As filed with the U.S. Securities and Exchange Commission on August 5, 1996
Registration Nos. 333-02205 and 811-07583
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 1
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
REPUBLIC ADVISOR FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 423-0800
Philip W. Coolidge
6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
Allan S. Mostoff, Esq.
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, DC 20005
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on July 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has previously registered an indefinite number of its shares of
beneficial interest (par value $0.01 per share) under the Securities Act of
1933, as amended, pursuant to Rule 24f-2 under the Investment Company Act of
1940, as amended. Registrant intends to file the notice required by Rule 24f-2
with respect to its series, Republic Fixed Income Fund, Republic International
Equity Fund and Republic Small Cap Equity Fund (for their fiscal years ending
October 31, 1996), on or before December 30, 1996.
Republic Portfolios has also executed this Registration Statement.
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CROSS REFERENCE SHEET
PART A; INFORMATION REQUIRED IN PROSPECTUS
ITEM NUMBER PROSPECTUS CAPTION
Item 1. Cover Page Cover Page
Item 2. Synopsis Highlights
Item 3. Condensed Financial Not Applicable.
Information
Item 4. General Description of Investment Objective
Registrant and Policies; Additional
Risk Factors and Policies;
Special Information Concerning
the Two-Tier Fund Structure
Item 5. Management of the Fund Management of the Trust and
Portfolio Trust
Item 5A. Management's Discussion Not Applicable
of Fund Performance
Item 6. Capital Stock and Other Dividends and
Securities Distributions; Tax Matters;
Description of
Shares, Voting Rights and
Liabilities
Item 7. Purchase of Securities Purchase of Shares;
Being Offered Determination of Net
Asset Value
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Legal Proceedings Not Applicable
PART B; INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
Statement of Additional
ITEM NUMBER INFORMATION CAPTION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and Not Applicable
History
Item 13. Investment Objectives and Investment Objective,
Policies Policies and Restrictions
Item 14. Management of the Registrant Management of the Trust and
Portfolio Trust
Item 15. Control Persons and Management of the Trust and
Principal Holders of Portfolio Trust
Securities
Item 16. Investment Advisory and Management of the Trust and
Other Services Portfolio Trust
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Other Information
Securities
Item 19. Purchase, Redemption and Determination of Net Asset
Pricing of Securities Being Value; See also:
Offered Prospectus - Purchase of
Shares; Prospectus -
Redemption of Shares;
Prospectus - Determination
of Net Asset Value
Item 20. Tax Status Taxation
Item 21. Underwriters Management of the Trust and
the Portfolio Trust
Item 22. Calculation of Performance Performance Information;
Data See also: Prospectus --
Performance Information
Item 23. Financial Statements Not Applicable
PART C. Information required to be included in Part C is set forth under the
appropriate items, so numbered, in Part C of this Registration Statement.
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EXPLANATORY NOTE
This post-effective amendment no. 1 (the "Amendment") to the Registrant's
registration statement on Form N-1A (File no. 333-02205) is being filed for the
purpose of adding a prospectus and statement of additional information with
respect to Republic Small Cap Equity Fund, a new series of shares of the
Registrant. As a result, the Amendment does not affect any of the Registrant's
other currently effective prospectuses and statements of additional information,
each of which is hereby incorporated herein by reference as most recently filed
pursuant to Rule 497 under the Securities Act of 1933.
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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
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HIGHLIGHTS
THE FUND PAGE
- --
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 --AND--
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 --
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.
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PURCHASES AND REDEMPTIONS
PAGE --
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 --
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 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%
------------------
* 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
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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."
- ----------
* 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
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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
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(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
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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)
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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
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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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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
24
<PAGE>
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
25
<PAGE>
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.
26
<PAGE>
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,
27
<PAGE>
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
28
<PAGE>
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
29
<PAGE>
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
30
<PAGE>
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)
--------------------
31
<PAGE>
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.
32
<PAGE>
- -----
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
- -----
REPUBLIC
SMALL CAP EQUITY
FUND
PROSPECTUS
_______ __, 1996
RF067C
<PAGE>
REPUBLIC SMALL CAP EQUITY FUND
6 St. James Avenue
Boston, MA 02116
(800) 782-8183
Republic National Bank of New York - Investment Manager
("Republic" or the "Manager")
MFS Asset Management, Inc. -
Sub-Adviser
("Sub-Adviser")
Signature Broker-Dealer Services, Inc. -
Administrator of the Fund, Distributor and Sponsor
("SBDS" or the "Administrator of the Fund" or the "Distributor" or
the "Sponsor")
Signature Financial Group (Grand Cayman) Limited -
Administrator of the Portfolio
("Signature (Cayman)")
Signature Financial Services, Inc. -
Fund Accounting Agent
("Signature")
STATEMENT OF ADDITIONAL INFORMATION
Republic Small Cap Equity Fund (the "Fund") is a separate 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. The Trust seeks to achieve the
Fund's investment objective by investing all of the Fund's investable assets
("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"), an open-end management investment company.
The Fund is described in this Statement of Additional Information.
Shares of the Fund (the "Shares") are offered only to clients of
Republic and its affiliates for which Republic or its affiliates exercises
investment discretion.
This Statement of Additional Information is not a prospectus and is
only authorized for distribution when preceded or accompanied by the Prospectus
for the Fund, dated __________, 1996 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Fund at the address and
telephone number printed above.
__________, 1996 RF068D
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS................... 1
Investment Restrictions.........................
Percentage and Rating Restrictions..............
PORTFOLIO TRANSACTIONS............................................
PERFORMANCE INFORMATION...........................................
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST...................
Trustees and Officers....................................
Investment Manager.......................................
Sub-Adviser..............................................
Administrator and Portfolio Administrator................
Fund Accounting Agent....................................
Custodian and Transfer Agent.............................
DETERMINATION OF NET ASSET VALUE..................................
TAXATION..........................................................
Options, Futures and Forward Contracts...................
Swap Agreements..........................................
Investment in Passive Foreign Investment Companies.......
Disposition of Shares....................................
OTHER INFORMATION.................................................
Purchase of Shares.......................................
Capitalization...........................................
Voting Rights............................................
Independent Auditors.....................................
Counsel..................................................
Registration Statement...................................
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated , 1996, of the Fund by which shares of
the Fund are offered. Unless the context otherwise requires, terms defined in
the Prospectus have the same meaning in this Statement of Additional Information
as in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Portfolio discussed under the caption "Investment
Objective and Policies" in the Prospectus.
EMERGING MARKETS: The Portfolio may invest in Emerging Market
Securities. Such investments entail significant risks as described in
1
<PAGE>
the Prospectus under the caption "Additional Risk Factors -- Emerging Markets"
and as more fully described below.
COMPANY DEBT -- Governments of many emerging market countries have
exercised and continue to exercise substantial influence over many aspects of
the private sector through the ownership or control of many companies, including
some of the largest in any given country. As a result, government actions in the
future could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities
held by the Portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Portfolio's assets should these conditions recur.
SOVEREIGN DEBT -- Investment in sovereign debt can involve a high
degree of risk. The governmental entity that controls the repayment of sovereign
debt may not be able or willing to repay the principal and/or interest when due
in accordance with the terms of such debt. A governmental entity's willingness
or ability to repay principal and interest due in a timely manner may be
affected by, among other factors, its cash flow situation, the extent of its
foreign reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as a
whole, the governmental entity's policy towards the International Monetary Fund,
and the political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest averages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Portfolio) may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign debt
on which governmental entities have defaulted may be collected in whole or in
part.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
2
<PAGE>
The ability of emerging market governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and tarnish its trade account surplus, if
any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
LIQUIDITY; TRADING VOLUME; REGULATORY OVERSIGHT -- The securities
markets of emerging market countries are substantially smaller, less developed,
less liquid and more volatile than the major securities markets in the U.S.
Disclosure and regulatory standards are in many respects less stringent than
U.S. standards. Furthermore, there is a lower level of monitoring and regulation
of the markets and the activities of investors in such markets.
The limited size of many emerging market securities markets and limited
trading volume in the securities of emerging market issuers compared to the
volume of trading in the securities of U.S. issuers could cause prices to be
erratic for reasons apart from factors that affect the soundness and
competitiveness of the securities issuers. For example, limited market size may
cause prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
DEFAULT; LEGAL RECOURSE -- The Portfolio may have limited legal
3
<PAGE>
recourse in the event of a default with respect to certain debt obligations it
may hold. If the issuer of a fixed-income security owned by the Portfolio
defaults, that Fund may incur additional expenses to seek recovery. Debt
obligations issued by emerging market governments differ from debt obligations
of private entities; remedies from defaults on debt obligations issued by
emerging market governments, unlike those on private debt, must be pursued in
the courts of the defaulting party itself. The Portfolio's ability to enforce
its rights against private issuers may be limited. The ability to attach assets
to enforce a judgment may be limited. Legal recourse is therefore somewhat
diminished. Bankruptcy, moratorium and other similar laws applicable to private
issuers of debt obligations may be substantially different from those of other
countries. The political context, expressed as an emerging market governmental
issuer's willingness to meet the terms of the debt obligation, for example, is
of considerable importance. In addition, no assurance can be given that the
holders of commercial bank debt may not contest payments to the holders of debt
obligations in the event of default under commercial bank loan agreements.
INFLATION -- Many emerging markets have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have been
imposed in certain countries. Of these countries, some, in recent years, have
begun to control inflation through prudent economic policies.
WITHHOLDING -- Income from securities held by the Portfolio could be
reduced by a withholding tax on the source or other taxes imposed by the
emerging market countries in which the Portfolio makes its investments. The
Portfolio's net asset value may also be affected by changes in the rates or
methods of taxation applicable to the Portfolio or to entities in which the
Portfolio has invested.
FOREIGN CURRENCIES -- Some emerging market countries also may have
managed currencies, which are not free floating against the U.S. dollar. In
addition, there is risk that certain emerging market countries may restrict the
free conversion of their currencies into other currencies. Further, certain
emerging market currencies may not be internationally traded. Certain of these
currencies have experienced a steep devaluation relative to the U.S. dollar. Any
devaluations in the currencies in which the Portfolio's portfolio securities are
denominated may have a detrimental impact on the Portfolio's net asset value.
REPURCHASE AGREEMENTS: As described in the Prospectus, the Portfolio
may enter into repurchase agreements with sellers who are member firms (or a
subsidiary thereof) of the New York Stock Exchange or members of the Federal
Reserve System, recognized domestic or
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foreign securities dealers or institutions which the Sub-Adviser has determined
to be of comparable creditworthiness. The securities that the Portfolio
purchases and holds have values that are equal to or greater than the repurchase
price agreed to be paid by the seller. The repurchase price may be higher than
the purchase price, the difference being income to the Portfolio, or the
purchase and repurchase prices may be the same, with interest at a standard rate
due to the Portfolio together with the repurchase price on repurchase.
The repurchase agreement provides that in the event the seller fails to
pay the price agreed upon on the agreed upon delivery date or upon demand, as
the case may be, the Portfolio will have the right to liquidate the securities.
If at the time the Portfolio is contractually entitled to exercise its right to
liquidate the securities, the seller is subject to a proceeding under the
bankruptcy laws or its assets are otherwise subject to a stay order, the
Portfolio's exercise of its right to liquidate the securities may be delayed and
result in certain losses and costs to the Portfolio. The Portfolio has adopted
and follows procedures which are intended to minimize the risks of repurchase
agreements. For example, the Portfolio only enters into repurchase agreements
after the Sub-Adviser has determined that the seller is creditworthy, and the
Sub-Adviser monitors that seller's creditworthiness on an ongoing basis.
Moreover, under such agreements, the value of the securities (which are marked
to market every business day) is required to be greater than the repurchase
price, and the Portfolio has the right to make margin calls at any time if the
value of the securities falls below the agreed upon margin.
LENDING OF PORTFOLIO SECURITIES: The Portfolio may seek to increase its
income by lending portfolio securities to entities deemed creditworthy by the
Sub-Adviser. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on customary industry settlement notice (which
will usually not exceed five days). During the existence of a loan, the
Portfolio would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would also receive compensation
based on investment of the collateral. The Portfolio would not, however, have
the right to vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Sub-Adviser to be of good
standing, and when, in the judgment of the Sub-Adviser, the consideration which
could be earned currently from securities loans of this type justifies the
attendant risk. If the Sub-Adviser determines to make securities loans, it is
not intended that the value of the securities loaned would exceed 30% of the
value of the Portfolio's total assets.
FOREIGN SECURITIES: The Portfolio may invest in foreign securities
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as discussed in the Prospectus. Investments in foreign issues involve
considerations and possible risks not typically associated with investments in
securities issued by domestic companies or with debt securities issued by
foreign governments. There may be less publicly available information about a
foreign company than about a domestic company, and many foreign companies are
not subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject. Foreign
securities markets, while growing in volume, have substantially less volume than
U.S markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of comparable domestic companies. Fixed
brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the U.S. There is also less government
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the U.S.
AMERICAN DEPOSITARY RECEIPTS: American Depositary Receipts ("ADRs") 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. ADRs may be sponsored or unsponsored. A sponsored
ADR is issued by a depository which has an exclusive relationship with the
issuer of the underlying security. An unsponsored ADR may be issued by any
number of U.S. depositories. Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
depository of an unsponsored ADR, on the other hand, is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through voting rights to ADR holders in respect of the
deposited securities. The Portfolio may invest in either type of ADR. Although
the U.S. investor holds a substitute receipt of ownership rather than direct
stock certificates, the use of the depository receipts in the United States can
reduce costs and delays as well as potential currency exchange and other
difficulties. The Portfolio may purchase securities in local markets and direct
delivery of these ordinary shares to the local depository of an ADR agent bank
in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the Portfolio's custodian in five days. The Portfolio may also
execute trades on the U.S. markets using existing ADRs. A foreign issuer of the
security underlying an ADR is generally not subject to the same reporting
requirements in the United States as a domestic issuer. Accordingly the
information available to a U.S. investor will be limited to the information the
foreign issuer is required to disclose in its own country and the market value
of an ADR may not reflect undisclosed material information concerning the issuer
of the underlying security. ADRs may also be subject to exchange rate risks if
the underlying foreign securities are denominated in foreign currency.
OPTIONS ON SECURITIES: The Portfolio may write (sell) covered call and
put options on securities ("Options") and purchase call and put Options. The
Portfolio may write Options for the purpose of
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attempting to increase its return and for hedging purposes. In particular, if
the Portfolio writes an Option which expires unexercised or is closed out by the
Portfolio at a profit, the Portfolio retains the premium paid for the Option
less related transaction costs, which increases its gross income and offsets in
part the reduced value of the portfolio security in connection with which the
Option is 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 then be required to purchase or sell the security at a
disadvantageous price, which might only partially be offset by the amount of the
premium.
The Portfolio may write Options in connection with buy-and-write
transactions; that is, the Portfolio may purchase a security and then write a
call Option against that security. The exercise price of the call Option the
Portfolio determines to write depends upon the expected price movement of the
underlying security. The exercise price of a call Option may be below
("in-the-money"), equal to ("at- the-money") or above ("out-of-the-money") the
current value of the underlying security at the time the Option is written.
The writing of covered put Options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put Options may be used by the
Portfolio in the same market environments in which call Options are used in
equivalent buy-and-write transactions.
The Portfolio may also write combinations of put and call Options on
the same security, a practice known as a "straddle." By writing a straddle, the
Portfolio undertakes a simultaneous obligation to sell or purchase the same
security in the event that one of the Options is exercised. If the price of the
security subsequently rises sufficiently above the exercise price to cover the
amount of the premium and transaction costs, the call will likely be exercised
and the Portfolio will be required to sell the underlying security at a below
market price. This loss may be offset, however, in whole or in part, by the
premiums received on the writing of the two Options. Conversely, if the price of
the security declines by a sufficient amount, the put will likely be exercised.
The writing of straddles will likely be effective, therefore, only where the
price of a security remains stable and neither the call nor the put is
exercised. In an instance where one of the Options is exercised, the loss on the
purchase or sale of the underlying security may exceed the amount of the
premiums received.
By writing a call Option on a portfolio security, the Portfolio limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the Option. By writing a put
Option, the Portfolio assumes the risk that it may be required to purchase the
underlying security for an exercise price above its then current market value,
resulting in a loss unless the security subsequently appreciates in value. The
writing of Options will not be undertaken by the Portfolio solely for hedging
purposes, and may involve certain risks which are not present
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<PAGE>
in the case of hedging transactions. Moreover, even where Options are written
for hedging purposes, such transactions will constitute only a partial hedge
against declines in the value of portfolio securities or against increases in
the value of securities to be acquired, up to the amount of the premium.
The Portfolio may also purchase put and call Options. Put Options are
purchased to hedge against a decline in the value of securities held in the
Portfolio's portfolio. If such a decline occurs, the put Options will permit the
Portfolio to sell the securities underlying such Options at the exercise price,
or to close out the Options at a profit. The Portfolio will purchase call
Options to hedge against an increase in the price of securities that the
Portfolio anticipates purchasing in the future. If such an increase occurs, the
call Option will permit the Portfolio to purchase the securities underlying such
Option at the exercise price or to close out the Option at a profit. The premium
paid for a call or put Option plus any transaction costs will reduce the
benefit, if any, realized by the Portfolio upon exercise of the Option, and,
unless the price of the underlying security rises or declines sufficiently, the
Option may expire worthless to the Portfolio. In addition, in the event that the
price of the security in connection with which an Option was purchased moves in
a direction favorable to the Portfolio, the benefits realized by the Portfolio
as a result of such favorable movement will be reduced by the amount of the
premium paid for the Option and related transaction costs.
The staff of the SEC has taken the position that purchased
over-the-counter options and certain assets used to cover written
over-the-counter options are illiquid and, therefore, together with other
illiquid securities, cannot exceed a certain percentage of the Portfolio's
assets (the "SEC illiquidity ceiling"). Although the Sub-Adviser disagrees with
this position, the Sub-Adviser intends to limit the Portfolio's writing of
over-the-counter options in accordance with the following procedure. Except as
provided below, the Portfolio intends to write over-the-counter options only
with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts the Portfolio has in place with
such primary dealers will provide that the Portfolio has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula may also include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of- the-money. The Portfolio will treat all
or a portion of the formula as illiquid for purposes of the SEC illiquidity
ceiling imposed by the SEC staff. The Portfolio may also write over-the-counter
options with non-primary dealers, including foreign dealers, and will treat the
assets used to cover these options as
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<PAGE>
illiquid for purposes of such SEC illiquidity ceiling.
OPTIONS ON STOCK INDICES: The Portfolio may write (sell) covered call
and put options and purchase call and put options on stock indices ("Options on
Stock Indices"). The Portfolio may cover call Options on Stock Indices by owning
securities whose price changes, in the opinion of the Sub-Adviser, are expected
to be similar to those of the underlying index, or by having an absolute and
immediate right to acquire such securities without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities in its portfolio.
Where the Portfolio covers a call option on a stock index through ownership of
securities, such securities may not match the composition of the index and, in
that event, the Portfolio will not be fully covered and could be subject to risk
of loss in the event of adverse changes in the value of the index. The Portfolio
may also cover call options on stock indices by holding a call on the same index
and in the same principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash or cash equivalents in a
segregated account with its custodian. The Portfolio may cover put options on
stock indices by maintaining cash or cash equivalents with a value equal to the
exercise price in a segregated account with its custodian, or else by holding a
put on the same security and in the same principal amount as the put written
where the exercise price of the put held (a) is equal to or greater than the
exercise price of the put written or (b) is less than the exercise price of the
put written if the difference is maintained by the Portfolio in cash or cash
equivalents in a segregated account with its custodian. Put and call options on
stock indices may also be covered in such other manner as may be in accordance
with the rules of the exchange on which, or the counterparty with which, the
option is traded and applicable laws and regulations.
The Portfolio will receive a premium from writing a put or call option
on a stock index, which increases the Portfolio's gross income in the event the
option expires unexercised or is closed out at a profit. If the value of an
index on which the Portfolio has written a call option falls or remains the
same, the Portfolio will realize a profit in the form of the premium received
(less transaction costs) that could offset all or a portion of any decline in
the value of the securities it owns. If the value of the index rises, however,
the Portfolio will realize a loss in its call option position, which will reduce
the benefit of any unrealized appreciation in the Portfolio's stock investment.
By writing a put option, the Portfolio assumes the risk of a decline in the
index. To the extent that the price changes of securities owned by the Portfolio
correlate with changes in the value of the index, writing covered put options on
indexes will increase the Portfolio's losses in the event of a market decline,
although such losses will be offset in part by the premium received for writing
the option.
The Portfolio may also purchase put options on stock indices to
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<PAGE>
hedge their investments against a decline in value. By purchasing a put option
on a stock index, the Portfolio will seek to offset a decline in the value of
securities it owns through appreciation of the put option. If the value of the
Portfolio's investments does not decline as anticipated, or if the value of the
option does not increase, the Portfolio's loss will be limited to the premium
paid for the option plus related transaction costs. The success of this strategy
will largely depend on the accuracy of the correlation between the changes in
value of the index and the changes in value of the Portfolio's security
holdings.
The purchase of call options on stock indices may be used by the
Portfolio to attempt to reduce the risk of missing a broad market advance, or an
advance in an industry or market segment, at a time when the Portfolio holds
uninvested cash or short-term debt securities awaiting investment. When
purchasing call options for this purpose, the Portfolio will also bear the risk
of losing all or a portion of the premium paid if the value of the index does
not rise. The purchase of call options on stock indices when the Portfolio is
substantially fully invested is a form of leverage, up to the amount of the
premium and related transaction costs, and involves risks of loss and of
increased volatility similar to those involved in purchasing calls on securities
the Portfolio owns.
FUTURES CONTRACTS: The Portfolio may enter into contracts for the
purchase or sale for future delivery of securities or foreign currencies or
contracts based on indexes of securities as such instruments become available
for trading ("Futures Contracts"). This investment technique is designed to
hedge (i.e., to protect) against anticipated future changes in interest or
exchange rates which otherwise might adversely affect the value of the
Portfolio's portfolio securities or adversely affect the prices of long-term
bonds or other securities which the Portfolio intends to purchase at a later
date. Futures Contracts may also be entered into for non-hedging purposes to the
extent permitted by applicable law. A "sale" of a Futures Contract means a
contractual obligation to deliver the securities or foreign currency called for
by the contract at a fixed price at a specified time in the future. A "purchase"
of a Futures Contract means a contractual obligation to acquire the securities
or foreign currency at a fixed price at a specified time in the future.
While Futures Contracts provide for the delivery of securities or
currencies, such deliveries are very seldom made. Generally, a Futures Contract
is terminated by entering into an offsetting transaction. The Portfolio will
incur brokerage fees when it purchases and sells Futures Contracts. At the time
such a purchase or sale is made, the Portfolio must allocate cash or securities
as a margin deposit ("initial deposit"). It is expected that the initial deposit
will vary but may be as low as 5% or less of the value of the contract. The
Futures Contract is valued daily thereafter and the payment of "variation
margin" may be required to be paid or received, so that each day the Portfolio
may provide or receive cash that reflects the decline or increase in the value
of the contract.
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The purpose of the purchase or sale of a Futures Contract, for hedging
purposes in the case of a portfolio holding long-term debt securities, is to
protect the Portfolio from fluctuations in interest rates without actually
buying or selling long-term debt securities. For example, if the Portfolio owned
long-term bonds and interest rates were expected to increase, the Portfolio
might enter into Futures Contracts for the sale of debt securities. If interest
rates did increase, the value of the debt securities in the portfolio would
decline, but the value of the Portfolio's Futures Contracts should increase at
approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. The Portfolio could
accomplish similar results by selling bonds with long maturities and investing
in bonds with short maturities when interest rates are expected to increase or
by buying bonds with long maturities and selling bonds with short maturities
when interest rates are expected to decline. However, since the futures market
is more liquid than the cash market, the use of Futures Contracts as an
investment technique allows the Portfolio to maintain a defensive position
without having to sell its portfolio securities. Transactions entered into for
non-hedging purposes include greater risk, including the risk of losses which
are not offset by gains on other portfolio assets.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to hedge against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of Futures Contracts
should be similar to that of long-term bonds, the Portfolio could take advantage
of the anticipated rise in the value of long-term bonds without actually buying
them until the market had stabilized. At that time, the Futures Contracts could
be liquidated and the Portfolio could buy long-term bonds on the cash market.
Purchases of Futures Contracts would be particularly appropriate when the cash
flow from the sale of new shares of the Portfolio could have the effect of
diluting dividend earnings. To the extent the Portfolio enters into Futures
Contracts for this purpose, the assets in the segregated asset account
maintained to cover the Portfolio's obligations with respect to such Futures
Contracts will consist of cash, cash equivalents or short-term money market
instruments from the portfolio of the Portfolio in an amount equal to the
difference between the fluctuating market value of such Futures Contracts and
the aggregate value of the initial and variation margin payments made by the
Portfolio with respect to such Futures Contracts, thereby assuring that the
transactions are unleveraged.
Futures Contracts on foreign currencies may be used in a similar
manner, in order to protect against declines in the dollar value of portfolio
securities denominated in foreign currencies, or increases in the dollar value
of securities to be acquired.
A Futures Contract on an index of securities provides for the making
and acceptance of a cash settlement based on changes in value of the underlying
index. The Portfolio may enter into stock index futures contracts in order to
protect the Portfolio's current or intended stock investments from broad
fluctuations in stock prices
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and for non-hedging purposes to the extent permitted by applicable law. For
example, the Portfolio may sell stock index futures contracts in anticipation of
or during a market decline to attempt to offset the decrease in market value of
the Portfolio's securities portfolio that might otherwise result. If such
decline occurs, the loss in value of portfolio securities may be offset, in
whole or in part, by gains on the futures position. When the Portfolio is not
fully invested in the securities market and anticipates a significant market
advance, it may purchase stock index futures contracts in order to gain rapid
market exposure that may, in part or in whole, offset increases in the cost of
securities that Fund intends to purchase. As such acquisitions are made, the
corresponding positions in stock index futures contracts will be closed out. In
a substantial majority of these transactions, the Portfolio will purchase such
securities upon the termination of the futures position, but under unusual
market conditions, a long futures position may be terminated without a related
purchase of securities. Futures Contracts on other securities indexes may be
used in a similar manner in order to protect the portfolio from broad
fluctuations in securities prices and for non-hedging purposes to the extent
permitted by applicable law.
OPTIONS ON FUTURES CONTRACTS: The Portfolio may write and purchase
options to buy or sell Futures Contracts ("Options on Futures Contracts"). The
writing of a call Option on a Futures Contract constitutes a partial hedge
against declining prices of the security or currency underlying the Futures
Contract. If the futures price at expiration of the option is below the exercise
price, the Portfolio will retain the full amount of the option premium, less
related transaction costs, which provides a partial hedge against any decline
that may have occurred in the Portfolio's portfolio holdings. The writing of a
put Option on a Futures Contract constitutes a partial hedge against increasing
prices of the security or currency underlying the Futures Contract. If the
futures price at expiration of the option is higher than the exercise price, the
Portfolio will retain the full amount of the option premium, less related
transaction costs, which provides a partial hedge against any increase in the
price of securities which the Portfolio intends to purchase. If a put or call
option the Portfolio has written is exercised, the Portfolio will incur a loss
which will be reduced by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its portfolio securities
and changes in the value of its futures positions, the Portfolio's losses from
existing Options on Futures Contracts may to some extent be reduced or increased
by changes in the value of portfolio securities.
The Portfolio may purchase Options on Futures Contracts for hedging
purposes as an alternative to purchasing or selling the underlying Futures
Contracts, or for non-hedging purposes to the extent permitted by applicable
law. For example, where a decrease in the value of portfolio securities is
anticipated as a result of a projected market-wide decline, a rise in interest
rates or a decline in the dollar value of foreign currencies in which portfolio
securities are denominated, the Portfolio may, in lieu of selling
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Futures Contracts, purchase put options thereon. In the event that such decrease
in portfolio value occurs, it may be offset, in whole or part, by a profit on
the option. Conversely, where it is projected that the value of securities to be
acquired by the Portfolio will increase prior to acquisition, due to a market
advance, or a decline in interest rates or a rise in the dollar value of foreign
currencies in which securities to be acquired are denominated, the Portfolio may
purchase call Options on Futures Contracts, rather than purchasing the
underlying Futures Contracts. As in the case of Options, the writing of Options
on Futures Contracts may require the Portfolio to forego all or a portion of the
benefits of favorable movements in the price of portfolio securities, and the
purchase of Options on Futures Contracts may require the Portfolio to forego all
or a portion of such benefits up to the amount of the premium paid and related
transaction costs. Transactions entered into for non-hedging purposes include
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 or sale of a specific currency at a
future date at a price set at the time of the contract (a "Forward Contract").
The Portfolio may enter into Forward Contracts for hedging purposes as well as
for non-hedging purposes. The Portfolio may also enter into Forward Contracts
for "cross hedging" purposes as noted in the Prospectus. Transactions in Forward
Contracts entered into for hedging purposes will include forward purchases or
sales of foreign currencies for the purpose of protecting the dollar value of
securities denominated in a foreign currency or protecting the dollar equivalent
of interest or dividends to be paid on such securities. By entering into such
transactions, however, the Portfolio may be required to forego the benefits of
advantageous changes in exchange rates. The Portfolio may also enter into
transactions in Forward Contracts for other than hedging purposes, which
presents greater profit potential but also involves increased risk. For example,
if the Sub-Adviser believes that the value of a particular foreign currency will
increase or decrease relative to the value of the U.S. dollar, the Portfolio may
purchase or sell such currency, respectively, through a Forward Contract. If the
expected changes in the value of the currency occur, the Portfolio will realize
profits which will increase its gross income. Where exchange rates do not move
in the direction or to the extent anticipated, however, the Portfolio may
sustain losses which will reduce its gross income. Such transactions, therefore,
could be considered speculative.
The Portfolio has established procedures consistent with statements by
the SEC and its staff regarding the use of Forward Contracts by registered
investment companies, which require the use of segregated assets or "cover" in
connection with the purchase and sale of such contracts. In those instances in
which the Portfolio satisfies this requirement through segregation of assets, it
will maintain, in a segregated account, cash, cash equivalents or high grade
debt securities, which will be marked to market on a daily basis, in an amount
equal to the value of its commitments under Forward Contracts.
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RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE
PORTFOLIO'S PORTFOLIO -- The Portfolio's ability effectively to hedge all or a
portion of its portfolio through transactions in options, Futures Contracts, and
Forward Contracts will depend on the degree to which price movements in the
underlying instruments correlate with price movements in the relevant portion of
that Fund's portfolio. If the values of portfolio securities being hedged do not
move in the same amount or direction as the instruments underlying options,
Futures Contracts or Forward Contracts traded, the Portfolio's hedging strategy
may not be successful and the Portfolio could sustain losses on its hedging
strategy which would not be offset by gains on its portfolio. It is also
possible that there may be a negative correlation between the instrument
underlying an option, Future Contract or Forward Contract traded and the
portfolio securities being hedged, which could result in losses both on the
hedging transaction and the portfolio securities. In such instances, the
Portfolio's overall return could be less than if the hedging transaction had not
been undertaken. In the case of futures and options based on an index of
securities or individual fixed income securities, the portfolio will not
duplicate the components of the index, and in the case of futures and options on
fixed income securities, the portfolio securities which are being hedged may not
be the same type of obligation underlying such contract. As a result, the
correlation probably will not be exact. Consequently, the Portfolio bears the
risk that the price of the portfolio securities being hedged will not move in
the same amount or direction as the underlying index or obligation. In addition,
where the Portfolio enters into Forward Contracts as a "cross hedge" (i.e., the
purchase or sale of a Forward Contract on one currency to hedge against risk of
loss arising from changes in value of a second currency), the Portfolio incurs
the risk of imperfect correlation between changes in the values of the two
currencies, which could result in losses.
The correlation between prices of securities and prices of options,
Futures Contracts or Forward Contracts may be distorted due to differences in
the nature of the markets, such as differences in margin requirements, the
liquidity of such markets and the participation of speculators in the option,
Futures Contract and Forward Contract markets. Due to the possibility of
distortion, a correct forecast of general interest rate trends by the
Sub-Adviser may still not result in a successful transaction. The trading of
Options on Futures Contracts also entails the risk that changes in the value of
the underlying Futures Contract will not be fully reflected in the value of the
option. The risk of imperfect correlation, however, generally tends to diminish
as the maturity or termination date of the option, Futures Contract or Forward
Contract approaches.
The trading of options, Futures Contracts and Forward Contracts also
entails the risk that, if the Sub-Adviser's judgment as to 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. For example, if
the Portfolio has hedged against the possibility of an increase in interest
rates, and rates instead decline, the Portfolio will lose part or all of the
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benefit of the increased value of the securities being hedged, and may be
required to meet ongoing daily variation margin payments.
It should be noted that the Portfolio may purchase and write Options
not only for hedging purposes, but also for the purpose of attempting to
increase its return. As a result, the Portfolio will incur the risk that losses
on such transactions will not be offset by corresponding increases in the value
of portfolio securities or decreases in the cost of securities to be acquired.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise or
expiration, a position in an exchange-traded Option, Futures Contract or Option
on a Futures Contract can only be terminated by entering into a closing purchase
or sale transaction, which requires a secondary market for such instruments on
the exchange on which the initial transaction was entered into. If no such
market exists, it may not be possible to close out a position, and the Portfolio
could be required to purchase or sell the underlying instrument or meet ongoing
variation margin requirements. The inability to close out option or futures
positions also could have an adverse effect on the Portfolio's ability
effectively to hedge its portfolio.
The liquidity of a secondary market in an option or Futures Contract
may be adversely affected by "daily price fluctuation limits," established by
the exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. Such limits could prevent the Portfolio from liquidating open
positions, which could render its hedging strategy unsuccessful and result in
trading losses. The exchanges on which options and Futures Contracts are traded
have also established a number of limitations governing the maximum number of
positions which may be traded by a trader, whether acting alone or in concert
with others. Further, the purchase and sale of exchange-traded options and
Futures Contracts is subject to the risk of trading halts, suspensions, exchange
or clearing corporation equipment failures, government intervention, insolvency
of a brokerage firm, intervening broker or clearing corporation or other
disruptions of normal trading activity, which could make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
OPTIONS ON FUTURES CONTRACTS -- In order to profit from the purchase of
an Option on a Futures Contract, it may be necessary to exercise the option and
liquidate the underlying Futures Contract, subject to all of the risks of
futures trading. The writer of an Option on a Futures Contract is subject to the
risks of futures trading, including the requirement of initial and variation
margin deposits.
ADDITIONAL RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND
TRANSACTIONS NOT CONDUCTED ON UNITED STATES EXCHANGES -- The available
information on which the Portfolio will make trading decisions concerning
transactions related to foreign currencies or foreign securities may not be as
complete as the comparable data on which the Portfolio makes investment and
trading decisions in
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<PAGE>
connection with other transactions. Moreover, because the foreign currency
market is a global, 24-hour market, and the markets for foreign securities as
well as markets in foreign countries may be operating during non-business hours
in the United States, events could occur in such markets which would not be
reflected until the following day, thereby rendering it more difficult for the
Portfolio to respond in a timely manner.
In addition, over-the-counter transactions can only be entered into
with a financial institution willing to take the opposite side, as principal, of
the Portfolio's position, unless the institution acts as broker and is able to
find another counterparty willing to enter into the transaction with the
Portfolio. This could make it difficult or impossible to enter into a desired
transaction or liquidate open positions, and could therefore result in trading
losses. Further, over-the-counter transactions are not subject to the
performance guarantee of an exchange clearing house and the Portfolio will
therefore be subject to the risk of default by, or the bankruptcy of, a
financial institution or other counterparty.
Transactions on exchanges located in foreign countries may not be
conducted in the same manner as those entered into on United States exchanges,
and may be subject to different margin, exercise, settlement or expiration
procedures. As a result, many of the risks of over-the-counter trading may be
present in connection with such transactions. Moreover, the SEC or the
Commodities Futures Trading Commission ("CFTC") has jurisdiction over the
trading in the United States of many types of over-the-counter and foreign
instruments, and such agencies could adopt regulations or interpretations which
would make it difficult or impossible for the Portfolio to enter into the
trading strategies identified herein or to liquidate existing positions.
As a result of its investments in foreign securities, the Portfolio may
receive interest or dividend payments, or the proceeds of the sale or redemption
of such securities, in foreign currencies. The Portfolio may also be required to
receive delivery of the foreign currencies underlying options on foreign
currencies or Forward Contracts it has entered into. This could occur, for
example, if an option written by the Portfolio is exercised or the Portfolio is
unable to close out a Forward Contract it has entered into. In addition, the
Portfolio may elect to take delivery of such currencies. Under such
circumstances, the Portfolio may promptly convert the foreign currencies into
dollars at the then current exchange rate. Alternatively, the Portfolio may hold
such currencies for an indefinite period of time if the Sub-Adviser believes
that the exchange rate at the time of delivery is unfavorable or if, for any
other reason, the Sub-Adviser anticipates favorable movements in such rates.
While the holding of currencies will permit the Portfolio to take
advantage of favorable movements in the applicable exchange rate, it also
exposes the Portfolio to risk of loss if such rates move in a direction adverse
to the Portfolio's position. Such losses could also adversely affect the
Portfolio's hedging strategies. Certain tax
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<PAGE>
requirements may limit the extent to which the Portfolio will be able
to hold currencies.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that
the Portfolio will not be deemed to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the CFTC require that the Portfolio enter
into transactions in Futures Contracts and Options on Futures Contracts only (i)
for bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums on
such non-hedging positions does not exceed 5% of the liquidation value of the
Portfolio's assets. In addition, the Portfolio must comply with the requirements
of various state securities laws in connection with such transactions.
The Portfolio has adopted the additional policy that it will not enter
into a Futures Contract if, immediately thereafter, the value of securities and
other obligations underlying all such Futures Contracts would exceed 50% of the
value of the Portfolio's total assets. Moreover, the Portfolio will not purchase
put and call options if, as a result, more than 5% of its total assets would be
invested in such options.
When the Portfolio purchases a Futures Contract, an amount of cash and
cash equivalents will be deposited in a segregated account with the Portfolio's
custodian so that the amount so segregated will at all times equal the value of
the Futures Contract, thereby insuring that the leveraging effect of such
Futures is minimized.
Investment Restrictions
Each of the Portfolio Trust (with respect to the Portfolio) and the
Trust (with respect to the Fund) has adopted the following investment
restrictions which may not be changed without approval by holders of a "majority
of the outstanding voting securities" of the Portfolio or Fund, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding "voting securities" of the Fund present at a meeting,
if the holders of more than 50% of the outstanding "voting securities" are
present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities". The term "voting securities" as used in this paragraph has
the same meaning as in the 1940 Act.
As a matter of fundamental policy, the Portfolio (Fund) will not
(except that none of the following investment restrictions shall prevent the
Trust from investing all of the Fund's Assets in a separate registered
investment company with substantially the same investment objective):
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's net assets, it may borrow money (including from a bank or through
reverse repurchase agreements, forward roll transactions involving mortgage
backed securities or other investment
17
<PAGE>
techniques entered into for the purpose of leverage), and except that it may
pledge, mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings, provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and except that
assets may be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment Company
Institute; for additional related restrictions, see clause (i) under the caption
"State and Federal Restrictions" below;
(2) underwrite securities issued by other persons except insofar as the
Portfolios may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not exceed 30%
of the Portfolio's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (except
that the Portfolio may hold and sell, for the Portfolio's portfolio, real estate
acquired as a result of the Portfolio's ownership of securities);
(5) concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for the achievement
of a Portfolio's investment objective(s), up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) with respect to 75% of its assets, invest more than 5% of its total
assets in the securities (excluding U.S. Government securities) of any one
issuer.
Each of the Portfolio and the Fund is also subject to the following
restrictions which may be changed by the Board of Trustees without shareholder
approval (except that none of the following investment policies shall prevent
the Trust from investing all of the Assets of the Fund in a separate registered
investment company with
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<PAGE>
substantially the same investment objective).
As a matter of non-fundamental policy, the Portfolio (Fund) will not:
(i) borrow money (including from a bank or through reverse repurchase
agreements or forward roll transactions involving mortgage backed securities or
similar investment techniques entered into for leveraging purposes), except that
the Portfolio may borrow for temporary or emergency purposes up to 10% of its
total assets; provided, however, that no Portfolio may purchase any security
while outstanding borrowings exceed 5%;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10%
of the Portfolio's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including deposits
of initial deposit and variation margin, and reverse repurchase agreements are
not considered a pledge of assets for purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
(iv) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon the same conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a plan
of merger or consolidation; provided, however, that securities of any investment
company will not be purchased for the Portfolio if such purchase at the time
thereof would cause: (a) more than 10% of the Portfolio's total assets (taken at
the greater of cost or market value) to be invested in the securities of such
issuers; (b) more than 5% of the Portfolio's total assets (taken at the greater
of cost or market value) to be invested in any one investment company; or (c)
more than 3% of the outstanding voting securities of any such issuer to be held
for the Portfolio; provided further that, except in the case of a merger or
consolidation, the Portfolio shall not purchase any securities of any open-end
investment company unless the Portfolio (Fund) (1) waives the investment
advisory fee, with respect to assets invested in other open-end investment
companies and (2) incurs no sales charge in connection with the investment;
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(vii) invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or not readily
marketable;
(viii) invest more than 10% of the Portfolio's total assets (taken at
the greater of cost or market value) in (a) securities that are restricted as to
resale under the 1933 Act, and (b) securities that are issued by issuers which
(including predecessors) have been in operation less than three years (other
than U.S. Government securities), provided, however, that no more than 5% of the
Portfolio's total assets are invested in securities issued by issuers which
(including predecessors) have been in operation less than three years;
(ix) purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio to hold more than 10% of any class of
securities of such issuer, for which purposes all indebtedness of an issuer
shall be deemed a single class and all preferred stock of an issuer shall be
deemed a single class, except that futures or option contracts shall not be
subject to this restriction;
(x) purchase or retain in the Portfolio's portfolio any securities
issued by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Trust, or is an officer or partner of
the Advisor, if after the purchase of the securities of such issuer for the
Portfolio one or more of such persons owns beneficially more than 1/2 of 1% of
the shares or securities, or both, all taken at market value, of such issuer,
and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or both,
all taken at market value;
(xi) invest more than 5% of the Portfolio's net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by the
Portfolio (Fund) as part of a unit or attached to securities at the time of
purchase), but not more than 2% of the Portfolio's net assets may be invested in
warrants not listed on the New York Stock Exchange Inc. ("NYSE") or the American
Stock Exchange;
(xii) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable, without payment
of any further consideration, for securities of the same issue and equal in
amount to, the securities sold short, and unless not more than 10% of the
Portfolio's net assets (taken at market value) is represented by such
securities, or securities convertible into or exchangeable for such securities,
at any one time (the Portfolios have no current intention to engage in short
selling);
(xiii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is within the
investment policies of the Portfolio and the
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option is issued by the Options Clearing Corporation, except for put and call
options issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the obligations underlying the
puts determined as of the date the options are sold shall not exceed 50% of the
Portfolio's net assets; (c) the securities subject to the exercise of the call
written by the Portfolio must be owned by the Portfolio at the time the call is
sold and must continue to be owned by the Portfolio until the call has been
exercised, has lapsed, or the Portfolio has purchased a closing call, and such
purchase has been confirmed, thereby extinguishing the Portfolio's obligation to
deliver securities pursuant to the call it has sold; and (d) at the time a put
is written, the Portfolio establishes a segregated account with its custodian
consisting of cash or short-term U.S. Government securities equal in value to
the amount the Portfolio will be obligated to pay upon exercise of the put (this
account must be maintained until the put is exercised, has expired, or the
Portfolio has purchased a closing put, which is a put of the same series as the
one previously written); and
(xiv) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on financial
futures unless such options are written by other persons and: (a) the options or
futures are offered through the facilities of a national securities association
or are listed on a national securities or commodities exchange, except for put
and call options issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all such options which
are held at any time do not exceed 20% of the Portfolio's total net assets; and
(c) the aggregate margin deposits required on all such futures or options
thereon held at any time do not exceed 5% of the Portfolio's total assets.
Percentage and Rating Restrictions
If a percentage restriction or a rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the securities held
by the Fund or a later change in the rating of a security held by the Fund is
not considered a violation of policy; however, the Sub-Adviser will consider
such change in its determination of whether to hold the security.
PORTFOLIO TRANSACTIONS
Specific decisions to purchase or sell securities for the Portfolio are
made by employees of the Sub-Adviser who are appointed and supervised by its
senior officers. Changes in the Portfolio's investments are reviewed by its
Board of Trustees. The Portfolio's portfolio manager or management committee may
serve other clients of the Sub-Adviser or any subsidiary of the Sub-Adviser in a
similar capacity.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The
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Sub-Adviser has complete freedom as to the markets in and broker-dealers through
which it seeks this result. In the United States and in some other countries
debt securities are traded principally in the over-the-counter market on a net
basis through dealers acting for their own account and not as brokers. In other
countries both debt and equity securities are traded on exchanges at fixed
commission rates. The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the prices at which securities are
purchased and sold from and to dealers include a dealer's mark-up or mark-down.
The Sub-Adviser normally seeks to deal directly with the primary market makers
or on major exchanges unless, in its opinion, better prices are available
elsewhere. Subject to the requirement of seeking execution at the best available
price, securities may, as authorized by each Advisory Agreement, be bought from
or sold to dealers who have furnished statistical, research and other
information or services to the Sub-Adviser. At present no arrangements for the
recapture of commission payments are in effect.
Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD")
and such other policies as the Trustees may determine, the Sub-Adviser may
consider sales of shares of the Fund and of certain investment company clients
of MFS Fund Distributors, Inc., 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.
Under the Sub-Advisory Agreement and as permitted by Section 28(e) of
the Securities Exchange Act of 1934, the Sub-Adviser may cause the Portfolio to
pay a broker-dealer which provides brokerage and research services to the
Sub-Adviser an amount of commission for effecting a securities transaction for
the Portfolio in excess of the amount other broker-dealers would have charged
for the transaction if the Sub-Adviser determines in good faith that the greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of either a
particular transaction or their respective overall responsibilities to the
Portfolio or to their other clients. Not all of such services are useful or of
value in advising the Portfolio.
The term "brokerage and research services" includes advice as to the
value of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of
the Sub-Adviser, be reasonable in relation to the value of the brokerage
services provided, commissions exceeding those which another broker might charge
may be paid to broker-dealers who were selected to execute transactions on
behalf of the Portfolio and the
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<PAGE>
Sub-Adviser's other clients in part for providing advice as to the availability
of securities or of purchasers or sellers of securities and services in
effecting securities transactions and performing functions incidental thereto,
such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and
other factual information or services ("Research") to the Sub-Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold through such broker-dealers, but at present, unless otherwise
directed by the Portfolio, a commission higher than one charged elsewhere will
not be paid to such a firm solely because it provided such Research.
In certain instances there may be securities which are suitable for the
Portfolio as well as for the portfolio of one or more of the other clients of
the Sub-Adviser or any affiliate of the Sub-Adviser. Investment decisions for
the Portfolio and for such other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought or
sold for, other clients. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client. When
two or more clients are simultaneously engaged in the purchase or sale of the
same security, the securities are allocated among clients in a manner believed
by the Sub-Adviser to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the Portfolio is concerned. In other cases, however, the
Sub-Adviser believes that the Portfolio's ability to participate in volume
transactions will produce better executions for the Portfolio.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and total return
for the Fund, both computed in accordance with formulas prescribed by the
Securities and Exchange Commission ("SEC"), in advertisements or reports to
shareholders or prospective investors.
Quotations of yield for the Fund will be based on all investment income
per share (as defined by the SEC during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b
YIELD = 2[( --- + 1)6-1]
cd
where
a = dividends and interest earned during the period,
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<PAGE>
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (up to the
life of the Fund), calculated pursuant to the following formula: P (1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. The Fund also may, with respect to certain periods of less than one
year, provide total return information for that period that is unannualized. Any
such information would be accomplished by standardized total return information.
For its first year of operations, 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 and which have been managed
as the Portfolio is expected to be managed. Returns will be adjusted to assume
that all charges, expenses and fee of the Fund and the Portfolio which are
presently in effect were deducted during each period.
Performance information for the Fund may also be compared to various
unmanaged indices. Unmanaged indices (i.e., other than Lipper) generally do not
reflect deductions for administrative and management costs and expenses.
Comparative information may be compiled or provided by independent ratings
services or by news organizations. Any performance information should be
considered in light of the Fund's investment objectives and policies,
characteristics and quality of the Fund, and the market conditions during the
given time period, and should not be considered to be representative of what may
be achieved in the future.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
Trustees and Officers
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust and the Portfolio Trust. The address of each, unless otherwise
indicated, is 6 St. James Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, Trustee
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<PAGE>
126 Butternut Hollow Road, Greenwich, Connecticut 06830 - Management
Consultant.
ALAN S. PARSOW*, Trustee
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, Trustee
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 Director
of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, Trustee
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, President
Chairman, President and Chief Executive Officer, Signature Financial
Group, Inc. ("SFG"); Chairman, President and Chief Executive Officer,
SBDS (since April, 1989), Chairman, President and Chief Executive
Officer, Signature (since May, 1993); Director, Chairman and President,
Signature (Cayman) (since March, 1992).
JOHN R. ELDER*, Treasurer
Vice President, SFG (since April, 1995); Treasurer, Phoenix Family of
Mutual Funds (prior to April, 1995).
LINDA T. GIBSON*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, SBDS (since October, 1992); Assistant Secretary,
Signature (since May, 1993); law student, Boston University School of
Law (prior to May, 1992).
JAMES E. HOOLAHAN*, Vice President
Senior Vice President, SFG (since December, 1989).
SUSAN JAKUBOSKI*, Assistant Secretary and Assistant Treasurer P.O. Box 2494,
Elizabethan Square, George Town, Grand Cayman, Cayman Islands, B.W.I.;
Manager and Senior Fund Administrator, SFG and Signature (Cayman)
(since August, 1994); Assistant Treasurer, SBDS (since September,
1994); Fund Compliance Administrator, Concord Financial Group, Inc.
(from November, 1990 to August, 1994).
THOMAS M. LENZ*, Secretary
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, SBDS (since February, 1991);
Assistant Secretary, Signature (since May, 1993).
MOLLY S. MUGLER*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary, SBDS
(since April, 1989); Assistant Secretary, Signature (since
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<PAGE>
May, 1993).
BARBARA M. O'DETTE*, Assistant Treasurer
Assistant Treasurer, SFG; Assistant Treasurer, SBDS (since April,
1989); Assistant Treasurer, Signature (since May, 1993).
ANDRES E. SALDANA*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Assistant Secretary, SBDS (since September, 1993); Assistant Secretary,
Signature (since May, 1993); Attorney, Ropes & Gray (September, 1990 to
November, 1992).
Messrs. Coolidge, Elder, Lenz and Saldana and Mss. Gibson, Jakuboski,
Mugler and O'Dette are also Trustees and/or officers of certain other investment
companies of which SBDS or an affiliate is the administrator.
COMPENSATION TABLE
Pension
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual From Fund
Name of Compensation Part of Fund Benefits Upon Compelex**
Trustee from Trust* Expenses Retirement Paid to Trustees
Frederick C. $1,960 none none $8,600
Chen
Alan S. $1,950 none none $8,600
Parsow
Larry M. $1,950 none none $8,600
Robbins
Michael Seely $1,950 none none $8,600
* Estimated for fiscal year ending October 31, 1996. The Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust, Republic
Funds (another investor in the Portfolio Trust) and the Portfolio Trust will
receive an annual retainer of $3,600 and a fee of $1,000 for each meeting of the
Board of Trustees or committee thereof attended.
** The Fund Complex consists of the Trust, Republic Funds and the
Portfolio Trust. Total compensation reflects an estimate of the fees to be
received by the Trustees from the Trust, Republic Funds and the Portfolio Trust
for the fiscal year ending October 31, 1996.
As of July 11, 1996, the Trustees and officers of the Trust and the
Portfolio Trust, as a group, owned less than 1% of the outstanding shares of the
Fund. As of the same date, there were no shareholders of the Fund.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
Investment Manager
Republic is the investment manager to the Portfolio pursuant to an
investment management agreement (the "Investment Management Contract") with the
Portfolio Trust. For its services, the Manager is paid a fee by the Portfolio,
computed daily, equal on an annual basis to 0.25% of the Portfolio's average
daily net assets.
The Investment Management Contract will continue in effect with respect
to the Portfolio, provided such continuance is approved at least annually (i) by
the holders of a majority of the outstanding voting securities of the Portfolio
or by the Portfolio Trust's Board of Trustees, and (ii) by a majority of the
Trustees of the Portfolio Trust who are not parties to the Investment Management
Contract or
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"interested persons" (as defined in the 1940 Act) of any such party. The
Investment Management Contract may be terminated with respect to the Portfolio
without penalty by either party on 60 days' written notice and will terminate
automatically if assigned.
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Portfolio.
Republic complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary shall not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees or other persons with substantial connections
with the bank. The regulations further provide that fiduciary assets shall not
be sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above. Republic, in accordance with federal banking
laws, may not purchase for its own account securities of any investment company
the investment adviser of which it controls, extend credit to any such
investment company, or accept the securities of any such investment company as
collateral for a loan to purchase such securities. Moreover, Republic, its
officers and employees do not express any opinion with respect to the
advisability of any purchase of such securities.
The investment advisory services of Republic to the Portfolio are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment advisory services to others.
Sub-Adviser
MFS Asset Management, Inc. as the Portfolio's Sub-Adviser, is
responsible for the investment management of the Portfolio's assets, including
making investment decisions and placing orders for the purchase and sale of
securities for the Portfolio directly with the issuers or with brokers or
dealers selected by the Sub-Adviser or Republic in their discretion. See
"Portfolio Transactions." The Sub-Adviser also furnishes to the Board of
Trustees of the Portfolio Trust, which has overall responsibility for the
business and affairs of the Portfolio Trust, periodic reports on the investment
performance of the Portfolio.
The Sub-Adviser, together with its parent company, MFS, and their
predecessor organizations , has a history of money management dating from 1924.
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. The Prospectus contains information with respect to the management of
the Sub-Adviser and other investment companies for which the Sub-Adviser or MFS
serve as as investment adviser.
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For its services, the Sub-Adviser receives from the Portfolio a fee,
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.
The investment advisory services of the Sub-Adviser to the Portfolio
are not exclusive under the terms of the Sub-Advisory Agreement. The Sub-Adviser
is free to and does render investment advisory services to others.
Administrator and Portfolio Administrator
Each Administrative Services Agreement is terminable with respect to
the Fund or the Portfolio, as the case may be, without penalty at any time by
vote of a majority of the respective Trustees, or by the respective
Administrator, upon not less than 60 days' written notice to the Fund or the
Portfolio, as the case may be. Each Agreement provides that neither the
respective Administrator nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Fund or the Portfolio, as the case may be, except for willful misfeasance,
bad faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
respective Administrative Services Agreement. The minimum annual administrative
services fees paid by the Fund shall be $25,000.
Fund Accounting Agent
Pursuant to respective fund accounting agreements, 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.
Custodian and Transfer Agent
Investors Bank & Trust Company serves as custodian and transfer agent
for each of the Fund and the Portfolio pursuant to Custodian Agreements and
Transfer Agency Agreements, respectively. The Custodian may use the services of
sub-custodians with respect to the Portfolio.
Expenses and Expense Limits
Certain of the states in which Shares are expected to be qualified for
sale impose limitations on the expenses of the Fund. The effective limitation on
an annual basis with respect to the Fund is expected to be 2.5% on the first $30
million of the Fund's net assets, 2.0% on the next $70 million of such assets,
and 1.5% on any excess above $100 million. Trust expenses directly related to
the Fund are charged to the Fund; other expenses are allocated
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proportionally among all of the portfolios of the Trust in relation to the net
asset value of the portfolios.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on
each day on which the New York Stock Exchange ("NYSE") is open for trading. As
of the date of this Statement of Additional Information, the NYSE is open every
weekday except for the days on which the following holidays are observed: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The Sub-Adviser typically completes its trading on behalf of the
Portfolio in various markets before 4:00 p.m., and the value of portfolio
securities is determined when the primary market for those securities closes for
the day. Foreign currency exchange rates are also determined prior to 4:00 p.m.
However, if extraordinary events occur that are expected to affect the value of
a portfolio security after the close of the primary exchange on which it is
traded, the security will be valued at fair value as determined in good faith
under the direction of the Board of Trustees of the Portfolio Trust.
Subject to the Trust's compliance with applicable regulations, the
Trust on behalf of the Fund and the Portfolio have reserved the right to pay the
redemption or repurchase price of shares of the Fund, either totally or
partially, by a distribution in kind of portfolio securities from the Portfolio
(instead of cash). The securities so distributed would be valued at the same
amount as that assigned to them in calculating the net asset value for the
shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash. The Trust will redeem Fund shares in kind only if it has received a
redemption in kind from the Portfolio and therefore shareholders of the Fund
that receive redemptions in kind will receive securities of the Portfolio. The
Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the Fund is permitted to redeem in kind.
TAXATION
Each year, to qualify as a separate "regulated investment company"
under the Code, at least 90% of the Fund's investment company taxable income
(which includes, among other items, interest, dividends and the excess of net
short-term capital gains over net long-term capital losses) must be distributed
to Fund shareholders and the Fund must meet certain diversification of assets,
source of income, and other requirements. If the Fund does not so qualify, it
will be taxed as an ordinary corporation.
The Fund intends to apply to the Internal Revenue Service for rulings,
including, among others, rulings to the effect that (1) the Portfolio will be
treated for federal income tax purposes as a partnership and (2) for purposes of
determining whether the Fund
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satisfies the income and diversification requirements to maintain its status as
a RIC, the Fund, as an investor in its corresponding Portfolio, will be deemed
to own a proportionate share of the Portfolio's income attributable to that
share. While the IRS has issued substantially similar rulings in the past, and
SBDS anticipates that the Fund will receive the rulings it seeks, the IRS has
complete discretion in granting rulings and complete assurance cannot be given
that such rulings will be obtained. The Portfolio has advised its corresponding
Fund that it intends to conduct its operations so as to enable its investors,
including the Fund, to satisfy those requirements.
Amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, for each calendar year an
amount must be distributed equal to the sum of (1) at least 98% of the Fund's
ordinary income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of the Fund's capital gain net income for the
12-month period ending, as a general rule, on October 31 of the calendar year,
and (3) all such ordinary income and capital gains for previous years that were
not distributed during such years.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
If the Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Portfolio's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
Some of the debt securities that may be acquired by the Portfolio may
be treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Portfolio, original issue
discount on a taxable debt security earned in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the
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Code.
Some of the debt securities may be purchased by the Portfolio at a
discount which exceeds the original issue discount on such debt securities, if
any. This additional discount represents market discount for federal income tax
purposes. Generally, the gain realized on the disposition of any debt security
acquired by the Portfolio will be treated as ordinary income to the extent it
does not exceed the accrued market discount on such debt security.
Options, Futures and Forward Contracts
Some of the options, futures contracts and forward contracts entered
into by the Portfolio may be "Section 1256 contracts." Section 1256 contracts
held by the Portfolio at the end of its taxable year (and, for purposes of the
4% excise tax, on certain other dates as prescribed under the Code) are
"marked-to-market" with unrealized gains or losses being treated as though they
were realized. Any gains or losses, including "marked-to-market" gains or
losses, on Section 1256 contracts are generally 60% long-term and 40% short-term
capital gains or losses ("60/40") although all foreign currency gains and losses
from such contracts may be treated as ordinary in character absent a special
election.
Generally, hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by the Portfolio may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gain or loss realized by the Portfolio. In addition, losses
realized by the Portfolio on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Portfolio are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by the Portfolio.
Short-term gain is taxed as ordinary income when distributed to Fund
shareholders.
The Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If the Portfolio makes any of the
elections, the amount, character, and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Fund shareholders, and which will be taxed to Fund shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
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The 30% limit on gains from the disposition of certain options, futures
and forward contracts held less than three months, and the qualifying income and
diversification requirements applicable to the Portfolio assets, may limit the
extent to which the Portfolio will be able to engage in these transactions.
Investment in Passive Foreign Investment Companies
The Portfolio may invest in shares of foreign corporations (through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Portfolio receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Portfolio held the PFIC shares. The
Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years and an interest
factor will be added to the tax, as if the tax had been payable in such prior
taxable years. Certain distributions from a PFIC as well as gain from the sale
of PFIC shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares held by the Portfolio. Under an election that currently
is available in some circumstances, the Fund generally would be required to
include in its gross income its share of the earnings of a PFIC on a current
basis, regardless of whether distributions are received from the PFIC in a given
year. If this election were made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Fund's PFIC
shares at the end of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would generally be eliminated, but the Fund could, in limited circumstances,
incur nondeductible interest charges. The Fund's intention to qualify annually
as a regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term
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capital gain, may be increased or decreased substantially as compared to a fund
that did not invest in PFIC shares.
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time the Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Portfolio actually collects such receivables or pays
such liabilities generally are treated as ordinary income or loss. Similarly, in
disposing of debt securities denominated in foreign currencies and certain other
foreign currency contracts, gains or losses attributable to fluctuations in the
value of a foreign currency between the date the security or contract is
acquired and the date it is disposed of are also usually treated as ordinary
income or loss. Under Section 988 of the Code, these gains or losses may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to shareholders as ordinary income.
Disposition of Shares
Upon the sale or exchange of shares of the Fund, a shareholder
generally will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and will be long-term if the
shareholder's holding period for the shares is more than one year and generally
otherwise will be short-term. Any loss realized on a sale or exchange of Fund
shares will be disallowed to the extent that the shares disposed of are replaced
(including replacement through reinvesting of dividends and capital gain
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
The information above is only a summary of some of the tax
considerations affecting the Fund and its shareholders. The Portfolio, the Fund,
and the Fund's distributions may also be subject to state, local, foreign or
other taxes not discussed above. A prospective investor may wish to consult a
tax advisor to determine the suitability of an investment in the Fund based on
the prospective investor's tax situation.
OTHER INFORMATION
Purchase of Shares
Certain clients of the Adviser whose assets would be eligible for
purchase by the Fund may purchase shares of the Trust with such assets. Assets
so purchased by the Fund will be subject to valuation and other procedures by
the Board of Trustees.
Capitalization
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 5, 1996.
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional series will not alter the rights of the Fund's shareholders. When
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issued, shares are fully paid, nonassessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of the Fund, each shareholder is entitled to receive his pro rata
share of the net assets of the Fund.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Portfolio Trust's Trustees,
it is necessary or desirable to submit matters for an investor vote. Each
investor is entitled to a vote in proportion to the share of its investment in
the Portfolio.
Except as described below, whenever the Trust is requested to vote on a
matter pertaining to the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast all of its votes on each matter at a meeting of
investors in the Portfolio proportionately as instructed by the Fund's
shareholders. However, subject to applicable statutory and regulatory
requirements, the Trust would not request a vote of the Fund's shareholders with
respect to any proposal relating to the Portfolio which proposal, if made with
respect to the Fund, would not require the vote of the shareholders of the Fund.
Independent Auditors
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent accountants of the Trust and the Fund for the fiscal year ending
October 31, 1996. KPMG Peat Marwick LLP will audit the Trust's annual financial
statements, prepare the Trust's income tax returns, and assist in the
preparation of filings with the Securities and
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Exchange Commission. The address of KPMG Peat Marwick LLP is 99 High Street,
Boston, Massachusetts 02110. The Portfolio Trust has appointed KPMG Peat Marwick
as the independent accountant of the Portfolio for its fiscal year ending
October 31, 1996.
Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares of the Fund
offered by the Trust, and also acts as counsel to the Trust.
Registration Statement
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
RF068D
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PART C
ITEM 24. FINANCIAL STATEMENTS.
(a) Included in Part A of the Registration Statement:
Republic Fixed Income Portfolio; Republic International Equity Portfolio.
(b) Incorporated by reference into Part B of the Registration Statement:
For the Registrant:
REPUBLIC FIXED INCOME FUND
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the Period January 9, 1995 (commencement of
operations) through October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements, October 31, 1995
Statement of Assets and Liabilities, April 30, 1996 (unaudited)
Statement of Operations for the Period November 1, 1995 through
April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
REPUBLIC INTERNATIONAL EQUITY FUND
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the Period January 9, 1995 (commencement of
operations) through October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements, October 31, 1995
Statement of Assets and Liabilities, April 30, 1996 (unaudited)
Statement of Operations for the Period November 1, 1995 through
April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
For Republic Portfolios:
FIXED INCOME PORTFOLIO
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the Period January 9, 1995 (commencement of
operations) through October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements, October 31, 1995
Schedule of Investments, April 30, 1996 (unaudited)
Statement of Assets and Liabilities, April 30, 1996 (unaudited)
Statement of Operations for the Period November 1, 1995 through
April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
INTERNATIONAL EQUITY PORTFOLIO
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the Period January 9, 1995 (commencement of
operations) through October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements, October 31, 1995
Schedule of Investments, April 30, 1996 (unaudited)
Statement of Assets and Liabilities, April 30, 1996 (unaudited)
Statement of Operations for the Period November 1, 1995 through
April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
(b) Exhibits
1. Declaration of Trust; Establishment and designation of series for
Republic Fixed Income Fund, Republic International Equity Fund, and
Republic Small Cap Equity Fund.2
2. By-Laws.1
6 Master Distribution Contract, with supplements regarding Republic Fixed
Income Fund, Republic International Equity Fund and Republic Small Cap
Equity Fund.2
6(b). Master Administrative Services Contract, with supplements regarding
Republic Fixed Income Fund, Republic International Equity Fund and
Republc Small Cap Equity Fund.2
10. Opinion of counsel.2
11. Consents of independent auditors.3
16. Schedule for computation of performance quotations.2
17. Financial data schedules.4
18. Powers of attorney for Trustees and officers.2
- -----------------
1 Incorporated herein by reference from the registration statement on Form
N-1A of the Registrant (File No. 333-2205) (the "Registration Statement")
as filed with the Securities and Exchange Commission (the "SEC") on
April 3, 1996.
2 Incorporated herein by reference from pre-effective amendment no. 1 to the
Registration Statement as filed with the SEC on June 24, 1996.
3 Incorporated herein by reference from pre-effective amendment no. 2 to the
Registration Statement as filed with the SEC on July 31, 1996.
4 Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of July 18, 1996, the number of holders of shares of beneficial interest
(par value $0.01 per share) of each Fund was as follows:
Republic Fixed Income Fund: none.
Republic International Equity Fund: none.
Republic Small Cap Equity Fund: none.
ITEM 27. INDEMNIFICATION
Reference is hereby made to Article V of the Registrant's Declaration of
Trust. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees or officers of the Registrant by the
Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is
aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Investment Company
Act of 1940 and, therefore, is unenforceable.
If a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees or officers
of the Registrant in connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees or officers in connection with the
shares being registered, the Registrant will, unless in the opinion of its
Counsel, the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issues.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Signature Broker-Dealer Services, Inc. (the "Sponsor") and its
affiliates serve as distributor and administrator for other registered
investment companies.
(b) The information required by this Item 29 with respect to each director
or officer of the Sponsor is hereby incorporated herein by reference from
Schedule A of Form BD as filed by the Sponsor pursuant to the Securities
Exchange Act of 1934 (File No. 8-41134).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The account books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of: Republic National
Bank of New York, 452 Fifth Avenue, New York, New York 10018; Signature
Broker-Dealer Services, Inc., 6 St. James Avenue, Boston, Massachusetts 02116;
Signature Financial Services, Inc., 1 First Canadian Place, Suite 2800, P.O. Box
231, Toronto, Ontario, M5X1C8; and Investors Bank & Trust Company, N.A., 89
South Street, Boston, Massachusetts 02111.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant will furnish each
person to whom a prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
(b) The Registrant undertakes to file a post-effective amendment, using
financials which need not be certified, within four to six months following the
latter of the effective date of this registration statement or the date that
shares of Republic Fixed Income Fund, Republic International Equity Fund, and
Republic Small Cap Equity Fund are publicly offered. The financial statements
included in such amendment will be as of and for the time period ended on a date
reasonably close or as soon as practible to the date to the filing of the
amendment
(c) The Registrant undertakes to comply with Section 16(c) of the 1940 Act
as though such provisions of the Act were applicable to the Registrant, except
that the request referred to in the third full paragraph thereof may only be
made by shareholders who hold in the aggregate at least 10% of the outstanding
shares of the Registrant, regardless of the net asset value or values of shares
held by such requesting shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Republic Advisor Funds Trust has caused this
post-effective amendment to its registration statement (the "Registration
Statement") on Form N-1A (File Nos. 333-02205 and 811-07583) to be signed on
its behalf by the undersigned, thereto duly authorized in the City of Boston,
and Commonwealth of Massachusetts on the 5th day of August, 1996.
REPUBLIC ADVISOR FUNDS TRUST
By /S/ THOMAS M. LENZ
---------------------------
Thomas M. Lenz, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to the Registration Statement has been signed below by
the following persons in the capacities indicated on August 5, 1996.
/s/ PHILIP W. COOLIDGE
- --------------------------
Philip W. Coolidge
President
/s/ JOHN R. ELDER
- --------------------------
John R. Elder
Treasurer and Principal Accounting and Financial Officer
ALAN S. PARSOW*
- --------------------------
Alan S. Parsow
Trustee
LARRY M. ROBBINS*
- --------------------------
Larry M. Robbins
Trustee
MICHAEL SEELY*
- --------------------------
Michael Seely
Trustee
FREDERICK C. CHEN*
- --------------------------
Frederick C. Chen
Trustee
*By /s/ THOMAS M. LENZ
--------------------------
Thomas M. Lenz,
as attorney-in-fact pursuant to a power of attorney filed herewith.
<PAGE>
SIGNATURES
Republic Portfolios (the "Portfolio Trust") has duly caused this
post-effective amendment to the registration statement (the "Registration
Statement") on Form N-1A (File No. 333-02205) of Republic Advisor Funds Trust to
be signed on its behalf by the undersigned, thereto duly authorized in George
Town, Grand Cayman, Cayman Islands, B.W.I. on the 5th day of August, 1996.
REPUBLIC PORTFOLIOS
By /S/ SUSAN JAKUBOSKI
--------------------------
Susan Jakuboski, Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to the Registration Statement on Form N-1A of Republic
Advisor Funds Trust has been signed below by the following persons in the
capacities indicated on August 5, 1996.
PHILIP W. COOLIDGE*
- --------------------------
Philip W. Coolidge
President of the Portfolio Trust
JOHN R. ELDER*
- --------------------------
John R. Elder
Treasurer and Principal Accounting and Financial Officer of the Portfolio Trust
ALAN S. PARSOW*
- --------------------------
Alan S. Parsow
Trustee of the Portfolio Trust
LARRY M. ROBBINS*
- --------------------------
Larry M. Robbins
Trustee of the Portfolio Trust
MICHAEL SEELY*
- --------------------------
Michael Seely
Trustee of the Portfolio Trust
FREDERICK C. CHEN*
- --------------------------
Frederick C. Chen
Trustee of the Portfolio Trust
*By /S/SUSAN JAKUBOSKI
--------------------------
Susan Jakuboski,
as attorney-in-fact pursuant to a power of attorney filed herewith.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
EX-27.1 -
EX-27.2 Financial Data Schedules.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR REPUBLIC FIXED INCOME FUND, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0001010296
<NAME> REPUBLIC ADVISOR FUNDS TRUST
<SERIES>
<NUMBER> 8
<NAME> REPUBLIC FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 39,857,116
<INVESTMENTS-AT-VALUE> 39,348,221
<RECEIVABLES> 59,419
<ASSETS-OTHER> 42,280
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,449,920
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 147,155
<TOTAL-LIABILITIES> 147,155
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,625,691
<SHARES-COMMON-STOCK> 3,778,428
<SHARES-COMMON-PRIOR> 2,384,633
<ACCUMULATED-NII-CURRENT> 37,525
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 148,444
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (508,895)
<NET-ASSETS> 39,302,765
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 997,356
<OTHER-INCOME> 0
<EXPENSES-NET> 22,806
<NET-INVESTMENT-INCOME> 866,476
<REALIZED-GAINS-CURRENT> 175,019
<APPREC-INCREASE-CURRENT> (847,628)
<NET-CHANGE-FROM-OPS> 193,867
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 866,477
<DISTRIBUTIONS-OF-GAINS> 984,386
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,326,605
<NUMBER-OF-SHARES-REDEEMED> 78,556
<SHARES-REINVESTED> 145,746
<NET-CHANGE-IN-ASSETS> 13,174,758
<ACCUMULATED-NII-PRIOR> 37,525
<ACCUMULATED-GAINS-PRIOR> 957,812
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 204,512
<AVERAGE-NET-ASSETS> 31,759,117
<PER-SHARE-NAV-BEGIN> 10.96
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.19)
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0.37
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.40
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR REPUBLIC INTERNATIONAL EQUITY FUND, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0001010296
<NAME> REPUBLIC ADVISOR FUNDS TRUST
<SERIES>
<NUMBER> 9
<NAME> REPUBLIC INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 73,710,901
<INVESTMENTS-AT-VALUE> 80,513,933
<RECEIVABLES> 43,475
<ASSETS-OTHER> 42,869
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,600,277
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,809
<TOTAL-LIABILITIES> 36,809
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,203,495
<SHARES-COMMON-STOCK> 6,789,373
<SHARES-COMMON-PRIOR> 3,171,731
<ACCUMULATED-NII-CURRENT> 65,437
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 491,504
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,803,032
<NET-ASSETS> 80,563,468
<DIVIDEND-INCOME> 443,002
<INTEREST-INCOME> 153,416
<OTHER-INCOME> 0
<EXPENSES-NET> 113,497
<NET-INVESTMENT-INCOME> 253,503
<REALIZED-GAINS-CURRENT> 832,585
<APPREC-INCREASE-CURRENT> 5,167,099
<NET-CHANGE-FROM-OPS> 6,253,187
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 552,556
<DISTRIBUTIONS-OF-GAINS> 31,193
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,688,325
<NUMBER-OF-SHARES-REDEEMED> 120,204
<SHARES-REINVESTED> 49,521
<NET-CHANGE-IN-ASSETS> 46,319,439
<ACCUMULATED-NII-PRIOR> 23,782
<ACCUMULATED-GAINS-PRIOR> 30,820
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 360,187
<AVERAGE-NET-ASSETS> 57,209,055
<PER-SHARE-NAV-BEGIN> 10.80
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.13
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.87
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
