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REPUBLIC
SMALL CAP
EQUITY FUND
[graphic omitted]
PROSPECTUS
SEPTEMBER 1, 1996
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REPUBLIC SMALL CAP EQUITY FUND
3435 STELZER ROAD, SUITE 1000, COLUMBUS, OHIO 43219
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ACCOUNT AND GENERAL INFORMATION: (888) 525-5757 (TOLL FREE)
Republic Small Cap Equity Fund (the "Fund") is a diversified series of
Republic Advisor Funds Trust (the "Trust"), an open-end management investment
company which currently consists of three funds, each of which has different and
distinct investment objectives and policies. Only shares of the Fund are being
offered by this Prospectus. Shares of the Fund are offered primarily to clients
of Republic National Bank of New York ("Republic" or the "Manager") and its
affiliates for which Republic or its affiliates exercise investment discretion.
Republic is the investment manager of Small Cap Equity Portfolio (the
"Portfolio"). MFS Asset Management, Inc., a wholly owned subsidiary of
Massachusetts Financial Services Company (the "Sub-Adviser"), continuously
manages the investments of the Portfolio.
UNLIKE OTHER OPEN-END MANAGEMENT INVESTMENT COMPANIES (MUTUAL FUNDS) WHICH
DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, THE TRUST SEEKS
TO ACHIEVE THE INVESTMENT OBJECTIVE OF THE FUND BY INVESTING ALL OF THE FUND'S
INVESTABLE ASSETS ("ASSETS") IN THE PORTFOLIO, WHICH HAS THE SAME INVESTMENT
OBJECTIVE AS THE FUND. THE INVESTMENT EXPERIENCE OF THE FUND WILL CORRESPOND
DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE PORTFOLIO. THE PORTFOLIO IS A
DIVERSIFIED SERIES OF REPUBLIC PORTFOLIOS, WHICH IS AN OPEN-END MANAGEMENT
INVESTMENT COMPANY. SEE "SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND
STRUCTURE".
The investment objective of the Fund is to seek long-term growth of capital by
investing primarily in equity securities of small- and medium-sized companies
that are early in their life cycle but which may have potential to become major
enterprises ("Emerging Growth Companies").
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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Investors should read this Prospectus and retain it for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 1, 1996
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Shares of the Fund are continuously offered for sale at net asset value with
no sales charge by BISYS Fund Services ("BISYS" or the "Distributor" or the
"Sponsor") to customers of a financial institution, such as a federal or
state-chartered bank, trust company or savings and loan association that has
entered into a shareholder servicing agreement with the Trust (each a
"Shareholder Servicing Agent"). At present, the only Shareholder Servicing
Agents are Republic and its affiliates.
AN INVESTOR SHOULD OBTAIN FROM HIS SHAREHOLDER SERVICING AGENT, AND SHOULD
READ IN CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE
SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER WHICH SHARES OF THE
FUND MAY BE PURCHASED AND REDEEMED THROUGH SUCH SHAREHOLDER SERVICING AGENT.
This Prospectus sets forth concisely the information concerning the Fund that
a prospective investor should know before investing. The Trust has filed with
the Securities and Exchange Commission a Statement of Additional Information,
dated September 1, 1996, with respect to the Fund, containing additional and
more detailed information about the Fund, which is hereby incorporated by
reference into this Prospectus. An investor may obtain a copy of the Statement
of Additional Information without charge by contacting the Fund at the address
and telephone number printed above.
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HIGHLIGHTS
THE FUND PAGE 1
Republic Small Cap Equity Fund (the "Fund") is a separate series of Republic
Advisor Funds Trust (the "Trust"), a Massachusetts business trust organized on
April 5, 1996, which currently consists of three funds, each of which has
different and distinct investment objectives and policies.
INVESTMENT OBJECTIVE, POLICIES AND RISKS PAGES 6 AND 12
The investment objective of the Fund is to seek long-term growth of capital by
investing, under normal market conditions, at least 80% of its Assets in equity
securities of small- and medium-sized companies that are early in their life
cycle but which may have potential to become major enterprises (emerging growth
companies). The Trust seeks to achieve the investment objective of the Fund by
investing all of the Fund's Assets in Small Cap Equity Portfolio (the
"Portfolio"), which has the same investment objective as the Fund. The Portfolio
is a series of Republic Portfolios (the "Portfolio Trust"), a master trust fund
established under the law of the State of New York and organized on November 1,
1994. There can be no assurance that the investment objective of the Fund or the
Portfolio will be achieved.
MANAGEMENT OF THE TRUST AND
THE PORTFOLIO TRUST PAGE 16
Republic acts as investment manager to the Portfolio pursuant to an
Investment Management Contract with the Portfolio Trust. For its services, the
Manager is entitled to receive from the Portfolio a fee at the annual rate of
0.25% of the Portfolio's average daily net assets. The Manager is currently
waiving this fee.
MFS Asset Management, Inc. (the "Sub-Adviser") continuously manages the
investment portfolio of the Portfolio pursuant to a Sub-Advisory Agreement with
the Manager. For its services, the Sub-Adviser is paid a fee by the Portfolio,
computed daily and based on the Portfolio's average daily net assets, equal on
an annual basis to 0.75% of assets up to $50 million and 0.60% of assets in
excess of $50 million. See "Management of the Trust and the Portfolio Trust".
BISYS acts as sponsor and as administrator of the Fund (the "Fund
Administrator") and distributor of shares of the Fund ("Shares"). For its
services to the Fund, the Fund Administrator receives from the Fund a fee
payable monthly equal on an annual basis of up to 0.05% of the Fund's average
daily net assets up to $1 billion. In addition, BISYS Fund Services (Ireland)
Limited acts as administrator of the Portfolio (the "Portfolio Administrator").
For its services to the Portfolio, the Portfolio Administrator receives from the
Portfolio a fee payable monthly equal on an annual basis of up to 0.05% of the
average daily net assets of the Portfolio up to $1 billion.
PURCHASES AND REDEMPTIONS PAGES 23 AND 24
Shares are continuously offered for sale by the Distributor at net asset
value with no sales charge to customers of a financial institution such as a
federal or state-chartered bank, trust company or savings and loan association
that has entered into a shareholder servicing agreement with the Trust (each a
"Shareholder Servicing Agent"). At present, the only Shareholder Servicing
Agents are Republic and its affiliates. The minimum initial investment is $1,000
and the minimum subsequent investment is $100. The Fund may accept initial and
subsequent investments of lesser amounts in its discretion. No minimum is
imposed on reinvested dividends. Shares may be redeemed without cost at the net
asset value per Share next determined after receipt of the redemption request.
See "Purchase of Shares" and "Redemption of Shares".
DIVIDENDS AND DISTRIBUTIONS PAGE 25
The Trust declares and distributes all of the Fund's net investment income
as a dividend to Fund shareholders semi-annually. Any net realized capital
gains are distributed at least annually. All Fund distributions will be
invested in additional Shares, unless the shareholder instructs the Fund
otherwise. See "Dividends and Distributions."
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FEE TABLE
The following table summarizes an investor's maximum transaction costs from
investing in Fund Shares and the estimated aggregate annual operating expenses
of the Fund and the Portfolio as a percentage of the average daily net assets of
the Fund during the Fund's and the Portfolio's initial fiscal period. The fiscal
year ends of the Fund and the Portfolio are both October 31. The example
illustrates the dollar cost of such estimated expenses on a $1,000 investment in
the Fund. The Trustees of the Trust believe that the aggregate per Share
expenses of the Fund and the Portfolio will be less than or approximately equal
to the expenses which the Fund would incur if the Trust retained the services of
an investment adviser on behalf of the Fund and the Assets of the Fund were
invested directly in the type of securities being held by the Portfolio.
Shareholder Transaction Expenses ............................... None
Annual Fund Operating Expenses
Investment Advisory Fee after waiver* ...................... 0.66%
Other Expenses ............................................. 0.39%
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-- Administrative Services Fee ....................... 0.10%
-- Other Operating Expenses ......................... 0.29%
Total Operating Expenses after waiver** ........................ 1.05%
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*Reflects a waiver of the investment management fee payable to Republic and an
investment subadvisory fee payable to the Sub-Adviser equal on an annual basis
to 0.66% of the Fund's average daily net assets. Without such waiver, the
Investment Advisory Fee would be equal on an annual basis to 0.91% of the
Fund's average net assets. See "Management of the Trust and the Portfolio
Trust".
**Total Operating Expenses are shown net of investment management fee waiver.
Without such fee waiver, Total Operating Expenses would be equal on an annual
basis to 1.30% of the Fund's average net assets.
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in Fund Shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year ...................................................... $11
3 years ..................................................... $33
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE AGGREGATE EXPENSES OF THE FUND AND THE PORTFOLIO, AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the expense table provided above is to assist investors in
understanding the expenses of investing in the Fund and an investor's share of
the aggregate operating expenses of the Fund and the Portfolio. The information
is based on the expenses the Fund and the Portfolio expect to incur for the
current fiscal period.* For a more detailed discussion on the costs and expenses
of investing in the Fund, see "Management of the Trust and the Portfolio Trust."
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*Assuming average daily net assets of $100 million in the Fund and $125 million
in the Portfolio for their initial fiscal year.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term growth of capital by
investing primarily in equity securities of small- and medium-sized companies
that are early in their life cycle but which may have potential to become major
enterprises ("Emerging Growth Companies"). The investment objective of the
Portfolio is the same as the investment objective of the Fund.
There can be no assurance that the investment objective of the Fund or the
Portfolio will be achieved. The investment objective of each of the Fund and the
Portfolio may be changed without investor approval. If there is a change in the
investment objective of the Fund, shareholders should consider whether the Fund
remains an appropriate investment in light of their then-current financial
position and needs. Shareholders of the Fund shall receive 30 days' prior
written notice of any change in the investment objective of the Fund or the
Portfolio.
Since the investment characteristics of the Fund will correspond to those of
the Portfolio, the following is a discussion of the various investment policies
of the Portfolio.
INVESTMENT POLICIES
The Portfolio seeks to achieve its objective by investing, under normal market
conditions, at least 80% of its assets in equity securities (see "Investment
Techniques - Equity Securities" below) of Emerging Growth Companies. Emerging
Growth Companies generally have small (under $1 billion) market capitalizations
and annual gross revenues ranging from $10 million to $1 billion, would be
expected to show earnings growth over time that is well above the growth rate of
the overall economy and the rate of inflation, and would have the products,
management and market opportunities which are usually necessary to become more
widely recognized. However, the Portfolio may also invest in more established
companies whose rates of earnings growth are expected to accelerate because of
special factors, such as rejuvenated management, new products, changes in
consumer demand or basic changes in the economic environment. The Portfolio may
invest up to 20% (and generally expects to invest between 5% and 10%) of its
assets in foreign securities (excluding American Depositary Receipts) (see
"Additional Risk Factors Foreign Securities" below).
While the Portfolio will invest primarily in common stocks, the Portfolio may,
to a limited extent, seek appreciation in other types of securities such as
foreign or convertible securities and warrants when relative values make such
purchases appear attractive either as individual issues or as types of
securities in certain economic environments.
The Portfolio may engage in certain investment techniques as described below
under the caption "Investment Techniques". The Portfolio's investments are
subject to certain risks, as described in the above-referenced sections of this
Prospectus and the Statement of Additional Information and as described below
under the caption "Additional Risk Factors".
INVESTMENT TECHNIQUES
Consistent with the Portfolio's investment objective and policies, the
Portfolio may engage in the following investment techniques. See also
"Investment Objective, Policies and Restrictions" in the Statement of Additional
Information.
Equity Securities: The Portfolio may invest in all types of equity securities,
including the following: common stocks, preferred stocks and preference stocks;
securities such as bonds, warrants or rights that are convertible into stocks;
and depositary receipts for those securities. These securities may be listed on
securities exchanges, traded in various over-the-counter markets or have no
organized market.
Fixed Income Securities: Fixed income securities in which the Portfolio may
invest include bonds (including zero coupon bonds, deferred interest bonds and
payable in-kind bonds), debentures, mortgage securities, notes, bills,
commercial paper, obligations issued or guaranteed by a government or any of its
political subdivisions, agencies or instrumentalities, and certificates of
deposit, as well as debt obligations which may have a call on common stock by
means of a conversion privilege or attached warrants.
U.S. Government Securities: For temporary defensive reasons, the Portfolio may
invest in Government securities, including: (1) U.S. Treasury obligations, which
differ only in their interest rates, maturities and times of issuance,
including: U.S. Treasury bills (maturities of one year or less); U.S. Treasury
notes (maturities of one to ten years); and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are backed by the full faith
and credit of the U.S. Government; and (2) obligations issued or guaranteed by
U.S. Government agencies, authorities or instrumentalities, some of which are
backed by the full faith and credit of the U.S. Treasury, e.g., direct
pass-through certificates of the Government National Mortgage Association
("GNMA"); some of which are supported by the right of the issuer to borrow from
the U.S. Government, e.g., obligations of Federal Home Loan Banks; and some of
which are backed only by the credit of the issuer itself, e.g., obligations of
the Student Loan Marketing Association (collectively, "U.S. Government
Securities").
Repurchase Agreements: The Portfolio may enter into repurchase agreements in
order to earn income on available cash or as a temporary defensive measure.
Under a repurchase agreement, the Portfolio acquires securities subject to the
seller's agreement to repurchase at a specified time and price. If the seller
becomes subject to a proceeding under the bankruptcy laws or its assets are
otherwise subject to a stay order, the Portfolio's right to liquidate the
securities may be restricted (during which time the value of the securities
could decline). As discussed in the Statement of Additional Information, the
Portfolio has adopted certain procedures intended to minimize the risks of
investing in repurchase agreements.
Lending of Portfolio Securities: The Portfolio may seek to increase its income
by lending portfolio securities to entities deemed creditworthy by the Adviser.
Such loans will usually be made to member firms (and subsidiaries thereof) of
the New York Stock Exchange and to member banks of the Federal Reserve System,
and would be required to be secured continuously by collateral in cash, letters
of credit or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. If the
Sub-Adviser determines to make securities loans, it is intended that the value
of the securities loaned would not exceed 30% of the value of the total assets
of the Portfolio.
Restricted Securities: The Portfolio may also purchase securities that are not
registered under the Securities Act of 1933 (the "1933 Act") ("restricted
securities"), including those that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Board of Trustees determines, based upon a continuing review
of the trading markets for a specific Rule 144A security, whether such security
is liquid and thus not subject to the Portfolio's limitation on investing not
more than 15% of its net assets in illiquid investments. The Board of Trustees
has adopted guidelines and delegated to the Sub-Adviser the daily function of
determining and monitoring the liquidity of Rule 144A securities. The Board,
however, will retain sufficient oversight and be ultimately responsible for the
determinations. The Board will carefully monitor the Portfolio's investment in
Rule 144A securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of decreasing the level of liquidity in the Portfolio to
the extent that qualified institutional buyers become for a time uninterested in
purchasing Rule 144A securities held in the Portfolio's portfolio. Subject to
the Portfolio's 15% limitation on investments in illiquid investments, the
Portfolio may also invest in restricted securities that may not be sold under
Rule 144A, which presents certain risks. As a result, the Portfolio might not be
able to sell these securities when the Sub-Adviser wishes to do so, or might
have to sell them at less than fair value. In addition, market quotations are
less readily available. Therefore, the judgment of the Sub-Adviser may at times
play a greater role in valuing these securities than in the case of unrestricted
securities.
American Depositary Receipts: The Portfolio may invest in American
Depositary Receipts ("ADRs"), which are certificates issued by a U.S.
depository (usually a bank) and represent a specified quantity of shares of an
underlying non-U.S. stock on deposit with a custodian bank as collateral.
Because ADRs trade on U.S. securities exchanges, the Sub-Adviser does not
treat them as foreign securities. However, they are subject to many of the
risks of foreign securities such as exchange rates and more limited
information about foreign issuers. See "Additional Risk Factors - Foreign
Securities" below.
Foreign Growth Securities: The Portfolio may invest in securities of foreign
growth companies, including established foreign companies, whose rates of
earnings growth are expected to accelerate because of special factors, such as
rejuvenated management, new products, changes in consumer demand, or basic
changes in the economic environment or which otherwise represent opportunities
for long-term growth. See "Additional Risk Factors -- Foreign Securities" below.
It is anticipated that these companies will primarily be in nations with more
developed securities markets, such as Japan, Australia, Canada, New Zealand and
most Western European countries, including Great Britain.
Emerging Market Securities: The Portfolio may invest in securities of issuers
located in countries or regions with relatively low gross national product per
capita compared to the world's major economies, and in countries or regions with
the potential for rapid economic growth ("Emerging Markets"). Emerging Markets
include any country: (i) having an "emerging stock market" as defined by the
International Finance Corporation; (ii) with low- to middle- income economies
according to the International Bank for Reconstruction and Development (the
"World Bank"); (iii) listed in World Bank publications as developing; or (iv)
determined by the Adviser to be an emerging market as defined above. See
"Additional Risk Factors - Emerging Markets" below. In determining where a
company's principal activities are located, the Sub- Adviser considers such
factors as its country of organization, the principal trading market for its
securities and the source of its revenues and assets. The company's principal
activities are deemed to be located in a particular country if: (a) the company
is organized under the laws of, and maintains a principal office in that
country; (b) the company has its principal securities trading market in that
country, (c) the company derives 50% or more of its total revenues from goods
sold or services performed in that country; or (d) the company has 50% or more
of its assets in that country.
Options on Securities: The Portfolio may write (sell) covered put and call
options on securities ("Options") and purchase put and call Options that are
traded on foreign or U.S. securities exchanges and over the counter. The
Portfolio will write such Options for the purpose of increasing its return
and/or protecting the value of its portfolio. In particular, where the Portfolio
writes an Option which expires unexercised or is closed out by the Portfolio at
a profit, it will retain the premium paid for the Option, which will increase
its gross income and will offset in part the reduced value of a portfolio
security in connection with which the Option may have been written or the
increased cost of portfolio securities to be acquired. In contrast, however, if
the price of the security underlying the Option moves adversely to the
Portfolio's position, the Option may be exercised and the Portfolio will be
required to purchase or sell the security at a disadvantageous price, resulting
in losses which may only be partially offset by the amount of the premium. The
Portfolio may also write combinations of put and call Options on the same
security, known as "straddles". Such transactions can generate additional
premium income but also present increased risk.
The Portfolio may purchase put or call Options in anticipation of declines in
the value of portfolio securities or increases in the value of securities to be
acquired. In the event that the expected changes occur, the Portfolio may be
able to offset the resulting adverse effect on its portfolio, in whole or in
part, through the Options purchased. The risk assumed by the Portfolio in
connection with such transactions is limited to the amount of the premium and
related transaction costs associated with the Option, although the Portfolio may
be required to forfeit such amounts in the event that the prices of securities
underlying the Options do not move in the direction or to the extent
anticipated.
Futures Contracts: The Portfolio may enter into contracts for the purchase or
sale for future delivery of fixed income securities or foreign currencies or
contracts based on indexes of securities as such instruments become available
for trading ("Futures Contracts"). Such transactions will be entered into for
hedging purposes, in order to protect the Portfolio's current or intended
investments from the effects of changes in interest or exchange rates, or for
non-hedging purposes, to the extent permitted by applicable law. For example, in
the event that an anticipated decrease in the value of portfolio securities
occurs as a result of a general increase in interest rates or a decline in the
dollar value of foreign currencies in which portfolio securities are
denominated, the adverse effects of such changes may be offset, in whole or
part, by gains on Futures Contracts sold by the Portfolio. Conversely, the
adverse effects of an increase in the cost of portfolio securities to be
acquired, occurring as a result of a decline in interest rates or a rise in the
dollar value of securities denominated in foreign currencies, may be offset, in
whole or in part, by gains on Futures Contracts purchased by the Portfolio. The
Portfolio will incur brokerage fees when it purchases and sells Futures
Contracts, and will be required to maintain margin deposits. In addition,
Futures Contracts entail risks. Although the Portfolio believes that use of such
contracts will benefit the Portfolio, if the Sub-Adviser's investment judgment
about the general direction of interest or exchange rates is incorrect, the
Portfolio's overall performance may be poorer than if it had not entered into
any such contract and the Portfolio may realize a loss. Transactions entered
into for non- hedging purposes involve greater risk, including the risk of
losses which are not offset by gains on other portfolio assets. The Portfolio
will not enter into any Futures Contract if immediately thereafter the value of
securities and other obligations underlying all such Futures Contracts would
exceed 50% of the value of its total assets.
Options on Futures Contracts: The Portfolio may purchase and write options on
Futures Contracts ("Options on Futures Contracts") for the purpose of protecting
against declines in the value of portfolio securities or against increases in
the costs of securities to be acquired, or for non-hedging purposes, to the
extent permitted by applicable law. Purchases of Options on Futures Contracts
may present less risk in hedging the Portfolio than the purchase or sale of the
underlying Futures Contracts, since the potential loss is limited to the amount
of the premium paid for the option, plus related transaction costs. The writing
of such options, however, does not present less risk than the trading of Futures
Contracts, and will constitute only a partial hedge, up to the amount of the
premium received, less related transaction costs. In addition, if an option is
exercised, the Portfolio may suffer a loss on the transaction. Transactions
entered into for non-hedging purposes involve greater risk, including the risk
of losses which are not offset by gains on other portfolio assets.
Forward Contracts: The Portfolio may enter into forward foreign currency
exchange contracts for the purchase and sale of a fixed quantity of a foreign
currency at a future date ("Forward Contracts"). The Portfolio may enter into
Forward Contracts for hedging purposes as well as for non-hedging purposes. By
entering into transactions in Forward Contracts, however, the Portfolio may be
required to forego the benefits of advantageous changes in exchange rates and,
in the case of Forward Contracts entered into for non-hedging purposes, the
Portfolio may sustain losses which will reduce its gross income. Forward
Contracts are traded over-the-counter and not on organized commodities or
securities exchanges. As a result, such contracts operate in a manner distinct
from exchange-traded instruments and their use involves certain risks beyond
those associated with transactions in Futures Contracts or options traded on
exchanges. The Portfolio may also enter into a Forward Contract on one currency
in order to hedge against risk of loss arising from fluctuations in the value of
a second currency (referred to as a "cross hedge") if, in the judgment of the
Sub-Adviser, a reasonable degree of correlation can be expected between
movements in the values of the two currencies. The Portfolio has established
procedures consistent with statements of the Securities and Exchange Commission
("SEC") and its staff regarding the use of Forward Contracts by registered
investment companies, which requires use of segregated assets or "cover" in
connection with the purchase and sale of such contracts.
Options on Stock Indices: The Portfolio may write (sell) covered call and put
options and purchase call and put options on domestic or foreign stock indices
("Options on Stock Indices"). The Portfolio may write such options for the
purpose of increasing its current income and/or to protect its portfolio against
declines in the value of securities it owns or increases in the value of
securities to be acquired. When the Portfolio writes an option on a stock index,
and the value of the index moves adversely to the holder's position, the option
will not be exercised, and the Portfolio will either close out the option at a
profit or allow it to expire unexercised. The Portfolio will thereby retain the
amount of the premium, less related transaction costs, which will increase its
gross income and offset part of the reduced value of portfolio securities or the
increased cost of securities to be acquired. Such transactions, however, will
constitute only partial hedges against adverse price fluctuations, since any
such fluctuations will be offset only to the extent of the premium received by
the Portfolio for the writing of the option, less related transaction costs. In
addition, if the value of an underlying index moves adversely to the Portfolio's
option position, the option may be exercised, and the Portfolio will experience
a loss which may only be partially offset by the amount of the premium received.
The Portfolio may also purchase put or call options on stock indices in order,
respectively, to hedge its investments against a decline in value or to attempt
to reduce the risk of missing a market or industry segment advance. The
Portfolio's possible loss in either case will be limited to the premium paid for
the option, plus related transaction costs.
Defensive Investments: When the Sub-Adviser believes that investing for
temporary defensive reasons is appropriate, such as during times of
international, political or economic uncertainty or turmoil, or in order to meet
anticipated redemption requests, part or all of the Portfolio's assets may be
invested in cash (including foreign currency) or cash equivalent short-term
obligations including, but not limited to, certificates of deposit, commercial
paper, short-term notes and U.S. Government Securities.
Portfolio Turnover: The Sub-Adviser manages the Portfolio generally without
regard to restrictions on portfolio turnover, except those imposed by provisions
of the federal tax laws regarding short-term trading. In general, the Portfolio
will not trade for short-term profits, but when circumstances warrant,
investments may be sold without regard to the length of time held. It is
anticipated that the portfolio turnover rate for the Portfolio will be 100%
during the Portfolio's initial fiscal year. Because the Portfolio may have a
portfolio turnover rate of 100% or more, transaction costs incurred by the
Portfolio and the realized capital gains and losses of the Portfolio may be
greater than those of a fund with a lesser portfolio turnover rate. See
"Portfolio Transactions" and "Tax Matters" below.
ADDITIONAL RISK FACTORS AND POLICIES
Foreign Securities: Transactions involving foreign equity and debt securities
or foreign currencies, and transactions entered into in foreign countries,
involve considerations and risks not typically associated with investing in U.S.
markets. These include changes in currency rates, exchange control regulations,
governmental administration or economic or monetary policy (in the U.S. or
abroad) or circumstances in dealings between nations. Costs may be incurred in
connection with conversions between various currencies. Special considerations
may also include more limited information about foreign issuers, higher
brokerage costs, different or less stringent accounting standards and thinner
trading markets. Foreign securities markets may also be less liquid, more
volatile and less subject to government supervision than in the U.S. Investments
in foreign countries could be affected by other factors including expropriation,
confiscatory taxation and potential difficulties in enforcing contractual
obligations and could be subject to extended settlement periods. Furthermore,
dividends from foreign securities may be withheld at the source.
Emerging Markets: The risks of investing in foreign securities may be
intensified in the case of investments in emerging markets. Securities of many
issuers in emerging markets may be less liquid and more volatile than securities
of comparable domestic issuers. Emerging markets also have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of the
Portfolio is uninvested and no return is earned thereon. The inability of the
Portfolio to make intended security purchases due to settlement problems could
cause the Portfolio to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result either
in losses to the Portfolio due to subsequent declines in value of the portfolio
security or if the Portfolio has entered into a contract to sell the security,
in possible liability to the purchaser. Certain markets may require payment for
securities before delivery, and in such markets the Portfolio bears the risk
that the securities will not be delivered and that the Portfolio's payment will
not be returned. Securities prices in emerging markets can be significantly more
volatile than in the more developed nations of the world, reflecting the greater
uncertainties of investing in less established markets and economies. In
particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions on
foreign ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. The economies of
countries with emerging markets may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
times. Securities of issuers located in countries with emerging markets may have
limited marketability and may be subject to more abrupt or erratic price
movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Portfolio
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Portfolio of any restrictions on investments.
Investment in certain emerging market debt obligations may be restricted or
controlled to varying degrees. These restrictions or controls may at times
preclude investment in certain emerging market debt obligations and increase the
expenses of the Portfolio.
Fixed Income Securities: To the extent the Portfolio invests in fixed income
securities, the net asset value of the Portfolio may change as the general
levels of interest rates fluctuate. When interest rates decline, the value of
fixed income securities can be expected to rise. Conversely, when interest rates
rise, the value of fixed income securities can be expected to decline. The
Portfolio has no restrictions with respect to the maturities or duration of the
fixed income securities it holds. The Portfolio's investments in fixed income
securities with longer terms to maturity or greater duration are subject to
greater volatility than the Portfolio's shorter-term obligations.
Options, Futures Contracts and Forward Contracts: Although the Portfolio may
enter into transactions in Options, Futures Contracts, Options on Futures
Contracts and Forward Contracts for hedging purposes, such transactions
nevertheless involve certain risks. For example, a lack of correlation between
the instrument underlying an Option or Futures Contract and the assets being
hedged, or unexpected adverse price movements, could render the Portfolio's
hedging strategy unsuccessful and could result in losses. The Portfolios also
may enter into transactions in Options, Futures Contracts, Options on Futures
Contracts and Forward Contracts for other than hedging purposes, which involves
greater risk. In particular, such transactions may result in losses for the
Portfolio which are not offset by gains on other portfolio positions, thereby
reducing gross income. In addition, foreign currency markets may be extremely
volatile from time to time. There also can be no assurance that a liquid
secondary market will exist for any contract purchased or sold, and the
Portfolio may be required to maintain a position until exercise or expiration,
which could result in losses. The Statement of Additional Information contains a
description of the nature and trading mechanics of Options, Futures Contracts,
Options on Futures Contracts and Forward Contracts, and includes a discussion of
the risks related to transactions therein.
Transactions in Forward Contracts may be entered into only in the
over-the-counter market. Futures Contracts and Options on Futures Contracts may
be entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities and indexes
underlying Options, Futures Contracts and Options on Futures Contracts traded by
the Portfolio will include both domestic and foreign securities.
----------------
The policies described above are not fundamental and may be changed without
shareholder approval.
The Statement of Additional Information includes a discussion of investment
policies and a listing of specific investment restrictions which govern the
Portfolio's investment policies. The specific investment restrictions listed in
the Statement of Additional Information may be changed without shareholder
approval unless otherwise indicated. See "Investment Objective, Policies and
Restrictions" in the Statement of Additional Information. The Portfolio's
investment limitations and policies are adhered to at the time of purchase or
utilization of assets; a subsequent change in circumstances will not be
considered to result in a violation of policy.
SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE
The Trust, which is an open-end investment company, seeks to achieve the
investment objective of the Fund by investing all of the Fund's Assets in the
Portfolio, a series of a separate open-end investment company with the same
investment objective as the Fund. Other mutual funds or institutional investors
may invest in the Portfolio on the same terms and conditions as the Fund.
However, these other investors may have different sales commissions and other
operating expenses which may generate different aggregate performance results.
Information concerning other investors in the Portfolio is available by calling
the Sponsor at (614) 470-8000. The two-tier investment fund structure has been
developed relatively recently, so shareholders should carefully consider this
investment approach.
The investment objective of the Fund may be changed without the approval of
the shareholders of the Fund and the investment objective of the Portfolio may
be changed without the approval of the investors in the Portfolio. Shareholders
of the Fund will receive 30 days prior written notice of any change in the
investment objective of the Fund or the Portfolio. For a description of the
investment objective, policies and restrictions of the Portfolio, see
"Investment Objective and Policies" above.
Except as permitted by the Securities and Exchange Commission, whenever the
Trust is requested to vote on a matter pertaining to the Portfolio, the Trust
will hold a meeting of the shareholders of the Fund and, at the meeting of
investors in the Portfolio, the Trust will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Trust votes all its shares at the Portfolio meeting,
other investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
The Trust may withdraw the Fund's investment in the Portfolio as a result of
certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Trustees of the Trust determines that it is
otherwise in the best interests of the Fund to do so. Upon any such withdrawal,
the Board of Trustees of the Trust would consider what action might be taken,
including the investment of all of the Assets of the Fund in another pooled
investment entity or the retaining of an investment adviser to manage the Fund's
Assets in accordance with the investment policies described above with respect
to the Portfolio. In the event the Trustees of the Trust were unable to
accomplish either, the Trustees will determine the best course of action.
As with traditionally structured funds which have large investors, the actions
of such large investors may have a material affect on smaller investors. For
example, if a large investor withdraws from the Portfolio, a small remaining
fund may experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk.
For descriptions of the management and expenses of the Portfolio, see
"Management of the Trust and the Portfolio Trust" below and in the Statement of
Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
The business and affairs of the Trust and the Portfolio Trust are managed
under the direction of their respective Boards of Trustees. The Trustees of each
of the Trust and the Portfolio Trust are Frederick C. Chen, Alan S. Parsow,
Larry M. Robbins and Michael Seely. Additional information about the Trustees,
as well as the executive officers of the Trust and the Portfolio Trust, may be
found in the Statement of Additional Information under the caption "Management
of the Trust and the Portfolio Trust Trustees and Officers".
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Portfolio Trust. Under the conflicts of interest procedures, the Trustees will
review on a quarterly basis any potential conflicts of interests after
consulting with fund counsel, the Manager and the Fund Administrator. If a
potential conflict of interest arises, the Board of Trustees of the entity that
may be adversely affected will take such action as is reasonably appropriate to
resolve the conflict, up to and including establishing a new Board of Trustees
for such entity. See "Management of the Trust and the Portfolio Trust" in the
Statement of Additional Information for more information about the Trustees and
the executive officers of the Trust and the Portfolio Trust.
INVESTMENT MANAGER
Republic, whose address is 452 Fifth Avenue, New York, New York 10018, serves
as investment manager to the Portfolio pursuant to an Investment Management
Contract with the Portfolio Trust. Subject to the general guidance and the
policies set by the Trustees of the Portfolio Trust, Republic provides general
supervision over the investment management functions performed by the
Sub-Adviser. For its services under the Investment Management Contract, the
Manager is entitled to receive from the Portfolio a fee, payable monthly, at the
annual rate of 0.25% of the Portfolio's average daily net assets. The Manager is
currently waiving this fee.
Republic is a wholly owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of December 31, 1995, Republic was the 20th
largest commercial bank in the United States measured by deposits and the 19th
largest commercial bank measured by shareholder equity.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the
Portfolio, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of obligations so purchased.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Portfolio will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Republic from continuing to perform such services for
the Portfolio. If Republic were prohibited from acting as investment manager to
the Portfolio, it is expected that the Trust's Board of Trustees would recommend
to Fund shareholders approval of a new investment advisory agreement with
another qualified investment adviser selected by the Board or that the Board
would recommend other appropriate action.
SUB-ADVISER
The Sub-Adviser continuously manages the investment portfolio of the Portfolio
pursuant to a Sub-Advisory Agreement with the Manager. For its services, the
Sub-Adviser is paid a fee by the Portfolio, computed daily and based on the
Portfolio's average daily net assets, equal on an annual basis to 0.75% of
assets up to $50 million and 0.60% of assets in excess of $50 million. It is the
responsibility of the Sub-Adviser not only to make investment decisions for the
Portfolio, but also to place purchase and sale orders for the portfolio
transactions of the Portfolio. See "Portfolio Transactions."
The Sub-Adviser, together with its parent company, Massachusetts Financial
Services Company ("MFS"), is America's oldest mutual fund organization. MFS and
its predecessor organizations have a history of money management dating from
1924 and the founding of the first mutual fund in the U.S., Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $45.9 billion on behalf of approximately 2.1 million investor
accounts as of July 31, 1996. As of such date, the MFS organization managed
approximately $22.1 billion of assets invested in equity securities,
approximately $19.5 billion of assets invested in fixed income securities, and
$4.0 billion of assets invested in securities of foreign issuers and non-U.S.
dollar securities. MFS is a wholly owned subsidiary of Sun Life Assurance
Company of Canada (U.S.), which in turn is a wholly owned subsidiary of Sun Life
Assurance Company of Canada ("Sun Life"). Sun Life, a mutual life insurance
company, is one of the largest international life insurance companies and has
been operating in the U.S. since 1895, establishing a headquarters office in the
U.S. in 1973. The executive officers of MFS report to the Chairman of Sun Life.
MFS has established a strategic alliance with Foreign & Colonial Management
Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of two of the
world's oldest financial services institutions, the London-based Foreign &
Colonial Investment Trust PLC, which pioneered the idea of investment management
in 1868, and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank AG), the oldest
publicly listed bank in Germany, founded in 1835. As part of this alliance, the
portfolio managers and investment analysts of MFS and Foreign & Colonial will
share their views on a variety of investment-related issues, such as the
economy, securities markets, portfolio securities and their issuers, investment
recommendations, strategies and techniques, risk analysis, trading strategies
and other portfolio management matters. MFS will have access to the extensive
international equity investment expertise of Foreign & Colonial, and Foreign &
Colonial will have access to the extensive U.S. equity investment expertise of
MFS. One or more MFS investment analysts are expected to work for an extended
period with Foreign & Colonial's portfolio managers and investment analysts at
their offices in London. In return, one or more Foreign & Colonial employees are
expected to work in a similar manner at MFS' Boston offices.
In certain instances there may be securities which are suitable for the
Portfolio as well as for portfolios of other clients of the Sub-Adviser or MFS
or clients of Foreign & Colonial. Some simultaneous transactions are inevitable
when several clients receive investment advice from MFS and Foreign & Colonial,
particularly when the same security is suitable for more than one client. While
in some cases this arrangement could have a detrimental effect on the price or
availability of the security as far as the Portfolio is concerned, in other
cases, however, it may produce increased investment opportunities for the
Portfolio.
The portfolio managers of the Portfolio are John W. Ballen and Brian Stack,
Senior Vice President and Vice President, respectively, of the Sub-Adviser.
Mr. Ballen has been employed as a portfolio manager by the Sub-Adviser or MFS
since prior to 1991. Mr. Stack has been employed as a portfolio manager or
analyst by the Sub-Adviser or MFS since prior to 1991.
MFS also serves as investment adviser to the MFS Family of Funds and to MFS
Municipal Income Trust, MFS Multimarket Income Trust, MFS Government Markets
Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust, MFS
Special Value Trust, MFS Union Standard Trust, MFS Variable Insurance Trust,
MFS/Sun Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and seven
variable accounts, each of which is a registered investment company established
by Sun Life of Canada (U.S.) in connection with the sale of various
fixed/variable annuity contracts. MFS and the Sub-Adviser also provide
investment advice to substantial private clients.
DISTRIBUTOR AND SPONSOR
BISYS, whose address is 3435 Stelzer Road, Suite 1000, Columbus, Ohio 43219,
acts as sponsor and principal underwriter and distributor of the Fund's shares
pursuant to a Distribution Contract with the Trust.
ADMINISTRATOR AND PORTFOLIO ADMINISTRATOR
Pursuant to an Administrative Services Agreement, BISYS provides the Fund with
general office facilities and supervises the overall administration of the Fund
including, among other responsibilities, assisting in the preparation and filing
of all documents required for compliance by the Fund and the Portfolio with
applicable laws and regulations and arranging for the maintenance of books and
records of the Fund and the Portfolio. For its services to the Fund, BISYS
receives from the Fund fees payable monthly equal on an annual basis (for the
Fund's then-current fiscal year) to 0.05% of the Fund's average daily net assets
up to $1 billion; 0.04% of the next $1 billion of such assets; and 0.035% of
such assets in excess of $2 billion. For providing similar services to the
Portfolio, the Portfolio Administrator receives from the Portfolio fees payable
monthly equal on an annual basis (for the Portfolio's then-current fiscal year)
to 0.05% of the first $1 billion of the Portfolio's average daily net assets;
0.04% of the next $1 billion of such assets; and 0.035% of such assets in excess
of $2 billion.
BISYS provides persons satisfactory to the respective Boards of Trustees to
serve as officers of the Trust and the Portfolio Trust. Such officers, as well
as certain other employees of the Trust and of the Portfolio Trust, may be
directors, officers or employees of BISYS or its affiliates.
TRANSFER AGENT AND CUSTODIAN
Each of the Trust and the Portfolio Trust has entered into a Transfer Agency
Agreement with Investors Bank & Trust Company ("IBT") pursuant to which IBT acts
as transfer agent (the "Transfer Agent") for the Fund and the Portfolio. The
Transfer Agent maintains an account for each shareholder of the Fund (unless
such account is maintained by the shareholder's Shareholder Servicing Agent) and
investor in the Portfolio, performs other transfer agency functions and acts as
dividend disbursing agent for the Fund. Pursuant to respective Custodian
Agreements, IBT also acts as the custodian (the "Custodian") of the assets of
the Fund and the Portfolio. The Portfolio Trust's Custodian Agreement provides
that the Custodian may use the services of sub-custodians with respect to the
Portfolio. The Custodian's responsibilities include safeguarding and controlling
the Fund's cash and the Portfolio's cash and securities, and handling the
receipt and delivery of securities, determining income and collecting interest
on the Portfolio's investments, maintaining books of original entry for
portfolio accounting and other required books and accounts, and calculating the
daily net asset value of the Portfolio. Securities held for the Portfolio may be
deposited into the Federal Reserve- Treasury Department Book Entry System or the
Depositary Trust Company. The Custodian does not determine the investment
policies of the Fund or the Portfolio or decide which securities will be
purchased or sold for the Portfolio. Assets of the Portfolio may, however, be
invested in securities of the Custodian and the Portfolio Trust may deal with
the Custodian as principal in securities transactions for the Portfolio. For its
services, IBT receives such compensation as may from time to time be agreed upon
by it and the Trust or the Portfolio Trust.
SHAREHOLDER SERVICING AGENTS
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent pursuant to which a
Shareholder Servicing Agent, as agent for its customers, among other things:
answers customer inquiries regarding account status and history, the manner in
which purchases and redemptions of Shares may be effected and certain other
matters pertaining to the Fund; assists shareholders in designating and changing
dividend options, account designations and addresses; provides necessary
personnel and facilities to establish and maintain shareholder accounts and
records; assists in processing purchase and redemption transactions; arranges
for the wiring of funds; transmits and receives funds in connection with
customer orders to purchase or redeem Shares; verifies and guarantees
shareholder signatures in connection with redemption orders and transfers and
changes in shareholder-designated accounts; furnishes (either separately or on
an integrated basis with other reports sent to a shareholder by a Shareholder
Servicing Agent) monthly and year-end statements and confirmations of purchases
and redemptions; transmits, on behalf of the Trust, proxy statements, annual
reports, updated prospectuses and other communications from the Trust to the
Fund's shareholders; receives, tabulates and transmits to the Trust proxies
executed by shareholders with respect to meetings of shareholders of the Fund or
the Trust; and provides such other related services as the Trust or a
shareholder may request.
The Trust understands that some Shareholder Servicing Agents also may impose
certain conditions on their customers, subject to the terms of this Prospectus,
in addition to or different from those imposed by the Trust, such as requiring a
different minimum initial or subsequent investment, account fees (a fixed amount
per transaction processed), compensating balance requirements (a minimum dollar
amount a customer must maintain in order to obtain the services offered), or
account maintenance fees (a periodic charge based on a percentage of the assets
in the account or of the dividends paid on those assets). Each Shareholder
Servicing Agent has agreed to transmit to its customers who are holders of
Shares appropriate prior written disclosure of any fees that it may charge them
directly and to provide written notice at least 30 days prior to the imposition
of any transaction fees.
The Glass-Steagall Act prohibits certain financial institutions from engaging
in the business of underwriting securities of open-end investment companies,
such as shares of the Fund. The Trust engages banks as Shareholder Servicing
Agents on behalf of the Fund only to perform administrative and shareholder
servicing functions as described above. The Trust believes that the
Glass-Steagall Act should not preclude a bank from acting as a Shareholder
Servicing Agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain Fund shareholders, and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trustees of the Trust do not expect that
shareholders of the Fund would suffer any adverse financial consequences as a
result of these occurrences.
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by the Distributor, Manager or the Sub-Adviser. See "Management of the
Trust Expenses and Expense Limits" in the Statement of Additional Information.
Trust expenses directly attributable to the Fund are charged to the Fund; other
expenses are allocated proportionately among all the portfolios in the Trust in
relation to the net assets of each portfolio.
PORTFOLIO TRANSACTIONS
While it is not generally the Portfolio's policy to invest or trade for
short-term profits, the Portfolio may dispose of a portfolio security whenever
the Sub-Adviser believes it is appropriate to do so without regard to the length
of time the particular asset may have been held. A high turnover rate involves
greater expenses to the Portfolio. The Portfolio engages in portfolio trading if
it believes a transaction net of costs (including custodian charges) will help
in achieving its investment objective.
The primary consideration in placing security transactions is execution at the
most favorable prices. Consistent with the foregoing primary consideration, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Sub-Adviser may
consider sales of shares of the Fund and of the investment company clients of
MFS Fund Distributors, Inc., a wholly owned subsidiary of MFS and the principal
underwriter of certain funds in the MFS Family of Funds, as a factor in the
selection of broker-dealers to execute the Portfolio's portfolio transactions.
From time to time, the Sub-Adviser may direct certain portfolio transactions to
broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's
operating expenses (e.g., fee charged by the custodian of the Fund's and the
Portfolio's assets). For a further discussion of portfolio trading, see the
Statement of Additional Information.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares is determined on each day on which
the New York Stock Exchange is open for regular trading ("Fund Business Day").
This determination is made once during each such day as of 4:00 p.m., New York
time, by dividing the value of the Fund's net assets (i.e., the value of its
investment in the Portfolio and other assets less its liabilities, including
expenses payable or accrued) by the number of Shares outstanding at the time the
determination is made.
The value of the Fund's investment in the Portfolio is also determined once
daily at 4:00 p.m., New York time, on each day the New York Stock Exchange is
open for regular trading ("Portfolio Business Day").
The determination of the value of the Fund's investment in the Portfolio is
made by subtracting from the value of the total assets of the Portfolio the
amount of the Portfolio's liabilities and multiplying the difference by the
percentage, effective for that day, which represents the Fund's share of the
aggregate beneficial interests in the Portfolio.
Values of assets held by the Portfolio are determined on the basis of their
market or other fair value, as described in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares may be purchased through Shareholder Servicing Agents without a sales
load at their net asset value next determined after an order is received by a
Shareholder Servicing Agent if it is transmitted to and accepted by the
Distributor. Purchases are therefore effected on the same day the purchase order
is received by the Distributor provided such order is received prior to 4:00
p.m., New York Time, on any Fund Business Day. The Trust intends the Fund to be
as fully invested at all times as is reasonably practicable in order to enhance
the yield on its assets. Each Shareholder Servicing Agent is responsible for and
required to promptly forward orders for share to the Distributor.
All purchase payments are invested in full and fractional Shares. The Trust
reserves the right to cease offering Shares for sale at any time or to reject
any order for the purchase of Shares.
An investor may purchase Shares by authorizing his Shareholder Servicing Agent
to purchase such Shares on his behalf through the Distributor.
Exchange Privilege. By contacting his Shareholder Servicing Agent, a
shareholder may exchange some or all of his Shares for shares of one or more of
the following investment companies at net asset value without a sales charge:
Republic U.S. Government Money Market Fund (Adviser Class), Republic New York
Tax Free Money Market Fund (Adviser Class), Republic New York Tax Free Bond Fund
(Adviser Class), Republic Equity Fund (Adviser Class), Republic Fixed Income
Fund, Republic International Equity Fund, and such other Republic Funds or other
registered investment companies for which Republic services as investment
adviser as Republic may determine. An exchange may result in a change in the
number of Shares held, but not in the value of such Shares immediately after the
exchange. Each exchange involves the redemption of the Shares to be exchanged
and the purchase of the shares of the other Republic Fund, which may produce a
gain or loss for tax purposes.
The exchange privilege (or any aspect of it) may be changed or discontinued
upon 60 days' written notice to shareholders and is available only to
shareholders in states in which such exchanges legally may be made. A
shareholder considering an exchange should obtain and read the prospectus of the
other Republic Fund and consider the differences in investment objectives and
policies before making any exchange.
Shares are being offered only to customers of Shareholder Servicing Agents.
Shareholder Servicing Agents may offer services to their customers, including
specialized procedures for the purchase and redemption of Shares, such as
pre-authorized or automatic purchase and redemption programs. Each Shareholder
Servicing Agent may establish its own terms, conditions and charges, including
limitations on the amounts of transactions, with respect to such services.
Charges for these services may include fixed annual fees, account maintenance
fees and minimum account balance requirements. The effect of any such fees will
be to reduce the net return on the investment of customers of that Shareholder
Servicing Agent. Conversely, certain Shareholder Servicing Agents may (although
they are not required by the Trust to do so) credit to the accounts of their
customers from whom they are already receiving other fees amounts not exceeding
such other fees or the fees received by the Shareholder Servicing Agent from the
Fund, which will have the effect of increasing the net return on the investment
of such customers of those Shareholder Servicing Agents.
Shareholder Servicing Agents may transmit purchase payments on behalf of their
customers by wire directly to the Fund's custodian bank by following the
procedures described above.
For further information on how to direct a Shareholder Servicing Agent to
purchase Shares, an investor should contact his Shareholder Servicing Agent (see
back cover for address and phone number).
Investors may, subject to the approval of the Trust, purchase shares of the
Fund with securities that are eligible for purchase by the Fund (consistent with
the Fund's investment policies and restrictions) and that have a value that is
readily ascertainable in accordance with the Trust's valuation policies. These
transactions will be effected only if the Sub-Adviser intends to retain the
securities in the Fund as an investment. Assets so purchased by the Fund will be
valued in generally the same manner as they would be valued for purposes of
pricing the Fund's shares, if such assets were included in the Fund's assets at
the time of purchase. The Trust reserves the right to amend or terminate this
practice at any time.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the Shares in his account at
any time at the net asset value next determined after a redemption order in
proper form is received by the Transfer Agent. Redemptions are effected on the
same day the redemption order is furnished by the shareholder to his Shareholder
Servicing Agent and is transmitted to and received by the Transfer Agent
provided such order is received prior to 4:00 p.m., New York time, on any Fund
Business Day. Shares redeemed earn dividends up to and including the Fund
Business Day prior to the day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal funds
on the next Fund Business Day on which the redemption is effected, but in any
event within seven days. The right of any shareholder to receive payment with
respect to any redemption may be suspended or the payment of the redemption
proceeds postponed during any period in which the New York Stock Exchange is
closed (other than weekends or holidays) or trading on such Exchange is
restricted or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists.
A shareholder may redeem Shares only by authorizing his Shareholder Servicing
Agent to redeem such Shares on his behalf (since the account and records of such
a shareholder are established and maintained by his Shareholder Servicing
Agent). For further information as to how to direct a Shareholder Servicing
Agent to redeem Shares, a shareholder should contact his Shareholder Servicing
Agent (see back cover for address and phone number).
DIVIDENDS AND DISTRIBUTIONS
Dividends substantially equal to all of the Fund's net investment income
earned are distributed to Fund shareholders of record semi-annually. Generally,
the Fund's net investment income consists of the interest and dividend income it
earns, less expenses. In computing interest income, premiums are not amortized
nor are discounts accrued on long-term debt securities in the Portfolio, except
as required for federal income tax purposes.
The Fund's net realized short-term and long-term capital gains, if any, are
distributed to shareholders annually. Additional distributions are also made to
the Fund's shareholders to the extent necessary to avoid application of the 4%
non-deductible federal excise tax on certain undistributed income and net
capital gains of regulated investment companies.
Unless a shareholder elects to receive dividends in cash (subject to the
policies of the shareholder's Shareholder Servicing Agent), dividends are
distributed in the form of additional Shares (purchased at their net asset value
without a sales charge).
TAX MATTERS
This discussion is intended for general information only. An investor should
consult with his own tax advisor as to the tax consequences of an investment in
the Fund, including the status of distributions from the Fund under applicable
state or local law.
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund
must meet certain income, distribution and diversification requirements.
Provided such requirements are met and all investment company taxable income and
net realized capital gains of the Fund are distributed to shareholders in
accordance with the timing requirements imposed by the Code, generally no
federal income or excise taxes will be paid by the Fund on amounts so
distributed.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional shares of the Fund. Shareholders must treat
dividends, other than long-term capital gain dividends, as ordinary income.
Dividends designated by the Fund as long-term capital gain dividends are taxable
to shareholders as long-term capital gain regardless of the length of time the
shares of the Fund have been held by the shareholders. Certain dividends
declared in October, November, or December of a calendar year to shareholders of
record on a date in such a month are taxable to shareholders (who otherwise are
subject to tax on dividends) as though received on December 31 of that year if
paid to shareholders during January of the following calendar year.
Foreign Tax Withholding. Income received by the Portfolio from sources within
foreign countries may be subject to withholding and other income or similar
taxes imposed by such countries. If more than 50% of the value of the
Portfolio's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible and intends to elect to treat
its share of any non-U.S. income and similar taxes it pays (or which are paid by
the Portfolio) as though the taxes were paid by the Fund's shareholders.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his pro rata share
of the foreign taxes paid by the Fund or Portfolio, and will be entitled either
to deduct (as an itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. federal income tax liability, subject to limitations. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions, but such a shareholder may be eligible to claim the foreign tax
credit. Shareholders will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund or Portfolio will
be treated as paid by the Fund's shareholders for that year. Furthermore,
foreign shareholders may be subject to U.S. tax at the rate of 30% (or lower
treaty rate) of the income resulting from the Fund's election to treat any
foreign taxes paid by it as paid its shareholders, but will not be able to claim
a credit or deduction for the foreign taxes treated as having been paid by them.
The Fund generally will be required to withhold federal income tax at a rate
of 31% ("backup withholding") from dividends paid, capital gain distributions,
and redemption proceeds to shareholders if (1) the shareholder fails to furnish
the Fund with the shareholder's correct taxpayer identification number ("TIN")
or social security number and to make such certifications as the Fund may
require, (2) the Internal Revenue Service notifies the shareholder or the Fund
that the shareholder has failed to report properly certain interest and dividend
income to the Internal Revenue Service and to respond to notices to that effect,
or (3) when required to do so, the shareholder fails to certify that he is not
subject to backup withholding. Backup withholding is not an additional tax and
any amounts withheld may be credited against the shareholder's federal income
tax liability. Dividends from the Fund attributable to the Fund's net investment
income and short-term capital gains generally will be subject to U.S.
withholding tax when paid to shareholders treated under U.S. tax law as
nonresident alien individuals or foreign corporations, estates, partnerships or
trusts.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each series of the Trust (including the Fund) qualifies
as a "regulated investment company" under the Code.
For additional information relating to the tax aspects of investing in the
Fund and for information about the tax aspects of the Portfolio, see the
Statement of Additional Information.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (par value $0.001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. Currently, the Trust has three series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the Fund
with each other share. Shares have no preference, preemptive, conversion or
similar rights. Shares when issued are fully paid and non-assessable, except as
set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. The Trust is not required and has no
current intention to hold annual meetings of shareholders, although the Trust
will hold special meetings of Fund shareholders when in the judgment of the
Trustees of the Trust it is necessary or desirable to submit matters for a
shareholder vote. Shareholders of each series generally vote separately, for
example, to approve investment advisory agreements or changes in fundamental
investment policies or restrictions, but shareholders of all series may vote
together to the extent required under the 1940 Act, such as in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Under certain circumstances the shareholders of one or more series could control
the outcome of these votes.
The series of the Portfolio Trust will vote separately or together in the same
manner as the series of the Trust. Under certain circumstances, the investors in
one or more series of the Portfolio Trust could control the outcome of these
votes.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing subscribed to by a specified
number of shareholders. Upon liquidation or dissolution of the Fund,
shareholders of the Fund would be entitled to share pro rata in the net assets
of the Fund available for distribution to shareholders.
The Trust is an entity of the type commonly known as a "Massachusetts business
trust". Under Massachusetts law, shareholders of such a business trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust is organized as a master trust fund under the laws of the
State of New York. The Portfolio is a separate series of the Portfolio Trust,
which currently has two other series. The Portfolio Trust's Declaration of Trust
provides that the Fund and other entities investing in the Portfolio (e.g.,
other investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, the risk of the Fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations. Accordingly, the
Trustees of the Trust believe that neither the Fund nor its shareholders will be
adversely affected by reason of the investment of all of the Assets of the Fund
in the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each Portfolio Business Day. At 4:00 p.m., New
York time on each Portfolio Business Day, the value of each investor's
beneficial interest in the Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be effected on that day,
are then effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio is then recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of 4:00 p.m., New York time on such day plus or minus, as
the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m., New York time on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate investments in
the Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the Portfolio
as of 4:00 p.m., New York time on the following Portfolio Business Day.
PERFORMANCE INFORMATION
Yield and total return data for the Fund may from time to time be included in
advertisements about the Trust. "Total return" is expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years. All total return figures reflect the
deduction of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. "Yield"
refers to the income generated by an investment in the Fund over the 30-day (or
one month) period ended on the date of the most recent balance sheet of the Fund
included in the Trust's registration statement with respect to the Fund.
The following table sets forth the average annual total returns of MFS
Institutional Emerging Equities Fund (the "MFS Fund"), a mutual fund managed by
the Sub-Adviser with investment objectives, policies and restrictions
substantially similar to the Fund and the Portfolio and which has been managed
as the Portfolio is expected to be managed. The data is provided to illustrate
the past performance of the Sub-Adviser in managing a substantially similar
account as measured against specified market indices and does not represent the
performance of the Fund. Investors should not consider this performance data as
an indication of future performance of the Fund or of the Sub-Adviser. Returns
for each period are adjusted to assume that all charges, expenses and fees of
the Fund and the Portfolio which are presently in effect were deducted during
such periods. The investment results of the MFS Fund presented below are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the Fund or an individual in the Fund. Investors should also be
aware that the use of a methodology different from that used to calculate the
performance data set forth below could result in different performance data.
AVERAGE ANNUAL
TOTAL RETURNS
--------------------------------
RUSSELL 2000
MFS FUND INDEX (3)
1 Year (1) ............................... 17.58% 6.91%
3 Years (1) .............................. 27.65% 11.82%
Since Inception of MFS Fund (1)(2) ....... 28.31% 12.29%
----------
(1) Through July 31, 1996.
(2) Commencement of investment operations is June 16, 1993.
(3) The Russell 2000 Index is a broad index of equity securities of small
capitalization U.S. companies, with an average market capitalization of
$421 million as of July 31, 1996.
See the Statement of Additional Information for further information concerning
the calculation of yield and total return data.
Since these total return and yield quotations are based on historical earnings
and since the Fund's total return and yield fluctuate from day to day, these
quotations should not be considered as an indication or representation of the
Fund's total return or yield in the future. Any performance information should
be considered in light of the Fund's investment objective and policies,
characteristics and quality of the Fund's portfolio and the market conditions
during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. From time to time the
Trust may also use comparative performance information in such advertisements,
including the performance of unmanaged indices, the performance of the Consumer
Price Index (as a measure for inflation), and data from Lipper Analytical
Services, Inc. and other industry publications.
A Shareholder Servicing Agent may charge its customers direct fees in
connection with an investment in the Fund, which will have the effect of
reducing the net return on the investment of customers of that Shareholder
Servicing Agent. Conversely, the Trust has been advised that certain Shareholder
Servicing Agents may credit to the accounts of their customers from whom they
are already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund, which will have
the effect of increasing the net return on the investment of such customers of
those Shareholder Servicing Agents. Such customers may be able to obtain through
their Shareholder Servicing Agent quotations reflecting such decreased return.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 3435 Stelzer Road,
Suite 1000, Columbus, Ohio 43219.
GENERAL AND ACCOUNT INFORMATION (888) 525-5757 (TOLL FREE)
--------------------
The Trust's Statement of Additional Information, dated September 1, 1996, with
respect to the Fund contains more detailed information about the Fund, including
information related to (i) the Fund's investment restrictions, (ii) the Trustees
and officers of the Trust and the Manager, Sub-Adviser and Sponsor of the Fund,
(iii) portfolio transactions, (iv) the Fund's shares, including rights and
liabilities of shareholders, and (v) additional yield information, including the
method used to calculate the total return and yield of the Fund.
<PAGE>
REPUBLIC
SMALL CAP
EQUITY FUND
[graphic omitted]
INVESTMENT ADVISER
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
BISYS Fund Services
3435 Stelzer Road, Suite 1000
Columbus, OH 43219
(614) 470-8000
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(800) 782-8183
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
99 High Street
Boston, MA 02110
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
SHAREHOLDER SERVICING AGENT
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
