<PAGE>
As filed with the U.S. Securities and Exchange Commission on March 12, 1998.
Registration Nos. 333-02205 and 811-07583
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 7
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 9
REPUBLIC ADVISOR FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219-3035
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(614) 470-8000
Walter B. Grimm
3435 Stelzer Road, Columbus, Ohio 43219-3035
(Name and Address of Agent for Service)
Copy to:
Allan S. Mostoff, Esq.
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, DC 20006
It is proposed that this filing will become effective (check the appropriate
box)
[x] immediately upon filing pursuant to paragraph (b)
[ ] on _____________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 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 filed 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, 1997 on January 27, 1998.
Republic Portfolios has also executed this Registration Statement.
<PAGE>
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 Financial Highlights
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
Information required to be included in Part B is incorporated herein by
reference to Part B and the Statements of Additional Information for Republic
Fixed Income Fund, Republic International Equity Fund and Republic Small Cap
Equity Fund from post-effective amendment No. 6 to the registration statement on
Form N-1A of the Registrant (File No. 333-02205) as filed with the Securities
and Exchange Commission on February 25, 1998.
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.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment no. 7 (the "Amendment") to the Registrant's
registration statement on Form N-1A (File no. 333-02205) (the "Registration
Statement") is being filed to amend the Registrant's disclosure with respect to
the Republic Fixed Income Fund, Republic International Equity Fund and
Republic Small Cap Equity Fund. The prospectus included as part of the
Amendment is a combined prospectus that relates not only to the Funds, but
also to the Class Y shares of two series of the Republic Funds.
<PAGE>
[Graphic Omitted]
REPUBLIC
NEW YORK TAX-FREE BOND FUND
REPUBLIC
EQUITY FUND
REPUBLIC
FIXED INCOME FUND
REPUBLIC
INTERNATIONAL EQUITY FUND
REPUBLIC
SMALL CAP EQUITY FUND
[Logo]
[Logo] PROSPECTUS
FAMILY OF FUNDS MARCH 12, 1998
- ---------------
<PAGE>
REPUBLIC FAMILY OF FUNDS:
FIXED INCOME FUND
NEW YORK TAX-FREE BOND FUND
EQUITY FUND
INTERNATIONAL EQUITY FUND
SMALL CAP EQUITY FUND
3435 STELZER ROAD, COLUMBUS, OHIO 43219-3035
- --------------------------------------------------------------------------------
ACCOUNT AND GENERAL INFORMATION: (888) 525-5757 (TOLL FREE)
The Republic Funds (the "Trust") is an open-end investment management
company (a mutual fund) that currently offers a selection of seven portfolios,
each of which has different and distinct investment objectives and policies.
The Republic Advisor Funds Trust (the "Advisor Trust") is an open-end
management investment company that currently consists of three funds, each of
which has different and distinct investment objectives and policies. This
prospectus describes two investment portfolios offered by the Trust and three
investment portfolios offered by the Advisor Trust (the "Funds"), each of
which is advised or managed by Republic National Bank of New York ("Republic,"
"Manager" or "Advisor"):
REPUBLIC FIXED INCOME FUND
REPUBLIC NEW YORK TAX-FREE BOND FUND
REPUBLIC EQUITY FUND
REPUBLIC INTERNATIONAL EQUITY FUND
REPUBLIC SMALL CAP EQUITY FUND
This Prospectus sets forth concisely the information concerning the Funds
that a prospective investor should know before investing. Investors should
read this Prospectus and retain it for future reference. The Trust and Advisor
Trust have each filed with the Securities and Exchange Commission a Statement
of Additional Information, dated January 2, 1998 and March 1, 1998,
respectively, with respect to each of their respective Funds, containing
additional and more detailed information about the respective Fund, each of
which is hereby incorporated by reference into this Prospectus. An investor
may obtain a copy of a Statement of Additional Information without charge by
contacting the Fund at the address and telephone number printed above.
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 MARCH 12, 1998
<PAGE>
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUNDS IS SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
Only shares of the Fixed Income Fund, International Equity Fund and Small
Cap Equity Fund and Class Y Shares (the "Adviser Shares") of the New York Tax-
Free Bond Fund and Equity Fund (collectively, the "Shares"), are being offered
by this Prospectus. The Trust offers two other classes of shares of the New
York Tax-Free Bond Fund and Equity Fund pursuant to a separate prospectus.
Shares of the Funds are offered primarily to clients of Republic National Bank
of New York and its affiliates for which Republic National Bank or its
affiliates exercise investment discretion.
UNLIKE OTHER OPEN-END MANAGEMENT INVESTMENT COMPANIES (MUTUAL FUNDS) WHICH
DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, THE ADVISOR
TRUST SEEKS TO ACHIEVE THE INVESTMENT OBJECTIVES OF THE FIXED INCOME FUND,
INTERNATIONAL EQUITY FUND AND SMALL CAP EQUITY FUND (COLLECTIVELY, THE
"ADVISOR FUNDS", BY INVESTING ALL OF EACH FUND'S INVESTABLE ASSETS ("ASSETS")
IN THE FIXED INCOME PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO AND SMALL CAP
EQUITY PORTFOLIO, RESPECTIVELY, WHICH HAVE THE SAME INVESTMENT OBJECTIVE AS
EACH RESPECTIVE FUND. THE INVESTMENT EXPERIENCE OF EACH FUND WILL CORRESPOND
DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE CORRESPONDING PORTFOLIO. THE
PORTFOLIOS ARE DIVERSIFIED SERIES OF THE REPUBLIC PORTFOLIOS (THE "PORTFOLIO
TRUST"), WHICH IS AN OPEN-END MANAGEMENT INVESTMENT COMPANY. SEE "SPECIAL
INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE."
Republic is the investment manager of the Fixed Income Portfolio,
International Equity Portfolio, Small Cap Equity Portfolio (collectively, the
"Portfolios") and the Equity Fund. Republic is also the investment advisor to
the New York Tax-Free Bond Fund. Miller Anderson & Sherrerd ("MAS"), Capital
Guardian Trust Company ("CGTC"), and MFS Institutional Advisors, Inc.
("MFSI"), a wholly owned subsidiary of Massachusetts Financial Services
Company, continuously manage the investment portfolios of the Fixed Income
Portfolio, the International Equity Porfolio and the Small Cap Equity
Portfolio, respectively. Alliance Capital Management L.P. ("Alliance") and
Brinson Partners, Inc. ("Brinson") continuously manage the investment
portfolio of the Equity Fund (MAS, CGTC, MFSI, Alliance and Brinson are
collectively, the "Sub-Advisers").
Shares of each Fund are continuously offered for sale at net asset value
with no sales charge by BISYS Fund Services ("BISYS," the "Distributor" or the
"Sponsor") to customers of a financial institution, such as a federal or
state-chartered bank, trust company or savings and loan association that has
entered into a shareholder servicing agreement with the Trust or Advisor Trust
(collectively, "Shareholder Servicing Agents"). At present, the only
Shareholder Servicing Agents are Republic and its affiliates.
AN INVESTOR WHO IS NOT PURCHASING DIRECTLY FROM THE DISTRIBUTOR SHOULD
OBTAIN FROM HIS SHAREHOLDER SERVICING AGENT, AND SHOULD READ IN CONJUNCTION
WITH THIS PROSPECTUS, MATERIALS DESCRIBING THE PROCEDURES UNDER WHICH SHARES
MAY BE PURCHASED AND REDEEMED THROUGH SUCH SHAREHOLDER SERVICING AGENT.
<PAGE>
HIGHLIGHTS
THE FUNDS PAGE 1
Republic New York Tax-Free Bond Fund and Republic Equity Fund (collectively,
the "Trust Funds") are separate series of Republic Funds (the "Trust"), a
Massachusetts business trust organized on April 22, 1987, which currently
consists of seven portfolios, each of which has different and distinct
investment objectives and policies. Republic Fixed Income Fund, Republic
International Equity Fund and Republic Small Cap Equity Fund (collectively,
the "Advisor Funds") are separate series of Republic Advisor Funds Trust (the
"Advisor Trust"), a Massachusetts business trust organized on April 5, 1996,
which currently consists of three funds, each of which has different and
distinct investment objectives and policies. The Fixed Income Fund and
International Equity Fund are the successors to the Republic Fixed Income Fund
and Republic International Equity Fund, respectively, each a series of
Republic Funds (the "Predecessor Funds") each of which commenced investment
operations on January 9, 1995. The Fixed Income Fund and International Equity
Fund each assumed all of the assets and liabilities of their respective
Predecessor Fund.
INVESTMENT OBJECTIVES, POLICIES
AND RISK FACTORS PAGES 14 AND 25
The investment objective of the Fixed Income Fund is to realize above-
average total return over a market cycle of three to five years, consistent
with reasonable risk, through investment primarily in a diversified portfolio
of U.S. Government securities, corporate bonds, mortgage-backed securities and
other fixed-income securities. The Advisor Trust seeks to achieve the
investment objective of the Fixed Income Fund by investing all of the Fund's
investible assets in the Fixed Income Portfolio, which has the same investment
objective as the Fund. The Fixed Income Portfolio's average weighted maturity
will ordinarily exceed five years.
The investment objective of the New York Tax-Free Bond Fund is to provide
shareholders of the Fund with monthly dividends exempt from regular federal,
New York State and New York City personal income taxes as well as to protect
the value of its shareholders' investment. The Trust seeks to achieve the
investment objective of the New York Tax-Free Bond Fund by investing the
assets of the Fund primarily in a non-diversified portfolio of municipal bonds
and notes and other debt instruments the interest on which is exempt from
regular federal, New York State and New York City personal income taxes. The
potential risks of investing in New York Municipal obligations are discussed
in "Additional Risk Factors and Policies -- Risk Factors Affecting Investments
in New York Municipal Obligations."
In seeking its investment objective, the New York Tax-Free Bond Fund may
invest in variable rate instruments and "when-issued" municipal obligations.
The potential risks of investing in these derivative instruments are discussed
in "Additional Risk Factors and Policies -- Variable Rate Instruments" and
"Additional Risk Factors and Policies -- Firm Commitment Agreements and When-
Issued Securities and Municipal Obligations."
The investment objective of the Equity Fund is long-term growth of capital
and income without excessive fluctuations in market value. The Equity Fund
will normally invest in equity securities of large, seasoned companies in
sound financial condition with larger intermediate capitalization which are
expected to show above-average price appreciation.
The investment objective of the International Equity Fund is to seek long-
term growth of capital and future income through investment primarily in
securities of non-U.S. issuers (including American Depository Receipts
("ADRs") and U.S. registered securities) and securities of issuers whose
principal markets are outside of the United States. The Advisor Trust seeks to
achieve the investment objective of the International Equity Fund by investing
all of the Fund's investible assets in the International Equity Portfolio,
which has the same investment objective as the Fund.
The investment objective of the Small Cap Equity Fund is to seek long-term
growth of capital by investing, under normal market conditions, at least 80%
of its investible 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 Advisor Trust
seeks to achieve the investment objective of the Small Cap Equity Fund by
investing all of the Fund's investible assets in the Small Cap Equity
Portfolio, which has the same investment objective as the Fund.
The Fixed Income Portfolio, International Equity Portfolio, and Small Cap
Equity Portfolio are 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 objectives of the Funds or the
Portfolios will be achieved.
MANAGEMENT OF THE TRUST, THE ADVISOR TRUST
AND THE PORTFOLIO TRUST PAGE 48
Republic acts as investment manager to the Portfolios pursuant to Investment
Management Contracts with the Portfolio Trust. For its services, the Manager
is entitled to receive from the Fixed Income Portfolio a fee at the annual
rate of 0.20% of the Portfolio's average daily net assets and from each of the
International Equity Portfolio and the Small Cap Equity Portfolio a fee at the
annual rate of 0.25% of each Portfolio's average daily net assets.
Republic also acts as investment adviser to the New York Tax-Free Bond Fund
and as investment manager to the Equity Fund. For its services, each of these
Funds pays the Manager a fee at the annual rate of 0.25% of the New York Tax-
Free Bond Fund's average daily net assets and a fee at the annual rate of
0.175% of the Equity Fund's average daily net assets, respectively. Republic
is currently waiving the fee for the New York Tax-Free Bond Fund. See
"Management of Trust, the Adviser Trust and Portfolio Trust."
MAS continuously manages the investment portfolio of the Fixed Income
Portfolio pursuant to a Sub-Advisory Agreement with the Manager. For its
services, MAS is paid a fee by the Fixed Income Portfolio, computed daily and
based on the Portfolio's average daily net assets, equal on an annual basis to
0.375% of average daily net assets of the Portfolio, subject to certain
breakpoints on assets in excess of $50 million. See "Management of Trust, the
Adviser Trust and Portfolio Trust."
Alliance and Brinson each continuously manage a portion of the investment
portfolio of the Equity Fund pursuant to a Subadvisory Agreement with the
Manager. The Manager determines the allocation of the Equity Fund's Assets
between Alliance and Brinson. For its services, Alliance and Brinson are each
paid a fee by the Equity Fund, computed daily and based on the Fund's average
daily net assets, equal on an annual basis to 0.325% of the average daily net
assets of the Fund allocated to each Sub-Adviser for management, subject to
certain breakpoints on assets allocated to each Sub-Adviser in excess of $50
million. See "Management of Trust, the Adviser Trust and Portfolio Trust."
CGTC continuously manages the investment portfolio of the International
Equity Portfolio pursuant to a Sub-Advisory Agreement with the Manager. For
its services, CGTC is paid a fee by the International Equity Portfolio,
computed daily and based on the Portfolio's average daily net assets, equal on
an annual basis to 0.70% of the average daily net assets of the Portfolio,
subject to certain breakpoints on assets in excess of $25 million. See
"Management of Trust, the Adviser Trust and Portfolio Trust."
MFSI continuously manages the investment portfolio of the Small Cap Equity
Portfolio pursuant to a Sub-Advisory Agreement with the Manager. For its
services, MFSI is paid a fee by the Small Cap Equity Portfolio, computed daily
and based on the Portfolio's average daily net assets, equal on an annual
basis to 0.75% of average daily net assets of the Portfolio, subject to
certain breakpoints on assets in excess of $50 million. See "Management of the
Trust, the Adviser Trust and the Portfolio Trust."
BISYS acts as sponsor and as administrator of the Funds (the "Fund
Administrator") and distributor of the Shares of each Fund. For its services
to the New York Tax-Free Bond Fund and the Equity Fund, the Fund Administrator
receives a fee from each Fund equal on an annual basis to 0.10% of the Fund's
average daily net assets, subject to certain breakpoints on assets in excess
of $1 billion. For its services to the Fixed Income Fund, International Equity
Fund and Small Cap Equity Fund, the Fund Administrator receives from each Fund
a fee payable monthly equal on an annual basis to 0.05% of the Fund's average
daily net assets, subject to certain breakpoints on assets in excess of $1
billion. BISYS Fund Services (Ireland) Limited ("BISYS Ireland") acts as
administrator of the Portfolios (the "Portfolios Administrator"). For its
services to the Portfolios, the Portfolios' Administrator receives from each
Portfolio a fee payable monthly equal on an annual basis to 0.05% of each
Portfolio's average daily net assets subject to certain breakpoints on assets
in excess of $1 billion. See "Management of Trust, the Adviser Trust and the
Portfolio Trust."
PURCHASE AND REDEMPTION OF SHARES PAGES 59 AND 61
Shares of the Funds 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 or Advisor Trust (collectively, "Shareholder Servicing Agents"). The
minimum initial investment is $1,000 and the minimum subsequent investment is
$100. With respect to the Advisor Funds, the Funds may accept initial and
subsequent investments of lesser amounts in its discretion. No minimum is
imposed on reinvested dividends. The Trust and Advisor Trust each offer to buy
back (redeem) Shares from shareholders of the Funds at any time at net asset
value. See "Purchase of Shares" and "Redemption of Shares." Shares of the
Funds, with the exception of the New York Tax-Free Bond Fund, are offered in
connection with tax-deferred retirement plans. See "Retirement Plans."
DIVIDENDS AND DISTRIBUTIONS PAGE 62
For the Fixed Income Fund and the New York Tax-Free Bond Fund, the Trust and
Advisor Trust each declare all of each Fund's net investment income daily as a
dividend to each Fund's shareholders and distribute all such dividends
monthly. For the Equity Fund, dividends equal to all the Fund's net investment
income earned are distributed quarterly to the Fund's shareholders of record.
For the International Equity Fund and Small Cap Equity Fund, such dividends
are distributed annually and semi-annually, respectively. Any net realized
capital gains are distributed at least annually. All distributions by a Fund
will be invested in additional shares of the Fund, unless the shareholder
instructs the Fund otherwise. See "Dividends and Distributions."
<PAGE>
FEE TABLE
The following table provides a summary of estimated expenses relating to
purchases and sales of Shares, and the aggregate annual operating expenses of
each Fund, and their corresponding Portfolio, if applicable, as a percentage
of the average daily net assets of each Fund. The fiscal year ends of the
Funds and the Portfolios are each October 31. The example illustrates the
dollar cost of such estimated expenses on a $1,000 investment in each Fund.
The Trustees of the Advisor Trust believe that the aggregate per share
expenses of the Fixed Income Fund, International Equity Fund and Small Cap
Equity Fund and the corresponding Portfolios will be less than or
approximately equal to the expenses which the Advisor Funds would incur if the
Advisor Trust retained the services of an investment adviser on behalf of the
Advisor Funds and the Assets of each Advisor Fund were invested directly in
the type of securities being held by the corresponding Portfolio. Historical
information in the expense table regarding investment advisory/management fees
and expenses has been restated to reflect expected fee waivers and expenses
for the current fiscal year.
<TABLE>
<CAPTION>
FIXED NEW YORK INTERNATIONAL SMALL CAP
INCOME TAX-FREE EQUITY EQUITY EQUITY
FUND BOND FUND FUND FUND FUND
------ --------- ------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses None None None None None
Annual Fund Operating Expenses
Investment Advisory/Management
Fees after waiver* ............ 0.48% 0.00% 0.50% 0.72% 0.89%
Distribution Fees (Rule 12b-1
fees) ......................... None None None None None
Other Expenses .................. 0.42% 0.80% 0.40% 0.49% 0.36%
---- ---- ---- ---- ----
-- Shareholder Servicing Fee** 0.00% 0.00% 0.00% 0.00% 0.00%
-- Administrative Services Fee 0.10% 0.10% 0.10% 0.10% 0.10%
-- Other Operating Expenses ..... 0.32% 0.70% 0.30% 0.39% 0.26%
Total Fund Operating Expenses after
fee waivers and expense
reimbursements*** ............... 0.90% 0.80% 0.90% 1.21% 1.25%
==== ==== ==== ==== ====
</TABLE>
-----------
*Investment Advisory Management Fees for the New York Tax-Free Bond Fund are
shown net of waivers. Without such waivers, the Investment Advisory/
Management Fees would be equal on an annual basis to 0.25% of the average
net assets of the New York Tax-Free Bond Fund. See "Management of the
Trust, the Adviser Trust and the Portfolio Trust" for a description of the
Investment Advisory/Management Fees payable to the Manager and each of the
Sub-Advisors. There can be no assurance that fees will be waived in the
future. The Manager anticipates that it will reduce or eliminate the fee
waivers during the current fiscal year if it can do so without materially
increasing Total Fund Operating Expenses as a percentage of average daily
net assets.
**The Funds have authorized Shareholder Servicing Fees of up to 0.25%, on an
annual basis, of each Fund's average daily net assets. The fees are not
being paid currently, but the Funds may begin paying these fees in the
future.
***Total Fund Operating Expenses for the Funds are shown net of fee waivers
and expense reimbursements. Without such fee waivers and expense
reimbursements and if the Funds were to pay the full shareholder servicing
fee authorized, the Total Fund Operating Expenses would be equal on an
annual basis to 1.15% of the Fixed Income Fund's average daily net assets,
1.30% of the New York Tax-Free Bond Fund's average daily net assets, 1.15%
of the Equity Fund's average daily net assets, 1.46% of the International
Equity Fund's average daily net assets, and up to 1.50% of the Small Cap
Equity Fund's average daily net assets. There can be no assurance that fees
will be waived or expenses reimbursed in the future.
EXAMPLE
A shareholder 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
each period:
<TABLE>
<CAPTION>
FIXED NEW YORK INTERNATIONAL SMALL CAP
INCOME TAX-FREE EQUITY EQUITY EQUITY
FUND BOND FUND FUND FUND FUND
------ --------- ------ ------------- ---------
<S> <C> <C> <C> <C> <C>
1 year ............................. $ 9 $ 8 $ 9 $ 12 $ 13
3 years ............................ $ 29 $ 26 $ 29 $ 38 $ 40
5 years ............................ $ 50 $ 44 $ 50 $ 66 $ 69
10 years ............................ $111 $ 99 $111 $146 $151
</TABLE>
THE EXAMPLES SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE AGGREGATE EXPENSES OF THE FUNDS AND THE PORTFOLIOS, AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the expense tables provided above is to assist investors in
understanding the expenses of investing in a Fund and an investor's share of
the aggregate operating expenses of the Portfolios, if applicable. The
information is based on the expenses the Funds, and their corresponding
Portfolios, if applicable, expect to incur for the current fiscal year. The
expense table shows the expected investment advisory/management fee,
distribution (Rule 12b-1) fee and administrative services fee. For a more
detailed discussion of the costs and expenses of investing in the Funds, see
"Management of the Trust and the Portfolio Trust."
The Funds do not currently pay a shareholder servicing fee. However, each
Fund is authorized to pay a fee up to 0.25%, on an annual basis, of the Fund's
average daily net assets.
Some Shareholder Servicing Agents may impose certain conditions on their
customers, subject to the terms of this Prospectus, in addition to or
different from those imposed by the Trust or Advisor Trust with respect to the
Funds, such as requiring a minimum initial investment or charging their
customers a direct fee for their services. The effect of any such fees will be
to reduce the net return on the investment of customers of that Shareholder
Servicing Agent. Each Shareholder Servicing Agent has agreed to transmit to
shareholders who are its customers appropriate written disclosure of any
transaction fees that it may charge them directly at least 30 days before the
imposition of any such charge.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Funds' Shares (Class Y or "Adviser Shares" for the New York
Tax-Free Bond Fund and Equity Fund) since commencement of operations through
October 31, 1997. The Fixed Income Fund and International Equity Fund are the
successors to Republic Fixed Income Fund and Republic International Equity
Fund, each a series of Republic Funds (the "Predecessor Funds") which each
commenced investment operations on January 9, 1995. The Fixed Income Fund and
International Equity Fund each assumed all of the assets and liabilities of
their respective Predecessor Fund in a reorganization effective August 1,
1996. The information shown in the following schedule for the years or periods
ended October 31, 1997 and 1996 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose report on each Fund's financial statements is
incorporated by reference into the Statement of Additional Information from
each Fund's Annual Report dated October 31, 1997. The Annual Report also
includes management's discussion of Fund performance, and may be obtained
without charge upon request. This information should be read in conjunction
with the financial statements.
The information for the Funds for the periods ended October 31, 1995 was
audited by the Funds' former independent auditors who expressed unqualified
opinions thereon.
SELECTED DATA FOR A SHARE OUTSTANDING
THROUGHOUT THE INDICATED PERIOD:
<TABLE>
<CAPTION>
REPUBLIC REPUBLIC NEW YORK REPUBLIC
FIXED INCOME FUND TAX-FREE BOND FUND EQUITY FUND
----------------------------------------- ----------------------------- ------------------------------
FOR THE FOR THE
PERIOD PERIOD FOR THE
FOR FOR JANUARY 9, 1995 FOR JULY 1, 1996 FOR THE PERIOD
THE YEAR THE YEAR (COMMENCEMENT THE YEAR (DATE OF YEAR JULY 1, 1996
ENDED ENDED OF OPERATIONS) ENDED INITIAL ENDED (DATE OF INITIAL
OCTOBER 31, OCTOBER 31, TO OCTOBER 31, OCTOBER 31, OFFERING TO) OCTOBER 31, OFFERING TO)
1997 1996 1995 1997 OCTOBER 31, 1996 1997 OCTOBER 31, 1996
----------- ----------- ---------------- ----------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.67 $ 10.96 $ 10.00 $ 10.30 $ 10.18 $ 11.93 $ 11.49
------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.59 0.59 0.46 0.46 0.16 0.10 0.08
Net realized and
unrealized gain on
investments or from
Portfolio .......... 0.31 0.08 0.96 0.36 0.12 3.33 0.42
------- ------- ------- ------- ------- ------- -------
Total from investment
operations 0.90 0.67 1.42 0.82 0.28 3.43 0.50
------- ------- ------- ------- ------- ------- -------
Less dividends:
From net investment
income ............. (0.64) (0.59) (0.46) (0.46) (0.16) (0.13) (0.06)
Net realized capital
gain ............... (0.01) (0.37) -- (0.02) -- (0.22) --
------- ------- ------- ------- ------- ------- -------
Total distributions (0.65) (0.96) (0.46) (0.48) (0.16) (0.35) (0.06)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period ............... $ 10.92 $ 10.67 $ 10.96 $ 10.64 $ 10.30 $ 15.01 $ 11.93
======= ======= ======= ======= ======= ======= =======
Total return(a) ........ 9.14% 6.51% 14.37% 8.38% 5.02%(c) 29.28% 4.72%
Ratios/supplemental
data:
Net assets, end of
period (in 000's) .... $71,686 $42,424 $26,128 $8,901 $8,233 $63,060 $33,155
Ratio of expenses to
average net assets* .. 0.83% 0.83% 0.91%(b) 0.78% 0.60%(b) 0.96% 0.66%(b)
Ratio of net
investment income to
average net assets*. 5.92% 5.51% 5.63%(b) 4.66% 4.78%(b) 0.77% 1.93%(b)
Portfolio turnover
rate(d) ............ 349% 152% 100% 163% 178%(e) 99% 86%(e)
Average commission
rate(d) ............ N/A N/A N/A N/A N/A $0.0438 $0.0599(e)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED DATA FOR A SHARE OUTSTANDING
THROUGHOUT THE INDICATED PERIOD:
REPUBLIC SMALL
REPUBLIC INTERNATIONAL CAP EQUITY
EQUITY FUND FUND
---------------------------------------------------------- ----------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JANUARY 9, 1995 FOR THE YEAR SEPTEMBER 3, 1996
ENDED ENDED (COMMENCEMENT ENDED (COMMENCEMENT
OCTOBER 31, OCTOBER 31, OF OPERATIONS) TO OCTOBER 31, OF OPERATIONS) TO
1997 1996 OCTOBER 31, 1995 1997 OCTOBER 31, 1996
---------------- ---------------- ---------------------- ---------------- ----------------------
Net asset value, beginning
<S> <C> <C> <C> <C> <C>
of period ...................... $ 12.05 $ 10.80 $ 10.00 $ 10.63 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .......... 0.12 0.11 0.08 (0.06) --
Net realized and unrealized
gain on investments or from
Portfolio .................... 1.85 1.31 0.75 2.93 0.63
------- ------- ------- ------- -------
Total from investment
operations ................... 1.97 1.42 0.83 2.87 0.63
------- ------- ------- ------- -------
Less dividends:
From net investment
income ....................... (0.11) (0.16) (0.03) (0.06) --
Net realized capital gain ...... (0.15) (0.01) -- (0.06) --
------- ------- ------- ------- -------
Total distributions .......... (0.26) (0.17) (0.03) 2.81 --
------- ------- ------- ------- -------
Net asset value, end of period ... $13.76 $12.05 $10.80 $13.44 $10.63
======= ======= ======= ======= =======
Total return(a) .................. 16.62% 13.22% 8.31% 27.18% 6.30%
Ratios/supplemental data:
Net assets, end of period
(in 000's) ................... $132,924 $96,977 $34,244 $137,996 $92,842
Ratio of expenses to average
net assets* .................. 0.91% 1.11% 1.14%(b) 1.02% 0.91%(b)
Ratio of net investment income
to average net assets* ....... 0.91% 0.99% 1.26%(b) (0.50)% (0.28)%(b)
Portfolio turnover rate(d) ..... 30% 23% 3% 92% 51%
Average commission rate(d) ..... $0.0020 $0.0030 N/A $0.0566 $0.0093
(Footnotes on following page)
- ----------------------------------------------------------------------------------------------------------------------------
* Reflects a voluntary expense limitation and waiver of fees by affiliated parties of the Funds. If this limitation and
waiver had not been in effect, the annualized ratios of expenses and net investment income to average net assets for the
Fixed Income Fund for the years ended October 31, 1997 and October 31, 1996 and the period from January 9, 1995
(commencement of operations) to October 31, 1995 would have been 0.85% and 5.90%, 1.06% and 5.28% and 1.72% and 4.82%,
respectively; for the New York Tax-Free Bond Fund for the year ended October 31, 1997 and the period from July 1, 1996
(date of initial offering) to October 31, 1996 would have been 1.27% and 4.17%, and 2.26% and 3.12%, respectively; for
the Equity Fund for the year ended October 31, 1997 and the period from July 1, 1996 (date of initial offering) to
October 31, 1996 would have been 1.03% and 0.70%, and 0.97% and 1.62%, respectively; for the International Equity Fund
for the years ended October 31, 1997 and October 31, 1996 and the period from January 9, 1995 (commencement of
operations) to October 31, 1995 would have been 0.91% and 0.91%, 1.13% and 0.97%, and 2.12% and 0.28%, respectively; and
for the Small Cap Equity Fund for the year ended October 31, 1997 and the period from September 3, 1996 (commencement of
operations) to October 31, 1996 would have been 1.03% and (0.51%), and 1.17% and (0.54%), respectively. Includes the
respective Fund's share of operating expenses of the respective Portfolios, as appropriate.
(a) For the year or period indicated.
(b) Annualized.
(c) Represents total return for the Class A shares ("Investor Shares") from November 1, 1995 to June 30, 1996, plus the total
return for the Class Y shares ("Adviser Shares") from July 1, 1996 to October 31 1997.
(d) Portfolio turnover and average commission rates, if applicable, for the Fixed Income Fund, International Equity Fund and
Small Cap Equity Fund represent those of each Fund's respective Portfolio for the years or periods indicated.
(e) Represents rate for the entire Fund for the period ended October 31, 1996.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The investment objective of the Fixed Income Fund is to realize above-
average total return over a market cycle of three to five years, consistent
with reasonable risk, through investment in a diversified portfolio of U.S.
Government securities, corporate bonds (including bonds rated below investment
grade commonly referred to as "junk bonds"), foreign fixed income securities,
mortgage-backed securities of domestic issuers and other fixed-income
securities. The Fixed Income Portfolio's average weighted maturity will
ordinarily exceed five years. The investment objective of the Fixed Income
Portfolio is the same as the investment objective of the Fixed Income Fund.
The investment objective of the New York Tax-Free Bond Fund is to provide
shareholders of the Fund with monthly dividends exempt from regular federal,
New York State and New York City personal income taxes as well as to protect
the value of its shareholders' investment.
The investment objective of the Equity Fund is to seek long-term growth of
capital and income without excessive fluctuations in market value. The Equity
Fund will normally invest in equity securities of large, seasoned companies
with large or intermediate capitalization in sound financial condition which
are expected to show above-average price appreciation.
The investment objective of the International Equity Fund is to seek long-
term growth of capital and future income through investment primarily in
securities of non-U.S. issuers (including ADRs and U.S. registered securities)
and securities whose principal markets are outside of the United States. The
investment objective of the International Equity Portfolio is the same as the
investment objective of the International Equity Fund.
The investment objective of the Small Cap Equity 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 Small Cap Equity Portfolio is the same as the
investment objective of the Small Cap Equity Fund.
There can be no assurance that the investment objectives of the Funds will
be achieved. The investment objectives of each of the Funds and the
Portfolios, if applicable, may be changed without investor approval. If there
is a change in the investment objective of a Fund, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current financial position and needs. Shareholders of the Funds shall
receive 30 days' prior written notice of any change in the investment
objectives of the Funds or the Portfolios, if applicable.
INVESTMENT POLICIES
Since the investment characteristics of the Fixed Income Fund, International
Equity Fund and Small Cap Equity Fund will correspond to those of their
respective Portfolio, the following also includes a discussion of the various
investment policies of the Portfolios.
FIXED INCOME FUND. The investment characteristics of the Bond Fund
correspond to those of the Fixed Income Portfolio. The Fixed Income Portfolio
will normally invest at least 65% of its total assets in fixed income
securities. The Fixed Income Portfolio may invest in the following securities,
which may be issued by domestic or foreign entities and denominated in U.S.
dollars or foreign currencies: securities issued, sponsored or guaranteed by
the U.S. government, its agencies or instrumentalities (U.S. Government
securities); corporate debt securities; corporate commercial paper; mortgage
pass-throughs, mortgage-backed bonds, collateralized mortgage obligations
("CMOs") and other asset-backed securities; variable and floating rate debt
securities; obligations of foreign governments or their subdivisions, agencies
and instrumentalities; obligations of international agencies or supranational
entities; and foreign currency exchange-related securities.
MAS (the "Fixed Income Sub-Adviser") will seek to achieve the Fixed Income
Portfolio's objective by investing at least 80% of the Portfolio's assets in
investment grade debt or fixed income securities. Investment grade debt
securities are those rated by one or more nationally recognized statistical
rating organizations ("NRSROs") within one of the four highest quality grades
at the time of purchase (e.g., AAA, AA, A or BBB by Standard & Poor's Ratings
Group, Inc. ("S&P") or Fitch Investors Service, Inc. ("Fitch") or Aaa, Aa, A
or Baa by Moody's Investors Service, Inc. ("Moody's")), or in the case of
unrated securities, determined by the Fixed Income Sub-Adviser to be of
comparable quality. Securities rated by a NRSRO in the fourth highest rating
category have speculative characteristics and are subject to greater credit
and market risks than higher-rated bonds. See Appendix A to this Prospectus
for a description of the ratings assigned by Moody's, S&P, and Fitch.
Up to 20% of the Fixed Income Portfolio's assets may be invested in
preferred stock, convertible securities, and in fixed income securities that
at the time of purchase are rated Ba or B by Moody's, BB or B by S&P or rated
comparably by another NRSRO (or, if unrated, are deemed by the Fixed Income
Sub-Adviser to be of comparable quality). Securities rated below "investment
grade," i.e., rated below Baa by Moody's or below BBB by S&P, are described as
"speculative" by both Moody's and S&P. Such securities are sometimes referred
to as "junk bonds," and may be subject to greater market fluctuations, less
liquidity and greater risk. For a complete discussion of the special risks
associated with investments in lower rated securities, see "Additional Risk
Factors and Policies -- High Yield/High Risk Securities."
From time to time, the Fixed Income Sub-Adviser may invest more than 50% of
the Fixed Income Portfolio's assets in mortgage-backed securities including
mortgage pass-through securities, mortgage-backed bonds and CMOs, that carry a
guarantee from a U.S. government agency or a private issuer of the timely
payment of principal and interest. For a description of the risks associated
with mortgage-backed securities, see "Additional Risk Factors and Policies --
Mortgage Related Securities." When investing in mortgage-backed securities, it
is expected that the Fixed Income Portfolio's primary emphasis will be in
mortgage-backed securities issued by governmental and government-related
organizations such as the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Association ("FHLMC"). However, the Fixed Income Portfolio may invest
without limit in mortgage-backed securities of private issuers when the Fixed
Income Sub-Adviser determines that the quality of the investment, the quality
of the issuer, and market conditions warrant such investments. Mortgage-
backed securities issued by private issuers will be rated investment grade by
Moody's or S&P or, if unrated, deemed by the Fixed Income Sub-Adviser to be of
comparable quality.
A mortgage-backed bond is a collateralized debt security issued by a thrift
or financial institution. The bondholder has a first priority perfected
security interest in collateral consisting usually of agency mortgage pass-
through securities, although other assets including U.S. Treasury securities
(including zero coupon Treasury bonds), agency securities, cash equivalent
securities, whole loans and corporate bonds may qualify. The amount of
collateral must be continuously maintained at levels from 115% to 150% of the
principal amount of the bonds issued, depending on the specific issue
structure and collateral type. For a complete discussion of mortgage-backed
securities, see "Additional Risk Factors and Policies -- Mortgage-Related
Securities."
A portion of the Fixed Income Portfolio's assets may be invested in bonds
and other fixed income securities denominated in foreign currencies if, in the
opinion of the Fixed Income Sub-Adviser, the combination of current yield and
currency value offer attractive expected returns. These holdings may be in as
few as one foreign currency bond market (such as the United Kingdom gilt
market), or may be spread across several foreign bond markets. The Fixed
Income Portfolio may also purchase securities of developing countries;
however, the Portfolio does not intend to invest in the securities of Eastern
European countries. When the total return opportunities in a foreign bond
market appear attractive in local currency terms, but where, in the Fixed
Income Sub-Adviser's judgment, unacceptable currency risk exists, currency
futures, forwards and options and swaps may be used to hedge the currency
risk. See "Additional Risk Factors and Policies -- Foreign Securities" below
and the Statement of Additional Information.
The Fixed Income Portfolio may invest in Eurodollar bank obligations and
Yankee bank obligations. See "Additional Risk Factors and Policies --
Eurodollar and Yankee Bank Obligations" below. The Fixed Income Portfolio may
also invest in Brady Bonds, which are issued as a result of a restructuring of
a country's debt obligations to commercial banks under the "Brady Plan." See
"Additional Risk Factors and Policies -- Brady Bonds" below. The Portfolio may
also invest in the following instruments on a temporary basis when economic or
market conditions are such that the Fixed Income Sub-Adviser deems a temporary
defensive position to be appropriate: time deposits, certificates of deposit
and bankers' acceptances issued by a commercial bank or savings and loan
association; commercial paper rated at the time of purchase by one or more
NRSRO in one of the two highest categories or, if not rated, issued by a
corporation having an outstanding unsecured debt issue rated high-grade by a
NRSRO; short-term corporate obligations rated high-grade by a NRSRO; U.S.
Government obligations; Government agency securities issued or guaranteed by
U.S. Government-sponsored instrumentalities and federal agencies; and
repurchase agreements collateralized by the securities listed above. The Fixed
Income Portfolio may also purchase securities on a when-issued basis, lend its
securities to brokers, dealers, and other financial institutions to earn
income and borrow money for temporary or emergency purposes.
NEW YORK TAX-FREE BOND FUND. The Adviser seeks to achieve the investment
objective of the New York Tax-Free Bond Fund by investing the assets of the
Fund primarily in municipal bonds and notes and other debt obligations issued
by or on behalf of the State of New York, other states, territories and
possessions of the United States, and their authorities, agencies,
instrumentalities and political subdivisions, the interest on which is exempt
from regular federal income taxes. (Such obligations, whether or not the
interest thereon is subject to the federal alternative minimum tax, are
referred to herein as "Municipal Obligations.") The Adviser invests on behalf
of the New York Tax-Free Bond Fund in certain Municipal Obligations of the
State of New York and its authorities, agencies, instrumentalities and
political subdivisions, and of Puerto Rico, other U.S. territories and their
authorities, agencies, instrumentalities and political subdivisions, the
interest on which is exempt from regular federal, New York State and New York
City personal income taxes ("New York Municipal Obligations"). In determining
the tax status of interest on Municipal Obligations and New York Municipal
Obligations, the Adviser relies on opinions of bond counsel who may be counsel
to the issuer of those obligations.
Although under normal circumstances, the Adviser attempts to invest 100%,
and does invest at least 65%, of the New York Tax-Free Bond Fund's assets in
New York Municipal Obligations, market conditions may from time to time limit
the availability of such obligations. To the extent that acceptable New York
Municipal Obligations are not available for investment, the Adviser may
purchase on behalf of the New York Tax-Free Bond Fund Municipal Obligations
issued by other states, their authorities, agencies, instrumentalities and
political subdivisions, the interest income on which is exempt from regular
federal income tax but is subject to New York State and New York City personal
income taxes. As a fundamental policy the Adviser will invest at least 80% of
the New York Tax-Free Bond Fund's net assets in tax exempt obligations. As a
temporary defensive measure, the Adviser may invest up to 20% of the New York
Tax-Free Bond Fund's total assets in obligations, the interest income on which
is subject to regular federal, New York State and New York City personal
income taxes or the federal alternative minimum tax. Also, as a temporary
defensive measure during times of adverse market conditions, assets of the New
York Tax-Free Bond Fund may be held in cash or invested in the short-term
obligations described below, the interest income on which is taxable to
shareholders as ordinary income for federal and New York State and New York
City personal income tax purposes.
All of the investments of the New York Tax-Free Bond Fund are made in:
(1) Municipal bonds that at the date of purchase are rated Aaa, Aa, A or
Baa by Moody's, AAA, AA, A or BBB by S&P's or AAA, AA, A or BBB by Fitch or,
if not rated by any of these rating agencies, are of comparable quality as
determined by the Adviser;
(2) Municipal notes that at the date of purchase are rated MIG
1/VMIG 1 or MIG 2/VMIG 2 by Moody's, SP-1+, SP-1 or SP-2 by S&P or
F-1+, F-1 or F-2 by Fitch or, if not rated by any of these rating agencies,
are of comparable quality as determined by the Adviser;
(3) Obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; and
(4) Commercial paper that at the date of purchase is rated Prime-1 or
Prime-2 by Moody's, A-1+, A-1 or A-2 by S&P or F-1+, F-1 or F-2 by Fitch or,
if not rated by any of these rating agencies, is of comparable quality as
determined by the Adviser, obligations (including certificates of deposit,
bankers' acceptances and repurchase agreements) of banks with at least $1
billion of assets, and cash.
Municipal bonds rated Baa by Moody's or BBB by S&P or Fitch may have some
speculative elements. In evaluating the creditworthiness of an issue, whether
rated or unrated, the Adviser takes into consideration, among other factors,
the issuer's financial resources, its sensitivity to economic conditions and
trends, the operating history of and the community support for the facility
financed by the issue, the quality of the issuer's management, and legal and
regulatory matters. For an explanation of the ratings of Municipal Obligations
by Moody's, S&P and Fitch, see Appendix A. For a comparison of yields on such
Municipal Obligations and taxable securities, see the Taxable Equivalent Yield
Tables in Appendix B. For a general discussion of Municipal Obligations and
the risks associated with an investment therein, see Appendix A to the
Statement of Additional Information.
The maximum maturity of any debt security held for the New York Tax-Free
Bond Fund is 35 years.
Although higher quality Municipal Obligations may produce lower yields, they
generally are easier to sell or trade than lower quality Municipal
Obligations. To protect the value of its shareholders' investment under
adverse market conditions, the Adviser from time to time may deem it prudent
to purchase higher quality Municipal Obligations or taxable obligations for
the New York Tax-Free Bond Fund, with a resultant decrease in yield or
increase in the proportion of taxable income.
The net asset value of the New York Tax-Free Bond Fund's shares changes as
interest rates fluctuate. When interest rates decline, the value of the New
York Tax-Free Bond Fund's portfolio can be expected to rise. Conversely, when
interest rates rise, the value of the Fund's portfolio can be expected to
decline. Such changes in the value of the New York Tax-Free Bond Fund's
portfolio are reflected in the net asset value of shares of the New York Tax-
Free Bond Fund but do not affect the income received by the Fund from its
portfolio securities. Municipal Obligations with longer maturities, such as
those in which the New York Tax-Free Bond Fund is invested, generally produce
higher yields and are subject to greater market fluctuation as a result of
changes in interest rates than such securities with shorter maturities.
Dividends distributed to shareholders rise or fall in direct relation to the
New York Tax-Free Bond Fund's net income. Since available yields vary, no
specific level of income can be assured.
As a non-diversified investment company, the Trust is not subject to any
statutory restriction under the 1940 Act with respect to limiting the
investment of the New York Tax-Free Bond Fund's assets in one or relatively
few issuers. Since the Adviser may invest a relatively high percentage of the
New York Tax-Free Bond Fund's assets in the obligations of a limited number of
issuers, the value of shares of the Fund may be more susceptible to any single
economic, political or regulatory occurrence than the value of shares of a
diversified investment company would be.
The Adviser may invest the assets of the New York Tax-Free Bond Fund in a
relatively high percentage of Municipal Obligations to be paid from revenue
streams of similar types of projects. This may make the New York Tax-Free Bond
Fund more susceptible to any single economic, political or regulatory
occurrence, particularly since most or all such issuers would likely be
located in New York State. As the similarity in issuers increases, the
potential for fluctuation of the net asset value of the New York Tax-Free Bond
Fund's shares also increases. The Adviser may invest more than 25% of the
assets of the New York Tax-Free Bond Fund in industrial revenue bonds (i.e.,
bonds issued by various state and local agencies to finance various industrial
projects). Certain investors in the New York Tax-Free Bond Fund may be
required to pay a federal alternative minimum tax on Fund dividends
attributable to interest on certain industrial revenue bonds. The Adviser also
may invest more than 25% of the assets of the Fund in revenue bonds issued for
housing, electric utilities and hospitals (subject to the restriction that it
may not invest more than 25% of the Fund's assets in any one such industry) at
times when the relative value of issues of such a type is considered by the
Adviser to be more favorable than that of other available types of issues.
Therefore, investors should also be aware of the risks which these investments
may entail.
Housing revenue bonds typically are issued by a state, county or local
housing authority and are secured only by the revenues of mortgages originated
by the authority using the proceeds of the bond issue. Because of the
impossibility of precisely predicting demand for mortgages from the proceeds
of such an issue, there is a risk that the proceeds of the issue will be in
excess of demand, which would result in early retirement of the bonds by the
issuer. Moreover, such housing revenue bonds depend for their repayment upon
the cash flow from the underlying mortgages, which cannot be precisely
predicted when the bonds are issued. Any difference in the actual cash flow
from such mortgages from the assumed cash flow could have an adverse impact
upon the ability of the issuer to make scheduled payments of principal and
interest on the bonds, or could result in early retirement of the bonds.
Additionally, such bonds depend in part for scheduled payments of principal
and interest upon reserve funds established from the proceeds of the bonds,
assuming certain rates of return on investment of such reserve funds. If the
assumed rates of return are not realized because of changes in interest rate
levels or for other reasons, the actual cash flow for scheduled payments of
principal and interest on the bonds may be adversely affected.
Electric utilities face problems in financing large and lengthy construction
programs, such as cost increases and delay occasioned by regulatory and
environmental considerations (particularly with respect to nuclear
facilities), difficulty in obtaining sufficient rate increases, the effect of
energy conservation and difficulty of the capital markets to absorb utility
debt.
Hospital bond ratings are often based on feasibility studies containing
projections of expenses, revenues and occupancy levels. A hospital's gross
receipts and net income available to service its debt are influenced by demand
for hospital services, the ability of the hospital to provide the services
required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding levels, possible federal or state legislation limiting the
rates of increase of hospital charges, and weakened state finances which limit
and/or delay aid payments.
EQUITY FUND. The Equity Fund will normally invest at least 65% of its total
assets in equity securities of seasoned companies in sound financial condition
with large or intermediate capitalization which are expected to show above-
average price appreciation. The Equity Fund may invest in a broad range of
equity securities, including common and preferred stocks, debt securities
convertible into or exchangeable for common stock and securities such as
warrants or rights that are convertible into common stock.
The Manager will allocate the Equity Fund's assets between Alliance and
Brinson ("the Equity Sub-Advisers"). While the Manager maintains complete
discretion regarding the allocation of the Equity Fund's assets, the Manager
anticipates that it typically will allocate the Fund's assets evenly between
the Equity Sub-Advisers, each of which pursues the Fund's investment objective
in the manner described below.
Alliance. Alliance seeks the Equity Fund's investment objective by pursuing
a "growth" style of investing in marketable equity securities, primarily of
U.S. companies. However, the Equity Fund may purchase foreign, as well as
domestic, equity securities. Alliance normally will invest substantially all
of the Equity Fund's assets allocated to it in common stocks which Alliance
believes will appreciate in value.
Alliance generally seeks to invest the Equity Fund's assets in financially
secure firms with established operating histories that are proven leaders in
their industry or market sector. Such companies may demonstrate
characteristics such as participation in expanding markets, increasing unit
sales volume, growth in revenues and earnings per share, and increasing return
on investments. However, Alliance may invest the Equity Fund's assets in
companies that do not demonstrate such characteristics if it expects such
companies to undergo an acceleration in growth of earnings because of special
factors such as new management, new products, changes in consumer demand or
basic changes in the economic environment.
Alliance analyzes each company considered for investment, using internal
fundamental research analysts, to determine its source of earnings,
competitive edge, management strength, and level of industry dominance as
measured by market share. At the same time, Alliance conducts an analysis of
the financial condition of each company and selects those prospects that
demonstrate the greatest potential for above-average capital appreciation and
growth in earnings. Alliance's philosophy is to seek the best available
combination of relative earnings growth and attractive valuation.
Brinson. Brinson seeks the Equity Fund's investment objective by pursuing a
"value" style of investment management. Brinson's approach to investing for
the Equity Fund is to invest in the equity securities of U.S. companies
believed to be undervalued based upon internal research and proprietary
valuation systems. Investment decisions are based on fundamental research,
internally developed valuation systems and seasoned judgment. Brinson's
research focuses on several levels of analysis, first, on understanding wealth
shifts that occur within the equity market, and second, on individual company
research. At the company level, Brinson quantifies expectations of a company's
ability to generate profit and to grow business into the future.
For each stock under analysis, Brinson discounts to the present all of the
future cash flows that it believes will accrue to the Equity Fund from the
investment in order to calculate a present or intrinsic value. This value
estimate generated by Brinson's proprietary valuation model is compared to
observed market price and ranked against other stocks accordingly. The
rankings, in combination with Brinson's investment judgment, determine which
securities are included in the portfolio.
Brinson monitors and assesses the degree to which the portfolio becomes
concentrated in industry or common types of stocks, and adjusts the portfolio
to balance the price/value opportunities with their concentrations. Brinson
imposes limits on the degree of concentration, as the Equity Fund does not
intend to concentrate its investments in a particular industry.
General. The Equity Fund also may (a) invest in options on securities,
securities indices or foreign currencies, (b) invest in futures contracts and
options on futures contracts, (c) enter into forward foreign currency exchange
contracts, (d) invest up to 10% of its net assets (at the time of investment)
in debt and equity securities which are traded in developed foreign countries,
and (e) invest up to 35% in bonds and other debt securities, including lower
rated, high-yield bonds, commonly referred to as "junk bonds." The Equity Fund
does not intend to write covered call options with respect to securities with
an aggregate market value of more than 10% of its total assets at the time an
option is written. The Equity Fund will not invest more than 5% of its net
assets (at the time of investment) in lower rated (BB/Ba or lower), high-yield
bonds. The Equity Fund may retain any bond whose rating drops below investment
grade if it is in the best interest of the Fund's shareholders. Securities
rated BB/Ba by a NRSRO are considered to have speculative characteristics.
The Equity Fund may lend its portfolio securities. These loans may not
exceed 30% of the value of the Fund's total assets.
The Equity Fund will not purchase securities for trading purposes. Pending
investment in equity and debt and also for temporary defensive purposes, the
Fund may invest without limit in short-term debt and other high-quality,
fixed-income securities and cash equivalents, which may include, but are not
limited to: (i) short-term obligations of the U.S. and foreign sovereign
governments and their agencies and instrumentalities, (ii) interest bearing
savings deposits, certificates of deposit and bankers' acceptances of U.S. and
foreign banks, (iii) high-quality rated commercial paper of U.S. or foreign
issuers, and (iv) repurchase agreements related to the foregoing. The Equity
Fund may invest up to 15% of its net assets in illiquid securities.
INTERNATIONAL EQUITY FUND. The investment characteristics of the
International Equity Fund correspond to those of the International Equity
Portfolio. The International Equity Portfolio will normally invest at least
80% of its total assets in equity securities of foreign corporations,
consisting of common stocks, and other securities with equity characteristics,
including preferred stock, warrants, rights, securities convertible into
common stock ("convertible securities"), trust certificates, limited
partnership interests and equity participations. The common stock in which the
International Equity Portfolio may invest includes the common stock of any
class or series or any similar equity interest, such as trust or limited
partnership interests. These equity investments may or may not pay dividends
and may or may not carry voting rights. The principal investments of the
International Equity Portfolio will be in equity securities of companies
organized and domiciled in developed nations outside the United States or for
which the principal trading market is outside the United States, including
Europe, Canada, Australia and the Far East, although the Portfolio may invest
up to 20% of its assets in equity securities of companies in emerging markets.
See "Additional Risk Factors and Policies -- Foreign Securities -- Emerging
Markets." The International Equity Portfolio intends to have at least three
different countries represented in its portfolio. It is the current intention
of the International Equity Portfolio to invest primarily in companies with
large market capitalizations. The International Equity Portfolio seeks to
outperform the Morgan Stanley Capital International EAFE (Europe, Australasia
and Far East) Index, a capitalization-weighted index containing approximately
1,100 equity securities of companies located outside the United States. The
International Equity Portfolio invests in securities listed on foreign or
domestic securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in certain restricted or unlisted
securities.
Under exceptional conditions abroad or when, in the opinion of CGTC (the
"International Equity Sub-Adviser"), economic or market conditions warrant,
the International Equity Portfolio may temporarily invest part or all of its
assets in fixed income securities denominated in foreign currencies,
obligations of domestic or foreign governments and their political
subdivisions ("Government Securities"), and nonconvertible preferred stock, or
hold its assets in cash or equivalents. Debt securities purchased by the
International Equity Portfolio will be limited to those rated, at the time of
investment, in the four highest rating categories by a NRSRO or, if unrated,
determined by the International Equity Sub-Adviser to be of comparable
quality. Securities rated by a NRSRO in the fourth highest rating category are
considered to have some speculative characteristics. When the total return
opportunities in a foreign bond market appear attractive in local currency
terms, but, in the International Equity Sub-Adviser's judgment, unacceptable
currency risk exists, currency futures, forwards and options may be used to
hedge the currency risk. See "Additional Risk Factors and Policies: Forward
Foreign Currency Contracts and Options on Foreign Currencies."
As described under "Management of the Trust, Advisor Trust and the Portfolio
Trust -- Sub-Advisers," CGTC, the International Equity Portfolio's Sub-
Adviser, uses a system of multiple portfolio managers pursuant to which the
Portfolio is divided into segments which are assigned to individual portfolio
managers. Within investment guidelines, each portfolio manager makes
individual decisions as to company, country, industry, timing and percentage
based on extensive field research and direct company contact.
Because of the risks associated with common stocks and other equity
investments, the International Equity Portfolio is intended to be a long-term
investment vehicle and is not designed to provide investors with a means of
speculating on short-term stock market movements. The International Equity
Sub-Adviser seeks to reduce these risks by diversifying the portfolio as well
as by monitoring broad economic trends and corporate and legislative
developments.
SMALL CAP EQUITY FUND. The investment characteristics of the Small Cap
Equity Fund correspond to those of the Small Cap Equity Portfolio. The Small
Cap Equity Portfolio seeks to achieve its objective by investing, under normal
market conditions, at least 80% of its assets in equity securities (consisting
of 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) of emerging growth companies. Emerging growth
companies generally would have small (under $1 billion) market capitalizations
and would have annual gross revenues ranging from $10 million to $1 billion,
would be expected to show earnings growth over time that is well above the
growth rate of the overall economy and the rate of inflation, and would have
the products, management and market opportunities which are usually necessary
to become more widely recognized. However, the Small Cap Equity 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 Small Cap Equity Portfolio may invest up to 20% (and
generally expects to invest between 5% and 10%) of its assets in foreign
securities (excluding ADRs) (see "Additional Risk Factors and Policies --
Foreign Securities" below).
Although the Small Cap Equity 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.
In addition to the above the Small Cap Equity Portfolio may engage in
certain investment techniques as described below under the caption "Additional
Risk Factors and Policies." The Small Cap Equity 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 and Policies."
When MFSI (the "Small Cap Equity 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 Small Cap Equity
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 that the Small Cap Equity Portfolio may invest in
includes Government securities: (1) U.S. Treasury obligations, which differ
only in their interest rates, maturities and times of issuance, including:
U.S. Treasury bills (maturities of one year or less); U.S. Treasury notes
(maturities of one to ten years); and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are backed by the full
faith and credit of the U.S. Government; and (2) obligations issued or
guaranteed by U.S. Government agencies, authorities or instrumentalities, some
of which are backed by the full faith and credit of the U.S. Treasury, e.g.,
direct pass-through certificates of the Government National Mortgage
Association; 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.
ADDITIONAL RISK FACTORS AND POLICIES
DERIVATIVES
The Fixed Income Portfolio and International Equity Portfolio may invest in
various instruments that are commonly known as derivatives. Generally, a
derivative is a financial arrangement the value of which is based on, or
"derived" from, a traditional security, asset, or market index. A mutual fund,
of course, derives its value from the value of the investments it holds and so
might even be called a "derivative." Some "derivatives" such as mortgage-
related and other asset-backed securities are in many respects like any other
investment, although they may be more volatile or less liquid than more
traditional debt securities. There are, in fact, many different types of
derivatives and many different ways to use them. There are a range of risks
associated with those uses. Futures and options are commonly used for
traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
The Fixed Income and International Equity Portfolios may use derivatives for
hedging purposes, cash management purposes, as a substitute for investing
directly in fixed income instruments, and to enhance return when their Sub-
Advisers believe the investment will assist the Portfolios in achieving their
investment objectives. A description of the derivatives that the Fixed Income
and International Equity Portfolios may use and some of their associated risks
follows.
OPTIONS AND FUTURES TRANSACTIONS
The Fixed Income Portfolio, Small Cap Equity Portfolio and Equity Fund may
invest in financial futures contracts, options on futures contracts and
options on securities (collectively, "futures and options"). In addition, the
Fixed Income Portfolio, International Equity Portfolio, Small Cap Equity
Portfolio and Equity Fund may invest in foreign currency futures contracts and
options on foreign currencies and foreign currency futures. The International
Equity Portfolio may only do so for hedging purposes. The Small Cap Equity
Portfolio may also enter into contracts based on indexes of securities and
write covered call and put options and purchase call and put options on
domestic or foreign stock indices. The New York Tax-Free Bond Fund may enter
into transactions in futures contracts on any fixed income securities and
indexes of municipal securities. The New York Tax-Free Bond Fund may only do
so for hedging purposes and not for speculation. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security at a specified future time and price. An option is a legal
contract that gives the holder the right to buy or sell a specified amount of
the underlying security, currency or futures contract at a fixed or
determinable price upon the exercise of the option. A call option conveys the
right to buy and a put option conveys the right to sell a specified quantity
of the underlying instrument.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the return of the Portfolios and the Funds. While the
use of these instruments by the Portfolios and the Funds may reduce certain
risks associated with owning its portfolio securities, these techniques
themselves entail certain other risks. If the Sub-Advisers apply a strategy at
an inappropriate time or judge market conditions or trends incorrectly,
options and futures strategies may lower a Portfolio's or Fund's return.
Certain strategies limit the potential of the Portfolios or the Funds to
realize gains as well as limit its exposure to losses. The Portfolios and the
Funds could also experience losses if the prices of its options and futures
positions were poorly correlated with its other investments. There can be no
assurance that a liquid market will exist at a time when the Portfolios or
Funds seek to close out a futures contract or a futures option position. Most
futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and without a significant trading history. As a result, there
is no assurance that an active secondary market will develop or continue to
exist. Lack of a liquid market for any reason may prevent the Portfolios and
the Funds from liquidating an unfavorable position and the Portfolios or the
Funds would remain obligated to meet margin requirements until the position is
closed. In addition, the Portfolios or the Funds will incur transaction costs,
including trading commissions and options premiums, in connection with its
futures and options transactions, and these transactions could significantly
increase a Portfolio's or Fund's turnover rate.
The Fixed Income Portfolio will not enter into futures contracts or options
thereon to the extent that its outstanding obligations to purchase securities
under these contracts in combination with its outstanding obligations with
respect to options transactions would exceed 35% of its total assets. The
Fixed Income Portfolio will use financial futures contracts and related
options only for "bona fide hedging" purposes, as such term is defined in
applicable regulations of the Commodity Futures Trading Commission, or, with
respect to positions in financial futures and related options that do not
qualify as "bona fide hedging" positions, will enter such non-hedging
positions only to the extent that assets committed to initial margin deposits
on such instruments, plus premiums paid for open futures options positions,
less the amount by which any such positions are "in-the-money," do not exceed
5% of the Fixed Income Portfolio's net assets. The Portfolios and the Funds
will segregate assets or "cover" their positions consistent with requirements
under the 1940 Act. The Fixed Income Portfolio may also purchase and write put
and call options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. The
Small Cap Equity Portfolio may enter into futures contracts for hedging
purposes, in order to protect the Portfolio's current or intended investments
from the effects of changes in interest or exchange rates and for non-hedging
purposes, to the extent permitted by applicable law. However, the Small Cap
Equity Portfolio will not enter into any futures contracts 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. The Small
Cap Equity Portfolio may also purchase and write options on futures contracts
for the purpose of protecting against declines in the value of portfolio
securities or against increases in the cost of securities to be acquired, or
for non-hedging purposes. The Small Cap Equity Portfolio may write options on
domestic or foreign stock indices 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.
The Equity Fund may write covered call options (which are considered
derivatives) which are traded on a national securities exchange with respect
to securities in the portfolio in an attempt to increase its income and to
provide greater flexibility in the disposition of its portfolio securities.
The Small Cap Equity Portfolio may write covered put and call options on
securities and purchase put and call options on securities that are traded on
foreign or U.S. securities exchanges and over the counter. The Small Cap
Equity Portfolio will write options on securities for the purpose of
increasing its return and/or protecting the value of its portfolio. A "call
option" is a contract sold for a price (the "premium") giving its holder the
right to buy a specific number of shares of stock at a specific price prior to
a specified date. A "covered call option" is a call option issued on
securities already owned by the writer of the call option for delivery to the
holder upon the exercise of the option. During the period of the option, the
option writer forgoes the opportunity to profit from any increase in the
market price of the underlying security above the exercise price of the option
(to the extent that the increase exceeds the net premium). The Equity Fund
also may enter into "closing purchase transactions" in order to terminate its
obligation to deliver the underlying security (this may result in a short-term
gain or loss). A closing purchase transaction is the purchase of a call option
(at a cost which may be more or less than the premium received for writing the
original call option) on the same security, with the same exercise price and
call period as the option previously written. If the Equity Fund is unable to
enter into a closing purchase transaction, it may be required to hold a
security that it might otherwise have sold to protect against depreciation.
The Equity Fund does not intend to write covered call options with respect to
securities with an aggregate market value of more than 10% of its total assets
at the time an option is written. This percentage limitation will not be
increased without prior disclosure in the current Prospectus.
The Small Cap Equity 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.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Forward foreign currency exchange contracts ("Forward Contracts") are
intended to minimize the risk of loss to the Fixed Income, International
Equity and Small Cap Equity Portfolios and the Equity Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies.
The Fixed Income Portfolio and International Equity Portfolio may not enter
into such contracts for speculative purposes. The Fixed Income Portfolio has
no specific limitation on the percentage of assets it may commit to forward
contracts, subject to its stated investment objective and policies, except
that the Portfolio will not enter into a forward contract if the amount of
assets set aside to cover the contract would impede portfolio management. The
Small Cap Equity Portfolio may enter into such contracts for hedging purposes
or for non-hedging purposes, to the extent permitted by applicable law. By
entering into transactions in Forward Contracts, however, the Portfolios 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 Portfolios 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.
A forward contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date which is individually negotiated and
privately traded by currency traders and their customers. A forward contract
may be used, for example, when the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock in" the U.S. dollar price of the security.
The Fixed Income and International Equity Portfolios may also purchase and
write put and call options on foreign currencies for the purpose of protecting
against declines in the dollar value of foreign portfolio securities and
against increases in the U.S. dollar cost of foreign securities to be
acquired.
The Small Cap Equity 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 Small Cap Equity Sub-Adviser, a reasonable degree of
correlation can be expected between movements in the values of the two
currencies.
The Fixed Income Portfolio may also combine forward contracts with
investments in securities denominated in other currencies in order to achieve
desired credit and currency exposures. Such combinations are generally
referred to as synthetic securities. For example, in lieu of purchasing a
foreign bond, the Fixed Income Portfolio may purchase a U.S. dollar-
denominated security and at the same time enter into a forward contract to
exchange U.S. dollars for the contract's underlying currency at a future date.
By matching the amount of U.S. dollars to be exchanged with the anticipated
value of the U.S. dollar-denominated security, the Fixed Income Portfolio may
be able to lock in the foreign currency value of the security and adopt a
synthetic investment position reflecting the credit quality of the U.S.
dollar-denominated security.
There is a risk in adopting a synthetic investment position to the extent
that the value of a security denominated in U.S. dollars or other foreign
currency is not exactly matched with the Fixed Income Portfolio's obligation
under the forward contract. On the date of maturity the Fixed Income Portfolio
may be exposed to some risk of loss from fluctuations in that currency.
Although the Fixed Income Sub-Adviser will attempt to hold such mismatching to
a minimum, there can be no assurance that the Sub-Adviser will be able to do
so. When the Fixed Income Portfolio enters into a forward contract for
purposes of creating a synthetic security, it will generally be required to
hold high-grade, liquid securities or cash in a segregated account with a
daily value at least equal to its obligation under the forward contract.
FOREIGN SECURITIES
The Equity Fund, Fixed Income Portfolio, International Equity Portfolio and
Small Cap Equity Portfolio may invest in foreign securities. Investing in
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not present in domestic
investments. For example, there is generally less publicly available
information about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those
applicable to domestic issuers. Investments in foreign securities also involve
the risk of possible adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, other taxes imposed by
the foreign country on the Fund's earnings, assets, or transactions,
limitation on the removal of cash or other assets of the Portfolios, political
or financial instability, or diplomatic and other developments which could
affect such investments. Further, economies of particular countries or areas
of the world may differ favorably or unfavorably from the economy of the
United States. Changes in foreign exchange rates will affect the value of
securities denominated or quoted in currencies other than the U.S. dollar.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Furthermore,
dividends and interest payments from foreign securities may be withheld at the
source. Additional costs associated with an investment in foreign securities
may include higher custodial fees than apply to domestic custodial
arrangements, and transaction costs of foreign currency conversions.
The Small Cap Equity Portfolio may invest in securities of foreign growth
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. The Small Cap Equity
Portfolio may also invest in securities of issuers located in countries 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. Investing in emerging market countries presents greater
risk than investing in foreign issuers in general. A number of emerging
markets restrict foreign investment in stocks. Repatriation of investment
income, capital, and the proceeds of sales by foreign investors may require
governmental registration and/or approval in some emerging market countries. A
number of the currencies of developing countries have experienced significant
declines against the U.S. dollar in recent years, and devaluation may occur
subsequent to investments in these currencies by the Portfolio. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
negative effects on the economies and securities markets of certain emerging
market countries. Many of the emerging securities markets are relatively
small, have low trading volumes, suffer periods of relative illiquidity, and
are characterized by significant price volatility. There is the risk that a
future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization, or creation of government monopolies, any of which could have
a detrimental effect on the Portfolio's investments.
Investing in formerly communist East European countries involves the
additional risk that the government or other executive or legislative bodies
may decide not to continue to support the economic reform programs implemented
since the fall of communism and could follow radically different political
and/or economic policies to the detriment of investors, including non-market
oriented policies such as the support of certain industries at the expense of
other sectors or a return to a completely centrally planned economy. The
International Equity Portfolio does not currently intend to invest a
significant portion of its assets in formerly communist East European
countries.
With respect to the International Equity Portfolio, "emerging markets"
include any country which in the opinion of the International Equity Sub-
Adviser is generally considered to be an emerging or developing country by the
International Bank for Reconstruction and Development (the World Bank) and the
International Monetary Fund. Currently, these countries generally include
every country in the world except Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland,
United Kingdom and United States. The International Equity Portfolio may
invest up to 20% of its assets in the equity securities of companies based in
emerging markets.
With respect to the Small-Cap Equity Portfolio, "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.
With respect to the International Equity Portfolio, a company in an emerging
market is one that: (i) is domiciled and has its principal place of business
in an emerging market or (ii) (alone or on a consolidated basis) derives or
expects to derive at least 50% of its total revenue from either goods
produced, sales made or services performed in emerging markets.
With respect to the Small Cap Equity Portfolio, the company's principal
activities are deemed to be located in a particular country if: (a) the
company is organized under the laws of, and maintains a principal office in
that country; (b) the company has its principal securities trading market in
that country, (c) the company derives 50% or more of its total revenues from
goods sold or services performed in that country; or (d) the company has 50%
or more of its assets in that country.
Sovereign and Supranational Debt Obligations. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a high degree of risk, and may be in default
or present the risk of default. The issuer of the obligation or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to prepay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as
economic factors.
DEPOSITARY RECEIPTS
The International Equity Portfolio may invest in American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs"), and International Depositary Receipts ("IDRs"), or other
similar securities convertible into securities of foreign issuers. The Small
Cap Equity Portfolio may invest in ADRs. ADRs (sponsored or unsponsored) are
receipts typically issued by a U.S. bank or trust company evidencing the
deposit with such bank or company of a security of a foreign issuer, and are
publicly traded on exchanges or over-the-counter in the United States. In
sponsored programs, an issuer has made arrangements to have its securities
trade in the form of ADRs. In unsponsored programs, the issuer may not be
directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from
an issuer that has participated in the creation of a sponsored program.
EDRs, which are sometimes referred to as Continental Depositary Receipts,
are receipts issued in Europe typically by foreign bank and trust companies
that evidence ownership of either foreign or domestic underlying securities.
IDRs are receipts typically issued by a European bank or trust company
evidencing ownership of the underlying foreign securities. GDRs are receipts
issued by either a U.S. or non-U.S. banking institution evidencing ownership
of the underlying foreign securities.
HIGH YIELD/HIGH RISK SECURITIES
Securities rated lower than Baa by Moody's or lower than BBB by S&P are
sometimes referred to as "high yield" or "junk" bonds. In addition, securities
rated Baa (Moody's) and BBB (S&P) are considered to have some speculative
characteristics.
Investing in high yield securities involves special risks in addition to the
risks associated with investments in higher rated debt securities. High yield
securities may be regarded as predominately speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Analysis
of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities, and the ability of
the Fixed Income Portfolio to achieve its investment objective may, to the
extent of its investments in high yield securities, be more dependent upon
such creditworthiness analysis than would be the case if the Fixed Income
Portfolio were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to
interest rate changes than more highly rated investments, but more sensitive
to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates,
for example, could cause a decline in high yield security prices because the
advent of a recession could lessen the ability of a highly leveraged company
to make principal and interest payments on its debt securities. If the issuer
of high yield securities defaults, the Fixed Income Portfolio may incur
additional expenses to seek recovery. In the case of high yield securities
structured as zero coupon or payment-in-kind securities, the market prices of
such securities are affected to a greater extent by interest rate changes and,
therefore, tend to be more volatile than securities which pay interest
periodically and in cash.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations
in the daily net asset value of the Fixed Income Portfolio. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of high yield securities, especially in a
thinly traded market.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit
ratings in a timely fashion to reflect events since the security was last
rated. The Fixed Income Sub-Adviser does not rely solely on credit ratings
when selecting securities for the Fixed Income Portfolio, and develops its own
independent analysis of issuer credit quality. If a credit rating agency
changes the rating of a security held by the Fixed Income Portfolio, the
Portfolio may retain the security if the Fixed Income Sub-Adviser deems it in
the best interest of investors.
FIXED INCOME SECURITIES
To the extent a Fund or Portfolio invests in fixed income securities, the
net asset value of the Fund or 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
Small Cap Equity Portfolio has no restrictions with respect to the maturities
or duration of the fixed income securities it holds. A Fund's or Portfolio's
investments in fixed income securities with longer terms to maturity or
greater duration are subject to greater volatility than a Fund's or
Portfolio's shorter-term obligations. Fixed income securities in which the
Small Cap Equity 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.
ZERO COUPON OBLIGATIONS
The Fixed Income Portfolio may invest in zero coupon obligations, which are
fixed-income securities that do not make regular interest payments. Instead,
zero coupon obligations are sold at substantial discounts from their face
value. The Fixed Income Portfolio accrues income on these investments for tax
and accounting purposes, which is distributable to shareholders and which,
because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fixed Income
Portfolio's distribution obligations, in which case the Portfolio will forego
the purchase of additional income-producing assets with these funds. The
difference between a zero coupon obligation's issue or purchase price and its
face value represents the imputed interest an investor will earn if the
obligation is held until maturity. Zero coupon obligations may offer investors
the opportunity to earn higher yields that those available on ordinary
interest-paying obligations of similar credit quality and maturity. However,
zero coupon obligation prices may also exhibit greater price volatility than
ordinary fixed-income securities because of the manner in which their
principal and interest are returned to the investor.
CONVERTIBLE SECURITIES
Although the Equity Fund's and International Equity Portfolio's equity
investments consist primarily of common and preferred stocks, the Fund and the
Portfolio may buy securities convertible into common stock if, for example,
the Sub-Advisers believe that a company's convertible securities are
undervalued in the market. Convertible securities eligible for purchase by the
International Equity Portfolio and the Equity Fund consist of convertible
bonds, convertible preferred stocks, warrants and rights. See "Additional Risk
Factors and Policies -- Warrants" below and the Statement of Additional
Information for a discussion of these instruments.
WARRANTS
The International Equity Portfolio and the Equity Fund each may invest up to
10% of their net assets in warrants, except that this limitation does not
apply to warrants acquired in units or attached to securities. A warrant is an
instrument issued by a corporation which gives the holder the right to
subscribe to a specific amount of the corporation's capital stock at a set
price for a specified period of time. Warrants do not represent ownership of
the securities, but only the right to buy the securities. The prices of
warrants do not necessarily move parallel to the prices of underlying
securities. Warrants may be considered speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of a
corporation issuing them. With respect to the International Equity Portfolio,
warrant positions will not be used to increase the leverage of the Portfolio.
Consequently, warrant positions are generally accompanied by cash positions
equivalent to the required exercise amount.
MORTGAGE-RELATED SECURITIES
Mortgage-Backed Securities. The Fixed Income Portfolio may invest in
mortgage-backed certificates and other securities representing ownership
interests in mortgage pools, including CMOs. Interest and principal payments
on the mortgages underlying mortgage-backed securities are passed through to
the holders of the mortgage-backed securities. Mortgage-backed securities
currently offer yields higher than those available from many other types of
fixed-income securities, but because of their prepayment aspects, their price
volatility and yield characteristics will change based on changes in
prepayment rates. Generally, prepayment rates increase if interest rates fall
and decrease if interest rates rise. For many types of mortgage-backed
securities, this can result in unfavorable changes in price and yield
characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects, the Fixed
Income Portfolio's mortgage-backed securities may have less potential for
capital appreciation during periods of declining interest rates than other
fixed income securities of comparable maturities, although such obligations
may have a comparable risk of decline in market value during periods of rising
interest rates.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed
securities, especially during periods of declining interest rates. Similarly,
during periods of rising interest rates, a reduction in the rate of
prepayments may significantly lengthen the effective durations of such
securities.
Investment in mortgage-backed securities poses several risks, including
prepayment, market, and credit risk. Prepayment risk reflects the risk that
borrowers may prepay their mortgages faster than expected, thereby affecting
the investment's average life and perhaps its yield. Whether or not a mortgage
loan is prepaid is almost entirely controlled by the borrower. Borrowers are
most likely to exercise prepayment options at the time when it is least
advantageous to investors, generally prepaying mortgages as interest rates
fall, and slowing payments as interest rates rise. Besides the effect of
prevailing interest rates, the rate of prepayment and refinancing of mortgages
may also be affected by home value appreciation, ease of the refinancing
process and local economic conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly
sensitive to prevailing interest rates, the length of time the security is
expected to be outstanding, and the liquidity of the issue. In a period of
unstable interest rates, there may be decreased demand for certain types of
mortgage-backed securities, and a fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease
the price at which they may be sold.
Credit risk reflects the risk that the Fixed Income Portfolio may not
receive all or part of its principal because the issuer or credit enhancer has
defaulted on its obligations. Obligations issued by U.S. government-related
entities are guaranteed as to the payment of principal and interest, but are
not backed by the full faith and credit of the U.S. government. The
performance of private label mortgage-backed securities, issued by private
institutions, is based on the financial health of those institutions.
For further information, see the Statement of Additional Information.
Stripped Mortgage-Backed Securities. The Fixed Income Portfolio may invest
in Stripped Mortgage-Backed Securities ("SMBS") which are derivative multi-
class mortgage securities. SMBS may be issued by agencies or instrumentalities
of the U.S. Government and private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose entities of the foregoing. The
Fixed Income Portfolio's investments in SMBS will be limited to 10% of net
assets.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In some
cases, one class will receive all of the interest (the interest-only or IO
class), while the other class will receive all of the principal (the
principal-only or PO class). The cash flows and yields on IO and PO classes
can be extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets. For example, a rapid
or slow rate of principal payments may have a material adverse effect on the
yield to maturity of IOs or POs, respectively. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, an
investor may fail to recoup fully its initial investment in an IO class of a
stripped mortgage-backed security. Conversely, if the underlying mortgage
assets experience slower than anticipated prepayments of principal, the yield
on a PO class will be affected more severely than would be the case with a
traditional mortgage-backed security.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these
securities were only recently developed. As a result, established trading
markets have not yet developed and, accordingly, certain of these securities
may be deemed illiquid and subject to the Fixed Income Portfolio's limitations
on investment in illiquid securities. For further information on these
securities, see the Statement of Additional Information.
Other Asset-Backed Securities. The Fixed Income Portfolio may invest in
securities representing interests in other types of financial assets, such as
credit card receivables, automobile loan and lease receivables, aircraft lease
receivables, home equity loan receivables, manufactured housing receivables,
equipment loan and lease receivables, and student loan receivables. Such
securities are subject to many of the same risks as are mortgage-backed
securities, including prepayment risks and risks of foreclosure. They may or
may not be secured by the receivables themselves or may be unsecured
obligations of their issuers. For further information on these securities, see
the Statement of Additional Information.
EURODOLLAR AND YANKEE BANK OBLIGATIONS
The Fixed Income Portfolio may invest in Eurodollar bank obligations and
Yankee bank obligations. Eurodollar bank obligations are dollar-denominated
certificates of deposit and time deposits issued outside the U.S. capital
markets by foreign branches of U.S. banks and by foreign banks. Yankee bank
obligations are dollar-denominated obligations issued in the U.S. capital
markets by foreign banks. Eurodollar and Yankee obligations are subject to the
same risks that pertain to domestic issues, notably credit risk, market risk
and liquidity risk. Additionally, Eurodollar (and to a limited extent Yankee
bank) obligations are subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital, in the form of
dollars, from freely flowing across its borders. Other risks include: adverse
political and economic developments, the extent and quality of government
regulation of financial markets and institutions, the imposition of foreign
withholding taxes, and the expropriation or nationalization of foreign
issuers.
REPURCHASE AGREEMENTS
The Fixed Income Portfolio, New York Tax-Free Bond Fund, Equity Fund,
International Equity Portfolio and Small Cap Equity Portfolio may invest in
repurchase agreements. The Fixed Income Portfolio may invest in repurchase
agreements collateralized by U.S. Government securities, certificates of
deposit and certain bankers' acceptances. With respect to the New York Tax-
Free Bond Fund, Equity Fund and International Equity Portfolio, the Adviser is
authorized to enter into repurchase agreements on behalf of the Fund only with
member banks of the Federal Reserve System or "primary dealers" (as designated
by the Federal Reserve Bank of New York). The Equity Fund may also enter into
repurchase agreements with sellers who are member firms (or a subsidiary
thereof) of the New York Stock Exchange, recognized domestic or foreign
securities dealers or institutions which an Equity Sub-Adviser has determined
to be of comparable creditworthiness. The Small Cap Equity Portfolio may enter
into repurchase agreements in order to earn income or available cash or as a
temporary defensive measure. Repurchase agreements are transactions by which a
Portfolio or Fund purchases a security and simultaneously commits to resell
that security to the seller (a bank or securities dealer) at an agreed upon
price on an agreed upon date (usually within seven days of purchase). The
resale price reflects the purchase price plus an agreed upon market rate of
interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The Advisor or Sub-Advisers will continually monitor the
value of the underlying securities to ensure that their value, including
accrued interest, always equals or exceeds the repurchase price. Repurchase
agreements are considered to be loans collateralized by the underlying
security under the 1940 Act, and therefore will be fully collateralized.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreements defaults on its obligation to repurchase the
underlying securities at a time when the value of these securities has
declined, the Portfolios or Fund may incur a loss upon disposition of them. If
the seller of the agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a bankruptcy court may
determine that the underlying securities are collateral not within the control
of the Portfolio and therefore subject to sale by the trustee in bankruptcy.
Finally, it is possible that the Portfolios or Fund may not be able to
substantiate its interest in the underlying securities. While the managements
of the Trust and the Portfolio Trust acknowledge these risks, it is expected
that they can be controlled through stringent security selection criteria and
careful monitoring procedures. As discussed in the Statements of Additional
Information, the Fixed Income, International Equity and Small Cap Equity
Portfolios and the New York Tax-Free Bond and Equity Funds have adopted
certain procedures to minimize the risks of investing in repurchase
agreements.
ILLIQUID INVESTMENTS
The Equity Fund, Fixed Income Portfolio, International Equity Portfolio and
Small Cap Equity Portfolio may invest up to 15% of their net assets in
securities that are illiquid by virtue of the absence of a readily available
market, or because of legal or contractual restrictions on resale. This policy
does not limit the acquisition of securities eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933
or, in the case of the Fixed Income Portfolio only, commercial paper issued
pursuant to Section 4(2) under the Securities Act of 1933 that are determined
to be liquid in accordance with guidelines established by the Portfolio
Trust's Board of Trustees. There may be delays in selling these securities and
sales may be made at less favorable prices. The New York Tax-Free Bond Fund
may invest up to 10% of its net assets in securities which are restricted as
to resale, (other than fixed time deposits and repurchase agreements maturing
in not more than seven days). This policy does not apply to any security if
the holder is permitted to receive payment upon a specified number of days'
notice of the unpaid principal balance plus accrued interest or the investment
by the Trust of all or substantially all of the Fund's assets in another
registered investment company having the same investment objective and
policies and substantially the same investment restrictions as the Fund. The
International Equity Portfolio has a separate policy that no more than 10% of
its net assets may be invested in restricted securities which are restricted
as to resale, including Rule 144A and Section 4(2) securities. The Fixed
Income Portfolio has a policy that no more than 25% of its net assets may be
invested in securities which are restricted as to resale, including Rule 144A
and Section 4(2) securities.
Each Sub-Adviser may determine that a particular Rule 144A security is
liquid and thus not subject to the Fixed Income Portfolio's, International
Equity Portfolio's, Small Cap Equity Portfolio's or Equity Fund's limits on
investment in illiquid securities, pursuant to guidelines adopted by the Board
of Trustees. Factors that a Sub-Adviser must consider in determining whether a
particular Rule 144A security is liquid include the frequency of trades and
quotes for the security, the number of dealers willing to purchase or sell the
security and the number of other potential purchasers, dealer undertakings to
make a market in the security, and the nature of the security and the nature
of the market for the security (i.e., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer).
Investing in Rule 144A securities could have the effect of increasing the
level of a Portfolio's or Fund's illiquidity to the extent that qualified
institutions might become, for a time, uninterested in purchasing these
securities.
BRADY BONDS
A portion of the Fixed Income Portfolio's assets may be invested in certain
debt obligations customarily referred to as "Brady Bonds," which are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructuring under a plan introduced
by former Treasury Secretary Nicholas F. Brady (the "Brady Plan"). Brady Bonds
have been issued only recently and, accordingly, do not have a long payment
history. They may be collateralized or uncollateralized and issued in various
currencies (although most are dollar-denominated) and are actively traded in
the over-the-counter secondary market. Brady Bonds have been issued by the
governments of Argentina, Costa Rica, Mexico, Nigeria, Uruguay, Venezuela,
Brazil and the Philippines, as well as other emerging markets countries. Most
Brady Bonds are currently rated below BBB by S&P or Baa by Moody's. In light
of the risk characteristics of Brady Bonds (including uncollateralized
repayment of principal at maturity for some instruments) and, among other
factors, the history of default with respect to commercial bank loans by
public and private entities of countries issuing Brady Bonds, investments in
Brady Bonds should be viewed as speculative. For further information on these
securities, see the Statement of Additional Information.
FLOATING AND VARIABLE RATE OBLIGATIONS
Certain obligations that the Fixed Income Portfolio may purchase may have a
floating or variable rate of interest, i.e., the rate of interest varies with
changes in specified market rates or indices, such as the prime rates, and at
specified intervals. Certain floating or variable rate obligations that may be
purchased by the Portfolio may carry a demand feature that would permit the
holder to tender them back to the issuer of the underlying instrument, or to a
third party, at par value prior to maturity. The demand features of certain
floating or variable rate obligations may permit the holder to tender the
obligations to foreign banks, in which case the ability to receive payment
under the demand feature will be subject to certain risks, as described under
"Foreign Securities," above.
VARIABLE RATE INSTRUMENTS
Variable rate instruments that the Adviser may purchase on behalf of the New
York Tax-Free Bond Fund provide for a periodic adjustment in the interest rate
paid on the instrument and permit the holder to receive payment upon a
specified number of days' notice of the unpaid principal balance plus accrued
interest either from the issuer or by drawing on a bank letter of credit, a
guarantee or an insurance policy issued with respect to such instrument or by
tendering or "putting" such instrument to a third party.
Because of the variable rate nature of the instruments, during periods when
prevailing interest rates decline, the New York Tax-Free Bond Fund's yield
will decline and its shareholders will forgo the opportunity for capital
appreciation. On the other hand, during periods when prevailing interest rates
increase, the New York Tax-Free Bond Fund's yield will increase and its
shareholders will have reduced risk of capital depreciation. In certain cases,
the interest rate index on which an instrument's yield is based may not rise
and fall to the same extent or as quickly as the general market for Municipal
Obligations. These instruments are considered derivitives and the value of
such instruments may be more volatile than other floating rate Municipal
Obligations.
For additional information concerning variable rate instruments, see
"Investment Objective, Policies and Restrictions -- Variable Rate Instruments"
in the Statement of Additional Information.
INVERSE FLOATING RATE OBLIGATIONS
The Fixed Income Portfolio may invest in inverse floating rate obligations
("inverse floaters"). Inverse floaters have coupon rates that vary inversely
at a multiple of a designated floating rate, such as LIBOR (London Inter-Bank
Offered Rate). Any rise in the reference rate of an inverse floater (as a
consequence of an increase in interest rates) causes a drop in the coupon rate
while any drop in the reference rate of an inverse floater causes an increase
in the coupon rate. In addition, like most other fixed-income securities, the
value of inverse floaters will generally decrease as interest rates increase.
Inverse floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and inverse floater CMOs exhibit greater price volatility than the
majority of mortgage pass-through securities or CMOs. In addition, some
inverse floater CMOs exhibit extreme sensitivity to changes in prepayments. As
a result, the yield to maturity of an inverse floater CMO is sensitive not
only to changes in interest rates, but also to changes in prepayment rates on
the related underlying mortgage assets.
BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS
As a temporary defensive measure, the Fixed Income Portfolio may invest in
certificates of deposit, time deposits, bankers' acceptances, and other short-
term debt obligations issued by commercial banks and savings and loan
associations ("S&Ls"). Certificates of deposit are receipts from a bank or S&L
for funds deposited for a specified period of time at a specified rate of
return. Time deposits in banks or S&Ls are generally similar to certificates
of deposit but are uncertificated. Bankers' acceptances are time drafts drawn
on commercial banks by borrowers, usually in connection with international
commercial transactions. The Fixed Income Portfolio may not invest in time
deposits maturing in more than seven days. The Portfolio will limit its
investment in time deposits maturing from two business days through seven
calendar days to 15% of its total assets.
The Fixed Income Portfolio will not invest in any obligation of a commercial
bank unless (i) the bank has total assets of at least $1 billion, or the
equivalent in other currencies or, in the case of domestic banks which do not
have total assets of at least $1 billion, the aggregate investment made in any
one such bank is limited to $100,000 and the principal amount of such
investment is insured in full by the Federal Deposit Insurance Corporation
(the "FDIC"), (ii) in the case of U.S. banks, it is a member of the FDIC and
(iii) in the case of foreign branches of U.S. banks, the security is deemed by
the Fixed Income Sub-Adviser to be of an investment quality comparable with
other debt securities which may be purchased by the Fixed Income Portfolio.
The Fixed Income Portfolio may also invest in obligations of U.S. banks,
foreign branches of U.S. banks (Eurodollars) and U.S. branches of foreign
banks (Yankee dollars) as a temporary defensive measure. Euro and Yankee
dollar investments will involve some of the same risks as investing in foreign
securities, as described above and in the Statement of Additional Information.
LOANS OF PORTFOLIO SECURITIES
The International Equity and Small Cap Equity Portfolios and the Equity Fund
may lend securities to qualified brokers, dealers, banks and other financial
institutions for the purpose of realizing additional income. Loans of
securities will be collateralized by cash, letters of credit, or securities
issued or guaranteed by the U.S. Government or its agencies. The collateral
will equal at least 100% of the current market value of the loaned securities.
In addition, the International Equity and Small Cap Equity Portfolios will not
lend their portfolio securities to the extent that greater than one-third of
each Portfolios total assets, at fair market value, would be committed to
loans at that time. The Equity Fund will not lend its portfolio securities to
the extent that greater than 30% of its total assets, at fair market value,
would be committed to loans at that time.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES AND MUNICIPAL
OBLIGATIONS
The Fixed Income Portfolio and International Equity Portfolio may purchase
and sell securities on a when-issued or firm-commitment basis, in which a
security's price and yield are fixed on the date of the commitment but payment
and delivery are scheduled for a future date. On the settlement date, the
market value of the security may be higher or lower than its purchase or sale
price under the agreement. If the other party to a when-issued or firm-
commitment transaction fails to deliver or pay for the security, the Fixed
Income Portfolio and International Equity Portfolio could miss a favorable
price or yield opportunity or suffer a loss. The Portfolios will not earn
interest on securities until the settlement date. The Fixed Income Portfolio
and International Equity Portfolio will maintain in a segregated account with
the custodian cash or liquid securities equal (on a daily marked-to-market
basis) to the amount of its commitment to purchase the securities on a when-
issued basis.
New issues of Municipal Obligations may be offered on a "when-issued" or
"forward delivery" basis. The payment obligation and the interest rate that
will be received on the Municipal Obligations offered on this basis are each
fixed at the time the Trust commits to the purchase for the New York Tax-Free
Bond Fund, although settlement, i.e., delivery of and payment for the
Municipal Obligations, takes place beyond customary settlement time (but
normally within 45 days of the commitment). Between the time the Trust commits
to purchase the "when-issued" or "forward delivery" Municipal Obligation for
the New York Tax-Free Bond Fund and the time delivery and payment are made,
the "when-issued" or "forward delivery" Municipal Obligation is treated as an
asset of the Fund and the amount which the Fund is committed to pay for that
Municipal Obligation is treated as a liability of the Fund. No interest on a
"when-issued" or "forward delivery" Municipal Obligation is accrued for the
New York Tax-Free Bond Fund until delivery occurs. Although the Trust only
makes commitments to purchase "when-issued" or "forward delivery" Municipal
Obligations for the New York Tax-Free Bond Fund with the intention of actually
acquiring them, the Trust may sell these obligations before the settlement
date if deemed advisable by the Adviser. Purchasing Municipal Obligations on a
"when-issued" or "forward delivery" basis can involve a risk that the yields
available in the market on the settlement date may actually be higher (or
lower) than those obtained in the transaction itself and, as a result, the
"when-issued" or "forward delivery" Municipal Obligation may have a lesser (or
greater) value at the time of settlement than the New York Tax-Free Bond
Fund's payment obligation with respect to that Municipal Obligation.
Furthermore, if the Trust sells the "when-issued" or "forward delivery"
Municipal Obligation before the settlement date or if the Trust sells other
obligations from the New York Tax-Free Bond Fund's portfolio in order to meet
the payment obligations, the Fund may realize a capital gain, which is not
exempt from federal, New York State or New York City income taxation.
For additional information concerning "when-issued" or "forward delivery"
Municipal Obligations, see "Investment Objective, Policies and Restrictions --
"When-Issued" Municipal Obligations" in the Statement of Additional
Information.
SWAPS, CAPS, FLOORS AND COLLARS
The Fixed Income Portfolio may enter into swap contracts and other similar
instruments in accordance with its policies. A swap is an agreement to
exchange the return generated by one instrument for the return generated by
another instrument. The payment streams are calculated by reference to a
specified index and agreed upon notional amount. The term "specified index"
includes currencies, fixed interest rates, prices and total return on interest
rate indices, fixed-income indices, stock indices and commodity indices (as
well as amounts derived from arithmetic operations on these indices). For
example, the Fixed Income Portfolio may agree to swap the return generated by
a fixed-income index for the return generated by a second fixed-income index.
The currency swaps in which the Fixed Income Portfolio may enter will
generally involve an agreement to pay interest streams calculated by reference
to interest income linked to a specified index in one currency in exchange for
a specified index in another currency. Such swaps may involve initial and
final exchanges that correspond to the agreed upon notional amount.
The swaps in which the Fixed Income Portfolio may engage also include rate
caps, floors and collars under which one party pays a single or periodic fixed
amount(s) (or premium) and the other party pays periodic amounts based on the
movement of a specified index.
The Fixed Income Portfolio will usually enter into swaps on a net basis,
i.e., the two return streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
returns. The Fixed Income Portfolio's obligations under a swap agreement will
be accrued daily (offset against any amounts owing to the Portfolio) and any
accrued but unpaid net amounts owed to a swap counterparty will be covered by
the maintenance of a segregated account consisting of cash, U.S. Government
securities, or high-grade debt obligations, to avoid any potential leveraging.
The Fixed Income Portfolio will not enter into any swap agreement unless the
unsecured commercial paper, senior debt or the claims-paying ability of the
counterparty is rated AA or A-1 or better by S&P or Aa or P-1 or better by
Moody's, rated comparably by another NRSRO or determined by the Sub-Adviser to
be of comparable quality.
Interest rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Fixed Income Portfolio is contractually obligated to make. If the other party
to an interest rate swap defaults, the Fixed Income Portfolio's risk of loss
consists of the net amount of interest payments that the Portfolio is
contractually entitled to receive. In contrast, currency swaps usually involve
the delivery of the entire principal value of one designated currency in
exchange for the other designated currency. Therefore, the entire principal
value of a currency swap is subject to the risk that the other party to the
swap will default on its contractual delivery obligations. If there is a
default by the counterparty, the Fixed Income Portfolio may have contractual
remedies pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Sub-Adviser is incorrect in its forecasts of
market values, interest rates and currency exchange rates, the investment
performance of the Fixed Income Portfolio would be less favorable than it
would have been if this investment technique were not used.
RISK FACTORS AFFECTING INVESTMENTS IN NEW YORK MUNICIPAL
OBLIGATIONS
The Adviser intends to invest a high proportion of the New York Tax-Free
Bond Fund's assets in New York Municipal Obligations. Payment of interest and
preservation of principal is dependent upon the continuing ability of New York
issuers and/or obligors of state, municipal and public authority debt
obligations to meet their obligations thereunder. Investors should consider
the greater risk inherent in the New York Tax-Free Bond Fund's concentration
in such obligations versus the safety that comes with a less geographically
concentrated investment portfolio and should compare the yield available on a
portfolio of New York issues with the yield of a more diversified portfolio
including out-of-state issues before making an investment decision. The
Adviser believes that by maintaining the New York Tax-Free Bond Fund's
investment portfolio in liquid, shorter-term Municipal Obligations, the Fund
is somewhat insulated from the credit risks that may exist for long-term New
York Municipal Obligations.
New York State and other issuers of New York Municipal Obligations have
historically experienced periods of financial difficulties which have caused
the credit ratings of certain of their obligations to be downgraded by certain
rating agencies. There can be no assurance that credit ratings on obligations
of New York State and New York City and other New York Municipal Obligations
will not be downgraded further. See "Investment Objective, Policies and
Restrictions -- Special Factors Affecting New York" in the Statement of
Additional Information.
PORTFOLIO TURNOVER
The Sub-Advisers manage the Fixed Income Portfolio, Equity Fund,
International Equity Portfolio and Small Cap Equity 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 Portfolios and the Fund will not trade for short-term profits, but when
circumstances warrant, investments may be sold without regard to the length of
time held. For the year ended October 31, 1997, the portfolio turnover rate
for the Fixed Income Portfolio was 349%. It is expected that the annual
turnover rate for the Fixed Income Portfolio will not exceed 250% in
subsequent fiscal years. For the year ended October 31, 1997, the portfolio
turnover rate for the Equity Fund was 99% and it is expected that in
subsequent years that the annual turnover rate for the Fund will not exceed
100%. The portfolio turnover rate for the International Equity Portfolio was
30% for the year ended October 31, 1997 and it is expected that in subsequent
years the annual turnover rate for the Portfolio will not exceed 40%. The
portfolio turnover rate for the Small Cap Equity Portfolio for the year ended
October 31, 1997 was 92%. It is anticipated that in subsequent fiscal years
the portfolio turnover rate for the Small Cap Equity Portfolio will not exceed
100%. Because the Fixed Income Portfolio has a portfolio turnover rate of 100%
or more, transaction costs incurred by the Portfolio and the realized capital
gains and losses of the Portfolio may be greater than those of a fund with a
lesser portfolio turnover rate. See "Portfolio Transactions" and "Tax Matters"
below.
The Adviser fully manages the New York Tax-Free Bond Fund's portfolio by
buying and selling securities, as well as by holding selected securities to
maturity. In managing the New York Tax-Free Bond Fund's portfolio, the Trust
seeks to take advantage of market developments, yield disparities and
variations in the creditworthiness of issuers. For a description of the
strategies which are used in managing the New York Tax-Free Bond Fund's
portfolio, which include adjusting the average maturity of the New York Tax-
Free Bond Fund's portfolio in anticipation of a change in interest rates, see
"Investment Objective, Policies and Restrictions -- Portfolio Management" in
the Statement of Additional Information.
For the year ended October 31, 1997, the portfolio turnover rate for the New
York Tax-Free Bond Fund was 163%. The Adviser anticipates that in subsequent
years the annual turnover rate of the New York Tax-Free Bond Fund's assets
generally will not exceed 300%. The Trust engages in portfolio trading for the
New York Tax-Free Bond Fund if it believes a transaction net of costs
(including custodian charges) will help achieve the investment objective of
the Fund. Expenses to the New York Tax-Free Bond Fund, including brokerage
commissions, and the realization of capital gains which are taxable to the
Fund's shareholders tend to increase as the portfolio turnover increases.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. For a further discussion of portfolio transactions, see "Investment
Objective, Policies and Restrictions -- Portfolio Transactions" in the
Statements of Additional Information.
The Trust may, in the future, seek to achieve the investment objectives of
the New York Tax-Free Bond Fund or Equity Fund by investing all of its assets
in a no-load, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Funds. In such event, the Funds'
Investment Advisory Contracts or Investment Management Contracts would be
terminated and the administrative services fees paid by the Funds would be
reduced. Such investment would be made only if the Trustees of the Trust
believe that the aggregate per share expenses of the Funds and such other
investment companies will be less than or approximately equal to the expenses
which the Funds would incur if the Trust were to continue to retain the
services of investment advisers for the Funds and the assets of the Funds were
to continue to be invested directly in portfolio securities.
The investment policies of the Funds and the Portfolios are described above.
Except as otherwise stated, these investment policies may be changed by the
Board of Trustees of either the Trust or Advisor Trust without approval by the
shareholders of the Funds. The Statement of Additional Information includes a
further discussion of investment policies, including the investment of the New
York Tax-Free Bond Fund's assets in participation interests and the use of
futures contracts to protect the Fund to some extent from fluctuations in
interest rates, and a listing of the specific investment restrictions which
govern the investment policies of the Fund, including a restriction that not
more than 10% of the Fund's net assets may be invested in securities that are
not readily marketable, such as repurchase agreements maturing in more than
seven days. Although the Trust currently does not borrow money on behalf of
the New York Tax-Free Bond Fund for the purpose of leveraging, these
restrictions permit the Trust to borrow money on behalf of the Fund for
certain other purposes in amounts up to 33 1/3% of the Fund's net assets
(although no securities will be purchased for the Fund at any time at which
borrowings exceed 5% of the Fund's total assets taken at market value). These
specific investment restrictions and the fundamental policy described above
may not be changed without the approval of New York Tax-Free Bond Fund
shareholders. If a percentage restriction (other than a restriction as to
borrowing) or a rating restriction on investment or utilization of assets is
adhered to at the time an investment is made, or assets are so utilized, a
later change in percentage resulting from changes in the value of the New York
Tax-Free Bond Fund's portfolio securities or a later change in the rating of a
portfolio security are not considered a violation of policy.
INVESTMENT RESTRICTIONS
Each of the Funds and the Portfolios has adopted certain investment
restrictions designed to reduce exposure to specific situations (except that
none of these investment restrictions shall prevent the Funds from investing
all of their Assets in a registered investment company with substantially the
same investment objective). These investment restrictions are set forth in the
Statement of Additional Information.
Certain limitations described in the Statements of Additional Information
are fundamental and may be changed only with the approval of the holders of a
"majority of the outstanding voting securities" (as defined in the 1940 Act)
of the respective Portfolio or Fund, as the case may be. The other investment
restrictions described in the Statements of Additional Information are not
fundamental policies meaning that the Board of Trustees of the Portfolio Trust
may change them without investor approval. If a percentage limitation on
investment or utilization of assets as set forth in the Statements of
Additional Information is adhered to at the time an investment is made, a
later change in percentage resulting from changes in the value or total cost
of a Fund's or Portfolio's assets will not be considered a violation of the
restriction, and the sale of securities will not be required.
SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE
The Advisor Trust, which is an open-end investment company, seeks to achieve
the investment objectives of the Fixed Income Fund, International Equity Fund
and Small Cap Equity Fund by investing all of each Fund's investible assets in
the Fixed Income Portfolio, International Equity Portfolio, and the Small Cap
Equity Portfolio, respectively, series of a separate open-end investment
company with the same investment objectives as each respective Fund. Other
mutual funds or institutional investors may invest in the Portfolios on the
same terms and conditions as the Funds. 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 Portfolios is available by calling the Sponsor at (614)
470-8000. The two-tier investment fund structure has been developed relatively
recently, so shareholders should carefully consider this investment approach.
The investment objectives of the Advisor Funds may be changed without the
approval of the shareholders of the Advisor Funds and the investment
objectives of the Portfolios may be changed without the approval of the
investors in the Portfolios. Shareholders of the Advisor Funds shall receive
30 days prior written notice of any change in the investment objective of an
Advisor Fund or a Portfolio. For a description of the investment objectives,
policies and restrictions of the Portfolios, see "Investment Objectives and
Policies" above.
Except as permitted by the Securities and Exchange Commission, whenever the
Advisor Trust is requested to vote on a matter pertaining to a Portfolio, the
Advisor Trust will hold a meeting of the shareholders of the corresponding
Advisor Fund and, at the meeting of investors in the Portfolio, the Advisor
Trust will cast all of its votes in the same proportion as the votes of the
Advisor Fund's shareholders even if all Advisor Fund shareholders did not
vote. Even if the Advisor 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 Advisor Trust may withdraw an Advisor Fund's investment in its
corresponding 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 Advisor
Fund to do so. Upon any such withdrawal, the Board of Trustees of the Advisor
Trust would consider what action might be taken, including the investment of
all of the assets of the Advisor Fund in another pooled investment entity or
the retaining of an investment adviser to manage the Advisor Fund's assets in
accordance with the investment policies described above with respect to the
corresponding Portfolio. In the event the Trustees of the Advisor 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 a Portfolio, a
small remaining fund may experience higher pro rata operating expenses,
thereby producing lower returns. Additionally, a Portfolio may become less
diverse, resulting in increased portfolio risk.
For descriptions of the management and expenses of the Portfolios, see
"Management of the Trust, Advisor Trust and the Portfolio Trust" below and in
the Statements of Additional Information.
MANAGEMENT OF THE TRUST,
THE ADVISOR TRUST AND
THE PORTFOLIO TRUST
The business and affairs of the Trust, the Advisor Trust and the Portfolio
Trust are managed under the direction of their respective Boards of Trustees.
The Trustees of each of the Trust, the Advisor 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, the Advisor Trust and the Portfolio Trust, may be found in the
Statements 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, the Advisor
Trust and the Portfolio Trust. Under the conflicts of interest procedures, the
Trustees will review on a quarterly basis any potential conflicts of interests
after consulting with Fund counsel, the Manager and the Fund Administrator. If
a potential conflict of interest arises, the Board of Trustees of the entity
that may be adversely affected will take such action as is reasonably
appropriate to resolve the conflict, up to and including establishing a new
Board of Trustees for such entity. See "Management of the Trust and the
Portfolio Trust" in the Statements of Additional Information for more
information about the Trustees and the executive officers of the Trust, the
Advisor Trust and the Portfolio Trust.
INVESTMENT MANAGER/ADVISER
Republic, whose address is 452 Fifth Avenue, New York, New York 10018,
serves as investment manager to the Portfolios pursuant to Investment
Management Contracts 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-Advisers. For its services under the Investment Management Contracts, the
Manager is entitled to receive from the Portfolio Trust fees, payable monthly,
at the annual rate of 0.20% of the Fixed Income Portfolio's average daily net
assets and at the annual rate of 0.25% of each of the International Equity
Portfolio's and Small Cap Equity Portfolio's average daily net assets.
Republic also serves as investment adviser to the New York Tax-Free Bond
Fund. The Adviser manages the investment and reinvestment of the assets of the
New York Tax-Free Bond Fund and continuously reviews, supervises and
administers the Fund's investments pursuant to an Investment Advisory
Contract. Subject to such policies as the Board of Trustees of the Trust may
determine, the Adviser places orders for the purchase and sale of the New York
Tax-Free Bond Fund's investments directly with brokers or dealers selected by
it in its discretion. The Adviser does not place orders with the Distributor.
Peter J. Loftus, Senior Portfolio Manager, is the individual who is primarily
responsible for the day-to-day management of the New York Tax-Free Bond Fund's
portfolio. Prior to joining Republic in 1997, Mr. Loftus was a Senior Vice
President at Dillon, Read & Co. for five years where he managed tax-exempt
trading and hedging for the firm. He also spent seven years at Paine Webber as
a Vice President involved in the trading and distribution of tax-exempt
securities. For its services under the Investment Advisory Contract, the
Adviser receives from the New York Tax-Free Bond Fund a fee, payable monthly,
at the annual rate of 0.25% of the Fund's average daily net assets. Republic
is currently waiving this fee.
Republic also serves as investment manager to the Equity Fund pursuant to an
Investment Management Contract with the Trust. For its services to the Equity
Fund, the Manager is paid a fee by the Equity Fund, computed daily and based
on the Fund's average daily net assets, equal on an annual basis to 0.175% of
the Fund's average daily net assets.
Republic is a wholly owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of June 30, 1997, Republic was the 16th
largest commercial bank in the United States measured by deposits. Republic or
an affiliate of Republic serves as investment adviser to the other series of
the Trust. Republic currently provides investment advisory services for
individuals, trusts, estates and institutions.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the Funds
or Portfolios, including outstanding loans to such issuers which may be repaid
in whole or in part with the proceeds of obligations so purchased. With
respect to the New York Tax-Free Bond Fund, Republic and its affiliates deal,
trade and invest for their own accounts in Municipal Obligations and are
dealers of various types of Municipal Obligations. Republic and its affiliates
may sell Municipal Obligations to, and purchase them from, other investment
companies sponsored by BISYS. The Adviser will not invest any New York Tax-
Free Bond Fund assets in any Municipal Obligation purchased from itself or any
affiliate, although under certain circumstances such obligations may be
purchased from other members of an underwriting syndicate in which Republic or
an affiliate is a non-principal member. This restriction should not limit the
amount or type of Municipal Obligations available to be purchased for the
Fund.
Republic has informed the Trust that, in making its investment decisions, it
does not obtain or use material inside information in the possession of any
division or department of Republic or in the possession of any affiliate of
Republic.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Funds and Portfolios will not
violate the Glass-Steagall Act or other applicable banking laws or
regulations. However, future statutory or regulatory changes, as well as
future judicial or administrative decisions and interpretations of present and
future statutes and regulations, could prevent Republic from continuing to
perform such services for the Funds and Portfolios. If Republic were
prohibited from acting as investment manager to the Funds and Portfolios, it
is expected that the Board of Trustees of the Trust and the Advisor Trust
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-ADVISERS
Fixed Income Fund. MAS continuously manages the investment portfolio of the
Fixed Income Portfolio pursuant to a Sub-Advisory Agreement with the Manager.
For its services, the Fixed Income 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 0.375% of net assets up to $50 million, 0.25% of net assets
over $50 million up to $95 million, $300,000 on net assets over $95 million up
to $150 million, 0.20% of net assets over $150 million up to $250 million, and
0.15% of net assets over $250 million. It is the responsibility of the Fixed
Income Sub-Adviser not only to make investment decisions for the Fixed Income
Portfolio, but also to place purchase and sale orders for the portfolio
transactions of the Portfolio. See "Portfolio Transactions."
MAS, whose address is One Tower Bridge, West Conshohocken, Pennsylvania
19428, is a Pennsylvania limited partnership founded in 1969. MAS provides
investment services to employee benefit plans, endowment funds, foundations
and other institutional investors. As of September 30, 1997, MAS had in excess
of $55.7 billion in assets under management.
On January 3, 1996, Morgan Stanley Group Inc. acquired MAS in a transaction
in which Morgan Stanley Asset Management Holdings Inc., an indirect wholly
owned subsidiary of Morgan Stanley Group Inc., became the sole general partner
of MAS. Morgan Stanley Asset Management Holdings Inc. and two other wholly
owned subsidiaries of Morgan Stanley Group Inc. became the limited partners of
MAS. Morgan Stanley Group Inc. and various of its directly or indirectly owned
subsidiaries are engaged in a wide range of financial services.
Kenneth B. Dunn, whose business experience for the past five years is
provided below, is the individual portfolio manager responsible for management
of the Fixed Income Portfolio.
Partner, MAS, since prior to 1991. Portfolio Manager, MAS
Fixed Income and MAS Domestic Fixed Income Portfolios, since
1987; MAS Fixed Income II Portfolio, since 1990; MAS Mortgage-
Backed Securities and Special Purpose Fixed Income Portfolios,
since 1992; and, MAS Municipal and PA Municipal Portfolios,
since 1994.
Equity Fund. Alliance and Brinson each continuously manages a portion of the
investment portfolio of the Equity Fund, subject to the supervision and
direction of the Manager, pursuant to a Sub-Advisory Agreement with the
Manager. The Manager determines the allocation of the Equity Fund's assets
between Alliance and Brinson. For their services, Alliance and Brinson are
each paid a fee by the Equity Fund, computed daily and based on the Fund's
average daily net assets allocated to such Equity Sub-Adviser for management,
equal on an annual basis to 0.325% of net assets up to $50 million, 0.25% of
net assets over $50 million up to $100 million, 0.20% of net assets over $100
million up to $200 million, and 0.15% of net assets over $200 million. It is
the responsibility of each Equity Sub-Adviser not only to make investment
decisions for the Equity Fund, but also to place purchase and sale orders for
the Portfolio transactions of the Fund.
Alliance, a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, is a leading international
investment manager supervising client accounts with assets as of September 30,
1997 totalling approximately $217 billion. Alliance has six offices in the
United States, and subsidiaries of Alliance operate out of offices in Bahrain,
Istanbul, London, Luxembourg, Mumbai (Bombay), Paris, Singapore, Sao Paulo,
Sydney, Tokyo and Toronto. Alliance and its subsidiaries employ over 1,300
persons worldwide.
Alliance's clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies, foundations and
endowment funds. The 54 registered investment companies managed by Alliance
comprising 116 separate investment portfolios currently have over two million
shareholders. There are 20 other non-U.S. investment companies comprising 20
separate investment portfolios also managed by Alliance. As of September 30,
1997, Alliance was retained as an investment manager of employee benefit fund
assets for 29 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC") is the general partner of
Alliance and conducts no other active business. Units representing assignment
of beneficial ownership of limited partnership interests of Alliance are
publicly traded on the New York Stock Exchange. As of September 30, 1997, The
Equitable Life Assurance Society of the United States ("Equitable"), ACMC,
Inc. and Equitable Capital Management Corporation ("ECMC") were the beneficial
owners of approximately 57% of the outstanding units of Alliance. ACMC, ECMC,
and ACMC, Inc. are wholly owned subsidiaries of Equitable. Equitable, a New
York life insurance company, is a wholly owned subsidiary of The Equitable
Companies Incorporated, a Delaware corporation ("ECI"), whose shares are
publicly traded on the New York Stock Exchange. As of March 1, 1997, AXA, a
French insurance holding company, owned 59% of the issued and outstanding
shares of the common stock of ECI.
John L. Blundin, an Executive Vice President and Portfolio Manager, and
Christopher Toub, a Senior Vice President and Equity Portfolio Manager, have
primary portfolio management responsibility for the Equity Fund's assets
allocated to Alliance. Mr. Blundin has 33 years of investment experience,
including 25 years of experience as a portfolio manager at Alliance. Mr. Toub
has 17 years of investment experience, including six years of experience as a
portfolio manager at Alliance. Prior to joining Alliance in 1992, Mr. Toub was
a Portfolio Manager at Marcus, Schloss & Co.
Brinson, a Delaware corporation, is an investment management firm managing,
as of June 30, 1996, approximately $58 billion, primarily for pension and
profit sharing institutional accounts. Brinson was organized in 1989 when it
acquired the institutional asset management business of The First National
Bank of Chicago and First Chicago Investment Advisors, N.A. Brinson and its
predecessor entities have managed domestic and international investment assets
since 1974 and global investment assets since 1982. Brinson has offices in
Basel, London, Melbourne, New York, Paris, Singapore, Sydney and Tokyo, in
addition to its principal office at 209 South LaSalle Street, Chicago, IL
60604-1295. Brinson is an indirect wholly owned subsidiary of Swiss Bank
Corporation ("Swiss Bank"). Swiss Bank, with headquarters in Basel,
Switzerland, is an internationally diversified organization with operations in
many aspects of the financial services industry. On December 8, 1997, Swiss
Bank announced its intention to merge with Union Bank of Switzerland. Subject
to shareholder approval, the merger is scheduled to occur during the second
quarter of 1998. Brinson also serves as the investment advisor to seven other
investment companies.
Jeffrey J. Diermeier, Managing Partner-U.S. Equities at Brinson, has primary
portfolio management responsibility for the Fund's assets allocated to
Brinson. Mr. Diermeier has 22 years of investment experience at Brinson.
International Equity Fund. CGTC continuously manages the investment
portfolio of the International Equity Portfolio pursuant to a Sub-Advisory
Agreement with the Manager. For its services, the International Equity Sub-
Adviser is paid a fee by the International Equity Portfolio, computed daily
and based on the Portfolio's average daily net assets, equal on an annual
basis to 0.70% of net assets up to $25 million, 0.55% of net assets over $25
million up to $50 million, 0.425% of net assets over $50 million up to $250
million, and 0.375% of net assets over $250 million. It is the responsibility
of the International Equity Sub-Adviser not only to make investment decisions
for the International Equity Portfolio, but also to place purchase and sale
orders for the portfolio transactions of the Portfolio. See "Portfolio
Transactions."
CGTC, which was founded in 1968, is a wholly owned subsidiary of The Capital
Group Companies, Inc., both of which are located at 333 South Hope Street, Los
Angeles, California 90071. As of September 30, 1997, CGTC managed in excess of
$56 billion of assets primarily for large institutional clients. CGTC's
research activities are conducted by affiliated companies with offices in Los
Angeles, San Francisco, New York, Washington, D.C., Atlanta, London, Geneva,
Singapore, Hong Kong and Tokyo.
Capital Research and Management Company ("CRMC"), another wholly owned
subsidiary of The Capital Group Companies, Inc., provides investment advisory
services to the following mutual funds, which are know collectively as the
American Funds Group: AMCAP Fund, American Balanced Fund, American High Income
Municipal Bond Fund, American High Income Trust, American Mutual Fund, The
Bond Fund of America, The Cash Management Trust of America, Capital Income
Builder, Inc., Capital World Bond Fund, EuroPacific Growth Fund, Fundamental
Investors, The Growth Fund of America, Income Fund of America, Intermediate
Bond Fund of America, The Investment Company of America, Limited Term Tax-
Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund,
Smallcap World Fund, The Tax-Exempt Bond Fund of America, The American Funds
Tax-Exempt Series I, The American Funds Tax-Exempt Series II, The Tax-Exempt
Money Fund of America, The American Funds Income Series, The U.S. Treasury
Money Fund of America, Washington Mutual Investors Fund, and Capital World
Growth and Income Fund. CRMC also provides investment advisory services to:
American Variable Insurance Series and Anchor Pathway Fund, which are used
exclusively as underlying investment vehicles for variable insurance contracts
and policies, and to Endowments, Inc. and Bond Portfolio for Endowments, Inc.,
whose shares may be owned only by tax-exempt organizations. Capital
International, Inc., an indirect wholly owned subsidiary of The Capital Group
Companies, Inc., provides investment advisory services to Emerging Markets
Growth Fund, Inc., which is a closed-end investment company.
The following persons are primarily responsible for portfolio management of
the International Equity Portfolio: David Fisher, Vice Chairman of CGTC, has
had 32 years experience as an investment professional (28 years with CGTC or
its affiliates); Harmut Giesecke, Senior Vice President and Director of
Capital International, Inc., has had 26 years experience as an investment
professional (25 years with CGTC or its affiliates); Nancy Kyle, Senior Vice
President of CGTC, has had 24 years experience as an investment professional
(7 years with CGTC or its affiliates; from 1980 to 1990, Ms. Kyle was managing
director of J. P. Morgan Investment Management, Inc.); John McIlwraith, Senior
Vice President of CGTC, has had 28 years experience as an investment
professional (13 years with CGTC or its affiliates); Robert Ronus, President
of CGTC, has had 29 years experience as an investment professional (25 years
with CGTC or its affiliates); and Nilly Sikorsky, Director of The Capital
Group Companies, Inc., has had 35 years experience as an investment
professional, all of which was with CGTC or its affiliates.
Small Cap Equity Fund. MFSI continuously manages the investment portfolio
of the Small Cap Equity Portfolio pursuant to a Sub-Advisory Agreement with
the Manager. For its services, the Small Cap Equity Sub-Adviser is paid a fee
by the Small Cap Equity 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 Small Cap Equity Sub-Adviser not only to make investment
decisions for the Small Cap Equity Portfolio, but also to place purchase and
sale orders for the portfolio transactions of the Portfolio. See "Portfolio
Transactions."
The Small Cap Equity 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 $69.4 billion on behalf of
approximately 2.7 million investor accounts as of November 30, 1997. As of
such date, the MFS organization managed approximately $44.2 billion of assets
invested in equity securities, approximately $20.1 billion of assets invested
in fixed income securities, and $4.1 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 is a wholly
owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc., 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.
The portfolio managers of the Small Cap Equity Portfolio are John W. Ballen
and Brian Stack, Senior Vice President and Vice President respectively, of the
Small Cap Equity Sub-Adviser. Mr. Ballen has been employed as a portfolio
manager by the Small Cap Equity Sub-Adviser or MFS since prior to 1991. Mr.
Stack has been employed as a portfolio manager or analyst by the Small Cap
Equity 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 Institutional Trust, MFS/Sun Life Series Trust, 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 Small Cap Equity Sub-Adviser also provide
investment advice to substantial private clients.
DISTRIBUTOR AND SPONSOR
BISYS, whose address is 3435 Stelzer Road, Suite 1000, Columbus, Ohio 43219,
acts as sponsor and principal underwriter and distributor of Shares of the
Funds pursuant to a Distribution Contract with the Trust and the Advisor
Trust. The Distributor may, out of its own resources, make payments to broker-
dealers for their services in distributing Shares.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan with respect to Shares
of the New York Tax-Free Bond and Equity Funds which provides that the Trust
may obtain the services of an administrator, transfer agent, custodian and one
or more Shareholder Servicing Agents, and may enter into agreements providing
for the payment of fees for such services.
FUND ADMINISTRATOR AND PORTFOLIO ADMINISTRATOR
Pursuant to an Administration Agreement, BISYS provides the Funds with
general office facilities and supervises the overall administration of the
Funds and the Portfolios including, among other responsibilities, assisting in
the preparation and filing of all documents required for compliance by the
Funds and the Portfolios with applicable laws and regulations and arranging
for the maintenance of books and records of the Funds and the Portfolios. For
its services to the New York Tax-Free Bond Fund and Equity Fund, BISYS
receives from each Fund fees payable monthly equal on an annual basis (for the
Fund's then-current fiscal year) to 0.10% of the Fund's average daily net
assets up to $1 billion; 0.08% of the next $1 billion of such assets; and
0.07% of such assets in excess of $2 billion. For its services to the Fixed
Income Fund, International Equity Fund and Small Cap Equity Fund, BISYS
receives from each Fund fees payable monthly equal on an annual basis (for the
Fund's then-current fiscal year) to 0.05% of the Fund's average daily net
assets up to $1 billion; 0.04% of the next $1 billion of such assets; and
0.035% of such assets in excess of $2 billion. For providing similar services
to the Portfolios, BISYS (Ireland) receives from each Portfolio fees payable
monthly equal on an annual basis (for the Portfolio's then-current fiscal
year) to 0.05% of the first $1 billion of a Portfolio's average daily net
assets; 0.04% of the next $1 billion of such assets; and 0.035% of such assets
in excess of $2 billion.
BISYS provides persons satisfactory to the respective Boards of Trustees to
serve as officers of the Trust, the Advisor Trust and the Portfolio Trust.
Such officers, as well as certain other employees of the Trust, of the Advisor
Trust and of the Portfolio Trust, may be directors, officers or employees of
BISYS or its affiliates.
TRANSFER AGENT
The Trust and the Advisor Trust has each 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 Shares of the Funds, and
the Portfolios Trust has entered into a Transfer Agency Agreement with
Investors Fund Services (Ireland) Limited (also, a "Transfer Agent"). The
Transfer Agent maintains an account for each shareholder of the Funds and
investor in the Portfolios, performs other transfer agency functions, and acts
as dividend disbursing agent for the Funds.
CUSTODIAN
Pursuant to respective Custodian Agreements, IBT also acts as the custodian
(the "Custodian") of the foreign assets of the Funds and the Portfolios and
Republic acts as custodian of the domestic assets of the Funds and the
Portfolios (the "Custodians"). The Portfolio Trust's Custodian Agreements
provide that the Custodians may use the services of sub-custodians with
respect to the Portfolios. The Custodians' responsibilities include
safeguarding and controlling each Fund's cash and each Portfolio's cash and
securities, and handling the receipt and delivery of securities, determining
income and collecting interest on each 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 each Portfolio.
Securities held for the Portfolios may be deposited into the Federal Reserve-
Treasury Department Book Entry System or the Depositary Trust Company. The
Custodians do not determine the investment policies of the Funds or the
Portfolios or decide which securities will be purchased or sold for the
Portfolios. For their services, IBT and Republic each 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, including Republic,
pursuant to which a Shareholder Servicing Agent, as agent for its customers,
among other things: answers customer inquiries regarding account status and
history, the manner in which purchases and redemptions of Shares may be
effected and certain other matters pertaining to the Funds; assists
shareholders in designating and changing dividend options, account
designations and addresses; provides necessary personnel and facilities to
establish and maintain shareholder accounts and records; assists in processing
purchase and redemption transactions; arranges for the wiring of funds;
transmits and receives funds in connection with customer orders to purchase or
redeem Shares; verifies and guarantees shareholder signatures in connection
with redemption orders and transfers and changes in shareholder-designated
accounts; furnishes (either separately or on an integrated basis with other
reports sent to a shareholder by a Shareholder Servicing Agent) monthly and
year-end statements and confirmations of purchases and redemptions; transmits,
on behalf of the Trust and the Advisor Trust proxy statements, annual reports,
updated prospectuses and other communications from the Trust and the Advisor
Trust to the shareholders of the Funds; receives, tabulates and transmits to
the Trust and the Advisor Trust proxies executed by shareholders with respect
to meetings of shareholders of the Funds the Trust or the Advisor Trust; and
provides such other related services as the Trust and the Advisor Trust or a
shareholder may request. Although the Funds do not currently compensate
Shareholder Servicing Agents for performing these services with respect to the
Shares, each Fund is authorized to pay a shareholder servicing fee up to
0.25%, on an annual basis, of the Fund's average daily net assets.
The Trust and the Advisor Trust understand 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 or the Advisor 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 Funds. The Trust and the Advisor Trust engage
banks as Shareholder Servicing Agents on behalf of the Funds only to perform
administrative and shareholder servicing functions as described above. The
Trust and the Advisor Trust believe that the Glass-Steagall Act should not
preclude a bank from acting as a Shareholder Servicing Agent. There is
presently no controlling precedent regarding the performance of shareholder
servicing activities by banks. Future changes in either federal statutes or
regulations relating to the permissible activities of banks, as well as future
judicial or administrative decisions and interpretations of present and future
statutes and regulations, could prevent a bank from continuing to perform all
or part of its servicing activities. If a bank were prohibited from so acting,
its shareholder customers would be permitted to remain Fund shareholders, and
alternative means for continuing the servicing of such shareholders would be
sought. In such event, changes in the operation of the Funds might occur and a
shareholder serviced by such bank might no longer be able to avail himself of
any automatic investment or other services then being provided by such bank.
The Trustees of the Trust and the Advisor Trust do not expect that
shareholders of the Funds would suffer any adverse financial consequences as a
result of these occurrences.
OTHER EXPENSES
The Funds bear all costs of their operations other than expenses
specifically assumed by the Distributor, Manager, Adviser or the Sub-Advisers.
See "Management of the Trust and the Portfolio Trust -- Expenses and Expense
Limits" in the Statements of Additional Information. Expenses attributable to
the Shares shall be allocated to the Shares only. In event a particular
expense is not reasonably allocable by class or to a particular class, it
shall be treated as a Fund expense or a Trust or Advisor Trust expense. Trust
expenses directly attributable to a Fund are charged to that Fund; other
expenses are allocated proportionately among all the portfolios in the Trust
or the Advisor Trust in relation to the net assets of each portfolio.
PORTFOLIO TRANSACTIONS
To the extent consistent with applicable legal requirements, the Sub-
Advisers may place orders for the purchase and sale of portfolio investments
for the Portfolios with Republic New York Securities Corporation, subject to
obtaining best price and execution for a particular transaction. See the
Statements of Additional Information.
CLASSES OF SHARES
In addition to the Adviser Shares of the New York Tax-Free Bond Fund and the
Equity Fund, the Trust currently offers two other classes of shares of these
Funds, the Class B shares and the Class A shares (formerly Class C shares; the
"Investor Shares"), pursuant to a separate prospectus. Class B Shares and
Investor Shares may have different class expenses, which may affect
performance. Investors may obtain information concerning other classes of
shares of the New York Tax-Free Bond Fund and Equity Fund directly from their
Shareholder Servicing Agent, or by calling 1-800-782-8183.
DETERMINATION OF NET ASSET VALUE
The net asset value of a particular share in a Fund 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 each Fund's net assets
(i.e., the value of its investment in its corresponding Portfolio, if
applicable, and other assets less its liabilities, including expenses payable
or accrued) by the number of Shares outstanding at the time the determination
is made.
The value of each Fund's investment in its corresponding Portfolio, if
applicable, 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 a Fund's investment in its corresponding
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 in a Fund's portfolio or held by a 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
Transfer Agent. Purchases are therefore effected on the same day the purchase
order is received by the Transfer Agent provided such order is received prior
to 4:00 p.m., New York time, on any Fund Business Day. The Trust and the
Advisor Trust intend the Funds to be as fully invested at all times as is
reasonably practicable in order to enhance the yield on their assets. Each
Shareholder Servicing Agent is responsible for and required to promptly
forward orders for shares to the Transfer Agent.
All purchase payments are invested in full and fractional Shares. The Trust
and the Advisor Trust each reserve 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 through the Distributor directly or by
authorizing his Shareholder Servicing Agent to purchase such Shares on his
behalf through the Transfer Agent.
Exchange Privilege. By contacting the Transfer Agent or 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 (or series
thereof) 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 Fixed Income Fund, Republic New York Tax-Free
Bond Fund (Adviser Class), Republic Equity Fund (Adviser Class), Republic
International Equity Fund, Republic Small Cap Equity Fund and such other
Republic Funds or other registered investment companies (or series thereof)
for which Republic serves as investment adviser as Republic may determine. An
exchange may result in a change in the number of Shares held, but not in the
value of such Shares immediately after the exchange. Each exchange involves
the redemption of the Shares to be exchanged and the purchase of the shares of
the other Republic Fund which may produce a gain or loss for tax purposes.
The exchange privilege (or any aspect of it) may be changed or discontinued
upon 60 days' written notice to shareholders and is available only to
shareholders in states in which such exchanges legally may be made. A
shareholder considering an exchange should obtain and read the prospectus of
the other Republic Fund and consider the differences in investment objectives
and policies before making any exchange.
Shares are being offered only to customers of Shareholder Servicing Agents.
Shareholder Servicing Agents and securities brokers 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 or the Advisor Trust to do so) credit to the accounts of
their customers from whom they are already receiving other fees amounts not
exceeding such other fees or the fees received by the Shareholder Servicing
Agent from each Fund, which will have the effect of increasing the net return
on the investment of such customers of those Shareholder Servicing Agents.
Shareholder Servicing Agents may transmit purchase payments on behalf of
their customers by wire directly to a Fund's custodian bank by following the
procedures described above.
For further information on how to direct a Shareholder Servicing Agent to
purchase Shares, an investor should contact his Shareholder Servicing Agent
(see back cover for address and phone number).
RETIREMENT PLANS
Shares of the Funds, with the exception of the New York Tax-Free Bond Fund,
are offered in connection with tax-deferred retirement plans. Application
forms and further information about these plans, including applicable fees,
are available from the Trust, the Advisor Trust or the Sponsor upon request.
The tax law governing tax-deferred retirement plans is complex and changes
frequently. Before investing in the Funds through one or more of these plans,
an investor should consult his or her tax adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the Funds, with the exception of the New York Tax-Free Bond Fund,
may be used as a funding medium for an IRA. An Internal Revenue Service-
approved IRA plan may be available from an investor's Shareholder Servicing
Agent. In any event, such a plan is available from the Sponsor naming IBT, as
custodian. The minimum initial investment for an IRA is $250; the minimum
subsequent investment is $100. IRAs are available to individuals who receive
compensation or earned income and their spouses whether or not they are active
participants in a tax-qualified or Government-approved retirement plan. An IRA
contribution by an individual who participates, or whose spouse participates,
in a tax-qualified or Government-approved retirement plan may not be
deductible, in whole or in part, depending upon the individual's income.
Individuals also may establish an IRA to receive a "rollover" contribution of
distributions from another IRA or a qualified plan. Tax advice should be
obtained before planning a rollover.
DEFINED CONTRIBUTION PLANS
Investors who are self-employed may purchase Shares of the Funds, with the
exception of the New York Tax-Free Bond Fund, for retirement plans for self-
employed persons which are known as Defined Contribution Plans (formerly Keogh
or H.R. 10 Plans). Republic offers a prototype plan for Money Purchase and
Profit Sharing Plans.
SECTION 457 PLAN, 401(k) PLAN, 403(b) PLAN
The Funds, with the exception of the New York Tax-Free Bond Fund, may be
used as vehicles for certain deferred compensation plans provided for by
Section 457 of the Internal Revenue Code of 1986, as amended (the "Code"),
with respect to service for state governments, local governments, rural
electric cooperatives and political subdivisions, agencies, instrumentalities
and certain affiliates of such entities. The Funds may also be used as
vehicles for both 401(k) plans and 403(b) plans.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the Shares in his account at
any time at the net asset value next determined after a redemption order in
proper form is furnished by the shareholder to his Shareholder Servicing
Agent, and is transmitted to and received by the Transfer Agent. Redemptions
are effected on the same day the redemption order is received by the Transfer
Agent provided such order is received prior to 4:00 p.m., New York time, on
any Fund Business Day. Shares redeemed earn dividends up to and including the
Fund Business Day prior to the day the redemption is effected.
The proceeds of a redemption are normally paid from a Fund in federal funds
on the next Fund Business Day following the date on which the redemption is
effected, but in any event within seven days. The right of any shareholder to
receive payment with respect to any redemption may be suspended or the payment
of the redemption proceeds postponed during any period in which the New York
Stock Exchange is closed (other than weekends or holidays) or trading on such
Exchange is restricted or, to the extent otherwise permitted by the 1940 Act,
if an emergency exists. To be in a position to eliminate excessive expenses,
the Trust and the Advisor Trust reserve the right to redeem upon not less than
30 days' notice all Shares in an account which has a value below $50. However,
a shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.
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).
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns Shares with an aggregate value of $10,000 or more
may establish a Systematic Withdrawal Plan under which they redeem at net
asset value the number of full and fractional shares which will produce the
monthly, quarterly, semi-annual or annual payments specified (minimum $50.00
per payment). Depending on the amounts withdrawn, systematic withdrawals may
deplete the investor's principal. Investors contemplating participation in
this Plan should consult their tax advisers. No additional charge to the
shareholder is made for this service.
DIVIDENDS AND DISTRIBUTIONS
For the Fixed Income Fund and the New York Tax-Free Bond Fund, the Advisor
Trust and the Trust, respectively, declares all of each Fund's net investment
income daily as a dividend to the Fund shareholders. Dividends substantially
equal to all of each Fund's net investment income earned during the month are
distributed in that month to each Fund's shareholders of record. For the
Equity Fund, dividends equal to all of the Fund's net investment income earned
are distributed quarterly to the Fund's shareholders of record. For the
International Equity Fund and the Small Cap Equity Fund, such dividends are
distributed annually and semi-annually, respectively. 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.
Each Fund's net realized 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, dividends are
distributed in the form of additional shares of the Fund (purchased at their
net asset value without a sales charge).
With respect to the Fixed Income Fund, certain mortgage-backed securities
may provide for periodic or unscheduled payments of principal and interest as
the mortgages underlying the securities are paid or prepaid. However, such
principal payments (not otherwise characterized as ordinary discount income or
bond premium expense) will not normally be considered as income to the Fixed
Income Portfolio and therefore will not be distributed as dividends to the
Fixed Income Fund shareholders. Rather, these payments on mortgage-backed
securities generally will be reinvested by the Fixed Income Portfolio in
accordance with its investment objective and policies.
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 Funds, including the status of distributions from the Funds under
applicable state or local law and, with respect to the New York Tax-Free Bond
Fund, the possible applicability of a federal alternative minimum tax to a
portion of the distributions of the Fund.
Each year, the Trust and the Advisor Trust each intend to qualify the Funds
and elect that the Funds be treated as a separate "regulated investment
company" under Subchapter M of the Code. To so qualify, the Funds must meet
certain income, distribution and diversification requirements. Provided such
requirements are met and all investment company taxable income and net
realized capital gains of the Funds are distributed to shareholders in
accordance with the timing requirements imposed by the Code, generally no
federal (or, in the case of the New York Tax-Free Bond Fund, New York State
and New York City) income or excise taxes will be paid by the Funds on amounts
so distributed.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal and, in the case of the New York Tax-
Free Bond Fund, New York State and New York City income tax purposes whether
received in cash or reinvested in additional shares of the Funds. Shareholders
must treat dividends, other than long-term capital gain dividends, as ordinary
income. Distributions of net capital gain (other than short-term capital gain)
whether received in cash or reinvested in Fund Shares, will be taxable to
shareholders at the applicable capital gains rate (generally a maximum rate of
20% or 28%, depending on the Fund's holding period in the assets sold),
regardless of how long a shareholder has held the Fund Shares. 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.
NEW YORK TAX-FREE BOND FUND
Federal Income Taxes. After the end of each calendar year, each shareholder
receives a statement setting forth the federal, New York State and New York
City personal income tax status of all dividends and capital gains
distributions, if any, made during that calendar year.
In accordance with the New York Tax-Free Bond Fund's investment objective,
it is expected that most of the Fund's net income will be attributable to
interest from Municipal Obligations and, as a result, most of the dividends to
Fund shareholders will be designated by the Trust as "exempt-interest
dividends" under the Code, which may be treated as items of interest
excludible from a shareholder's gross income for purposes of the regular
federal income tax. Since the preservation of capital and liquidity are
important aspects of the New York Tax-Free Bond Fund's investment objective,
the Adviser may from time to time invest a portion of the Fund's assets in
obligations the interest on which is not exempt from regular federal income
taxes. Moreover, dividends attributable to interest on certain Municipal
Obligations which may be purchased for the New York Tax-Free Bond Fund may be
treated as a tax preference item for shareholders potentially subject to an
alternative minimum tax and all exempt-interest dividends may increase a
corporate shareholder's alternative minimum tax or environmental tax. Although
it is not intended, it is possible that the New York Tax-Free Bond Fund may
realize short-term or long-term capital gains or losses from its portfolio
transactions.
Any short-term capital loss realized upon the redemption of shares within
six months from the date of their purchase will be disallowed to the extent of
any exempt-interest dividends received during such period. In addition, any
short-term capital loss realized upon the redemption of shares within six
months from the date of their purchase will be treated as long-term capital
loss (rather than short-term) to the extent of the long-term capital gain
allocable to the redeemed shares.
Shareholders redeeming shares after tax-exempt income has been accrued but
not declared as a dividend should know that the portion of redemption proceeds
representing such income may be subject to taxation as a capital gain even
though it would have been tax-exempt had it been declared as a dividend prior
to redemption. Redemption of shares of the New York Tax-Free Bond Fund can be
effected with the least adverse tax consequences immediately after the first
business day of any month (the time at which the dividend representing
substantially all the income accrued for the previous month is declared).
The Code provides that interest on indebtedness incurred, or continued, to
purchase or carry shares of the New York Tax-Free Bond Fund is not deductible.
Further exempt-interest dividends are taken into account in calculating the
amount of social security and railroad retirement benefits that may be subject
to federal income tax. Finally, entities or persons who may be "substantial
users" (or persons related to "substantial users") of facilities financed by
industrial development or private activity bonds should consult their tax
advisors before purchasing shares of the New York Tax-Free Bond Fund.
State and Local Taxes. The exemption for federal income tax purposes of
dividends derived from interest on Municipal Obligations does not necessarily
result in an exemption under the income or other tax laws of any state or
local taxing authority. However, to the extent that dividends are derived from
interest on New York Municipal Obligations, the dividends will also be
excluded from the gross income of a New York individual resident shareholder
for New York State and New York City personal income tax purposes.
DIVIDENDS FROM THE NEW YORK TAX-FREE BOND FUND ARE NOT EXCLUDED IN
DETERMINING NEW YORK STATE OR NEW YORK CITY FRANCHISE TAXES ON CORPORATIONS
AND FINANCIAL INSTITUTIONS.
OTHER FUNDS
Foreign Tax Withholding. Income received by the Funds or Portfolios from
sources within foreign countries may be subject to withholding and other
income or similar taxes imposed by such countries. In the case of the Fixed
Income Fund, International Equity Fund and Small Cap Equity Fund, if more than
50% of the value of a Portfolio's total assets at the close of its taxable
year consists of securities of foreign corporations, the corresponding Fund
will be eligible and intends to elect to treat its share of any non-U.S.
income and similar taxes it pays (or which are paid by the Portfolio) as
though the taxes were paid by the Fund's shareholders. Pursuant to this
election, a shareholder will be required to include in gross income (in
addition to taxable dividends actually received) his pro rata share of the
foreign taxes paid by the Fund or Portfolio, and will be entitled either to
deduct (as an itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. federal income tax liability, subject to limitations.
No deduction for foreign taxes may be claimed by a shareholder who does not
itemize deductions, but such a shareholder may be eligible to claim the
foreign tax credit. Shareholders will be notified within 60 days after the
close of the taxable years for the Fixed Income Fund, International Equity
Fund and Small Cap Equity Fund whether the foreign taxes paid by the Funds or
Portfolios will be treated as paid by the shareholders of each Fund 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 a Fund's election
to treat any foreign taxes paid by it as paid by 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 Funds 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 Funds may require, (2) the Internal Revenue Service
notifies the shareholder or the Funds 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 a Fund attributable to that 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 and the Advisor Trust are each 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 and the Advisors Trust (including the Funds) qualifies as a
"regulated investment company" for purposes of Massachusetts law.
For additional information relating to the tax aspects of investing in the
Funds, see the Statements of Additional Information.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declarations of Trust of each the Trust and the Advisor Trust permits
their respective Trustees to issue an unlimited number of full and fractional
shares of beneficial interest (par value $0.001 per share) and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interests in the Trust or the Advisor
Trust. The shares of each series participate equally in the earnings,
dividends and assets of the particular series. Currently, the Trust has seven
series of shares, each of which constitutes a separately managed fund. The
Advisor Trust has three series of shares, each of which constitutes a
separately managed fund. The Trust and the Advisor Trust each reserve the
right to create additional series of shares. Currently, the New York Tax-Free
Bond Fund and Equity Fund are divided into two classes of shares.
Each share of each class, if applicable, of a 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 and Advisor Trust are not required and have no current
intention to hold annual meetings of shareholders, although the Trust and the
Advisor Trust will hold special meetings of Fund shareholders when in the
judgment of the Trustees of the Trust or the Advisor 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 or the Advisor Trust. Under certain
circumstances the shareholders of one or more series could control the outcome
of these votes. Shares of each class of a series (New York Tax-Free Bond Fund
and Equity Fund) represent an equal pro rata interest in such series and,
generally, have identical voting, dividend, liquidation, and other rights,
preferences, powers, terms and conditions, except that: (a) each class shall
have a different designation; (b) each class of shares shall bear any class
expenses; and (c) each class shall have exclusive voting rights on any matter
submitted to shareholders that relate solely to its distribution arrangement,
and each class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class.
The series of the Portfolio Trust will vote separately or together in the
same manner as the series of the Advisor 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 Funds have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust or the Advisor Trust in connection with requesting a
meeting of shareholders of the Trust or the Advisor Trust for the purpose of
removing one or more Trustees. Shareholders of the Trust and the Advisor Trust
also have the right to remove one or more Trustees without a meeting by a
declaration in writing subscribed to by a specified number of shareholders.
Upon liquidation or dissolution of a Fund, shareholders of the Fund would be
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
The Declarations of Trust of each of the Trust and the Advisor Trust
provides that, at any meeting of shareholders of the Funds, the Trust or the
Advisor Trust, a Shareholder Servicing Agent may vote any shares as to which
such Shareholder Servicing Agent is the agent of record and which are
otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for
purposes of quorum requirements.
The Trust and the Advisor Trust are each 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 Portfolios are separate series of the Portfolio
Trust, which currently has only these three series. The Portfolio Trust's
Declaration of Trust provides that the Fixed Income Fund, International Equity
Fund and Small Cap Equity Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) are each liable for all obligations of
their respective Portfolio. However, the risk of a 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 Advisor Trust believe that
neither the Fixed Income Fund, International Equity Fund and Small Cap Equity
Fund nor their shareholders will be adversely affected by reason of the
investment of all of the Assets of the Advisor Funds in their corresponding
Portfolios.
Each investor in the Portfolios, including the Fixed Income Fund,
International Equity Fund and Small Cap Equity Fund, may add to or reduce its
investment in the Portfolios 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 Portfolios is determined by multiplying the net
asset value of each 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
Total return and yield data for the Funds may from time to time be included
in advertisements about the Trust and the Advisor Trust. The Trust may also
include tax equivalent yield data for the New York Tax-Free Bond Fund. "Total
return" is expressed in terms of the average annual compounded rate of return
of a hypothetical investment in a 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 a 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 or the
Advisor Trust's registration statement with respect to the Fund. The "tax
equivalent yield" refers to the yield that a fully taxable bond fund would
have to generate, given a stated aggregate state and local income tax rate, in
order to produce an after-tax yield equivalent to that of the New York Tax-
Free Bond Fund. The use of a tax equivalent yield allows investors to compare
the yield of the New York Tax-Free Bond Fund, all or a significant portion of
which is exempt from regular federal, New York State and New York City
personal income taxes, with yields of funds which are not so tax exempt. See
the Statement of Additional Information for further information concerning the
calculation of yield and total return data.
Historical total return information for any period or portion thereof prior
to the establishment of the Fixed Income Fund, International Equity Fund or
Small Cap Equity Fund will be that of its corresponding Portfolio, adjusted to
assume that all charges, expenses and fees of the Fund and its respective
Portfolio which are presently in effect were deducted during such period.
Since these total return, yield and tax equivalent yield quotations are
based on historical earnings and since a Fund's total return yield and tax
equivalent yield fluctuate from day to day, these quotations should not be
considered as an indication or representation of a Fund's total return, yield
or tax equivalent yield, if applicable, in the future. Any performance
information should be considered in light of a Fund's investment objective and
policies, characteristics and quality of the Fund's portfolio and the market
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 and the Advisor 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.
PRIOR PERFORMANCE
The following table sets forth performance information for the Fund's
average annual total returns of all institutional separate accounts and, in
the case of the International Equity Fund, institutional private accounts and
collective investment vehicles managed by the Fixed Income Sub-Adviser, Equity
Sub-Adviser, International Equity Sub-Adviser and Small Cap Equity Sub-Adviser
with investment objectives, policies and restrictions substantially similar to
the Fixed Income Fund, Equity Fund, International Equity Fund and Small Cap
Equity Fund and their corresponding Portfolio, if applicable, and which have
been managed as the Portfolios have been, and are expected to be, managed.
The composite data is provided to illustrate the past performance of the
Sub-Advisers in managing substantially similar accounts as measured against
the specified market index and does not represent the performance of the Fixed
Income Fund, Equity Fund, International Equity Fund or Small Cap Equity Fund
or the Fixed Income Portfolio, International Equity Portfolio or Small Cap
Equity Portfolio. Investors should not consider this composite performance
data as an indication of future performance of the Funds, the Portfolios or
the Sub-Advisers.
The institutional separate accounts and, in the case of the International
Equity Fund, institutional private accounts and collective investment vehicles
that are included in each Sub-Adviser's composite are not subject to the
diversification requirements, specific tax restrictions and investment
limitations imposed on the Fund and the Portfolio by the 1940 Act or the Code.
Consequently, the performance results of each Sub-Adviser's composite could
have been adversely affected if the institutional separate accounts included
in the composite had been regulated as investment companies under the federal
securities laws.
Returns for each period assume reinvestment of all net investment income,
are adjusted to assume that all charges, expenses and fees of each Fund and
each Portfolio which are currently in effect (as measured by the current
expense ratios of the Fund and the Portfolio) were deducted during such
periods, and are calculated in accordance with Securities and Exchange
Commission guidelines. The investment results of each Sub-Adviser's composite
presented below are unaudited and are not intended to predict or suggest the
returns that might be experienced by the Fixed Income Fund, Equity Fund,
International Equity Fund and Small Cap Equity Fund or an individual investing
in the Funds.
FIXED INCOME
----------------------------------------
ANNUALIZED RETURNS
----------------------------------------
FUND SUB-ADVISER SALOMON BIG
PERFORMANCE COMPOSITE+ INDEX(2)
----------- ---------- --------
1 Year(1) ............................ 9.14% 9.16% 8.89%
Since Portfolio Inception (1/9/95) ... 10.67% N/A* 10.58%
5 Years(1) ........................... N/A 8.30% 7.57%
10 Years(1) .......................... N/A 9.42% 9.30%
- ------------
(1) Through October 31, 1997.
(2) The Salomon Broad Investment Grade Bond Index is a market-capitalization-
based total return index containing U.S. fixed rate issues having a
maturity of greater than one year and at least $25 million outstanding.
The Salomon BIG Index includes Treasury, Government-sponsored, mortgage-
backed, and investment grade corporate issues.
+ If the expense ratio of the Fund after expense reimbursements were used as
the basis for adjustment, the Sub-Adviser composite average annual returns
would be 9.18% for the one year, 8.32% for 5 years and 9.44% for 10 years.
* Sub-Adviser performance information is not available for this time period.
EQUITY
----------------------------------------------------------------
ANNUALIZED RETURNS
----------------------------------------------------------------
RUSSELL RUSSELL
FUND ALLIANCE 1000 BRINSON 1000 RUSSELL
PERFORMANCE COMPOSITE+ GROWTH(2) COMPOSITE+ VALUE(3) 1000(4)
----------- ---------- --------- ---------- --------- -------
1 Year(1) .... 29.28% 36.29% 30.47% 28.91% 33.18% 31.84%
Since
Inception* 22.27% 27.38% 25.56% 27.11% 27.07% 26.33%
5 Years(1) ... N/A 19.81% 18.41% 21.93% 20.97% 19.70%
Since
12/31/87 ..... N/A 17.80% 17.64% 19.42% 17.60% 17.66%
- ------------
(1) Through October 31, 1997.
(2) The Russell 1000 Growth Index is an unmanaged index of those companies in
the Russell 1000 Index with higher price-to-book ratios and higher
forecasted growth values.
(3) The Russell 1000 Value Index is an unmanaged index of those companies in
the Russell 1000 Index with lower price-to-book ratios and lower
forecasted growth values.
(4) The Russell 1000 Index is an unmanaged index of the 1000 largest U.S.
companies (representing approximately 90% of the total market
capitalization) in the Russell 3000 Index, which represents approximately
98% of the U.S. equity market by capitalization.
+ If the expense ratio of the Fund after expense reimbursements were used as
the basis for adjustment, the Alliance composite average annual returns
would be 36.38% for the one year, 27.47% since Fund inception, 19.90% for
5 years and 17.88% since December 31, 1987 and the Brinson composite
average annual returns would be 29.00% for the one year, 27.19% since Fund
inception, 22.01% for 5 years and 19.51% since December 31, 1987.
* Since Fund inception (8/1/95). Performance for this period includes both
Fund and Adviser Class performance. Performance for the period 8/1/95
through 7/1/96 is that of the Fund, which has not been adjusted to reflect
the lower expenses of the Adviser Class, and for the period 7/2/96
(commencement of Adviser Class investment operations) through 10/31/97 is
that of the Adviser Class.
INTERNATIONAL EQUITY
----------------------------------------
ANNUALIZED RETURNS
----------------------------------------
FUND SUB-ADVISER EAFE
PERFORMANCE COMPOSITE INDEX(2)
1 Year(1) ............................ 16.62% 15.09% 4.92%
Since Portfolio Inception (1/9/95) ... 13.57% N/A* 7.85%
5 Years(1) ........................... N/A 15.54% 12.07%
10 Years(1) .......................... N/A 11.77% 6.99%
- ------------
(1) Through October 31, 1997.
(2) The EAFE Index includes 1,112 companies in twenty countries representing
the stock markets of Europe, Australia, New Zealand and the Far East. The
combined market capitalization of these companies represents approximately
60% of the aggregate market value of the stock exchanges. The EAFE Index
is capitalization weighted in U.S. dollars and includes dividends.
* Sub-Adviser performance information is not available for this time period.
SMALL CAP EQUITY
----------------------------------------
ANNUALIZED RETURNS
----------------------------------------
FUND SUB-ADVISER RUSSELL 2000
PERFORMANCE COMPOSITE+ INDEX(2)
----------- ---------- --------
1 Year(1) ............................ 27.18% 26.82% 29.33%
Since Portfolio Inception (9/4/96) ... 29.71% N/A* 27.49%
3 Years(1) ........................... N/A 29.01% 21.29%
- ------------
(1) Through October 31, 1997.
(2) The Russell 2000 Small Stock Index is an unmanaged index of the 2000
smallest companies (representing approximately 10% of the total market
capitalization) in the Russell 3000 Index, which represents approximately
98% of the U.S. equity market by capitalization.
+ If the expense ratio of the Fund after expense reimbursements were used as
the basis for adjustment, the Sub-Adviser composite average annual returns
would be 26.83% for the one year and 29.02% for 3 years.
* Sub-Adviser performance information is not available for this time period.
Any performance information should be considered in light of each Advisor
Fund's investment objective and policies, characteristics and quality of the
Advisor 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 Advisor 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 Funds, which will have the effect of
reducing the net return on the investment of customers of that Shareholder
Servicing Agent Conversely, the Trust and the Advisor Trust have been advised
that certain Shareholder Servicing Agents may credit to the account 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 Shareholder Servicing Agents. Such
customers may be able to obtain through their Shareholder Servicing Agent
quotations reflecting such decreased or increased return.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust or the Advisor
Trust, as applicable, 3435 Stelzer Road, Columbus, Ohio 43219-3035.
GENERAL AND ACCOUNT INFORMATION (888/525-5757 (TOLL FREE)
--------------------
The Statements of Additional Information by each of the Trust and the Advisor
Trust, dated January 2, 1998 and March 1, 1998, respectively, with respect to
each Fund contains more detailed information about the Fund, including
information related to (i) the Fund's investment restrictions, (ii) the Trustees
and officers of the Trust and the Manager, Adviser, Sub-Adviser and Sponsor of
the Fund, as applicable, (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, yield and
tax equivalent yield, if applicable, of the Fund.
<PAGE>
APPENDIX A
The characteristics of corporate debt obligations rated by Moody's are
generally as follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements. The
future of such bonds cannot be considered as well assured.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment.
Caa -- Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds rated Ca are speculative to a high degree.
C -- Bonds rated C are the lowest rated class of bonds and are regarded as
having extremely poor prospects.
The characteristics of corporate debt obligations rated by S&P are generally
as follows:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debts in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB -- Debt rated BB is predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with terms of the obligation.
BB indicates the lowest degree of speculation; CC indicates the highest degree
of speculation.
BB, B, CCC AND CC -- Debt in these ratings is predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest.
A bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by the rating services from other sources which they consider
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of, such information, or for other reasons.
The characteristics of corporate debt obligations rated by Fitch are
generally as follows:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated
in the AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short term debt of these issuers is generally
rated "-/+".
A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payments of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD AND D-- Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the obligor.
DDD represents the highest potential for recovery on these bonds, and D
represents the lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the DDD, DD, or D categories.
RATINGS OF COMMERCIAL PAPER
Commercial paper rated A-1 by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements; the issuer's long-
term debt is rated A or better; the issuer has access to at least two
additional channels of borrowing; and basic earnings and cash flow have an
upward trend with allowances made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry.
Commercial paper rated Prime-1 by Moody's is the highest commercial paper
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and consumer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the
management of obligations which may be present or may arise as a result of
public interest questions and preparations to meet such obligations. Relative
strength or weakness of the above factors determine how the issuer's
commercial paper is rated with various categories.
<PAGE>
APPENDIX B
TAXABLE EQUIVALENT YIELD TABLES
The tables below show the approximate taxable yields which are equivalent
to tax-exempt yields, for the ranges indicated, under (i) federal and New York
State personal income tax laws, and (ii) federal, New York State and New York
City personal income tax laws, in each case based upon the applicable 1997
rates. Such yields may differ under the laws applicable to subsequent years if
the effect of any such law is to change any tax bracket or the amount of
taxable income which is applicable to a tax bracket. Separate calculations,
showing the applicable taxable income brackets, are provided for investors who
file single returns and for those investors who file joint returns. For cases
in which two or more state (or city) brackets fall within a federal bracket,
the highest state (or city) bracket is combined with the federal bracket. The
combined income tax brackets shown reflect the fact that state and city income
taxes are currently deductible as an itemized deduction for federal tax
purposes (however, a taxpayer's itemized deductions may be subject to an
overall limitation, the effect of which has not been taken into account in
preparing these tables).
<TABLE>
<CAPTION>
FEDERAL AND NEW YORK STATE TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* TAX-EXEMPT YIELD
- -------------------------------------------- INCOME -------------------------------------------------------------------------
SINGLE JOINT TAX 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
- --------------------- ------------------- ------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-$ 24,650 $ 0-$ 41,200 20.82% 3.79% 4.42% 5.05% 5.68% 6.31% 6.95% 7.58% 8.21%
$ 24,651-$ 59,750 $ 41,201-$ 99,600 32.93% 4.47% 5.22% 5.96% 6.71% 7.45% 8.20% 8.95% 9.69%
$ 59,751-$124,650 $ 99,601-$151,750 35.73% 4.67% 5.45% 6.22% 7.00% 7.78% 8.56% 9.33% 10.11%
$124,651-$271,050 $151,751-$271,050 40.38% 5.03% 5.87% 6.71% 7.55% 8.39% 9.23% 10.06% 10.90%
Over $271,050 Over $271,050 43.74% 5.33% 6.22% 7.11% 8.00% 8.89% 9.78% 10.66% 11.55%
- ----------
* Net amount subject to federal and New York State personal income tax after deductions and exemptions.
** Effective combined federal and state tax bracket. This table does not take into account: (i) any taxes other than the regular
federal income tax and the regular New York State personal income tax; or (ii) the New York State tax table benefit recapture
tax. Also, it is assumed that: (i) there are no federal or New York State minimum taxes applicable; (ii) a shareholder has no
net capital gain; and (iii) a shareholder's taxable income for federal income tax purposes is the same as his or her taxable
income for New York State income tax purposes. Also, this table does not reflect the fact that, due to factors including the
federal phase-out of personal exemptions and reduction of certain itemized deductions for taxpayers whose adjusted gross
income exceed specified thresholds, a shareholder's effective marginal tax rate may differ from his or her tax bracket rate.
<CAPTION>
FEDERAL, NEW YORK STATE AND NEW YORK CITY TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* TAX-EXEMPT YIELD
- -------------------------------------------- INCOME -------------------------------------------------------------------------
SINGLE JOINT TAX 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
- --------------------- ------------------- ------------ -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 25,000 $ 0-$ 45,000 36.09% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39% 10.17%
$ 25,001-$ 59,750 $ 45,001-$ 99,600 36.10% 4.69% 5.48% 6.26% 7.04% 7.82% 8.61% 9.39% 10.17%
$ 59,751-$124,650 $ 96,601-$151,750 38.80% 4.90% 5.72% 6.54% 7.35% 8.17% 8.99% 9.80% 10.62%
$124,651-$271,050 $151,751-$271,050 43.24% 5.29% 6.17% 7.05% 7.93% 8.81% 9.69% 10.57% 11.45%
Over $271,050 Over $271,050 46.43% 5.60% 6.53% 7.47% 8.40% 9.33% 10.27% 11.20% 12.13%
- ----------
* Net amount subject to federal, New York State and New York City personal income tax after deductions and exemptions.
** Effective combined federal, state and city tax bracket. This table does not take into account: (i) any taxes other than the
regular federal income tax, the regular New York State personal income tax, and the regular New York City personal income tax
(including the temporary tax surcharge and the additional tax); or (ii) the New York State tax table benefit recapture tax.
Also, it is assumed that: (i) there are no federal, state or city minimum taxes applicable; (ii) a shareholder has no net
capital gain; and (iii) a shareholder's taxable income for federal income tax purposes is the same as his or her income for
state and city tax purposes. Also, this table does not reflect the fact that, due to factors including the federal phase-out
of personal exemptions and reduction of certain itemized deductions for taxpayers whose adjusted gross income exceed specified
thresholds, a shareholder's effective marginal tax rate may differ from his or her tax bracket rate.
</TABLE>
While it is expected that most of the dividends paid to the shareholders
of the New York Tax-Free Bond Fund will be exempt from federal, New York State
and New York City personal income taxes, portions of such dividends from time
to time may be subject to such taxes.
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS.
(a) Financial Statements
(i) Included in Part A of this Post-Effective Amendment:
FINANCIAL HIGHLIGHTS -- Republic Fixed Income Fund; Republic New York
Tax-Free Bond Fund (Class Y Shares only); Republic Equity Fund (Class Y Shares
only); Republic International Equity Fund; Republic Small Cap Equity Fund.
(ii) Incorporated by reference into Part B of this Post-Effective
Amendment.
REPUBLIC FIXED INCOME FUND
Statement of Assets and Liabilities, October 31, 1997
Statement of Operations for the year ended October 31, 1997
Statement of Changes in Net Assets for the years ended October 31, 1996 and
October 31, 1997
Financial Highlights
Notes to Financial Statements, October 31, 1997
Report of Independent Auditors
REPUBLIC INTERNATIONAL EQUITY FUND
Statement of Assets and Liabilities, October 31, 1997
Statement of Operations for the year ended October 31, 1997
Statement of Changes in Net Assets for the years ended October 31, 1996 and
October 31, 1997
Financial Highlights
Notes to Financial Statements, October 31, 1997
REPUBLIC SMALL CAP EQUITY FUND
Statement of Assets and Liabilities, October 31, 1997
Statement of Operations for the year ended October 31, 1997
Statement of Changes in Net Assets for the period September 3,
1996 (commencement of operations) to October 31, 1996 and for the year ended
October 31, 1997
Financial Highlights
Notes to Financial Statements, October 31, 1997
Independent Auditors' Report
REPUBLIC FIXED INCOME PORTFOLIO
Schedule of Investments, October 31, 1997
Statement of Assets and Liabilities, October 31, 1997
Statement of Operations for the year ended October 31, 1997
Statement of Changes in Net Assets for the years ended October 31, 1996 and
October 31, 1997
Financial Highlights
Notes to Financial Statements, October 31, 1997
REPUBLIC INTERNATIONAL EQUITY PORTFOLIO
Schedule of Investments, October 31, 1997
Statement of Assets and Liabilities, October 31, 1997
Statement of Operations for the year ended October 31, 1997
Statement of Changes in Net Assets for the years ended October 31, 1996 and
October 31, 1997
Financial Highlights
Notes to Financial Statements, October 31, 1997
REPUBLIC SMALL CAP EQUITY PORTFOLIO
Schedule of Investments, October 31, 1997
Statement of Assets and Liabilities, October 31, 1997
Statement of Operations for the year ended October 31, 1997
Statement of Changes in Net Assets for the period September 3,
1996 (commencement of operations) to October 31, 1996 and for the year ended
October 31, 1997
Financial Highlights
Notes to Financial Statements, October 31, 1997
Independent Auditors' Report
(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(a) Distribution Agreement regarding Republic Fixed Income Fund, Republic
International Equity Fund and Republic Small Cap Equity Fund.5
9. Administration Agreement regarding Republic Fixed Income Fund, Republic
International Equity Fund and Republic Small Cap Equity Fund.5
10. Opinion of counsel.2
11. Consents of independent auditors.
16. Schedule for computation of performance quotations.2
17. Financial data schedules.
19(a) Powers of attorney for Trustees and officers.4
19(b) Power of Attorney for Adrian Waters.5
19(c) Power of Attorney for Walter B. Grimm.6
- -----------------
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 Incorporated herein by reference from post-effective amendment no. 2 to the
Registration Statement as filed with the SEC on November 26, 1996.
5 Incorporated herein by reference from Post-effective amendment no. 5 to the
Registration Statement as filed with the SEC on February 28, 1997.
6 Incorporated herein by reference from post-effective amendment no. 6 to the
Registration Statement as filed with the SEC on February 25, 1998.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of February 27, 1998 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: 59.
Republic International Equity Fund: 119.
Republic Small Cap Equity Fund: 118.
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
(a) Republic National Bank of New York ("Republic") acts as investment
adviser to Republic Funds and Republic Advisor Funds Trust, and is a subsidiary
of Republic New York Corporation ("RNYC"), 452 Fifth Avenue, New York, New York
10018, a registered bank holding company. Republic's directors and principal
executive officers, and their business and other connections for at least the
past two years, are as follows (unless otherwise noted by footnote, the address
of all directors and officers is 452 Fifth Avenue, New York, New York 10018):
NAME -- BUSINESS AND OTHER CONNECTIONS
KURT ANDERSEN
Vice Chairman and a Director of Republic New York Corporation ("RNYC") and
Republic Bank.
ANTHONY G. CHAPPELL
Executive Vice President and Director of Republic Bank.
CYRIL S. DWEK
Vice Chairman of the Board and Director of Republic Bank and RNYC.
ERNEST GINSBERG
Vice Chairman of the Board and Director of RNYC and Republic Bank.
NATHAN HASSON
Vice Chairman of the Board, Director and Treasurer of Republic Bank and
Vice Chairman of the Board and Director of RNYC.
JEFFREY C. KEIL
President and Director of RNYC and Vice Chairman of the Board and
Director of Republic Bank.
PETER KIMMELMAN
A private investor and a Director of RNYC and Republic Bank.(1)
PAUL L. LEE
Executive Vice President and Director of Republic Bank;
Executive Vice President and General Counsel of RNYC.
LEONARD LIEBERMAN
Director of various companies, including Consolidated Cigar Corporation and
Outlet Communications, Inc.; Director of RNYC and Republic Bank.
WILLIAM C. MACMILLEN, JR.
President, William C. MacMillen & Co., Inc. (Investment Banking) and
a Director of RNYC and Republic Bank.(2)
PETER J. MANSBACH
Director and Chairman of the Executive Committee of Republic Bank and RNYC.
MARTIN F. MERTZ
Director of RNYC and Republic Bank.
CHARLES G. MEYER, JR.
President of Cord Meyer Development Co. and Director of Republic Bank.(3)
JAMES L. MORICE
Partner in the management consulting and executive search firm of
Mirtz Morice, Inc. and a Director of RNYC and Republic Bank.(4)
E. DANIEL MORRIS
President, Corsair Capital Corporation and Director of RNYC.
DR. JANET L. NORWOOD
Senior Fellow at The Urban Institute (research organization); Director of RNYC
and Republic Bank.
JOHN A. PANCETTI
Director of RNYC and Republic Bank.
VITO S. PORTERA
Vice Chairman of the Board, and a Director of RNYC and Republic Bank. Also,
Chairman of the Board of Republic International Bank of New York, the Florida
Edge Act subsidiary of Republic Bank.
WILLIAM P. ROGERS
Partner, Rogers & Wells and Director of RNYC and Republic Bank.
SILAS SAAL
Vice Chairman and Director of Republic Bank and RNYC; Chief Trading Officer of
Republic Bank.
DOV C. SCHLEIN
President and Chief Operating Officer of Republic Bank, and a Director of RNYC
and Republic Bank.
RICHARD C. SPIKERMAN
Executive Vice President and Director of Republic Bank.
JOHN TAMBERLANE
Director of Republic Bank; President of the Consumer Bank Division of Republic
Bank.
WALTER H. WEINER
Chairman of the Board, Director and Chief Executive Officer of Republic Bank
and RNYC.
GEORGE T. WENDLER
Vice Chairman and Director of Republic Bank; Senior Credit Officer of Republic
Bank.
PETER WHITE
Senior Consultant and a Director of RNYC and Republic Bank.
- -----------------------------------
(1) 1270 Avenue of the Americas, Suite 3010, New York 10020.
(2) 254 Victoria Place, Lawrence, New York 11559.
(3) 111-15 Queens Boulevard, 2nd Floor, Forest Hills, New York,
New York 11375.
(4) One Dock Street, Stamford, CT 06902
ITEM 29. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services (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 BISYS is hereby incorporated herein by reference from Form BD as
filed by the Sponsor pursuant to the Securities Exchange Act of 1934 (File No.
8-32480).
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; BISYS Fund
Services, 3435 Stelzer Road, Columbus, Ohio 43219-3035; and Investors Bank &
Trust Company, N.A., 200 Clarendon Street, Boston, Massachusetts 02117.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) 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 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 certifies that it
meets all of the requirements for effectiveness of this registration statement
pursuant to Rule 485(b) under the Securities Act of 1933 and 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, on the 12th day of
March, 1998.
REPUBLIC ADVISOR FUNDS TRUST
By WALTER B. GRIMM**
---------------------------
Walter B. Grimm
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on March 12, 1998.
WALTER B. GRIMM**
- --------------------------
Walter B. Grimm
President
ADRIAN WATERS**
- --------------------------
Adrian Waters
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/ DAVID J. HARRIS
--------------------------
David J. Harris
as attorney-in-fact pursuant to a power of attorney filed as
Exhibit 19 to post-effective amendment No. 2.
**By /S/ CATHERINE BRADY
--------------------------
CATHERINE BRADY
as attorney-in-fact pursuant to powers of attorney filed as
Exhibit 19 to post-effective amendment No. 2, Exhibit 19 to post-effective
amendment No. 5, and Exhibit 19 to post-effective amendment No. 6.
<PAGE>
Republic Portfolios (the "Portfolio Trust") has duly caused this amendment
to the registration statement on Form N-1A (File Nos. 333-02205 and 811-07583)
("Registration Statement") of Republic Advisor Funds Trust (the "Trust") to be
signed on its behalf by the undersigned, thereto duly authorized on the 12th of
March, 1998.
REPUBLIC PORTFOLIOS
By WALTER B. GRIMM**
--------------------------
Walter B. Grimm
President
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on March 12, 1998.
WALTER B. GRIMM**
- --------------------------
Walter B. Grimm
President
ADRIAN WATERS**
- --------------------------
Adrian Waters
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/ DAVID J. HARRIS
--------------------------
David J. Harris
as attorney-in-fact pursuant to a power of attorney filed as
exhibit 19 to post-effective amendment No. 2.
**By /S/ CATHERINE BRADY
--------------------------
CATHERINE BRADY
as attorney-in-fact pursuant to powers of attorney filed as
Exhibit 19 to post-effective amendment No. 2, Exhibit 19 to post-effective
amendment No. 5, and Exhibit 19 to post-effective amendment No. 6.
<PAGE>
EXHIBIT LIST
Exhibit No. Exhibit Name
11 Consents of Independent Auditors
17 Financial Data Schedules
<PAGE>
Exhibit 99.11
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
Republic Funds and
Republic Advisor Funds Trust:
We consent to the use of our report, dated December 12, 1997, incorporated
herein by reference and to the references to our firm under the captions
"FINANCIAL HIGHLIGHTS" in the prospectus and "Independent Auditors" in the
statements of additional information.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 12, 1998
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
Republic Portfolios:
We consent to the use of our report, dated December 12, 1997, incorporated
herein by reference and to the reference to our firm under the caption
"Independent Auditors" in the statements of additional information.
KPMG
Toronto, Ontario
March 12, 1998
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