Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State or jurisdiction in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State or jurisdiction.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 8, 1996
REPUBLIC SMALL CAP EQUITY FUND
SIX ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
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ACCOUNT AND GENERAL INFORMATION: (800) 782-8183 (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.
Shares of the Fund are continuously offered for sale at net asset value
with no sales charge by Signature Broker-Dealer Services, Inc. ("SBDS" or the
"Distributor" or the "Sponsor") to
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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 , 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.
Investors should read this Prospectus and retain it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1996
3
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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, RISKS AND POLICIES
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".
SBDS acts as sponsor and as administrator of the Fund (the "Fund
Administrator") and distributor of shares of the Fund. For its services to the
Fund, the Fund Administrator receives from the Fund a fee payable monthly equal
on an annual basis to 0.05% of the Fund's average daily net assets up to $100
million. Signature Financial Group (Cayman) Limited ("Signature (Cayman)") acts
as administrator 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 to 0.05% of the average
daily net assets of the Portfolio.
4
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PURCHASES AND REDEMPTIONS
PAGES 23 and 24
Shares of the Fund are continuously offered for sale by the Distributor
at net asset value with no sales charge to customers of a financial institution
such as a federal or state-chartered bank, trust company or savings and loan
association that has entered into a shareholder servicing agreement with the
Trust (each a "Shareholder Servicing Agent"). At present, the only Shareholder
Servicing Agents are Republic and its affiliates . The minimum initial
investment is $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 Fund shares, unless the shareholder instructs the Fund
otherwise. See "Dividends and Distributions."
5
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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 Fund Shares. 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%
-- 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 sub-advisory 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
6
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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
7
<PAGE>
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
8
<PAGE>
(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
9
<PAGE>
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)
10
<PAGE>
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
11
<PAGE>
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
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<PAGE>
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
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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
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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
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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 (617) 423-0800. The two-tier investment fund structure has been
developed relatively recently, so shareholders should carefully consider this
investment approach.
The investment objective of the Fund may be changed without the
approval of the shareholders of the Fund and the investment objective of the
Portfolio may be changed without the approval of the investors in the Portfolio.
Shareholders of the Fund will receive 30 days prior written notice of any change
in the investment objective of the Fund or the Portfolio. For a description of
the investment objective, policies and restrictions of the Portfolio, see
"Investment Objective and
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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
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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
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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 $39.8 billion on behalf of approximately 1.8
million investor accounts as of October 31, 1995. As of such date, the MFS
organization managed approximately $15.9 billion of assets invested in equity
securities, approximately $19.6 billion of assets invested in fixed income
securities, and $2.9 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
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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
SBDS, whose address is 6 St. James Avenue, Boston, Massachusetts 02116,
acts as sponsor and principal underwriter and distributor of the Fund's shares
pursuant to a Distribution Contract with the Trust.
ADMINISTRATOR AND PORTFOLIO ADMINISTRATOR
Pursuant to an Administrative Services Agreement, SBDS and Signature
(Cayman) provide each of the Fund and the Portfolio, respectively, with general
office facilities and supervise the overall administration of the Fund and the
Portfolio including, among other responsibilities, the preparation and filing of
all documents required for compliance by the Fund and the Portfolio with
applicable laws and regulations and arranging for the maintenance of books and
records of the Fund and the Portfolio. For its services to the Fund, SBDS
receives from the Fund fees payable monthly equal on an annual basis (for the
Fund's then-current fiscal year) to 0.05% of the Fund's average daily net assets
up to $100 million. The Administrator of the Fund receives no compensation from
the Fund with respect to the Fund's assets over $100 million. The administrative
services fees of the Fund are subject to an annual minimum fee. See the
Statement of Additional Information. For its services to the Portfolio,
Signature (Cayman) receives from the Portfolio fees payable monthly equal on an
annual basis (for the Portfolio's then-current fiscal year) to 0.05% of the
Portfolio's average daily net assets.
SBDS and Signature (Cayman) provide persons satisfactory to the
respective Boards of Trustees to serve as officers of the Trust and the
Portfolio Trust. Such officers, as well as certain other employees of the Trust
and of the Portfolio Trust, may be
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directors, officers or employees of SBDS, Signature (Cayman) or their
affiliates.
SBDS, Signature (Cayman) and their affiliates also serve as
administrator and distributor of other investment companies. SBDS and Signature
(Cayman) are wholly owned subsidiaries of Signature Financial Group, Inc.
FUND ACCOUNTING AGENT
Pursuant to respective fund accounting agreements, Signature Financial
Services, Inc. ("Signature") serves as fund accounting agent to each of the Fund
and the Portfolio. For its services to the Fund, Signature receives from the
Fund fees payable monthly equal on an annual basis to $12,000. For its services
to the Portfolio, Signature receives fees payable monthly equal on an annual
basis to $50,000.
TRANSFER AGENT AND CUSTODIAN
Each of the Trust and the Portfolio Trust has entered into a Transfer
Agency Agreement with Investors Bank & Trust Company ("IBT") pursuant to which
IBT acts as transfer agent (the "Transfer Agent") for the Fund and the
Portfolio. The Transfer Agent maintains an account for each shareholder of the
Fund (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
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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
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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. It is anticipated that the portfolio
turnover rate of the Portfolio will not exceed 200% during the Portfolio's first
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 that of a fund with a lesser
portfolio turnover rate.
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.
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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
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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
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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.
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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,
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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
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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
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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 Fund may quote the average annual total returns of all private
accounts and collective investment vehicles managed by the Sub-Adviser with
investment objectives, policies and restrictions substantially similar to the
Fund and the Portfolio
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and which have been managed as the Portfolio is expected to be managed. As of
October 31, 1995, the annualized total returns for all private accounts and
collective investment vehicles managed by the Sub-Adviser commencing __________,
199__ with investment objectives, policies and restrictions substantially
similar to the Fund and Portfolio, which are of comparable size to the Portfolio
and which have been managed as the Portfolio is expected to be managed were as
follows:
1 Year 5 Years 10 Years
------ ------- --------
% % %
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. 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, 6 St. James
Avenue, Boston, Massachusetts 02116.
General and Account Information (800) 782-8183 (Toll Free)
--------------------
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The Trust's Statement of Additional Information, dated ______________,
1996, with respect to the Fund contains more detailed information about the
Fund, including information related to (i) the Fund's investment restrictions,
(ii) the Trustees and officers of the Trust and the Manager, Sub-Adviser and
Sponsor of the Fund, (iii) portfolio transactions, (iv) the Fund's shares,
including rights and liabilities of shareholders, and (v) additional yield
information, including the method used to calculate the total return and yield
of the Fund.
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- -----
REPUBLIC
SMALL CAP EQUITY
FUND
Investment Adviser
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
Administrator, Distributor and Sponsor
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
(617) 423-0800
Custodian and Transfer Agent
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(800) 782-8183
Independent Auditors
KPMG Peat Marwick 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
(800) 782-8183
