Class B Shares are not being sold but are only offered as an
exchange option for Class B shareholders of the Trust's other investment
portfolios who wish to exchange some or all of those Class B shares for Class
B Shares of the Money Market Funds.
The Investor Shares and Class B Shares each have exclusive voting rights
with respect to their respective Distribution Plan and the Shareholder
Servicing Agent fees paid pursuant to the Administrative Services Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value for a particular share in a Fund is determined on each
day on which the New York Stock Exchange and/or the Fed Funds are 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 a Fund's
net assets allocable to a class of share (i.e., the value of its assets less
its liabilities, including expenses payable or accrued) by the number of
shares of that class outstanding at the time the determination is made. It is
anticipated that the net asset value of each Investor Share, Class B Share and
Adviser 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 each Fund's investments is accrued daily and the Net Income, as defined
under "Dividends and Distributions" on page 30, is declared each Fund Business
Day as a dividend.
PURCHASE OF SHARES
Investor Shares and Adviser Shares may be purchased through Shareholder
Servicing Agents or, in the case of Investor Shares only through securities
brokers that have entered into a dealer agreement with the Distributor
("Securities Brokers"). Such shares may be purchased without a front-end 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, Class B Shares of the Funds are not offered for sale but are only
offered as an exchange option for Class B shareholders of the Trust's other
investment portfolios who wish to exchange some or all of those Class B shares
for Class B Shares of the Funds. Although Class B Shares of the Funds are not
subject to a sales charge when a shareholder exchanges Class B shares of
another Trust portfolio for Class B Shares of the Funds, they may be subject
to a contingent deferred sales charge when they are redeemed. See "Contingent
Deferred Sales Charge ("CDSC") -- Class B Shares" below. Purchases of Investor
Shares and Adviser Shares are 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 a 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 Funds to be as fully
invested at all times as is reasonably practicable in order to enhance the
yield on their assets. Each Shareholder Servicing Agent or Securities Broker
is responsible for and required to promptly forward orders for Shares to the
Distributor.
While there is no sales load on purchases of Investor Shares, the
Distributor may receive fees from the Funds. See "Management of the Trust --
The Distributor and Sponsor." Other funds which have investment objectives
similar to those of the Funds 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 Investor 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. An investor may
purchase Adviser Shares by authorizing his Shareholder Servicing Agent 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: Republic U.S. Government Money Market Fund,
Republic Bond Fund, Republic Overseas Equity Fund, Republic Opportunity Fund,
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 (the "Republic Funds"). Class B Shares and Adviser
Shares may be exchanged for shares of the same class of one or more of the
Republic Funds at net asset value without a front-end sales charge. Exchanges
of Money Market Fund Investor Shares for Investor shares of one or more
Republic Funds may be made upon payment of the applicable sales charge, unless
otherwise exempt. Shareholders of Investor Shares of the Money Market Funds
who are shareholders as of December 31, 1997 will be grandfathered with
respect to the Republic Funds and will be exempt from having to pay a sales
charge on any new purchases of Investor Shares of these Funds. An exchange of
Class B Shares will not affect the holding period of the Class B Shares for
purposes of determining the CDSC, if any, upon redemption. 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 Investor Shares directly through the
Distributor, the Trust, as the shareholder's agent, establishes an open
account to which all Investor Shares purchased are credited together with any
dividends and capital gains distributions which are paid in additional
Investor 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 of Investor Shares may be made by
writing a check (in U.S. dollars) payable to The Republic Funds -- U.S.
Government Money Market Fund or The Republic Funds -- New York Tax-Free Money
Market Fund and mailing it to:
The Republic Funds
c/o Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, Massachusetts 02117
In the case of an initial purchase, the check must be accompanied by a
completed Purchase Application. Class B Shares of the Funds are not offered
for sale but are only offered as an exchange option for Class B shareholders
of the Trust's other investment portfolios.
In the case of subsequent purchases, a shareholder may transmit purchase
payments by wire directly to the custodian bank of the Funds 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 or New York Tax-Free Money Market Fund, Investor, 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 a 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 a 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 Investor 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
Investor Shares of each Fund are being offered to the public, to customers
of a Shareholder Servicing Agent and to customers of a securities broker that
has entered into a dealer agreement with the Distributor. Adviser Shares of
each Fund are only being offered to customers of Shareholder Servicing Agents.
Shareholder Servicing Agents and securities brokers, if applicable, 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 each 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 a Fund's custodian
bank by following the procedures described above.
For further information on how to direct a securities broker, if applicable,
or a Shareholder Servicing Agent to purchase Shares, an investor should
contact his securities broker or his Shareholder Servicing Agent.
CONTINGENT DEFERRED SALES CHARGE ("CDSC") -- CLASS B SHARES
CLASS B SHARES
There is no sales charge imposed upon an exchange for Class B Shares of the
Funds, but investors may be subject to a CDSC when Class B Shares are
redeemed.
When Class B shares of those Republic Funds that are income funds
(currently, the Republic Bond Fund and Republic New York Tax-Free Bond Fund
(the "Income Funds")) are exchanged for Class B Shares of one or more of the
Money Market Funds and those Shares are redeemed less than 3 years after the
original purchase of the Class B shares of the Income Funds, those Shares of
the Money Market Funds will be subject to a declining CDSC. The CDSC levied
upon redemptions of such Class B Shares will be as follows:
CDSC AS PERCENTAGE OF
THE LESSER OF NET
ASSET VALUE AT THE
HOLDING PERIOD TIME OF PURCHASE
SINCE PURCHASE DATE OR REDEMPTION
- ------------------- ---------------
1 year or less 3.00%
More than 1 year up to 2 years 2.00%
More than 2 years up to 3 years 1.00%
More than 3 years none
When Class B shares of those Republic Funds that are equity funds
(currently, the Republic Equity Fund, Republic Overseas Equity Fund and
Republic Opportunity Fund (the "Equity Funds")) are exchanged for Class B
Shares of one or more of the Money Market Funds and those Shares are redeemed
less than 4 years after the original purchase of the Class B shares of the
Equity Funds, those Shares of the Money Market Funds will be subject to a
declining CDSC. The CDSC levied upon redemptions of such Class B Shares will
be as follows:
CDSC AS PERCENTAGE OF
THE LESSER OF NET
ASSET VALUE AT THE
HOLDING PERIOD TIME OF PURCHASE
SINCE PURCHASE DATE OR REDEMPTION
- ------------------- ---------------
1 year or less 4.00%
More than 1 year up to 2 years 3.00%
More than 2 years up to 3 years 2.00%
More than 3 years up to 4 years 1.00%
More than 4 years none
The CDSC will be based on the lesser of the net asset value at the time of
original purchase of the Class B shares of the Income Fund(s) and/or the
Equity Fund(s) which were exchanged for the Money Market Fund Class B Shares
now being redeemed or the net asset value of such Money Market Fund Class B
Shares at the time of redemption. Accordingly, a CDSC will not be imposed on
amounts representing increases in net asset value above the net asset value at
the time of purchase. In addition, a CDSC will not be assessed on Class B
Shares purchased through reinvestment of dividends or capital gains
distributions, or that are purchased by "Institutional Investors" such as
corporations, pension plans, foundations, charitable institutions, insurance
companies, banks and other banking institutions, and non-bank fiduciaries.
Solely for purposes of determining the amount of time which has elapsed from
the time of purchase of any Income Fund or Equity Fund Class B shares, all
purchases during a month will be aggregated and deemed to have been made on
the last day of the month. In determining whether a CDSC is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of Class B Shares held for more than three years that
were exchanged from Income Fund Class B shares, Class B Shares held more than
four years for Class B Shares that were exchanged from Equity Fund Class B
shares or Class B Shares acquired pursuant to reinvestment of dividends or
distributions.
For example, assume an investor purchased 100 Class B Shares of an Equity
Fund with a net asset value of $8 per share (i.e., at an aggregate net asset
value of $800) and in the eleventh month after purchase, the net asset value
per share is $10 and, during such time, the investor has acquired five
additional Class B shares of the Equity Fund through dividend reinvestment. If
at such time the investor exchanges all of his Equity Fund Class B shares for
Class B Shares of one of the Money Market Funds, the investor will have 1,050
Class B Shares (assuming a net asset value of $1.00 per share for the Money
Market Fund). Assume twelve months later the investor acquires 50 additional
Class B Shares of the Money Market Fund through dividend reinvestments. If at
such time the investor makes his first redemption of 500 Money Market Fund
Class B Shares (producing proceeds of $500), 100 of such Shares would not be
subject to the charge because they were acquired through dividend
reinvestment. With respect to the remaining 400 Class B Shares being redeemed,
the CDSC would be applied only to 320 Class B Shares (representing the
original cost of $8 per share for the Equity Fund) and not to the remaining 80
Class B Shares (representing the increase in net asset value of $2 per share
for the Equity Fund).
The CDSC is waived on redemptions of Class B Shares (i) following the death
or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a Shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an IRA or a Custodial Account
under Code Section 403(b)(7) to a Shareholder who has reached age 70 1/2, and
(iii) to the extent the redemption represents the minimum distribution from
retirement plans under Code Section 401(a) where such redemptions are
necessary to make distributions to plan participants.
EXCHANGE PRIVILEGE
The exchange privilege enables shareholders of Class B Shares of the Funds
(including Shares acquired through reinvestment of dividends and distributions
on such Shares) to exchange those Shares at net asset value without any front-
end sales charge for Class B shares offered by any of the Republic Funds,
provided that the amount to be exchanged meets the applicable minimum
investment requirements and the exchange is made in states where it is legally
authorized. Holders of a Fund's Class B Shares may not exchange their Shares
for shares of any other class. An exchange of Class B Shares will not affect
the holding period of the Class B Shares for purposes of determining the CDSC,
if any, upon redemption which shall be determined in accordance with the
schedule applicable to the Class B shares originally purchased.
An exchange is considered a sale of Shares and may result in a capital gain
or loss for federal income tax purposes.
A Shareholder wishing to exchange his or her Shares may do so by contacting
the Trust at 888-525-5757, by contacting his or her broker-dealer or by
providing written instructions to the Distributor.
CONVERSION FEATURE
Five years after the original purchase of Income Fund Class B shares which
have been exchanged for Class B Shares of the Money Market Funds and six years
after the original purchase of Equity Fund Class B shares which have been
exchanged for Class B Shares of the Money Market Funds, Class B Shares of the
Money Market Funds will convert automatically to Investor Shares. The purpose
of the conversion is to relieve a holder of Class B Shares of the higher
ongoing expenses charged to those Shares, after enough time has passed to
allow the Distributor to recover approximately the amount it would have
received if a front-end sales charge had been charged. The conversion from
Class B Shares to Investor Shares takes place at net asset value, as a result
of which an investor receives dollar-for-dollar the same value of Investor
Shares as he or she had of Class B Shares. For Class B Shares that were
exchanged from Income Fund Class B shares, the conversion occurs five years
after the beginning of the calendar month in which the Income Fund Class B
shares were purchased. For Class B shares that were exchanged from Equity Fund
Class B shares, the conversion occurs six years after the beginning of the
calendar month in which the Equity Fund Class B shares were purchased. As a
result of the conversion, the converted Shares are relieved of the Rule 12b-1
fees borne by Class B Shares, although they are subject to the Rule 12b-1 fees
borne by Investor Shares.
RETIREMENT PLANS
Investor Shares of the U.S. Government Money Market Fund are offered in
connection with tax-deferred retirement plans. Application forms and further
information about these plans, including applicable fees, are available from
the Trust or the Sponsor upon request. The tax law governing tax-deferred
retirement plans is complex and changes freguently. Before investing in the
Fund through one or more of these plans, an investor should consult his or her
tax adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
Investor Shares of the U.S. Government Money Market Fund may be used as a
funding medium for an IRA. An Internal Revenue Service-approved IRA plan may
be available from an investor's Shareholder Servicing Agent. In any event,
such a plan is available from the Sponsor naming IBT as custodian. The minimum
initial investment for an IRA is $250; the minimum subsequent investment is
$100. IRAs are available to individuals who receive compensation or earned
income and their spouses whether or not they are active participants in a tax-
qualified or Government-approved retirement plan. An IRA contribution by an
individual who participates, or whose spouse participates, in a tax-qualified
or Government-approved retirement plan may not be deductible, in whole or in
part, 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 U.S. Government
Money Market 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 U.S. Government Money Market Fund may be used as a vehicle for certain
deferred compensation plans provided for by Section 457 of the Internal
Revenue Code of 1986, as amended, (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. Investor Shares and
Adviser Shares may be redeemed without charge while Class B Shares may be
subject to a contingent deferred sales charge (CDSC). See "Contingent Deferred
Sales Charge ("CDSC") -- Class B Shares" above. 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 a Fund in federal funds
on the next Fund Business Day following the date 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, provided that such
involuntary redemptions will not result from fluctuations in the value of Fund
Shares. 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, if
applicable, 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.
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns Shares with an aggregate value of $10,000 or more
may establish a Systematic Withdrawal Plan under which he redeems at net asset
value the number of full and fractional shares which will produce the monthly,
quarterly, semi-annual or annual payments specified (minimum $50.00 per
payment). Depending on the amounts withdrawn, systematic withdrawals may
deplete the investor's principal. Investors contemplating participation in
this Plan should consult their tax advisers. No additional charge to the
shareholder is made for this service.
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 Investor 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. A 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 Investor 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
200 Clarendon Street
P.O. Box 9130
Boston, Massachusetts 02117
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
Investor 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 Investor 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 applicable 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 Investor Shares by means
of a Check Redemption Service. If Investor 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 Investor
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.
Investor 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
Investor Shares of a Fund 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 a 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. 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 each 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 a 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 a 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 a Fund is declared as a dividend each time the net
income of the Fund is determined, the net asset value per share of a 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 a Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of Shares in his account.
It is expected that each Fund will have a positive net income at the time of
each determination thereof. If, for any reason, the net income of a 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 is expected to 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 Funds including the status of distributions from the New
York Tax-Free Money Market Fund under applicable state or local law and the
possible applicability of a federal alternative minimum tax to a portion of
the distributions of this Fund.
FEDERAL INCOME TAXES
Each year, the Trust intends to qualify the Funds and elect that each Fund
be treated as a separate "regulated investment company" under Subchapter M of
the Code. To so qualify, the Funds 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 Funds
are distributed to shareholders in accordance with the timing requirements
imposed by the Code, generally no federal (or, in the case of the New York
Tax-Free Money Market Fund, New York State and New York City) income or excise
taxes will be paid by the Funds on amounts so distributed.
U.S. Government Money Market Fund. After 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 U.S. Government
Money Market 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.
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.
New York Tax-Free Money Market Fund. 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 New York Tax-Free Money Market 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.
The Code provides that interest on indebtedness incurred, or continued, to
purchase or carry shares of the New York Tax-Free Money Market 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
U.S. Government Money Market Fund. 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 U.S. Government Money Market
Fund are advised of the proportion of its distributions which consists of such
interest.
New York Tax-Free Money Market Fund. 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 NEW YORK TAX-FREE MONEY MARKET FUND ARE NOT EXCLUDED IN
DETERMINING NEW YORK STATE OR NEW YORK CITY FRANCHISE TAXES ON CORPORATIONS
AND FINANCIAL INSTITUTIONS.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal and, in the case of the New York Tax-
Free Money Market Fund, New York State and New York City income tax purposes
whether received in cash or reinvested in additional Shares of the Funds.
Shareholders must treat dividends, other than capital gain dividends, as
ordinary income. Distributions of net capital gain (other than short-term
capital gain) whether received in cash or reinvested in Fund Shares, will be
taxable to shareholders at the applicable capital gains rate (generally a
maximum rate of 20% or 28% depending upon the Fund's holding period in the
assets sold) regardless of how long a shareholder has held Fund Shares.
Certain dividends declared in October, November or December of a calendar year
to shareholders of record on a date in such month are taxable to shareholders
as though received on December 31 of that year if paid to shareholders during
January of the following calendar year.
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 Funds)
qualifies as a "regulated investment company" for purposes of Massachusetts
law.
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 Investor Shares, Class B Shares and Adviser
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 seven 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, each
Money Market Fund is divided into three classes of shares.
Each share of each class of the Funds 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 Funds 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 a 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 Funds 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 U.S. Government Money Market Fund and annualized
"yield," "effective yield," and "tax equivalent yield" quotations for the New
York Tax-Free Money Market Fund in advertisements, shareholder reports or
other communications to shareholders and prospective investors. The methods
used to calculate a Fund's yield, effective yield and tax equivalent yield are
mandated by the Securities and Exchange Commission. The "yield" of a 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. With
respect to the New York Tax-Free Money Market Fund, 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 a 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 a Fund's yield, effective
yield or tax equivalent yield, if applicable, in the future. Any performance
information should be considered in light of a 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 a 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 a Fund to yields published for other
investment companies or other investment vehicles.
A Shareholder Servicing Agent or a securities broker, if applicable, may
charge its customers direct fees in connection with an investment in the
Funds, 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 Funds, 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 U.S. Government Money Market Fund and
the yield, effective yield and tax equivalent yield of the New York Tax-Free
Money Market Fund are not fixed or guaranteed, and an investment in the Funds
is not insured. The Trust's Statements of Additional Information with respect
to the Funds include more detailed information concerning the calculation of
yield, effective yield and tax equivalent yield, if applicable, quotations for
the Funds.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
GENERAL AND ACCOUNT INFORMATION (888) 525-5757 (TOLL FREE)
--------------------
The Trust's Statement of Additional Information, dated February 1, 1998,
with respect to each 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 transactios, (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, if applicable, of the Fund.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL OBLIGATIONS
There are four major varieties of state and municipal notes: Tax and Revenue
Anticipation Notes ("TRANs"); Tax Anticipation Notes ("TANs"); Revenue
Anticipation Notes ("RANs"); and Bond Anticipation Notes ("BANs").
TRANs, TANs and RANs are issued by states, municipalities and other tax-
exempt issuers to finance short-term cash needs or, occasionally, to finance
construction. Most TRANs, TANs and RANs are general obligations of the issuing
entity payable from taxes or designated revenues, respectively, expected to be
received within the related fiscal period.
BANs are issued with the expectation that principal and interest of the
maturing notes will be paid out of proceeds from notes or bonds to be issued
concurrently or at a later date. BANs are issued by both general obligation
and revenue bond issuers usually to finance such items as land acquisition,
facility acquisition and/or construction and capital improvement projects.
Municipal bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies and authorities (all of which are
generally referred to as "municipalities") which generally have a maturity at
the time of issue of one year or more and which are issued to raise funds for
various public purposes such as construction of a wide range of public
facilities, to refund outstanding obligations and to obtain funds for
institutions and facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the income of specific projects or
authorities and generally are not supported by the issuer's general power to
levy taxes. In some cases, revenues derived from specific taxes are pledged to
support payments on a revenue bond.
In addition, certain kinds of industrial development bonds ("IDBs") are
issued by or on behalf of public authorities to provide funding for various
privately operated industrial facilities such as warehouse, office, plant and
store facilities, and environmental and pollution control facilities. Interest
on the IDBs is generally exempt, with certain exceptions, from federal income
tax pursuant to Section 103(a) of the Internal Revenue Code, provided the
issuer and corporate obligor thereof continue to meet certain conditions. IDBs
are, in most cases, revenue bonds and do not generally constitute the pledge
of the credit of the issuer of such bonds. The payment of the principal and
interest on IDBs usually depends solely on the ability of the user of the
facilities financed by the bonds or other guarantor to meet its financial
obligations and, in certain instances, the pledge of real and personal
property as security for payment. In the case of many IDBs, there is no
established secondary market for their purchase or sale and therefore they may
not be readily marketable. However, the IDBs or the participation interests in
IDBs purchased by the Fund will have liquidity because they generally will be
supported by demand features to "high quality" banks, insurance companies or
other financial institutions which may be exercised by the Fund. In some
cases, these demand features may not be exercisable in the event of a default
on the underlying IDB. (See "Investment Objective, Policies and Restrictions
- -- Variable Rate Instruments and Participation Interests" in the Statement of
Additional Information.)
<PAGE>
DESCRIPTION OF RATINGS*
The ratings of Moody's Investors Service, Inc., Standard & Poor's
Corporation and Fitch Investors Service, Inc. represent their opinions as to
the quality of various debt obligations. It should be emphasized, however,
that ratings are not absolute standards of quality. Consequently, Municipal
Obligations with the same maturity, coupon and rating may have different
yields while Municipal Obligations of the same maturity and coupon with
different ratings may have the same yield.
- ----------
*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.
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.
<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 1997
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 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
- --------------------- ------------------- ------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-$ 24,650 $ 0-$ 41,200 20.82% 3.79% 4.42% 5.05% 5.68% 6.31% 6.95% 7.58% 8.21%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 32.93% 4.47% 5.22% 5.96% 6.71% 7.45% 8.20% 8.95% 9.69%
$ 59,751-$124,650 $ 99,601-$151,750 35.73% 4.67% 5.45% 6.22% 7.00% 7.78% 8.56% 9.33% 10.11%
$124,651-$271,050 $151,751-$271,050 40.38% 5.03% 5.87% 6.71% 7.55% 8.39% 9.23% 10.06% 10.90%
Over $271,050 Over $271,050 43.74% 5.33% 6.22% 7.11% 8.00% 8.89% 9.78% 10.66% 11.55%
- ----------
* 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FEDERAL, NEW YORK STATE AND NEW YORK CITY TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* TAX-EXEMPT YIELD
- -------------------------------------------- INCOME -------------------------------------------------------------------------
SINGLE JOINT TAX 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
- --------------------- ------------------- ------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 25,000 $ 0-$ 45,000 36.09% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39% 10.17%
$ 25,001-$ 59,750 $ 45,001-$ 99,600 36.10% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39% 10.17%
$ 59,751-$124,650 $ 96,601-$151,750 38.80% 4.90% 5.72% 6.54% 7.35% 8.17% 8.99% 9.80% 10.62%
$124,651-$271,050 $151,751-$271,050 43.24% 5.29% 6.17% 7.05% 7.93% 8.81% 9.69% 10.57% 11.45%
Over $271,050 Over $271,050 46.43% 5.60% 6.53% 7.47% 8.40% 9.33% 10.27% 11.20% 12.13%
- ----------
* 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 New York Tax-Free Money Market 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
U.S. GOVERNMENT
MONEY MARKET FUND
REPUBLIC
NEW YORK TAX-FREE
MONEY MARKET FUND
INVESTMENT ADVISER AND CUSTODIAN
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
ADMINISTRATOR, DISTRIBUTOR, SPONSOR AND TRANSFER AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
TRANSFER AGENT
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02117
(800) 782-8183
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
REPUBLIC FAMILY OF FUNDS:
CUSTOMER SERVICE
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
(888) 525-5757
(212) 525-7833
FOR NON-REPUBLIC CLIENTS
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02117
(800) 782-8183
RFFRC (2/98)
<PAGE>
REPUBLIC NEW YORK
TAX-FREE MONEY MARKET FUND
3435 Stelzer Road
Columbus, Ohio 43219-3035
General
and (888) 525-5757 (Toll Free)
Account Information
- --------------------------------------------------------------------------------
Republic National Bank of New York - Investment Adviser
("Republic" or the "Adviser")
BISYS Fund Services -
Administrator, Distributor and Sponsor
("BISYS," "Sponsor" 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 seven 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 three separate classes, Class A (formerly designated Class C) (the
"Investor Shares"), Class B and Class Y (the "Adviser Shares").
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 (the "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.
Investor Shares and Adviser 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. Class B Shares may be acquired only through an exchange of
shares from the corresponding classes of other funds of the Trust.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY A PROSPECTUS
FOR THE FUND DATED FEBRUARY 1, 1998 (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.
February 1, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
Investment Objective, Policies and Restrictions . . . . . . . . . .
Variable Rate Instruments and Participation Interests . .
"When-Issued" Municipal Obligations . . . . . . . . . . .
Stand-by Commitments . . . . . . . . . . . . . . . . . . .
Taxable Securities . . . . . . . . . . . . . . . . . . . .
Repurchase Agreements . . . . . . . . . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . . . . .
Special Factors Affecting New York . . . . . . . . . . . .
Investment Restrictions . . . . . . . . . . . . . . . . .
Non-Fundamental Restrictions . . . . . . . . . . . . . .
Percentage and Rating Restrictions . . . . . . . . . . . .
Performance Information . . . . . . . . . . . . . . . . . . . . . .
Management of the Trust . . . . . . . . . . . . . . . . . . . . . .
Trustees and Officers . . . . . . . . . . . . . . . . . .
Compensation Table . . . . . . . . . . . . . . . . . . . .
Investment Adviser . . . . . . . . . . . . . . . . . . . .
Administrator . . . . . . . . . . . . . . . . . . . . . .
Distribution Plans - Investor Shares and
Class B Shares only . . . . . . . . . . . . . . . . . .
Administrative Services Plan . . . . . . . . . . . . . . .
Shareholder Servicing Agents . . . . . . . . . . . . . . .
Transfer Agent and Custodian . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Determination of Net Asset Value . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Income Tax . . . . . . . . . . . . . . . . . . . .
Alternative Minimum Tax . . . . . . . . . . . . . . . . .
Special Tax Considerations . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . .
Voting Rights . . . . . . . . . . . . . . . . . . . . . .
Independent Auditors . . . . . . . . . . . . . . . . . . .
Counsel . . . . . . . . . . . . . . . . . . . . . . . . .
Registration Statement . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . .
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 February 1, 1998, 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.
<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 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 or the securities of other
regulated investment companies.
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 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 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, 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 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 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 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 the size of the position obtainable.
SPECIAL FACTORS AFFECTING NEW YORK STATE. The fiscal stability of New
York State 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 October 9, 1997, Standard & Poor's gave New York City's outstanding
general obligation bonds a rating of A.
For further information concerning New York Municipal Obligations, see
the Appendix to this Statement of Additional Information. The summary set forth
above and in the Appendix is included for the purpose of providing a general
description of New York State and New York City credit and financial conditions.
This summary is based on information from statements of issuers of New York
Municipal Obligations and does not purport to be complete.
INVESTMENT RESTRICTIONS. The Trust has adopted the following investment
restrictions with respect to the Fund which may not be changed without approval
by holders of a "majority of the outstanding shares" of the Fund, which as used
in this Statement of Additional Information means the vote of the lesser of (i)
67% or more of the outstanding "voting securities" of the Fund present at a
meeting, if the holders of more than 50% of the outstanding "voting securities"
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding "voting securities" of the Fund. The term "voting securities" as
used in this paragraph has the same meaning as in the 1940 Act.
The Trust, on behalf of the Fund, may not:
(1) borrow money or pledge, mortgage or hypothecate assets of
the Fund, except that as a temporary measure for extraordinary or
emergency purposes it may borrow in an amount not to exceed 1/3 of the
value of the net assets of the Fund, including the amount borrowed, and
may pledge, mortgage or hypothecate not more than 1/3 of such assets to
secure such borrowings (it is intended that money would be borrowed
only from banks and only to accommodate requests for the redemption of
shares of the Fund while effecting an orderly liquidation of portfolio
securities); for additional related restrictions, see clause (i) under
the caption "State and Federal Restrictions" below;
(2) purchase any security or evidence of interest therein on
margin, except that the Trust may obtain such short-term credit for the
Fund as may be necessary for the clearance of purchases and sales of
securities;
(3) underwrite securities issued by other persons, except
insofar as the Trust may technically be deemed an underwriter under the
Securities Act of 1933, as amended (the "1933 Act"), in selling a
portfolio security for the Fund;
(4) make loans to other persons except (a) through the lending
of securities held by the Fund, but not in excess of 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, or (c) by purchasing all or a portion of an issue of debt
securities of types commonly distributed privately to financial
institutions; for purposes of this Investment Restriction (4) the
purchase of short-term commercial paper or a portion of an issue of
debt securities which are part of an issue to the public shall not be
considered the making of a loan;
(5) purchase or sell real estate (including limited
partnership interests but excluding securities secured by real estate
or interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts in the ordinary course of business
(the Trust reserves the freedom of action to hold and to sell for the
Fund real estate acquired as a result of its ownership of securities);
(6) concentrate its investments in any particular industry,
but if it is deemed appropriate for the achievement of the Fund's
investment objective, up to 25% of the assets of the Fund (taken at
market value at the time of each investment) may be invested in any one
industry, except that the Trust may invest all or substantially all of
the Fund's assets in another registered investment company having the
same investment objective and policies and substantially the same
investment restrictions as those with respect to the Fund;
(7) issue any senior security (as that term is defined in the
1940 Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder, except as
appropriate to evidence a debt incurred without violating Investment
Restriction (1) above;
(8) write, purchase or sell any put or call option or any
combination thereof;
(9) invest in securities which are subject to legal or
contractual restrictions on resale (other than fixed time deposits and
repurchase agreements maturing in not more than seven days) if, as a
result thereof, more than 10% of the net assets of the Fund would be so
invested (including fixed time deposits and repurchase agreements
maturing in more than seven days); provided, however, that this
Investment Restriction shall not apply to (a) any security if the
holder thereof is permitted to receive payment upon a specified number
of days' notice of the unpaid principal balance plus accrued interest
either from the issuer or by drawing on a bank letter of credit, a
guarantee or an insurance policy issued with respect to such security
or by tendering or "putting" such security to a third party, or (b) the
investment by the Trust of all or substantially all of the Fund's
assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as those with respect to the Fund; and
(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.
NON-FUNDAMENTAL RESTRICTIONS. The Trust on behalf of the Fund does not,
as a matter of operating policy: (i) borrow money for any purpose in excess of
10% of the Fund's total assets (taken at cost) (moreover, the Trust will not
purchase any securities for the Fund's portfolio at any time at which borrowings
exceed 5% of the Fund's total assets (taken at market value)), (ii) pledge,
mortgage or hypothecate for any purpose in excess of 10% of the Fund's net
assets (taken at market value), (iii) sell any security which it does not own
unless by virtue of its ownership of other securities it has at the time of sale
a right to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided that if such
right is conditional the sale is made upon the same conditions, (iv) invest for
the purpose of exercising control or management, (v) purchase securities issued
by any registered investment company except by purchase in the open market where
no commission or profit to a sponsor or dealer results from such purchase other
than the customary broker's commission, or except when such purchase, though not
made in the open market, is part of a plan of merger or consolidation; provided,
however, that the Trust will not purchase the securities of any registered
investment company for the Fund if such purchase at the time thereof would cause
more than 10% of the Fund's total assets (taken at the greater of cost 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.
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. Additionally, if such later change results in the Fund holding
more than 10% of its net assets in illiquid securities, the Fund will take such
action as is necessary to reduce the percentage of the Fund's net assets
invested in illiquid securities to 10% or less.
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 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, 1997, the
yield of the Fund was 3.11% for Investor Shares and 3.33% for Adviser Shares.
For the 7-day period ended October 31, 1997, the effective yield of the Fund was
3.16% for Investor Shares and 3.38% for Adviser Shares. Class B shares were not
offered prior to February 1, 1998.
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, 1997, the tax equivalent yield of the Fund (assuming a
39.6% tax rate) was 5.15% for Investor Shares and 5.51% for Adviser Shares. For
the 7-day period ended October 31, 1997, the tax equivalent effective yield of
the Fund (assuming a 39.6% tax rate) was 5.23% for Investor Shares and 5.60% for
Adviser Shares. Class B shares were not offered prior to February 1, 1998.
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 Investor Shares of the Fund for the
one-year period ended October 31, 1997 was 3.01%, and the average annual total
rate of return of the Investor Shares of the Fund for the period from November
17, 1994 (commencement of operations) to October 31, 1997 was 3.16%. The total
rate of return for Adviser Shares of the Fund for the one-year period ended
October 31, 1997 was 3.27% and the average annual total rate of return of the
Adviser Shares for the period from July 1, 1996 (commencement of operations) to
October 31, 1997 was 3.28%. Class B Shares were not offered prior to February 1,
1998.
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. Assuming a 39.6% tax rate, the tax equivalent total
rate of return of the Investor Shares of the Fund for the one-year period ended
October 31, 1997 was 4.98%, and the tax equivalent average annual total rate of
return of the Investor Shares of the Fund for the period from November 17, 1994
(commencement of operations) to October 31, 1997 was 5.23%. Assuming a 39.6% tax
rate, the tax equivalent total rate of return of the Adviser Shares of the Fund
for the one-year period ended October 31, 1997 was 5.41% and the tax equivalent
average annual total rate of return of the Adviser Shares for the period from
July 1, 1996 (commencement of operations) to October 31, 1997 was 5.43%. Class B
Shares were not offered prior to February 1, 1998.
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 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
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).
GEORGE O. MARTINEZ*, President and Secretary
Senior Vice President and Director of Legal and Compliance Services,
BISYS Fund Services, Inc., March 1995 to present; Senior Vice
President, Emerald Asset Management, Inc., August 1995 to present; Vice
President and Associate General Counsel, Alliance Capital Management,
June 1989 to March 1995.
KAREN DOYLE*, Vice President
Manager of Client Services for BISYS Fund Services, Inc., October 1994
to present; from 1979 to October 1994, an employee of the Bank of New
York.
FRANK M. DEUTCHKI*, Vice President
Employee of BISYS Fund Services, Inc., April 1996 to present; Vice
President, Chase Global Funds Service, September 1995 to April 1996;
Vice President, Mutual Funds Service Company, 1989 to September 1995.
ADRIAN WATERS*, Treasurer
Employee of BISYS Fund Services (Ireland) LTD., May 1993 to present;
Manager, Price Waterhouse, 1989 to May 1993.
CATHERINE BRADY*, Assistant Treasurer
Employee of BISYS Fund Services (Ireland) LTD., March 1994 to present;
Supervisor, Price Waterhouse, 1990 to March 1994.
ALAINA METZ*, Assistant Secretary
Chief Administrator, Administrative and Regulatory Services, BISYS Fund
Services, Inc., June 1995 to present; Supervisor, Mutual Fund Legal
Department, Alliance Capital Management, May 1989 to June 1995.
Messrs. Martinez, Deutchki and Waters and Mss. Doyle, Brady and Metz
also are officers of certain other investment companies of which BISYS or an
affiliate is the administrator.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated Total
Aggregate Accrued as Annual Compensation
Name of Compensation Part of Fund Benefits Upon From Fund Complex*
Trustee from Trust Expenses Retirement to Trustees
- ------- ------------ ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Frederick C. Chen $2,900 none none $8,600
Alan S. Parsow $2,600 none none $7,600
Larry M. Robbins $2,600 none none $7,600
Michael Seely $2,600 none none $7,600
</TABLE>
- ----------
* The Fund Complex includes the Trust, Republic Advisor Funds Trust, and
Republic Portfolios.
The compensation table above reflects the fees received by the Trustees
for the year ended October 31, 1997. 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 for each meeting of the Board of Trustees
or committee thereof attended, except that Mr. Robbins will receive an annual
retainer of $4,600 and a fee of $1,000 for each meeting attended.
As of January 14, 1998, 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 -- 77.07% (Investor Shares); and Kinco & Co. c/o Securities
Services, One Hanson Place, Brooklyn, New York, 11243 -- 11.26% (Investor
Shares) and 85.34% (Adviser Shares). Shareholders who own more than 25% of the
outstanding voting securities of the Fund may be deemed to control the Fund by
virtue of such share ownership.
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 positions as
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 continue in effect 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, 1994 (commencement of operations) to
October 31, 1995, investment advisory fees aggregated $77,177, of which the
entire amount was waived. For the years ended October 31, 1996 and October 31,
1997, investment advisory fees aggregated $104,179 and $147,161, respectively,
of which $32,202 and $101,227, respectively, was waived.
ADMINISTRATOR
The Administration Agreement will remain in effect until March 31,
1999, and automatically will continue in effect thereafter from year to year
unless terminated upon 60 days' written notice to BISYS. The Administration
Agreement will terminate automatically in the event of its assignment. The
Administration Agreement also provides that neither BISYS 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 Administration Agreement.
For the period from November 17, 1994 (commencement of operations) to
October 31, 1995, the Fund accrued administration fees of $77,177, of which
$46,053 was waived by its former administrator. For the year ended October 31,
1996, the Fund accrued administration fees equal to $104,179, of which $34,720
was waived. For the year ended October 31, 1997, the Fund accrued administration
fees equal to $98,117, none of which was waived.
DISTRIBUTION PLANS- INVESTOR SHARES AND CLASS B SHARES ONLY
Two Distribution Plans have been adopted by the Trust (the
"Distribution Plans") with respect to the Investor Shares (the "Class A Plan")
and the Class B Shares (the "Class B Plan"). The Distribution Plans provide that
they may not be amended to increase materially the costs which either the
Investor Shares or Class B Shares may bear pursuant to the Class A Plan or Class
B Plan without approval by shareholders of the Investor Shares or Class B
Shares, respectively, and that any material amendments of the Distribution Plans
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 Plans
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 Plans have been approved, and are 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
Plans. In adopting the Class A Plan and Class B Plan, the Trustees considered
alternative methods to distribute the Investor Shares and the Class B Shares and
to reduce each class's per share expense ratio and concluded that there was a
reasonable likelihood that each Distribution Plan will benefit its respective
class and that class's shareholders. The Distribution Plans are terminable with
respect to the Investor Shares or the Class B Shares at any time by a vote of a
majority of the Qualified Trustees or by vote of the holders of a majority of
that class.
The Fund did not incur expenses pursuant to the Distribution Plans
during the fiscal period ended October 31, 1997.
ADMINISTRATIVE SERVICES PLAN
An Administrative Services Plan has been adopted by the Trust with
respect to Investor Shares, Class B Shares and Adviser Shares, 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 Investor Shares,
Class B Shares or Adviser Shares, 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
Investor Shares, Class B Shares or Adviser Shares 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 Investor Shares and Class B Shares, see "Management of the Trust -
Shareholder Servicing Agents" in the Prospectus.
TRANSFER AGENT AND CUSTODIAN
The Board of Trustees of the Trust has approved a Transfer Agency
Agreement between the Trust and Investors Bank & Trust Company ("IBT") pursuant
to which IBT will provide fund accounting services, transfer agency services
with respect to Investor Shares and Adviser Shares, dividend disbursing services
and shareholder servicing services to the Trust and the Fund. The principal
business address of IBT is 200 Clarendon Street, Boston, Massachusetts 02117.
The Board of Trustees has also approved a Custodian Agreement between the Trust
and Republic pursuant to which Republic will provide custodial services to the
Trust and the Fund and a Transfer Agency Agreement between the Trust and BISYS
pursuant to which BISYS will provide transfer agency services with respect to
the Class B Shares of the Fund.
EXPENSES
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 Investor Shares or Class B Shares must include payments made pursuant to
their respective 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 Funds.
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, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
As discussed under the caption "Dividends and Distributions" in the
Prospectus, the Trust uses the amortized cost method to determine the value of
the Fund's portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing an obligation at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates on the market value of the security. During these
periods the yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund which utilizes a method of valuation based upon
market prices. Thus, during periods of declining interest rates, if the use of
the amortized cost method resulted in a lower value of the Fund's portfolio on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from an investment in a fund utilizing
solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Fund's dollar-weighted average portfolio maturity of
90 days or less must be maintained, and only securities having remaining
maturities of 397 days or less which are determined by the Trust's Board of
Trustees to be of high quality with minimal credit risks may be purchased.
Pursuant to Rule 2a-7, the Board has established procedures designed to
stabilize, to the extent reasonably possible, the price per share of the Fund,
as computed for the purpose of sales and redemptions, at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Board of Trustees, at
such intervals as it may deem appropriate, to determine whether the net asset
value of the Fund calculated by using available market quotations deviates from
the $1.00 per share valuation based on amortized cost. The extent of any
deviation is examined by the Board of Trustees. If such deviation exceeds
$0.003, the Board promptly considers what action, if any, will be initiated. In
the event the Board determines that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
the Board will take such corrective action as it regards as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value per share by using
available market quotations.
TAXATION
FEDERAL INCOME TAX
The following is a summary of certain U.S. federal income tax issues
concerning the Fund and its shareholders. The Fund may also be subject to
state, local, foreign or other taxes not discussed below. This discussion does
not purport to be complete or to address all tax issues relevant to each
shareholder. Prospective investors should consult their own tax advisors with
regard to the federal, state, foreign and other tax consequences to them of the
purchase, ownership or disposition of Fund shares. This discussion is based upon
present provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and administrative
authorities, all of which are subject to change, which change may be
retroactive.
The Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Code. By so qualifying, the Fund will be
exempt from federal income taxes to the extent that it distributes substantially
all of its net investment income and net realized capital gains to shareholders.
It is intended that the Fund's assets will be sufficiently invested in
municipal securities to qualify to pay "exempt-interest dividends" (as defined
in the Code) to shareholders. The Fund's dividends payable from net tax-exempt
interest earned from municipal securities will qualify as exempt-interest
dividends if, at the close of each quarter of its taxable year, at least 50% of
the value of its total assets consists of securities the interest on which is
exempt from the regular federal income tax under Code section 103.
Exempt-interest dividends distributed to shareholders are not included in
shareholders' gross income for regular federal income tax purposes.
The Fund will determine periodically which distributions will be
designated as exempt-interest dividends. If the Fund earns income which is not
eligible to be so designated, the Fund, nonetheless, intends to distribute such
income. Such distributions will be subject to federal, state, and local state
taxes, as applicable, in the hands of shareholders.
Distributions of net investment income received by the Fund from
investment in taxable debt securities, or ordinary income realized upon the
disposition of market discount bonds (including tax-exempt market discount
bonds), 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.
Distributions of net capital gains, whether received in cash or
reinvested in Fund shares, will generally be taxable to shareholders as either
"20% Gain" or "28% Gain," depending upon the Fund's holding period for the
assets sold. "20% Gains" arise from sales of assets held by the Fund for more
than 18 months and are subject to a maximum tax rate of 20%, "28% Gains" arise
from sales of assets held by the Fund for more than one year but not more than
18 months and are subject to a maximum tax rate of 28%. Net capital gains from
assets held for one year or less will be taxed as ordinary income. Distributions
will be subject to these capital gains rates regardless of how long a
shareholder has held Fund shares.
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 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.
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. Gain will generally be subject to a
maximum tax rate of 20% if the shareholder's holding period for the shares is
more than 18 months, and a maximum tax rate of 28% if the shareholder's holding
period for the shares is more than one year but not more than 18 months. Gain
from the disposition of shares held not more than one year will be taxed as
short-term capital gain.
Any loss realized from a disposition of Fund shares that were held for
six months or less will be disallowed to the extent that dividends received from
the Fund are designated as exempt-interest dividends. Any loss realized on a
sale or exchange of Fund shares also will be disallowed to the extent that the
shares disposed of are replaced (including replacement through reinvesting of
dividends and capital gain distributions in the Fund) within a period of 61 days
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss, to the extent not disallowed, realized on a
disposition of shares of the Fund with respect to which long-term capital gain
distributions have been paid will, to the extent of those dividends, be treated
as a long-term capital loss if the shares have been held for six months or less
at the time of their disposition.
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.
SPECIAL TAX CONSIDERATIONS
Exempt-interest dividends, whether received by shareholders in cash or
in additional shares, derived by New York residents from interest on qualifying
New York bonds generally are exempt from New York State and New York City
personal income taxes, but not corporate franchise taxes. Dividends and
distributions derived from taxable income and capital gains are not exempt from
New York State and New York City taxes. Interest on indebtedness incurred or
continued by a shareholder to purchase or carry shares of the Fund is not
deductible for New York State or New York City personal income tax purposes.
Gain on the sale of redemption of Fund shares generally is subject to New York
State and New York City personal income tax.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource). Prior to October 3, 1994 the name of the Trust was
"FundTrust".
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) 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.
INDEPENDENT AUDITORS
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent auditors of the Funds of the Trust. 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 02110.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
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, 1997
are hereby incorporated herein by reference from the Annual Report of the Fund
dated October 31, 1997 as filed with the Securities and Exchange Commission. A
copy of such report will be provided without charge to each person receiving
this Statement of Additional Information.
<PAGE>
APPENDIX
ADDITIONAL INFORMATION CONCERNING
NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the Annual Information
Statement of the State of New York dated August 15, 1997.
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.
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 has resumed a more robust rate of growth after a
"soft landing" in 1995, with over 14 million jobs added nationally since early
1992. Since late 1992, the State has added approximately 300,000 jobs.
Employment growth has been hindered during recent years by significant cutbacks
in the computer and instrument manufacturing, utility, defense, and banking
industries. Government downsizing has also moderated these job gains.
The overall rate of growth of the national economy during calendar year
1997 was forecast to be practically identical to the "consensus" of a widely
followed survey of national economic forecasters. Growth in the real gross
domestic product during 1997 was projected to be 3.6 percent, with anticipated
declines in federal spending and net exports more than offset by increases in
consumption and investment. Inflation, as measured by the Consumer Price Index,
was projected to be contained at about 2.6 percent due to improved productivity
and foreign competition. Personal income and wages were projected to increase by
6.0 percent and 6.7 percent respectively.
The forecast of the State's economy showed modest expansion during the
first half of calendar 1997. Although industries that export goods and services
are expected to continue to do well, growth was expected to be moderated by
tight fiscal constraints on health and social services. On an average annual
basis, employment growth in the State was expected to be up slightly from the
1996 rate. Personal income was expected to record moderate gains in 1997. Bonus
payments in the securities industry were expected to increase further from the
prior year's record level.
The forecast for continued slow growth, and any resultant impact on the
State's 1997-98 Financial Plan, contains some uncertainties.
Stronger-than-expected gains in employment could lead to a significant
improvement in consumption spending. Investment could also remain robust.
Conversely, hints of accelerating inflation or fears of excessively rapid
economic growth could create upward pressures on interest rates. In addition,
the State economic forecast could over- or underestimate the level of future
bonus payments or inflation growth, resulting in forecasted average wage growth
that could differ significantly from actual growth. Similarly, the State
forecast could fail to correctly account for declines in banking employment and
the direction of employment change that is likely to accompany
telecommunications and energy deregulation.
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, 1997, and ends on
March 31, 1998, is referred to herein as the State's 1997-98 fiscal year.
The State's budget for the 1997-98 fiscal year was enacted by the
Legislature on August 4, 1997, more than four months after the start of the
fiscal year. 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 all
State-supported debt service. The State Financial Plan for the 1997-98 fiscal
year was formulated on August 11, 1997, and is based on the State's budget as
enacted by the Legislature, as well as actual results for the first quarter of
the current fiscal year. The State Financial Plan will be updated in October and
January.
The adopted 1997-98 budget projects an increase in General Fund
disbursements of 5.2 percent over 1996-97. State Funds (excluding federal
grants) disbursements are projected to increase by 5.4 percent from the prior
fiscal year. All Governmental Funds projected disbursements increase by 7.0
percent over the prior fiscal year.
The 1997-98 State Financial Plan is projected to be balanced on a cash
basis. As compared to the Governor's proposed budget as amended in February
1997, the State's adopted budget for 1997-98 increases General Fund spending by
$1.7 billion, primarily from increases for local assistance ($1.3 billion).
Resources used to fund these additional expenditures include increased revenues
projected for the 1997-98 fiscal year, increased resources produced in the
1996-97 fiscal year that will be utilized in 1997-98, re-estimates of social
service, fringe benefit and other spending, and certain non-recurring resources.
Resources used to fund these additional expenditures include incresed
revenues projected for the 1997-98 fiscal year, increased resources produced in
the 1996-97 fiscal year that will be utilized in 1997-98, re-estimates of social
service, fringe benefit and other spending, and certain non-recurring resources.
The total amount of non-recurring resources included in the 1997-98 State budget
is projected to be $270 million, or 0.7 percent of total General Fund receipts.
The 1997-98 Financial Plan also includes: a projected General Fund
reserve of $530 million; a projected balance of $332 million in the Tax
Stabilization Reserve Fund, and a projected $65 million balance in the
Contingency Reserve Fund.
The projections do not include any subsequent actions that the Governor
may also take to exercise his line-item veto (or vetoing any companion
legislation) before signing the 1997-98 budget appropriation bills into law.
Under the Constitution, the Governor may veto any additions to the Executive
Budget within 10 days after the submission of appropriation bills for his
approval. If the Governor were to take such action, the resulting impact on the
Financial Plan would be positive.
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. In addition, 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. The Division of Budget believes that
its projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable.
Actual results, however, could differ materially and adversely from the
projections set forth in the Annual Information Statement, and those projections
may be changed materially and adversely from time to time. There are also risks
and uncertainties concerning the future-year impact of actions taken in the
1997-98 budget.
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 1997-98 fiscal year, the General Fund is expected to account for
approximately 48 percent of total governmental-funded disbursements and 71
percent of total State Funds disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service payments in other fund types.
The Financial Plan for the 1997-98 fiscal year projects General Fund
receipts, including transfers from other funds, of $35.09 billion, an increase
of $2.05 billion from the total receipts in the prior fiscal year. This total
includes $31.68 billion in tax receipts, $1.48 billion in miscellaneous
receipts, and $1.94 billion in transfers from other funds.
The projected $2 billion increase in receipts exaggerates the
underlying year-to-year growth in State tax revenues. This increase is largely
the result of actions undertaken by the State to utilize the $1.4 billion
1996-97 budget surplus reported by the Department of the Budget to finance costs
in the State's 1997-98 fiscal year. This transaction reduced reported receipts
in the 1996-97 fiscal year and increased projected receipts in the State's
1997-98 fiscal year. Conversely, the incremental cost of tax reductions newly
effective in 1997-98 and the impact of new earmarking statutes which divert
receipts from the General Fund to other funds work to depress apparent growth
below the underlying growth in the receipts base attributable to expansion of
the State's economy. After adjusting for these actions, tax receipts are
projected to grow by approximately 5 percent in 1997-98.
Personal income tax is imposed on the income of individuals, estates
and trusts and is based on federal definitions of income and deductions with
certain modifications. In 1995, the State enacted a tax-reduction program
designed to reduce receipts from the personal income tax by 20 percent over
three years. Prior to 1995, the tax had remained substantially unchanged since
1989 as a result of annual deferrals of tax reductions originally enacted in
1987. The tax-reduction program is estimated to reduce receipts by approximately
$4 billion in the 1997-98 fiscal year, compared to what tax receipts would have
been under the pre-1995 rate structure. The maximum rate was reduced from the
7.875 percent in effect between 1989 and 1994 to 6.85 percent for 1997 and
thereafter. On a current law basis, 1997 income tax liability is expected to
fall slightly, reflecting the tax cut. On a constant law basis, liability growth
during taxable year 1997 would be between 6 and 7 percent.
The projected net collections of personal income tax in the 1997-98
fiscal year of $18.87 billion is over half of all General Fund receipts and an
increase of $2.5 billion from reported collections in the State's 1996-97 fiscal
year. Virtually all of the projected annual growth in this category, however, is
provided by tax refund and refund reserve transactions which affect reported
receipt levels in the 1995-96 through 1997-98 fiscal years. Without these
transactions between years, income tax receipts in 1997-98 would be virtually
flat.
Receipts in user taxes and fees in the State's 1997-98 fiscal year are
expected to total $7 billion, an increase of $204 million from reported 1996-97
results. The sales tax component of this category accounts for all of the
projected 1997-98 growth in this category, as receipts from all other sources
are projected to decline by $3 million. The yield of most of the excise taxes in
this category show a long-term declining trend, particularly cigarette and
alcoholic beverage taxes. These declines in the 1997-98 fiscal year are
projected to be offset by an increase in anticipated motor vehicle fees arising,
in large part, from legislative actions that raise additional receipts from this
source.
Total business tax collections in 1997-98 are now projected to be $4.83
billion, $253 million less than received in the prior fiscal year. The
year-over-year decline in projected receipts in this category is a function of
both statutory changes between the two years -- 1997 is the first "surcharge
free" taxable period in this decade -- and a number of essentially one-time
transactions that increased receipts in the base year, including unusually large
audit receipts under the bank tax. Business taxes include franchise taxes based
generally on net income of general business, bank and insurance corporations, as
well as gross-receipts-based taxes on utilities and gallonage-based petroleum
business taxes. Beginning in 1994, a 15 percent surcharge on these levies began
to be phased out and, for most taxpayers, there will be no surcharge liability
for taxable periods ending in 1997 and thereafter.
Total receipts from other taxes and miscellaneous receipts in the
State's 1997-98 fiscal year are projected at $2.462 billion, nearly $700 million
less than in the preceding year. This figure masks the significant increase in
estate tax collections during the first four months of the fiscal year, and
results largely from the dedication of the proceeds of the real estate transfer
tax to meet debt service obligations on the new Clean Water/Clean Air bond act
and from the full-year impact of the repeal of the real property gains tax. The
reduction also reflects a significant diminution in the amount of non-recurring
resources used in the 1997-98 State Financial Plan as compared to 1996-97.
Additionally, transfers from other funds to the General Fund consisting
primarily of tax revenues in excess of debt service requirements (particularly
the 1% sales tax used to support payments to the LGAC) are projected to be $1.48
billion, or $58 million more than in the 1996-97 fiscal year. All other
transfers are projected to increase by $237 million, primarily reflecting the
non-recurring transfer of $200 million for retroactive reimbursement to the
state of certain social services claims from the federal government
General Fund Disbursements
Disbursements from grants to local governments are projected to total
$23.63 billion in the 1997-98 State Financial Plan, an increase of $750 million
from 1996-97 levels. This category of the State Financial Plan includes $11.57
billion in aid for elementary, secondary, and higher education. This category of
the financial plan is affected by the reclassification of costs formerly
budgeted as City University local assistance that are now included in the
transfers for debt service category. This has the effect of decreasing
disbursements in this category by a projected $262 million, and raising
projected transfers by the same amount.
General Fund disbursements and transfers to capital, debt service and
other funds are projected at $34.60 billion, an increase of $1.7 billion (5
percent) from 1996-97 fiscal year levels. Over the last two years, spending
growth for most State agencies and programs has been negative or flat, producing
an overall decline in General Fund spending during that period. The 1997-98
adopted budget reflects negotiated increases for State employee salaries,
increased transfers for debt service, and other mandated increases, as well as
increased investments in school aid, higher education, mental health, and public
protection.
Grants to local governments is the largest category of General Fund
disbursements, and accounts for approximately 68 percent of overall General Fund
spending. Disbursements from this category are projected to total $23.63 billion
in the 1997-98 State Financial Plan, an increase of $750 million (3.3 percent)
from 1996-97 levels. This includes $11.57 billion in aid for elementary,
secondary, and higher education, accounting for 49 cents of every dollar spent
in this category. On a school year basis, school aid increases by $750 million,
including formula-based elementary and secondary education aid increases of $650
million. This category of the Financial Plan is affected by the reclassification
of costs formerly budgeted as City University local assistance that are now
included in the transfers for debt service category. This has the effect of
decreasing disbursements in this category by a projected $262 million, and
raising projected transfers by the same amount.
General Fund payments for Medicaid are projected to be $5.42 billion,
virtually unchanged from the level of $5.38 billion in 1996-97. This slow growth
is due primarily to continuation of cost containment measures enacted in 1995-96
and 1996-97, new reforms included in the 1997-98 adopted budget and forecasts
for slower underlying growth. Other social service spending is forecast to
increase by only $115 million to $3.15 billion in 1997-98. This slow growth
stems from continued State efforts to reduce welfare fraud, declining caseloads,
and changes produced by federal welfare legislation enacted in 1996.
Remaining disbursements primarily support community-based mental
hygiene programs, community and public health programs, local transportation
programs, and revenue sharing payments to local governments. Revenue sharing and
other general purpose aid is projected at $802 million, an increase of
approximately $54 million from 1996-97.
State operations spending reflects the administrative costs of
operating the State's agencies, including the prison system, mental hygiene
institutions, the State University system ("SUNY"), the Legislature, and the
court system. Personal service costs account for approximately 71 percent of
this category. Since January 1995, the State's workforce has been reduced by
about 10 percent, and is projected to reach a level of approximately 191,000
persons by the end of the 1997-98 fiscal year. Collective bargaining agreements
have been ratified by employee bargaining units representing most State
employees subject to such agreements, and the 1997-98 projections reflect salary
increases under these agreements. For more information on the State's workforce,
see the section entitled "State Organization -- State Government Employment."
Disbursements for State operations are projected at $6.22 billion, an
increase of $441 million or 7.6 percent over the 1996-97 fiscal year. About $200
million of this increase results from approved collective bargaining agreements
and the impact of binding arbitration settlements. Other major increases include
growth in SUNY operations, increased mental hygiene costs resulting from
increased assessments on State-operated programs, public protection agency
spending, which is increasing to reflect the impact of sentencing reforms and
prison expansion, and higher spending by the Judiciary and Legislature.
General State charges primarily reflect the costs of providing fringe
benefits for State employees, including contributions to pension systems, the
employer's share of social security contributions, employer contributions toward
the cost of health insurance, and the costs of providing worker's compensation
and unemployment insurance benefits. This category also reflects certain fixed
costs such as payments in lieu of taxes, and payments of judgments against the
State or its public officers.
Disbursements for General State charges are projected to total $2.18
billion in the 1997-98 State Financial Plan virtually unchanged from 1996-97
levels. Pension costs are projected to grow moderately year over year, while
most of the projected growth in fixed costs is related to increased payments to
localities for State-owned lands. These increases are fully offset by continued
savings from health care and worker's compensation reforms, which account for
most of the cost containment savings in this area.
Debt service paid from the General Fund for 1997-98 reflects only the
$11 million interest cost of the State's commercial paper program. This is
approximately the same level as last year, reflecting projections for stable
interest rates for the balance of the fiscal year. Debt service on long-term
obligations is paid from Debt Service Funds as described below.
Finally, in addition to disbursements previously outlined, transfers to
other funds from the General Fund are made primarily to finance certain portions
of State capital project spending and debt service on long-term bonds, where
these costs are not funded from other sources. Transfers to other funds for debt
service are projected at $2.07 billion in 1997-98, an increase of $496 million.
This reflects the increased debt service impact of prior year bond sales (net of
refunding savings), the reclassification of City University debt service costs
that had been previously included in grants to local governments, and the
inclusion of costs associated with the 1996-97 bonding of previous pension
liabilities at lower interest rates. This action has the effect of adding $159
million in costs that would have otherwise been included with general State
charges.
Transfers for capital projects provide General Fund support for
projects not otherwise financed through bond proceeds, dedicated taxes and other
revenues and federal grants. These transfers are projected at $184 million for
1997-98, an increase of $46 million. The 1997-98 State Financial Plan also
includes $299 million for subsidies or transfers to other State funds, a
decrease of $30 million from last year's level.
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
1997-98, the State Financial Plan projects disbursements of $28.22 billion from
these funds, an increase of $2.51 billion over 1996-97 levels. Disbursements
from federal funds, primarily the federal share of Medicaid and other social
services programs, are projected to total $21.19 billion in the 1997-98 fiscal
year. Remaining projected spending of $7.26 billion primarily reflects aid to
SUNY supported by tuition and dormitory fees, education aid funded from lottery
receipts, operating aid payments to the 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 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 various other
capital funds established to distinguish specific capital construction purposes
supported by other revenues.
Disbursements from the Capital Projects Funds in 1997-98 are projected
at $3.70 billion, an increase of $154 million over prior-year levels.
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 $3.17 billion in the 1997-98 fiscal year, an
increase of $641 million from 1996-97. The transfer from the General Fund of
$2.07 billion is expected to finance 65 percent of these payments. The remaining
payments are expected to be financed by pledged revenues, including $2.03
billion in taxes and $601 million in dedicated fees, and other miscellaneous
receipts. After required impoundment for debt service, $3.77 billion is expected
to be transferred to the General Fund and other funds in support of State
operations. The largest transfer -- $1.86 billion -- is made to the Special
Revenue fund type in support of operations of the mental hygiene agencies.
Another $1.47 billion in excess sales taxes is expected to be transferred to the
General Funds following payment of projected debt service on LGAC bonds.
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
last five fiscal years, the State recorded balanced budgets on a cash basis,
with positive fund balances in each year.
1996-97 Fiscal Year
The State ended its 1996-97 fiscal year on March 31, 1997 in balance on
a cash basis, with a General Fund cash surplus as reported by the Division of
the Budget of approximately $1.4 billion. The cash surplus was derived primarily
from higher-than-expected revenues and lower-than-expected spending for social
services programs. The Governor in his Executive Budget applied $1.05 billion of
the cash surplus amount to finance the 1997-98 Financial Plan, and the
additional $373 million is available for use in financing the 1997-98 Financial
Plan when enacted by the State Legislature.
The General Fund closing fund balance was $433 million. Of that amount,
$317 million was in the Tax Stabilization Reserve Fund "TSRF," after a required
deposit of $15 million and an additional deposit of $65 million in 1996-97. The
TSRF can be used in the event of any future General Fund deficit, as provided
under the State Constitution and State Finance Law. In addition, $41 million
remains on deposit in the CRF. This fund assists the State in financing any
extraordinary litigation costs during the fiscal year. The remaining $75 million
reflects amounts on deposit in the Community Projects Fund. This fund was
created to fund certain legislative initiatives. The General Fund closing fund
balance does not include $1.86 billion in the tax refund reserve account, of
which $521 million was made available as a result of the Local Government
Assistance Corporation ("LGAC") financing program and was required to be on
deposit as of March 31, 1997.
General Fund receipts and transfers from other funds for the 1996-97
fiscal year totaled $33.04 billion, an increase of 0.7 percent from the previous
fiscal year (excluding deposits into the tax refund reserve account). General
Fund disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7 percent from the 1995-96 fiscal year.
1995-96 Fiscal Year
The State ended its 1995-96 fiscal year on March 31, 1996 with a
General Fund cash surplus. The Division of the Budget reported that revenues
exceeded projections by $270 million, while spending for social service programs
was lower than forecast by $120 million and all other spending was lower by $55
million. From the resulting benefit of $445 million, a $65 million voluntary
deposit was made into the "TSRF", and $380 million was used to reduce 1996-97
Financial Plan liabilities by accelerating 1996-97 payments, deferring 1995-96
revenues, and making a deposit to the tax refund reserve account.
The General Fund closing fund balance was $287 million, an increase of
$129 million form 1994-95 levels. The $129 million change in fund balance is
attributable to the $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the Contingency Reserve
Fund ("CRF"), and a $9 million deposit to the Revenue Accumulation Fund. The
closing fund balance includes $237 million on deposit in the TSRF, to be used in
the event of any future General Fund deficit as provided under the State
Constitution and State Finance Law. In addition, $41 million is on deposit in
the CRF. The CRF was established in State fiscal year 1993-94 to assist the
State in financing the costs of extraordinary litigation. The remaining $9
million reflects amounts on deposit in the Revenue Accumulation Fund. This fund
was created to hold certain tax receipts temporarily before their deposit to
other accounts. In addition, $678 million was on deposit in the tax refund
reserve account, of which $521 million was necessary to complete the
restructuring of the State's cash flow under the LGAC program.
General Fund receipts totaled $32.81 billion, a decrease of 1.1 percent
from 1994-95 levels. This decrease reflects the impact of tax reductions enacted
and effective in both 1994 and 1995. General Fund disbursements totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels. Mid-year spending reductions, taken as part of a management review
undertaken in October at the direction of the Governor, yielded savings from
Medicaid utilization controls, office space consolidation, overtime and
contractual expense reductions, and statewide productivity improvements achieved
by State agencies. Together with decreased social services spending, this
management review accounts for the bulk of the decline in spending.
1994-95 Fiscal Year
The State ended its 1994-95 fiscal year with the General Fund in
balance. The $241 million in the fund balance reflects the planned use of $264
million from the CRF, partially offset by the required deposit of $23 million to
the TSRF. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited to continue the process of
restructuring the State's cash flow as part of the LGAC program. The closing
fund balance of $158 million reflects $157 million in the TSRF and $1 million in
the CRF.
General Fund receipts totaled $33.16 billion, an increase of 2.9
percent from 1993-94 levels. General Fund disbursements totaled $33.40 billion
for the 1994-95 fiscal year, an increase of 4.7 percent form the previous fiscal
year. The increase in disbursements was primarily the result of one-time
litigation costs for the State, funded by the use of the CRF, offset by $188
million in spending reductions initiated in January 1995 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.
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
has achieved balanced operating results for each of its fiscal years since 1981
as reported in accordance with GAAP.
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
("OSDC") 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.
Implementation of the financial plan is also dependent upon the ability
of the City and certain Covered Organizations to market their securities
successfully. The City issues securities to finance, refinance and rehabilitate
infrastructure and other capital needs, as well as for seasonal financing needs.
In order to help the City to avoid exceeding its State Constitutional general
debt limit, the state created the New York City Transitional Finance Authority
to finance a portion of the City's capital program. Despite this additional
financing mechanism, the City currently projects that, if no further action is
taken, it will reach its debt limit in City fiscal year 1999-2000. On June 2,
1997, an action was commenced seeking a declaratory judgment declaring the
legislation establishing the Transitional Finance Authority to be
unconstitutional. If such legislation were voided, projected contracts for City
capital projects would exceed the City's debt limit during fiscal year 1997-98.
Future developments concerning the City or its Covered Organizations, and public
discussion of such developments, as well as prevailing market conditions and
securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such Covered Organizations and may also affect the market
for their outstanding securities.
The staffs of the OSDC, the Control Board and the City Controller 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. According to recent staff reports, while economic recovery in New
York City has been slower than in other regions of the country, a surge in Wall
Street profitability resulted in increased tax revenues and generated a
substantial surplus for the City in City fiscal year 1996-97. Although several
sectors of the City's economy have expanded recently, especially tourism and
business and professional services, City tax revenues remain heavily dependent
on the continued profitability of the securities industries and the course of
the national economy. These reports have also indicated that recent City budgets
have been balanced in part through the use of non-recurring resources; that the
City's Financial Plan tends to rely on actions outside its direct control; that
the City has not yet brought its long-term expenditure growth in line with
recurring revenue growth; and that the City is therefore likely to continue to
face substantial gaps between forecast revenues and expenditures in future years
that must be closed with reduced expenditures and/or increased revenues. In
addition to these monitoring agencies, the Independent Budget Office ("IBO") has
been established pursuant to the City Charter to provide analysis to elected
officials and the public on relevant fiscal and budgetary issues affecting the
City.
OTHER LOCALITIES
In addition to the City, certain localities have experienced financial
problems leading to requests for additional State assistance during the last
several state fiscal years. The potential impact on the State of any future
requests by localities for additional assistance is not included in the
projections of the State's receipts and disbursements for the State's 1997-98
fiscal year.
Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, aid that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share the more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97 percent increase in
General Purpose State Aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in the State other than New York City was approximately $19.0
billion. A small portion (approximately $102.3 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
State enabling legislation. State law requires the Comptroller to review and
make recommendations concerning the budgets of those local government units
other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Eighteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1995.
From time to time, federal expenditure reductions could reduce, or in
some cases, eliminate, federal funding of some local programs, and, accordingly,
might impose substantial increased expenditure requirements on affected
localities. 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, 1995,
aggregate outstanding debt, including refunding bonds, of all State public
authorities was $75.4 billion, only a portion of which constitutes
state-supported or state-related debt.
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.
Since 1980, the State has enacted several taxes (including a surcharge
on the profits of banks, insurance corporations and general business
corporations doing business in the 12-county region 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 1997-98 State fiscal year, total State
assistance to the MTA is estimated at approximately $1.2 billion.
State legislation accompanying the 1996-97 adopted State budget
authorized the MTA, Triborough Bridge and Tunnel Authority, and TA to issue an
aggregate of $6.5 billion in bonds to finance a portion of a new $12.17 billion
MTA capital plan for the 1995 through 1999 calendar years (the "1995-99 Capital
Program"), and in July 1997 the Capital Program Review Board approved the
1995-99 Capital Program. This plan supersedes the overlapping portion of the
MTA's 1992-96 Capital Program. This is the fourth five-year plan since the
Legislature authorized procedures for the adoption, approval and amendment of
capital programs designed to upgrade the performance of the MTA's transportation
systems and to supplement, replace and rehabilitate facilities and equipment.
The 1995-99 Capital Program assumes the issuance of an estimated $5.1 billion in
bonds under this $6.5 billion aggregate bonding authority. The remainder of the
plan is projected to be financed through assistance from the State, the federal
government, and the City of New York, and from various other revenues generated
from actions taken by the MTA.
There can be no assurance that all the necessary governmental actions
for future capital programs will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 Capital
Program, or parts thereof, will not be delayed or reduced. Should funding levels
fall below current projections, the MTA would have to revise its 1995-99 Capital
Program accordingly. 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.
<PAGE>
REPUBLIC U.S.
GOVERNMENT MONEY MARKET FUND
3435 Stelzer Road
Columbus, Ohio 43219-3035
General
and (888) 525-5757(Toll Free)
Account Information
- --------------------------------------------------------------------------------
Republic National Bank of New York - Investment Adviser
("Republic" or the "Adviser")
BISYS Fund Services -
Administrator, Distributor and Sponsor
("BISYS," "Sponsor" or "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 management
investment company which currently consists of seven 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 three separate classes, Class A (formerly designated Class C) (the
"Investor Shares"), Class B and Class Y (the "Adviser Shares").
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.
Investor Shares and Adviser 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. Class B Shares may be acquired only through an exchange of
shares from the corresponding classes of other funds of the Trust.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY A PROSPECTUS
FOR THE FUND DATED FEBRUARY 1, 1998 (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.
February 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
Investment Objective, Policies and Restrictions..........................
Portfolio Transactions..........................................
Investment Restrictions.........................................
Non-Fundamental Restriction.....................................
Percentage and Rating Restrictions..............................
Performance Information..................................................
Management Of the Trust..................................................
Trustees and Officers...........................................
Compensation Table..............................................
Investment Adviser..............................................
Administrator...................................................
Distribution Plans - Investor Shares and Class B Shares ........
Administrative Services Plan....................................
Shareholder Servicing Agents....................................
Transfer Agent and Custodian....................................
Expenses........................................................
Determination Of Net Asset Value.........................................
Taxation.................................................................
Other Information........................................................
Capitalization..................................................
Voting Rights...................................................
Independent Auditors............................................
Counsel.........................................................
Registration Statement..........................................
Financial Statements............................................
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated February 1, 1998, 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.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Fund discussed under the caption "Investment
Objective and Policies" in the Prospectus.
The investment objective of the Fund is to provide shareholders of the
Fund with liquidity and as high a level of current income as is consistent with
the preservation of capital. The Trust seeks to achieve the investment objective
of the Fund by investing the assets of the Fund in U.S. Government-backed
obligations which have, or are deemed to have, remaining maturities not
exceeding 397 days, and in repurchase agreements collateralized by U.S.
Government-backed obligations.
The investment objective of the Fund and related policies and
activities are not fundamental and may be changed by the Board of Trustees of
the Trust without the approval of Fund shareholders.
PORTFOLIO TRANSACTIONS. Purchases and sales of securities will usually
be principal transactions. Portfolio securities normally will be purchased or
sold from or to issuers directly or from or to dealers serving as market makers
for the securities at a net price. Generally, money market securities are traded
on a net basis and do not involve brokerage commissions. The cost of executing
portfolio securities transactions for the Fund primarily consists of dealer
spreads and underwriting commissions. Under the Investment Company Act of 1940
(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
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 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
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;
(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 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 RESTRICTION. The Fund will not as a matter of operating
policy:
(i) invest more than 15% of the net assets of the Fund (taken at the
greater of cost or market value) in securities that are issued by
issuers which (including the period of operation of any predecessor
company or unconditional guarantor of such issuer) have been in
operation less than three years (including predecessors) or in
securities that are restricted as to resale by the 1933 Act (including
Rule 144A securities).
PERCENTAGE AND RATING RESTRICTIONS. If a percentage restriction or a
rating restriction on investment or utilization of assets set forth above or
referred to in the Prospectus is adhered to at the time an investment is made or
assets are so utilized, a later change in percentage resulting from changes in
the value of the securities held by the Fund or a later change in the rating of
a security held by the Fund is not considered a violation of policy, however the
Adviser will consider such change in its determination of whether to hold the
security. To the extent the ratings given by Moody's Investors Service, Inc. or
Standard & Poor's Corporation may change as a result of changes in such
organizations or their rating systems, the Adviser will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies set forth in the Prospectus.
PERFORMANCE INFORMATION
Any current "yield" quotation of the Fund which is used in such a
manner as to be subject to the provisions of Rule 482(d) under the 1933 Act
consists of an annualized historical yield, carried at least to the nearest
hundredth of one percent, based on a specific seven calendar day period and is
calculated by dividing the net change in the value of an account having a
balance of one share at the beginning of the period by the value of the account
at the beginning of the period and multiplying the quotient by 365/7. For this
purpose the net change in account value would reflect the value of additional
shares purchased with dividends declared on the original share and dividends
declared on both the original share and any such additional shares, but would
not reflect any realized gains or losses from the sale of securities or any
unrealized appreciation or depreciation on portfolio securities. In addition,
any "effective yield" quotation of the Fund so used is calculated by compounding
the current yield quotation for such period by multiplying such quotation by
7/365, adding 1 to the product, raising the sum to a power equal to 365/7, and
subtracting 1 from the result.
The annualized yield of the Fund for the seven-day period ended
September 30, 1997 was 4.84% for Investor Shares and 5.09% for Adviser Shares.
The effective annualized yield of the Fund for such period was 4.96% for
Investor Shares and 5.22% for Adviser Shares. Class B Shares were not offered
prior to February 1, 1998.
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 of the first day of such
period, and (b) subtracting 1 from the results. 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 average annual total return of the Investor Shares of the
Fund for the one-year period and five-year period ended September 30, 1997 was
4.89% and 4.27%, respectively, and the average annual total rate of return of
the Investor Shares of the Fund for the period from May 3, 1990 (commencement of
operations) to September 30, 1997 was 4.69%. The total rate of return for
Adviser Shares of the Fund for the one-year period ended September 30, 1997 was
5.15% and the average annual total rate of return of the Adviser Shares for the
period from July 1, 1996 (commencement of operations) to September 30, 1997 was
4.73%. Class B Shares were not offered prior to February 1, 1998.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) unmanaged indices so that investors may compare
the Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the securities markets in general, (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies
(including IBC/Donoghue's Money Fund Reports), publications, or persons who rank
mutual funds on overall performance or other criteria; and (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of return from an
investment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objective and policies, characteristics and
quality of the portfolios and the market conditions during the given time
period, and should not be considered as a representation of future results.
Investors who purchase and redeem shares of the Fund through a
Shareholder Servicing Agent may be charged one or more of the following types of
fees as agreed upon by the Shareholder Servicing Agent and the investor, with
respect to the customer services provided by the Shareholder Servicing Agent:
account fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the yield and
effective yield of the Fund for those investors.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust. The address of each, unless otherwise indicated, is 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
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).
GEORGE O. MARTINEZ*, President and Secretary
Senior Vice President and Director of Legal and Compliance Services,
BISYS Fund Services, Inc., March 1995 to present; Senior Vice
President, Emerald Asset Management, Inc., August 1995 to present; Vice
President and Associate General Counsel, Alliance Capital Management,
June 1989 to March 1995.
KAREN DOYLE*, Vice President
Manager of Client Services for BISYS Fund Services, Inc., October 1994
to present; Employee of the Bank of New York, 1979 to October 1994.
FRANK M. DEUTCHKI*, Vice President
Employee of BISYS Fund Services, Inc., April 1996 to present; Vice
President, Chase Global Funds Service, September 1995 to April 1996;
Vice President, Mutual Funds Service Company, 1989 to September 1995.
ADRIAN WATERS*, Treasurer
Employee of BISYS Fund Services (Ireland) LTD., May 1993 to present;
Manager, Price Waterhouse, 1989 to May 1993.
CATHERINE BRADY*, Assistant Treasurer
Employee of BISYS Fund Services (Ireland) LTD., March 1994 to present;
Supervisor, Price Waterhouse, 1990 to March 1994.
ALAINA METZ*, Assistant Secretary
Chief Administrator, Administrative and Regulatory Services, BISYS Fund
Services, Inc., June 1995 to present; Supervisor, Mutual Fund Legal
Department, Alliance Capital Management, May 1989 to June 1995.
Messrs. Martinez, Deutchki and Waters and Mss. Doyle, Brady and
Metz also are officers of certain other investment companies of which BISYS or
an affiliate is the administrator.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Estimated Total
Aggregate Accrued as Annual Compensation
Name of Compensation Part of Fund Benefits Upon From Fund Complex*
Trustee from Trust Expenses Retirement to Trustees
- ------- ------------ ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Frederick C. Chen $2,900 none none $8,600
Alan S. Parsow $2,600 none none $7,600
Larry M. Robbins $2,600 none none $7,600
Michael Seely $2,600 none none $7,600
</TABLE>
- ----------
* The Fund Complex includes the Trust, Republic Advisor Funds Trust, and
Republic Portfolios.
The compensation table above reflects the fees received by the Trustees
for the year ended September 30, 1997. 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 for each meeting of the Board of
Trustees or committee thereof attended, except that Mr. Robbins will receive an
annual retainer of $4,600 and a fee of $1,000 for each meeting attended.
As of January 14, 1998, 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 -- 77.78% (Investor Shares); Kinco & Co. c/o Securities
Services, One Hanson Place, Brooklyn, New York, 11243 -- 6.37% (Investor Shares)
and 63.97% (Adviser Shares); and BHC Securities, Inc. attn. Cash Sweeps Dept.,
Twelve Hundred, One Commerce Square, 2005 Market Street, Philadelphia,
Pennsylvania 19103-3212 -- 11.58% (Investor Shares). Shareholders who own more
than 25% of the outstanding voting securities of the Fund may be deemed to
control the Fund by virtue of such share ownership.
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 positions as
officers with the Trust, unless, as to liability to the Trust or its
shareholders, it is finally adjudicated that they engaged in willful
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 willful 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 continue in effect with respect
to the Fund, provided such continuance is approved annually (i) by the holders
of a majority of the outstanding voting securities of the Fund or by the Board
of Trustees, and (ii) by a majority of the Trustees who are not parties to such
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Contract may be terminated with respect to the Fund without penalty by
either party on 60 days' written notice and will terminate automatically if
assigned. The Contract provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Fund, except for willful misfeasance, bad faith or gross
negligence or of reckless disregard of its or their obligations and duties under
the Contract.
For the year ended September 30, 1995, Republic received investment
advisory fees of $110,960 net of fee waivers and reimbursement. For the year
ended September 30, 1996, the Fund accrued investment advisory fees of $365,782
to Republic, of which $182,891 was waived. For the year ended September 30,
1997, the Fund accrued investment advisory fees of $734,759 to Republic, of
which $367,379 was waived.
ADMINISTRATOR
The Administration Agreement will remain in effect until March 31,
1999, and automatically will continue in effect thereafter from year to year
unless terminated upon 60 days' written notice to BISYS. The Administration
Agreement will terminate automatically in the event of its assignment. The
Administration Agreement also provides that neither BISYS 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 Administration Agreement.
For the year ended September 30, 1995, the Fund accrued administration
fees of $221,919, of which $104,924 was waived by its former administrator. For
the year ended September 30, 1996, the Fund accrued administration fees equal to
$365,782, of which $148,783 was waived. For the year ended September 30, 1997,
the Fund accrued administration fees equal to $368,176, none of which was
waived.
DISTRIBUTION PLANS - INVESTOR SHARES AND CLASS B SHARES ONLY
Two Distribution Plans have been adopted by the Trust (the
"Distribution Plans") with respect to the Investor Shares (the "Class A Plan")
and the Class B Shares (the "Class B Plan"). The Distribution Plans provide that
they may not be amended to increase materially the costs which either the
Investor Shares or Class B Shares may bear pursuant to the Class A Plan or Class
B Plan without approval by shareholders of the Investor Shares or Class B
Shares, respectively, and that any material amendments of the Distribution Plans
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 Plans
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 Plans have been approved, and are 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
Plans. In adopting the Class A Plan and Class B Plan, the Trustees considered
alternative methods to distribute the Investor Shares and Class B Shares and to
reduce each class's expense ratio and concluded that there was a reasonable
likelihood that each Distribution Plan will benefit their respective class and
that class's shareholders. The Distribution Plans are terminable with respect to
the Investor Shares and Class B Shares at any time by a vote of a majority of
the Qualified Trustees or by vote of the holders of a majority of that class.
The Fund did not incur expenses pursuant to the Distribution Plans
during the fiscal period ended September 30, 1997.
ADMINISTRATIVE SERVICES PLAN
An Administrative Services Plan has been adopted by the Trust with
respect to the Investor shares, Class B shares and Adviser shares, 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 Investor Shares, Class
B Shares or Adviser Shares 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 Investor Shares,
Class B Shares or Adviser Shares 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 Investor Shares and Class B Shares, see "Management of the Trust -
Shareholder Servicing Agents" in the Prospectus.
TRANSFER AGENT AND CUSTODIAN
The Board of Trustees of the Trust has also approved a Transfer Agency
Agreement between the Trust and Investors Bank & Trust Company ("IBT") pursuant
to which IBT will provide fund accounting services, transfer agency services
with respect to Investor Shares and Adviser Shares, dividend disbursing services
and shareholder servicing services to the Trust and the Fund. The principal
business address of IBT is 200 Clarendon Street, Boston, Massachusetts 02117.
The Board of Trustees has also approved a Custodian Agreement between the Trust
and Republic pursuant to which Republic will provide custodial services to the
Trust and the Fund and a Transfer Agency Agreement between the Trust and BISYS
pursuant to which BISYS will provide transfer agency services with respect to
the Class B Shares of the Fund.
EXPENSES
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 Investor Shares or Class B Shares must include payments made pursuant to
their respective 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 Funds.
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, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
As discussed under the caption "Dividends and Distributions" in the
Prospectus, the Trust uses the amortized cost method to determine the value of
the Fund's portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing an obligation at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates on the market value of the security. During these
periods the yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund which utilizes a method of valuation based upon
market prices. Thus, during periods of declining interest rates, if the use of
the amortized cost method resulted in a lower value of the Fund's portfolio on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from an investment in a fund utilizing
solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Fund's dollar-weighted average portfolio maturity of
90 days or less must be maintained, and only securities having remaining
maturities of 397 days or less which are determined by the Trust's Board of
Trustees to be of high quality with minimal credit risks may be purchased.
Pursuant to Rule 2a-7, the Board has established procedures designed to
stabilize, to the extent reasonably possible, the price per share of the Fund,
as computed for the purpose of sales and redemptions, at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Board of Trustees, at
such intervals as it may deem appropriate, to determine whether the net asset
value of the Fund calculated by using available market quotations deviates from
the $1.00 per share valuation based on amortized cost. The extent of any
deviation is examined by the Board of Trustees. If such deviation exceeds
$0.003, the Board promptly considers what action, if any, will be initiated. In
the event the Board determines that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
the Board will take such corrective action as it regards as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value per share by using
available market quotations.
TAXATION
The following is a summary of certain U.S. federal income tax issues
concerning the Fund and its shareholders. The Fund may also be subject to state,
local, foreign or other taxes not discussed below. This discussion does not
purport to be complete or to address all tax issues relevant to each
shareholder. Prospective investors should consult their own tax advisors with
regard to the federal, state, foreign and other tax consequences to them of the
purchase, ownership or disposition of Fund shares. This discussion is based upon
present provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and administrative
authorities, all of which are subject to change, which change may be
retroactive.
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 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, whether received in cash or
reinvested in Fund shares, will generally be taxable to shareholders as either
"20% Gain" or "28% Gain," depending upon the Fund's holding period for the
assets sold. "20% Gains" arise from sales of assets held by the Fund for more
than 18 months and are subject to a maximum tax rate of 20%; "28% Gains" arise
from sales of assets held by the Fund for more than one year but not more than
18 months and are subject to a maximum tax rate of 28%. Net capital gains from
assets held for one year or less will be taxed as ordinary income. Distributions
will be subject to these capital gains rates regardless of how long a
shareholder has held Fund shares. 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. Gain will generally be subject to
a maximum tax rate of 20% if the shareholder's holding period for the shares is
more than 18 months, and a maximum tax rate of 28% if the shareholder's holding
period for the shares is more than one year but not more than 18 months. Gain
from the disposition of shares held not more than one year will be taxed as
short-term capital gain. 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 for purposes of Massachusetts law.
The foregoing discussion relates only to federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by the Fund also
may be subject to state and local taxes, and their treatment under state and
local income tax laws may differ from the federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisors regarding U.S. and foreign tax
consequences of ownership of shares of the Fund including the likelihood that
distributions to them would be subject to withholding of U.S. tax at a rate of
30% (or at a lower rate under a tax treaty).
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource). Prior to October 3, 1994 the name of the Trust was
"FundTrust".
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) 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.
INDEPENDENT AUDITORS
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent auditors of the Funds of the Trust. 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 02110.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
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, 1997 are
hereby incorporated herein by reference from the Annual Report of the Fund dated
September 30, 1997 as filed with the Securities and Exchange Commission. A copy
of such report will be provided without charge to each person receiving this
Statement of Additional Information.
