REPUBLIC
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INTERNATIONAL
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EQUITY FUND
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PROSPECTUS
AUGUST 1, 1996
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REPUBLIC INTERNATIONAL EQUITY FUND
SIX ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
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ACCOUNT AND GENERAL INFORMATION: (800) 782-8183 (TOLL FREE)
Republic International Equity Fund (the "Fund") is a diversified 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 the Portfolio. Capital Guardian Trust
Company ("CGTC" or 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 INTERNATIONAL EQUITY PORTFOLIO (THE
"PORTFOLIO"), WHICH HAS THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE
INVESTMENT EXPERIENCE OF THE FUND WILL CORRESPOND DIRECTLY WITH THE INVESTMENT
EXPERIENCE OF THE PORTFOLIO. THE PORTFOLIO IS A DIVERSIFIED SERIES OF 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
and future income through investment primarily in securities of non-U.S. issuers
(including American Depositary Receipts ("ADRs") and U.S. registered securities)
and securities whose principal markets are outside of the United States. The
principal investments of the Portfolio will be in equity securities of companies
in developed nations, including Europe, Canada, Australia and the Far East. The
Portfolio may also invest in emerging market equity securities.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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 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 August 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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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 AUGUST 1, 1996
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HIGHLIGHTS
THE FUND PAGE 1
Republic International 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. The Fund is
the successor to Republic International Equity Fund, a series of Republic Funds
(the "Predecessor Fund") which commenced investment operations on January 9,
1995. The Fund assumed all of the assets and liabilities of the Predecessor Fund
in a reorganization effective July 31, 1996.
INVESTMENT OBJECTIVE, RISKS AND POLICIES PAGES 7 AND 9
The investment objective of the Fund is to seek long-term growth of capital
and future income through investment primarily in securities of non-U.S. issuers
(including American Depository Receipts ("ADRs") and U.S. registered securities)
and securities whose principal markets are outside of the United States. The
Trust seeks to achieve the investment objective of the Fund by investing all of
the Fund's Assets in International 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 17
Republic acts as investment manager to the Portfolio pursuant to an
Investment Management Contract with the Portfolio Trust. For its services, the
Adviser 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 Adviser is currently
waiving this fee.
Capital Guardian Trust Company ("CGTC" or the "Sub-Adviser") continuously
manages the investment portfolio of the Portfolio pursuant to a Sub-Advisory
Agreement with the Manager. For its services, the Sub-Adviser is paid a fee by
the Portfolio, computed daily and based on the Portfolio's average daily net
assets, equal on an annual basis to 0.70% of net assets up to $25 million, 0.55%
of net assets over $25 million and up to $50 million, 0.425% of net assets over
$50 million and up to $250 million, and 0.375% of net assets over $250 million.
See "Management of the Trust and the Portfolio Trust".
SBDS acts as sponsor and as administrator 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.
PURCHASES AND REDEMPTIONS PAGES 23 AND 25
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 the
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."
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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. 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* .................... 0.53%
Other Expenses ........................................... 0.68%
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-- Administrative Services Fee ..................... 0.10%
-- Other Operating Expenses ........................ 0.58%
Total Operating Expenses after waiver** ...................... 1.21%
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*Reflects a waiver of the investment management fee payable to Republic and an
investment sub-advisory fee payable to CGTC equal on an annual basis to 0.53%
of the Fund's average daily net assets. Without such waiver, the Investment
Advisory Fee would be equal on an annual basis to 0.78% 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 1.46% 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 ................................................. $12
3 years ................................................. $38
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 year of the Portfolio (and the Fund's initial 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 $75 million in the Fund and $100 million
in the Portfolio for the current fiscal year.
FINANCIAL HIGHLIGHTS
The Fund is the successor to Republic International Equity Fund, a series of
Republic Funds (the "Predecessor Fund") which commenced investment operations on
January 9, 1995. The Fund assumed all of the assets and liabilities of the
Predecessor Fund in a reorganization effective July 31, 1996. The financial
data shown below is to assist investors in evaluating the performance of the
Fund since commencement of operations through October 31, 1995. The information
shown in the following schedule has been audited by Ernst & Young LLP,
independent auditors, whose report on the Fund's financial statements is
incorporated by reference into the Statement of Additional Information from the
Fund's Annual Report dated October 31, 1995. The Annual Report also includes
management's discussion of fund performance, and may be obtained without charge
upon request. This information should be read in conjunction with the financial
statements.
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SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
THE INDICATED PERIOD:
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<CAPTION>
FOR THE FOR THE PERIOD
SIX MONTHS JANUARY 9, 1995
ENDED (COMMENCEMENT
APRIL 30, 1996 OF OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1995
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<S> <C> <C>
Net asset value, beginning of period .................. $10.80 $10.00
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INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................. 0.11 0.08
Net realized and unrealized gain from Portfolio 1.13 0.75
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Total increase from investment operations ......... 1.24 0.83
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LESS DIVIDENDS:
From net investment income ........................ (0.16) (0.03)
Net realized capital gains ........................ (0.01) --
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Total distributions to shareholders ............... (0.17) (0.03)
Net asset value, end of period ........................ $11.87 $10.80
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TOTAL RETURN .......................................... 11.20%(a) 8.31%(a)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .............. $80,563 $34,244
Ratio of expenses to average net assets (b) 1.21%(c) 1.14%(c)
Ratio of net investment income to average net
assets (b) ...................................... 0.89%(c) 1.26%(c)
<FN>
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(a) Not annualized.
(b) Reflects a voluntary expense limitation by affiliated parties of the Fund. If this limitation
had not been in effect, the annualized ratios of expenses and net investment income to average
net assets for the six months ended April 30, 1996 and the period January 9, 1995 (commencement
of operations) to October 31, 1995 would have been:
Ratio of expenses to average net assets ......... 1.33%(c) 2.12%(c)
Ratio of net investment income to average net
assets ........................................ 0.77%(c) 0.28%(c)
(c) Annualized.
</FN>
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INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term growth of capital
and future income through investment primarily in securities of non-U.S. issuers
(including American Depositary Receipts ("ADRs") and U.S. registered securities)
and securities whose principal markets are outside of the United States. The
investment objective of the Portfolio is the same as the investment objective of
the Fund.
There can be no assurance that the investment objective of the Fund will be
achieved. The investment objective of each of the Fund and the Portfolio may be
changed without investor approval. If there is a change in the investment
objective of the Fund, shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial position and
needs. Shareholders of the Fund shall receive 30 days' prior written notice of
any change in the investment objective of the Fund or the Portfolio.
Since the investment characteristics of the Fund will correspond to those of
the Portfolio, the following is a discussion of the various investment policies
of the Portfolio.
INVESTMENT POLICIES
The Portfolio will normally invest at least 80% of its total assets in equity
securities of foreign corporations, consisting of common stocks and other
securities with equity characteristics, including preferred stock, warrants,
rights, securities convertible into common stock ("convertible securities"),
trust certificates, limited partnership interests and equity participations. The
common stock in which the Portfolio may invest includes the common stock of any
class or series of any similar equity interest, such as trust or limited
partnership interests. These equity investments may or may not pay dividends and
may or may not carry voting rights. The principal investments of the Portfolio
will be in equity securities of companies organized and domiciled in developed
nations outside the United States or for which the principal trading market is
outside the United States, including Europe, Canada, Australia and the Far East,
although the Portfolio may invest up to 20% of its assets in equity securities
of companies in emerging markets. See "Additional Risk Factors and Policies:
Foreign Securities -- Emerging Markets." The Portfolio intends to have at least
three different countries represented in its portfolio. It is the current
intention of the Portfolio to invest primarily in companies with large market
capitalizations. The Portfolio seeks to outperform the Morgan Stanley Capital
International EAFE (Europe, Australasia and Far East) Index), a capitalization
weighed index containing approximately 1,100 equity securities of companies
located outside the United States. The Portfolio invests in securities listed on
foreign or domestic securities exchanges and securities traded in foreign or
domestic over-the-counter markets, and may invest in certain restricted or
unlisted securities.
Under exceptional conditions abroad or when, in the opinion of the
Sub-Adviser, economic or market conditions warrant, the Portfolio may
temporarily invest part or all of its assets in fixed income securities
denominated in foreign currencies, obligations of domestic or foreign
governments and their political subdivisions ("Government Securities"), and
nonconvertible preferred stock, or hold its assets in cash or equivalents. Debt
securities purchased by the Portfolio will be limited to those rated, at the
time of investment, in the four highest rating categories by a nationally
recognized statistical rating organization ("NRSRO") or, if unrated, determined
by the Sub-Adviser to be of comparable quality. Securities rated by a NRSRO in
the fourth highest rating category are considered to have some speculative
characteristics. When the total return opportunities in a foreign bond market
appear attractive in local currency terms, but, in the Sub-Adviser's judgment,
unacceptable currency risk exists, currency futures, forwards and options may be
used to hedge the currency risk. See "Additional Risk Factors and Policies:
Forward Foreign Currency Contracts and Options on Foreign Currencies."
As described under "Management of the Trust and the Portfolio Trust--Sub
Adviser," CGTC, the Portfolio's Sub-Adviser, uses a system of multiple portfolio
managers pursuant to which the Portfolio is divided into segments which are
assigned to individual portfolio managers. Within investment guidelines, each
portfolio manager makes individual decisions as to company, country, industry,
timing and percentage based on extensive field research and direct company
contact.
Because of the risks associated with common stocks and other equity
investments, the Portfolio is intended to be a long-term investment vehicle and
is not designed to provide investors with a means of speculating on short-term
stock market movements. The Sub-Adviser seeks to reduce these risks by
diversifying the portfolio as well as by monitoring broad economic trends and
corporate and legislative developments.
ADDITIONAL RISK FACTORS AND POLICIES
FOREIGN SECURITIES
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject to
the disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of cash or
other assets of the Portfolio, political or financial instability, or diplomatic
and other developments which could affect such investments. Further, economies
of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the United States. Changes in foreign exchange
rates will affect the value of securities denominated or quoted in currencies
other than the U.S. dollar. Foreign securities often trade with less frequency
and volume than domestic securities and therefore may exhibit greater price
volatility. Furthermore, dividends from foreign securities may be withheld at
the source. Additional costs associated with an investment in foreign securities
may include higher custodial fees than apply to domestic custodial arrangements,
and transaction costs of foreign currency conversions.
Emerging Markets. Investing in emerging market countries presents greater risk
than investing in foreign issuers in general. A number of emerging markets
restrict foreign investment in stocks. Repatriation of investment income,
capital, and the proceeds of sales by foreign investors may require governmental
registration and/or approval in some emerging market countries. A number of the
currencies of developing countries have experienced significant declines against
the U.S. dollar in recent years, and devaluation may occur subsequent to
investments in these currencies by the Portfolio. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries. Many of the emerging securities markets are relatively small, have
low trading volumes, suffer periods of relative illiquidity, and are
characterized by significant price volatility. There is the risk that a future
economic or political crisis could lead to price controls, forced mergers of
companies, expropriation or confiscatory taxation, seizure, nationalization, or
creation of government monopolies, any of which could have a detrimental effect
on the Portfolio's investments.
Investing in formerly communist East European countries involves the
additional risk that the government or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the fall of communism and could follow radically different political and/or
economic policies to the detriment of investors, including non-market oriented
policies such as the support of certain industries at the expense of other
sectors or a return to a completely centrally planned economy. The Portfolio
does not currently intend to invest a significant portion of its assets in
formerly communist East European countries.
As used in this Prospectus, "emerging markets" include any country which in
the opinion of the Sub-Adviser is generally considered to be an emerging or
developing country by the International Bank for Reconstruction and Development
(the World Bank) and the International Monetary Fund. Currently, these countries
generally include every country in the world except Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, United
Kingdom and United States.
A company in an emerging market is one that: (i) is domiciled and has its
principal place of business in an emerging market or (ii) (alone or on a
consolidated basis) derives or expects to derive a substantial portion of its
total revenue from either goods produced, sales made or services performed in
emerging markets. The Portfolio may invest up to 20% of its assets in the equity
securities of companies based in emerging markets.
Sovereign and Supranational Debt Obligations. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a high degree of risk, and may be in default
or present the risk of default. The issuer of the obligation or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
DEPOSITARY RECEIPTS
The Portfolio may invest in American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), and
International Depositary Receipts ("IDRs"), or other similar securities
convertible into securities of foreign issuers. ADRs (sponsored or unsponsored)
are receipts typically issued by a U.S. bank or trust company evidencing the
deposit with such bank or company of a security of a foreign issuer, and are
publicly traded on exchanges or over-the-counter in the United States. In
sponsored programs, an issuer has made arrangements to have its securities trade
in the form of ADRs. In unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, in some
cases it may be easier to obtain financial information from an issuer that has
participated in the creation of a sponsored program.
EDRs, which are sometimes referred to as Continental Depositary Receipts, are
receipts issued in Europe typically by foreign bank and trust companies that
evidence ownership of either foreign or domestic underlying securities. IDRs are
receipts typically issued by a European bank or trust company evidencing
ownership of the underlying foreign securities. GDRs are receipts issued by
either a U.S. or non-U.S. banking institution evidencing ownership of the
underlying foreign securities.
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. A mutual fund, of course, derives its value from the value of the
investments it holds and so might even be called a "derivative." Some
"derivatives" such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more volatile or
less liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There are a
range of risks associated with those uses. Futures and options are commonly used
for traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities. The
Portfolio may use derivatives for hedging purposes, cash management purposes, as
a substitute for investing directly in fixed income instruments, and to enhance
return when the Sub-Adviser believes the investment will assist the Portfolio in
achieving its investment objective. A description of the derivatives that the
Portfolio may use and some of their associated risks follows.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Forward foreign currency exchange contracts ("forward contracts") are
intended to minimize the risk of loss to the Portfolio from adverse changes in
the relationship between the U.S. dollar and foreign currencies. The Portfolio
may not enter into such contracts for speculative purposes, and will commit no
more than 100% of the value of its assets to forward contracts entered into for
hedging purposes.
A forward contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date which is individually negotiated and
privately traded by currency traders and their customers. A forward contract may
be used, for example, when the Portfolio enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of the security. The Portfolio may also purchase and write
put and call options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired.
OPTIONS AND FUTURES TRANSACTIONS
For hedging purposes only, the Portfolio may invest in foreign currency
futures contracts and options on foreign currencies and foreign currency futures
contracts. Futures contracts provide for the sale by one party and purchase by
another party of a specified amount of a specific security, at a specified
future time and price. An option is a legal contract that gives the holder the
right to buy or sell a specified amount of the underlying security or futures
contract at a fixed or determinable price upon the exercise of the option. A
call option conveys the right to buy and a put option conveys the right to sell
a specified quantity of the underlying security. The Portfolio will segregate
assets or "cover" its positions consistent with requirements under the
Investment Company Act of 1940, as amended ("1940 Act").
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Sub-Adviser applies a strategy at an inappropriate time or judges market
conditions or trends incorrectly, options and futures strategies may lower the
Portfolio's return. Certain strategies limit the Portfolio's potential to
realize gains as well as limit its exposure to losses. The Portfolio could also
experience losses if the prices of its options and futures positions were poorly
correlated with its other investments. There can be no assurance that a liquid
market will exist at a time when the Portfolio seeks to close out a futures
contract or a futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a particular
contract, no trades may be made that day at a price beyond that limit. In
addition, certain of these instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Portfolio from liquidating an unfavorable position
and the Portfolio would remain obligated to meet margin requirements until the
position is closed. In addition, the Portfolio will incur transaction costs,
including trading commissions and options premiums, in connection with its
futures and options transactions, and these transactions could significantly
increase the Portfolio's turnover rate.
CONVERTIBLE SECURITIES
Although the Portfolio's equity investments consist primarily of common and
preferred stocks, the Portfolio may buy securities convertible into common stock
if, for example, the Sub-Adviser believes that a company's convertible
securities are undervalued in the market. Convertible securities eligible for
purchase by the Portfolio consist of convertible bonds, convertible preferred
stocks, warrants and rights. See "Additional Risk Factors and Policies --
Warrants" below and the Statement of Additional Information for a discussion of
these instruments.
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in securities that are
illiquid by virtue of the absence of a readily available market, or because of
legal or contractual restrictions on resale. This policy does not limit the
acquisition of securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as described below. The
Portfolio may not invest more than 10% of its assets in restricted securities
(including Rule 144A securities). There may be delays in selling these
securities and sales may be made at less favorable prices.
The Sub-Adviser may determine that a particular Rule 144A security is liquid
and thus not subject to the Portfolio's limits on investment in illiquid
securities, pursuant to guidelines adopted by the Board of Trustees. Factors
that the Sub-Adviser must consider in determining whether a particular Rule 144A
security is liquid include the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and the nature of the market for the
security (i.e., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). Investing in Rule 144A
securities could have the effect of increasing the level of the Portfolio's
illiquidity to the extent that qualified institutions might become, for a time,
uninterested in purchasing these securities.
WARRANTS
The Portfolio may invest up to 10% of its net assets in warrants, except that
this limitation does not apply to warrants acquired in units or attached to
securities. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specific amount of the corporation's capital
stock at a set price for a specified period of time. Warrants do not represent
ownership of the securities, but only the right to buy the securities. The
prices of warrants do not necessarily move parallel to the prices of underlying
securities. Warrants may be considered speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of a
corporation issuing them. Warrant positions will not be used to increase the
leverage of the Portfolio. Consequently, warrant positions are generally
accompanied by cash positions equivalent to the required exercise amount.
LOANS OF PORTFOLIO SECURITIES
The Portfolio may lend its securities to qualified brokers, dealers, banks and
other financial institutions for the purpose of realizing additional income.
Loans of securities will be collateralized by cash, letters of credit, or
securities issued or guaranteed by the U.S. Government or its agencies. The
collateral will equal at least 100% of the current market value of the loaned
securities. In addition, the Portfolio will not lend its portfolio securities to
the extent that greater than one-third of its total assets, at fair market
value, would be committed to loans at that time.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Portfolio may purchase and sell securities on a when-issued or
firm-commitment basis, in which a security's price and yield are fixed on the
date of the commitment but payment and delivery are scheduled for a future date.
On the settlement date, the market value of the security may be higher or lower
than its purchase or sale price under the agreement. If the other party to a
when-issued or firm-commitment transaction fails to deliver or pay for the
security, the Portfolio could miss a favorable price or yield opportunity or
suffer a loss. The Portfolio will not earn interest on securities until the
settlement date. The Portfolio will maintain in a segregated account with the
custodian cash or liquid, high-grade debt securities equal (on a daily
marked-to-market basis) to the amount of its commitment to purchase the
securities on a when-issued basis.
PORTFOLIO TURNOVER
The Sub-Adviser manages the Portfolio generally without regard to restrictions
on portfolio turnover, except those imposed by provisions of the federal tax
laws regarding short-term trading. In general, the Portfolio will not trade for
short-term profits, but when circumstances warrant, investments may be sold
without regard to the length of time held. For the period from January 9, 1995
(commencement of operations) to October 31, 1995, the portfolio turnover rate
for the Portfolio was 3%. Although this figure is reflective of the Portfolio's
initial period of operations, it is expected that in subsequent years the annual
turnover rate for the Portfolio will not exceed 40%.
INVESTMENT RESTRICTIONS
Each of the Portfolio and the Fund has adopted certain investment restrictions
designed to reduce exposure to specific situations (except that none of these
investment restrictions shall prevent the Fund from investing all of its assets
in a registered investment company with substantially the same investment
objective). Some of these investment restrictions are:
(1) with respect to 75% of its assets, the Portfolio (Fund) will not purchase
securities of any issuer if, as a result, more than 5% of the Portfolio's
(Fund's) total assets taken at market value would be invested in the
securities of any single issuer;
(2) with respect to 75% of its assets, the Portfolio (Fund) will not purchase
a security if, as a result, the Portfolio (Fund) would hold more than 10%
of the outstanding voting securities of any issuer;
(3) the Portfolio (Fund) will not invest more than 5% of its total assets in
the securities of issuers (other than securities issued or guaranteed by
U.S. or foreign governments or political subdivisions thereof) which have
(with predecessors) a record of less than three years of continuous
operation;
(4) the Portfolio (Fund) will not acquire any securities of companies within
one industry, if, as a result of such acquisition, more than 25% of the
value of the Portfolio's (Fund's) total assets would be invested in
securities of companies within such industry; provided, however, that
there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, when
the Portfolio (Fund) adopts a temporary defensive position;
(5) the Portfolio (Fund) will not make loans except for the lending of
portfolio securities pursuant to guidelines established by its Board of
Trustees and except as otherwise in accordance with its investment
objective and policies;
(6) the Portfolio (Fund) will not borrow money except from a bank as a
temporary measure to satisfy redemption requests or for extraordinary or
emergency purposes, provided that the Portfolio (Fund) maintains asset
coverage of at least 300% for all such borrowings;
(7) the Portfolio (Fund) will not purchase warrants, valued at the lower of
cost or market, in excess of 10% of the Portfolio's (Fund's) net assets.
Included within that amount, but not to exceed 2% of the Portfolio's
(Fund's) net assets, are warrants whose underlying securities are not
traded on principal domestic or foreign exchanges. Warrants acquired by
the Portfolio (Fund) in units or attached to securities are not subject to
these restrictions;
(8) the Portfolio (Fund) will not issue senior securities, except as
permitted under the 1940 Act; and
(9) the Portfolio (Fund) will not invest its assets in securities of any
investment company, except by purchase in the open market involving only
customary brokers' commissions or in connection with mergers, acquisitions
of assets or consolidations and except as may otherwise be permitted by
the 1940 Act; provided, however, that the Portfolio shall not invest in
the shares of any open-end investment company unless (1) the Portfolio's
Sub-Adviser waives any investment advisory fees with respect to such
assets and (2) the Portfolio pays no sales charge in connection with the
investment.
Limitations (1), (2), (4), (5), (6) and (8), and certain other limitations
described in the Statement of Additional Information are fundamental and may be
changed only with the approval of the holders of a "majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Portfolio or the Fund, as
the case may be. The other investment restrictions described here and in the
Statement of Additional Information are not fundamental policies meaning that
the Board of Trustees of the Portfolio Trust may change them without investor
approval. If a percentage limitation on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the value or total cost of the
Portfolio's assets will not be considered a violation of the restriction, and
the sale of securities will not be required.
SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE
The Trust, which is an open-end investment company, seeks to achieve the
investment objective of the Fund by investing all of the Fund's Assets in the
Portfolio, a series of a separate open-end investment company with the same
investment objective as the Fund. Other mutual funds or institutional investors
may invest in the Portfolio on the same terms and conditions as the Fund.
However, these other investors may have different sales commissions and other
operating expenses which may generate different aggregate performance results.
Information concerning other investors in the Portfolio is available by calling
the Sponsor at (617) 423-0800. The two-tier investment fund structure has been
developed relatively recently, so shareholders should carefully consider this
investment approach.
The investment objective of the Fund may be changed without the approval of
the shareholders of the Fund and the investment objective of the Portfolio may
be changed without the approval of the investors in the Portfolio. Shareholders
of the Fund will receive 30 days prior written notice of any change in the
investment objective of the Fund or the Portfolio. For a description of the
investment objective, policies and restrictions of the Portfolio, see
"Investment Objective and Policies" above.
Except as permitted by the Securities and Exchange Commission, whenever the
Trust is requested to vote on a matter pertaining to the Portfolio, the Trust
will hold a meeting of the shareholders of the Fund and, at the meeting of
investors in the Portfolio, the Trust will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Trust votes all its shares at the Portfolio meeting,
other investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
The Trust may withdraw the Fund's investment in the Portfolio as a result of
certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Trustees of the Trust determines that it is
otherwise in the best interests of the Fund to do so. Upon any such withdrawal,
the Board of Trustees of the Trust would consider what action might be taken,
including the investment of all of the Assets of the Fund in another pooled
investment entity or the retaining of an investment adviser to manage the Fund's
Assets in accordance with the investment policies described above with respect
to the Portfolio. In the event the Trustees of the Trust were unable to
accomplish either, the Trustees will determine the best course of action.
As with traditionally structured funds which have large investors, the actions
of such large investors may have a material affect on smaller investors. For
example, if a large investor withdraws from the Portfolio, a small remaining
fund may experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk.
For descriptions of the management and expenses of the Portfolio, see
"Management of the Trust and the Portfolio Trust" below and in the Statement of
Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
The business and affairs of the Trust and the Portfolio Trust are managed
under the direction of their respective Boards of Trustees. The Trustees of each
of the Trust and the Portfolio Trust are Frederick C. Chen, Alan S. Parsow,
Larry M. Robbins and Michael Seely. Additional information about the Trustees,
as well as the executive officers of the Trust and the Portfolio Trust, may be
found in the Statement of Additional Information under the caption "Management
of the Trust and the Portfolio Trust -- Trustees and Officers".
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Portfolio Trust. 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
CGTC continuously manages the investment portfolio of the Portfolio pursuant
to a Sub-Advisory Agreement with the Manager. For its services, the Sub-Adviser
is paid a fee by the Portfolio, computed daily and based on the Portfolio's
average daily net assets, equal to 0.70% of net assets up to $25 million, 0.55%
of net assets over $25 million up to $50 million, 0.425% of net assets over $50
million up to $250 million, and 0.375% of net assets over $250 million. It is
the responsibility of the Sub-Adviser not only to make investment decisions for
the Portfolio, but also to place purchase and sale orders for the portfolio
transactions of the Portfolio. See "Portfolio Transactions."
CGTC, which was founded in 1968, is a wholly owned subsidiary of The Capital
Group Companies, Inc., both of which are located at 333 South Hope Street, Los
Angeles, California 90071. As of December 31, 1995 CGTC managed in excess of $47
billion of assets primarily for large institutional clients. CGTC's research
activities are conducted by affiliated companies with offices in Los Angeles,
San Francisco, New York, Washington, D.C., Atlanta, London, Geneva, Singapore,
Hong Kong and Tokyo.
Capital Research and Management Company ("CRMC"), another wholly owned
subsidiary of The Capital Group Companies, Inc., provides investment advisory
services to the following mutual funds, which are know collectively as the
American Funds Group: AMCAP Fund, American Balanced Fund, American High Income
Municipal Bond Fund, American High Income Trust, American Mutual Fund, The Bond
Fund of America, The Cash Management Trust of America, Capital Income Builder,
Inc., Capital World Bond Fund, EuroPacific Growth Fund, Fundamental Investors,
The Growth Fund of America, Income Fund of America, Intermediate Bond Fund of
America, The Investment Company of America, Limited Term Tax-Exempt Bond Fund of
America, The New Economy Fund, New Perspective Fund, Smallcap World Fund, The
Tax-Exempt Bond Fund of America, The American Funds Tax-Exempt Series I, The
American Funds Tax-Exempt Series II, The Tax-Exempt Money Fund of America, The
American Funds Income Series, The U.S. Treasury Money Fund of America,
Washington Mutual Investors Fund, and Capital World Growth and Income Fund. CRMC
also provides investment advisory services to: American Variable Insurance
Series and Anchor Pathway Fund, which are used exclusively as underlying
investment vehicles for variable insurance contracts and policies, and to
Endowments, Inc. and Bond Portfolio for Endowments, Inc., whose shares may be
owned only by tax-exempt organizations. Capital International, Inc., an indirect
wholly owned subsidiary of The Capital Group Companies, Inc., provides
investment advisory services to Emerging Markets Growth Fund, Inc., which is a
closed-end investment company.
The following persons are primarily responsible for portfolio management of
the Portfolio: David Fisher, Vice Chairman of CGTC, has had 30 years experience
as an investment professional (26 years with CGTC or its affiliates); Harmut
Giesecke, Senior Vice President and Director of Capital International, Inc., has
had 24 years experience as an investment professional (23 years with CGTC or its
affiliates); Nancy Kyle, Senior Vice President of CGTC, has had 22 years
experience as an investment professional (5 years with CGTC or its affiliates;
from 1980 to 1990, Ms. Kyle was managing director of J. P. Morgan Investment
Management, Inc.); John McIlwraith, Senior Vice President of CGTC, has had 26
years experience as an investment professional (12 years with CGTC or its
affiliates); Robert Ronus, President of CGTC, has had 27 years experience as an
investment professional (23 years with CGTC or its affiliates); and Nilly
Sikorsky, Director of The Capital Group, Inc., has had 33 years experience as an
investment professional, all of which was with CGTC or its affiliates.
DISTRIBUTOR AND SPONSOR
SBDS, whose address is 6 St. James Avenue, Boston, Massachusetts 02116, acts
as sponsor and principal underwriter and distributor of the Fund's shares
pursuant to a Distribution Contract with the Trust.
ADMINISTRATOR 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 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 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
To the extent consistent with applicable legal requirements, the Sub-Adviser
may place orders for the purchase and sale of portfolio investments for the
Portfolio with Republic New York Securities Corporation, subject to obtaining
best price and execution for a particular transaction. See the Statement of
Additional Information.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares is determined on each day on which
the New York Stock Exchange is open for trading ("Fund Business Day"). This
determination is made once during each such day as of 4:00 p.m., New York time,
by dividing the value of the Fund's net assets (i.e., the value of its
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 shares 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 Small Cap Equity Fund, and such other Republic Funds or other
registered investment companies for which Republic serves as investment adviser
as Republic may determine. An exchange may result in a change in the number of
Shares held, but not in the value of such Shares immediately after the exchange.
Each exchange involves the redemption of the Shares to be exchanged and the
purchase of the shares of the other Republic Fund 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).
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the Shares in his account at
any time at the net asset value next determined after a redemption order in
proper form is furnished by the shareholder to his Shareholder Servicing Agent
and is transmitted to and received by the Transfer Agent. Redemptions are
effected on the same day the redemption order is received by the Transfer Agent
provided such order is received prior to 4:00 p.m., New York time, on any Fund
Business Day. Shares redeemed earn dividends up to and including the Fund
Business Day prior to the day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal funds
on the next Fund Business Day on which the redemption is effected, but in any
event within seven days. The right of any shareholder to receive payment with
respect to any redemption may be suspended or the payment of the redemption
proceeds postponed during any period in which the New York Stock Exchange is
closed (other than weekends or holidays) or trading on such Exchange is
restricted or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists.
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. See the
Statement of Additional Information for further information concerning the
calculation of yield and total return data
Historical total return information for any period or portion thereof prior to
the establishment of the Fund will be that of the Portfolio, 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.
Since these total return and yield quotations are based on historical earnings
and since the Fund's total return and yield fluctuate from day to day, these
quotations should not be considered as an indication or representation of the
Fund's total return or yield in the future. Any performance information should
be considered in light of the Fund's investment objective and policies,
characteristics and quality of the Fund's portfolio and the market conditions
during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. From time to time the
Trust may also use comparative performance information in such advertisements,
including the performance of unmanaged indices, the performance of the Consumer
Price Index (as a measure for inflation), and data from Lipper Analytical
Services, Inc. and other industry publications.
A Shareholder Servicing Agent may charge its customers direct fees in
connection with an investment in the Fund, which will have the effect of
reducing the net return on the investment of customers of that Shareholder
Servicing Agent. Conversely, the Trust has been advised that certain Shareholder
Servicing Agents may credit to the accounts of their customers from whom they
are already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund, which will have
the effect of increasing the net return on the investment of such customers of
those Shareholder Servicing Agents. Such customers may be able to obtain through
their Shareholder Servicing Agent quotations reflecting such decreased return.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 6 St. James
Avenue, Boston, Massachusetts 02116.
General and Account Information (800) 782-8183 (Toll Free)
--------------------
The Trust's Statement of Additional Information, dated August 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
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INTERNATIONAL
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EQUITY FUND
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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
