<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
FILE NO. 333-02205
FILE NO. 811-07583
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 9
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 11
REPUBLIC ADVISOR FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219-3035
(Address of Principal Executive Office)
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 of process)
Copy to:
Allan S. Mostoff, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W., Washington, D.C. 20006
--------------------------------
It is proposed that this filing will become effective upon filing
pursuant to paragraph (b) 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.
The Registrant has previously registered an indefinite number of its
shares under the Securities Act of 1933, as amended, pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended. The Registrant has filed
Rule 24f-2 notices with respect to its series as follows: Republic U.S.
Government Money Market Fund (for its fiscal year ended September 30. 1997) on
December 23, 1997; Fund, Republic Equity Fund, Republic Bond Fund, Republic
Overseas Equity Fund and Republic Opportunity Fund for their fiscal years ended
October 31, 1997 on January 27, 1998.
<PAGE> 2
CROSS REFERENCE SHEET
PART A; INFORMATION REQUIRED IN PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER PROSPECTUS CAPTION
<S> <C> <C>
Item 1. Front and Back Cover Page Front and Back Cover Page
Item 2. Risk/Return Summary: Investments, Risk/Return Summary and
Risks and Performance Fund Expenses
Item 3. Risk/Return Summary: Fee Table Risk/Return Summary and
Fund Expenses
Item 4. Investment Objectives, Principal Investment Objectives and
Investment Strategies, and Related Risks Strategies; Investment Risks
Item 5 Management's Discussion Not Applicable
of Fund Performance
Item 6. Management, Organization, and Fund Management
Capital Structure
Item 7. Shareholder Information Shareholder Information
Item 8. Distribution Arrangements Distribution Arrangements/
Sales Charges
Item 9. Financial Highlights Information Financial Highlights
PART B; INFORMATION REQUIRED IN STATEMENT /OF ADDITIONAL INFORMATION
Statement of Additional
ITEM NUMBER INFORMATION CAPTION
Item 10. Cover Page and Table of Contents Cover Page and Table of Contents
Item 11. Fund History Capitalization
Item 12. Description of the Fund and Its Investment Objective, Policies
Investments and Risks and Restrictions
Item 13. Management of the Fund Management of the Trust
Item 14. Control Persons and Principal Other Information
Holders of Securities
Item 15. Investment Advisory and Management of the Trust
Other Securities Investment Adviser
Item 16. Brokerage Allocation Portfolio Transactions
Item 17. Capital Stock and Other Securities Other Information
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
Item 18. Purchase, Redemption and Pricing Purchase of Shares; Redemption
of Shares of Shares; Determination of Net
Asset Value
Item 19. Taxation of the Fund Taxation
Item 20. Underwriters Management of the Trust -
Administrator, Distributor and
Sponsor
Item 21. Calculation of Performance Date Performance Information
Item 22. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be in Part C is set forth under the appropriate
items, so numbered, in Part C of this Registration Statement.
<PAGE> 4
EXPLANATORY NOTE
This post-effective amendment no. 9 (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, in order to comply with the new Form
N-1A.
<PAGE> 5
REPUBLIC
FIXED INCOME FUND
REPUBLIC
NEW YORK TAX-FREE
BOND FUND
PROSPECTUS
- ------------------- REPUBLIC EQUITY FUND
MARCH 1, 1999
REPUBLIC
INTERNATIONAL EQUITY
FUND
REPUBLIC
SMALL CAP EQUITY FUND
[LOGO] REPUBLIC FAMILY OF FUNDS
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.
<PAGE> 6
REPUBLIC FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
LOGO RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this 3 Republic Fixed Income Fund
important section, which 10 Republic New York Tax-Free Bond Fund
summarizes each Fund's 17 Republic Equity Fund
investments, risks, past 24 Republic International Equity Fund
performance, and fees. 31 Republic Small Cap Equity Fund
LOGO INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
38 Republic Fixed Income Fund
39 Republic New York Tax-Free Bond Fund
40 Republic Equity Fund
42 Republic International Equity Fund
44 Republic Small Cap Equity Fund
46 General Risk Factors: All Funds
48 Specific Risk Factors
LOGO FUND MANAGEMENT
Review this section 51 The Investment Adviser
for details on 53 Portfolio Managers
the people and 55 The Distributor and Administrator
organizations who provide 56 The Two-Tier Fund Structure
services to the Funds.
LOGO SHAREHOLDER INFORMATION
Review this section for 57 Pricing of Fund Shares
details on how 58 Purchasing and Adding to Your Shares
shares are valued, 62 Selling Your Shares
and how to purchase, 66 Exchanging Your Shares
sell and exchange shares. 67 Dividends, Distributions and Taxes
This section also describes
related charges, and
payments of dividends
and distributions.
LOGO FINANCIAL HIGHLIGHTS
Review this section for 69 Republic Fixed Income Fund
details on selected 70 Republic New York Tax-Free Bond Fund
financial statements 71 Republic Equity Fund
of the Funds. 72 Republic International Equity Fund
73 Republic Small Cap Equity Fund
LOGO PRIOR PERFORMANCE
LOGO TAXABLE EQUIVALENT YIELD TABLES
</TABLE>
2
<PAGE> 7
The following is a summary of key information about the Funds. You will find
additional information about the Funds, including a detailed description of
the Funds' investment objectives, strategies and risks, after this Summary.
REPUBLIC FIXED INCOME FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES The investment objective of the Fixed Income
Fund is to realize above-average total
return, consistent with reasonable risk,
through investment primarily in a
diversified portfolio of fixed income
securities.
PRINCIPAL INVESTMENT The Fund seeks to achieve its investment
STRATEGIES objective by investing all of its assets in
the Republic Fixed Income Portfolio (the
"Portfolio"), which has the same investment
objective as the Fund. This two-tier fund
structure is commonly referred to as a
"master/feeder" structure because one fund
(the Fixed Income Fund or "feeder fund") is
investing all its assets in a second fund
(the Portfolio or "master fund").
The Portfolio invests primarily in fixed
income securities, such as U.S. Government
securities, corporate debt securities and
commercial paper, mortgage-backed and
asset-backed securities, and similar
securities issued by foreign governments and
corporations.
</TABLE>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
3
<PAGE> 8
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT RISKS The Fund's performance per share will change
daily based on many factors, including the
quality of the instruments in the
Portfolio's investment portfolio, national
and international economic conditions and
general market conditions. You could lose
money on your investment in the Fund or the
Fund could underperform other investments.
The Fund could lose money if the issuer of a
fixed income security owned by the Portfolio
defaults on its financial obligation.
Changes in interest rates will affect the
yield and value of the Fund's investments in
debt securities.
The Fund may invest in derivative
instruments (e.g., options and futures
contracts) to help achieve its investment
objectives. The Fund may do so primarily for
hedging purposes. These investments could
increase the Fund's price volatility or
reduce the return on your investment.
The Fund may invest in high-yield
securities, which are subject to higher
credit risks and are less liquid than other
fixed-income securities. The Fund could lose
money if it is unable to dispose of these
investments at an appropriate time.
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
</TABLE>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
4
<PAGE> 9
<TABLE>
<S> <C>
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Looking to add a monthly income component
to your investment portfolio
- Seeking higher potential returns than
provided by money market funds
- Willing to accept the risks of price and
income fluctuations
- Investing short-term reserves
This Fund will not be appropriate for
anyone:
- Investing emergency reserves
- Seeking safety of principal
The investment objective and strategies of
the Fund are not fundamental and may be
changed without approval of the Fund
shareholders. If there is a change in the
investment objective of the Fund,
shareholders should consider whether the
Fund remains an appropriate investment in
light of their then current financial
position and needs. There can be no
assurance that the investment objectives of
the Fund or the Portfolio will be achieved.
</TABLE>
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
5
<PAGE> 10
PERFORMANCE BAR
CHART AND TABLE
The bar chart on this
page shows the Republic
Fixed Income Fund's
annual returns and how
its performance has
varied from year to
year. The bar chart
shows changes in the
Fund's yearly
performance for the past
three years to
demonstrate that the
Fund has gained and lost
value at varying rates
over time. The bar chart
assumes reinvestment of
dividends and
distributions.
<TABLE>
<CAPTION>
1996 4.99
<S> <C>
97 5.04
98 6.26
</TABLE>
Of course, past performance does not
indicate how the Fund will perform in the
future.
Best quarter: 2Q 1995
+5.96%
Worst quarter: 1Q 1996
-1.44%
*The Fund offers only one class of shares (the
"Adviser Shares"). Shares of the Fund are
offered only to clients of Republic and its
affiliates for whom Republic or its affiliates
exercises investment discretion.
YEAR-BY-YEAR
TOTAL RETURNS
AS OF 12/31
FOR ADVISER
SHARES*
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
6
<PAGE> 11
RISK/RETURN SUMMARY AND FUND EXPENSES LOGO
The table compares the Fund's performance over time to that of the Salomon
Broad Investment Grade Bond Index, a market-capitalization-based total return
index containing U.S. fixed rate issues of greater than one year and at least
$125 million outstanding, and the Lipper A Rated Bond Fund Index, an
unmanaged, equally weighted index composed of the 30 largest Mutual Funds
with a similar investment objective. The table assumes reinvestment of
dividends and distributions.
AVERAGE ANNUAL
TOTAL RETURNS (for
the periods ended
December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
------------------------------------------------------
ADVISER SHARES Jan. 9, 1995 6.83% N/A N/A 9.58%
------------------------------------------------------
SALOMON BIG BOND INDEX 8.72% 7.31% 9.31% 10.05%*
------------------------------------------------------
LIPPER A RATED BOND FUND
INDEX 7.43% 6.13% 8.67% 9.74%**
-----------------------------------------------------------------------------------
</TABLE>
* Since January 1, 1995.
** Since December 31, 1994.
7
<PAGE> 12
FEES AND EXPENSES*
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES ADVISER
(FEES PAID BY YOU DIRECTLY) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
ANNUAL FUND
OPERATING EXPENSES ADVISER
(FEES PAID FROM FUND ASSETS) SHARES
Management fee .40%
Distribution (12b-1) fee None
Shareholder services fee .00%**
Other expenses .38%
Total Fund operating expenses .78%
</TABLE>
As an investor in the
Republic Fixed Income
Fund, you will pay the
following fees and
expenses. Shareholder
transaction fees are
paid from your account.
Annual Fund operating
expenses are paid out of
Fund assets, and are
reflected in the share
price.
* The table reflects the combined fees of both the Fund and the Fixed Income
Portfolio.
** The Fund has authorized a shareholder servicing fee of up to 0.25%, on an
annual basis, of the Fund's average daily net assets. The fees are not being
paid currently, but the Fund may begin paying these fees in the future.
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
8
<PAGE> 13
EXAMPLE*
Use the table at right
to compare fees and
expenses with those of
other Funds. It
illustrates the amount
of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the
end of each period
- no changes in the
Fund's operating
expenses
Because this example is
hypothetical and for
comparison only, your
actual costs may be
higher or lower.
<TABLE>
<S> <C> <C> <C> <C>
REPUBLIC FIXED 1 3 5 10
INCOME FUND YEAR YEARS YEARS YEARS
ADVISER SHARES $80 $249 $433 $966
</TABLE>
* The example reflects the combined fees of both the Fund and the Fixed
Income Portfolio.
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
9
<PAGE> 14
RISK/RETURN SUMMARY AND FUND EXPENSES LOGO
REPUBLIC NEW YORK TAX-FREE BOND FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES The investment objective of the New York
Tax-Free Bond Fund is to provide
shareholders of the Fund with income exempt
from regular federal, New York State and New
York City personal income taxes.
PRINCIPAL The Fund seeks to achieve its investment
INVESTMENT STRATEGIES objective by investing its assets primarily
in a non-diversified portfolio of municipal
bonds, notes, commercial paper, U.S.
Government securities, and other debt
instruments the interest on which is exempt
from regular federal (except for U.S.
Government securities), New York State and
New York City personal income taxes.
</TABLE>
10
<PAGE> 15
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT RISKS The Fund's performance per share will change
daily based on many factors, including the
quality of the instruments in the Fund's
investment portfolio, national and
international economic conditions and
general market conditions. You could lose
money on your investment in the Fund or the
Fund could underperform other investments.
The Fund could lose money if the issuer of a
fixed income security owned by the Portfolio
defaults on its financial obligation.
Changes in interest rates will affect the
yield and value of the Fund's investments in
debt securities.
The Fund may invest in derivative
instruments (e.g., option and futures
contracts) to help achieve its investment
objective. The Fund may do so only for
hedging purposes and not for speculation.
These investments could increase the Fund's
price volatility or reduce the return on
your investment.
Because the Fund will concentrate its
investments in New York obligations and may
invest a significant portion of its assets
in the securities of a single issuer or
sector, the value of the Fund's assets could
lose significant value due to the poor
performance of a single issuer or sector.
Historically, New York State and other
issuers of New York Municipal Obligations
have experienced periods of financial
difficulty. Because a significant share of
New York State's economy depends on
financial and business services, any change
in market conditions that adversely affects
these industries could affect the ability of
New York and its localities to meet its
financial obligations. If such difficulties
arise in the future, you could lose money on
your investment.
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
</TABLE>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
11
<PAGE> 16
<TABLE>
<S> <C>
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Looking to add a monthly tax-exempt income
component to your investment portfolio
- Seeking higher potential returns than
provided by money market funds
- Willing to accept the risks of price and
income fluctuations
- Investing short-term reserves
This Fund will not be appropriate for
anyone:
- Investing emergency reserves
- Seeking safety of principal
- Who does not live in New York
The investment objective and strategies of
the Fund are not fundamental and may be
changed without approval of the Fund
shareholders. If there is a change in the
investment objective of the Fund,
shareholders should consider whether the
Fund remains an appropriate investment in
light of their then current financial
position and needs. There can be no
assurance that the investment objectives of
the Fund will be achieved.
</TABLE>
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
12
<PAGE> 17
PERFORMANCE BAR
CHART AND TABLE
The chart and table on
this page show how the
Republic New York
Tax-Free Bond Fund has
performed and how its
performance has varied
from year to year. The
bar chart shows changes
in the Fund's yearly
performance for the past
two years to demonstrate
that the Fund has gained
and lost value at
varying rates over time.
The bar chart assumes
reinvestment of
dividends and
distributions.
<TABLE>
<CAPTION>
'1997' 9.34
- ------ ----
<S> <C>
'1998' 6.34
</TABLE>
Of course, past performance does not
indicate how the Fund will perform in the
future.
Best quarter: 4Q 1995
+4.27%
Worst quarter: 1Q 1996
-1.70%
*The Fund only offers Class Y Shares (the
"Adviser Shares") pursuant to this prospectus.
The Fund offers three additional classes of
shares pursuant to a separate prospectus. The
Adviser Shares of the Fund are offered only to
clients of Republic and its affiliates for
whom Republic or its affiliates exercises
investment discretion.
YEAR-BY-YEAR
TOTAL RETURNS
AS OF 12/31
FOR ADVISER
SHARES*
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
13
<PAGE> 18
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
The table below compares the Fund's performance over time to that of the
Lehman NY Exempt Index, an index composed of New York tax exempt securities,
all having a $50 million minimum maturity value, and the Lipper NY Municipal
Bond Fund Index, an unmanaged, equally weighted index composed of the 30
largest Mutual Funds with a similar investment objective. The table assumes
reinvestment of dividends and distributions.
AVERAGE ANNUAL
TOTAL RETURNS (for
the periods ended
October 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
------------------------------------------------------
ADVISER SHARES* July 1, 1996 6.34% N/A N/A 7.70%
------------------------------------------------------
LEHMAN NY TAX-EXEMPT BOND
INDEX 6.88% N/A N/A
------------------------------------------------------
LIPPER NY MUNICIPAL BOND
FUND 7.61% 5.36% 7.61% 7.90%
-----------------------------------------------------------------------------------
</TABLE>
* The New York Tax-Free Bond Fund offers three other classes of shares
(Class A, Class B and Class C Shares) pursuant to another prospectus. Only
Adviser Shares (or "Class Y Shares") are offered by this prospectus.
** Since July 1, 1996
*** Since June 30, 1996
14
<PAGE> 19
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES ADVISER
(FEES PAID BY YOU DIRECTLY) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge (load) None
ANNUAL FUND
OPERATING EXPENSES ADVISER
(FEES PAID FROM FUND ASSETS) SHARES
Management fee .25%
Distribution (12b-1) fee None
Shareholder services fee .00%*
Other expenses .70%
Total fund
operating expenses .95%
Fee waiver and
expense reimbursement+ .25%
Net operating expenses .70%
</TABLE>
As an investor in the
Republic New York
Tax-Free Bond Fund, you
will pay the following
fees and expenses.
Shareholder transaction
fees are paid from your
account. Annual Fund
operating expenses are
paid out of Fund assets,
and are reflected in the
share price.
* The Fund has authorized a shareholder servicing fee of up to 0.25%, on an
annual basis, of the Fund's average daily net assets. The fees are not being
paid currently, but the Fund may begin paying these fees in the future.
+ Pursuant to an expense limitation agreement.
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
15
<PAGE> 20
EXAMPLE
Use the table at right
to compare fees and
expenses with those of
other Funds. It
illustrates the amount
of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the
end of each period
- no changes in the
Fund's operating
expenses
Because this example is
hypothetical and for
comparison only, your
actual costs may be
higher or lower.
<TABLE>
<S> <C> <C> <C> <C>
REPUBLIC NEW YORK 1 3 5 10
TAX-FREE BOND YEAR YEARS YEARS YEARS
Adviser Shares $72 $278 $503 $1,156
</TABLE>
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
16
<PAGE> 21
REPUBLIC EQUITY FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES The investment objective of the Equity Fund
is long-term growth of capital and income
without excessive fluctuations in market
value.
PRINCIPAL INVESTMENT The Fund seeks to achieve its objective by
STRATEGIES investing at least 65% of its assets in
equity securities of seasoned medium and
large-sized companies that are expected to
show above average price appreciation. To
achieve its investment objective, the Fund
will pursue two styles of investing.
The "GROWTH" STYLE of investing focuses on
investing 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.
The "VALUE" STYLE of investing focuses on
investing 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 valuations systems and seasoned
judgment.
</TABLE>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
17
<PAGE> 22
RISK/RETURN SUMMARY AND FUND EXPENSES LOGO
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT RISKS The Fund's performance per share will change
daily based on many factors, including
national and international economic
conditions and general market conditions.
You could lose money on your investment in
the Fund or the Fund could underperform
other investments.
Equity securities have greater price
volatility than fixed income instruments.
The value of the Fund will fluctuate as the
market price of its investments increases or
decreases.
The Fund may invest in derivative
instruments (e.g., option and futures
contracts) to help achieve its investment
objective. The Fund intends to do so
primarily for hedging purposes. These
investments could increase the Fund's price
volatility or reduce the return on your
investment.
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
</TABLE>
18
<PAGE> 23
<TABLE>
<S> <C>
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Seeking a long-term goal such as
retirement
- Looking to add a growth component to your
investment portfolio
- Willing to accept higher risks of
investing in the stock market in exchange
for potentially higher long-term returns
This Fund will not be appropriate for
anyone:
- Seeking monthly income
- Pursuing a short-term goal or investing
emergency reserves
- Seeking safety of principal
The investment objective and strategies of
the Fund are not fundamental and may be
changed without approval of the Fund
shareholders. If there is a change in the
investment objective of the Fund,
shareholders should consider whether the
Fund remains an appropriate investment in
light of their then current financial
position and needs. There can be no
assurance that the investment objectives of
the Fund will be achieved.
</TABLE>
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
19
<PAGE> 24
PERFORMANCE BAR
CHART AND TABLE
The bar chart on this
page shows the Republic
Equity Fund's annual
returns and how its
performance has varied
from year to year. The
bar chart shows changes
in the Fund's yearly
performance for the past
two years to demonstrate
that the Fund has gained
value varying rates over
time. The bar chart
assumes reinvestment of
dividends and
distributions.
<TABLE>
<CAPTION>
'1997' 28.57
- ------ -----
<S> <C>
'1998' 29.59
</TABLE>
Of course, past performance does not
indicate how the Fund will perform in the
future.
Best quarter: 4Q 1998 +23.38%
Worst quarter: 3Q 1998 -11.52%
*The Fund only offers Class Y Shares (the
"Adviser Shares") pursuant to this prospectus.
The Fund offers three additional classes of
shares pursuant to a separate prospectus. The
Adviser Shares of the Fund are offered only to
clients of Republic and its affiliates for
whom Republic or its affiliates exercises
investment discretion.
YEAR-BY-YEAR
TOTAL RETURNS
AS OF 12/31
FOR ADVISER
SHARES*
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
20
<PAGE> 25
RISK/RETURN SUMMARY AND FUND EXPENSES LOGO
The table below compares the Fund's performance over time to that of the
Russell 1000 Index, an unmanaged index of the 1000 largest U.S. companies
(representing approximately 90% of the total market capitalization) in the
Russell 3000 Index (representing approximately 98% of the U.S. equity marked
by capitalization), and the Lipper Growth Fund Index, an unmanaged, equally
weighted index composed of 30 of the largest Mutual Funds with a similar
investment objective. The table assumes reinvestment of dividends and
distributions.
AVERAGE ANNUAL
TOTAL RETURNS (for
the periods ended
December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------
ADVISER SHARES* July 1, 1996 29.59% N/A N/A 24.86%
-------------------------------------------------------
RUSSEL 1000 INDEX 27.03% 23.36% 19.03% 28.77%**
-------------------------------------------------------
LIPPER GROWTH FUND INDEX 13.88% 16.69% 15.66% 19.86%**
------------------------------------------------------------------------------------
</TABLE>
* The Equity Fund offers three other classes of shares (Class A, Class B
and Class C Shares) pursuant to another prospectus. Only Adviser Shares
(or "Class Y Shares") are offered by this prospectus.
** Since June 30, 1996.
21
<PAGE> 26
FEES AND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES ADVISER
(FEES PAID BY YOU DIRECTLY) SHARES
Maximum sales charge (load)
on purchases None
Maximum deferred sales
charge (load) None
ANNUAL FUND OPERATING EXPENSES ADVISER
(FEES PAID FROM FUND ASSETS) SHARES
Management fee .445%
Distribution (12b-1) None
Shareholder services fee .00*
Other expenses .335%
Total Fund
operating expenses .78%
</TABLE>
As an investor in the
Republic Equity Fund,
you will pay the
following fees and
expenses. Shareholder
transaction fees are
paid from your account.
Annual Fund operating
expenses are paid out of
Fund assets, and are
reflected in the share
price.
* The Fund has authorized a shareholder servicing fee of up to 0.25%, on an
annual basis, of the Fund's average daily net assets. The fees are not being
paid currently, but the Fund may begin paying these fees in the future.
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
22
<PAGE> 27
EXAMPLE
Use the table at right
to compare fees and
expenses with those of
other Funds. It
illustrates the amount
of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the
end of each period
- no changes in the
Fund's operating
expenses
Because this example is
hypothetical and for
comparison only, your
actual costs may be
higher or lower.
<TABLE>
<CAPTION>
1 3 5 10
REPUBLIC EQUITY FUND YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
ADVISER SHARES $79 $249 $432 $964
</TABLE>
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
23
<PAGE> 28
REPUBLIC INTERNATIONAL EQUITY FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES 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 and
securities of issuers whose principal
markets are outside of the United States.
PRINCIPAL The Fund seeks to achieve its investment
INVESTMENT STRATEGIES objective by investing all of its assets in
the Republic International Equity Portfolio
(the "Portfolio"), which has the same
investment objective as the Fund. This
two-tier fund structure is commonly referred
to as a "master/feeder" structure because
one fund (the International Equity Fund or
"feeder fund") is investing all its assets
in a second fund (the Portfolio or "master
fund").
The International Equity Portfolio will
invest primarily 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.
</TABLE>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
24
<PAGE> 29
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
<TABLE>
<S> <C>
PRINCIPAL The Fund's performance per share will change
INVESTMENT RISKS daily based on many factors, including
national and international economic
conditions and general market conditions.
You could lose money on your investment in
the Fund or the Fund could underperform
other investments.
Equity securities have greater price
volatility than fixed income instruments.
The value of the Fund will fluctuate as the
market price of its investments increases or
decreases.
The Fund's investments in foreign securities
are riskier than its investments in U.S.
securities. Investments in foreign
securities may lose value due to unstable
international political and economic
conditions, fluctuations in currency
exchange rates, lack of adequate company
information, as well as other factors.
While the Fund intends to invest primarily
in companies organized and domiciled in
developed nations outside the United States,
the Fund may invest in emerging markets.
Emerging markets are subject to even greater
price volatility than investments in foreign
securities because there is a greater risk
of political or social upheaval in emerging
markets. In addition, these investments are
often illiquid and difficult to value
accurately.
In January 1999, the European Monetary Union
introduced a common currency for the
European Union (the "euro"). Significant
uncertainty surrounds the effect of the euro
on the value of securities denominated in
local European currencies. The currencies in
which the Fund's assets are denominated may
be devalued against the U.S. dollar,
resulting in a loss to the Fund.
The Fund may invest in derivative
instruments (e.g., option and futures
contracts) to help achieve its investment
objective. The Fund may do so only for
hedging purposes. These investments could
increase the Fund's price volatility or
reduce the return on your investment.
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
</TABLE>
25
<PAGE> 30
<TABLE>
<S> <C>
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Seeking a long-term goal such as
retirement
- Looking to add a foreign growth component
to your investment portfolio
- Willing to accept higher risks of
investing in the stock market in exchange
for potentially higher long-term returns
This Fund will not be appropriate for
anyone:
- Seeking monthly income
- Pursuing a short-term goal or investing
emergency reserves
- Seeking safety of principal
The investment objective and strategies of
the Fund are not fundamental and may be
changed without approval of the Fund
shareholders. If there is a change in the
investment objective of the Fund,
shareholders should consider whether the
Fund remains an appropriate investment in
light of their then current financial
position and needs. There can be no
assurance that the investment objectives of
the Fund or the Portfolio will be achieved.
</TABLE>
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
26
<PAGE> 31
PERFORMANCE BAR
CHART AND TABLE
The bar chart on this
page shows the Republic
International Equity
Fund's annual returns
and how its performance
has varied from year to
year. The bar chart
shows changes in the
Fund's yearly
performance for the past
three years to
demonstrate that the
Fund has gained or lost
value at varying rates
over time. The bar chart
assumes reinvestment of
dividends and
distributions.
<TABLE>
<CAPTION>
'1996' 15.08
- ------ -----
<S> <C>
'1997' 9.71
'1998' 12.43
</TABLE>
*Of course, past performance does not
indicate how the Fund will perform in the
future.
Best quarter: 4Q 1998
17.23%
Worst quarter: 3Q 1998
-15.81%
*The Fund offers only one class of shares (the
"Adviser Shares"). Shares of the Fund are
offered only to clients of Republic and its
affiliates for whom Republic or its affiliates
exercises investment discretion.
YEAR-BY-YEAR
TOTAL RETURNS
AS OF 12/31
FOR ADVISER
SHARES*
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
27
<PAGE> 32
The table below compares the fund's performance to that of the MSCI EAFE
Index, which includes 1,112 companies in twenty countries representing the
stock markets of Europe, Australia, New Zealand and the Far East, and the
Lipper International Equity Fund Index, an unmanaged, equally weighted index
composed of the 30 largest Mutual Funds with a similar investment objective.
The table assumes reinvestment of dividends and distributions.
AVERAGE ANNUAL
TOTAL RETURNS (for
the periods ended
December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------
ADVISER SHARES Jan. 9, 1995 12.43% N/A N/A 12.50%
-------------------------------------------------------
MSCI EAFE INDEX 20.29% 9.50% 5.85% 10.47%*
-------------------------------------------------------
LIPPER INTERNATIONAL EQUITY
FUND INDEX 4.64% 8.20% 8.85% 9.45%**
------------------------------------------------------------------------------------
</TABLE>
* Since January 9, 1995.
** Since December 31, 1994.
RISK/RETURN SUMMARY AND FUND EXPENSES
logo
logo
28
<PAGE> 33
FEES AND EXPENSES*
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES ADVISER
(FEES PAID BY YOU DIRECTLY) SHARES
Maximum sales charge (load)
on purchases None
Maximum deferred sales
charge (load) None
ANNUAL FUND OPERATING EXPENSES ADVISER
(FEES PAID FROM FUND ASSETS) SHARES
Management fee .72%
Distribution (12b-1) fee None
Shareholder services fee .00%**
Other expenses .37%
Total fund
operating expenses 1.09%
</TABLE>
As an investor in the
Republic International
Equity Fund, you will
pay the following fees
and expenses.
Shareholder transaction
fees are paid from your
account. Annual Fund
operating expenses are
paid out of Fund assets,
and are reflected in the
share price.
* The table reflects the combined fees of both the International Equity Fund
and the International Equity Portfolio.
** The Fund has authorized a shareholder servicing fee of up to 0.25%, on an
annual basis, of the fund's average daily net assets. The Fees are not being
paid currently, but the Fund may begin paying these Fees in the future.
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
29
<PAGE> 34
EXAMPLE*
Use the table at right
to compare fees and
expenses with those of
other Funds. It
illustrates the amount
of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the
end of each period
- no changes in the
Fund's operating
expenses
Because this example is
hypothetical and for
comparison only, your
actual costs may be
higher or lower.
<TABLE>
<CAPTION>
REPUBLIC 1 3 5 10
INTERNATIONAL YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
ADVISER SHARES $111 $347 $601 $1,329
</TABLE>
* The example reflects the combined fees of both the International Equity
Fund and the International Equity Portfolio.
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
30
<PAGE> 35
REPUBLIC SMALL CAP EQUITY FUND
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES The investment objective of the Small Cap
Equity Fund is to seek long-term growth of
capital by investing in equity securities of
emerging small-and medium-sized companies
that are expected to show earnings growth
over time that is well above the growth rate
of the overall economy and the rate of
inflation.
PRINCIPAL The Fund seeks to achieve its investment
INVESTMENT STRATEGIES objective by investing all of its assets in
the Republic Small Cap Equity Portfolio (the
"Portfolio"), which has the same investment
objective as the Fund. This two-tier fund
structure is commonly referred to as a
"master/feeder" structure because one fund
(the Small Cap Equity Fund or "feeder fund")
is investing all its assets in a second fund
(the Portfolio or "master fund").
The Portfolio will invest primarily in
common stocks of small- and medium-sized
companies, but may also invest in bonds,
notes, commercial paper, U.S. Government
securities, and foreign securities. The Fund
may also invest in common stocks of larger,
more established companies if they are
expected to show increased earnings.
</TABLE>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
31
<PAGE> 36
RISK/RETURN SUMMARY AND FUND EXPENSES LOGO
<TABLE>
<S> <C>
PRINCIPAL The Fund's performance per share will change
INVESTMENT RISKS daily based on many factors, including
national and international economic
conditions and general market conditions.
You could lose money on your investment in
the Fund or the Fund could underperform
other investments.
Equity securities have greater price
volatility than fixed income instruments.
The value of the Fund will fluctuate as the
market price of its investments increases or
decreases.
Because emerging small- and medium-sized
companies have fewer financial resources
than larger, well-established companies,
investments in the Fund are subject to
greater price volatility than investments in
other equity funds that invest in larger,
well-established companies, particularly
during periods of economic uncertainty or
downturns.
The Fund's investments in foreign securities
are riskier than its investments in U.S.
securities. Investments in foreign
securities may lose value due to unstable
international political and economic
conditions, fluctuations in currency
exchange rates, lack of adequate company
information, as well as other factors.
The Fund may invest in derivative
instruments (e.g., option and futures
contracts) to help achieve its investment
objective. The Fund intends to do so
primarily for hedging purposes. These
investments could increase the Fund's price
volatility or reduce the return on your
investment.
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
</TABLE>
32
<PAGE> 37
<TABLE>
<S> <C>
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
- Seeking a long-term investment
- Looking to add a growth component to your
investment portfolio
- Willing to accept higher risks of
investing in emerging companies in exchange
for potentially higher long-term returns.
This Fund will not be appropriate for
anyone:
- Seeking monthly income
- Pursuing a short-term goal or investing
emergency reserves
The investment objective and strategies of
the Fund are not fundamental and may be
changed without approval of the Fund
shareholders. If there is a change in the
investment objective of the Fund,
shareholders should consider whether the
Fund remains an appropriate investment in
light of their then current financial
position and needs. There can be no
assurance that the investment objectives of
the Fund or the Portfolio will be achieved.
</TABLE>
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
33
<PAGE> 38
PERFORMANCE BAR
CHART AND TABLE
The bar chart on this
page shows the Republic
Small Cap Equity Fund's
annual returns and how
its performance has
varied from year to
year. The bar chart
shows changes in the
Fund's yearly
performance for the past
two years to demonstrate
that the Fund has gained
and lost value at
varying rates over time.
The bar chart assumes
reinvestment of
dividends and
distributions.
[small cap equity fund bar chart]
<TABLE>
<CAPTION>
'1997' 22.76
- ------ -----
<S> <C>
'1998' 13.43
</TABLE>
Of course, past performance does not
indicate how the Fund will perform in
the future.
Best quarter: 4Q 1998
+23.22%
Worst quarter: 3Q 1998
-20.10%
*The Fund offers only one class of shares (the
"Adviser Shares"). Shares of the Fund are
offered only to clients of Republic and its
affiliates for whom Republic or its affiliates
exercises investment discretion.
YEAR-BY-YEAR
TOTAL RETURNS
AS OF 12/31
FOR ADVISER
SHARES*
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
34
<PAGE> 39
RISK/RETURN SUMMARY AND FUND EXPENSES logo
The table below compares the Fund's performance over time with the Russell
2000 Index, an unmanaged index of the 2000 smallest companies (representing
approximately 10% of the total market capitalization) in the Russell 3000
Index (representing 98% of the U.S. equity market by capitalization, and the
Lipper Small Company Fund Index, an unmanaged, equally weighted index composed
of the 30 largest Mutual Funds with a similar investment objective. The table
assumes reinvestment of dividends and distributions.
AVERAGE ANNUAL
TOTAL RETURNS (for
the periods ended
December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION PAST PAST PAST SINCE
DATE YEAR 5 YEARS 10 YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------
ADVISER SHARES Sept. 3, 1996 13.43% N/A N/A 19.48%
---------------------------------------------------------------------------------------
RUSSELL 2000 INDEX -2.55% 11.86% 12.92% 12.14%*
---------------------------------------------------------------------------------------
LIPPER SMALL COMPANY
FUND INDEX -13.62% -8.60% 11.88% -0.37%**
---------------------------------------------------------------------------------------
</TABLE>
* Since September 4, 1996.
** Since September 30, 1996.
35
<PAGE> 40
FEES AND EXPENSES*
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES ADVISER
(FEES PAID BY YOU DIRECTLY) SHARES
Maximum sales charge (load) on
purchases None
Maximum deferred sales charge
(load) None
ANNUAL FUND OPERATING EXPENSES ADVISER
(FEES PAID FROM FUND ASSETS) SHARES
Management fee .89%
Distribution (12b-1) fee None
Shareholder services fee .00%**
Other expenses .27%
Total Fund
operating expenses 1.16%
</TABLE>
As an investor in the
Republic Small Cap
Equity Fund, you will
pay the following fees
and expenses.
Shareholder transaction
fees are paid from your
account. Annual Fund
operating expenses are
paid out of Fund assets,
and are reflected in the
share price.
* The table reflects the combined fees of both the Small Cap Equity Fund and
the Small Cap Equity Portfolio.
** The Fund is authorized to pay a shareholder services fee of up to 0.25%,
on an annual basis, of the Funds average daily net assets. The fees are not
being paid currently, but the Fund may begin paying these fees in the future.
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
36
<PAGE> 41
EXAMPLE*
Use the table at right
to compare fees and
expenses with those of
other Funds. It
illustrates the amount
of fees and expenses you
would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the
end of each period
- no changes in the
Fund's operating
expenses
Because this example is
hypothetical and for
comparison only, your
actual costs may be
higher or lower.
<TABLE>
<S> <C> <C> <C> <C>
REPUBLIC SMALL CAP 1 3 5 10
EQUITY YEAR YEARS YEARS YEARS
ADVISER SHARES $118 $368 $638 $1,409
</TABLE>
* The example reflects the combined fees of both the Small Cap Equity Fund
and the Small Cap Equity Portfolio.
[PHOTO OF CLOCK]
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
LOGO
37
<PAGE> 42
INVESTMENT OBJECTIVES AND STRATEGIES
logo
REPUBLIC FIXED INCOME FUND
TICKER SYMBOL: ADVISER SHARES RFXIX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The investment objective of the Fixed Income Fund is to realize above-average
total return, 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 Fund seeks
to achieve its investment objective by investing all of its assets in the
Republic Fixed Income Portfolio, which has the same investment objective as
the Fund.
Consistent with the investment objectives of the Fixed Income Fund, the Fixed
Income Portfolio:
- will normally invest at least 65% of its total assets in fixed income
securities, which may include U.S. Government securities; corporate debt
securities and commercial paper; mortgage-backed and asset-backed
securities; obligations of foreign governments or international entities;
and foreign currency exchange-related securities.
- may invest more than 50% of its assets in mortgage-backed securities
including mortgage pass-through securities, mortgage-backed bonds and
CMOs, that carry a guarantee of timely payment.
- may lend its securities to brokers, dealers, and other financial
institutions for the purpose of realizing additional income. The Fund or
Portfolio may also borrow money for temporary or emergency purposes.
- may invest in derivative instruments, including, but not limited to,
financial futures, foreign currency futures, foreign currency contracts,
options on futures contracts, options on securities, and swaps.
- may invest in high yield/high risk securities as well as floating and
variable rate instruments and obligations.
- may engage in repurchase transactions, where the Portfolio purchases a
security and simultaneously commits to resell that security to the seller
at an agreed upon price on an agreed upon date.
- may invest in debt obligations by commercial banks and savings and loan
associations. These instruments would include certificates of deposit,
time deposits, and bankers' acceptances.
- may purchase and sell securities on a when-issued 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.
The Sub-Adviser selects securities for the Portfolio based on various
factors, including the outlook for the economy and anticipated changes in
interest rates and inflation. The Sub-Adviser may sell securities when it
believes that expected risk-adjusted return is low compared to other
investment opportunities.
38
<PAGE> 43
REPUBLIC NEW YORK TAX-FREE BOND FUND
TICKER SYMBOL: ADVISER SHARES N/A
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The investment objective of the New York Tax-Free Bond Fund is to provide
shareholders of the Fund with income exempt from regular federal, New York
State and New York City personal income taxes. The Fund seeks to achieve its
investment objective by investing its assets primarily in a non-diversified
portfolio of municipal bonds, municipal notes, and other debt instruments,
the interest on which is exempt from regular federal, New York State and New
York City personal income taxes.
Consistent with its investment objectives, the New York Tax-Free Bond Fund:
- will invest at least 80% of its assets in tax exempt obligations, and at
least 65%, if not all, of its assets in New York Municipal Obligations.
To the extent that New York Municipal Obligations do not have acceptable
risk- and tax-adjusted returns, the Fund may purchase Municipal
Obligations issued by other states 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.
- may invest, as a temporary defensive measure, in short-term obligations
or hold some of its assets in cash. If so, shareholders may have to pay
federal and New York State and New York City personal income taxes on the
interest received on these investments.
- may invest in derivative instruments, including, but not limited to,
options and futures contracts on fixed income securities and indices of
municipal securities.
- may invest in fixed income securities, which may include bonds,
debentures, mortgage securities, notes, bills, commercial paper, and U.S.
Government securities.
- may engage in repurchase transactions, where the Portfolio or Fund
purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon price on an agreed upon date.
- may purchase and sell securities on a when-issued 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.
- the adviser selects securities for the Portfolio based on various
factors, including the credit quality of the securities, the outlook for
the economy, and anticipated changes in interest rates and inflation. The
Adviser may sell securities when it believes that expected risk-adjusted
return is low compared to other investment opportunities.
INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVES AND STRATEGIES
logo
logo
39
<PAGE> 44
INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVES AND STRATEGIES
logo
logo
REPUBLIC EQUITY FUND
TICKER SYMBOL: ADVISER SHARES REQYX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The investment objective of the Equity Fund is long-term growth of capital
and income without excessive fluctuations in market value. The Fund seeks to
achieve its objective by investing at least 65% of its assets in equity
securities of seasoned medium and large-sized companies in sound financial
condition that are expected to show above average price appreciation.
To achieve its investment goal, the Fund employs two Sub-Advisers, each of
which pursues a different investment strategy. As investment manager of the
Fund, Republic is responsible for allocating the assets between the
Sub-Advisers. Although Republic usually divides the assets in half, it may
allocate a greater portion of the assets to one of the Sub-Advisers if
Republic believes it is in the best interests of the Fund.
The first Sub-Adviser invests its portion of the Fund's assets using a
"growth" style of investing. The second Sub-Adviser invests the remaining
assets using a "value" style of investing. Each approach relies on a careful
analysis of each company considered for investment, using internal
fundamental research analysis, to determine its source of earnings,
competitive edge, management strength, and level of industry dominance as
measured by market share.
"Growth" Strategy: The strategy focuses on investing 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. The Fund's assets may be invested in companies that do not
demonstrate such characteristics if such companies are expected 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.
"Value" Strategy: This approach seeks to obtain the Fund's investment
objective by investing in 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. The research focuses on two levels
of analysis: first, on understanding wealth shifts that occur within the
equity market; and second, on individual company research.
40
<PAGE> 45
REPUBLIC EQUITY FUND
TICKER SYMBOL: ADVISER SHARES REQYX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
Consistent with its investment objectives, the Republic Equity Fund:
- may invest in a broad range of equity securities of U.S. and foreign
companies, including debt securities, warrants or rights that can be
converted into common stock.
- may invest in derivative instruments, including, but not limited to,
futures contracts options on securities, securities indices, futures
contracts, and foreign currencies.
- may invest up to 35% in bonds and other debt securities, including lower
rated, high-yield bonds, commonly referred to as "junk bonds."
- may invest without limit in short-term debt and other high-quality, fixed
income securities, including U.S. and foreign government securities,
certificates of deposit and bankers' acceptances of U.S. and foreign
banks, and commercial paper of U.S. or foreign issuers.
- may engage in repurchase transactions, where the Fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed upon price on an agreed upon date.
- may lend securities to qualified brokers, dealers, banks and other
financial institutions for the purpose of realizing additional income.
INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVES AND STRATEGIES
logo
logo
41
<PAGE> 46
INVESTMENT OBJECTIVES AND STRATEGIES
logo
REPUBLIC INTERNATIONAL EQUITY FUND
TICKER SYMBOL: ADVISER SHARES RINEX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
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 and securities whose principal markets are
outside of the United States. The Fund seeks to achieve its investment
objective by investing all of its assets in the International Equity
Portfolio, which has the same investment objective as the Fund. 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.
Consistent with the investment objectives of the International Equity Fund,
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, trust
certificates, limited partnership interests and equity participations.
- may invest up to 20% of its assets in equity securities of companies in
emerging markets.
- intends to have at least three different countries represented in its
portfolio and intends to invest primarily in companies with large market
capitalizations.
- may, under exceptional circumstances, temporarily invest part or all of
its assets in fixed income securities denominated in foreign currencies,
domestic or foreign government securities, and nonconvertible preferred
stock, or hold its assets in cash or cash equivalents.
The Sub-Adviser's approach to investing relies on extensive field research
and direct company contact. It is a fundamental value-oriented approach that
attempts to identify the difference between the underlying value of a company
and the price of its security in the market.
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- may invest derivative instruments, including, but not limited to, foreign
currency futures contracts and options on foreign currencies and foreign
currency futures.
- may engage in repurchase transactions, where the Portfolio or Fund
purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon price on an agreed upon date.
- may lend securities to qualified brokers, dealers, banks and other
financial institutions for the purpose of realizing additional income.
- may purchase and sell securities on a "when-issued" 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.
INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVES AND STRATEGIES
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REPUBLIC SMALL CAP EQUITY FUND
TICKER SYMBOL: ADVISER SHARES RESCX
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The investment objective of the Small Cap Equity Fund is to seek long-term
growth of capital by investing 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. These companies 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. The Fund seeks to achieve its investment objective by
investing all of its assets in the Republic Small Cap Equity Portfolio, which
has the same investment objective as the Fund.
Consistent with the investment objective of the Small Cap Equity Fund, the
Small Cap Equity Portfolio:
- will invest at least 80% of its assets in equity securities, of which at
least 65% will be equity securities issued by small cap companies. Small
cap companies generally are those companies which have small (under $1
billion) market capitalizations and have gross revenues ranging from $10
million to $1 billion.
- may 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.
- may invest up to 20% of its assets in foreign securities.
- will invest primarily in common stocks, but may, to a limited extent,
seek appreciation in other types of securities when relative values and
market conditions make such purchases appear attractive.
- may invest part or all of its assets in cash (including foreign currency)
or short-term obligations during times of international, political or
economic uncertainty or turmoil, or in order to meet anticipated
redemption requests. These investments may include certificates of
deposit, commercial paper, short-term notes and U.S. Government
securities.
INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVES AND STRATEGIES
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- may invest in derivative instruments, including, but not limited to,
financial and foreign currency futures contracts as well as options on
securities, foreign currencies, and foreign currency futures.
- may invest in fixed income securities, which may include bonds,
debentures, mortgage securities, notes, bills, commercial paper, and U.S.
Government securities.
- may engage in repurchase transactions, where the Portfolio or Fund
purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon price on an agreed upon date.
- may lend securities to qualified brokers, dealers, banks and other
financial institutions for the purpose of realizing additional income.
The Sub-Adviser uses a bottom-up, as opposed to a top-down, investment style
in managing the Fund. Securities are selected based upon fundamental analysis
of a company's cash flow, industry position, potential for high profit
margins, and strength of management, as well as other factors.
INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVES AND STRATEGIES
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INVESTMENT RISKS
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GENERAL RISK FACTORS: ALL FUNDS
An investment in the Funds is subject to investment risks, including the
possible loss of the principal amount invested. The Funds' performance per
share will change daily based on many factors, including fluctuation in
interest rates, the quality of the instruments in each Fund's investment
portfolio, national and international economic conditions and general market
conditions.
Generally, the Fixed Income Fund, the New York Tax-Free Bond Fund, the Equity
Fund, the International Equity Fund, and the Small Cap Equity and their
corresponding portfolios, will be subject to the following risks:
- Fixed Income Securities: The value of investments in fixed income
securities will fluctuate as interest rates decrease or increase. In
addition, these securities may accrue income that is distributable to
shareholders even though the income may not yet have been paid to a
Fund or Portfolio. If so, a Fund or Portfolio may need to liquidate
some of its holdings and forego the purchase of additional
income-producing assets.
- Credit Risks: The Funds could lose money if the issuer of a fixed
income security owned by a Fund or Portfolio is unable to meet its
financial obligations.
- Derivatives: The Funds may invest in various types of derivative
securities. Generally, a derivative is a financial arrangement the
value of which is based on (or "derived" from) a traditional security,
asset, or market index. Derivative securities include, but are not
limited to, options and futures transactions, forward foreign currency
exchange contracts, swaps, mortgage-and asset-backed securities, and
"when-issued" securities. There are, in fact, many different types of
derivative securities and many different ways to use them.
The use of derivative securities is a highly specialized activity and
there can be no guarantee that their use will increase the return of
the Funds or protect their assets from declining in value. In fact,
investments in derivative securities may actually lower a Fund's
return if such investments are timed incorrectly or are executed under
adverse market conditions. In addition, the lack of a liquid market
for derivative securities may prevent the Fund from selling
unfavorable positions, which could result in adverse consequences.
Each Fund may invest in different kinds of derivative securities. Each
Fund's Statement of Additional Information contains a detailed
description of the derivative securities in which the Fund may invest
and a discussion of the risks associated with each security. To
request a Statement of Additional Information, please refer to the
back cover of this Prospectus.
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INVESTMENT RISKS
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- Repurchase Agreements: 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 Portfolio or Fund may incur a
loss upon disposition of the securities. There is also the risk that the
seller of the agreement may become insolvent and subject to liquidation.
- Illiquid Securities: The Funds may, at times, hold illiquid securities,
by virtue of the absence of a readily available market for certain of its
investments, or because of legal or contractual restrictions on sale. A
Fund could lose money if it is unable to dispose of an investment at a
time that is most beneficial to the Fund.
- Returns Are Not Guaranteed: 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.
YEAR 2000 RISK:
Like other funds and business organizations around the world, the Funds could
be adversely affected if the computer systems used by the Adviser and the
Funds' other service providers do not properly process and calculate
date-related information for the year 2000 and beyond. In addition, Year 2000
issues may adversely affect companies in which the Funds invest where, for
example, such companies incur substantial costs to address Year 2000 issues or
suffer losses caused by the failure to adequately or timely do so.
The Funds have been assured that the Advisers and the Funds' other service
providers (i.e., Administrator, Transfer Agent, Fund Accounting Agent,
Custodian and Distributor) have developed and are implementing clearly defined
and documented plans intended to minimize risks to services critical to the
Funds' operations associated with Year 2000 issues. Internal efforts include a
commitment to dedicate adequate staff and funding to identify and remedy Year
2000 issues, and specific actions such as inventorying software systems,
determining inventory items that may not function properly after December 31,
1999, reprogramming or replacing such systems, and retesting for Year 2000
readiness. The Funds' Advisers and service providers are likewise seeking
assurances from their respective vendors and suppliers that such entities are
addressing any Year 2000 issues, and each provider intends to engage, where
appropriate, in private and industry or "streetwide" interface testing of
systems for Year 2000 readiness.
In the event that any systems upon which the Funds are dependent are not Year
2000 ready by December 31, 1999, administrative errors and account maintenance
failures would likely occur.
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While the ultimate costs or consequences of incomplete or untimely resolution
of Year 2000 issues by the Advisers or the Funds' service providers cannot be
accurately assessed at this time, the Funds currently have no reason to
believe that the Year 2000 plans of the Advisers and the Funds' service
providers will not be completed by December 31, 1999, or that the anticipated
costs associated with full implementation of their plans will have a material
adverse impact on either their business operations or financial condition of
those of the Funds. The Funds and the Advisers will continue to closely
monitor developments relating to this issue, including development by the
Advisers and the Funds' service providers of contingency plans for providing
back-up computer services in the event of a systems failure or the inability
of any provider to achieve Year 2000 readiness. Separately, the Advisers will
monitor potential investment risk related to Year 2000 issues.
SPECIFIC RISK FACTORS: FOREIGN AND HIGH YIELD/HIGH RISK SECURITIES
<TABLE>
<S> <C>
FIXED INCOME FUND EQUITY FUND
SMALL CAP EQUITY FUND INTERNATIONAL EQUITY FUND
</TABLE>
Foreign securities involve investment risks different from those associated
with domestic securities. Foreign investments may be riskier than U.S.
investments because of unstable international political and economic
conditions, foreign controls on investment and currency exchange rates,
withholding taxes, and a lack of adequate company information, liquidity, and
government regulation.
Investments in foreign emerging markets present greater risk than investing
in foreign issuers in general. The risk of political or social upheaval is
greater in emerging markets. In addition, a number of emerging markets
restrict foreign investment in stocks. 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.
Moreover, 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.
In January 1999, the European Monetary Union introduced a common currency for
the European Union (the "euro"). Significant uncertainty surrounds the effect
of the euro on the value of securities denominated in local European
currencies. If the Fund or Portfolio holds investments in countries with
currencies replaced by the euro, those investments may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
INVESTMENT RISKS
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High yield/high risk securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than higher grade
securities. If the issuer of high yield/high risk securities defaults, the
Fund or Portfolio may incur additional expenses to seek recovery. High
yield/high risk securities 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 Funds.
SPECIFIC RISK FACTORS: "WHEN-ISSUED" SECURITIES
NEW YORK TAX-FREE FUND
FIXED INCOME FUND
INTERNATIONAL EQUITY FUND
The price and yield of securities purchased on a "when-issued" basis is fixed
on the date of the commitment but payment and delivery are scheduled for a
future date. Consequently, these securities present a risk of loss if the
other party to a "when-issued" transaction fails to deliver or pay for the
security. In addition, purchasing securities on a "when-issued" 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" security may have a lesser (or
greater) value at the time of settlement than the Fund's payment obligation
with respect to that security.
SPECIFIC RISK FACTORS: MORTGAGE-BACKED SECURITIES AND SWAPS
FIXED INCOME FUND
Mortgage- and asset-backed securities are debt instruments that are secured by
interests in pools of mortgage loans or other financial assets. Mortgage- and
asset-backed securities are subject to prepayment, extension, market, and
credit risks. 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. Conversely, an extension risk is present
during periods of rising interest rates, when a reduction in the rate of
prepayments may significantly lengthen the effective durations of such
securities. Market risk reflects the risk that the price of the security may
fluctuate over time as a result of changing interest rates or the lack of
liquidity. Credit risk reflects the risk that the Fund or Portfolio may not
receive all or part of its principal because the issuer has defaulted on its
obligations.
A swap is an agreement to change the return generated by one instrument for
the return generated by another instrument. The use of swaps is a highly
specialized activity that involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
other party to the swap defaults, the Fund or Fixed Income Portfolio may lose
interest payments that it is contractually entitled to receive and may, in
some cases, lose the entire principal value of the investment security.
INVESTMENT RISKS
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SPECIFIC RISK FACTORS: NON-DIVERSIFICATION
NEW YORK TAX-FREE BOND FUND
Because the Fund will concentrate its investments in New York and may
concentrate a significant portion of its assets in the securities of a single
issuer or sector, investment in this Fund may pose investment risks greater
than those posed by a more broadly diversified portfolio. Consequently, unlike
a more diversified portfolio, the value of the Fund's assets could lose
significant value due to the poor performance of a single issuer or sector.
The Fund may also be subject to credit risks. Historically, New York State
and other issuers of New York Municipal Obligations have experienced periods
of financial difficulty. Because a significant share of New York State's
economy depends on financial and business services, any change in market
conditions that adversely affect these industries could affect the ability of
New York and its localities to meet its financial obligations. The financial
stability of New York State is closely related to the financial stability of
its localities, particularly New York City, which has required and continues
to require significant financial assistance from New York. For example, in
1975, the State took action to restore the financial health of New York City
by establishing, among other things, a supervisory system that monitored the
City's finances. To the extent that New York City and other New York
localities require the State's assistance, the ability of the State to meet
its own obligations as they come due or to obtain additional financing could
be adversely affected. If this occurs, you could lose money on your
investment.
INVESTMENT RISKS
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FUND MANAGEMENT
FUND MANAGEMENT
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THE INVESTMENT ADVISER
Republic National Bank of New York ("Republic" or the "Adviser"), 452 Fifth
Avenue, New York, New York 10018, is the investment adviser for the New York
Tax-Free Bond Fund. Republic is also the investment manager for the Equity
Fund, the Fixed Income Portfolio, the International Portfolio, and the Small
Cap Equity Portfolio. As investment manager of the Equity Fund and the
Portfolios, Republic provides general supervision over the investment
management functions performed by the investment advisers.
Republic is a wholly owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of September 30, 1998, Republic was the
17th largest commercial bank in the United States as measured by deposits.
Republic currently provides investment advisory services for individuals,
trusts, estates and institutions. Republic manages more than $31.9 billion in
assets including $1.39 billion in the Republic Family of Funds.
The following companies serve as investment advisers of their respective Fund
and Portfolios. The investment advisers make the day-to-day investment
decisions and continuously review, supervise and administer investment
programs.
The Fixed Income Fund (Fixed Income Portfolio): Miller Anderson & Sherrard
("MAS"), 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 December 31, 1998, MAS had in excess of $1.62
billion in assets under management.
The New York Tax-Free Bond Fund: Republic serves as the investment adviser
to the Fund. A description of Republic's experience in investment management
is set forth above.
The Equity Fund: Alliance Capital Management L.P. ("Alliance"), 1345 Avenue
of the Americas, New York, New York 10105, and Brinson Partners, Inc.
("Brinson"), 209 South LaSalle Street, Chicago, IL 60604, both serve as
investment advisers to the Equity Fund. Alliance pursues a "growth" style of
investing, while Brinson pursues a "value" style of investing. As investment
manager, Republic is responsible for allocating the Fund's assets between
Alliance and Brinson for purposes of investment.
Alliance is a leading global investment adviser supervising client accounts
with assets totaling $286.7 billion as of December 31, 1998. Alliance's
clients are primarily major corporate employee benefit funds, public employee
retirement systems, investment companies, foundations and endowment funds.
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FUND MANAGEMENT
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THE INVESTMENT ADVISER
Brinson is an investment management firm managing, as of September 30, 1998,
approximately $163 billion, primarily for pension and profit sharing
institutional accounts. Brinson and its predecessor entities have managed
domestic and international investment assets since 1974 and global investment
assets since 1982. Brinson also serves as the investment adviser to seven
other investment companies.
The International Equity Fund (International Equity Portfolio): Capital
Guardian Trust Company ("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. As of December 31, 1998, CGTC
managed $83 billion of assets primarily for large institutional clients.
The Small Cap Equity Fund (Small Cap Equity Portfolio): MFS Institutional
Advisers, Inc. ("MFSI"), together with its parent company Massachusetts
Financial Services Company ("MFS"), is America's oldest mutual fund
organization. MFSI has its principal office at 500 Boylston Street, Boston,
MA 02116. Net assets under the management of the MFS organization were
approximately $97.8 billion on behalf of over two million investor accounts
as of December 31, 1998. As of that date, the MFS organization managed
approximately $72.7 billion of assets invested in equity securities and
approximately $25.1 billion of assets invested in fixed-income securities.
For these advisory and management services, the Funds paid a management fee
as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
AS OF 10/31/98*
<S> <C>
------------------------------
Fixed Income Fund 0.36%
------------------------------
New York Tax-Free Bond Fund 0.23%
------------------------------
Equity Fund 0.38%
------------------------------
International Equity Fund 0.78%
------------------------------
Small Cap Equity Fund 0.99%
-----------------------------------------------------------------------
</TABLE>
* Republic waived a portion of its contractual fees with the New York
Tax-Free Bond Fund and the Small Cap Equity Fund for the most recent fiscal
year. Actual fees paid on behalf of the Funds and Portfolios during the
previous fiscal year may be higher than the current contractual fees due to
breakpoints in the Adviser's fee, which are based on the value of the assets
in a Fund or Portfolio.
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FUND MANAGEMENT
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PORTFOLIO MANAGERS
THE FIXED INCOME FUND (FIXED INCOME PORTFOLIO):
- The Portfolio Manager for the Fixed Income Portfolio is Kenneth B.
Dunn. Mr. Dunn has been a Partner at MAS since prior to 1991. He has
served as the Portfolio Manager of the MAS Fixed Income and MAS
Domestic Fixed Income Portfolios since 1987; the MAS Fixed Income II
Portfolio since 1990; the MAS Mortgage-Backed Securities and Special
Purpose Fixed Income Portfolios, since 1992; and the MAS Municipal and
PA Municipal Portfolios, since 1994.
THE NEW YORK TAX-FREE BOND FUND:
- Peter J. Loftus, Senior Portfolio Manager with Republic since 1997, is
primarily responsible for the day-to-day management of the New York
Tax-Free Bond Fund's portfolio. Prior to joining Republic, Mr. Loftus
was a Senior Vice President at Dillon, Read & Co. from August, 1992
through August, 1997, where he managed tax-exempt trading and hedging
for the firm. He also spent seven years (1984 - 1991) at Paine Webber
as a Vice President involved in the trading and distribution of
tax-exempt securities.
THE EQUITY FUND:
- John L. Blundin, Executive Vice President and Portfolio Manager and
Discipline Growth Team Leader, and Christopher Toub, a Senior Vice
President, Equity Portfolio Manager and Director of Global Equity
Research, have primary portfolio management responsibility for the
Equity Fund's assets allocated to Alliance. In all, Mr. Blundin has 34
years of investment experience. For 26 years, including the last five
years, Mr. Blundin has served as a portfolio manager at Alliance. Mr.
Toub has 17 years of investment experience, including the last five
years of experience as a portfolio manager at Alliance.
- Jeffrey J. Diermeier, Managing Partner-U.S. Equities at Brinson, has
primary portfolio management responsibility for the Fund's assets
allocated to Brinson. Including the last five years, Mr. Diermeier has
21 years of investment experience at Brinson.
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PORTFOLIO MANAGERS
CONTINUED
THE INTERNATIONAL EQUITY FUND (INTERNATIONAL EQUITY PORTFOLIO):
The following persons are primarily responsible for portfolio management of
the International Equity Portfolio:
- David Fisher, Chairman of CGTC, has had 32 years experience as an
investment professional (28 years with CGTC or its affiliates,
including the last five years).
- Harmut Giesecke, Senior Vice President and Director of Capital
International, Inc., has had 26 years experience as an investment
professional (24 years with CGTC or its affiliates, including the last
five years).
- Nancy Kyle, Senior Vice President of CGTC, has had 24 years experience
as an investment professional (7 years with CGTC or its affiliates,
including the last five years). 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 (14 years with CGTC or its
affiliates, including the last five years).
- Robert Ronus, President of CGTC, has had 29 years experience as an
investment professional (23 years with CGTC or its affiliates,
including the last five years).
- 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.
FUND MANAGEMENT
FUND MANAGEMENT
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PORTFOLIO MANAGERS
CONTINUED
SMALL CAP EQUITY FUND (SMALL CAP EQUITY PORTFOLIO):
- The portfolio manager of the Small Cap Equity Portfolio is Brian
Stack, Senior Vice President of MFSI. Mr. Stack has been employed by
MFSI since 1993.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS"), whose address is 3435 Stelzer Road, Columbus,
Ohio 43219-3035, serves as the Funds' administrator. Management and
administrative services of BISYS include providing office space, equipment
and clerical personnel to the Funds and supervising custodial, auditing,
valuation, bookkeeping, legal and dividend dispersing services.
BISYS also serves as the distributor of the Funds' shares. BISYS may provide
financial assistance in connection with pre-approved seminars, conferences
and advertising to the extent permitted by applicable state or
self-regulatory agencies, such as the National Association of Securities
Dealers.
Each Fund's Statement of Additional Information has more detailed information
about the Investment Adviser, Distributor and Administrator, and other
service providers.
FUND MANAGEMENT
FUND MANAGEMENT
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THE TWO-TIER FUND STRUCTURE
The Fixed Income Fund, the International Equity Fund, and the Small Cap
Equity Fund seek to achieve their investment objectives by investing all of
each Fund's assets in the Republic Fixed Income Portfolio, Republic
International Equity Portfolio, and the Republic Small Cap Equity Portfolio,
respectively, series of a separate open-end investment company each having
the same investment objectives as their respective Funds. This is referred to
as a "master/feeder" arrangement because one fund (the "feeder" fund) "feeds"
its assets into another fund (the "master fund"). The two-tier investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach. For example, other mutual funds
and institutional investors may invest in the Portfolios on the same terms
and conditions as the Funds (although they may have different sales
commissions and other operating expenses that may generate different
returns). As with traditionally structured funds which have large investors,
the actions of these mutual funds and institutional investors (or other large
investors) may have a material effect on smaller investors in the Fund. For
example, if a large investor withdraws from a portfolio (a "master fund"),
operating expenses may increase, thereby producing lower returns for
investors in the Funds ("feeder funds"). Additionally, the portfolio may
become less diverse, resulting in increased portfolio operating expenses.
Except as permitted, whenever a Fund is requested to vote on a matter
pertaining to its corresponding Portfolio, the Fund will hold a meeting of
its shareholders. At the meeting of investors in the Portfolio, the Fund will
cast all of its votes in the same proportion as the votes of the Fund's
shareholders.
The investment objectives of the Funds and the Portfolios may be changed
without approval of the shareholders. A Fund may withdraw its investment in
its corresponding Portfolio as a result of certain changes in the Portfolio's
investment objective, policies or restrictions or if it is in the best
interests of the Fund to do so.
FUND MANAGEMENT
FUND MANAGEMENT
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PRICING OF FUND SHARES
-----------------------
HOW NAV IS CALCULATED
The NAV is calculated
by adding the total
value of a Fund's
investments and other
assets, subtracting its
liabilities and then
dividing that figure by
the number of
outstanding shares of
the Fund:
NAV =
Total Assets -
Liabilities
-----------------------
Number of Shares
Outstanding
-----------------------
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.
THE INCOME AND EQUITY FUNDS
The net asset value per share (NAV) of
the Fixed Income Fund and the New York
Tax-Free Bond Fund (collectively, the
"Income Funds"), and the Equity Fund,
the International Equity Fund, and the
Small Cap Equity Fund (collectively, the
"Equity Funds"), is determined once each
day -at the close of regular trading on
the New York Stock Exchange, normally at
4 p.m. Eastern time on days the Exchange
is open.
The New York Stock Exchange is open
every weekday except for the days on
which the following holidays are
observed: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and
Christmas Day.
Your order for purchase, sale or
exchange of shares is priced at the next
NAV calculated after your order is
accepted by the Fund plus any applicable
sales charge. If you sell Class B Shares
or Class C Shares, a contingent deferred
sales load may apply, which would reduce
the amount of money paid to you by the
Fund. For more information on sales
charges, see the section on
"Distribution Arrangements/Sales
Charges."
PURCHASING AND ADDING TO YOUR SHARES
You may purchase Funds through the Republic Funds Distributor or through
banks, brokers and other investment representatives, which may charge
additional fees and may require higher minimum investments or impose other
SHAREHOLDER INFORMATION
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57
limitations on buying and selling shares. If you purchase shares through an
investment representative, that party is responsible for transmitting
orders by close of business and may have an earlier cut-off time for
purchase and sale requests. Consult your investment representative or
institution for specific information.
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PURCHASING AND ADDING TO YOUR SHARES
All purchases must be in
U.S. dollars. A fee will
be charged for any
checks that do not
clear. Third-party
checks are not accepted.
A Fund may waive its
minimum purchase
requirement and the
Distributor may reject a
purchase order if it
considers it in the best
interest of the Fund and
its shareholders.
<TABLE>
<CAPTION>
MINIMUM
INITIAL MINIMUM
ACCOUNT TYPE INVESTMENT SUBSEQUENT
<S> <C> <C>
ADVISER SHARES
Regular (non-
retirement) $1,000 $100
-----------------------------------------------
Retirement (IRA) $ 250 $100
-----------------------------------------------
Automatic Investment
Plan $ 250 $ 25
</TABLE>
AVOID 31% TAX WITHHOLDING
The Funds are required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Funds with their certified taxpayer identification number in compliance with
IRS rules, or if you have been notified by the IRS that you are subject to
backup withholding. Backup withholding is not an additional tax; rather, it
is a way in which the IRS ensures it will collect taxes otherwise due. Any
amounts withheld may be credited against your U.S. Federal income tax
liability. To avoid this, make sure you provide your correct Tax
Identification Number (Social Security Number for most investors) on your
account application.
SHAREHOLDER INFORMATION
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SHAREHOLDER INFORMATION
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PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
logoBY REGULAR MAIL OR BY OVERNIGHT SERVICE
Initial Investment:
If purchasing through your financial adviser or brokerage account, simply
tell your adviser or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. For all other
purchases, follow the instructions below.
1. Carefully read, complete, and sign the account application. Establishing
your account privileges now saves you the inconvenience of having to add
them later.
2. Make check, bank draft or money order payable to "Republic Funds" and
include the name of the appropriate Fund(s) on the check.
Mail to: Republic Funds, 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Subsequent:
1. Use the investment slip attached to
your account statement.
Or, if unavailable,
2. Include the following information in
writing:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your
check.
Mail investment slip and check to: Republic Funds, 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
logoELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be
a United States Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
1-888-525-5757. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-888-525-5757 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow
financial institutions to
send funds to each other,
almost instantaneously. With
an electronic purchase or
sale, the transaction is
made through the Automated
Clearing House (ACH) and may
take up to eight days to
clear. There is generally no
fee for ACH transactions.
60
<PAGE> 64
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
logoBY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
For initial investment:
Fax the completed application, along with a request for a confirmation number
to 1-888-525-5757. Follow the instructions below after receiving your
confirmation number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to: The Republic Funds,
3435 Stelzer Road, Columbus, Ohio 43219-3035, Attn. Transfer Agent.
Name of Bank
Routing Number: ABA #011001438
Acct. #5999-99451
Include:
Your name
Your confirmation number
After instructing your bank to wire the funds, call 1-888-525-5757 to advise
us of the amount being transferred and the name of your bank
You can add to your account by using the convenient options described below.
The Funds reserve the right to change or eliminate these privileges at any
time with 60 days notice.
SHAREHOLDER INFORMATION
logo
logo
61
<PAGE> 65
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the
Funds from your bank account, through
payroll deduction or from your federal
employment, Social Security or other
regular government checks. Automatic
investments can be as little as $25, once
you've invested the $250 minimum required
to open the account.
To invest regularly from your bank
account:
Complete the Automatic Investment Plan
portion on your Account Application. Make
sure you note:
J Your bank name, address and account
number
J The amount you wish to invest
automatically (minimum $25)
J How often you want to invest (every
month, 4 times a year, twice a year
or once a year)
J Attach a voided personal check.
To invest regularly from your paycheck or
government check:
Call 1-888-525-5757 for an enrollment
form.
DIRECTED DIVIDEND OPTION
By selecting the appropriate
box in the Account
Application, you can elect to
receive your distributions in
cash (check) or have
distributions (capital gains
and dividends) reinvested in
another Republic Fund without
a sales charge. You must
maintain the minimum balance
in each Fund into which you
plan to reinvest dividends or
the reinvestment will be
suspended and your dividends
paid to you. The Fund may
modify or terminate this
reinvestment option without
notice. You can change or
terminate your participation
in the reinvestment option at
any time.
-----------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Capital gains are distributed at least annually.
Distributions are made on a per share basis regardless of how long you've
owned your shares. Therefore, if you invest shortly before the distribution
date, some of your investment will be returned to you in the form of a
distribution.
-----------------------------------------------------------------------------
SHAREHOLDER INFORMATION
logo
logo
62
<PAGE> 66
SELLING YOUR SHARES
You may sell your shares at
any time. Your sales price
will be the next NAV after
your sell order is received
by the Fund, its transfer
agent, or your investment
representative. Normally
you will receive your
proceeds within a week
after your request is
received. See section on
"General Policies on
Selling Shares" below.
WITHDRAWING MONEY FROM YOUR FUND
INVESTMENT
As a mutual fund shareholder, you are
technically selling shares when you
request a withdrawal in cash. This is
also known as redeeming shares or a
redemption of shares.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through you financial adviser or broker, ask him or
her for redemption procedures. Your adviser and/or broker may have
transaction minimums and/or transaction times which will affect your
redemption.
For all other sales transactions, follow the instructions below.
logoBY TELEPHONE
(unless you have declined telephone sales privileges)
1. Call 1-800-525-5757 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer). (See "General Policies on
Selling Shares -- Verifying Telephone Redemptions" below)
logoBY MAIL OR OVERNIGHT SERVICE
(See "General Policies on Selling Shares -- Redemptions in Writing Required"
below)
1. Call 1-888-525-5757 to request redemption forms or write a letter of
instruction indicating:
- your Fund and account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
2. Mail to: Republic Funds 3435 Stelzer Road Columbus, Ohio 43219-3035.
SHAREHOLDER INFORMATION
logo
logo
63
<PAGE> 67
SHAREHOLDER INFORMATION
logo
SELLING YOUR SHARES
CONTINUED
logoWIRE TRANSFER
You must indicate this option on your account application.
Call 1-888-525-5757 to request a wire transfer.
If you call by 4 p.m. Eastern time, your payment will normally be wired to
your bank on the next business day. Otherwise, it will normally be wired on
the second business day after your call.
The Fund may charge a wire transfer fee.
Note: Your financial institution may also charge a separate fee.
logoELECTRONIC REDEMPTIONS
Call 1-888-525-5757 to request an electronic redemption.
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds credited within 8 days.
Your bank may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $50. To activate this
feature:
- Make sure you've checked the appropriate box on the Account Application,
or call 1-888-525-5757.
- Include a voided personal check.
- Your account must have a value of $10,000 or more to start withdrawals.
- If the value of your account falls below $1,000, you may be asked to add
sufficient funds to bring the account back to $1,000, or the Fund may
close your account and mail the proceeds to you.
64
<PAGE> 68
SELLING YOUR SHARES
CONTINUED
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee which include each of
the following:
- Redemptions over $10,000
- Your account registration or the name(s) in your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration.
You must obtain a signature guarantee from members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Signature
Program) or SEMP (Stock Exchanges Medallion Program). Members are subject to
dollar limitations which must be considered when requesting their guarantee.
The Transfer Agent may reject any signature guarantee if it believes the
transaction would otherwise be improper.
SHAREHOLDER INFORMATION
logo
logo
65
<PAGE> 69
SHAREHOLDER INFORMATION
logo
logo
SELLING YOUR SHARES
CONTINUED
VERIFYING TELEPHONE REDEMPTIONS
The Funds make every effort to insure that telephone redemptions are only
made by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity.
Given these precautions, unless you have specifically indicated on your
application that you do not want the telephone redemption feature, you may be
responsible for any fraudulent telephone orders. If appropriate precautions
have not been taken, the Transfer Agent may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has
cleared (which may require up to 15 business days). You can avoid this delay
by purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
CLOSING OF SMALL ACCOUNTS
If your account falls below $50 due to redemptions, the Fund may ask you to
increase your balance. If it is still below $50 after 30 days, the Fund may
close your account and send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash, if
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be canceled and the money reinvested in
the Fund.
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
There is no sales charge on purchases of Adviser Shares. In addition, there
are no 12b-1 distribution fees paid from the Funds for Adviser Class Shares.
SHAREHOLDER SERVICE FEES
Adviser Shares are subject to a shareholder servicing fee of up to .25%.
66
<PAGE> 70
EXCHANGING YOUR SHARES
You can exchange your shares in one Fund for shares of the same class of
another Republic Fund, usually without paying additional sales charges (see
"Notes on Exchanges" below). No transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Republic Funds, 3435
Stelzer Road, Columbus, Ohio 43219-3035 or by calling 1-888-525-5757. Please
provide the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, excessive exchange activity may be limited.
NOTES ON EXCHANGES
When exchanging from a Fund that has no sales charge or a lower sales charge
to a Fund with a higher sales charge, you will pay the difference.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
Be sure to read the Prospectus carefully of any Fund into which you wish to
exchange shares.
SHAREHOLDER INFORMATION
logo
logo
67
<PAGE> 71
SHAREHOLDER INFORMATION
logo
logo
DIVIDENDS, DISTRIBUTIONS AND TAXES
- Any income a Fund receives in the form of interest and dividends is paid
out, less expenses, to its shareholders. Shares begin accruing interest and
dividends on the day they are purchased.
- Dividends on all income Funds are paid monthly. Capital gains for all Funds
are distributed at least annually. Unless a shareholder elects to receive
dividends in cash, dividends will be automatically invested in additional
shares of the Fund.
- Dividends and distributions are treated in the same manner for federal
income tax purposes whether you receive them in cash or in additional
shares.
- Dividends are taxable as ordinary income. Taxation on capital gains will
vary with the length of time a Fund has held the security - not how long the
shareholder has been in a Fund.
- Dividends are taxable in the year in which they are paid, even if they
appear on your account statement the following year. If a Fund declares a
dividend in October, November or December of a year and distributes the
dividend in January of the next year, you may be taxed as if you received it
in the year declared rather than the year received.
- There may be tax consequences to you if you dispose of your shares in a
Fund, for example, through redemption, exchange or sale. The amount of any
gain or loss and the rate of tax will depend mainly upon how much you pay
for the shares, how much you sell them for, and how long you held them.
- You will be notified in January each year about the federal tax status of
distributions made by the Funds. The notice will tell you which dividends
and redemptions must be treated as taxable ordinary income and which (if
any) are short-term or long-term capital gain. Depending on your residence
for tax purposes, distributions also may be subject to state and local
taxes, including withholding taxes.
- Foreign shareholders may be subject to special withholding requirements.
- If you invest through a tax-deferred retirement account, such as an IRA, you
generally will not have to pay tax on dividends or capital gains until they
are distributed from the account. These accounts are subject to complex tax
rules, and you should consult your tax adviser about investment through a
tax-deferred account.
- There is a penalty on certain pre-retirement distributions from retirement
accounts.
- Because everyone's tax situation is unique, always consult your tax
professional about federal, state, and local tax consequences.
68
<PAGE> 72
The financial highlights tables are intended to help you understand the
Fund's financial performance for the past five years, or, if shorter, the
period of the Fund's operations. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in the Fund
(assuming reinvestment of all dividends and distributions for the indicated
periods). This information has been derived from information audited by KPMG
Peat Marwick LLP, whose report, along with the Fund's financial statements,
are included in the annual report, which is available upon request.
Financial information for Class C Shares of the Funds is not shown because
Class C Shares were not offered prior to November 3, 1998.
FINANCIAL HIGHLIGHTS
LOGO
LOGO
69
<PAGE> 73
REPUBLIC FIXED INCOME FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 9, 1995
FOR THE YEAR ENDED OCTOBER 31, (COMMENCEMENT
------------------------------ OF OPERATIONS) TO
1998 1997 1996 OCTOBER 31, 1995
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD $ 10.92 $ 10.67 $ 10.96 $ 10.00
---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.65 0.59 0.59 0.46
Net gains or losses on securities
(realized and unrealized) 0.02 0.31 0.08 0.96
---------------------------------------------------------------------------------------
Total income from investment
operations 0.67 0.90 0.67 1.42
---------------------------------------------------------------------------------------
Less distributions:
Dividends (from net investment
income) (0.65) (0.64) (0.59) (0.46)
Distributions (from capital
gains) (0.13) (0.01) (0.37) --
---------------------------------------------------------------------------------------
Total distributions (0.78) (0.65) (0.96) (0.46)
---------------------------------------------------------------------------------------
Net change in net asset value per
share, end of period (0.11) 0.25 (0.29) 0.96
---------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF
PERIOD $ 10.81 $ 10.92 $ 10.67 $ 10.96
---------------------------------------------------------------------------------------
Total return 6.26% 9.14% 6.51% 14.37%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $97,728 $71,686 $42,424 $26,128
Ratio of expenses to average net
assets 0.78% 0.83% 0.83% 0.91%(b)
Ratio of net income to average
net assets 5.87% 5.92% 5.51% 5.63%(b)
Ratio of expenses to average net
assets (a) 0.78% 0.85% 1.06% 1.72%(b)
Ratio of net income to average
net assets (a) 5.87% 5.90% 5.28% 4.82%(b)
Portfolio Rate of the Portfolio 126.40% 349.00% 152.00% 100.00%
</TABLE>
(a) During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements
had not occurred, the ratios would have been as indicated.
(b) Annualized.
(c) Not annualized.
See notes to financial statements.
FINANCIAL HIGHLIGHTS
LOGO
LOGO
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<PAGE> 74
REPUBLIC NEW YORK TAX-FREE BOND FUND
CLASS Y (ADVISER) SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 1, 1996
OCTOBER 31, (DATE OF INITIAL
------------------ OFFERING) TO
1998 1997 OCTOBER 31, 1996
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING OF
PERIOD $10.64 $10.30 $10.18
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.49 0.46 0.16
Net gains on securities (realized and
unrealized) 0.33 0.36 0.12
---------------------------------------------------------------------------------
Total income from investment
operations 0.82 0.82 0.28
---------------------------------------------------------------------------------
Less distributions:
Dividends (from net investment income) (0.49) (0.46) (0.16)
Distributions (from capital gains) (0.04) (0.02) --
---------------------------------------------------------------------------------
Total dividends and distributions (0.53) (0.48) (0.16)
---------------------------------------------------------------------------------
Net change in net asset value per share 0.29 0.34 0.12
---------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF PERIOD $10.93 $10.64 $10.30
---------------------------------------------------------------------------------
Total return 7.87% 8.38% 3.52%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $8,641 $8,901 $8,233
Ratio of expenses to average net assets 0.70% 0.78% 0.60%(b)
Ratio of net income to average net
assets 4.53% 4.66% 4.78%(b)
Ratio of expenses to average net assets
(a) 0.95% 1.27% 2.26%(b)
Ratio of net income to average net
assets (a) 4.28% 4.17% 3.12%(b)
Portfolio turnover rate(d) 100.35% 163.46% 178.11%
</TABLE>
(a) During the period, certain fees were voluntarily reduced and expenses
reimbursed. If such voluntary fee reductions and expense reimbursements
had not occurred, the ratios would have been as indicated.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole,
without distinguishing between the classes of shares issued.
See notes to financial statements.
FINANCIAL HIGHLIGHTS
LOGO
LOGO
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<PAGE> 75
REPUBLIC EQUITY FUND
CLASS Y (ADVISER) SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 1, 1996
OCTOBER 31, (DATE OF INITIAL
------------------- OFFERING) TO
1998 1997 OCTOBER 31, 1996
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE, BEGINNING
OF PERIOD $ 15.01 $ 11.93 $ 11.49
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08 0.10 0.08
Net gains on securities (realized
and unrealized) 2.79 3.33 0.42
-------------------------------------------------------------------------------
Total income from investment
operations 2.87 3.43 0.50
-------------------------------------------------------------------------------
Less distributions:
Dividends (from net investment
income) (0.08) (0.13) (0.06)
Distributions (from capital gains) (0.85) (0.22) --
-------------------------------------------------------------------------------
Total dividends and
distributions (0.93) (0.35) (0.06)
-------------------------------------------------------------------------------
Net change in net asset value per
share 1.94 3.08 0.44
-------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF
PERIOD $ 16.95 $ 15.01 $ 11.93
-------------------------------------------------------------------------------
Total return 20.16% 29.28% 4.72%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000's) $210,498 $63,060 $33,155
Ratio of expenses to average net
assets 0.78% 0.96% 0.66%(b)
Ratio of net income to average net
assets 0.55% 0.77% 1.93%(b)
Ratio of expenses to average net
assets (a) 0.78% 1.03% 0.97%(b)
Ratio of net income to average net
assets (a) 0.55% 0.70% 1.62%(b)
Portfolio turnover rate (d) 176.34% 99.02% 86.18%
</TABLE>
(a) During the year, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole,
without distinguishing between the classes of shares issued.
See notes to financial statements.
FINANCIAL HIGHLIGHTS
LOGO
LOGO
72
<PAGE> 76
REPUBLIC INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 9, 1995
FOR THE YEAR ENDED OCTOBER 31, (COMMENCEMENT
-------------------------------- OF OPERATIONS) TO
1998 1997 1996 OCTOBER 31, 1995
<S> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD $ 13.76 $ 12.05 $ 10.80 $ 10.00
--------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.11 0.12 0.11 0.08
Net gains on securities
(realized and unrealized) 0.32 1.85 1.31 0.75
--------------------------------------------------------------------------------------
Total income from
investment operations 0.43 1.97 1.42 0.83
--------------------------------------------------------------------------------------
Less distributions:
Dividends (from net investment
income) (0.27) (0.11) (0.16) (0.03)
Distributions (from capital
gains) (0.68) (0.15) (0.01) --
--------------------------------------------------------------------------------------
Total dividends and
distributions (0.95) (0.26) (0.17) (0.03)
--------------------------------------------------------------------------------------
Net change in net asset value
per share (0.52) 1.71 1.25 0.80
--------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END
OF PERIOD $ 13.24 $ 13.76 $ 12.05 $ 10.80
--------------------------------------------------------------------------------------
Total return 3.49% 16.62% 13.22% 8.31%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) $120,250 $132,924 $96,977 $34,244
Ratio of expenses to average
net assets 1.09% 0.91% 1.11% 1.14%(b)
Ratio of net income to average
net assets 0.75% 0.91% 0.99% 1.26%(b)
Ratio of expenses to average
net assets (a) 1.09% 0.91% 1.13% 2.12%(b)
Ratio of net income to average
net assets (a) 0.75% 0.91% 0.96% 0.28%(b)
Portfolio turnover rate of the
Portfolio 40.47% 30.00% 23.30% 3.07%
</TABLE>
(a) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(b) Annualized.
(c) Not annualized.
See notes to financial statements.
FINANCIAL HIGHLIGHTS
LOGO
LOGO
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<PAGE> 77
REPUBLIC SMALL CAP EQUITY FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED SEPTEMBER 3, 1996
OCTOBER 31, (COMMENCEMENT
-------------------- OF OPERATIONS) TO
1998 1997 OCTOBER 31, 1996
<S> <C> <C> <C>
NET ASSET VALUE PER SHARE,
BEGINNING OF PERIOD $ 13.44 $ 10.63 $ 10.00
-----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.09) (0.06) --
Net gains on securities (realized
and unrealized) (0.49) 2.93 0.63
-----------------------------------------------------------------------------
Total income from investment
operations (0.58) 2.87 0.63
-----------------------------------------------------------------------------
Less distributions:
Dividends (from net investment
gains) (1.38) (0.06) --
-----------------------------------------------------------------------------
Total dividends and
distributions (1.38) (0.06) --
-----------------------------------------------------------------------------
Net change in net asset value per
share (1.96) 2.81 0.63
-----------------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF
PERIOD $ 11.48 $ 13.44 $ 10.63
-----------------------------------------------------------------------------
Total return (4.27%) 27.18% 6.30%(c)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $112,935 $137,996 $92,842
Ratio of expenses to average net
assets 1.14% 1.02% 0.91%(b)
Ratio of net loss to average net
assets (0.68) (0.50%) (0.28%)(b)
Ratio of expenses to average net
assets (a) 1.16% 1.03% 1.17% (b)
Ratio of net income to average
net assets (a) (0.70%) (0.51%) (0.54%)(b)
Portfolio turnover rate of the
Portfolio 154.69% 92.18% 50.55%
</TABLE>
(a) During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions and expense reimbursements had not occurred,
the ratios would have been as indicated.
(b) Annualized.
(c) Not annualized.
See notes to financial statements.
FINANCIAL HIGHLIGHTS
LOGO
LOGO
74
<PAGE> 78
The following tables set forth information for the Fixed Income Fund, Equity
Fund, International Equity Fund and the Small Cap Equity Fund, and
information on the prior performance of the Sub-Advisers for those Funds and,
where applicable, the corresponding portfolios.
The Sub-Adviser prior performance information is a composite of the average
annual total returns of all institutional separate accounts managed by the
Sub-Advisers that have investment objectives, policies and restrictions
substantially similar to the Funds (and corresponding Portfolios), and which
have been managed as the Funds (and corresponding Portfolios) have been
managed. The composite data is provided to illustrate the past performance of
the Sub-Advisers in managing substantially similar accounts with
substantially similar investment objectives, strategies and policies 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.
<TABLE>
<CAPTION>
FIXED INCOME
ANNUALIZED RETURNS
FUND SUB-ADVISER SALOMON BIG
PERFORMANCE COMPOSITE+ INDEX(2)
<S> <C> <C> <C>
1 Year(1) 6.80% 5.51% 8.72%
Since Portfolio Inception (1/9/95) 9.57% 8.60%* 10.05%
5 Years(1) N/A 5.51% 7.31%
10 Years(1) N/A 7.93% 9.31%
</TABLE>
------------------
(1) Through December 31, 1998.
(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 was used as
the basis for adjustment, the Sub-Adviser composite average annual returns
would be 6.47% for one year, 6.53% for 5 years, 8.91% for 10 years, and
9.59% since inception.
* Since December 31, 1994.
PRIOR PERFORMANCE OF SUB-ADVISERS
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<TABLE>
<CAPTION>
EQUITY
ANNUALIZED RETURNS
FUND ALLIANCE RUSSELL BRINSON RUSSELL RUSSELL
PERFORMANCE COMPOSITE GROWTH(2) COMPOSITE VALUE(3) 1000(4)
<S> <C> <C> <C> <C> <C> <C>
1 Year(1) 29.19% 41.91% 38.72% 17.55% 15.64% 27.03%
Since Inception+ 24.67% 31.57% 29.83% 24.17% 24.78% 27.41%
5 Years(1) N/A 25.33% 25.71% 21.09% 20.85% 23.36%
Since 12/31/87 N/A 20.57% 20.57% 18.68% 17.39% 19.03%
</TABLE>
------------------
(1) Through December 31, 1998.
(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.
+ Since Fund inception (8/1/95).
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY
ANNUALIZED RETURNS
FUND SUB-ADVISER EAFE
PERFORMANCE COMPOSITE+ INDEX(2)
<S> <C> <C> <C>
1 Year(1) 12.43% 15.58% 20.29%
Since Portfolio Inception
(1/9/95) 12.49% 12.13%* 10.47%
5 Years(1) N/A 9.99% 9.50%
10 Years(1) N/A 9.24% 5.85%
</TABLE>
------------------
(1) Through December 31, 1998.
(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 combined market value of the stock exchanges.
The EAFE Index is capitalization weighted in U.S. dollars and includes
dividends.
+ If the expense ratio of the Fund after expense reimbursements was used as
the basis for adjustment, the Sub-Adviser composite average annual returns
would be 15.87% for one year, 10.26% for 5 years, 9.51% for 10 years and
12.41% since inception.
* Since December 31, 1994.
PRIOR PERFORMANCE OF SUB-ADVISERS
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<PAGE> 80
PRIOR PERFORMANCE OF SUB-ADVISERS
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<TABLE>
<CAPTION>
SMALL CAP EQUITY SUB-ADVISER
ANNUALIZED RETURNS
FUND SUB-ADVISER RUSSELL 2000
PERFORMANCE COMPOSITE INDEX(2)
<S> <C> <C> <C>
1 Year(1) 13.42% 13.43% -2.55%
Since Portfolio Inception
(9/4/96) 19.47% 18.57%* 12.14%
3 Years(1) N/A 17.84% 11.58%
5 Years(1) N/A 21.43% 11.86%
</TABLE>
------------------
(1) Through December 31, 1998.
(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 was used as
the basis for adjustment, the Sub-Adviser composite average annual
returns would be 14.51% for one year, 18.95% for 3 years, 22.57% for five
years, and 19.68% since inception.
* Since August 31, 1996.
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 1999
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).
FEDERAL AND NEW YORK STATE TABLE
<TABLE>
<CAPTION>
TAX-EXEMPT YIELD
TAXABLE INCOME* -------------------------------------------------------------
------------------------------------- INCOME 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
SINGLE JOINT TAX ----- ----- ----- ----- ----- ----- ----- -----
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
----------------- ----------------- --------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-$20,000 $ 0-$36,900 20.00% 3.75% 4.38% 5.00% 5.63% 6.25% 6.88% 7.50% 8.13%
$ 20,001-$76,400 $ 36,901-$89,150 32.90% 4.47% 5.22% 5.96% 6.71% 7.45% 8.20% 8.94% 9.69%
$ 76,401-$127,500 $ 89,151-$140,000 35.70% 4.67% 5.44% 6.22% 7.00% 7.78% 8.55% 9.33% 10.11%
$127,501-$250,000 $140,001-$250,000 40.40% 5.03% 5.87% 6.71% 7.55% 8.39% 9.23% 10.07% 10.91%
.$250,000 . $250,000 43.70% 5.33% 6.22% 7.10% 7.99% 8.88% 9.77% 10.66% 11.55%
</TABLE>
------------------
* Net amount subject to federal and New York State personal income tax after
deductions and exemptions.
** Effective combined federal and state tax bracket.
76
<PAGE> 81
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.
FEDERAL, NEW YORK STATE AND NEW YORK CITY TABLE
<TABLE>
<CAPTION>
TAX-EXEMPT YIELD
TAXABLE INCOME* -------------------------------------------------------------
------------------------------------- INCOME 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
SINGLE JOINT TAX ----- ----- ----- ----- ----- ----- ----- -----
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
----------------- ----------------- --------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-$20,000 $ 0-$36,900 22.08% 3.89% 4.53% 5.18% 5.83% 6.48% 7.12% 7.77% 8.42%
$ 20,001- $76,400 $ 36,901- $89,150 35.30% 4.64% 5.41% 6.18% 6.96% 7.73% 8.50% 9.27% 10.05%
$ 76,401-$127,500 $ 89,151-$140,000 38.00% 4.84% 5.65% 6.45% 7.26% 8.06% 8.87% 9.68% 10.48%
$127,501-$250,000 $140,001-$250,000 42.50% 5.22% 6.09% 6.96% 7.83% 8.70% 9.56% 10.43% 11.30%
. $250,000 . $250,000 45.80% 5.54% 6.46% 7.38% 8.30% 9.23% 10.15% 11.07% 11.99%
</TABLE>
------------------
* 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.
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.
PRIOR PERFORMANCE OF SUB-ADVISERS
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<PAGE> 82
For more information about the Funds, the following documents are available free
upon request:
ANNUAL/SEMIANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENTS OF ADDITIONAL INFORMATION (SAIS):
The SAIs provide more detailed information about the Funds, including their
operations and investment policies. They are incorporated by reference and
legally considered a part of this prospectus.
YOU CAN GET FREE COPIES OF REPORTS AND THE SAIS, PROSPECTUSES OF OTHER MEMBERS
OF THE REPUBLIC FAMILY OF FUNDS, OR REQUEST OTHER INFORMATION AND DISCUSS YOUR
QUESTIONS ABOUT THE FUNDS, BY CONTACTING A BROKER OR BANK THAT SELLS THE FUNDS.
OR CONTACT THE FUNDS AT:
REPUBLIC FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
TELEPHONE: 1-800-525-5757
You can review the Funds' reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can get text-only copies:
- - For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- - Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-4782.
79
<PAGE> 83
REPUBLIC FIXED INCOME FUND
3435 Stelzer Road
Columbus, Ohio 43219-3035
(888) 525-5757
Republic National Bank of New York - Investment Manager
("Republic" or the "Manager")
Miller Anderson & Sherrerd - Sub-Adviser
("MAS" or the "Sub-Adviser")
BISYS Fund Services -
Administrator, Distributor and Sponsor
("BISYS" or the "Administrator of the Fund" or
the "Distributor" or the "Sponsor")
BISYS Fund Services (Ireland), Limited -
Administrator of the Portfolio
("BISYS (Ireland)")
STATEMENT OF ADDITIONAL INFORMATION
Republic Fixed Income Fund (the "Fund") is a separate series of Republic Adviser
Funds Trust (the "Trust"), an open-end, management investment company which
currently consists of three series, each of which has different and distinct
investment objectives and policies. The Trust seeks to achieve the Fund's
investment objective by investing all of the Fund's assets ("Assets") in the
Fixed Income Portfolio (the "Portfolio"), which has the same investment
objective as the Fund. The Portfolio is a series of the Republic Portfolios (the
"Portfolio Trust") which is an open-end management investment company. The Fund
is described in this Statement of Additional Information. Shares of the Fund
(the "Shares") are offered only to clients of Republic and its affiliates for
which Republic or its affiliates exercises investment discretion.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS ONLY
AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY THE PROSPECTUS FOR
THE FUND, DATED MARCH 1, 1999 (THE "PROSPECTUS"). This Statement of Additional
Information contains additional and more detailed information than that set
forth in the Prospectus and should be read in conjunction with the Prospectus.
The Prospectus and Statement of Additional Information may be obtained without
charge by writing or calling the Fund at the address and telephone number
printed above.
March 1, 1999
<PAGE> 84
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...................................................................1
Derivatives..............................................................................................2
Options and Futures Transactions.........................................................................3
Forward Foreign Currency Contracts and Options on Foreign Currencies.....................................4
Foreign Securities.......................................................................................4
High Yield/High Risk Securities..........................................................................5
Fixed Income Securities..................................................................................6
Zero Coupon Obligations..................................................................................6
Mortgage-Related and Other Asset-Backed Securities.......................................................6
Other Asset-Backed Securities...........................................................................11
Mortgage-Backed Securities and Asset-Backed Securities - Types of Credit Support........................11
Eurodollar and Yankee Bank Obligations..................................................................12
Repurchase Agreements...................................................................................12
Illiquid Investments....................................................................................13
Brady Bonds.............................................................................................13
Foreign Currency Exchange-Related Securities............................................................14
Sovereign and Supranational Debt Obligations............................................................15
Mortgage Dollar Roll Transactions.......................................................................16
Floating and Variable Rate Obligations..................................................................16
Inverse Floating Rate Obligations.......................................................................16
Banking Industry and Savings and Loan Industry Obligations..............................................16
Firm Commitment Agreements and When-Issued Securities...................................................17
Swaps, Caps, Floors and Collars.........................................................................17
Portfolio Turnover......................................................................................18
Portfolio Management....................................................................................18
Investment Restrictions.................................................................................19
Percentage and Rating Restrictions......................................................................22
Portfolio Transactions..................................................................................22
PERFORMANCE INFORMATION..........................................................................................22
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST..................................................................24
Trustees and Officers...................................................................................24
Investment Manager......................................................................................26
Sub-Adviser.............................................................................................28
Fund Administrator and Portfolio Administrator..........................................................28
Transfer Agent..........................................................................................29
Custodian and Fund Account Agents.......................................................................29
Shareholder Servicing Agents............................................................................29
Expenses................................................................................................30
DETERMINATION OF NET ASSET VALUE.................................................................................30
</TABLE>
i
<PAGE> 85
<TABLE>
<S> <C>
PURCHASE OF SHARES...............................................................................................31
Exchange Privilege......................................................................................32
Automatic Investment Plan...............................................................................33
REDEMPTION OF SHARES.............................................................................................33
Systematic Withdrawal Plan..............................................................................33
RETIREMENT PLANS.................................................................................................34
Individual Retirement Accounts..........................................................................34
Defined Contribution Plans..............................................................................34
Section 457 Plan, 401(k) Plan, 403(b) Plan..............................................................34
DIVIDENDS AND DISTRIBUTIONS......................................................................................34
TAXATION ........................................................................................................36
Options, Futures, Forward Contracts and Swap Contracts..................................................38
Capitalization..........................................................................................40
Independent Auditors....................................................................................40
Counsel.................................................................................................40
Registration Statement..................................................................................40
</TABLE>
References in this Statement of Additional Information to the "Prospectus" are
to the Prospectus, dated March 1, 1999, of the Fund by which shares of the Fund
("Shares") are offered. Unless the context otherwise requires, terms defined in
the Prospectus have the same meaning in this Statement of Additional Information
as in the Prospectus.
ii
<PAGE> 86
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective, policies and risks of the Portfolio discussed in the Prospectus.
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 Fund seeks to achieve its investment objective by
investing all of its assets in the Republic Fixed Income Portfolio (the
"Portfolio"), which has the same investment objective as the Fund. The
Portfolio's average weighted maturity will ordinarily exceed five years.
The Portfolio will normally invest at least 65% of its total assets in
fixed income securities. The 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.
Miller Anderson & Sherrerd ("MAS") (the "Sub-Adviser") will seek to
achieve the 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 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.
Up to 20% of the 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 or 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 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.
From time to time, the Sub-Adviser may invest more than 50% of the
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. When investing in mortgage-backed securities, it is expected that the
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 Portfolio may invest without limit in mortgage-backed securities of
private issuers when the Sub-Adviser determines that the quality of the
investment, the quality of the issuer, and market conditions
1
<PAGE> 87
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
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.
A portion of the Portfolio's assets may be invested in bonds and other
fixed income securities denominated in foreign currencies if, in the opinion of
the 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 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 Sub-Adviser's judgment, unacceptable currency risk exists, currency futures,
forwards and options and swaps may be used to hedge the currency risk.
The Portfolio may invest in Eurodollar bank obligations and Yankee bank
obligations. The 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". The Portfolio may also invest in the following
instruments on a temporary basis when economic or market conditions are such
that the 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
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.
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known
as derivatives. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. A mutual fund, of course, derives its value from the value of the
investments it holds and so might even be called a "derivative." Some
"derivatives" such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more volatile or
less liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There is 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 Portfolio may use derivatives for hedging purposes, cash management
purposes, as a substitute for investing directly in fixed income instruments,
and to enhance return when their Sub-Adviser believes the investment will
assist the Portfolio in achieving its investment
2
<PAGE> 88
objectives. A description of the derivatives that the Portfolio may use and some
of their associated risks follows.
OPTIONS AND FUTURES TRANSACTIONS
The Portfolio may invest in financial futures contracts, options on
futures contracts and options on securities (collectively, "futures and
options"). In addition, the Portfolio may invest in foreign currency futures
contracts and options on foreign currencies and foreign currency futures.
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 Portfolio and the Fund. While the use
of these instruments by the Portfolio and the Fund may reduce certain risks
associated with owning its portfolio securities, these techniques themselves
entail certain other risks. If the Sub-Adviser applies a strategy at an
inappropriate time or judges market conditions or trends incorrectly, options
and futures strategies may lower the Portfolio's or Fund's return. Certain
strategies limit the potential of the Portfolio or the Fund to realize gains as
well as limit their exposure to losses. The Portfolio and the Fund could also
experience losses if the prices of its options and futures positions were poorly
correlated with its other investments. There can be no assurance that a liquid
market will exist at a time when the Portfolio or the Fund seeks to close out a
futures contract or a futures option position. Most futures exchanges and boards
of trade limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a particular
contract, no trades may be made that day at a price beyond that limit. In
addition, certain of these instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Portfolio and the Fund from liquidating an
unfavorable position and the Portfolio or the Fund would remain obligated to
meet margin requirements until the position is closed. In addition, the
Portfolio and the Fund will incur transaction costs, including trading
commissions and options premiums, in connection with their futures and options
transactions, and these transactions could significantly increase a Portfolio or
Fund turnover rate.
The 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 Portfolio's net assets. The Portfolio
will segregate assets or "cover" its positions consistent with requirements
under the 1940 Act. The Portfolio may also purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of foreign portfolio securities and against increases in the
U.S. dollar cost of foreign securities to be acquired.
3
<PAGE> 89
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Forward foreign currency exchange contracts ("forward contracts") are
intended to minimize the risk of loss to the Portfolio from adverse changes in
the relationship between the U.S. dollar and foreign currencies. The Portfolio
may not enter into such contracts for speculative purposes. The 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. By entering into
transactions in Forward Contracts, however, the Portfolio may be required to
forego the benefits of advantageous changes in exchange rates and, in the case
of Forward Contracts entered into for non-hedging purposes, the Portfolio may
sustain losses which will reduce its gross income. Forward Contracts are traded
over-the-counter and not on organized commodities or securities exchanges. As a
result, such contracts operate in a manner distinct from exchange-traded
instruments and their use involves certain risks beyond those associated with
transactions in Futures Contracts or options traded on exchanges.
A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. A forward contract
may be used, for example, when the Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock in" the U.S. dollar price of the security.
The Portfolio may also purchase and write put and call options on
foreign currencies for the purpose of protecting against declines in the dollar
value of foreign portfolio securities and against increases in the U.S.
dollar cost of foreign securities to be acquired.
The 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 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 Portfolio's obligation under the
forward contract. On the date of maturity the Portfolio may be exposed to some
risk of loss from fluctuations in that currency. Although the 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 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 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
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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. For example,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which a Fund's assets are denominated may be devalued against the
U.S. dollar, resulting in a loss to the Fund. 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.
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 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 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.
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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
Sub-Adviser does not rely solely on credit ratings when selecting securities for
the 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 Sub-Adviser
deems it in the best interest of investors.
FIXED INCOME SECURITIES
To the extent the 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 Fund's or
Portfolio's investments in fixed income securities with longer terms to maturity
or greater duration are subject to greater volatility than the Fund's or
Portfolio's shorter-term obligations.
ZERO COUPON OBLIGATIONS
The 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 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 than 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.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
The 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.
There are two methods of trading mortgage-backed securities. A specific
pool transaction is a trade in which the pool number of the security to be
delivered on the settlement date is known at the time the trade is made. This is
in contrast with the typical mortgage transaction, called a TBA (to be
announced) transaction, in which the type of mortgage securities to be delivered
is specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. For example, in a
TBA transaction an investor could purchase $1 million 30-year FNMA 9's and
receive up to three pools on the settlement date. The pool numbers of the pools
to be delivered at settlement will be announced shortly before settlement takes
place. The terms of the TBA trade may be made more specific if
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desired. For example, an investor may request pools with particular
characteristics, such as those that were issued prior to January 1, 1990. The
most detailed specification of the trade is to request that the pool number be
known prior to purchase. In this case the investor has entered into a specific
pool transaction. Generally, agency pass-through mortgage-backed securities are
traded on a TBA basis. The specific pool numbers of the securities purchased do
not have to be determined at the time of the trade.
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 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.
Mortgage Pass-Through Securities. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential or
commercial mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying property, refinancing or foreclosure,
net of fees or costs which may be incurred. Some mortgage-related securities
(such as securities issued by the Government National Mortgage Association) are
described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.
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The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages. Government-related guarantors (i.e., not backed by the
full faith and credit of the U.S. Government) include the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the U.S.
Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a government-
sponsored corporation formerly owned by the 12 Federal Home Loan Banks and now
owned entirely by private stockholders. FHLMC issues participation certificates
("PCs") which represent interests in conventional mortgages from FHLMC's
national portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal, but PCs are not backed by the full faith and credit of
the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Portfolio's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. Although the market for
such securities is becoming increasingly liquid, securities issued by certain
private organizations may not be readily marketable. The Portfolio will not
purchase mortgage-related securities or other assets which in the Sub-Adviser's
opinion are illiquid if, as a result, more than 15% of the value of the
Portfolio's net assets will be illiquid.
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the
Portfolio's industry concentration restrictions, set forth below under
"Investment Restrictions," by virtue of the exclusion from that test available
to all U.S. Government securities. In the case of privately issued mortgage-
related securities, the Portfolio takes the position that mortgage-related
securities do not represent interests in any particular "industry" or group of
industries. The assets underlying such securities may be represented by a
portfolio of first lien residential mortgages (including both whole mortgage
loans and mortgage participation interests) or portfolios of mortgage
pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage
loans underlying a mortgage-related security may in turn be insured or
guaranteed by the Federal Housing Administration or
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the Department of Veterans Affairs. In the case of private issue
mortgage-related securities whose underlying assets are neither U.S. Government
securities nor U.S. Government-insured mortgages, to the extent that real
properties securing such assets may be located in the same geographical region,
the security may be subject to a greater risk of default than other comparable
securities in the event of adverse economic, political or business developments
that may affect such region and, ultimately, the ability of residential
homeowners to make payments of principal and interest on the underlying
mortgages.
Collateralized Mortgage Obligations ("CMOS"). A CMO is a hybrid between
a mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC CMOS. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs,
payments of principal and interest on the CMOs are made semiannually, as opposed
to monthly. The amount of principal payable on each semiannual payment date is
determined in accordance with FHLMC's mandatory sinking fund schedule, which, in
turn, is equal to approximately 100% of FHA prepayment experience applied to the
mortgage collateral pool. All sinking fund payments in the CMOs are allocated to
the retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
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Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO Residuals. CMO residuals are derivative mortgage securities issued
by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks
and special purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of
CMOs is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities --Stripped Mortgage-Backed Securities." In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are based. As described below with respect to stripped mortgage-
backed securities, in certain circumstances the Portfolio may fail to recoup
fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The CMO residual market has only very recently developed and CMO residuals
currently may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933, as amended (the "1933
Act"). CMO residuals, whether or not registered under the 1933 Act, may be
subject to certain restrictions on transferability and may be deemed "illiquid"
and subject to the Portfolio's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities ("SMBS"). SMBS are derivative
multi-class mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government or by 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.
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SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common 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 the most
extreme case, 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 flow 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, and a rapid rate of principal
payments may have a material adverse effect on the Portfolio's yield to maturity
from these securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Portfolio may fail to fully recoup its
initial investment in these securities even if the security is in one of the
highest rating categories.
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, these securities may be deemed "illiquid" and
subject to the Portfolio's limitations on investment in illiquid securities.
OTHER ASSET-BACKED SECURITIES
The Portfolio may invest in asset-backed securities unrelated to
mortgage loans. Asset-backed securities present certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same type of security interest in the related collateral.
Credit card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to avoid payment of certain amounts owed on
the credit cards, thereby reducing the balance due. Most issuers of automobile
receivables permit the servicer to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the related automobile receivables. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of the automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.
MORTGAGE-BACKED SECURITIES AND ASSET-BACKED SECURITIES - TYPES OF CREDIT SUPPORT
Mortgage-backed securities and asset-backed securities are often backed
by a pool of assets representing the obligations of a number of different
parties. To lessen the effect of failure by obligors on underlying assets to
make payments, such securities may contain elements of credit support. Such
credit support falls into two categories: (i) liquidity protection and (ii)
protection against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
pass-through of payments due on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. The U.S. Bond Index Portfolio will not pay any
additional fees for such credit support, although the existence of credit
support may increase the price of a security.
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The ratings of mortgage-backed securities and asset-backed securities
for which third-party credit enhancement provides liquidity protection or
protection against losses from default are generally dependent upon the
continued creditworthiness of the provider of the credit enhancement. The
ratings of such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the credit enhancement provider even in
cases where the delinquency and loss experience on the underlying pool of assets
is better than expected.
Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments, sometimes funded from a
portion of the payments on the underlying assets, are held in reserve against
future losses) and "over-collateralization" (where the scheduled payments on, or
the principal amount of, the underlying assets exceed those required to make
payment of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information with respect to the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that which is anticipated
could adversely affect the return on an investment in such a security.
EURODOLLAR AND YANKEE BANK OBLIGATIONS
The 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 Portfolio may invest in repurchase agreements collateralized by
U.S. Government securities, certificates of deposit and certain bankers'
acceptances. 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-Adviser 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 Portfolio 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
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or other laws, a bankruptcy court may determine that the underlying securities
are collateral not within the control of the Portfolio or Fund and therefore
subject to sale by the trustee in bankruptcy. Finally, it is possible that the
Portfolio 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.
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in securities that
are illiquid by virtue of the absence of a readily available market, or because
of legal or contractual restrictions on resale. This policy does not limit the
acquisition of securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 or 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 Portfolio has a
policy that no more than 25% 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 Sub-Adviser may determine that a particular Rule 144A security is
liquid and thus not subject to the Portfolio's limits on investment in illiquid
securities, pursuant to guidelines adopted by the Board of Trustees. Factors
that the Sub-Adviser must consider in determining whether a particular Rule 144A
security is liquid include the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and the nature of the market for the
security (i.e., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). Investing in Rule 144A
securities could have the effect of increasing the level of the Portfolio's or
Fund's illiquidity to the extent that qualified institutions might become, for a
time, uninterested in purchasing these securities.
BRADY BONDS
The Brady Plan was conceived by the U.S. Treasury in the 1980's in an
attempt to produce a debt restructuring program that would enable a debtor
country to (i) reduce the absolute level of debt of its creditor banks, and (ii)
reschedule its external debt repayments, based upon its ability to service such
debts by persuading its creditor banks to accept a debt write-off by offering
them a selection of options, each of which represented an attractive substitute
for the nonperforming debt. Although it was envisioned that each debtor country
would agree to a unique package of options with its creditor banks, the plan was
that these options would be based upon the following: (i) a discount bond
carrying a market rate of interest (whether fixed or floating), with principal
collateralized by the debtor country with cash or securities in an amount equal
to at least one year of rolling interest; (ii) a par bond carrying a low rate of
interest (whether fixed or floating), collateralized in the same way as in (i)
above; and (iii) retention of existing debt (thereby avoiding a debt write-off)
coupled with an advance of new money or subscription of new bonds.
Brady Plan debt restructurings totaling approximately $73 billion have
been implemented to date in Argentina, Costa Rica, Mexico, Nigeria, the
Philippines, Uruguay and Venezuela, with the largest proportion of Brady Bonds
having been issued to date by Mexico and Venezuela. Brazil has announced plans
to issue Brady Bonds aggregating approximately $35 billion, based on current
estimates. There can be no assurance that the circumstances regarding the
issuance of Brady Bonds by these countries will not change.
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Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
the time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity,
(ii) the collateralized interest payments, (iii) the uncollateralized payments,
and (iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the event of a
default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
Foreign Currency Warrants. Foreign currency warrants such as Currency
Exchange Warrants (SM) ("CEWs"(SM)) are warrants which entitle the holder to
receive from their issuer an amount of cash (generally, for warrants issued in
the United States, in U.S. dollars) which is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified foreign
currency and the U.S. dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of
a specified date and time. Foreign currency warrants have been issued in
connection with U.S. dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
dollar depreciates against the value of a major foreign currency such as the
Japanese yen or German deutsche mark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required to either sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants) and, in the case the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unaccrued obligations of their issuers and are
not standardized foreign currency options issued by
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the Options Clearing Corporation (the "OCC"). Unlike foreign currency options
issued by the OCC, the terms of foreign exchange warrants generally will not be
amended in the event of governmental or regulatory actions affecting exchange
rates or in the event of the imposition of other regulatory controls affecting
the international currency markets. The initial public offering price of foreign
currency warrants is generally considerably in excess of the price that a
commercial user of foreign currencies might pay in the interbank market for a
comparable option involving significantly larger amounts of foreign currencies.
Foreign currency warrants are subject to complex political or economic factors.
Principal Exchange Rate Linked Securities. Principal exchange rate
linked securities ("PERLs"(SM)) are debt obligations the principal on which is
payable at maturity in an amount that may vary based on the exchange rate
between the U.S. dollar and a particular foreign currency at or about that time.
The return on "standard" PERLS is enhanced if the foreign currency to which the
security is linked appreciates against the U.S. dollar, and is adversely
affected by increases in the foreign exchange value of the U.S. dollar;
"reverse" PERLS are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. dollar and adversely impacted by
increases in the value of foreign currency. Interest payments on the securities
are generally made in U.S. dollars at rates that reflect the degree of foreign
currency risk assumed or given up by the purchaser of the notes (i.e., at
relatively higher interest rates if the purchaser has assumed some of the
foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). PERLS may in limited cases be subject to acceleration of
maturity (generally, not without the consent of the holders of the securities),
which may have an adverse impact on the value of the principal payment to be
made at maturity.
Performance Indexed Paper. Performance indexed paper ("PIPs"(SM)) is
U.S. dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on PIPs is
established at maturity as a function of the spot exchange rates between the
U.S. dollar and a designated currency as of or about that time (generally, the
index maturity two days prior to maturity). The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on U.S. dollar-denominated
commercial paper, with both the minimum and maximum rates of return on the
investment corresponding to the minimum and maximum values of the spot exchange
rate two business days prior to maturity. The Portfolio has no current intention
of investing in CEWs(SM), PERLs(SM) or PIPs(SM).
SOVEREIGN AND SUPRANATIONAL DEBT OBLIGATIONS
Debt instruments issued or guaranteed by foreign governments, agencies,
and supranational ("sovereign debt obligations"), especially sovereign debt
obligations of developing countries, may involve a high degree of risk, and may
be in default or present the risk of default. The issuer of the obligation or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment of principal and interest may depend on political as well as economic
factors.
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MORTGAGE DOLLAR ROLL TRANSACTIONS
The Portfolio may engage in dollar roll transactions with respect to
mortgage securities issued by the Government National Mortgage Association, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. In a dollar roll transaction, the Portfolio sells a mortgage-backed
security and simultaneously agrees to repurchase a similar security on a
specified future date at an agreed upon price. During the roll period, the
Portfolio will not be entitled to receive any interest or principal paid on the
securities sold. The Portfolio is compensated for the lost interest on the
securities sold by the difference between the sales price and the lower price
for the future repurchase as well as by the interest earned on the reinvestment
of the sales proceeds. The Portfolio may also be compensated by receipt of a
commitment fee. When the Portfolio enters into a mortgage dollar roll
transaction, liquid assets in an amount sufficient to pay for the future
repurchase are segregated with the Portfolio's custodian. Mortgage dollar roll
transactions are considered reverse repurchase agreements for purposes of the
Portfolio's investment restrictions.
FLOATING AND VARIABLE RATE OBLIGATIONS
Certain obligations that the 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.
INVERSE FLOATING RATE OBLIGATIONS
The 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 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
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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 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 Sub-Adviser to be
of an investment quality comparable with other debt securities which may be
purchased by the Fixed Income Portfolio.
The 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.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Portfolio may purchase and sell securities on a when-issued or
firm-commitment basis, in which a security's price and yield are fixed on the
date of the commitment but payment and delivery are scheduled for a future date.
On the settlement date, the market value of the security may be higher or lower
than its purchase or sale price under the agreement. If the other party to a
when-issued or firm- commitment transaction fails to deliver or pay for the
security, the Portfolio could miss a favorable price or yield opportunity or
suffer a loss. The Portfolio will not earn interest on securities until the
settlement date. The Portfolio will maintain in a segregated account with the
custodian cash or liquid securities equal (on a daily marked-to-market basis) to
the amount of its commitment to purchase the securities on a when- issued basis.
SWAPS, CAPS, FLOORS AND COLLARS
The 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 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
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 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 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
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paying, as the case may be, only the net amount of the two returns. The
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 other
liquid securities, to avoid any potential leveraging. The 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
Portfolio is contractually obligated to make. If the other party to an interest
rate swap defaults, the 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 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.
PORTFOLIO TURNOVER
The Sub-Adviser manages the Portfolio generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the Portfolio 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, 1998, the portfolio turnover rate for the Portfolio was
126.40%. It is expected that the annual turnover rate for the Portfolio will not
exceed 250% in subsequent fiscal years. Because the 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 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.
PORTFOLIO MANAGEMENT
The Sub-Adviser's investment strategy for achieving the Portfolio's
investment objective has two basic components: maturity and duration management
and value investing.
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Maturity And Duration Management. Maturity and duration management
decisions are made in the context of an intermediate maturity orientation. The
maturity structure of the Portfolio is adjusted in anticipation of cyclical
interest rate changes. Such adjustments are not made in an effort to capture
short-term, day-to-day movements in the market, but instead are implemented in
anticipation of longer term, secular shifts in the levels of interest rates
(i.e., shifts transcending and/or not inherent to the business cycle).
Adjustments made to shorten portfolio maturity and duration are made to limit
capital losses during periods when interest rates are expected to rise.
Conversely, adjustments made to lengthen maturity are intended to produce
capital appreciation in periods when interest rates are expected to fall. The
foundation for the Sub-Adviser's maturity and duration strategy lies in analysis
of the U.S. and global economies, focusing on levels of real interest rates,
monetary and fiscal policy actions, and cyclical indicators.
Value Investing. The second component of the Sub-Adviser's investment
strategy for the Portfolio is value investing, whereby the Sub-Adviser seeks to
identify undervalued sectors and securities through analysis of credit quality,
option characteristics and liquidity. Quantitative models are used in
conjunction with judgment and experience to evaluate and select securities with
embedded put or call options which are attractive on a risk- and option-adjusted
basis. Successful value investing will permit the portfolio to benefit from the
price appreciation of individual securities during periods when interest rates
are unchanged.
INVESTMENT RESTRICTIONS
The Portfolio Trust (with respect to the Portfolio) and the Trust (with
respect to the Fund) have adopted the following investment restrictions which
may not be changed without approval by holders of a "majority of the outstanding
voting securities" of the Portfolio or Fund, which as used in this Statement of
Additional Information means the vote of the lesser of (i) 67% or more of the
outstanding "voting securities" of the Fund present at a meeting, if the holders
of more than 50% of the outstanding "voting securities" are present or
represented by proxy, or (ii) more than 50% of the outstanding "voting
securities". The term "voting securities" as used in this paragraph has the same
meaning as in the Investment Company Act of 1940, as amended (the "1940 Act").
As a matter of fundamental policy, the Portfolio (Fund) will not
(except that none of the following investment restrictions shall prevent the
Trust from investing all of the Fund's Assets in a separate registered
investment company with substantially the same investment objectives):
(1) invest in physical commodities or contracts on physical
commodities;
(2) purchase or sell real estate, although it may purchase and
sell securities of companies which deal in real estate, other
than real estate limited partnerships, and may purchase and
sell marketable securities which are secured by interests in
real estate;
(3) make loans except: (i) by purchasing debt securities in
accordance with its investment objective and policies, or
entering into repurchase agreements, and (ii) by lending its
portfolio securities;
(4) with respect to 75% of its assets, purchase a security if, as
a result, it would hold more than 10% (taken at the time of
such investment) of the outstanding voting securities of any
issuer;
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(5) with respect to 75% of its assets, purchase securities of any
issuer if, as the result, more than 5% of the Portfolio's
(Fund's) total assets, taken at market value at the time of
such investment, would be invested in the securities of such
issuer, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(6) underwrite the securities of other issuers (except to the
extent that the Portfolio (Fund) may be deemed to be an
underwriter within the meaning of the 1933 Act in the
disposition of restricted securities);
(7) acquire any securities of companies within one industry if as
a result of such acquisition, more than 25% of the value of
the Portfolio's (Fund's) total assets would be invested in
securities of companies within such industry; provided,
however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, when the Portfolio (Fund)
adopts a temporary defensive position; and provided further
that mortgage-backed securities shall not be considered a
single industry for the purposes of this investment
restriction;
(8) borrow money (including from a bank or through reverse
repurchase agreements or forward dollar roll transactions
involving mortgage-backed securities or similar investment
techniques entered into for leveraging purposes), except that
the Portfolio (Fund) may borrow as a temporary measure to
satisfy redemption requests or for extraordinary or emergency
purposes, provided that the Portfolio (Fund) maintains asset
coverage of at least 300% for all such borrowings;
(9) issue senior securities, except as permitted under the 1940
Act.
In applying fundamental policy number seven, mortgage-backed securities
shall not be considered a single industry. Mortgage-backed securities issued by
governmental agencies and government-related organizations shall be excluded
from the limitation in fundamental policy number seven. Private mortgage-backed
securities (i.e., not issued or guaranteed by a governmental agency or
government-related organization) that are backed by mortgages on commercial
properties shall be treated as a separate industry from private mortgage-backed
securities backed by mortgages on residential properties.
The Portfolio and the Fund are also subject to the following
restrictions which may be changed by their respective Boards of Trustees without
investor approval (except that none of the following investment policies shall
prevent the Trust from investing all of the Assets of the Fund in a separate
registered investment company with substantially the same investment
objectives).
As a matter of non-fundamental policy, the Portfolio (Fund) will not:
(a) borrow money (including from a bank or through reverse
repurchase agreements or forward dollar roll transactions
involving mortgage-backed securities or similar investment
techniques entered into for leveraging purposes), except that
the Portfolio (Fund) may borrow for temporary or emergency
purposes up to 10% of its net assets; provided, however, that
the Portfolio (Fund) may not purchase any security while
outstanding borrowings exceed 5% of net assets;
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(b) invest in futures and/or options on futures to the extent that
its outstanding obligations to purchase securities under any
future contracts in combination with its outstanding
obligations with respect to options transactions would exceed
35% of its total assets;
(c) invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of its total assets (included within
that amount, but not to exceed 2% of the value of the
Portfolio's (Fund's) net assets, may be warrants that are not
listed on the New York Stock Exchange, the American Stock
Exchange or an exchange with comparable listing requirements;
warrants attached to securities are not subject to this
limitation);
(d) purchase on margin, except for use of short-term credit as may
be necessary for the clearance of purchases and sales of
securities, but it may make margin deposits in connection with
transactions in options, futures, and options on futures; or
sell short unless, by virtue of its ownership of other
securities, it has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions
(transactions in futures contracts and options are not deemed
to constitute selling securities short);
(e) purchase or retain securities of an issuer if those officers
and Trustees of the Portfolio Trust or the Manager or
Sub-Adviser owning more than 1/2 of 1% of such securities
together own more than 5% of such securities;
(f) pledge, mortgage or hypothecate any of its assets to an extent
greater than one-third of its total assets at fair market
value;
(g) invest more than an aggregate of 15% of the net assets of the
Portfolio (Fund), determined at the time of investment, in
securities that are illiquid because their disposition is
restricted under the federal securities laws or securities for
which there is no readily available market; provided, however
that this policy does not limit the acquisition of (i)
securities that have legal or contractual restrictions on
resale but have a readily available market or (ii) securities
that are not registered under the 1933 Act, but which can be
sold to qualified institutional investors in accordance with
Rule 144A under the 1933 Act and which are deemed to be liquid
pursuant to guidelines adopted by the Board of Trustees
("Restricted Securities").
(h) invest more than 25% of its assets in Restricted Securities
(including Rule 144A Securities);
(i) invest for the purpose of exercising control over management
of any company;
(j) invest its assets in securities of any investment company,
except by purchase in the open market involving only customary
brokers' commissions or in connection with mergers,
acquisitions of assets or consolidations and except as may
otherwise be permitted by the 1940 Act; provided, however,
that the Portfolio shall not invest in the shares of any
open-end investment company unless (1) the Portfolio's
Sub-
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Adviser waives any investment advisory fees with respect to
such assets and (2) the Portfolio pays no sales charge in
connection with the investment;
(k) invest more than 5% of its total assets in securities of
issuers (other than securities issued or guaranteed by U.S. or
foreign government or political subdivisions thereof) which
have (with predecessors) a record of less than three years'
continuous operations;
(l) write or acquire options or interests in oil, gas or other
mineral explorations or development programs or leases.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage restriction or a rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the securities held
by the Portfolio or a later change in the rating of a security held by the
Portfolio is not considered a violation of policy; however, the Sub-Adviser will
consider such change in its determination of whether to hold the security.
PORTFOLIO TRANSACTIONS
The Sub-Adviser is primarily responsible for portfolio decisions and
the placing of portfolio transactions. In placing orders for the Portfolio, the
primary consideration is prompt execution of orders in an effective manner at
the most favorable price, although the Portfolio does not necessarily pay the
lowest spread or commission available. Other factors taken into consideration
are the dealer's general execution and operational facilities, the type of
transaction involved and other factors such as the dealer's risk in positioning
the securities. To the extent consistent with applicable legal requirements, the
Sub-Adviser may place orders for the purchase and sale of the Portfolio's
investments with Republic New York Securities Corporation, an affiliate of the
Manager.
Because the Portfolio invests primarily in fixed-income securities, it
is anticipated that most purchases and sales will be with the issuer or with
underwriters of or dealers in those securities, acting as principal.
Accordingly, the Portfolio would not ordinarily pay significant brokerage
commissions with respect to securities transactions.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the total return for the
Fund, computed in accordance with formulas prescribed by the Securities and
Exchange Commission (the "SEC"), in advertisements or reports to shareholders or
prospective investors.
Quotations of yield for the Fund will be based on all investment income
per share (as defined by the SEC during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
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<PAGE> 108
a-b 6
YIELD = 2[(-- + 1) - 1]
cd
where
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (or up to
the life of the Fund), calculated pursuant to the following formula: P (1 + T)n
= ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years, and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the period). All
total return figures reflect the deduction of a proportional share of Fund
expenses on an annual basis, and assume that all dividends and distributions are
reinvested when paid. The Fund also may, with respect to certain periods of less
than one year, provide total return information for that period that is
unannualized. Any such information would be accompanied by standardized total
return information.
Historical performance information for any period or portion thereof
prior to the establishment of the Fund will be that of the Portfolio, adjusted
to assume that all charges, expenses and fees of the Fund and the Portfolio
which are presently in effect were deducted during such periods, as permitted by
applicable SEC staff interpretations. The table that follows sets forth
historical return information for the periods indicated:
Annual Total Return -- Year Ended October 31, 1998: 6.26%.
Average Annual Total Return - January 9, 1995 (commencement of
operations) to October 31, 1998: 9.49%.
Performance information for the Fund may also be compared to various
unmanaged indices, described below. Unmanaged indices (i.e., other than Lipper)
generally do not reflect deductions for administrative and management costs and
expenses. Comparative information may be compiled or provided by independent
ratings services or by news organizations. Any performance information should be
considered in light of the Fund's investment objective and policies,
characteristics and quality of the Fund, and the market conditions during the
given time period, and should not be considered to be representative of what may
be achieved in the future.
The Fund may from time to time use one or more of the following
unmanaged indices for performance comparison purposes:
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<PAGE> 109
Consumer Price Index. The Consumer Price Index is published by the U.S.
Department of Labor and is a measure of inflation.
Lehman Brothers Government/Corporate Index. The Lehman Brothers
Government/Corporate Index is a combination of the Government and Corporate Bond
Indices. The Government Index includes public obligations of the U.S. Treasury,
issues of government agencies, and corporate debt backed by the U.S. Government.
The Corporate Bond Index includes fixed-rate nonconvertible corporate debt. Also
included are Yankee Bonds and nonconvertible debt issued by or guaranteed by
foreign or international governments and agencies. All issues are investment
grade (BBB) or higher, with maturities of at least one year and an outstanding
par value of at least $100 million for U.S. Government issues and $25 million
for others. Any security downgraded during the month is held in the index until
month-end and then removed. All returns are market value weighted inclusive of
accrued income.
Salomon Bond Index. The Salomon Bond Index, also known as the Broad
Investment Grade (BIG) Index, is a fixed income market capitalization-weighted
index, including U.S. Treasury, agency, mortgage and investment grade (BBB or
better) corporate securities with maturities of one year or longer and with
amounts outstanding of at least $25 million. The government index includes
traditional agencies; the mortgage index includes agency pass-throughs and FHA
and GNMA project loans; the corporate index includes returns for 17 industry
sub-sectors. Securities excluded from the Broad Index are floating/variable rate
bonds, private placements, and derivatives (e.g., U.S. Treasury zeros, CMOs,
mortgage strips). Every issue is trader-priced at month-end and the index is
published monthly.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
TRUSTEES AND OFFICERS
The business and affairs of the Trust and the Portfolio Trust are
managed under the direction of their respective Boards of Trustees. The
principal occupations of the Trustees and executive officers of the Trust and
Portfolio Trust for the past five years are listed below. Asterisks indicate
that those officers are "interested persons" (as defined in the 1940 Act) of the
Trust and the Portfolio Trust. The address of each, unless otherwise indicated,
is 3435 Stelzer Road, Columbus, Ohio 43219-3035.
FREDERICK C. CHEN, Trustee
126 Butternut Hollow Road, Greenwich, Connecticut 06830 - Management
Consultant.
ALAN S. PARSOW, Trustee
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, Trustee
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, Trustee
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
WALTER B. GRIMM*, President and Secretary
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<PAGE> 110
Employee of BISYS Fund Services, Inc., June, 1992 to present; prior to
June, 1992 President of Leigh Investments Consulting (investment firm).
ANTHONY J. FISCHER*, Vice President
Employee of BISYS Fund Services, Inc., April, 1998 to present; Employee
of SEI Investments and Merrill Lynch prior to April 1998.
JAMES L. SMITH*, Vice President
Employee of BISYS Fund Services, Inc. October 1996 to present; Employee
of Davis, Graham, Stubbs, October 1995 to 1996; Director of Legal and
Compliance, ALPS Mutual Fund Services, Inc. from June 1991 to October
1995.
ADRIAN WATERS*, Treasurer
Employee of BISYS Fund Services (Ireland) LTD., May 1993 to present;
Manager, Price Waterhouse, 1989 to May 1993.
CATHERINE BRADY*, Assistant Treasurer
Employee of BISYS Fund Services (Ireland) LTD., March 1994 to present;
Supervisor, Price Waterhouse, 1990 to March 1994.
ELLEN STOUTAMIRE*, Secretary
Employee of BISYS Fund Services, Inc., April, 1997 to present; Attorney
in private practice prior to April 1997.
ALAINA METZ*, Assistant Secretary
Chief Administrator, Administrative and Regulatory Services, BISYS Fund
Services, Inc., June 1995 to present; Supervisor, Mutual Fund Legal
Department, Alliance Capital Management, May 1989 to June 1995.
Messrs. Grimm, Fischer, Smith and Waters and Mss. Grandominico, Brady,
Stoutamire and Metz also are officers of certain other investment companies of
which BISYS or an affiliate is the administrator.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Retirement Total
Pension of Estimated Compensation
Aggregate Benefits Accrued Annual From Fund
Compensation as Part of Fund Benefits Upon Complex* to
Name of Trustee from Trust Expenses Retirement Trustees
--------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Frederick C. Chen $2,900 none none $11,600
Alan S. Parsow $2,400 none none $ 9,600
Larry M. Robbins $2,400 none none $ 9,600
Michael Seely $2,400 none none $ 9,600
</TABLE>
* The Fund Complex includes the Trust, Republic Advisor Funds Trust, and the
Portfolio Trust.
The compensation table above reflects the fees received by the Trustees
for the year ended December 31, 1998. The Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust
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<PAGE> 111
will receive an annual retainer of $5,600 and a fee of $1,500 for each meeting
of the Board of Trustees or committee thereof attended, except that Mr. Robbins
will receive an annual retainer of $7,600 and a fee of $1,750 for each meeting
attended.
As of February 9, 1999, the Trustees and officers of the Trust and the
Portfolio Trust, as a group, owned less than 1% of the outstanding shares of the
Fund. As of the same date, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund (the Trust has no knowledge of the
beneficial ownership of such shares):
<TABLE>
<S> <C>
Kinco & Co. 82.80639%
C/o RNB Securities Services
One Hanson Place
Lower Level
Brooklyn, NY 11243
</TABLE>
Shareholders who own more than 25% of the outstanding voting securities of the
Fund may be able to control the outcome of any matter submitted for the approval
of shareholders of the Fund.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that such
officers or Trustees have not engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
INVESTMENT MANAGER
Republic is the investment manager to the Portfolio pursuant to an
investment management agreement (the "Investment Management Contract") with the
Portfolio Trust. For its services, the Manager is entitled to a fee from the
Portfolio, computed daily and paid monthly, equal on an annual basis to 0.20% of
the Portfolio's average daily net assets. For the fiscal years ended October 31,
1996 and October 31, 1997, investment management fees aggregated $98,923 and
$184,724 (of which the entire amount was waived), respectively. For the fiscal
year ended October 31, 1998, investment management fees aggregated $288,913,
none of which was waived.
The Investment Management Contract will continue in effect with respect
to the Portfolio, provided such continuance is approved at least annually (i) by
the holders of a majority of the outstanding voting securities of the Portfolio
or by the Portfolio Trust's Board of Trustees, and (ii) by a majority of the
Trustees of the Portfolio Trust who are not parties to the Investment Management
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Investment Management Contract may be terminated with respect to the
Portfolio without penalty by either party on 60 days' written notice and will
terminate automatically if assigned.
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<PAGE> 112
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Portfolio.
Republic 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. Republic
complies with applicable laws and regulations, including the regulations and
rulings of the U.S. Comptroller of the Currency relating to fiduciary powers of
national banks. These regulations provide, in general, that assets managed by a
national bank as fiduciary shall not be invested in stock or obligations of, or
property acquired from, the bank, its affiliates or their directors, officers or
employees or other persons with substantial connections with the bank. The
regulations further provide that fiduciary assets shall not be sold or
transferred, by loan or otherwise, to the bank or persons connected with the
bank as described above. Republic, in accordance with federal banking laws, may
not purchase for its own account securities of any investment company the
investment adviser of which it controls, extend credit to any such investment
company, or accept the securities of any such investment company as collateral
for a loan to purchase such securities. Moreover, Republic, its officers and
employees do not express any opinion with respect to the advisability of any
purchase of such securities. 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 Trust's Board of Trustees would recommend to Fund shareholders approval
of a new investment advisory agreement with another qualified investment adviser
selected by the Board or that the Board would recommend other appropriate
action.
The investment advisory services of Republic to the Portfolio are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment advisory services to others.
SUB-ADVISER
Miller Anderson & Sherrerd ("MAS"), as the Portfolio's Sub-Adviser, is
responsible for the investment management of the Portfolio's assets, including
making investment decisions and placing orders for the purchase and sale of
securities for the Portfolio directly with the issuers or with brokers or
dealers selected by MAS or Republic in its discretion. See "Portfolio
Transactions." MAS also furnishes to the Board of Trustees of the Portfolio
Trust, which has overall responsibility for the business and affairs of the
Portfolio Trust, periodic reports on the investment performance of the
Portfolio.
For its services, MAS receives from the Portfolio a fee, computed daily
and based on the Portfolio's average daily net assets, equal on an annual basis
to 0.375% on net assets up to $50 million, 0.25% on net assets over $50 million
and up to $95 million, $300,000 on net assets over $95 million and up to $150
million, 0.20% on net assets over $150 million and up to $250 million, and 0.15%
on net assets over $250 million.
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<PAGE> 113
For the fiscal years ended October 31, 1996, October 31, 1997, and
October 31, 1998, sub-advisory fees aggregated $185,480, $276,784, and $350,214,
respectively.
The investment advisory services of MAS to the Portfolio are not
exclusive under the terms of the Sub-Advisory Agreement. MAS is free to and does
render investment advisory services to others.
FUND ADMINISTRATOR AND PORTFOLIO ADMINISTRATOR
Pursuant to an Administration Agreement, BISYS provides the Fund with
general office facilities and supervises the overall administration of the Fund
and the Portfolio including, among other responsibilities, assisting in the
preparation and filing of all documents required for compliance by the Fund and
the Portfolio with applicable laws and regulations and arranging for the
maintenance of books and records of the Fund and the Portfolio. For its services
to the Bond Fund, BISYS receives from the Fund fees payable monthly equal on an
annual basis (for the Fund's then-current fiscal year) to 0.05% of the Fund's
average daily net assets up to $1 billion; 0.04% of the next $1 billion of such
assets; and 0.035% of such assets in excess of $2 billion. For providing similar
services to the Portfolio, BISYS (Ireland) receives from the Portfolio fees
payable monthly equal on an annual basis (for the Portfolio's then-current
fiscal year) to 0.05% of the first $1 billion of the Portfolio's average daily
net assets; 0.04% of the next $1 billion of such assets; and 0.035% of such
assets in excess of $2 billion.
For the fiscal years ended October 31, 1996, October 31, 1997 and
October 31, 1998, the Portfolio accrued administration fees of $24,731, $46,181
and $72,228, respectively. For the fiscal periods ended October 31, 1996,
October 31, 1997 and October 31, 1998, the Fund accrued administration fees of
$17,934 (of which $8,078 was waived), $29,549, and $40,700.
Each Administration Agreement will remain in effect until March 31,
1999, and automatically will continue in effect thereafter from year to year
unless terminated upon 60 days' written notice to BISYS or BISYS (Ireland), as
appropriate. Each Administration Agreement will terminate automatically in the
event of its assignment. Each Administration Agreement also provides that
neither BISYS nor BISYS (Ireland), as appropriate, nor its personnel shall be
liable for any error of judgment or mistake of law or for any act or omission in
the administration or management of the Trust or Portfolio Trust, except for
willful misfeasance, bad faith or gross negligence in the performance of its or
their duties or by reason of reckless disregard of its or their obligations and
duties under the Administration Agreement.
BISYS provides persons satisfactory to the respective Boards of
Trustees to serve as officers of the Trust and the Portfolio Trust. Such
officers, as well as certain other employees of the Trust and of the Portfolio
Trust, may be directors, officers or employees of BISYS or its affiliates.
TRANSFER AGENT
The Trust has entered into a Transfer Agency Agreement with Investors
Bank & Trust Company ("IBT"), pursuant to which IBT acts as transfer agent
("Transfer Agent") for shares of the Fund, and the Portfolio Trust has entered
into a Transfer Agent Agreement with Investors Fund Services (Ireland) Limited
(also a "Transfer Agent"). The Transfer Agents maintain an account for each
shareholder of the Fund and investors in the Portfolio, performs other transfer
agency functions, and act as dividend
28
<PAGE> 114
disbursing agent for the Fund. The principal business address of IBT is 200
Clarendon Street, Boston, Massachusetts 02117.
Pursuant to an agreement, as of April 1, 1999, BISYS will provide all
services with respect to each class of shares of the Fund. The principal
business address of BISYS is 3435 Stelzer Road, Columbus, OH 43219.
CUSTODIAN AND FUND ACCOUNT AGENTS
Pursuant to a Custodian Agreement, with respect to domestic assets,
Republic acts as the custodian of the Fund's assets. With respect to foreign
assets, IBT serves as custodian for the Fund and the Portfolio (together, with
Republic, the "Custodians"). The Custodians' responsibilities include
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Fund's investments, maintaining books of original entry for portfolio and
fund accounting and other required books and accounts in order to calculate the
daily net asset value of Shares of the Fund. Securities held for the Fund may be
deposited into the Federal Reserve-Treasury Department Book Entry System or the
Depository Trust Company. The Custodians do not determine the investment
policies of the Fund or decide which securities will be purchased or sold for
the Fund. For its services, the Custodians receive such compensation as may from
time to time be agreed upon by it and the Trust. IBT Fund Services (Canada) Inc.
serves as the fund accounting agent for the Portfolio.
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 of
the Fund may be effected and certain other matters pertaining to the Fund;
assists shareholders in designating and changing dividend options, account
designations and addresses; provides necessary personnel and facilities to
establish and maintain shareholder accounts and records; assists in processing
purchase and redemption transactions; arranges for the wiring of funds;
transmits and receives funds in connection with customer orders to purchase or
redeem Shares; verifies and guarantees shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnishes (either separately or on an integrated basis with other reports sent
to a shareholder by a Shareholder Servicing Agent) monthly and year-end
statements and confirmations of purchases and redemptions; transmits, on behalf
of the Trust, proxy statements, annual reports, updated prospectuses and other
communications from the Trust to the Fund's shareholders; receives, tabulates
and transmits to the Trust proxies executed by shareholders with respect to
meetings of shareholders of the Fund or the Trust; and provides such other
related services as the Trust or a shareholder may request. Although the Fund
does not currently compensate Shareholder Servicing Agents for performing these
services with respect to Shares, the 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 understands that some Shareholder Servicing Agents also may
impose certain conditions on their customers, subject to the terms of this
Prospectus, in addition to or different from those imposed by the Trust, such as
requiring a different minimum initial or subsequent investment, account fees (a
fixed amount per transaction processed), compensating balance requirements (a
minimum dollar amount a customer must maintain in order to obtain the services
offered), or account maintenance fees (a periodic charge based on a percentage
of the assets in the account or of the dividends paid on those assets). Each
Shareholder Servicing Agent has agreed to transmit to its customers who are
holders of Shares appropriate
29
<PAGE> 115
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. Conversely, the Trust understands that certain Shareholder
Servicing Agents may credit to the accounts of their customers from whom they
are already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund with respect to
those accounts.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the Fund. The Trust engages banks as Shareholder
Servicing Agents on behalf of the Fund only to perform administrative and
shareholder servicing functions as described above. The Trust believes that the
Glass-Steagall Act should not preclude a bank from acting as a Shareholder
Servicing Agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain Fund shareholders, and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trustees of the Trust do not expect that
shareholders of the Fund would suffer any adverse financial consequences as a
result of these occurrences.
EXPENSES
Expenses attributable to a class ("Class Expenses") shall be allocated
to that class only. In the 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 expense. Trust expenses directly related to the Fund are
charged to the Fund; other expenses are allocated proportionally among all the
portfolios of the Trust in relation to the net asset value of the Funds.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares is determined on each day on
which the New York Stock Exchange ("NYSE") is open for trading. As of the date
of this Statement of Additional Information, the NYSE is open every weekday
except for the days on which the following holidays are observed: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Bonds and other fixed income securities listed on a foreign exchange
are valued at the latest quoted sales price available before the time when
assets are valued. For purposes of determining the Portfolio's net asset value,
all assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars at the bid price of such currencies against U.S.
dollars last quoted by any major bank.
Bonds and other fixed-income securities which are traded
over-the-counter and on a stock exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds and
other fixed-income securities this ordinarily will be the over-the-counter
market. Bonds and other fixed income securities (other than short-term
obligations but including listed issues) in the Portfolio's portfolio may be
valued on the basis of valuations furnished by a pricing service, use of which
has been approved by the Board of Trustees of the Portfolio Trust. In making
such valuations, the pricing service utilizes both
30
<PAGE> 116
dealer-supplied valuations and electronic data processing techniques which take
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data, without exclusive reliance upon
quoted prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities.
Short-term obligations are valued at amortized cost, which constitutes fair
value as determined by the Board of Trustees of the Portfolio Trust. Futures
contracts are normally valued at the settlement price on the exchange on which
they are traded. Portfolio securities (other than short-term obligations) for
which there are no such valuations are valued at fair value as determined in
good faith under the direction of the Board of Trustees of the Portfolio Trust.
Interest income on long-term obligations in the Portfolio's portfolio
is determined on the basis of interest accrued plus amortization of "original
issue discount" (generally, the difference between issue price and stated
redemption price at maturity) and premiums (generally, the excess of purchase
price over stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest accrued plus amortization of
premium.
Subject to the Trust's compliance with applicable regulations, the
Trust on behalf of the Fund and the Portfolio have reserved the right to pay the
redemption or repurchase price of Shares, either totally or partially, by a
distribution in kind of portfolio securities from the Portfolio (instead of
cash). The securities so distributed would be valued at the same amount as that
assigned to them in calculating the net asset value for the Shares being sold.
If a shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash. The Trust will
redeem Fund shares in kind only if it has received a redemption in kind from the
Portfolio and therefore shareholders of the Fund that receive redemptions in
kind will receive securities of the Portfolio. The Portfolio has advised the
Trust that the Portfolio will not redeem in kind except in circumstances in
which the Fund is permitted to redeem in kind.
PURCHASE OF SHARES
Shares may be purchased through the Distributor Shareholder Servicing
Agents or through securities brokers that have entered into a dealer agreement
with the Distributor ("Securities Brokers"). Shares may be purchased at their
net asset value next determined after an order is transmitted to and accepted by
the Transfer Agent or is received by a Shareholder Servicing Agent or a
Securities Broker if it is transmitted to and accepted by the Transfer Agent.
Purchases are 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 intends 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 or Securities Broker 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 reserves the right to cease offering Shares for sale at any time or to
reject any order for the purchase of Shares.
An investor may purchase Shares through the Distributor directly or by
authorizing his Shareholder Servicing Agent to purchase such Shares on his
behalf through the Transfer Agent.
Certain clients of the Adviser whose assets would be eligible for
purchase by the Fund may purchase shares of the Trust with such assets. Assets
purchased by the Fund will be subject to valuation and other procedures by the
Board of Trustees.
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<PAGE> 117
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).
AUTOMATIC INVESTMENT PLAN
If an Automatic Investment Plan is selected, subsequent investments
will be automatic and will continue until such time as the Trust and the
investor's bank are notified in writing to discontinue further investments. Due
to the varying procedures to prepare, process and forward the bank withdrawal
information to the Trust, there may be a delay between the time of bank
withdrawal and the time the money reaches the Fund. The investment in a Fund
will be made at the net asset value per share determined on the Fund Business
Day that both the check and the bank withdrawal data are received in required
form by the Transfer Agent. Further information about the plan may be obtained
from BISYS at the telephone number listed on the back cover.
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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 the 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 day prior to the day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the next Fund Business Day 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 reserves the right to redeem upon not less than 30 days' notice all Shares
in an account which has a value below $50, provided that such involuntary
redemptions will not result from fluctuations in the value of Fund Shares. 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 securities
broker or a Shareholder Servicing Agent to redeem Shares, a shareholder should
contact his securities broker or his Shareholder Servicing Agent.
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 he redeems 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.
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RETIREMENT PLANS
Shares of the 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 or the Sponsor upon
request. The tax law governing tax-deferred retirement plans is complex and
changes frequently. Before investing in the Fund through one or more of these
plans, an investor should consult his or her tax adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the 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 BISYS 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 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 Fund may be used as a vehicle 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 Fund may also be
used as a vehicle for both 401(k) plans and 403(b) plans.
DIVIDENDS AND DISTRIBUTIONS
For the Bond Fund, the Trust declares all of the Fund's net investment
income daily as a dividend to the Fund shareholders. Dividends substantially
equal to the Fund's net investment income earned during the month are
distributed in that month to the Fund's shareholders of record. Generally, the
Fund's net investment income consists of the interest and dividend income it
earns, less expenses. In computing interest income, premiums are not amortized
nor are discounts accrued on long-term debt securities in the Portfolio, except
as required for federal income tax purposes.
The Fund's net realized 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
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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).
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 Fund's 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.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest (par value
$0.001 per share) and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Trust.
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Portfolio Trust's Trustees,
it is necessary or desirable to submit matters for an investor vote. Each
investor is entitled to a vote in proportion to the share of its investment in
the Portfolio.
The series of the Portfolio Trust will vote separately or together in
the same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of the Portfolio Trust could control the outcome
of these votes. Whenever the Trust is requested to vote on a matter pertaining
to the Portfolio, the Trust will hold a meeting of the Fund's shareholders and
will cast all of its votes on each matter at a meeting of investors in the
Portfolio proportionately as instructed by the Fund's shareholders. However,
subject to applicable statutory and regulatory requirements, the Trust would not
request a vote of the Fund's shareholders with respect to any proposal relating
to the Portfolio which proposal, if made with respect to the Fund, would not
require the vote of the shareholders of the Fund.
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
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communicate with other shareholders of the Trust in connection with requesting a
meeting of shareholders of the Trust for the purpose of removing one or more
Trustees. Shareholders of the Trust also have the right to remove one or more
Trustees without a meeting by a declaration in writing subscribed to by a
specified number of shareholders. Upon liquidation or dissolution of 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 Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Funds or the 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 is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust is organized as a master trust fund under the laws
of the State of New York. The 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 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 the Fund incurring financial
loss on account of such liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations. Accordingly, the Trustees believe that neither Fund nor their
shareholders will be adversely affected by reason of the investment of all of
its assets in the Portfolio.
TAXATION
The following is a summary of certain U.S. federal income tax issues
concerning the Fund, its shareholders and the Portfolio. The Fund and the
Portfolio may also be subject to state, local, foreign or other taxes not
discussed below. This discussion does not purport to be complete or to address
all tax issues relevant to each shareholder. Prospective investors should
consult their own tax advisors with regard to the federal, state, foreign and
other tax consequences to them of the purchase, ownership or disposition of Fund
shares. This discussion is based upon present provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations promulgated thereunder,
and judicial and administrative authorities, all of which are subject to change,
which change may be retroactive.
Each year, to qualify as a separate "regulated investment company"
under the Code, at least 90% of the Fund's investment company taxable income
(which includes, among other items, interest, dividends and the excess of net
short-term capital gains over net long-term capital losses) must be distributed
to Fund shareholders and the Fund must meet certain diversification of assets,
source of income, and other requirements. If the Fund does not so qualify, it
will be taxed as an ordinary corporation.
The Portfolio has obtained a ruling from the Internal Revenue Service
("IRS") that the Portfolio will be treated for federal income tax purposes as a
partnership. For purposes of determining whether the
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Fund satisfies the income and diversification requirements to maintain its
status as a RIC, the Fund, as an investor in the Portfolio, will be deemed to
own a proportionate share of the Portfolio's income attributable to that share.
Amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, for each calendar year an
amount must be distributed equal to the sum of (1) at least 98% of the Fund's
ordinary income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of the Fund's capital gain net income for the
12-month period ending, as a general rule, on October 31 of the calendar year,
and (3) all such ordinary income and capital gains for previous years that were
not distributed during such years.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
If the Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Portfolio's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
Some of the debt securities that may be acquired by the Portfolio may
be treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Portfolio, original issue
discount on a taxable debt security earned in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Portfolio at a
discount which exceeds the original issue discount on such debt securities, if
any. This additional discount represents market discount for federal income tax
purposes. Generally, the gain realized on the disposition of any debt security
acquired by the Portfolio will be treated as ordinary income to the extent it
does not exceed the accrued market discount on such debt security.
Under certain circumstances, the Fund may be taxed on income deemed to
be earned from certain CMO residuals.
Distributions by the Fund of its net investment income will be taxable
to shareholders as ordinary income, whether received in cash or reinvested in
Fund shares. Distributions designated by the Fund of its net capital gain,
whether received in cash or reinvested in Fund shares, will generally be taxable
to shareholders as long-term capital gain,
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regardless of how long a shareholder has held Fund shares.
OPTIONS, FUTURES, FORWARD CONTRACTS AND SWAP CONTRACTS
Some of the options, futures contracts, forward contracts and swap
contracts entered into by the Portfolio may be "Section 1256 contracts." Section
1256 contracts held by the Portfolio at the end of its taxable year (and, for
purposes of the 4% excise tax, on certain other dates as prescribed under the
Code) are "marked-to-market" with unrealized gains or losses being treated as
though they were realized. Any gains or losses, including "marked-to-market"
gains or losses, on Section 1256 contracts are generally 60% long-term and 40%
short-term capital gains or losses ("60/40") although all foreign currency gains
and losses from such contracts may be treated as ordinary in character absent a
special election.
Generally, hedging transactions and certain other transactions in
options, futures, forward contracts and swap contracts undertaken by the
Portfolio may result in "straddles" for U.S. federal income tax purposes. The
straddle rules may affect the character of gain or loss realized by the
Portfolio. In addition, losses realized by the Portfolio on positions that are
part of a straddle may be deferred under the straddle rules, rather than being
taken into account in calculating the taxable income for the taxable year in
which such losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of transactions in
options, futures, forward contracts and swap contracts to the Portfolio are not
entirely clear. The transactions may increase the amount of short-term capital
gain realized by the Portfolio. Short-term gain is taxed as ordinary income when
distributed to Fund shareholders.
The Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If the Portfolio makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Fund shareholders, and which will be taxed to Fund shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
Recently enacted rules may affect the timing and character of gain if
the Fund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If the Fund enters into certain
transactions in property while holding substantially identical property, the
Fund would be treated as if it had sold and immediately repurchased the property
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code.
Rules governing the tax aspects of swap contracts are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Fund intends to account for such transactions in a manner
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deemed to be appropriate, the IRS might not necessarily accept such treatment.
If it does not, the status of the Fund as a regulated investment company might
be affected. The Fund intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for the Fund to qualify as
a regulated investment company may limit the extent to which the Fund will be
able to engage in swap agreements.
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time the Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Portfolio actually collects such receivables or pays
such liabilities generally are treated as ordinary income or loss. Similarly, in
disposing of debt securities denominated in foreign currencies and certain other
foreign currency contracts, gains or losses attributable to fluctuations in the
value of a foreign currency between the date the security or contract is
acquired and the date it is disposed of are also usually treated as ordinary
income or loss. Under Section 988 of the Code, these gains or losses may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to shareholders as ordinary income.
Earnings derived by the Portfolio from sources outside the U.S. may be
subject to non-U.S. withholding and possibly other taxes. Such taxes may be
reduced or eliminated under the terms of a U.S. income tax treaty and the
Portfolio would undertake any procedural steps required to claim the benefits of
such a treaty. With respect to any non-U.S. taxes actually paid by the
Portfolio, if more than 50% in value of the Portfolio's total assets at the
close of any taxable year consists of securities of foreign corporations, the
Fund will elect to treat its share of any non-U.S. income and similar taxes the
Portfolio pays as though the taxes were paid by the Fund's shareholders.
Upon the sale or exchange of shares of the Fund, a shareholder
generally will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands; gain will generally be subject to
a maximum tax rate of 20% if the shareholder's holding period for the shares is
more than 18 months, and to a maximum tax rate of 28% if the shareholders
holding period for the shares is more than one year but not more than 18 months.
Gain from the sale of shares held for not more than one year will be taxed as
short-term capital gain. Any loss realized on a sale or exchange of Fund shares
will be disallowed to the extent that the shares disposed of are replaced
(including replacement through reinvesting of dividends and capital gain
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Distributions by the Fund and redemption proceeds may be subject to
backup withholding at the rate of 31%. Backup withholding generally applies to
shareholders who have failed to properly certify their taxpayer identification
numbers, who fail to provide other required tax-related certifications, and with
respect to whom the Fund has received certain notifications from the Internal
Revenue Service requiring or permitting the Fund to apply backup withholding.
Backup withholding is not an additional tax and amounts so withheld generally
may be applied by affected shareholders as a credit against their federal income
tax liability.
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OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 5, 1996.
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional series will not alter the rights of the Fund's shareholders. When
issued, shares are fully paid, nonassessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of the Fund, each shareholder is entitled to receive his pro rata
share of the net assets of the Fund.
INDEPENDENT AUDITORS
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent auditors of the Trust for the fiscal year ending October 31, 1999.
KPMG Peat Marwick LLP will audit the Fund's annual financial statements, prepare
the Fund's and Portfolio's income tax returns, and assist in the preparation of
filings with the SEC. The address of KPMG Peat Marwick LLP is 99 High Street,
Boston, Massachusetts 02110. The Portfolio Trust has appointed KPMG LLP as its
independent auditors to audit the Portfolio's financial statements for the
fiscal year ending October 31, 1999.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
passes upon certain legal matters in connection with the shares offered by the
Trust, and also acts as counsel to the Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The current audited financial statements dated October 31, 1998 of the
Fund and the Portfolio are hereby incorporated herein by reference from the
Annual Report of the Fund dated October 31, 1998 as filed with the SEC. Copies
of such reports will be provided without charge to each person receiving this
Statement of Additional Information.
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REPUBLIC INTERNATIONAL EQUITY FUND
3435 Stelzer Road
Columbus, Ohio 43219-3035
(888) 525-5757
National Bank of New York - Investment Manager
("Republic" or the "Manager")
Capital Guardian Trust Company - Sub-Adviser
("CGTC" or the "Sub-Adviser")
BISYS Fund Services -
Administrator of the Fund, Distributor and Sponsor
("BISYS" or the "Administrator of the Fund" or
the "Distributor" or the "Sponsor")
BISYS Fund Services (Ireland), Limited -
Administrator of the Portfolio
("BISYS (Ireland)")
STATEMENT OF ADDITIONAL INFORMATION
Republic International Equity Fund (the "Fund") is a separate series of
Republic Advisor Funds Trust (the "Trust"), an open-end, management investment
company which currently consists of three series, each of which has different
and distinct investment objectives and policies. The Trust seeks to achieve the
Fund's investment objective by investing all of the Fund's investable assets
("Assets") in the International Equity Portfolio (the "Portfolio"), which has
the same investment objective as the Fund. The Portfolio is a series of the
Republic Portfolios (the "Portfolio Trust") which is an open-end management
investment company. The Fund is described in this Statement of Additional
Information. Shares of the Fund (the "Shares") are offered only to clients of
Republic and is affiliates for which Republic or its affiliates exercises
investment discretion.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY THE PROSPECTUS
FOR THE FUND, DATED MARCH 1, 1999 (THE "PROSPECTUS"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Fund at the address and
telephone number printed above.
March 1, 1999
<PAGE> 127
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...................................................................1
Derivatives..............................................................................................2
Options and Futures......................................................................................2
Forward Foreign Currency Contracts and Options on Foreign Currencies.....................................3
Foreign Securities.......................................................................................3
Depositary Receipts......................................................................................4
High Yield/High Risk Securities..........................................................................5
Fixed Income Securities..................................................................................5
U.S. Government Securities...............................................................................5
Convertible Securities...................................................................................6
Warrants.................................................................................................6
Repurchase Agreements....................................................................................6
Illiquid Investments.....................................................................................7
Loans of Portfolio Securities............................................................................7
Firm Commitment Agreements And When-Issued Securities....................................................8
Portfolio Turnover.......................................................................................8
Investment Restrictions..................................................................................8
Percentage and Rating Restrictions......................................................................10
Portfolio Transactions..................................................................................10
PERFORMANCE INFORMATION..........................................................................................11
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST..................................................................12
Trustees and Officers...................................................................................12
Compensation Table......................................................................................14
Investment Manager......................................................................................14
The Investment Sub-Adviser..............................................................................16
Fund Administrator......................................................................................16
Transfer Agent..........................................................................................17
Custodian and Fund Account Agents.......................................................................17
Shareholder Servicing Agents............................................................................17
Expenses................................................................................................18
DETERMINATION OF NET ASSET VALUE.................................................................................18
PURCHASE OF SHARES...............................................................................................19
Exchange Privilege......................................................................................20
Automatic Investment Plan...............................................................................20
REDEMPTION OF SHARES.............................................................................................21
Systematic Withdrawal Plan..............................................................................21
</TABLE>
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<TABLE>
<S> <C>
RETIREMENT PLANS.................................................................................................21
Individual Retirement Accounts..........................................................................21
Defined Contribution Plans..............................................................................22
Section 457 Plan, 401(k) Plan, 403(b) Plan..............................................................22
DIVIDENDS AND DISTRIBUTIONS......................................................................................22
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES.............................................................22
TAXATION.........................................................................................................24
Options, Futures, and Forward Contracts.................................................................25
Swap Agreements.........................................................................................26
Investment in Passive Foreign Investment Companies......................................................26
Disposition of Shares...................................................................................27
OTHER INFORMATION................................................................................................27
Capitalization..........................................................................................28
Independent Auditors....................................................................................28
Counsel.................................................................................................28
Registration Statement..................................................................................28
FINANCIAL STATEMENTS.............................................................................................28
</TABLE>
References in this Statement of Additional Information to the "Prospectus" are
to the Prospectus, dated March 1, 1999, of the Fund by which shares of the Fund
("Shares") are offered. Unless the context otherwise requires, terms defined in
the Prospectus have the same meaning in this Statement of Additional Information
as in the Prospectus.
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<PAGE> 129
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective, policies and risks of the Portfolio discussed in the Prospectus.
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 whose principal markets are
outside of the United States. The investment characteristics of the Fund
correspond to those of the International Equity Fund. The International Equity
Portfolio (the "Portfolio") will normally invest at least 80% of its total
assets in equity securities of foreign corporations, consisting of common
stocks, and other securities with equity characteristics, including preferred
stock, warrants, rights, securities convertible into common stock ("convertible
securities"), trust certificates, limited partnership interests and equity
participations. The common stock in which the Portfolio may invest includes the
common stock of any class or series 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 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.
The Portfolio intends to have at least three different countries
represented in its portfolio. It is the current intention of the Portfolio to
invest primarily in companies with large market capitalizations. The Portfolio
seeks to outperform the Morgan Stanley Capital International EAFE (Europe,
Australia and Far East) Index, a capitalization-weighted index containing
approximately 1,100 equity securities of companies located outside the United
States. The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in certain restricted or unlisted
securities.
Under exceptional conditions abroad or when, in the opinion of Capital
Guardian Trust Company ("CGTC" or the "Sub-Adviser"), economic or market
conditions warrant, the Portfolio may temporarily invest part or all of its
assets in fixed income securities denominated in foreign currencies, obligations
of domestic or foreign governments and their political subdivisions ("Government
Securities"), and nonconvertible preferred stock, or hold its assets in cash or
equivalents. Debt securities purchased by the Portfolio will be limited to those
rated, at the time of investment, in the four highest rating categories by a
nationally recognized statistical rating organization ("NRSRO") or, if unrated,
determined by the Sub-Adviser to be of comparable quality. Securities rated by a
NRSRO in the fourth highest rating category are considered to have some
speculative characteristics. When the total return opportunities in a foreign
bond market appear attractive in local currency terms, but, in the Sub-Adviser's
judgment, unacceptable currency risk exists, currency futures, forwards and
options may be used to hedge the currency risk.
CGTC uses a system of multiple portfolio managers pursuant to which the
Portfolio is divided into segments which are assigned to individual portfolio
managers. Within investment guidelines, each portfolio manager makes individual
decisions as to company, country, industry, timing and percentage based on
extensive field research and direct company contact.
Because of the risks associated with common stocks and other equity
investments, the Portfolio is intended to be a long-term investment vehicle and
is not designed to provide investors with a means of speculating on short-term
stock market movements. The Sub-Adviser seeks to reduce these risks by
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diversifying the portfolio as well as by monitoring broad economic trends and
corporate and legislative developments.
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known
as derivatives. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. A mutual fund, of course, derives its value from the value of the
investments it holds and so might even be called a "derivative." Some
"derivatives" such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more volatile or
less liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There is a
range of risks associated with those uses. Futures and options are commonly used
for traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities. The
Portfolio may use derivatives for hedging purposes, cash management purposes, as
a substitute for investing directly in fixed income instruments, and to enhance
return when their Sub-Advisers believe the investment will assist the Portfolio
in achieving its investment objectives.
OPTIONS AND FUTURES
The Portfolio may invest in foreign currency futures contracts and
options on foreign currencies and foreign currency futures. The Portfolio may
only do so for hedging purposes. 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 Portfolio and the Fund. While the use
of these instruments by the Portfolio and the Fund may reduce certain risks
associated with owning its portfolio securities, these techniques themselves
entail certain other risks. If the Sub-Adviser applies a strategy at an
inappropriate time or judges market conditions or trends incorrectly, options
and futures strategies may lower the Portfolio's or Fund's return. Certain
strategies limit the potential of the Portfolio or the Fund to realize gains as
well as limit their exposure to losses. The Portfolio and the Fund could also
experience losses if the prices of its options and futures positions were poorly
correlated with its other investments. There can be no assurance that a liquid
market will exist at a time when the Portfolio or the Fund seeks to close out a
futures contract or a futures option position. Most futures exchanges and boards
of trade limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a particular
contract, no trades may be made that day at a price beyond that limit. In
addition, certain of these instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Portfolio and the Fund from liquidating an
unfavorable position and the Portfolio or the Fund would remain obligated to
meet margin requirements until the position is closed. In addition, the
Portfolio and the Fund will incur transaction costs, including trading
commissions and options premiums, in connection with their futures and options
transactions, and these transactions could significantly increase a Portfolio or
Fund turnover rate.
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FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Forward foreign currency exchange contracts ("forward contracts") are
intended to minimize the risk of loss to the Portfolio from adverse changes in
the relationship between the U.S. dollar and foreign currencies. The Portfolio
may not enter into such contracts for speculative purposes. By entering into
transactions in Forward Contracts, however, the Portfolio may be required to
forego the benefits of advantageous changes in exchange rates. 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.
FOREIGN SECURITIES
The 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. For example, significant uncertainty surrounds the proposed
introduction of the euro (a common currency for the European Union) in January
1999 and its effect on the value of securities denominated in local European
currencies. These and other currencies in which a Fund's assets are denominated
may be devalued against the U.S. dollar, resulting in a loss to the Fund.
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.
Emerging Markets. The Portfolio may invest in emerging markets, which
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
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economies and securities markets of certain emerging market countries. Many of
the emerging securities markets are relatively small, have low trading volumes,
suffer periods of relative illiquidity, and are characterized by significant
price volatility. There is the risk that a future economic or political crisis
could lead to price controls, forced mergers of companies, expropriation or
confiscatory taxation, seizure, nationalization, or creation of government
monopolies, any of which could have a detrimental effect on the Portfolio's
investments.
Investing in formerly communist East European countries involves the
additional risk that the government or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the fall of communism and could follow radically different political and/or
economic policies to the detriment of investors, including non-market oriented
policies such as the support of certain industries at the expense of other
sectors or a return to a completely centrally planned economy. The Portfolio
does not currently intend to invest a significant portion of its assets in
formerly communist East European countries.
With respect to the Portfolio, "emerging markets" include any country
which in the opinion of the Sub-Adviser is generally considered to be an
emerging or developing country by the International Bank for Reconstruction and
Development (the World Bank) and the International Monetary Fund. Currently,
these countries generally include every country in the world except Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, United Kingdom and United States. 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 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.
Sovereign and Supranational Debt Obligations. Debt instruments issued
or guaranteed by foreign governments, agencies, and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a high degree of risk, and may be in default
or present the risk of default. The issuer of the obligation or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
DEPOSITARY RECEIPTS
The Portfolio may invest in American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), and
International Depositary Receipts ("IDRs"), or other similar securities
convertible into securities of foreign issuers. ADRs (sponsored or unsponsored)
are receipts typically issued by a U.S. bank or trust company evidencing the
deposit with such bank or company of a security of a foreign issuer, and are
publicly traded on exchanges or over-the-counter in the United States. In
sponsored programs, an issuer has made arrangements to have its securities trade
in the form of ADRs. In unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, in some
cases it may be easier to obtain financial information from an issuer that has
participated in the creation of a sponsored program.
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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
As stated in the Prospectus, the Portfolio may invest in lower rated,
high-yield, "junk" bonds. These securities are generally rated lower than Baa by
Moody's or lower than BBB by S&P. In general, the market for lower rated,
high-yield bonds is more limited than the market for higher rated bonds, and
because their markets may be thinner and less active, the market prices of lower
rated, high-yield bonds may fluctuate more than the prices of higher rated
bonds, particularly in times of market stress. In addition, while the market for
high-yield, corporate debt securities has been in existence for many years, the
market in recent years experienced a dramatic increase in the large-scale use of
such securities to fund highly leveraged corporate acquisitions and
restructurings. Accordingly, past experience may not provide an accurate
indication of future performance of the high-yield bond market, especially
during periods of economic recession. Other risks that may be associated with
lower rated, high-yield bonds include their relative insensitivity to
interest-rate changes; the exercise of any of their redemption or call
provisions in a declining market which may result in their replacement by lower
yielding bonds; and legislation, from time to time, which may adversely affect
their market. Since the risk of default is higher among lower rated, high-yield
bonds, the Sub-Adviser's research and analyses are important ingredients in the
selection of lower rated, high-yield bonds. Through portfolio diversification,
good credit analysis and attention to current developments and trends in
interest rates and economic conditions, investment risk can be reduced, although
there is no assurance that losses will not occur. The Portfolio does not have
any minimum rating criteria applicable to the fixed-income securities in which
it invests.
FIXED INCOME SECURITIES
To the extent the Portfolio invests in fixed income securities, the net
asset value of the Portfolio may change as the general levels of interest rates
fluctuate. When interest rates decline, the value of fixed income securities can
be expected to rise. Conversely, when interest rates rise, the value of fixed
income securities can be expected to decline. The Portfolio's investments in
fixed income securities with longer terms to maturity or greater duration are
subject to greater volatility than the Portfolio's shorter-term obligations.
U.S. GOVERNMENT SECURITIES
For liquidity purposes and for temporary defensive purposes, the
Portfolio may invest in U.S. Government securities held directly or under
repurchase agreements. U.S. Government securities include bills, notes, and
bonds issued by the U.S. Treasury and securities issued or guaranteed by
agencies or instrumentalities of the U.S. Government.
Some U.S. Government securities are supported by the direct full faith
and credit pledge of the U.S. Government; others are supported by the right of
the issuer to borrow from the U.S. Treasury; others, such as securities issued
by the Federal National Mortgage Association ("FNMA"), are supported by the
discretionary authority of the U.S. Government to purchase the agencies'
obligations; and others are supported only by the credit of the issuing or
guaranteeing instrumentality. There is no assurance that the
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U.S. Government will provide financial support to an instrumentality it sponsors
when it is not obligated by law to do so.
CONVERTIBLE SECURITIES
The Portfolio may buy securities that are convertible into common
stock. The following is a brief description of the various types of convertible
securities in which the Portfolio may invest.
Convertible bonds are issued with lower coupons than non-convertible
bonds of the same quality and maturity, but they give holders the option to
exchange their bonds for a specific number of shares of the company's common
stock at a predetermined price. This structure allows the convertible bond
holder to participate in share price movements in the company's common stock.
The actual return on a convertible bond may exceed its stated yield if the
company's common stock appreciates in value, and the option to convert to common
shares becomes more valuable.
Convertible preferred stocks are non-voting equity securities that pay
a fixed dividend. These securities have a convertible feature similar to
convertible bonds; however, they do not have a maturity date. Due to their
fixed-income features, convertible issues typically are more sensitive to
interest rate changes than the underlying common stock. In the event of
liquidation, bondholders would have claims on company assets senior to those of
stockholders; preferred stockholders would have claims senior to those of common
stockholders.
Rights represent a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public.
WARRANTS
The Portfolio may invest up to 10% of its net assets in warrants,
except that this limitation does not apply to warrants acquired in units or
attached to securities. A warrant is an instrument issued by a corporation that
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. Once a warrant expires, it has no
value in the market. 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.
REPURCHASE AGREEMENTS
The Portfolio may invest in instruments subject to repurchase
agreements only with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York) in U.S.
Government securities. Under the terms of a typical repurchase agreement, an
underlying debt instrument would be acquired for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase the instrument at a fixed price and time, thereby determining the
yield during the Fund's holding period. This results in a fixed rate of return
insulated from market fluctuations during such period. A repurchase agreement is
subject to the risk that the seller may fail to repurchase the security.
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Repurchase agreements may be deemed to be loans under the 1940 Act. All
repurchase agreements entered into on behalf of the Fund are fully
collateralized at all times during the period of the agreement in that the value
of the underlying security is at least equal to the amount of the loan,
including accrued interest thereon, and the Portfolio or its custodian bank has
possession of the collateral, which the Portfolio Trust's Board of Trustees
believes gives the Portfolio a valid, perfected security interest in the
collateral. Whether a repurchase agreement is the purchase and sale of a
security or a collateralized loan has not been definitively established. This
could become an issue in the event of the bankruptcy of the other party to the
transaction. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Portfolio but only constitute collateral for the seller's obligation to
pay the repurchase price. Therefore, the Portfolio may suffer time delays and
incur costs in connection with the disposition of the collateral. The Board of
Trustees of the Portfolio Trust believes that the collateral underlying
repurchase agreements may be more susceptible to claims of the seller's
creditors than would be the case with securities owned by the Portfolio. 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. The Portfolio will not invest in a repurchase
agreement maturing in more than seven days if any such investment together with
illiquid securities held for the Portfolio exceed 15% of the Portfolio's net
assets.
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in securities that
are illiquid by virtue of the absence of a readily available market, or because
of legal or contractual restrictions on resale. This policy does not limit the
acquisition of securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 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 Portfolio has a 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 Sub-Adviser may determine that a particular Rule 144A security is
liquid and thus not subject to the Portfolio's limits on investment in illiquid
securities, pursuant to guidelines adopted by the Board of Trustees. Factors
that the Sub-Adviser must consider in determining whether a particular Rule 144A
security is liquid include the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and the nature of the market for the
security (i.e., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). Investing in Rule 144A
securities could have the effect of increasing the level of the Portfolio's or
Fund's illiquidity to the extent that qualified institutions might become, for a
time, uninterested in purchasing these securities.
LOANS OF PORTFOLIO SECURITIES
The Portfolio 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 Portfolio will not end its portfolio securities to
the extent that greater than one-third of the Portfolio's total assets, at fair
market value, would be committed to loans at that time.
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FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Portfolio may purchase and sell securities on a when-issued or
firm-commitment basis, in which a security's price and yield are fixed on the
date of the commitment but payment and delivery are scheduled for a future date.
On the settlement date, the market value of the security may be higher or lower
than its purchase or sale price under the agreement. If the other party to a
when-issued or firm- commitment transaction fails to deliver or pay for the
security, the Portfolio could miss a favorable price or yield opportunity or
suffer a loss. The Portfolio will not earn interest on securities until the
settlement date. The Portfolio will maintain in a segregated account with the
custodian cash or liquid securities equal (on a daily marked-to-market basis) to
the amount of its commitment to purchase the securities on a when-issued basis.
PORTFOLIO TURNOVER
The Sub-Adviser manages the Portfolio generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the Portfolio 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. The portfolio
turnover rate for the International Equity Portfolio was 40.47% for the year
ended October 31, 1998 and it is expected that in subsequent years the annual
turnover rate for the Portfolio will not exceed 40%.
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.
INVESTMENT RESTRICTIONS
The Portfolio Trust (with respect to the Portfolio) and the Trust (with
respect to the Fund) have adopted the following investment restrictions which
may not be changed without approval by holders of a "majority of the outstanding
voting securities" of the Portfolio or Fund, which as used in this Statement of
Additional Information means the vote of the lesser of (i) 67% or more of the
outstanding "voting securities" of the Fund present at a meeting, if the holders
of more than 50% of the outstanding "voting securities" are present or
represented by proxy, or (ii) more than 50% of the outstanding "voting
securities". The term "voting securities" as used in this paragraph has the same
meaning as in the 1940 Act.
As a matter of fundamental policy, the Portfolio (Fund) will not
(except that none of the following investment restrictions shall prevent the
Trust from investing all of the Fund's Assets in a separate registered
investment company with substantially the same investment objectives):
(1) invest in physical commodities or contracts on physical
commodities:
(2) purchase or sell real estate, although it may purchase and
sell securities of companies which deal in real estate, other
than real estate limited partnerships, and may purchase and
sell marketable securities which are secured by interests in
real estate;
(3) make loans except for the lending of portfolio securities
pursuant to guidelines established by the Board of Trustees
and except as otherwise in accordance with the Portfolio's
(Fund's) investment objective and policies;
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(4) borrow money, except from a bank as a temporary measure to
satisfy redemption requests or for extraordinary or emergency
purposes, provided that the Portfolio (Fund) maintains asset
coverage of at least 300% for all such borrowings;
(5) underwrite the securities of other issuers (except to the
extent that the Portfolio (Fund) may be deemed to be an
underwriter within the meaning of the Securities Act of 1933
in the disposition of restricted securities);
(6) acquire any securities of companies within one industry, if as
a result of such acquisition, more than 25% of the value of
the Portfolio's (Fund's) total assets would be invested in
securities of companies within such industry; provided,
however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, when the Portfolio (Fund)
adopts a temporary defensive position;
(7) issue senior securities, except as permitted under the 1940
Act;
(8) with respect to 75% of its assets, the Portfolio (Fund) will
not purchase securities of any issuer if, as a result, more
than 5% of the Portfolio's (Fund's) total assets taken at
market value would be invested in the securities of any single
issuer;
(9) with respect to 75% of its assets, the Portfolio (Fund) will
not purchase a security if, as a result, the Portfolio (Fund)
would hold more than 10% of the outstanding voting securities
of any issuer.
The Portfolio and the Fund are also subject to the following
restrictions which may be changed by the Board of Trustees without shareholder
approval (except that none of the following investment policies shall prevent
the Trust from investing all of the Assets of the Fund in a separate registered
investment company with substantially the same investment objectives). As a
matter of non-fundamental policy, the Portfolio (Fund) will not:
(1) borrow money, except that the Portfolio (Fund) may borrow for
temporary or emergency purposes up to 10% of its net assets;
provided, however, that the Portfolio (Fund) may not purchase
any security while outstanding borrowings exceed 5% of net
assets;
(2) sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in
options and futures contracts are not deemed to constitute
short sales of securities;
(3) purchase warrants, valued at the lower of cost or market, in
excess of 10% of the value of its net assets. Included within
that amount, but not to exceed 2% of the value of the
Portfolio's (Fund's) net assets, may be warrants that are not
listed on the New York or American Stock Exchanges or an
exchange with comparable listing requirements. Warrants
attached to securities are not subject to this limitation;
(4) purchase securities on margin, except for use of short-term
credit as may be necessary for the clearance of purchases and
sales of securities, but it may make margin deposits in
connection with transactions in options, futures, and options
on futures;
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(5) invest more than an aggregate of 15% of the net assets of the
Portfolio (Fund), determined at the time of investment, in
securities that are illiquid because their disposition is
restricted under the federal securities laws or securities for
which there is no readily available market; provided, however
that this policy does not limit the acquisition of (i)
securities that have legal or contractual restrictions on
resale but have a readily available market or (ii) securities
that are not registered under the 1933 Act, but which can be
sold to qualified institutional investors in accordance with
Rule 144A under the 1933 Act and which are deemed to be liquid
pursuant to guidelines adopted by the Board of Trustees
("Restricted Securities").
(6) invest more than 10% of the Portfolio's (Fund's) assets in
Restricted Securities (including Rule 144A securities);
(7) invest for the purpose of exercising control over management
of any company;
(8) invest its assets in securities of any investment company,
except by purchase in the open market involving only customary
brokers' commissions or in connection with mergers,
acquisitions of assets or consolidations and except as may
otherwise be permitted by the 1940 Act; provided, however,
that the Portfolio shall not invest in the shares of any
open-end investment company unless (1) the Portfolio's
Sub-Adviser waives any investment advisory fees with respect
to such assets and (2) the Portfolio pays no sales charge in
connection with the investment;
(9) invest more than 5% of its total assets in securities of
issuers (other than securities issued or guaranteed by U.S. or
foreign government or political subdivisions thereof) which
have (with predecessors) a record of less than three years'
continuous operations;
(10) write or acquire options or interests in oil, gas or other
mineral explorations or development programs or leases;
(11) purchase or retain securities of an issuer of those officers
and Trustees of the Portfolio Trust or the Manager or
Sub-Adviser owning more than 1/2 of 1% of such securities
together own more than 5% of such securities.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage restriction or a rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the securities held
by the Fund or a later change in the rating of a security held by the Fund is
not considered a violation of policy; however, the Sub-Adviser will consider
such change in its determination of whether to hold the security.
PORTFOLIO TRANSACTIONS
The Sub-Adviser is primarily responsible for portfolio decisions and
the placing of portfolio transactions. In placing orders for the Portfolio, the
primary consideration is prompt execution of orders in an effective manner at
the most favorable price, although the Portfolio does not necessarily pay the
lowest spread or commission available. Other factors taken into consideration
are the dealer's general execution
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<PAGE> 139
and operational facilities, the type of transaction involved and other factors
such as the dealer's risk in positioning the securities. To the extent
consistent with applicable legal requirements, the Sub-Adviser may place orders
for the purchase and sale of Portfolio investments for the Portfolio with
Republic New York Securities Corporation, an affiliate of the Manager.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
(the "1934 Act"), the Sub-Adviser may cause the Portfolio to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934 Act) to
the Sub-Adviser an amount of commission for effecting a securities transaction
for the Fund in excess of the commission which another broker-dealer would have
charged for effecting that transaction. For the fiscal years ended October 31,
1996, October 31, 1997, and October, 1998, the Portfolio paid aggregate
brokerage commissions equal to $352,429, $295,571 and $246,762, respectively,
none of which was paid to broker-dealers that provided "brokerage and research
services" to the Sub-Adviser. For the period January 9, 1995 (commencement of
operations) to October 31, 1995, there were no brokerage commissions paid from
the Portfolio.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc. and such other policies as the Trustees of the
Portfolio Trust may determine, and subject to seeking the most favorable price
and execution available, the Sub-Adviser may consider sales of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Portfolio.
Investment decisions for the Portfolio and for the other investment
advisory clients of the Sub-Adviser are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought for certain clients even though it
could have been sold for other clients at the same time, and a particular
security may be sold for certain clients even though it could have been bought
for other clients at the same time. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling that
same security. In some instances, one client may sell a particular security to
another client. Two or more clients may simultaneously purchase or sell the same
security, in which event each day's transactions in that security are, insofar
as practicable, averaged as to price and allocated between such clients in a
manner which in the Sub-Adviser's opinion is equitable to each and in accordance
with the amount being purchased or sold by each. In addition, when purchases or
sales of the same security for the Fund and for other clients of the Sub-Adviser
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchases or
sales. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other clients
in terms of the price paid or received or of the size of the position
obtainable.
PERFORMANCE INFORMATION
The Trust may, from time to time, include total return for the Fund,
computed in accordance with formulas prescribed by the Securities and Exchange
Commission ("SEC"), in advertisements or reports to shareholders or prospective
investors.
Quotations of yield for the Fund will be based on all investment income
per share (as defined by the SEC during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
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<PAGE> 140
a-b 6
YIELD = 2[(-- + 1) -1]
cd
where
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the period.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (up to the
life of the Fund), calculated pursuant to the following formula: P (1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. The Fund also may, with respect to certain periods of less than one
year, provide total return information for that period that is unannualized. Any
such information would be accompanied by standardized total return information.
Historical performance information for any period or portion thereof
prior to the establishment of the Fund will be that of the Portfolio, adjusted
to assume that all charges, expenses and fees of the Fund and the Portfolio
which are presently in effect were deducted during such periods, as permitted by
applicable SEC staff interpretations. The table that follows sets forth
historical return information for the periods indicated:
Annual Total Return - Year Ended October 31, 1998: 3.49%.
Average Annual Total Return - January 9, 1995 (commencement of
operations) to October 31, 1998: 10.84%.
Performance information for the Fund may also be compared to various
unmanaged indices, such as the Morgan Stanley Capital International Europe,
Australia and Far East ("EAFE") Index. Unmanaged indices (i.e., other than
Lipper) generally do not reflect deductions for administrative and management
costs and expenses. Comparative information may be compiled or provided by
independent ratings services or by news organizations. Any performance
information should be considered in light of the Fund's investment objectives
and policies, characteristics and quality of the Fund, and the market conditions
during the given time period, and should not be considered to be representative
of what may be achieved in the future.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
TRUSTEES AND OFFICERS
The business and affairs of the Trust and the Portfolio Trust are
managed under the direction of their respective Boards of Trustees. The
principal occupations of the Trustees and executive officers of the Trust and
Portfolio Trust for the past five years are listed below. Asterisks indicate
that those officers are "interested persons" (as defined in the 1940 Act) of the
Trust and the Portfolio Trust. The address of each, unless otherwise indicated,
is 3435 Stelzer Road, Columbus, Ohio 43219-3035.
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<PAGE> 141
FREDERICK C. CHEN, Trustee
126 Butternut Hollow Road, Greenwich, Connecticut 06830 - Management
Consultant.
ALAN S. PARSOW, Trustee
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, Trustee
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, Trustee
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
WALTER B. GRIMM*, President and Secretary
Employee of BISYS Fund Services, Inc., June, 1992 to present; prior to
June, 1992 President of Leigh Investments Consulting (investment firm).
ANTHONY J. FISCHER, Vice President
Employee of BISYS Fund Services, Inc., April, 1998 to present; Employee
of SEI Investments and Merrill Lynch prior to April 1998.
JAMES L. SMITH, Vice President
Employee of BISYS Funds Services, Inc. October 1996 to present;
Employee of Davis, Graham, Stubbs, October 1995 to October 1996;
Director of Legal and Compliance, ALPS Mutual Funds
Services, Inc. from June 1991 to October 1995.
ADRIAN WATERS*, Treasurer
Employee of BISYS Fund Services (Ireland) LTD., May 1993 to present;
Manager, Price Waterhouse, 1989 to May 1993.
CATHERINE BRADY*, Assistant Treasurer
Employee of BISYS Fund Services (Ireland) LTD., March 1994 to present;
Supervisor, Price Waterhouse, 1990 to March 1994.
ELLEN STOUTAMIRE, Secretary
Employee of BISYS Fund Services, Inc., April, 1997 to present; Attorney
in private practice prior to April 1997.
ALAINA METZ*, Assistant Secretary
Chief Administrator, Administrative and Regulatory Services, BISYS Fund
Services, Inc., June 1995 to present; Supervisor, Mutual Fund Legal
Department, Alliance Capital Management, May 1989 to June 1995.
*Messrs. Grimm, Fischer and Waters and Mss. Grandominico, Brady,
Stoutamire and Metz also are officers of certain other investment companies of
which BISYS or an affiliate is the administrator.
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<PAGE> 142
COMPENSATION TABLE
<TABLE>
<CAPTION>
Retirement Total
Pension of Estimated Compensation
Aggregate Benefits Accrued Annual From Fund
Compensation as Part of Fund Benefits Upon Complex* to
Name of Trustee from Trust Expenses Retirement Trustees
--------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Frederick C. Chen $2,900 none none $11,600
Alan S. Parsow $2,400 none none $ 9,600
Larry M. Robbins $2,400 none none $ 9,600
Michael Seely $2,400 none none $ 9,600
</TABLE>
* The Fund Complex includes the Trust, Republic Advisor Funds Trust, and the
Portfolio Trust.
The compensation table above reflects the fees received by the Trustees
for the year ended December 31, 1998. The Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust will receive an annual
retainer of $3,600 and a fee of $1,500 for each meeting of the Board of Trustees
or committee thereof attended, except that Mr. Robbins will receive an annual
retainer of $4,600 and a fee of $1,750 for each meeting attended.
As of February 9, 1999, the Trustees and officers of the Trust and the
Portfolio Trust, as a group, owned less than 1% of the outstanding shares of the
Fund. As of the same date, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund (the Trust has knowledge of the beneficial
ownership of such shares):
<TABLE>
<S> <C>
Kinco & Co. 51.46959%
C/o RNB Securities Services
One Hanson Place
Lower Level
Brooklyn, NY 11243
</TABLE>
Shareholders who own more than 25% of the outstanding voting securities of the
Fund may be able to control the outcome of any matter submitted for the approval
of shareholders of the Fund.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that such
officers or Trustees have not engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
INVESTMENT MANAGER
Republic is the investment manager to the Portfolio pursuant to an
investment management agreement (the "Investment Management Contract") with the
Portfolio Trust. For its services, the Manager
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<PAGE> 143
is entitled to receive a fee from the Portfolio, computed daily and paid
monthly, equal on an annual basis to 0.25% of the Portfolio's average daily net
assets. For the fiscal years ended October 31, 1996 and October 31, 1997,
investment management fees aggregated $243,751 and $466,480 (of which the entire
amount was waived), respectively. For the fiscal year ended October 31, 1998,
investment management fees aggregated $562,443, none of which was waived.
The Investment Management Contract will continue in effect with respect
to the Portfolio, provided such continuance is approved at least annually (i) by
the holders of a majority of the outstanding voting securities of the Portfolio
or by the Portfolio Trust's Board of Trustees, and (ii) by a majority of the
Trustees of the Portfolio Trust who are not parties to the Investment Management
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Investment Management Contract may be terminated with respect to the
Portfolio without penalty by either party on 60 days' written notice and will
terminate automatically if assigned.
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Portfolio.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the Fund or
Portfolio, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of obligations so purchased. Republic
complies with applicable laws and regulations, including the regulations and
rulings of the U.S. Comptroller of the Currency relating to fiduciary powers of
national banks. These regulations provide, in general, that assets managed by a
national bank as fiduciary shall not be invested in stock or obligations of, or
property acquired from, the bank, its affiliates or their directors, officers or
employees or other persons with substantial connections with the bank. The
regulations further provide that fiduciary assets shall not be sold or
transferred, by loan or otherwise, to the bank or persons connected with the
bank as described above. Republic, in accordance with federal banking laws, may
not purchase for its own account securities of any investment company the
investment adviser of which it controls, extend credit to any such investment
company, or accept the securities of any such investment company as collateral
for a loan to purchase such securities. Moreover, Republic, its officers and
employees do not express any opinion with respect to the advisability of any
purchase of such securities. 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 Fund and Portfolio
will not violate the Glass-Steagall Act or other applicable banking laws or
regulations. However, future statutory or regulatory changes, as well as future
judicial or administrative decisions and interpretations of present and future
statutes and regulations, could prevent Republic from continuing to perform such
services for the Fund and Portfolio. If Republic were prohibited from acting as
investment manager to the Fund and Portfolio, it is expected that the Trust's
Board of Trustees would recommend to Fund shareholders approval of a new
investment advisory agreement with another qualified investment adviser selected
by the Board or that the Board would recommend other appropriate action.
The investment advisory services of Republic to the Portfolio are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment advisory services to others.
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<PAGE> 144
THE INVESTMENT SUB-ADVISER
CGTC, as the Portfolio's Sub-Adviser, is responsible for the investment
management of the Portfolio's assets, including making investment decisions and
placing orders for the purchase and sale of securities for the Portfolio
directly with the issuers or with brokers or dealers selected by CGTC or
Republic in its discretion. See "Portfolio Transactions." CGTC also furnishes to
the Board of Trustees of the Portfolio Trust, which has overall responsibility
for the business and affairs of the Portfolio Trust, periodic reports on the
investment performance of the Portfolio.
For its services, CGTC receives from the Portfolio a fee, computed
daily and based on the Portfolio's average daily net assets, at the annual rate
of 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 in excess of $250 million. For the fiscal years ended
October 31, 1996 and October 31, 1997, sub-advisory fees aggregated $514,874 and
$893,016, respectively. For the fiscal year ended October 31, 1998, sub-advisory
fees aggregated $1,057,392.
The investment advisory services of CGTC to the Portfolio are not
exclusive under the terms of the Sub-Advisory Agreement. CGTC is free to and
does render investment advisory services to others.
FUND ADMINISTRATOR
Pursuant to an Administration Agreement, BISYS provides the Fund with
general office facilities and supervises the overall administration of the Fund
and the Portfolio including, among other responsibilities, assisting in the
preparation and filing of all documents required for compliance by the Fund and
the Portfolio with applicable laws and regulations and arranging for the
maintenance of books and records of the Fund and the Portfolio. For its services
to the Bond Fund, BISYS receives from the Fund fees payable monthly equal on an
annual basis (for the Fund's then-current fiscal year) to 0.05% of the Fund's
average daily net assets up to $1 billion; 0.04% of the next $1 billion of such
assets; and 0.035% of such assets in excess of $2 billion. For providing similar
services to the Portfolio, BISYS (Ireland) receives from the Portfolio fees
payable monthly equal on an annual basis (for the Portfolio's then-current
fiscal year) to 0.05% of the first $1 billion of the Portfolio's average daily
net assets; 0.04% of the next $1 billion of such assets; and 0.035% of such
assets in excess of $2 billion.
For the fiscal years ended October 31, 1996 and October 31, 1997, the
Portfolio accrued administration fees of $48,750 and $93,296, respectively, $117
of which was waived for the year ended October 31, 1996. For the fiscal year
ended October 31, 1998, the Portfolio accrued administration fees of $112,489,
none of which was waived. The Fund (or its predecessor) accrued administration
fees of $20,274 for the period from January 9, 1995 (commencement of operations)
to October 31, 1995 (of which $5,194 was waived voluntarily) and $36,129 (of
which $16,007 was waived voluntarily) for the fiscal year ended October 31,
1996. For the fiscal years ended October 31, 1997 and October 31, 1998, the Fund
accrued administration expenses of $62,326 and $69,241 (none of which was
waived), respectively.
Each Administration Agreement will remain in effect until March 31,
1999, and automatically will continue in effect thereafter from year to year
unless terminated upon 60 days' written notice to BISYS or BISYS (Ireland), as
appropriate. Each Administration Agreement will terminate automatically in the
event
16
<PAGE> 145
of its assignment. Each Administration Agreement also provides that neither
BISYS nor BISYS (Ireland), as appropriate, nor its personnel shall be liable for
any error of judgment or mistake of law or for any act or omission in the
administration or management of the Trust or Portfolio Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of reckless disregard of its or their obligations and duties
under the Administration Agreement.
BISYS provides persons satisfactory to the respective Boards of
Trustees to serve as officers of the Trust and the Portfolio Trust. Such
officers, as well as certain other employees of the Trust and of the Portfolio
Trust, may be directors, officers or employees of BISYS or its affiliates.
TRANSFER AGENT
The Trust has entered into a Transfer Agency Agreement with Investors
Bank & Trust Company ("IBT"), pursuant to which IBT acts as transfer agent
("Transfer Agent") for Shares of the Fund, and the Portfolio Trust has entered
into a Transfer Agent Agreement with Investors Fund Services (Ireland) Limited
(also a "Transfer Agent"). The Transfer Agents maintain an account for each
shareholder of the Fund and investors in the Portfolio, performs other transfer
agency functions, and act as dividend disbursing agent for the Fund. The
principal business address of IBT is 200 Clarendon Street, Boston, Massachusetts
02117.
Pursuant to an agreement, as of April 1, 1999, BISYS will provide all
services with respect to each class of shares of the Fund. The principal
business address of BISYS is 3435 Stelzer Road, Columbus, OH 43219.
CUSTODIAN AND FUND ACCOUNT AGENTS
Pursuant to a Custodian Agreement, with respect to domestic assets,
Republic acts as the custodian of the Fund's assets. With respect to foreign
assets, IBT serves as custodian for the Fund and the Portfolio (together, with
Republic, the "Custodians"). The Custodians' responsibilities include
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Fund's investments, maintaining books of original entry for portfolio and
fund accounting and other required books and accounts in order to calculate the
daily net asset value of Shares of the Fund. Securities held for the Fund may be
deposited into the Federal Reserve-Treasury Department Book Entry System or the
Depository Trust Company. The Custodians do not determine the investment
policies of the Fund or decide which securities will be purchased or sold for
the Fund. For its services, the Custodians receive such compensation as may from
time to time be agreed upon by it and the Trust. IBT Fund Services (Canada) Inc.
serves as the fund accounting agent for the Portfolio.
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 of
the Fund may be effected and certain other matters pertaining to the Fund;
assists shareholders in designating and changing dividend options, account
designations and addresses; provides necessary personnel and facilities to
establish and maintain shareholder accounts and records; assists in processing
purchase and redemption transactions; arranges for the wiring of funds;
transmits and receives funds in connection with customer orders to purchase or
redeem Shares; verifies and guarantees shareholder signatures in connection with
redemption orders and transfers
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<PAGE> 146
and changes in shareholder-designated accounts; furnishes (either separately or
on an integrated basis with other reports sent to a shareholder by a Shareholder
Servicing Agent) monthly and year-end statements and confirmations of purchases
and redemptions; transmits, on behalf of the Trust, proxy statements, annual
reports, updated prospectuses and other communications from the Trust to the
Fund's shareholders; receives, tabulates and transmits to the Trust proxies
executed by shareholders with respect to meetings of shareholders of the Fund or
the Trust; and provides such other related services as the Trust or a
shareholder may request. Although the Fund does not currently compensate
Shareholder Servicing Agents for performing these services with respect to
Shares, the Fund is authorized to pay a shareholder servicing fee of up to
0.25%, on an annual basis, of the Fund's average daily net assets.
The Trust understands that some Shareholder Servicing Agents also may
impose certain conditions on their customers, subject to the terms of this
Prospectus, in addition to or different from those imposed by the Trust, such as
requiring a different minimum initial or subsequent investment, account fees (a
fixed amount per transaction processed), compensating balance requirements (a
minimum dollar amount a customer must maintain in order to obtain the services
offered), or account maintenance fees (a periodic charge based on a percentage
of the assets in the account or of the dividends paid on those assets). Each
Shareholder Servicing Agent has agreed to transmit to its customers who are
holders of Shares appropriate prior written disclosure of any fees that it may
charge them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees. Conversely, the Trust understands that
certain Shareholder Servicing Agents may credit to the accounts of their
customers from whom they are already receiving other fees amounts not exceeding
such other fees or the fees received by the Shareholder Servicing Agent from the
Fund with respect to those accounts.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the Fund. The Trust engages banks as Shareholder
Servicing Agents on behalf of the Fund only to perform administrative and
shareholder servicing functions as described above. The Trust believes that the
Glass-Steagall Act should not preclude a bank from acting as a Shareholder
Servicing Agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain Fund shareholders, and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trustees of the Trust do not expect that
shareholders of the Fund would suffer any adverse financial consequences as a
result of these occurrences.
EXPENSES
Except for the expenses paid by the Manager and the Distributor, the
Fund bears all costs of its operations Expenses attributable to a class ("Class
Expenses") shall be allocated to that class only. In the 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 expense. Trust expenses directly related
to the Fund are charged to the Fund; other expenses are allocated proportionally
among all the portfolios of the Trust in relation to the net asset value of the
Funds.
DETERMINATION OF NET ASSET VALUE
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<PAGE> 147
The net asset value of each of the Shares is determined on each day on
which the New York Stock Exchange ("NYSE") is open for trading. As of the date
of this Statement of Additional Information, the NYSE is open every weekday
except for the days on which the following holidays are observed: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Sub-Adviser typically completes its trading on behalf of the
Portfolio in various markets before 4:00 p.m., and the value of portfolio
securities is determined when the primary market for those securities closes for
the day. Foreign currency exchange rates are also determined prior to 4:00 p.m.
However, if extraordinary events occur that are expected to affect the value of
a portfolio security after the close of the primary exchange on which it is
traded, the security will be valued at fair value as determined in good faith
under the direction of the Board of Trustees of the Portfolio Trust.
Subject to the Trust's compliance with applicable regulations, the
Trust on behalf of the Fund and the Portfolio have reserved the right to pay the
redemption or repurchase price of Shares, either totally or partially, by a
distribution in kind of portfolio securities from the Portfolio (instead of
cash). The securities so distributed would be valued at the same amount as that
assigned to them in calculating the net asset value for the Shares being sold.
If a shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash. The Trust will
redeem Fund shares in kind only if it has received a redemption in kind from the
Portfolio and therefore shareholders of the Fund that receive redemptions in
kind will receive securities of the Portfolio. The Portfolio has advised the
Trust that the Portfolio will not redeem in kind except in circumstances in
which the Fund is permitted to redeem in kind.
PURCHASE OF SHARES
Shares may be purchased through the Distributor Shareholder Servicing
Agents or through securities brokers that have entered into a dealer agreement
with the Distributor ("Securities Brokers"). Shares may be purchased at their
net asset value next determined after an order is transmitted to and accepted by
the Transfer Agent or is received by a Shareholder Servicing Agent or a
Securities Broker if it is transmitted to and accepted by the Transfer Agent.
Purchases are 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 intends 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 or Securities Broker 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 reserves the right to cease offering Shares for sale at any time or to
reject any order for the purchase of Shares.
An investor may purchase Shares through the Distributor directly or by
authorizing his Shareholder Servicing Agent to purchase such Shares on his
behalf through the Transfer Agent.
Certain clients of the Adviser whose assets would be eligible for
purchase by the Fund may purchase shares of the Trust with such assets. Assets
purchased by the Fund will be subject to valuation and other procedures by the
Board of Trustees.
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<PAGE> 148
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).
AUTOMATIC INVESTMENT PLAN
If an Automatic Investment Plan is selected, subsequent investments
will be automatic and will continue until such time as the Trust and the
investor's bank are notified in writing to discontinue further investments. Due
to the varying procedures to prepare, process and forward the bank withdrawal
information to the Trust, there may be a delay between the time of bank
withdrawal and the time the money reaches the Fund. The investment in a Fund
will be made at the net asset value per share determined on the Fund Business
Day that both the check and the bank withdrawal data are received in required
form by the Transfer Agent. Further information about the plan may be obtained
from BISYS at the telephone number listed on the back cover.
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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 the 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 day prior to the day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the next Fund Business Day 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 reserves the right to redeem upon not less than 30 days' notice all Shares
in an account which has a value below $50, provided that such involuntary
redemptions will not result from fluctuations in the value of Fund Shares. 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 securities
broker or a Shareholder Servicing Agent to redeem Shares, a shareholder should
contact his securities broker or his Shareholder Servicing Agent.
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 he redeems 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.
RETIREMENT PLANS
Shares of the 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 or the Sponsor upon
request. The tax law governing tax-deferred retirement plans is complex and
changes frequently. Before investing in the Fund through one or more of these
plans, an investor should consult his or her tax adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the 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 BISYS as custodian. The minimum initial investment for an IRA is
$250; the minimum subsequent investment is $100. IRAs are available to
individuals who receive
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<PAGE> 150
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 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 Fund may be used as a vehicle 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 Fund may also be
used as a vehicle for both 401(k) plans and 403(b) plans.
DIVIDENDS AND DISTRIBUTIONS
The Trust declares all of the Fund's net investment income daily as a
dividend to the Fund shareholders. Dividends substantially equal to the Fund's
net investment income earned during the month are distributed annually to the
Fund's shareholders of record. Generally, the Fund's net investment income
consists of the interest and dividend income it earns, less expenses. In
computing interest income, premiums are not amortized nor are discounts accrued
on long-term debt securities in the Portfolio, except as required for federal
income tax purposes.
The Fund's net realized 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).
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest (par value
$0.001 per share) and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Trust.
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the
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<PAGE> 151
Trust may remove persons serving as Trustee either by declaration in writing or
at a meeting called for such purpose. The Trustees are required to call a
meeting for the purpose of considering the removal of persons serving as Trustee
if requested in writing to do so by the holders of not less than 10% of the
outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Portfolio Trust's Trustees,
it is necessary or desirable to submit matters for an investor vote. Each
investor is entitled to a vote in proportion to the share of its investment in
the Portfolio.
The series of the Portfolio Trust will vote separately or together in
the same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of the Portfolio Trust could control the outcome
of these votes. Whenever the Trust is requested to vote on a matter pertaining
to the Portfolio, the Trust will hold a meeting of the Fund's shareholders and
will cast all of its votes on each matter at a meeting of investors in the
Portfolio proportionately as instructed by the Fund's shareholders. However,
subject to applicable statutory and regulatory requirements, the Trust would not
request a vote of the Fund's shareholders with respect to any proposal relating
to the Portfolio which proposal, if made with respect to the Fund, would not
require the vote of the shareholders of the Fund.
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 in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing subscribed to by a specified
number of shareholders. Upon liquidation or dissolution of 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 Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Funds or the 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 is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust is organized as a master trust fund under the laws
of the State of New York. The 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 Fund and other entities investing in the
Portfolio
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(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 the Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees believe that neither Fund nor their shareholders will
be adversely affected by reason of the investment of all of its assets in the
Portfolio.
TAXATION
The following is a summary of certain U.S. federal income tax issues
concerning the Fund, its shareholders and the Portfolio. The Fund and the
Portfolio may also be subject to state, local, foreign or other taxes not
discussed below. This discussion does not purport to be complete or to address
all tax issues relevant to each shareholder. Prospective investors should
consult their own tax advisors with regard to the federal, state, foreign and
other tax consequences to them of the purchase, ownership or disposition of Fund
shares. This discussion is based upon present provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations promulgated thereunder,
and judicial and administrative authorities, all of which are subject to change,
which change may be retroactive.
Each year, to qualify as a separate "regulated investment company"
under the Code, at least 90% of the Fund's investment company taxable income
(which includes, among other items, interest, dividends and the excess of net
short-term capital gains over net long-term capital losses) must be distributed
to Fund shareholders and the Fund must meet certain diversification of assets,
source of income, and other requirements. If the Fund does not so qualify, it
will be taxed as an ordinary corporation.
The Portfolio has obtained a ruling from the Internal Revenue Service
("IRS") that the Portfolio will be treated for federal income tax purposes as a
partnership. For purposes of determining whether the Fund satisfies the income
and diversification requirements to maintain its status as a RIC, the Fund, as
an investor in the Portfolio will be deemed to own a proportionate share of the
Portfolio's income attributable to that share.
Amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, for each calendar year an
amount must be distributed equal to the sum of (1) at least 98% of the Fund's
ordinary income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of the Fund's capital gain net income for the
12-month period ending, as a general rule, on October 31 of the calendar year,
and (3) all such ordinary income and capital gains for previous years that were
not distributed during such years.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
If the Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Portfolio's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to such
dividends
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<PAGE> 153
(i.e., the date on which a buyer of the stock would not be entitled to receive
the declared, but unpaid, dividends) or (b) the date the Portfolio acquired such
stock. Accordingly, in order to satisfy its income distribution requirements,
the Fund may be required to pay dividends based on anticipated earnings, and
shareholders may receive dividends in an earlier year than would otherwise be
the case.
Some of the debt securities that may be acquired by the Portfolio may
be treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Portfolio, original issue
discount on a taxable debt security earned in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Portfolio at a
discount which exceeds the original issue discount on such debt securities, if
any. This additional discount represents market discount for federal income tax
purposes. Generally, the gain realized on the disposition of any debt security
acquired by the Portfolio will be treated as ordinary income to the extent it
does not exceed the accrued market discount on such debt security.
Distributions by the Fund of its net investment income will be taxable
to shareholders as ordinary income, whether received in cash or reinvested in
Fund shares. Distributions designated by the Fund of its net capital gain,
whether received in cash or reinvested in Fund shares, will generally be taxable
to shareholders as long-term capital gain, regardless of how long a shareholder
has held Fund shares.
OPTIONS, FUTURES, AND FORWARD CONTRACTS
Some of the options, futures contracts and forward contracts entered
into by the Portfolio may be "Section 1256 contracts." Section 1256 contracts
held by the Portfolio at the end of its taxable year (and, for purposes of the
4% excise tax, on certain other dates as prescribed under the Code) are
"marked-to-market" with unrealized gains or losses being treated as though they
were realized. Any gains or losses, including "marked-to-market" gains or
losses, on Section 1256 contracts are generally 60% long-term and 40% short-term
capital gains or losses ("60/40") although all foreign currency gains and losses
from such contracts may be treated as ordinary in character absent a special
election.
Generally, hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by the Portfolio may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gain or loss realized by the Portfolio. In addition, losses
realized by the Portfolio on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Portfolio are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by the Portfolio.
Short-term gain is taxed as ordinary income when distributed to Fund
shareholders.
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<PAGE> 154
The Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If the Portfolio makes any of the
elections, the amount, character, and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Fund shareholders, and which will be taxed to Fund shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
Recently enacted rules may affect the timing and character of gain if
the Fund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If the Fund enters into certain
transactions in property while holding substantially identical property, the
Fund would be treated as if it had sold and immediately repurchased the property
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code.
SWAP AGREEMENTS
Rules governing the tax aspects of swap contracts are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Fund intends to account for such transactions in a manner deemed to be
appropriate, the IRS might not necessarily accept such treatment. If it does
not, the status of the Fund as a regulated investment company might be affected.
The Fund intends to monitor developments in this area. Certain requirements that
must be met under the Code in order for the Fund to qualify as a regulated
investment company may limit the extent to which the Fund will be able to engage
in swap agreements.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Portfolio may invest in shares of foreign corporations (through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Portfolio receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Portfolio held the PFIC shares. The
Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years and an interest
factor will be added to the tax, as if the tax had been payable in such prior
taxable years. Certain distributions from a PFIC as well as gain from the sale
of PFIC shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares held by the Portfolio. Under an election that currently
is available in some circumstances, the Fund generally would be
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required to include in its gross income its share of the earnings of a PFIC on a
current basis, regardless of whether distributions are received from the PFIC in
a given year. If this election were made, the special rules, discussed above,
relating to the taxation of excess distributions, would not apply.
Alternatively, another election would involve marking to market the Fund's PFIC
shares at the end of each taxable year, with the result that unrealized gains
are treated as though they were realized and reported as ordinary income. Any
mark-to-market losses and any loss from an actual disposition of PFIC shares
would be deductible as ordinary losses to the extent of any net mark-to-market
gains included in income in prior years.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time the Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Portfolio actually collects such receivables or pays
such liabilities generally are treated as ordinary income or loss. Similarly, in
disposing of debt securities denominated in foreign currencies and certain other
foreign currency contracts, gains or losses attributable to fluctuations in the
value of a foreign currency between the date the security or contract is
acquired and the date it is disposed of are also usually treated as ordinary
income or loss. Under Section 988 of the Code, these gains or losses may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to shareholders as ordinary income.
DISPOSITION OF SHARES
Upon the sale or exchange of shares of the Fund, a shareholder
generally will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands; gain will generally be taxed as
long-term capital gain if the shareholder's holding period for the shares is
more than one year. Gain from the disposition of shares held not more than one
year will be taxed a short-term capital gain. Any loss realized on a sale or
exchange of Fund shares will be disallowed to the extent that the shares
disposed of are replaced (including replacement through reinvesting of dividends
and capital gain distributions in the Fund) within a period of 61 days beginning
30 days before and ending 30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Distributions by the Fund and redemption proceeds may be subject to
backup withholding at the rate of 31%. Backup withholding generally applies to
shareholders who have failed to properly certify their taxpayer identification
numbers, who fail to provide other required tax-related certifications, and with
respect to whom the Fund has received certain notifications from the Internal
Revenue Service requiring or permitting the Fund to apply backup withholding.
Backup withholding is not an additional tax and amounts so withheld generally
may be applied by affected shareholders as a credit against their federal income
tax liability.
OTHER INFORMATION
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CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 5, 1996.
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional series will not alter the rights of the Fund's shareholders. When
issued, shares are fully paid, nonassessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of the Fund, each shareholder is entitled to receive his pro rata
share of the net assets of the Fund.
INDEPENDENT AUDITORS
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent auditors of the Trust for the fiscal year ending October 31, 1999.
KPMG Peat Marwick LLP will audit the Fund's annual financial statements, prepare
the Fund's and Portfolio's income tax returns, and assist in the preparation of
filings with the SEC. The address of KPMG Peat Marwick LLP is 99 High Street,
Boston, Massachusetts 02110. The Portfolio Trust has appointed KPMG LLP as its
independent auditors to audit the Portfolio's financial statements for the
fiscal year ending October 31, 1999.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
passes upon certain legal matters in connection with the shares offered by the
Trust, and also acts as counsel to the Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The current audited financial statements dated October 31, 1998 of each
of the Fund and the Portfolio are hereby incorporated herein by reference from
the Annual Report of the Fund dated October 31, 1998 as filed with the SEC.
Copies of such reports will be provided without charge to each person receiving
this Statement of Additional Information.
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REPUBLIC SMALL CAP EQUITY FUND
3435 Stelzer Road
Columbus, Ohio 43219-3035
(888) 525-5757
Republic National Bank of New York - Investment Manager
("Republic" or the "Manager")
MFS Institutional Advisors, Inc. - Sub-Adviser
("Sub-Adviser")
BISYS Fund Services -
Administrator of the Fund Distributor and Sponsor
("BISYS" or the "Administrator of the Fund" or the
"Distributor" or the "Sponsor")
BISYS Fund Services (Ireland), Limited -
Administrator of the Portfolio
("BISYS (Ireland)")
STATEMENT OF ADDITIONAL INFORMATION
Republic Small Cap Equity Fund (the "Fund") is a separate series of
Republic Advisor Funds Trust (the "Trust"), an open-end, management investment
company which currently consists of three series, each of which has different
and distinct investment objectives and policies. The Trust seeks to achieve the
Fund's investment objective by investing all of the Fund's investable assets
("Assets") in the Small Cap Equity Portfolio (the "Portfolio"), which has the
same investment objective as the Fund. The Portfolio is a series of the Republic
Portfolios (the "Portfolio Trust") which is an open-end management investment
company. Shares of the Fund (the "Shares") are offered only to clients of
Republic and its affiliates for which Republic or its affiliates exercises
investment discretion.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY THE PROSPECTUS
FOR THE FUND, DATED MARCH 1, 1999 (THE "PROSPECTUS"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Fund at the address and
telephone number printed above.
March 1, 1999
<PAGE> 158
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...................................................................1
Foreign Securities.......................................................................................2
Emerging Markets.........................................................................................2
American Depositary Receipts.............................................................................5
Repurchase Agreements....................................................................................5
Lending on Portfolio Securities..........................................................................6
Options and Futures......................................................................................7
Fixed-Income Securities.................................................................................15
High Yield/High Risk Securities.........................................................................15
Illiquid Investments....................................................................................16
Portfolio Turnover......................................................................................16
Investment Restrictions.................................................................................16
Percentage and Rating Restrictions......................................................................20
PORTFOLIO TRANSACTIONS...........................................................................................20
PERFORMANCE INFORMATION..........................................................................................22
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST..................................................................22
Trustees And Officers...................................................................................22
Compensation Table......................................................................................23
Investment Manager......................................................................................24
Sub-Adviser.............................................................................................26
Fund Administrator......................................................................................26
Transfer Agent..........................................................................................27
Custodian and Fund Account Agents.......................................................................27
Shareholder Servicing Agents............................................................................27
Expenses................................................................................................29
DETERMINATION OF NET ASSET VALUE.................................................................................29
PURCHASE OF SHARES...............................................................................................29
Exchange Privilege......................................................................................30
Automatic Investment Plan...............................................................................30
REDEMPTION OF SHARES.............................................................................................31
Systematic Withdrawal Plan..............................................................................31
RETIREMENT PLANS.................................................................................................31
Individual Retirement Accounts..........................................................................31
Defined Contribution Plans..............................................................................32
Section 457 Plan, 401(k) Plan, 403(b) Plan..............................................................32
</TABLE>
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<TABLE>
<S> <C>
DIVIDENDS AND DISTRIBUTIONS......................................................................................32
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES.............................................................32
TAXATION.........................................................................................................34
Options, Futures and Forward Contracts..................................................................35
Investment in Passive Foreign Investment Companies......................................................36
Disposition of Shares...................................................................................37
OTHER INFORMATION................................................................................................37
Capitalization..........................................................................................37
Independent Auditors....................................................................................38
Counsel.................................................................................................38
Registration Statement..................................................................................38
FINANCIAL STATEMENTS.............................................................................................38
</TABLE>
References in this Statement of Additional Information to the "Prospectus" are
to the Prospectus, dated March 1, 1999, of the Fund by which shares of the Fund
("Shares") are offered. Unless the context otherwise requires, terms defined in
the Prospectus have the same meaning in this Statement of Additional Information
as in the Prospectus.
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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective, policies and risks of the Portfolio discussed in the Prospectus.
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 Trust
seeks to achieve the investment objective of the Small Cap Equity 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 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).
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.
When MFS Institutional Advisers (the "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. U.S.
Government Securities that the Small Cap Equity Portfolio may invest in
includes: (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.
<PAGE> 161
FOREIGN SECURITIES
The 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 Portfolio, political or financial instability, or diplomatic and
other developments which could affect such investments. Further, economies of
particular countries or areas of the world may differ favorably or unfavorably
from the economy of the United States. Changes in foreign exchange rates will
affect the value of securities denominated or quoted in currencies other than
the U.S. dollar. For example, significant uncertainty surrounds the proposed
introduction of the euro (a common currency for the European Union) in January
1999 and its effect on the value of securities denominated in local European
currencies. These and other currencies in which a Fund's assets are denominated
may be devalued against the U.S. dollar, resulting in a loss to the Fund.
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 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 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
The Portfolio may invest in emerging markets, which 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
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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.
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.
Company Debt. Governments of many emerging market countries have
exercised and continue to exercise substantial influence over many aspects of
the private sector through the ownership or control of many companies, including
some of the largest in any given country. As a result, government actions in the
future could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities
held by the Portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Portfolio's assets should these conditions recur.
Sovereign Debt. Investment in sovereign debt can involve a high degree
of risk. The governmental entity that controls the repayment of sovereign debt
may not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole,
the governmental entity's policy towards the International Monetary Fund, and
the political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest averages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Portfolio) may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign debt
on which governmental entities have defaulted may be collected in whole or in
part.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
The ability of emerging market governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those
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commodities. Increased protectionism on the part of an emerging market's trading
partners could also adversely affect the country's exports and tarnish its trade
account surplus, if any. To the extent that emerging markets receive payment for
its exports in currencies other than dollars or non-emerging market currencies,
its ability to make debt payments denominated in dollars or non-emerging market
currencies could be affected.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of emerging
markets to these forms of external funding may not be certain, and a withdrawal
of external funding could adversely affect the capacity of emerging market
country governmental issuers to make payments on their obligations. In addition,
the cost of servicing emerging market debt obligations can be affected by a
change in international interest rates since the majority of these obligations
carry interest rates that are adjusted periodically based upon international
rates.
Another factor bearing on the ability of emerging market countries to
repay debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
Liquidity, Trading Volume, Regulatory Oversight. The securities markets
of emerging market countries are substantially smaller, less developed, less
liquid and more volatile than the major securities markets in the U.S.
Disclosure and regulatory standards are in many respects less stringent than
U.S. standards. Furthermore, there is a lower level of monitoring and regulation
of the markets and the activities of investors in such markets.
The limited size of many emerging market securities markets and limited
trading volume in the securities of emerging market issuers compared to the
volume of trading in the securities of U.S. issuers could cause prices to be
erratic for reasons apart from factors that affect the soundness and
competitiveness of the securities issuers. For example, limited market size may
cause prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
Default, Legal Recourse. The Portfolio may have limited legal recourse
in the event of a default with respect to certain debt obligations it may hold.
If the issuer of a fixed-income security owned by the Portfolio defaults, that
Fund may incur additional expenses to seek recovery. Debt obligations issued by
emerging market governments differ from debt obligations of private entities;
remedies from defaults on debt obligations issued by emerging market
governments, unlike those on private debt, must be pursued in the courts of the
defaulting party itself. The Portfolio's ability to enforce its rights against
private issuers may be limited. The ability to attach assets to enforce a
judgment may be limited. Legal recourse is therefore somewhat diminished.
Bankruptcy, moratorium and other similar laws applicable to private issuers of
debt obligations may be substantially different from those of other countries.
The political context, expressed as an emerging market governmental issuer's
willingness to meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given that the holders
of commercial bank debt may not contest payments to the holders of debt
obligations in the event of default under commercial bank loan agreements.
Inflation. Many emerging markets have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may
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continue to have adverse effects on the economies and securities markets of
certain emerging market countries. In an attempt to control inflation, wage and
price controls have been imposed in certain countries. Of these countries, some,
in recent years, have begun to control inflation through prudent economic
policies.
Withholding. Income from securities held by the Portfolio could be
reduced by a withholding tax on the source or other taxes imposed by the
emerging market countries in which the Portfolio makes its investments. The
Portfolio's net asset value may also be affected by changes in the rates or
methods of taxation applicable to the Portfolio or to entities in which the
Portfolio has invested. The Sub-Adviser will consider the cost of any taxes in
determining whether to acquire any particular investments, but can provide no
assurance that the taxes will not be subject to change.
Foreign Currencies. Some emerging market countries also may have
managed currencies, which are not free floating against the U.S. dollar. In
addition, there is risk that certain emerging market countries may restrict the
free conversion of their currencies into other currencies. Further, certain
emerging market currencies may not be internationally traded. Certain of these
currencies have experienced a steep devaluation relative to the U.S. dollar. Any
devaluations in the currencies in which the Portfolio's portfolio securities are
denominated may have a detrimental impact on the Portfolio's net asset value.
AMERICAN DEPOSITARY RECEIPTS.
American Depositary Receipts ("ADRs") are certificates issued by a U.S.
depository (usually a bank) and represent a specified quantity of shares of an
underlying non-U.S. stock on deposit with a custodian bank as collateral. ADRs
may be sponsored or unsponsored. A sponsored ADR is issued by a depository which
has an exclusive relationship with the issuer of the underlying security. An
unsponsored ADR may be issued by any number of U.S. depositories. Under the
terms of most sponsored arrangements, depositories agree to distribute notices
of shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities. The depository of an unsponsored ADR, on the
other hand, is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities. The Portfolio may
invest in either type of ADR. Although the U.S. investor holds a substitute
receipt of ownership rather than direct stock certificates, the use of the
depository receipts in the United States can reduce costs and delays as well as
potential currency exchange and other difficulties. The Portfolio may purchase
securities in local markets and direct delivery of these ordinary shares to the
local depository of an ADR agent bank in the foreign country. Simultaneously,
the ADR agents create a certificate which settles at the Portfolio's custodian
in five days. The Portfolio may also execute trades on the U.S. markets using
existing ADRs. A foreign issuer of the security underlying an ADR is generally
not subject to the same reporting requirements in the United States as a
domestic issuer. Accordingly the information available to a U.S. investor will
be limited to the information the foreign issuer is required to disclose in its
own country and the market value of an ADR may not reflect undisclosed material
information concerning the issuer of the underlying security. ADRs may also be
subject to exchange rate risks if the underlying foreign securities are
denominated in foreign currency.
REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements with sellers who are
member firms (or a subsidiary thereof) of the New York Stock Exchange or members
of the Federal Reserve System, recognized domestic or foreign securities dealers
or institutions which a Sub-Adviser has determined to be
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of comparable creditworthiness. Repurchase agreements are transactions by which
a fund or portfolio 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
securities that the Portfolio purchases and holds have values that are equal to
or greater than the repurchase price agreed to be paid by the seller. The
repurchase price may be higher than the purchase price, the difference being
income to the Portfolio, or the purchase and repurchase prices may be the same,
with interest at a standard rate due to the Portfolio together with the
repurchase price on repurchase. The Advisor 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 Portfolio 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 Portfolio may not be able to substantiate its interest in the
underlying securities.
The repurchase agreement provides that in the event the seller fails to
pay the price agreed upon on the agreed upon delivery date or upon demand, as
the case may be, the Portfolio will have the right to liquidate the securities.
If at the time the Portfolio is contractually entitled to exercise its right to
liquidate the securities, the seller is subject to a proceeding under the
bankruptcy laws or its assets are otherwise subject to a stay order, the
Portfolio's exercise of its right to liquidate the securities may be delayed and
result in certain losses and costs to the Portfolio. The Portfolio has adopted
and follows procedures which are intended to minimize the risks of repurchase
agreements. For example, the Portfolio only enters into repurchase agreements
after a Sub-Adviser has determined that the seller is creditworthy, and the
Sub-Adviser monitor that seller's creditworthiness on an ongoing basis.
Moreover, under such agreements, the value of the securities (which are marked
to market every business day) is required to be greater than the repurchase
price, and the Portfolio has the right to make margin calls at any time if the
value of the securities falls below the agreed upon margin.
LENDING ON PORTFOLIO SECURITIES
The Portfolio may seek to increase its income by lending portfolio
securities to entities deemed creditworthy by the Sub-Adviser. The Portfolio 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 Portfolio will not lend its portfolio securities to the extent that greater
than one-third of its total assets, at fair market value, would be committed to
loans at that time. The Portfolio would have the right to call a loan and obtain
the securities loaned at any time on customary industry settlement notice (which
will usually not exceed five days). During the existence of a loan, the
Portfolio would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would also receive compensation
based on investment of the collateral. The Portfolio would not, however, have
the right to vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit there are
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risks of delay in recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. However, the loans would be made
only to firms deemed by the Sub-Adviser to be of good standing, and when, in the
judgment of the Sub-Adviser, the consideration which could be earned currently
from securities loans of this type justifies the attendant risk. If the
Sub-Adviser determines to make securities loans, it is not intended that the
value of the securities loaned would exceed 30% of the value of the Portfolio's
total assets.
OPTIONS AND FUTURES
The Portfolio may invest in options and futures contracts. 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 Portfolio. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Sub-Adviser applies a strategy at an inappropriate time or judges market
conditions or trends incorrectly, options and futures strategies may lower
Portfolio's return. Certain strategies limit the potential of the Portfolio to
realize gains as well as limit their exposure to losses. The Portfolio could
also experience losses if the prices of its options and futures positions were
poorly correlated with its other investments. There can be no assurance that a
liquid market will exist at a time when the Portfolio seeks to close out a
futures contract or a futures option position.
Options on Securities. The Portfolio may write (sell) covered call and
put options on securities ("Options") and purchase call and put Options. The
Portfolio may write Options for the purpose of attempting to increase its return
and for hedging purposes. In particular, if the Portfolio writes an Option which
expires unexercised or is closed out by the Portfolio at a profit, the Portfolio
retains the premium paid for the Option less related transaction costs, which
increases its gross income and offsets in part the reduced value of the
portfolio security in connection with which the Option is written, or the
increased cost of portfolio securities to be acquired. In contrast, however, if
the price of the security underlying the Option moves adversely to the
Portfolio's position, the Option may be exercised and the Portfolio will then be
required to purchase or sell the security at a disadvantageous price, which
might only partially be offset by the amount of the premium.
The Portfolio may write Options in connection with buy-and-write
transactions; that is, the Portfolio may purchase a security and then write a
call Option against that security. The exercise price of the call Option the
Portfolio determines to write depends upon the expected price movement of the
underlying security. The exercise price of a call Option may be below
("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the
current value of the underlying security at the time the Option is written.
The writing of covered put Options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put Options may be used by the
Portfolio in the same market environments in which call Options are used in
equivalent buy-and-write transactions.
The Portfolio may also write combinations of put and call Options on
the same security, a practice known as a "straddle." By writing a straddle, the
Portfolio undertakes a simultaneous obligation to sell or purchase the same
security in the event that one of the Options is exercised. If the price of the
security subsequently rises sufficiently above the exercise price to cover the
amount of the premium and transaction costs, the call will likely be exercised
and the Portfolio will be required to sell the underlying security at a below
market price. This loss may be offset, however, in whole or in part, by the
premiums received on the
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writing of the two Options. Conversely, if the price of the security declines by
a sufficient amount, the put will likely be exercised. The writing of straddles
will likely be effective, therefore, only where the price of a security remains
stable and neither the call nor the put is exercised. In an instance where one
of the Options is exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
By writing a call Option on a portfolio security, the Portfolio limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the Option. By writing a put
Option, the Portfolio assumes the risk that it may be required to purchase the
underlying security for an exercise price above its then current market value,
resulting in a loss unless the security subsequently appreciates in value. The
writing of Options will not be undertaken by the Portfolio solely for hedging
purposes, and may involve certain risks which are not present in the case of
hedging transactions. Moreover, even where Options are written for hedging
purposes, such transactions will constitute only a partial hedge against
declines in the value of portfolio securities or against increases in the value
of securities to be acquired, up to the amount of the premium.
The Portfolio may also purchase put and call Options. Put Options are
purchased to hedge against a decline in the value of securities held in the
Portfolio's portfolio. If such a decline occurs, the put Options will permit the
Portfolio to sell the securities underlying such Options at the exercise price,
or to close out the Options at a profit. The Portfolio will purchase call
Options to hedge against an increase in the price of securities that the
Portfolio anticipates purchasing in the future. If such an increase occurs, the
call Option will permit the Portfolio to purchase the securities underlying such
Option at the exercise price or to close out the Option at a profit. The premium
paid for a call or put Option plus any transaction costs will reduce the
benefit, if any, realized by the Portfolio upon exercise of the Option, and,
unless the price of the underlying security rises or declines sufficiently, the
Option may expire worthless to the Portfolio. In addition, in the event that the
price of the security in connection with which an Option was purchased moves in
a direction favorable to the Portfolio, the benefits realized by the Portfolio
as a result of such favorable movement will be reduced by the amount of the
premium paid for the Option and related transaction costs.
The staff of the Securities and Exchange Commission ("SEC") has taken
the position that purchased over-the-counter options and certain assets used to
cover written over-the-counter options are illiquid and, therefore, together
with other illiquid securities, cannot exceed a certain percentage of the
Portfolio's assets (the "SEC illiquidity ceiling"). Although the Sub-Adviser
disagrees with this position, the Sub-Adviser intends to limit the Portfolio's
writing of over-the-counter options in accordance with the following procedure.
Except as provided below, the Portfolio intends to write over-the-counter
options only with primary U.S. Government securities dealers recognized by the
Federal Reserve Bank of New York. Also, the contracts the Portfolio has in place
with such primary dealers will provide that the Portfolio has the absolute right
to repurchase an option it writes at any time at a price which represents the
fair market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula may also include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of-the-money. The Portfolio will treat all
or a portion of the formula as illiquid for purposes of the SEC illiquidity
ceiling imposed by the SEC staff. The Portfolio may also write over-the-counter
options with non-primary dealers, including foreign dealers, and will treat the
assets used to cover these options as illiquid for purposes of such SEC
illiquidity ceiling.
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Options on Stock Indices. The Portfolio may write (sell) covered call
and put options and purchase call and put options on stock indices ("Options on
Stock Indices"). The Portfolio may cover call Options on Stock Indices by owning
securities whose price changes, in the opinion of the Sub-Adviser, are expected
to be similar to those of the underlying index, or by having an absolute and
immediate right to acquire such securities without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities in its portfolio.
Where the Portfolio covers a call option on a stock index through ownership of
securities, such securities may not match the composition of the index and, in
that event, the Portfolio will not be fully covered and could be subject to risk
of loss in the event of adverse changes in the value of the index. The Portfolio
may also cover call options on stock indices by holding a call on the same index
and in the same principal amount as the call written where the exercise price of
the call held (a) is equal to or less than the exercise price of the call
written or (b) is greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash or cash equivalents in a
segregated account with its custodian. The Portfolio may cover put options on
stock indices by maintaining cash or cash equivalents with a value equal to the
exercise price in a segregated account with its custodian, or else by holding a
put on the same security and in the same principal amount as the put written
where the exercise price of the put held (a) is equal to or greater than the
exercise price of the put written or (b) is less than the exercise price of the
put written if the difference is maintained by the Portfolio in cash or cash
equivalents in a segregated account with its custodian. Put and call options on
stock indices may also be covered in such other manner as may be in accordance
with the rules of the exchange on which, or the counterparty with which, the
option is traded and applicable laws and regulations.
The Portfolio will receive a premium from writing a put or call option
on a stock index, which increases the Portfolio's gross income in the event the
option expires unexercised or is closed out at a profit. If the value of an
index on which the Portfolio has written a call option falls or remains the
same, the Portfolio will realize a profit in the form of the premium received
(less transaction costs) that could offset all or a portion of any decline in
the value of the securities it owns. If the value of the index rises, however,
the Portfolio will realize a loss in its call option position, which will reduce
the benefit of any unrealized appreciation in the Portfolio's stock investment.
By writing a put option, the Portfolio assumes the risk of a decline in the
index. To the extent that the price changes of securities owned by the Portfolio
correlate with changes in the value of the index, writing covered put options on
indexes will increase the Portfolio's losses in the event of a market decline,
although such losses will be offset in part by the premium received for writing
the option.
The Portfolio may also purchase put options on stock indices to hedge
their investments against a decline in value. By purchasing a put option on a
stock index, the Portfolio will seek to offset a decline in the value of
securities it owns through appreciation of the put option. If the value of the
Portfolio's investments does not decline as anticipated, or if the value of the
option does not increase, the Portfolio's loss will be limited to the premium
paid for the option plus related transaction costs. The success of this strategy
will largely depend on the accuracy of the correlation between the changes in
value of the index and the changes in value of the Portfolio's security
holdings.
The purchase of call options on stock indices may be used by the
Portfolio to attempt to reduce the risk of missing a broad market advance, or an
advance in an industry or market segment, at a time when the Portfolio holds
uninvested cash or short-term debt securities awaiting investment. When
purchasing call options for this purpose, the Portfolio will also bear the risk
of losing all or a portion of the premium paid if the value of the index does
not rise. The purchase of call options on stock indices when the Portfolio is
substantially fully invested is a form of leverage, up to the amount of the
premium and related transaction
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costs, and involves risks of loss and of increased volatility similar to those
involved in purchasing calls on securities the Portfolio owns.
Futures Contracts. The Portfolio may enter into contracts for the
purchase or sale for future delivery of securities or foreign currencies or
contracts based on indexes of securities as such instruments become available
for trading ("Futures Contracts"). This investment technique is designed to
hedge (i.e., to protect) against anticipated future changes in interest or
exchange rates which otherwise might adversely affect the value of the
Portfolio's portfolio securities or adversely affect the prices of long-term
bonds or other securities which the Portfolio intends to purchase at a later
date. Futures Contracts may also be entered into for non-hedging purposes to the
extent permitted by applicable law. A "sale" of a Futures Contract means a
contractual obligation to deliver the securities or foreign currency called for
by the contract at a fixed price at a specified time in the future. A "purchase"
of a Futures Contract means a contractual obligation to acquire the securities
or foreign currency at a fixed price at a specified time in the future.
While Futures Contracts provide for the delivery of securities or
currencies, such deliveries are very seldom made. Generally, a Futures Contract
is terminated by entering into an offsetting transaction. The Portfolio will
incur brokerage fees when it purchases and sells Futures Contracts. At the time
such a purchase or sale is made, the Portfolio must allocate cash or securities
as a margin deposit ("initial deposit"). It is expected that the initial deposit
will vary but may be as low as 5% or less of the value of the contract. The
Futures Contract is valued daily thereafter and the payment of "variation
margin" may be required to be paid or received, so that each day the Portfolio
may provide or receive cash that reflects the decline or increase in the value
of the contract.
The purpose of the purchase or sale of a Futures Contract, for hedging
purposes in the case of a portfolio holding long-term debt securities, is to
protect the Portfolio from fluctuations in interest rates without actually
buying or selling long-term debt securities. For example, if the Portfolio owned
long-term bonds and interest rates were expected to increase, the Portfolio
might enter into Futures Contracts for the sale of debt securities. If interest
rates did increase, the value of the debt securities in the portfolio would
decline, but the value of the Portfolio's Futures Contracts should increase at
approximately the same rate, thereby keeping the net asset value of the
Portfolio from declining as much as it otherwise would have. The Portfolio could
accomplish similar results by selling bonds with long maturities and investing
in bonds with short maturities when interest rates are expected to increase or
by buying bonds with long maturities and selling bonds with short maturities
when interest rates are expected to decline. However, since the futures market
is more liquid than the cash market, the use of Futures Contracts as an
investment technique allows the Portfolio to maintain a defensive position
without having to sell its portfolio securities. Transactions entered into for
non-hedging purposes include greater risk, including the risk of losses which
are not offset by gains on other portfolio assets.
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to hedge against anticipated purchases of long-term
bonds at higher prices. Since the fluctuations in the value of Futures Contracts
should be similar to that of long-term bonds, the Portfolio could take advantage
of the anticipated rise in the value of long-term bonds without actually buying
them until the market had stabilized. At that time, the Futures Contracts could
be liquidated and the Portfolio could buy long-term bonds on the cash market.
Purchases of Futures Contracts would be particularly appropriate when the cash
flow from the sale of new shares of the Portfolio could have the effect of
diluting dividend earnings. To the extent the Portfolio enters into Futures
Contracts for this purpose, the assets in the segregated asset account
maintained to cover the Portfolio's obligations with respect to such Futures
Contracts will consist of cash, cash equivalents or short-term money market
instruments from the portfolio of the Portfolio in an amount
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equal to the difference between the fluctuating market value of such Futures
Contracts and the aggregate value of the initial and variation margin payments
made by the Portfolio with respect to such Futures Contracts, thereby assuring
that the transactions are unleveraged.
Futures Contracts on foreign currencies may be used in a similar
manner, in order to protect against declines in the dollar value of portfolio
securities denominated in foreign currencies, or increases in the dollar value
of securities to be acquired.
A Futures Contract on an index of securities provides for the making
and acceptance of a cash settlement based on changes in value of the underlying
index. The Portfolio may enter into stock index futures contracts in order to
protect the Portfolio's current or intended stock investments from broad
fluctuations in stock prices and for non-hedging purposes to the extent
permitted by applicable law. For example, the Portfolio may sell stock index
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of the Portfolio's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or in part, by gains on the futures position.
When the Portfolio is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock index futures
contracts in order to gain rapid market exposure that may, in part or in whole,
offset increases in the cost of securities that Fund intends to purchase. As
such acquisitions are made, the corresponding positions in stock index futures
contracts will be closed out. In a substantial majority of these transactions,
the Portfolio will purchase such securities upon the termination of the futures
position, but under unusual market conditions, a long futures position may be
terminated without a related purchase of securities. Futures Contracts on other
securities indexes may be used in a similar manner in order to protect the
portfolio from broad fluctuations in securities prices and for non-hedging
purposes to the extent permitted by applicable law.
Options on Futures Contracts. The Portfolio may write and purchase
options to buy or sell Futures Contracts ("Options on Futures Contracts"). The
writing of a call Option on a Futures Contract constitutes a partial hedge
against declining prices of the security or currency underlying the Futures
Contract. If the futures price at expiration of the option is below the exercise
price, the Portfolio will retain the full amount of the option premium, less
related transaction costs, which provides a partial hedge against any decline
that may have occurred in the Portfolio's portfolio holdings. The writing of a
put Option on a Futures Contract constitutes a partial hedge against increasing
prices of the security or currency underlying the Futures Contract. If the
futures price at expiration of the option is higher than the exercise price, the
Portfolio will retain the full amount of the option premium, less related
transaction costs, which provides a partial hedge against any increase in the
price of securities which the Portfolio intends to purchase. If a put or call
option the Portfolio has written is exercised, the Portfolio will incur a loss
which will be reduced by the amount of the premium it receives. Depending on the
degree of correlation between changes in the value of its portfolio securities
and changes in the value of its futures positions, the Portfolio's losses from
existing Options on Futures Contracts may to some extent be reduced or increased
by changes in the value of portfolio securities.
The Portfolio may purchase Options on Futures Contracts for hedging
purposes as an alternative to purchasing or selling the underlying Futures
Contracts, or for non-hedging purposes to the extent permitted by applicable
law. For example, where a decrease in the value of portfolio securities is
anticipated as a result of a projected market-wide decline, a rise in interest
rates or a decline in the dollar value of foreign currencies in which portfolio
securities are denominated, the Portfolio may, in lieu of selling Futures
Contracts, purchase put options thereon. In the event that such decrease in
portfolio value occurs, it may be offset, in whole or part, by a profit on the
option. Conversely, where it is projected that the value of securities to be
acquired by the Portfolio will increase prior to acquisition, due to a market
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advance, or a decline in interest rates or a rise in the dollar value of foreign
currencies in which securities to be acquired are denominated, the Portfolio may
purchase call Options on Futures Contracts, rather than purchasing the
underlying Futures Contracts. As in the case of Options, the writing of Options
on Futures Contracts may require the Portfolio to forego all or a portion of the
benefits of favorable movements in the price of portfolio securities, and the
purchase of Options on Futures Contracts may require the Portfolio to forego all
or a portion of such benefits up to the amount of the premium paid and related
transaction costs. Transactions entered into for non-hedging purposes include
greater risk, including the risk of losses which are not offset by gains on
other portfolio assets.
Forward Contracts. The Portfolio may enter into forward foreign
currency exchange contracts for the purchase or sale of a specific currency at a
future date at a price set at the time of the contract (a "Forward Contract").
The Portfolio may enter into Forward Contracts for hedging purposes as well as
for non-hedging purposes. The Portfolio may also enter into 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.
Transactions in Forward Contracts entered into for hedging purposes will include
forward purchases or sales of foreign currencies for the purpose of protecting
the dollar value of securities denominated in a foreign currency or protecting
the dollar equivalent of interest or dividends to be paid on such securities. By
entering into such transactions, however, the Portfolio may be required to
forego the benefits of advantageous changes in exchange rates. The Portfolio may
also enter into transactions in Forward Contracts for other than hedging
purposes, which presents greater profit potential but also involves increased
risk of losses which will reduce its gross income. For example, if the Sub-
Adviser believes that the value of a particular foreign currency will increase
or decrease relative to the value of the U.S. dollar, the Portfolio may purchase
or sell such currency, respectively, through a Forward Contract. If the expected
changes in the value of the currency occur, the Portfolio will realize profits
which will increase its gross income. Where exchange rates do not move in the
direction or to the extent anticipated, however, the Portfolio may sustain
losses which will reduce its gross income. Such transactions, therefore, could
be considered speculative. Forward Contracts are traded over-the-counter and not
on organized commodities or securities exchanges. As a result, such contracts
operate in a manner distinct from exchange-traded instruments and their use
involves certain risks beyond those associated with transactions in Futures
Contracts or options traded on exchanges.
The Portfolio has established procedures consistent with statements by
the SEC and its staff regarding the use of Forward Contracts by registered
investment companies, which require the use of segregated assets or "cover" in
connection with the purchase and sale of such contracts. In those instances in
which the Portfolio satisfies this requirement through segregation of assets, it
will maintain, in a segregated account, cash, cash equivalents or high grade
debt securities, which will be marked to market on a daily basis, in an amount
equal to the value of its commitments under Forward Contracts.
Risk Factors: Imperfect Correlation of Hedging Instruments with the
Portfolio's Portfolio. The Portfolio's ability effectively to hedge all or a
portion of its portfolio through transactions in Options, Futures Contracts, and
Forward Contracts will depend on the degree to which price movements in the
underlying instruments correlate with price movements in the relevant portion of
that Fund's portfolio. If the values of portfolio securities being hedged do not
move in the same amount or direction as the instruments underlying options,
Futures Contracts or Forward Contracts traded, the Portfolio's hedging strategy
may not be successful and the Portfolio could sustain losses on its hedging
strategy which would not be offset by gains on its portfolio. It is also
possible that there may be a negative correlation between the instrument
underlying an Option, Future Contract or Forward Contract traded and the
portfolio securities being hedged, which could result in losses both on the
hedging transaction and the portfolio
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securities. In such instances, the Portfolio's overall return could be less than
if the hedging transaction had not been undertaken. In the case of futures and
options based on an index of securities or individual fixed income securities,
the portfolio will not duplicate the components of the index, and in the case of
Futures Contracts and Options on fixed income securities, the portfolio
securities which are being hedged may not be the same type of obligation
underlying such contracts. As a result, the correlation probably will not be
exact. Consequently, the Portfolio bears the risk that the price of the
portfolio securities being hedged will not move in the same amount or direction
as the underlying index or obligation. In addition, where the Portfolio enters
into Forward Contracts as a "cross hedge" (i.e., the purchase or sale of a
Forward Contract on one currency to hedge against risk of loss arising from
changes in value of a second currency), the Portfolio incurs the risk of
imperfect correlation between changes in the values of the two currencies, which
could result in losses.
The correlation between prices of securities and prices of Options,
Futures Contracts or Forward Contracts may be distorted due to differences in
the nature of the markets, such as differences in margin requirements, the
liquidity of such markets and the participation of speculators in the Option,
Futures Contract and Forward Contract markets. Due to the possibility of
distortion, a correct forecast of general interest rate trends by the
Sub-Adviser may still not result in a successful transaction. The trading of
Options on Futures Contracts also entails the risk that changes in the value of
the underlying Futures Contract will not be fully reflected in the value of the
option. The risk of imperfect correlation, however, generally tends to diminish
as the maturity or termination date of the Option, Futures Contract or Forward
Contract approaches.
The trading of Options, Futures Contracts and Forward Contracts also
entails the risk that, if the Sub-Adviser's judgment as to the general direction
of interest or exchange rates is incorrect, the Portfolio's overall performance
may be poorer than if it had not entered into any such contract. For example, if
the Portfolio has hedged against the possibility of an increase in interest
rates, and rates instead decline, the Portfolio will lose part or all of the
benefit of the increased value of the securities being hedged, and may be
required to meet ongoing daily variation margin payments.
It should be noted that the Portfolio may purchase and write Options
not only for hedging purposes, but also for the purpose of attempting to
increase its return. As a result, the Portfolio will incur the risk that losses
on such transactions will not be offset by corresponding increases in the value
of portfolio securities or decreases in the cost of securities to be acquired.
Potential Lack of a Liquid Secondary Market. Prior to exercise or
expiration, a position in an exchange-traded Option, Futures Contract or Option
on a Futures Contract can only be terminated by entering into a closing purchase
or sale transaction, which requires a secondary market for such instruments on
the exchange on which the initial transaction was entered into. If no such
market exists, it may not be possible to close out a position, and the Portfolio
could be required to purchase or sell the underlying instrument or meet ongoing
variation margin requirements. The inability to close out option or futures
positions also could have an adverse effect on the Portfolio's ability
effectively to hedge its portfolio.
The liquidity of a secondary market in an option or Futures Contract
may be adversely affected by "daily price fluctuation limits," established by
the exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. Such limits could prevent the Portfolio from liquidating open
positions, which could render its hedging strategy unsuccessful and result in
trading losses. The exchanges on which options and Futures Contracts are traded
have also established a number of limitations governing the maximum number of
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positions which may be traded by a trader, whether acting alone or in concert
with others. Further, the purchase and sale of exchange-traded options and
Futures Contracts is subject to the risk of trading halts, suspensions, exchange
or clearing corporation equipment failures, government intervention, insolvency
of a brokerage firm, intervening broker or clearing corporation or other
disruptions of normal trading activity, which could make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Options on Futures Contracts. In order to profit from the purchase of
an Option on a Futures Contract, it may be necessary to exercise the option and
liquidate the underlying Futures Contract, subject to all of the risks of
futures trading. The writer of an Option on a Futures Contract is subject to the
risks of futures trading, including the requirement of initial and variation
margin deposits.
Additional Risks of Transactions Related to Foreign Currencies and
Transactions Not Conducted on the United States Exchanges. The available
information on which the Portfolio will make trading decisions concerning
transactions related to foreign currencies or foreign securities may not be as
complete as the comparable data on which the Portfolio makes investment and
trading decisions in connection with other transactions. Moreover, because the
foreign currency market is a global, 24-hour market, and the markets for foreign
securities as well as markets in foreign countries may be operating during
non-business hours in the United States, events could occur in such markets
which would not be reflected until the following day, thereby rendering it more
difficult for the Portfolio to respond in a timely manner.
In addition, over-the-counter transactions can only be entered into
with a financial institution willing to take the opposite side, as principal, of
the Portfolio's position, unless the institution acts as broker and is able to
find another counterparty willing to enter into the transaction with the
Portfolio. This could make it difficult or impossible to enter into a desired
transaction or liquidate open positions, and could therefore result in trading
losses. Further, over-the-counter transactions are not subject to the
performance guarantee of an exchange clearing house and the Portfolio will
therefore be subject to the risk of default by, or the bankruptcy of, a
financial institution or other counterparty.
Transactions on exchanges located in foreign countries may not be
conducted in the same manner as those entered into on United States exchanges,
and may be subject to different margin, exercise, settlement or expiration
procedures. As a result, many of the risks of over-the-counter trading may be
present in connection with such transactions. Moreover, the SEC or the
Commodities Futures Trading Commission ("CFTC") has jurisdiction over the
trading in the United States of many types of over-the-counter and foreign
instruments, and such agencies could adopt regulations or interpretations which
would make it difficult or impossible for the Portfolio to enter into the
trading strategies identified herein or to liquidate existing positions.
As a result of its investments in foreign securities, the Portfolio may
receive interest or dividend payments, or the proceeds of the sale or redemption
of such securities, in foreign currencies. The Portfolio may also be required to
receive delivery of the foreign currencies underlying options on foreign
currencies or Forward Contracts it has entered into. This could occur, for
example, if an option written by the Portfolio is exercised or the Portfolio is
unable to close out a Forward Contract it has entered into. In addition, the
Portfolio may elect to take delivery of such currencies. Under such
circumstances, the Portfolio may promptly convert the foreign currencies into
dollars at the then current exchange rate. Alternatively, the Portfolio may hold
such currencies for an indefinite period of time if the Sub-Adviser believes
that the exchange rate at the time of delivery is unfavorable or if, for any
other reason, the Sub-Adviser anticipates favorable movements in such rates.
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While the holding of currencies will permit the Portfolio to take
advantage of favorable movements in the applicable exchange rate, it also
exposes the Portfolio to risk of loss if such rates move in a direction adverse
to the Portfolio's position. Such losses could also adversely affect the
Portfolio's hedging strategies. Certain tax requirements may limit the extent to
which the Portfolio will be able to hold currencies.
Restrictions on the Use of Options and Futures. In order to assure that
the Portfolio will not be deemed to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the CFTC require that the Portfolio enter
into transactions in Futures Contracts and Options on Futures Contracts only (i)
for bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums on
such non-hedging positions does not exceed 5% of the liquidation value of the
Portfolio's assets. In addition, the Portfolio must comply with the requirements
of various state securities laws in connection with such transactions.
The Portfolio has adopted the additional policy that it will not enter
into a Futures Contract if, immediately thereafter, the value of securities and
other obligations underlying all such Futures Contracts would exceed 50% of the
value of the Portfolio's total assets. Moreover, the Portfolio will not purchase
put and call options if, as a result, more than 5% of its total assets would be
invested in such options.
When the Portfolio purchases a Futures Contract, an amount of cash and
cash equivalents will be deposited in a segregated account with the Portfolio's
custodian so that the amount so segregated will at all times equal the value of
the Futures Contract, thereby insuring that the leveraging effect of such
Futures is minimized.
FIXED INCOME SECURITIES
To the extent Portfolio invests in fixed income securities, the net
asset value of the Portfolio may change as the general levels of interest rates
fluctuate. When interest rates decline, the value of fixed income securities can
be expected to rise. Conversely, when interest rates rise, the value of fixed
income securities can be expected to decline. The Portfolio's investments in
fixed income securities with longer terms to maturity or greater duration are
subject to greater volatility than the Fund's or Portfolio's shorter-term
obligations.
HIGH YIELD/HIGH RISK SECURITIES
The Portfolio may invest in lower rated, high-yield, "junk" bonds.
These securities are generally rated lower than Baa by Moody's or lower than BBB
by S&P. In general, the market for lower rated, high-yield bonds is more limited
than the market for higher rated bonds, and because their markets may be thinner
and less active, the market prices of lower rated, high-yield bonds may
fluctuate more than the prices of higher rated bonds, particularly in times of
market stress. In addition, while the market for high-yield, corporate debt
securities has been in existence for many years, the market in recent years
experienced a dramatic increase in the large-scale use of such securities to
fund highly leveraged corporate acquisitions and restructurings. Accordingly,
past experience may not provide an accurate indication of future performance of
the high-yield bond market, especially during periods of economic recession.
Other risks which may be associated with lower rated, high-yield bonds include
their relative insensitivity to interest-rate changes; the exercise of any of
their redemption or call provisions in a declining market which may result in
their replacement by lower yielding bonds; and legislation, from time to time,
which may adversely affect their market. Since the risk of default is higher
among lower rated, high-yield bonds, the Sub-
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Adviser's research and analyses are important ingredients in the selection of
lower rated, high-yield bonds. Through portfolio diversification, good credit
analysis and attention to current developments and trends in interest rates and
economic conditions, investment risk can be reduced, although there is no
assurance that losses will not occur. The Portfolio does not have any minimum
rating criteria applicable to the fixed-income securities in which it invests.
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in securities that
are illiquid by virtue of the absence of a readily available market, or because
of legal or contractual restrictions on resale. This policy does not limit the
acquisition of securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933 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 Portfolio has a 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.
Each Sub-Adviser may determine that a particular Rule 144A security is
liquid and thus not subject to the Portfolio's limits on investment in illiquid
securities, pursuant to guidelines adopted by the Board of Trustees. Factors
that 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 the Portfolio's or
Fund's illiquidity to the extent that qualified institutions might become, for a
time, uninterested in purchasing these securities.
PORTFOLIO TURNOVER
The Sub-Adviser manages the Portfolio generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the Portfolio will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held. The portfolio turnover
rate for the Small Cap Equity Portfolio for fiscal year ended October 31, 1998
was 154.09%. It is anticipated that in subsequent years the portfolio turnover
rate for the Small Cap Equity Portfolio will not exceed 100%.
INVESTMENT RESTRICTIONS.
The Portfolio Trust (with respect to the Portfolio) and the Trust (with
respect to the Fund) have adopted the following investment restrictions which
may not be changed without approval by holders of a "majority of the outstanding
voting securities" of the Portfolio or Fund, which as used in this Statement of
Additional Information means the vote of the lesser of (i) 67% or more of the
outstanding "voting securities" of the Fund present at a meeting, if the holders
of more than 50% of the outstanding "voting securities" are present or
represented by proxy, or (ii) more than 50% of the outstanding "voting
securities". The term "voting securities" as used in this paragraph has the same
meaning as in the 1940 Act.
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As a matter of fundamental policy, the Portfolio (Fund) will not
(except that none of the following investment restrictions shall prevent the
Trust from investing all of the Fund's Assets in a separate registered
investment company with substantially the same investment objective):
(1) borrow money or mortgage or hypothecate assets of the
Portfolio, except that in an amount not to exceed 1/3 of the
current value of the Portfolio's net assets, it may borrow
money (including from a bank or through reverse repurchase
agreements, forward roll transactions involving mortgage
backed securities or other investment techniques entered into
for the purpose of leverage), and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to
secure such borrowings, provided that collateral arrangements
with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered a
pledge of assets for purposes of this restriction and except
that assets may be pledged to secure letters of credit solely
for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute; for
additional related restrictions, see clause (i) under the
caption "State and Federal Restrictions" below;
(2) underwrite securities issued by other persons except insofar
as the Portfolios may technically be deemed an underwriter
under the 1933 Act in selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of
the Portfolio's portfolio securities and provided that any
such loans not exceed 30% of the Portfolio's total assets
(taken at market value); (b) through the use of repurchase
agreements or the purchase of short term obligations; or (c)
by purchasing a portion of an issue of debt securities of
types distributed publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts (except futures and option
contracts) in the ordinary course of business (except that the
Portfolio may hold and sell, for the Portfolio's portfolio,
real estate acquired as a result of the Portfolio's ownership
of securities);
(5) concentrate its investments in any particular industry
(excluding U.S. Government securities), but if it is deemed
appropriate for the achievement of a Portfolio's investment
objective(s), up to 25% of its total assets may be invested in
any one industry;
(6) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940
Act or the rules and regulations promulgated thereunder,
provided that collateral arrangements with respect to options
and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a
senior security for purposes of this restriction; and
(7) with respect to 75% of its assets, invest more than 5% of its
total assets in the securities (excluding U.S. Government
securities) of any one issuer.
The Portfolio and the Fund are also subject to the following
restrictions which may be changed by the Board of Trustees without shareholder
approval (except that none of the following investment policies shall prevent
the Trust from investing all of the Assets of the Fund in a separate registered
investment company with substantially the same investment objective).
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<PAGE> 177
As a matter of non-fundamental policy, the Portfolio (Fund) will not:
(i) borrow money (including from a bank or through reverse
repurchase agreements or forward roll transactions involving
mortgage backed securities or similar investment techniques
entered into for leveraging purposes), except that the
Portfolio may borrow for temporary or emergency purposes up to
10% of its total assets; provided, however, that no Portfolio
may purchase any security while outstanding borrowings exceed
5%;
(ii) pledge, mortgage or hypothecate for any purpose in excess of
10% of the Portfolio's total assets (taken at market value),
provided that collateral arrangements with respect to options
and futures, including deposits of initial deposit and
variation margin, and reverse repurchase agreements are not
considered a pledge of assets for purposes of this
restriction;
(iii) purchase any security or evidence of interest therein on
margin, except that such short-term credit as may be necessary
for the clearance of purchases and sales of securities may be
obtained and except that deposits of initial deposit and
variation margin may be made in connection with the purchase,
ownership, holding or sale of futures;
(iv) sell any security which it does not own unless by virtue of
its ownership of other securities it has at the time of sale a
right to obtain securities, without payment of further
consideration, equivalent in kind and amount to the securities
sold and provided that if such right is conditional the sale
is made upon the same conditions;
(v) invest for the purpose of exercising control or management;
(vi) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of
merger or consolidation; provided, however, that securities of
any investment company will not be purchased for the Portfolio
if such purchase at the time thereof would cause: (a) more
than 10% of the Portfolio's total assets (taken at the greater
of cost or market value) to be invested in the securities of
such issuers; (b) more than 5% of the Portfolio's total assets
(taken at the greater of cost or market value) to be invested
in any one investment company; or (c) more than 3% of the
outstanding voting securities of any such issuer to be held
for the Portfolio; provided further that, except in the case
of a merger or consolidation, the Portfolio shall not purchase
any securities of any open-end investment company unless the
Portfolio (Fund) (1) waives the investment advisory fee, with
respect to assets invested in other open-end investment
companies and (2) incurs no sales charge in connection with
the investment;
(vii) invest more than 15% of the Portfolio's net assets (taken at
the greater of cost or market value) in securities that are
illiquid or not readily marketable;
(viii) invest more than 10% of the Portfolio's total assets (taken at
the greater of cost or market value) in (a) securities that
are restricted as to resale under the 1933 Act, and (b)
securities that are issued by issuers which (including
predecessors) have been in operation less than three years
(other than U.S. Government securities), provided, however,
that no more than
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<PAGE> 178
5% of the Portfolio's total assets are invested in securities
issued by issuers which (including predecessors) have been in
operation less than three years;
(ix) purchase securities of any issuer if such purchase at the time
thereof would cause the Portfolio to hold more than 10% of any
class of securities of such issuer, for which purposes all
indebtedness of an issuer shall be deemed a single class and
all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be
subject to this restriction;
(x) with respect to 75% of the Portfolio's (Fund's) total assets,
purchase or retain in the Portfolio's portfolio any securities
issued by an issuer any of whose officers, directors, trustees
or security holders is an officer or Trustee of the Trust, or
is an officer or partner of the Advisor, if after the purchase
of the securities of such issuer for the Portfolio one or more
of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, all taken at market value, of
such issuer, and such persons owning more than 1/2 of 1% of
such shares or securities together own beneficially more than
5% of such shares or securities, or both, all taken at market
value;
(xi) invest more than 5% of the Portfolio's net assets in warrants
(valued at the lower of cost or market) (other than warrants
acquired by the Portfolio (Fund) as part of a unit or attached
to securities at the time of purchase), but not more than 2%
of the Portfolio's net assets may be invested in warrants not
listed on the New York Stock Exchange Inc. ("NYSE") or the
American Stock Exchange;
(xii) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an
equal amount of such securities or securities convertible into
or exchangeable, without payment of any further consideration,
for securities of the same issue and equal in amount to, the
securities sold short, and unless not more than 10% of the
Portfolio's net assets (taken at market value) is represented
by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the
Portfolios have no current intention to engage in short
selling);
(xiii) write puts and calls on securities unless each of the
following conditions are met: (a) the security underlying the
put or call is within the investment policies of the Portfolio
and the option is issued by the Options Clearing Corporation,
except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b)
the aggregate value of the obligations underlying the puts
determined as of the date the options are sold shall not
exceed 50% of the Portfolio's net assets; (c) the securities
subject to the exercise of the call written by the Portfolio
must be owned by the Portfolio at the time the call is sold
and must continue to be owned by the Portfolio until the call
has been exercised, has lapsed, or the Portfolio has purchased
a closing call, and such purchase has been confirmed, thereby
extinguishing the Portfolio's obligation to deliver securities
pursuant to the call it has sold; and (d) at the time a put is
written, the Portfolio establishes a segregated account with
its custodian consisting of cash or short-term U.S. Government
securities equal in value to the amount the Portfolio will be
obligated to pay upon exercise of the put (this account must
be maintained until the put is exercised, has expired, or the
Portfolio has purchased a closing put, which is a put of the
same series as the one previously written); and
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(xiv) buy and sell puts and calls on securities, stock index futures
or options on stock index futures, or financial futures or
options on financial futures unless such options are written
by other persons and: (a) the options or futures are offered
through the facilities of a national securities association or
are listed on a national securities or commodities exchange,
except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b)
the aggregate premiums paid on all such options which are held
at any time do not exceed 20% of the Portfolio's total net
assets; and (c) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed
5% of the Portfolio's total assets.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage restriction or a rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the securities held
by the Fund or a later change in the rating of a security held by the Fund is
not considered a violation of policy; however, the Sub-Adviser will consider
such change in its determination of whether to hold the security.
PORTFOLIO TRANSACTIONS
Specific decisions to purchase or sell securities for the Portfolio are
made by employees of the Sub-Adviser who are appointed and supervised by its
senior officers. Changes in the Portfolio's investments are reviewed by its
Board of Trustees. The Portfolio's portfolio manager or management committee may
serve other clients of the Sub-Adviser or any subsidiary of the Sub-Adviser in a
similar capacity.
The primary consideration in placing portfolio security transactions is
execution at the most favorable prices. The Sub-Adviser has complete freedom as
to the markets in and broker-dealers through which it seeks this result. In the
United States and in some other countries debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries both debt and equity
securities are traded on exchanges at fixed commission rates. The cost of
securities purchased from underwriters includes an underwriter's commission or
concession, and the prices at which securities are purchased and sold from and
to dealers include a dealer's mark-up or mark-down. The Sub-Adviser normally
seeks to deal directly with the primary market makers or on major exchanges
unless, in its opinion, better prices are available elsewhere. Subject to the
requirement of seeking execution at the best available price, securities may, as
authorized by each Advisory Agreement, be bought from or sold to dealers who
have furnished statistical, research and other information or services to the
Sub-Adviser. At present no arrangements for the recapture of commission payments
are in effect.
Consistent with the foregoing primary consideration, the Conduct Rules
of the National Association of Securities Dealers, Inc. (the "NASD") and such
other policies as the Trustees may determine, the Sub-Adviser may consider sales
of shares of the Fund and of certain investment company clients of MFS Fund
Distributors, Inc., the principal underwriter of certain funds in the MFS Family
of Funds, as a factor in the selection of broker-dealers to execute the
Portfolio's portfolio transactions.
Under the Sub-Advisory Agreement and as permitted by Section 28(e) of
the Securities Exchange Act of 1934, the Sub-Adviser may cause the Portfolio to
pay a broker-dealer which provides brokerage and research services to the
Sub-Adviser an amount of commission for effecting a securities transaction for
the Portfolio in excess of the amount other broker-dealers would have charged
for the transaction if the Sub-
20
<PAGE> 180
Adviser determines in good faith that the greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of either a particular transaction or
their respective overall responsibilities to the Portfolio or to their other
clients. Not all of such services are useful or of value in advising the
Portfolio.
The term "brokerage and research services" includes advice as to the
value of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement. Although commissions paid
on every transaction will, in the judgment of the Sub-Adviser, be reasonable in
relation to the value of the brokerage services provided, commissions exceeding
those which another broker might charge may be paid to broker-dealers who were
selected to execute transactions on behalf of the Portfolio and the
Sub-Adviser's other clients in part for providing advice as to the availability
of securities or of purchasers or sellers of securities and services in
effecting securities transactions and performing functions incidental thereto,
such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and
other factual information or services ("Research") to the Sub-Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold through such broker-dealers, but at present, unless otherwise
directed by the Portfolio, a commission higher than one charged elsewhere will
not be paid to such a firm solely because it provided such Research. For the
period from September 3, 1996 (Portfolio commencement of operations) to October
31, 1996, the Portfolio paid aggregate brokerage commissions equal to $65,132 of
which $42,400 (on $37,168,763 of transactions) was paid to broker-dealers that
provided research to the sub-Adviser. For the year ended October 31, 1997, the
portfolio paid aggregate brokerage commissions equal to $316,521, none of which
was paid to broker-dealers that provided "brokerage and research services" to
the sub-adviser. For the year ended October 31, 1998, the portfolio paid
aggregate brokerage commissions equal to $291,582,
In certain instances there may be securities that are suitable for the
Portfolio as well as for the portfolio of one or more of the other clients of
the Sub-Adviser or any affiliate of the Sub- Adviser. Investment decisions for
the Portfolio and for such other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought or
sold for, other clients. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client. When
two or more clients are simultaneously engaged in the purchase or sale of the
same security, the securities are allocated among clients in a manner believed
by the Sub-Adviser to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the Portfolio is concerned. In other cases, however, the
Sub-Adviser believes that the Portfolio's ability to participate in volume
transactions will produce better executions for the Portfolio.
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PERFORMANCE INFORMATION
The Trust may, from time to time, include the total return for the
Fund, computed in accordance with formulas prescribed by the Securities and
Exchange Commission ("SEC"), in advertisements or reports to shareholders or
prospective investors.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (up to the
life of the Fund), calculated pursuant to the following formula: P (1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. The Fund also may, with respect to certain periods of less than one
year, provide total return information for that period that is unannualized. Any
such information would be accomplished by standardized total return information.
Historical performance information for any period or portion thereof
prior to the establishment of the Fund will be that of the Portfolio, adjusted
to assume that all charges, expenses and fees of the Fund and the Portfolio
which are presently in effect were deducted during such periods, as permitted by
applicable SEC staff interpretations. The table that follows sets forth
historical return information for the periods indicated:
Annual Total Return - Year Ended October 31, 1998: -4.27%.
Average Annual Total Return - September 3, 1996 (commencement of
operations) to October 31, 1998: 12.69%.
Performance information for the Fund may also be compared to various
unmanaged indices. Unmanaged indices (i.e., other than Lipper) generally do not
reflect deductions for administrative and management costs and expenses.
Comparative information may be compiled or provided by independent ratings
services or by news organizations. Any performance information should be
considered in light of the Fund's investment objectives and policies,
characteristics and quality of the Fund, and the market conditions during the
given time period, and should not be considered to be representative of what may
be achieved in the future.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
TRUSTEES AND OFFICERS
The business and affairs of the Trust and the Portfolio Trust are
managed under the direction of their respective Boards of Trustees. The
principal occupations of the Trustees and executive officers of the Trust and
Portfolio Trust for the past five years are listed below. Asterisks indicate
that those officers are "interested persons" (as defined in the 1940 Act) of the
Trust and the Portfolio Trust. The address of each, unless otherwise indicated,
is 3435 Stelzer Road, Columbus, Ohio 43219-3035.
FREDERICK C. CHEN, Trustee
126 Butternut Hollow Road, Greenwich, Connecticut 06830 - Management
Consultant.
ALAN S. PARSOW, Trustee
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<PAGE> 182
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, Trustee
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, Trustee
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
WALTER B. GRIMM*, President and Secretary
Employee of BISYS Fund Services, Inc., June, 1992 to present; prior to
June, 1992 President of Leigh Investments Consulting (investment firm).
ANTHONY J. FISCHER, Vice President
Employee of BISYS Fund Services, Inc., April, 1998 to present; Employee
of SEI Investments and Merrill Lynch prior to April 1998.
JAMES L. SMITH, Vice President
Employee of BISYS Funds Services, Inc. October 1996 to present;
Employee of Davis, Graham, Stubbs, October 1995 to October
1996; Director of Legal and Compliance, ALPS Mutual Funds
Services, Inc. from June 1991 to October 1995.
ADRIAN WATERS*, Treasurer
Employee of BISYS Fund Services (Ireland) LTD., May 1993 to present;
Manager, Price Waterhouse, 1989 to May 1993.
CATHERINE BRADY*, Assistant Treasurer
Employee of BISYS Fund Services (Ireland) LTD., March 1994 to present;
Supervisor, Price Waterhouse, 1990 to March 1994.
ELLEN STOUTAMIRE, Secretary
Employee of BISYS Fund Services, Inc., April, 1997 to present; Attorney
in private practice prior to April 1997.
ALAINA METZ*, Assistant Secretary
Chief Administrator, Administrative and Regulatory Services, BISYS Fund
Services, Inc., June 1995 to present; Supervisor, Mutual Fund Legal
Department, Alliance Capital Management, May 1989 to June 1995.
*Messrs. Grimm, Fischer and Waters and Mss. Grandominico, Brady,
Stoutamire and Metz also are officers of certain other investment companies of
which BISYS or an affiliate is the administrator.
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COMPENSATION TABLE
<TABLE>
<CAPTION>
Retirement Total
Pension of Estimated Compensation
Aggregate Benefits Accrued Annual From Fund
Compensation as Part of Benefits Upon Complex* to
Name of Trustee from Trust Fund Expenses Retirement Trustees
--------------- ---------- ------------- ---------- --------
<S> <C> <C> <C> <C>
Frederick C. Chen $2,900 none none $11,600
Alan S. Parsow $2,400 none none $ 9,600
Larry M. Robbins $2,400 none none $ 9,600
Michael Seely $2,400 none none $ 9,600
</TABLE>
* The Fund Complex includes the Trust, Republic Advisor Funds Trust, and the
Portfolio Trust.
The compensation table above reflects the fees received by the Trustees
for the year ended December 31, 1998. The Trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust will receive an annual
retainer of $5,600 and a fee of $1,500 for each meeting of the Board of Trustees
or committee thereof attended, except that Mr. Robbins will receive an annual
retainer of $7,600 and a fee of $1,750 for each meeting attended.
As of February 9, 1999, the Trustees and officers of the Trust and the
Portfolio Trust, as a group, owned less than 1% of the outstanding shares of the
Fund. As of the same date, the following shareholders of record owned 5% or more
of the outstanding Shares (the Trust has no knowledge of the beneficial
ownership of such Shares):
<TABLE>
<S> <C>
Kinco & Co. 64.45061%
C/o RNB Securities Services
One Hanson Place
Lower Level
Brooklyn, NY 11243
</TABLE>
Shareholders who own more than 25% of the outstanding voting securities of the
Fund may be able to control the outcome of any matter submitted for the approval
of shareholders of the Fund.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in their offices, or
unless with respect to any other matter it is finally adjudicated that they did
not act in good faith in the reasonable belief that their actions were in the
best interests of the Trust. In the case of settlement, such indemnification
will not be provided unless it has been determined by a court or other body
approving the settlement or other disposition, or by a reasonable determination,
based upon a review of readily available facts, by vote of a majority of
disinterested Trustees or in a written opinion of independent counsel, that such
officers or Trustees have not engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties.
INVESTMENT MANAGER
Republic is the investment manager to the Portfolio pursuant to an
investment management agreement (the "Investment Management Contract") with the
Portfolio Trust. For its services, the Manager is paid a fee by the Portfolio,
computed daily and paid monthly, equal on an annual basis to 0.25% of the
Portfolio's average daily net assets. For the period from September 3, 1996
(Portfolio commencement of operations) to October 31, 1996 and for the fiscal
year ended October 31, 1997, investment management fees aggregated $30,803 and
$429,442, respectively, all of which were waived. For the fiscal year ended
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<PAGE> 184
October 31, 1998, investment management fees aggregated $517,892, of which
$59,125 was waived.
The Investment Management Contract will continue in effect with respect
to the Portfolio, provided such continuance is approved at least annually (i) by
the holders of a majority of the outstanding voting securities of the Portfolio
or by the Portfolio Trust's Board of Trustees, and (ii) by a majority of the
Trustees of the Portfolio Trust who are not parties to the Investment Management
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Investment Management Contract may be terminated with respect to the
Portfolio without penalty by either party on 60 days' written notice and will
terminate automatically if assigned.
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Portfolio.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the Fund or
Portfolio, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of obligations so purchased. Republic
complies with applicable laws and regulations, including the regulations and
rulings of the U.S. Comptroller of the Currency relating to fiduciary powers of
national banks. These regulations provide, in general, that assets managed by a
national bank as fiduciary shall not be invested in stock or obligations of, or
property acquired from, the bank, its affiliates or their directors, officers or
employees or other persons with substantial connections with the bank. The
regulations further provide that fiduciary assets shall not be sold or
transferred, by loan or otherwise, to the bank or persons connected with the
bank as described above. Republic, in accordance with federal banking laws, may
not purchase for its own account securities of any investment company the
investment adviser of which it controls, extend credit to any such investment
company, or accept the securities of any such investment company as collateral
for a loan to purchase such securities. Moreover, Republic, its officers and
employees do not express any opinion with respect to the advisability of any
purchase of such securities. 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 Fund and Portfolio
will not violate the Glass-Steagall Act or other applicable banking laws or
regulations. However, future statutory or regulatory changes, as well as future
judicial or administrative decisions and interpretations of present and future
statutes and regulations, could prevent Republic from continuing to perform such
services for the Fund and Portfolio. If Republic were prohibited from acting as
investment manager to the Fund and Portfolio, it is expected that the Trust's
Board of Trustees would recommend to Fund shareholders approval of a new
investment advisory agreement with another qualified investment adviser selected
by the Board or that the Board would recommend other appropriate action.
The investment advisory services of Republic to the Portfolio are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment advisory services to others.
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<PAGE> 185
SUB-ADVISER
MFS Institutional Advisers, Inc., as the Portfolio's Sub-Adviser, is
responsible for the investment management of the Portfolio's assets, including
making investment decisions and placing orders for the purchase and sale of
securities for the Portfolio directly with the issuers or with brokers or
dealers selected by the Sub-Adviser or Republic in their discretion. See
"Portfolio Transactions." The Sub-Adviser also furnishes to the Board of
Trustees of the Portfolio Trust, which has overall responsibility for the
business and affairs of the Portfolio Trust, periodic reports on the investment
performance of the Portfolio.
The Sub-Adviser, together with its parent company, MFS, and their
predecessor organizations, has a history of money management dating from 1924.
MFS is a wholly owned subsidiary of Sun Life Assurance Company of Canada (U.S.)
which in turn is a wholly owned subsidiary of Sun Life Assurance Company of
Canada. The Prospectus contains information with respect to the management of
the Sub-Adviser and other investment companies for which the Sub-Adviser or MFS
serve as investment adviser.
For its services, the Sub-Adviser receives from the Portfolio a fee,
computed daily and based on the Portfolio's average daily net assets, equal on
an annual basis to 0.75% of assets up to $50 million and 0.60% of assets in
excess of $50 million. For the period from September 3, 1996 (Portfolio
commencement of operations) to October 31, 1996 and for the fiscal year ended
October 31, 1997, sub-advisory fees aggregated $85,616 and $1,104,635,
respectively. For the fiscal year ended October 31, 1998, sub-advisory fees
aggregated $1,346,644.
The investment advisory services of the Sub-Adviser to the Portfolio
are not exclusive under the terms of the Sub-Advisory Agreement. The Sub-Adviser
is free to and does render investment advisory services to others.
FUND ADMINISTRATOR
Pursuant to an Administration Agreement, BISYS provides the Fund with
general office facilities and supervises the overall administration of the Fund
and the Portfolio including, among other responsibilities, assisting in the
preparation and filing of all documents required for compliance by the Fund and
the Portfolio with applicable laws and regulations and arranging for the
maintenance of books and records of the Fund and the Portfolio. For its services
to the Fund, BISYS receives from the Fund fees payable monthly equal on an
annual basis (for the Fund's then-current fiscal year) to 0.05% of the Fund's
average daily net assets up to $1 billion; 0.04% of the next $1 billion of such
assets; and 0.035% of such assets in excess of $2 billion. For providing similar
services to the Portfolio, BISYS (Ireland) receives from the Portfolio fees
payable monthly equal on an annual basis (for the Portfolio's then-current
fiscal year) to 0.05% of the first $1 billion of the Portfolio's average daily
net assets; 0.04% of the next $1 billion of such assets; and 0.035% of such
assets in excess of $2 billion.
For the fiscal period ended October 31, 1996, the Portfolio accrued
administration fees equal to $6,161, of which $2,683 was waived, and the Fund
accrued administration fees equal to $1,446, of which $1,309 was waived. For the
fiscal year ended October 31, 1997, the Portfolio accrued administration fees
equal to $85,889 and the Fund accrued administration fees equal to $2,763, none
of which fees were waived. For the fiscal year ended October 31, 1998, the
Portfolio accrued administration fees equal to $106,179 and the Fund accrued
administration fees equal to $65,499.
Each Administration Agreement will remain in effect until March 31,
1999, and automatically will continue in effect thereafter from year to year
unless terminated upon 60 days' written notice to BISYS or
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<PAGE> 186
BISYS (Ireland), as appropriate. Each Administration Agreement will terminate
automatically in the event of its assignment. Each Administration Agreement also
provides that neither BISYS nor BISYS (Ireland), as appropriate, nor its
personnel shall be liable for any error of judgment or mistake of law or for any
act or omission in the administration or management of the Trust or Portfolio
Trust, except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its or
their obligations and duties under the Administration Agreement.
BISYS provides persons satisfactory to the respective Boards of
Trustees to serve as officers of the Trust and the Portfolio Trust. Such
officers, as well as certain other employees of the Trust and of the Portfolio
Trust, may be directors, officers or employees of BISYS or its affiliates.
TRANSFER AGENT
The Trust has entered into a Transfer Agency Agreement with Investors
Bank & Trust Company ("IBT"), pursuant to which IBT acts as transfer agent
("Transfer Agent") for Shares of the Fund, and the Portfolio Trust has entered
into a Transfer Agent Agreement with Investors Fund Services (Ireland) Limited
(also a "Transfer Agent"). The Transfer Agents maintain an account for each
shareholder of the Fund and investor in the Portfolio, performs other transfer
agency functions, and act as dividend disbursing agent for the Fund. The
principal business address of IBT is 200 Clarendon Street, Boston, Massachusetts
02117.
Pursuant to an agreement, as of April 1, 1999, BISYS will provide all
services with respect to each class of shares of the Fund. The principal
business address of BISYS is 3435 Stelzer Road, Columbus, OH 43219.
CUSTODIAN AND FUND ACCOUNT AGENTS
Pursuant to a Custodian Agreement, with respect to domestic assets,
Republic acts as the custodian of the Fund's assets. With respect to foreign
assets, IBT serves as custodian for the Fund and the Portfolio (together, with
Republic, the "Custodian"). The Custodians' responsibilities include
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Fund's investments, maintaining books of original entry for portfolio and
fund accounting and other required books and accounts in order to calculate the
daily net asset value of Shares of the Fund. Securities held for the Fund may be
deposited into the Federal Reserve-Treasury Department Book Entry System or the
Depository Trust Company. The Custodians do not determine the investment
policies of the Fund or decide which securities will be purchased or sold for
the Fund. For its services, the Custodians receive such compensation as may from
time to time be agreed upon by it and the Trust. IBT Fund Services (Canada) Inc.
serves as the fund accounting agent for the Portfolio.
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 of
the Fund may be effected and certain other matters pertaining to the Fund;
assists shareholders in designating and changing dividend options, account
designations and addresses; provides necessary personnel and facilities to
establish and maintain shareholder accounts and records; assists in processing
purchase and redemption transactions; arranges for the wiring of funds;
transmits and receives funds in connection with customer orders to purchase or
redeem
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Shares; verifies and guarantees shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnishes (either separately or on an integrated basis with other reports sent
to a shareholder by a Shareholder Servicing Agent) monthly and year-end
statements and confirmations of purchases and redemptions; transmits, on behalf
of the Trust, proxy statements, annual reports, updated prospectuses and other
communications from the Trust to the Fund's shareholders; receives, tabulates
and transmits to the Trust proxies executed by shareholders with respect to
meetings of shareholders of the Fund or the Trust; and provides such other
related services as the Trust or a shareholder may request. Although the Fund
does not currently compensate Shareholder Servicing Agents for performing these
services with respect to Shares, the Fund is authorized to pay a Shareholder
Servicing Fee up to 0.25%, on an average basis, of the Fund's daily net assets.
The Trust understands that some Shareholder Servicing Agents also may
impose certain conditions on their customers, subject to the terms of this
Prospectus, in addition to or different from those imposed by the Trust, such as
requiring a different minimum initial or subsequent investment, account fees (a
fixed amount per transaction processed), compensating balance requirements (a
minimum dollar amount a customer must maintain in order to obtain the services
offered), or account maintenance fees (a periodic charge based on a percentage
of the assets in the account or of the dividends paid on those assets). Each
Shareholder Servicing Agent has agreed to transmit to its customers who are
holders of Shares appropriate prior written disclosure of any fees that it may
charge them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees. Conversely, the Trust understands that
certain Shareholder Servicing Agents may credit to the accounts of their
customers from whom they are already receiving other fees amounts not exceeding
such other fees or the fees received by the Shareholder Servicing Agent from the
Fund with respect to those accounts.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the Fund. The Trust engages banks as Shareholder
Servicing Agents on behalf of the Fund only to perform administrative and
shareholder servicing functions as described above. The Trust believes that the
Glass-Steagall Act should not preclude a bank from acting as a Shareholder
Servicing Agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain Fund shareholders, and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trustees of the Trust do not expect that
shareholders of the Fund would suffer any adverse financial consequences as a
result of these occurrences.
EXPENSES
Except for the expenses paid by the Manager and the Distributor, the
Fund bears all costs of its operations Expenses attributable to a class ("Class
Expenses") shall be allocated to that class only. In the 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 expense. Trust expenses directly related
to the Fund are charged to the Fund; other expenses are allocated proportionally
among all the portfolios of the Trust in relation to the net asset value of the
Funds.
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DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares is determined on each day on
which the New York Stock Exchange ("NYSE") is open for trading. As of the date
of this Statement of Additional Information, the NYSE is open every weekday
except for the days on which the following holidays are observed: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Sub-Adviser typically completes its trading on behalf of the
Portfolio in various markets before 4:00 p.m., and the value of portfolio
securities is determined when the primary market for those securities closes for
the day. Foreign currency exchange rates are also determined prior to 4:00 p.m.
However, if extraordinary events occur that are expected to affect the value of
a portfolio security after the close of the primary exchange on which it is
traded, the security will be valued at fair value as determined in good faith
under the direction of the Board of Trustees of the Portfolio Trust.
Subject to the Trust's compliance with applicable regulations, the
Trust on behalf of the Fund and the Portfolio have reserved the right to pay the
redemption or repurchase price of Shares, either totally or partially, by a
distribution in kind of portfolio securities from the Portfolio (instead of
cash). The securities so distributed would be valued at the same amount as that
assigned to them in calculating the net asset value for the Shares being sold.
If a shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash. The Trust will
redeem Fund shares in kind only if it has received a redemption in kind from the
Portfolio and therefore shareholders of the Fund that receive redemptions in
kind will receive securities of the Portfolio. The Portfolio has advised the
Trust that the Portfolio will not redeem in kind except in circumstances in
which the Fund is permitted to redeem in kind.
PURCHASE OF SHARES
Shares may be purchased through the Distributor Shareholder Servicing
Agents or through securities brokers that have entered into a dealer agreement
with the Distributor ("Securities Brokers"). Shares may be purchased at their
net asset value next determined after an order is transmitted to and accepted by
the Transfer Agent or is received by a Shareholder Servicing Agent or a
Securities Broker if it is transmitted to and accepted by the Transfer Agent.
Purchases are 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 intends 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 or Securities Broker 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 reserves the right to cease offering Shares for sale at any time or to
reject any order for the purchase of Shares.
An investor may purchase Shares through the Distributor directly or by
authorizing his Shareholder Servicing Agent to purchase such Shares on his
behalf through the Transfer Agent.
Certain clients of the Adviser whose assets would be eligible for
purchase by the Fund may purchase shares of the Trust with such assets. Assets
so purchased by the Fund will be subject to valuation and other procedures by
the Board of Trustees.
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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).
AUTOMATIC INVESTMENT PLAN
If an Automatic Investment Plan is selected, subsequent investments
will be automatic and will continue until such time as the Trust and the
investor's bank are notified in writing to discontinue further investments. Due
to the varying procedures to prepare, process and forward the bank withdrawal
information to the Trust, there may be a delay between the time of bank
withdrawal and the time the money reaches the Fund. The investment in a Fund
will be made at the net asset value per share determined on the Fund Business
Day that both the check and the bank withdrawal data are received in required
form by the Transfer Agent. Further information about the plan may be obtained
from BISYS at the telephone number listed on the back cover.
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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 the 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 day prior to the day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the next Fund Business Day 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 reserves the right to redeem upon not less than 30 days' notice all Shares
in an account which has a value below $50, provided that such involuntary
redemptions will not result from fluctuations in the value of Fund Shares. 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 securities
broker or a Shareholder Servicing Agent to redeem Shares, a shareholder should
contact his securities broker or his Shareholder Servicing Agent.
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 he redeems 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.
RETIREMENT PLANS
Shares of the 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 or the Sponsor upon
request. The tax law governing tax-deferred retirement plans is complex and
changes frequently. Before investing in the Fund through one or more of these
plans, an investor should consult his or her tax adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the 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 BISYS as custodian. The minimum initial investment for an IRA is
$250; the minimum subsequent investment is $100. IRAs are available to
individuals who receive
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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 Fund for
retirement plans for self-employed persons that 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 Fund may be used as a vehicle 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 Fund may also be
used as a vehicle for both 401(k) plans and 403(b) plans.
DIVIDENDS AND DISTRIBUTIONS
The Trust declares all of the Fund's net investment income daily as a
dividend to the Fund shareholders. Dividends substantially equal to the Fund's
net investment income earned during the month are distributed semi-annually to
the Fund's shareholders of record. Generally, the Fund's net investment income
consists of the interest and dividend income it earns, less expenses. In
computing interest income, premiums are not amortized nor are discounts accrued
on long-term debt securities in the Portfolio, except as required for federal
income tax purposes.
The Fund's net realized 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).
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest (par value
$0.001 per share) and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Trust.
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the
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Declaration of Trust provides that the holders of not less than two-thirds of
the outstanding shares of the Trust may remove persons serving as Trustee either
by declaration in writing or at a meeting called for such purpose. The Trustees
are required to call a meeting for the purpose of considering the removal of
persons serving as Trustee if requested in writing to do so by the holders of
not less than 10% of the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Portfolio Trust's Trustees,
it is necessary or desirable to submit matters for an investor vote. Each
investor is entitled to a vote in proportion to the share of its investment in
the Portfolio.
The series of the Portfolio Trust will vote separately or together in
the same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of the Portfolio Trust could control the outcome
of these votes. Whenever the Trust is requested to vote on a matter pertaining
to the Portfolio, the Trust will hold a meeting of the Fund's shareholders and
will cast all of its votes on each matter at a meeting of investors in the
Portfolio proportionately as instructed by the Fund's shareholders. However,
subject to applicable statutory and regulatory requirements, the Trust would not
request a vote of the Fund's shareholders with respect to any proposal relating
to the Portfolio which proposal, if made with respect to the Fund, would not
require the vote of the shareholders of the Fund.
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 in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing subscribed to by a specified
number of shareholders. Upon liquidation or dissolution of 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 Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Funds or the 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 is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust is organized as a master trust fund under the laws
of the State of New York. The Portfolios are separate series of the Portfolio
Trust, which currently has only these three series. The
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Portfolio Trust's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) are each liable for all
obligations of their respective Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the Trustees believe
that neither Fund nor their shareholders will be adversely affected by reason of
the investment of all of its assets in the Portfolio.
TAXATION
The following is a summary of certain U.S. federal income tax issues
concerning the Fund, its shareholders and the Portfolio. The Fund and the
Portfolio may also be subject to state, local, foreign or other taxes not
discussed below. This discussion does not purport to be complete or to address
all tax issues relevant to each shareholder. Prospective investors should
consult their own tax advisors with regard to the federal, state, foreign and
other tax consequences to them of the purchase, ownership or disposition of Fund
shares. This discussion is based upon present provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations promulgated thereunder,
and judicial and administrative authorities, all of which are subject to change,
which change may be retroactive.
Each year, to qualify as a separate "regulated investment company"
under the Code, at least 90% of the Fund's investment company taxable income
(which includes, among other items, interest, dividends and the excess of net
short-term capital gains over net long-term capital losses) must be distributed
to Fund shareholders and the Fund must meet certain diversification of assets,
source of income, and other requirements. If the Fund does not so qualify, it
will be taxed as an ordinary corporation.
The Portfolio has obtained from the Internal Revenue Service ("IRS") a
ruling that the Portfolio will be treated for federal income tax purposes as a
partnership. For purposes of determining whether the Fund satisfies the income
and diversification requirements to maintain its status as a RIC, the Fund, as
an investor in the Portfolio, will be deemed to own a proportionate share of the
Portfolio's income attributable to that share.
Amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, for each calendar year an
amount must be distributed equal to the sum of (1) at least 98% of the Fund's
ordinary income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of the Fund's capital gain net income for the
12-month period ending, as a general rule, on October 31 of the calendar year,
and (3) all such ordinary income and capital gains for previous years that were
not distributed during such years.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
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If the Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Portfolio's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
Some of the debt securities that may be acquired by the Portfolio may
be treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Portfolio, original issue
discount on a taxable debt security earned in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Portfolio at a
discount which exceeds the original issue discount on such debt securities, if
any. This additional discount represents market discount for federal income tax
purposes. Generally, the gain realized on the disposition of any debt security
acquired by the Portfolio will be treated as ordinary income to the extent it
does not exceed the accrued market discount on such debt security.
Distributions by the Fund of its net investment income will be taxable
to shareholders as ordinary income, whether received in cash or reinvested in
Fund shares. Distributions designated by the Fund of its net capital gain,
whether received in cash or reinvested in Fund shares, will generally be taxable
to shareholders as long-term capital gain, regardless of how long a shareholder
has held Fund shares.
OPTIONS, FUTURES AND FORWARD CONTRACTS
Some of the options, futures contracts and forward contracts entered
into by the Portfolio may be "Section 1256 contracts." Section 1256 contracts
held by the Portfolio at the end of its taxable year (and, for purposes of the
4% excise tax, on certain other dates as prescribed under the Code) are
"marked-to- market" with unrealized gains or losses being treated as though they
were realized. Any gains or losses, including "marked-to-market" gains or
losses, on Section 1256 contracts are generally 60% long-term and 40% short-term
capital gains or losses ("60/40") although all foreign currency gains and losses
from such contracts may be treated as ordinary in character absent a special
election.
Generally, hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by the Portfolio may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gain or loss realized by the Portfolio. In addition, losses
realized by the Portfolio on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Portfolio are not entirely
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clear. The transactions may increase the amount of short-term capital gain
realized by the Portfolio. Short-term gain is taxed as ordinary income when
distributed to Fund shareholders.
The Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If the Portfolio makes any of the
elections, the amount, character, and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Fund shareholders, and which will be taxed to Fund shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
Recently enacted rules may affect the timing and character of gain if
the Fund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If the Fund enters into certain
transactions in property while holding substantially identical property, the
Fund would be treated as if it had sold and immediately repurchased the property
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Portfolio may invest in shares of foreign corporations (through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Portfolio receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Portfolio held the PFIC shares. The
Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years and an interest
factor will be added to the tax, as if the tax had been payable in such prior
taxable years. Certain distributions from a PFIC as well as gain from the sale
of PFIC shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares held by the Portfolio. Under an election that currently
is available in some circumstances, the Fund generally would be required to
include in its gross income its share of the earnings of a PFIC on a current
basis, regardless of whether distributions are received from the PFIC in a given
year. If this election were made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. Alternatively, another
election may be available that would involve marking to market the Fund's PFIC
shares at the end of each taxable year, with the result that unrealized gains
are treated as though they were realized and reported as ordinary income. Any
mark-to-market losses and any loss from an actual disposition of PFIC
36
<PAGE> 196
shares would be deductible as ordinary losses to the extent of any net
mark-to-market gains included in income in prior years.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time the Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Portfolio actually collects such receivables or pays
such liabilities generally are treated as ordinary income or loss. Similarly, in
disposing of debt securities denominated in foreign currencies and certain other
foreign currency contracts, gains or losses attributable to fluctuations in the
value of a foreign currency between the date the security or contract is
acquired and the date it is disposed of are also usually treated as ordinary
income or loss. Under Section 988 of the Code, these gains or losses may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to shareholders as ordinary income.
DISPOSITION OF SHARES
Upon the sale or exchange of shares of the Fund, a shareholder
generally will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands; gain will generally be taxed as
long-term capital gain if the shareholder's holding period for the shares is
more than one year. Gain from the disposition of shares held not more than one
year will be taxed as short-term capital gain. Any loss realized on a sale or
exchange of Fund shares will be disallowed to the extent that the shares
disposed of are replaced (including replacement through reinvesting of dividends
and capital gain distributions in the Fund) within a period of 61 days beginning
30 days before and ending 30 days after the disposition of the shares. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Distributions by the Fund and redemption proceeds may be subject to
backup withholding at the rate of 31%. Backup withholding generally applies to
shareholders who have failed to properly certify their taxpayer identification
numbers, who fail to provide other required tax-related certifications, and with
respect to whom the Fund has received certain notifications from the Internal
Revenue Service requiring or permitting the Fund to apply backup withholding.
Backup withholding is not an additional tax and amounts so withheld generally
may be applied by affected shareholders as a credit against their federal income
tax liability.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 5, 1996.
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with
37
<PAGE> 197
different investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional series will not alter the
rights of the Fund's shareholders. When issued, shares are fully paid,
nonassessable, redeemable and freely transferable. Shares do not have preemptive
rights or subscription rights. In liquidation of the Fund, each shareholder is
entitled to receive his pro rata share of the net assets of the Fund.
INDEPENDENT AUDITORS
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent auditors of the Trust for the fiscal year ending October 31, 1999.
KPMG Peat Marwick LLP will audit the Fund's annual financial statements, prepare
the Fund's and Portfolio's income tax returns, and assist in the preparation of
filings with the SEC. The address of KPMG Peat Marwick LLP is 99 High Street,
Boston, Massachusetts 02110. The Portfolio Trust has appointed KPMG LLP as its
independent auditors to audit the Portfolio's financial statements for the
fiscal year ending October 31, 1999.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
passes upon certain legal matters in connection with the shares offered by the
Trust, and also acts as counsel to the Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The current audited financial statements dated October 31, 1998 of each
of the Fund and the Portfolio are hereby incorporated herein by reference from
the Annual Report of the Fund dated October 31, 1998 as filed with the SEC.
Copies of such reports will be provided without charge to each person receiving
this Statement of Additional Information.
38
<PAGE> 198
PART C
ITEM 23. EXHIBITS
(a) Declaration of Trust; Establishment and designation of series
for Republic Fixed Income Fund, Republic International Equity
Fund, and Republic Small Cap Equity Fund. 5
(b) By-Laws. 1
(e) Distribution Agreement regarding Republic Fixed Income Fund,
Republic International Equity Fund, Republic Small Cap Equity
Fund. 5
(f) Not applicable.
(g)(1) Form of Custodian Agreement - Republic
(g)(2) Transfer Agency Agreement.
(h)(1) Administrative Agreement regarding Republic Fixed Income Fund,
Republic International Equity Fund, Republic Small Cap Equity
Fund. 5
(h)(2) Administration Agreement between Republic Advisor Funds Trust
and BISYS.
(h)(3) Fund Accounting Agreement - BISYS.
(i) Opinion of Counsel. 2
(j) Consent of Independent Auditors.
(k) Not applicable.
(m) Not applicable
(n)(1) Schedule of Performance Computations. 1
(n)(2) Financial Data Schedules.
(o) Not applicable.
(p)(1) Powers of Attorney of Trustees and Officers of Registrant and
Republic Portfolios. 4
39
<PAGE> 199
(p)(2) Power of Attorney for Adrian Waters. 5
(p)(3) 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 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 25. INDEMNIFICATION
Reference is hereby made to Article IV 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
<PAGE> 200
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)
<PAGE> 201
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.
<PAGE> 202
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 27. 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 28. 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., 89 South Street, Boston, Massachusetts 02110.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
(a) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered 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
<PAGE> 203
least 10% of the outstanding shares of the Registrant, regardless of the net
asset value or values of shares held by such requesting shareholders.
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 duly caused
this registration statement on Form N-1A (File No. 333-02205) (the "Registration
Statement") to be signed on its behalf by the undersigned, thereto duly
authorized on the 1st day of March, 1999.
REPUBLIC FUNDS
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 1, 1999.
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
<PAGE> 204
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.
Republic Portfolios (the "Portfolio Trust") has duly caused this
amendment to the registration statement on Form N-1A (File No. 333-02205)
("Registration Statement") of Republic Funds (the "Trust") to be signed on its
behalf by the undersigned, thereto duly authorized on the 1st of
March, 1999.
REPUBLIC PORTFOLIOS
By WALTER B. GRIMM**
--------------------------
Walter B. Grimm
President
Pursuant to the requirements of the Securities Act of 1933, the
post-effective amendment to the Trust's Registration Statement has been signed
below by the following persons in the capacities indicated on March 1, 1999.
WALTER B. GRIMM**
- --------------------------
Walter B. Grimm
President
<PAGE> 205
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.
** /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> 206
EXHIBIT LIST
------------
Exhibit Number Name of Exhibit
- -------------- ---------------
(g)(1) Form of Custodian Agreement - Republic.
(g)(2) Transfer Agency Agreement.
(h)(2) Administration Agreement between Republic Advisor Funds
Trust and BISYS.
(h)(3) Fund Accounting Agreement.
(j) Consent of Independent Auditors.
(n)(2) Financial Data Schedules.
<PAGE> 1
Exhibit (g)(1)
CUSTODIAN AGREEMENT
BETWEEN
REPUBLIC FUNDS
AND
REPUBLIC NATIONAL BANK OF NEW YORK
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
1. Bank Appointed Custodian.............................................1
2. Definitions..........................................................1
2.1 Authorized Person.............................................1
2.2 Security......................................................1
2.3 Portfolio Security............................................1
2.4 Officers' Certificate.........................................2
2.5 Book-Entry System.............................................2
2.6 Depository....................................................2
2.7 Proper Instructions...........................................2
3. Separate Accounts....................................................3
4. Certification as to Authorized Persons...............................3
5. Custody of Cash......................................................3
5.1 Purchase of Securities........................................3
5.2 Redemptions...................................................4
5.3 Distributions and Expenses of Fund............................4
5.4 Payment in Respect of Securities..............................4
5.5 Repayment of Loans............................................4
5.6 Repayment of Cash.............................................4
5.7 Foreign Exchange Transactions.................................4
5.8 Other Authorized Payments.....................................5
5.9 Termination...................................................5
6. Securities...........................................................5
6.1 Segregation and Registration..................................5
6.2 Voting and Proxies............................................5
6.3 Book-Entry System.............................................5
6.4 Use of a Depository...........................................7
6.5 Use of Book-Entry System for Commercial Paper.................8
6.6 Use of Immobilization Programs................................8
6.7 Eurodollar CDs................................................8
6.8 Options and Futures Transactions..............................8
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter............................8
(b) Puts, Calls, and Futures Traded on
Commodities Exchanges.................................9
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C> <C>
6.9 Segregated Account............................................9
6.10 Interest Bearing Call or Time Deposits.......................10
6.11 Transfer of Securities.......................................11
7. Redemptions.........................................................12
8. Merger, Dissolution, etc. of Fund...................................13
9. Actions of Bank Without Prior Authorization.........................13
10. Collections and Defaults............................................13
11. Maintenance of Records and Accounting Services......................14
12. Fund Evaluation.....................................................15
13. Concerning the Bank.................................................15
13.1 Performance of Duties; Standard of Care......................15
13.2 Agents and Subcustodians with Respect to Property
of the Fund Held in the United States........................17
13.3 Duties of the Bank with Respect to Property Held
Outside of the United States.................................17
13.4 Insurance....................................................17
13.5 Fees and Expenses of Bank....................................17
13.6 Advances by Bank............................................18
14. Termination.........................................................18
15. Confidentiality.....................................................19
16. Notices.............................................................19
17. Amendments..........................................................20
18. Parties.............................................................20
19. Governing Law.......................................................20
20. Counterparts........................................................20
21. Limitation of Liability.............................................20
</TABLE>
iii
<PAGE> 4
CUSTODIAN AGREEMENT
AGREEMENT made as of this 1st day of December, 1997, between REPUBLIC
FUNDS, a Massachusetts business trust (the "Fund"), and REPUBLIC NATIONAL BANK
OF NEW YORK (the "Bank").
The Fund, an open-end management investment company, desires to place
and maintain its portfolio securities and cash (except for those securities and
cash held outside the United States in accordance with Section 13.3) in the
custody of the Bank. The Bank has at least the minimum qualifications required
by Section 17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to
act as custodian of the portfolio securities and cash of the Fund, and has
indicated its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. BANK APPOINTED CUSTODIAN. The Fund hereby appoints the Bank as custodian of
its portfolio securities and cash delivered to the Bank as hereinafter described
and the Bank agrees to act as such upon the terms and conditions hereinafter set
forth.
2. DEFINITIONS. Whenever used herein, the terms listed below will have the
following meaning:
2.1 AUTHORIZED PERSON. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board of Directors or the Board of
Trustees, as the case may be ("the Board"), and set forth in a certificate as
required by Section 4 hereof.
2.2 SECURITY. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.3 PORTFOLIO SECURITY. Portfolio Security will mean any Security owned
by the Fund.
-1-
<PAGE> 5
2.4 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.5 BOOK-ENTRY SYSTEM. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.6 DEPOSITORY. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.7 PROPER INSTRUCTIONS. (a) Proper Instructions shall mean (i)
instructions (which may be continuing instructions) regarding the purchase or
sale of Portfolio Securities, and payments and deliveries in connection
therewith, given by an Authorized Person, such instructions to be given in such
form and manner as the Bank and the Fund shall agree upon from time to time, and
(ii) instructions (which may be continuing instructions) regarding other matters
given by one or more Authorized Persons. Without limiting the generality of the
foregoing, Proper Instructions shall specifically indicate the specific series
or portfolio of the Fund to which they relate.
(b) Oral instructions will be considered Proper Instructions if
the Bank reasonably believes them to have been given by a person authorized to
give such instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be promptly confirmed in writing.
(c) Upon receipt of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Fund, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices.
(d) The Bank shall act upon and comply with any subsequent Proper
Instruction which modifies a prior instruction and the sole obligation of the
Bank with respect to any follow-up or confirmatory instruction shall be to make
reasonable efforts to detect any discrepancy between the original instruction
and such confirmation and to report such discrepancy to the Fund. The Fund shall
be responsible, at the Fund's expense, for taking any action, including any
reprocessing, necessary to correct any such discrepancy or error, and to the
extent such action requires the Bank to act the Fund shall give the Bank
specific Proper Instructions as to the action required.
-2-
<PAGE> 6
(e) The Bank shall have no liability hereunder for acting in
accordance with Proper Instructions.
3. SEPARATE ACCOUNTS. If the Fund has more than one series or portfolio, the
Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon) upon receipt of Proper Instructions as to which series or portfolio
such asset should be credited. Unless the context otherwise requires, any
reference in this Agreement to any actions to be taken by the Fund shall be
deemed to refer to the Fund acting on behalf of one or more of its series or
portfolios, any reference in this Agreement to any assets of the Fund,
including, without limitation, any Portfolio Securities and cash and earnings
thereon, shall be deemed to refer only to assets of the applicable series or
portfolio, any duty or obligation of the Bank hereunder to the Fund shall be
deemed to refer to duties and obligations with respect to the individual series
or portfolio, and any obligation or liability of the Fund hereunder shall be
binding only with respect to the individual series or portfolio, and shall be
discharged only out of the assets of such series or portfolio.
4. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant Secretary
of the Fund will at all times maintain on file with the Bank his or her
certification to the Bank, in such form as may be acceptable to the Bank, of (i)
the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any Officers' Certificate given to it by the Fund
which has been signed by Authorized Persons named in the most recent
certification.
5. CUSTODY OF CASH. As custodian for the Fund, the Bank will open and maintain a
separate account or separate accounts in the name of the Fund or in the name of
the Bank, as Custodian of the Fund, and will deposit to the account of the Fund
all of the cash of the Fund, including borrowed funds, delivered to the Bank,
except for cash held by a subcustodian appointed pursuant to Section 13.2
hereof, subject only to draft or order by the Bank acting pursuant to the terms
of this Agreement. Notwithstanding the provisions of Section 3 hereof, the Bank
may maintain a single cash account for all of the Fund's series and portfolios,
provided that the Bank maintains appropriate sub-accounting records to identify
the cash belonging to each separate series or portfolio. Upon receipt by the
Bank of Proper Instructions requesting such payment, designating the payee or
the account or accounts to which the Bank will release funds for deposit, and
stating that it is for a purpose permitted under the terms of this Section 5,
Subsections 6.7, 6.8, 6.9 or 6.10 or Section 8 and specifying the applicable
section or subsection or permitted purpose, or describing the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable section or subsection, the Bank will make payments of cash held for
the accounts of the Fund.
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5.1 PURCHASE OF SECURITIES. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs, registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price (including,
where applicable, brokerage commissions) shown on a broker's confirmation (or
other transaction report in the case of securities maintained in the Book Entry
System) of purchase of the securities received by the Bank before such payment
is made, as confirmed in the Proper Instructions received by the Bank before
such payment is made.
5.2 REDEMPTIONS. In such amount as may be necessary for the repurchase
or redemption of common shares of the Fund offered for repurchase or redemption
as specified in Proper Instructions from the Fund's transfer agent in accordance
with Section 7 of this Agreement.
5.3 DISTRIBUTIONS AND EXPENSES OF FUND. For the payment on the
account of the Fund of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management or
supervisory fees, distribution fees, fees of the Bank for its services hereunder
and reimbursement of the expenses and liabilities of the Bank as provided
hereunder, fees of any transfer agent, fees for legal, accounting, and auditing
services, or other operating expenses of the Fund.
5.4 PAYMENT IN RESPECT OF SECURITIES. For payments in connection with
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 REPAYMENT OF LOANS. To repay loans of money made to the Fund, but,
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor.
5.6 REPAYMENT OF CASH. To repay the cash delivered to the Fund for the
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 FOREIGN EXCHANGE TRANSACTIONS. For payments in connection with
foreign exchange contracts or options to purchase and sell foreign currencies
for spot or future delivery which may be entered into by the Bank on behalf of
the Fund upon the receipt of Proper Instructions, such Proper Instructions to
specify the currency broker or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting as principal) with which the
contract or option is made.
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<PAGE> 8
5.8 OTHER AUTHORIZED PAYMENTS. For other authorized transactions of the
Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 TERMINATION. Upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 or Section 14 of this Agreement.
6. SECURITIES.
6.1 SEGREGATION AND REGISTRATION. Except as otherwise provided herein,
and except for securities to be delivered to any subcustodian appointed pursuant
to Section 13.2 hereof, the Bank as custodian, will receive and hold pursuant to
the provisions hereof, in a separate account or separate accounts and segregated
at all times from those of other persons, any and all Portfolio Securities which
may now or hereafter be delivered to it by or for the account of the Fund.
Notwithstanding the provisions of Section 3 hereof, the Bank may maintain a
single account for all of the Fund's series and portfolios, provided that the
Bank maintains appropriate sub-accounting records to identify the Portfolio
Securities belonging to each separate series or portfolio. All such Portfolio
Securities will be held or disposed of by the Bank in accordance with, and
subject at all times to, Proper Instructions. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate) in the name of a nominee of
the Bank, and will execute and deliver all such certificates in connection
therewith as may be required under applicable laws and regulations.
The Fund will furnish to the Bank appropriate instruments to enable it
to hold or deliver in proper form for transfer, or to register in the name of
its nominee, any Portfolio Securities which may from time to time be registered
in the name of the Fund.
6.2 VOTING AND PROXIES. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund (or the applicable
investment adviser) all notices, proxies and proxy soliciting materials received
by the Bank with respect to such Portfolio Securities, such proxies to be
executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
6.3 BOOK-ENTRY SYSTEM. Subject to the authority of the Board to withdraw
its approval for the Bank's use of the Book-Entry System, which withdrawal of
approval shall be reflected in an Officers' Certificate delivered to the Bank:
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<PAGE> 9
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry Portfolio Securities which are included with
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund upon reasonable prior
notice. Where Portfolio Securities are transferred to the Account, the Bank
shall also, by book entry or otherwise, identify as belonging to the Fund a
quantity of securities in fungible bulk of securities (i) registered in the name
of the Bank or its nominee, or (ii) shown on the Bank's account on the books of
the Federal Reserve Bank;
(c) The Bank (or its agent) shall pay for Portfolio Securities
purchased for the account of the Fund or shall pay cash collateral against the
return of Portfolio Securities loaned by the Fund upon receipt of advice from
the Book-Entry System that such Portfolio Securities have been transferred to
the Account against payment of the purchase price or cash collateral. The Bank
shall make an entry on the records of the Bank (or its agent) to reflect such
payment and transfer for the account of the Fund.
(d) The Bank (or its agent) shall transfer securities sold or
loaned for the account of the Fund upon receipt of advice from the Book-Entry
System that payment for securities sold or payment of the initial cash
collateral has been transferred to the Account against the delivery of Portfolio
Securities loaned by the Fund. The Bank shall make an entry on the records of
the Bank (or its agent) to reflect such transfer and payment for the account of
the Fund.
(e) Copies of all advices from the Book-Entry System of transfers
of Securities for the account of the Fund shall be maintained for the Fund by
the Bank and shall be provided to the Fund at its request. The Bank shall send
the Fund a confirmation, as defined by Rule 17f-4 under the 1940 Act, of any
transfers to or from the account of the Fund;
(f) Upon request of the Fund, the Bank will promptly provide the
Fund with any report obtained by the Bank or its agent on the Book-Entry
System's accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Book-Entry System; and
(g) The Bank shall be liable to the Fund for any loss or damage
to the Fund resulting from use of the Book-Entry System by reason of any gross
negligence, willful misfeasance or bad faith of the Bank or any of its agents or
of any of its or their employees or from any reckless disregard by the Bank or
any such agent of its duty to use its best efforts to enforce such rights as it
may have against the Book-Entry System; at the election of the Fund and subject
to the terms of the Bank's participation in the Book-Entry System, the Fund
shall be
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<PAGE> 10
entitled to be substituted for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may have as a consequence
of any such loss or damage if and to the extent that the Fund has not been made
whole for any loss or damage;
6.4 USE OF A DEPOSITORY. Subject to the authority of the Board to
withdraw its approval for the Bank's use of a Depository, which withdrawal of
approval shall be reflected in an Officer's Certificate delivered to the Bank:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only against delivery of the securities to or for the account of the Fund;
and the Fund shall pay cash collateral against the return of Portfolio
Securities loaned by the Fund against delivery of the Portfolio Securities to or
for the account of the Fund; and upon any sale of Portfolio Securities, delivery
of the securities will be made only against payment therefor or, in the event
Portfolio Securities are loaned, delivery of Portfolio Securities will be made
only against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall be liable to the Fund for any loss or damage
to the Fund resulting from use of a Depository by reason of any gross
negligence, willful misfeasance or bad faith of the Bank or its employees or
from any reckless disregard by the Bank of its duty to use its best efforts to
enforce such rights as it may have against a Depository. In this connection, the
Bank shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Any proxy materials received by a Depository with
respect to Portfolio Securities deposited with such Depository are forwarded
immediately to the Bank;
(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Bank's customer account;
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<PAGE> 11
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and the SEC's rules thereunder;
and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.5 USE OF BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. [RESERVED]
6.6 USE OF IMMOBILIZATION PROGRAMS. [RESERVED]
6.7 EURODOLLAR CDS. Any Portfolio Securities which are Eurodollar CDs
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Securities are identified on the books of the Bank as belonging to the Fund
and that the books of the Bank identify the European Branch holding such
Securities. Notwithstanding any other provision of this Agreement to the
contrary, except as stated in the first sentence of this subsection 6.7, the
Bank shall be under no other duty with respect to such Eurodollar CDs belonging
to the Fund, and shall have no liability to the Fund or its shareholders with
respect to the actions or inactions, whether negligent or otherwise, of such
European Branch in connection with such Eurodollar CDs, except for any loss or
damage to the Fund resulting from the Bank's own gross negligence, willful
misfeasance or bad faith in the performance of its duties hereunder.
6.8 OPTIONS AND FUTURES TRANSACTIONS.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. The Bank shall take action regarding escrow or other
arrangements as to put options ("puts") and call options ("calls") purchased or
sold (written) by the Fund (i) in accordance with the provisions of any
agreement entered into upon receipt of Proper Instructions between the Bank, any
broker-dealer registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the
Fund relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations.
2. Unless another agreement requires it to do so, the Bank shall
be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
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<PAGE> 12
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.9 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held in a
Segregated Account is sufficient to protect such broker or the Fund against any
loss; (ii) effect the return of any collateral delivered to a broker; or (iii)
advise the Fund that any option it holds has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
1. The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement entered into upon receipt of Proper Instructions
among the Fund, the Bank and a Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market (as such term is used in
the rules of the Commodities Futures Trading Commission), or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to
futures, puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set forth in
subparagraph (a)(2) of this Section 6.8 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and Futures and puts and calls
thereon instead of options.
6.9 SEGREGATED ACCOUNT. The Bank shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts (each a
"Segregated Account") for and on behalf of the Fund in connection with the
activities set forth below.
1. Upon receipt of Proper Instructions cash and/or Portfolio
Securities may be transferred into the Segregated Account or Accounts:
(a) in accordance with the provisions of any agreement among
the Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(b) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
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(c) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations in connection with
the Fund's forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and the Fund's commitments under reverse
repurchase agreements;
(d) for the deposit of any Portfolio Securities which the
Fund has agreed to sell on a forward commitment basis;
(e) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered investment
companies; or
(f) for other proper corporate purposes, but only, in the
case of this clause (f), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, signed by an officer of the Fund
and certified by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such Segregated Account and declaring such purposes to be
proper corporate purposes.
2. Upon receipt of Proper Instructions, cash and/or Portfolio
Securities may be withdrawn from the Segregated Account or Accounts.
(a) in accordance with the provisions of any agreements
referenced in (a) or (b) above;
(b) for sale or delivery to meet the Fund's obligations
under outstanding firm commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(c) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(d) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of Portfolio Securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account; or
(e) for delivery upon settlement of a forward commitment
agreement for the sale of Portfolio Securities.
6.10 INTEREST BEARING CALL OR TIME DEPOSITS. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit and
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<PAGE> 14
the banking institution with which such deposit is made (the "Deposit Bank"),
and shall retain such forms of advice or receipt evidencing the deposit, if any,
as may be forwarded to the Bank by the Deposit Bank. Such deposits shall be
deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.11 TRANSFER OF SECURITIES. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions requesting such transfer, exchange or delivery stating that it is
for a purpose permitted under the terms of this Section 6.11, specifying the
applicable subsection or permitted purpose, or describing the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection, only:
(a) upon sales of Portfolio Securities for the account of
the Fund, against contemporaneous receipt by the Bank of payment therefor in
full or against payment to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs, each such payment to be in the amount of the sale price
(including, where applicable, brokerage commissions) shown in a broker's
confirmation (or other transaction report in the case of securities maintained
in the Book Entry System) of sale of the Portfolio Securities received by the
Bank before such transfer is made, as confirmed in the Proper Instructions
received by the Bank before such transfer is made;
(b) in exchange for or upon conversion into other securities
alone or other securities and cash pursuant to any plan of merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by such Portfolio
Securities, or for the purpose of tendering shares in the event of a tender
offer therefor, provided however that in the event of an offer of exchange,
tender offer, or other exercise of rights requiring the physical tender or
delivery of Portfolio Securities, the Bank shall have no liability for failure
to so tender in a timely manner unless such Proper Instructions are received by
the Bank at least two business days prior to the date required for tender, and
unless the Bank (or its agent or subcustodian hereunder) has actual possession
of such Security at least two business days prior to the date of tender;
(c) upon conversion of Portfolio Securities pursuant to
their terms into other securities;
(d) for the purpose of redeeming in kind shares of the Fund
upon authorization from the Fund;
(e) in the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
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<PAGE> 15
(f) when such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only against payment to the Bank for the account of the Fund of
the moneys borrowed, as set forth in the Proper Instructions, except that in
cases where additional collateral is required to secure a borrowing already
made, and such fact is made to appear in the Proper Instructions, further
Portfolio Securities may be released for that purpose without any such payment.
In the event that any such pledged Portfolio Securities are held by the Bank,
they will be so held for the account of the lender and, after notice to the Fund
from the lender in accordance with the normal procedures of the lender that an
event of deficiency or default on the loan has occurred, the Bank may deliver
such pledged Portfolio Securities to or for the account of the lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the
consideration for such Portfolio Securities, as set forth in the Proper
Instructions received by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the
Fund to a bank or broker dealer, but only against receipt in accordance with
street delivery custom of adequate collateral as agreed upon from time to time
by the Fund and the Bank or otherwise set forth in the Proper Instructions;
(j) upon receipt of payment in connection with any
repurchase agreement relating to such securities entered into by the Fund;
(k) for other authorized transactions of the Fund or for
other proper corporate purposes; provided that before making such transfer, the
Bank will also receive a certified copy of resolutions of the Board, signed by
an authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(l) upon termination of this Agreement as hereinafter set
forth pursuant to Section 8 or Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (e), (f), (g), (h), (i) and (j) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
7. REDEMPTIONS. In the case of payment of assets of the Fund held by the Bank in
connection with redemptions and repurchases by the Fund of outstanding common
shares, the
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<PAGE> 16
Bank will rely on notification by the Fund's transfer agent of receipt of a
request for redemption and certificates, if issued, in proper form for
redemption before such payment is made.
8. MERGER, DISSOLUTION, ETC. OF FUND. In the case of the following transactions,
not in the ordinary course of business of which the Bank has received notice,
namely, the merger of the Fund into or the consolidation of the Fund with
another investment company where the Fund is not the surviving entity, the sale
by the Fund of all, or substantially all, of its assets to another investment
company, or the liquidation or dissolution of the Fund and distribution of its
assets, the Bank will deliver the Portfolio Securities held by it under this
Agreement and disburse cash only upon the order of the Fund set forth in an
Officers' Certificate, accompanied by a certified copy of a resolution of the
Board authorizing any of the foregoing transactions. Upon completion of such
delivery and disbursement and the payment of the fees, disbursements and
expenses of the Bank, this Agreement will terminate.
9. ACTIONS OF BANK WITHOUT PRIOR AUTHORIZATION. Notwithstanding anything herein
to the contrary, unless and until the Bank receives an Officers' Certificate to
the contrary, it will without prior authorization or instruction of the Fund or
the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distribution of cash with respect to the Portfolio Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities received
as a distribution on Portfolio Securities as a result of a stock dividend, share
split-up, reorganization, recapitalization, merger, consolidation, readjustment,
distribution of rights and similar securities issued with respect to any
Portfolio Securities held by it hereunder;
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits as may be required to obtain payment in
respect of Portfolio Securities owned by the Fund;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. COLLECTIONS AND DEFAULTS. The Bank will use all reasonable efforts to
collect any funds which to its knowledge become collectible arising from
Portfolio Securities, including
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<PAGE> 17
dividends, interest and other income, and to transmit to the Fund notice
actually received by it of any call for redemption, offer of exchange, right of
subscription, reorganization or other proceedings affecting such securities. If
Portfolio Securities upon which such income is payable are in default or payment
is refused after due demand or presentation, the Bank will notify the Fund (or
the applicable investment adviser) in writing of any default or refusal to pay
within five business days from the day on which it receives knowledge of such
default or refusal. In addition, the Bank will send the Fund a written report
once each month showing any income on any Portfolio Security held by it which is
more than ten days overdue on the date of such report and which has not
previously been reported.
11. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES.
11.1 Subject to the provisions of subsection 11.2 below:
The Bank will maintain records with respect to transactions for
which the Bank is responsible pursuant to the terms and conditions of this
Agreement, and in compliance with the applicable rules and regulations of the
1940 Act and will furnish the Fund daily with a statement of condition of the
Fund. The Bank will furnish to the Fund at the end of every month, and at the
close of each quarter of the Fund's fiscal year, a list of the Portfolio
Securities and the aggregate amount of cash held by it for the Fund. The books
and records of the Bank pertaining to its actions under this Agreement and
reports by the Bank or its independent accountants concerning its accounting
system, procedures for safeguarding securities and internal accounting controls
will be open to inspection and audit during business hours by officers of or
auditors employed by the Fund upon reasonable prior notice (except in the case
of surprise audits required by Rule 17f-2 under the 1940 Act), and will be
preserved by the Bank in the manner and in accordance with the applicable rules
and regulations under the 1940 Act.
The Bank shall keep the books of account and render statements or
copies from time to time as reasonably requested by the Treasurer or any
executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
The books and records maintained by the Bank on behalf of the
Fund are the property of the Fund and will be surrendered upon request in
accordance with Section 14.
11.2 The Bank, the Fund and Investors Bank & Trust Company ("IBT") by
letter dated November 25, 1997, have agreed that IBT shall be responsible for
the accounting services contemplated by Section 11.1 hereof. To that end, the
Bank shall provide IBT daily reports of Portfolio Securities and cash held on
behalf of the Fund, trade confirmations for transactions involving Portfolio
Securities, reports regarding corporate actions involving Portfolio Securities,
notification of voluntary corporate actions involving Portfolio Securities
elected by the Fund, and such other information as IBT shall reasonably request.
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<PAGE> 18
12. FUND EVALUATION.
12.1 Subject to the provisions of Section 12.2 below:
The Bank shall compute and, unless otherwise directed by the
Board, determine as of the close of business on the New York Stock Exchange on
each day on which said Exchange is open for unrestricted trading and as of such
other hours, if any, as may be authorized by the Board the net asset value and
the public offering price of a share of capital stock of the Fund, such
determination to be made in accordance with the provisions of the Articles and
By-laws of the Fund and Prospectus and Statement of Additional Information
relating to the Fund, as they may from time to time be amended, and any
applicable resolutions of the Board at the time in force and applicable; and
promptly notify the Fund, the proper exchange and the NASD or such other persons
as the Fund may request, of the results of such computation and determination.
In computing the net asset value hereunder, the Bank may rely in
good faith upon information furnished to it by any Authorized Person in respect
of (i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by the Bank,
(ii) reserves, if any, authorized by the Board or that no such reserves have
been authorized, (iii) the source of the quotations to be used in computing the
net asset value, (iv) the value to be assigned to any security for which no
price quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and the Bank
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to (iii)
above.
12.2 The Bank, the Fund and IBT by letter dated November 25, 1997, have
agreed that IBT shall be responsible for the services contemplated by Section
12.1 hereof. To that end, the Bank shall provide IBT daily reports of Portfolio
Securities and cash held on behalf of the Fund, trade confirmations for
transactions involving Portfolio Securities, reports regarding corporate actions
involving Portfolio Securities, notification of voluntary corporate actions
involving Portfolio Securities elected by the Fund, and such other information
as IBT shall reasonably request.
13. CONCERNING THE BANK.
13.1 PERFORMANCE OF DUTIES AND STANDARD OF CARE. In performing its
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice. In the
performance of its duties hereunder, the Bank will be protected and not be
liable, and will be indemnified and held harmless for any action taken or
omitted to be taken by it in good faith reliance upon the terms of this
Agreement, any Officers' Certificate, Proper Instructions, resolution of the
Board, telegram, notice, request, certificate or other instrument reasonably
believed by the Bank to be genuine and for any other loss to the Fund except in
the case of its gross negligence, willful misfeasance or bad faith in the
performance of its duties or reckless disregard of its obligations and duties
hereunder.
-15-
<PAGE> 19
Without limiting the generality of the foregoing, the Bank will be under
no duty or obligation to inquire into and will not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price paid therefor;
(b) the legality of any sale of any Portfolio Securities by or
for the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the
Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund
or the legality of the distribution of any Portfolio Securities as payment in
kind of such dividend;
(f) the legality of any put or call option or futures contract
purchased or sold on behalf of the Fund;
(g) the propriety of any investment or contract decision made on
behalf of the Fund;
(h) the adequacy of any collateral provided to the Fund by any
third party, or to a third party on behalf of the Fund;
(i) the compliance or non-compliance by the Fund with the terms
of any contract or agreement entered into by the Fund;
(j) the selection of brokers, dealers, banking institutions,
futures commission merchant or other parties with which the Fund deals or for
their failure to comply with the terms of any contracts or agreements between
such persons and the Fund; or
(k) any property or moneys of the Fund unless and until received
by it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Bank be liable hereunder or to any third party:
-16-
<PAGE> 20
(a) for any losses or damages of any kind resulting from acts of
God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation, or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence; or
(b) for special, punitive or consequential damages arising from
the provision of services hereunder, even if the Bank has been advised of the
possibility of such damages.
13.2 AGENTS AND SUBCUSTODIANS WITH RESPECT TO PROPERTY OF THE FUND HELD
IN THE UNITED STATES. The Bank may employ agents in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ subcustodians,
provided that any such subcustodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's
assets with respect to property of the Fund held in the United States. The Bank
shall have no liability to the Fund or any other person by reason of any act or
omission of such subcustodian and the Fund shall indemnify the Bank and hold it
harmless from and against any and all actions, suits and claims, arising
directly or indirectly out of the performance of such subcustodian. Upon request
of the Bank, the Fund shall assume the entire defense of any action, suit, or
claim subject to the foregoing indemnity. The Fund shall pay all fees and
expenses of such subcustodian.
13.3 DUTIES OF THE BANK WITH RESPECT TO PROPERTY OF THE FUND HELD
OUTSIDE OF THE UNITED STATES.
Unless and until such time as this Agreement is amended to appoint the
Bank as custodian for the Fund's Portfolio Securities and other assets
maintained outside the United States, the Bank shall have no responsibility for
the Fund's non-U.S. assets, except for such non-U.S. assets as may be expressly
delivered to the Bank for custody hereunder.
13.4 INSURANCE. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
13.5. FEES AND EXPENSES OF BANK. The Fund will pay or reimburse the Bank
from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all disbursements, expenses and charges made
or incurred by the Bank in the performance of this Agreement (including any
duties listed on any Schedule hereto, if any) including any indemnities for any
loss, liabilities or expense to the Bank as provided above. For the services
rendered by the Bank hereunder, the Fund will pay to the Bank such compensation
or fees at such rate and at such times as shall be agreed upon in writing by the
parties from time
-17-
<PAGE> 21
to time. The Bank will also be entitled to reimbursement by the Fund for all
reasonable expenses incurred in conjunction with termination of this Agreement
by the Fund.
13.6 ADVANCES BY BANK. The Bank may, in its sole discretion, advance
funds on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any Proper Instructions for such payments by the Fund. Should such a
payment or payments, with advanced funds, result in an overdraft (due to
insufficiencies of the Fund's account with the Bank, or for any other reason)
this Agreement deems any such overdraft or related indebtedness a loan made by
the Bank to the Fund payable on demand and bearing interest at the current rate
charged by the Bank for such loans unless the Fund shall provide the Bank with
agreed upon compensating balances. The Fund agrees that, to the extent of any
overdraft or indebtedness, the Bank shall have a continuing lien and security
interest in and to, and may exercise a right of set-off against, any property at
any time held by it for the Fund's benefit or in which the Fund has an interest
and which is then on deposit with or otherwise in the Bank's possession or
control (or in the possession or control of any third party acting on the Bank's
behalf). The Fund will do, execute, acknowledge and deliver, or cause to be
done, executed, acknowledged and delivered, all such further acts, assignments,
transfers and assurances as the Bank reasonably may require to perfect the lien
and security interest herein provided for in the property of the Fund. The Fund
authorizes the Bank, in its sole discretion, at any time to charge any overdraft
or indebtedness, together with interest due thereon, against any balance of
account standing to the credit of the Fund on the Bank's books.
14. TERMINATION.
14.1 This Agreement may be terminated at any time without penalty upon
sixty days written notice delivered by either party to the other by means of
registered mail, and upon the expiration of such sixty days this Agreement will
terminate; provided, however, that the effective date of such termination may be
postponed to a date not more than ninety days from the date of delivery of such
notice (i) by the Bank in order to prepare for the transfer by the Bank of all
of the assets of the Fund held hereunder, and (ii) by the Fund in order to give
the Fund an opportunity to make suitable arrangements for a successor custodian.
At any time after the termination of this Agreement, the Fund will, at its
request, have access to the records of the Bank relating to the performance of
its duties as custodian.
14.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 14.3, deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of its own selection which
meets the requirements of
-18-
<PAGE> 22
Section 17(f)(1) of the 1940 Act and has a reported capital, surplus and
undivided profits aggregating not less than $2,000,000, to be held as the
property of the Fund under terms similar to those on which they were held by the
Bank, whereupon such bank or trust company so selected by the Bank will become
the successor custodian of such assets of the Fund with the same effect as
though selected by the Board.
14.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank.
15. CONFIDENTIALITY. Both parties hereto agree that any non-public information
obtained hereunder concerning the other party is confidential and may not be
disclosed to any other person without the consent of the other party, except as
may be required by applicable law, regulation, court order, decrees or legal
process or the request of a governmental agency. The parties further agree that
a breach of this provision would irreparably damage the other party and
accordingly agree that each of them is entitled, without bond or other security,
to an injunction or injunctions to prevent breaches of this provision.
16. NOTICES. Any notice or other instrument in writing authorized or required by
this Agreement to be given to either party hereto will be sufficiently given if
addressed to such party and mailed or delivered to it at its office at the
address set forth below; namely:
(a) In the case of notices sent to the Fund to:
Republic Funds
c/o BISYS Fund Services
3435 Stelzer Road, Suite 1000
Columbus, Ohio 43219-8001
Attn: ____________
(b) In the case of notices (other than Proper Instructions) sent to the
Bank to:
Republic National Bank of New York
452 Fifth Avenue
New York, New York 10018
Attention: _______________
or at such other place as such party may from time to time designate in writing.
-19-
<PAGE> 23
17. AMENDMENTS. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties.
18. PARTIES. This Agreement will be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that this Agreement will not be assignable by the Fund without the
written consent of the Bank or by the Bank without the written consent of the
Fund; and provided further that termination proceedings pursuant to Section 14
hereof will not be deemed to be an assignment within the meaning of this
provision.
19. GOVERNING LAW. This Agreement and all performance hereunder will be governed
by the laws of the State of New York.
20. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
21. LIMITATION OF LIABILITY. A copy of the Agreement and Declaration of Trust of
the Fund is on file with the Secretary of State of the Commonwealth of
Massachusetts and notice is hereby given that this Agreement has been executed
on behalf of the Fund by an officer of the Fund as an officer and not
individually and the obligations of the Fund arising out of this Agreement are
not binding upon any of the trustees, officers, or shareholders of the Fund
individually but are binding only upon the assets and property of the Fund.
-20-
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
REPUBLIC FUNDS
By:
Name:
Title:
REPUBLIC NATIONAL BANK OF NEW YORK
By:
Name:
Title:
DATE: December 1, 1997
-21-
<PAGE> 1
Exhibit (g)(2)
TRANSFER AGENCY AGREEMENT
-------------------------
AGREEMENT made as of April 1, 1999, between REPUBLIC ADVISOR FUNDS TRUST
(the "Trust"), a Massachusetts business trust, and BISYS FUND SERVICES OHIO,
INC. ("BISYS"), an Ohio corporation.
WHEREAS, the Trust desires that BISYS perform certain services for each
series of the Trust (individually referred to herein as a "Fund" and
collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services.
---------
BISYS shall perform for the Trust the transfer agent services set forth
in Schedule A hereto. BISYS also agrees to perform for the Trust such special
services incidental to the performance of the services enumerated herein as
agreed to by the parties from time to time. BISYS shall perform such additional
services as are provided on an amendment to Schedule A hereof, in consideration
of such fees as the parties hereto may agree.
BISYS may, in its discretion, upon the prior written approval of the
Trust, which approval shall not be unreasonably withheld, appoint in writing
other parties qualified to perform transfer agency services reasonably
acceptable to the Trust (individually, a "Sub-transfer Agent") to carry out some
or all of its responsibilities under this Agreement with respect to a Fund;
provided, however, that the Sub-transfer Agent shall be the agent of BISYS and
not the agent of the Trust or such Fund, and that BISYS shall be fully
responsible for the acts of such Sub-transfer Agent and shall not be relieved of
any of its responsibilities hereunder by the appointment of such Sub-transfer
Agent.
2. Fees.
-----
The Trust shall pay BISYS for the services to be provided by BISYS under
this Agreement in accordance with, and in the manner set forth in, Schedule B
hereto. Fees for any additional services to be provided by BISYS pursuant to an
amendment to Schedule A hereto shall be subject to mutual agreement at the time
such amendment to Schedule A is proposed.
<PAGE> 2
3. Reimbursement of Expenses.
--------------------------
In addition to paying BISYS the fees described in Section 2 hereof, the
Trust agrees to reimburse BISYS for BISYS' out-of-pocket expenses in providing
services hereunder, including without limitation, the following:
(a) All freight and other delivery and bonding charges incurred by
BISYS in delivering materials to and from the Trust and in
delivering all materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by BISYS in
communication with the Trust, the Trust's investment adviser or
custodian, dealers, shareholders or others as required for BISYS
to perform the services to be provided hereunder;
(c) Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other form of printed material which shall be
required by BISYS for the performance of the services to be
provided hereunder;
(d) The cost of microfilm or microfiche of records or other
materials; and
(e) Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized.
4. Effective Date.
---------------
This Agreement shall become effective as of the date first written above
(the "Effective Date").
5. Term.
-----
This Agreement shall continue in effect with respect to a Fund, unless
earlier terminated by either party hereto as provided hereunder, until March 31,
2003 (the "Initial Term"). Thereafter, this Agreement shall continue in effect
unless and until it is terminated as set forth in this paragraph. This Agreement
may be terminated without penalty (i) by provision of advance written notice of
nonrenewal to the other party at least 60 days prior to the end of the Initial
Term, (ii) by mutual agreement of the parties, (iii) for "cause," as defined
below, upon the provision of 60 days advance written notice by the party
alleging cause, (iv) in accordance with the interim evaluation procedures set
forth below or (v) by provision of 60 days advance written notice to the other
party following the Initial Term.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) a final, unappealable judicial, regulatory or administrative ruling
or order in which the party to be terminated has been found guilty of criminal
or unethical behavior in the conduct of its business; (c) financial difficulties
on the part
2
<PAGE> 3
of the party to be terminated which are evidenced by the authorization or
commencement of, or involvement by way of pleading, answer, consent or
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; or (d) a material breach of this Agreement that has not been remedied
within forty-five (45) days following receipt of written notice of such breach
from the non-breaching party.
Following July 1, 2001, the Trust may conduct an interim evaluation of
(i) BISYS' performance under this Agreement (the "Performance Evaluation") and
(ii) the market conditions for the services provided under this Agreement (the
"Market Evaluation").
(a) If the Trust's Performance Evaluation indicates that the quality
of service provided by BISYS is significantly less than that
contemplated by this Agreement (but otherwise not constituting a
material breach), the Trust shall, on or before October 1, 2001,
provide written notice to BISYS specifying the areas in which
the quality of service has been less than that contemplated by
this Agreement. BISYS shall have a period of 90 days in which to
restore, to the reasonable satisfaction of the Trust, the
quality of service to that contemplated by this Agreement. If,
at the end of such 90-day period, BISYS has not restored the
quality of service to that contemplated by this Agreement, the
Trust may by written notice to BISYS terminate this Agreement
without penalty effective upon the later (i) of April 1, 2002 or
(ii) 90 days after such termination notice is provided to BISYS.
(b) If the Trust's Market Evaluation indicates that the market for
the services provided pursuant to this Agreement by established
service providers, at comparable levels of service, has changed
since the date of this Agreement such that mutual fund families
of a comparable size have secured and are then able to secure
significantly better terms for such services under agreements
having the same initial term as this Agreement, the Trust may,
on or before October 1, 2001, provide written notice to BISYS of
such evaluation. At the Trust's request, BISYS and the Trust
shall negotiate in good faith an amendment to bring this
Agreement into conformity with then-current market terms
effective not sooner than April 1, 2002, which amendment shall
also extend the Initial Term of the Agreement until March 31,
2005.
After such termination, for so long as BISYS, with the written consent
of the Trust, in fact continues to perform any one or more of the services
contemplated by this Agreement or any Schedule or exhibit hereto, the provisions
of this Agreement, including without limitation the provisions dealing with
indemnification, shall continue in full force and effect. Fees and out-of-pocket
expenses incurred by BISYS but unpaid by the Trust upon such termination shall
be immediately due and payable upon and notwithstanding such termination. Upon
termination BISYS shall deliver to the Trust or its designee, the Trust's
property, records, instruments and documents. BISYS shall be entitled to collect
from the Trust, in addition to the fees and disbursements provided by Sections 2
and 3 hereof, the amount of all of BISYS' cash
3
<PAGE> 4
disbursements in connection with BISYS' activities in effecting such
termination, including without limitation, the delivery to the Trust and/or its
distributor or investment adviser and/or other parties, of the Trust's property,
records, instruments and documents, or any copies thereof. To the extent that
BISYS may retain in its possession copies of any Trust documents or records
subsequent to such termination which copies had not been requested by or on
behalf of the Trust in connection with the termination process described above,
BISYS, for a reasonable fee, will provide the Trust with reasonable access to
such copies.
If, during the Initial Term, for any reason other than as provided in
the first paragraph of this Section 5, BISYS is replaced as transfer agent, or
if a third party is added to perform all or a part of the services provided by
BISYS under this Agreement (excluding any sub-transfer agent appointed by BISYS
as provided in Section 1 hereof), then the Trust shall make a one-time cash
payment, in consideration of the fee structure and services to be provided under
this Agreement, and not as a penalty, to BISYS equal to the amount due BISYS for
the remainder of the Initial Term of this Agreement, assuming for purposes of
calculation of the payment that the amount due BISYS for the remainder of the
Initial Term shall be based upon the average number of shareholder accounts
within the Trust for the twelve months prior to the date BISYS is replaced, or a
third party is added.
In the event the Trust is merged into another legal entity in part or in
whole pursuant to any form of business reorganization or is liquidated in part
or in whole prior to the expiration of the Initial Term of this Agreement, the
parties acknowledge and agree that the liquidated damages provision set forth
above shall be applicable in those instances in which BISYS is not retained by
the surviving entity to provide transfer agency services consistent with this
Agreement. The one-time cash payment referenced above shall be due and payable
on the day prior to the first day in which BISYS is replaced or a third party is
added.
6. Uncontrollable Events; Maintenance of Systems and Equipment.
------------------------------------------------------------
BISYS assumes no responsibility hereunder, and shall not be liable for any
damage, loss of data, delay or any other loss whatsoever caused by events beyond
its reasonable control. BISYS agrees to perform comprehensive date testing on
the systems it utilizes to provide the services hereunder to simulate the actual
turning of the century and leap year. These tests shall be intended to identify
any operational issues regarding the accurate processing of date/time data from,
into and between the Twentieth and Twenty-First Century, including leap year
calculations. BISYS agrees to use all commercially reasonable efforts to
implement all necessary updates and changes for its mission critical systems, if
any, to accommodate the turn of the century and leap year and shall have
substantially tested such upgrades and changes by March 31, 1999. BISYS agrees
to provide the Trust quarterly updates on the status of its Year 2000 readiness
project and to make its personnel reasonably available to address any questions
or concerns.
4
<PAGE> 5
7. Legal Advice.
-------------
BISYS shall notify the Trust at any time BISYS believes that it is in
need of the advice of counsel (other than counsel in the regular employ of BISYS
or any affiliated companies) with regard to BISYS' responsibilities and duties
pursuant to this Agreement; and after so notifying the Trust, BISYS, at its
discretion, shall be entitled to seek, receive and act upon advice of legal
counsel of its choosing, such advice to be at the expense of the Trust or Funds
unless relating to a matter involving BISYS' willful misfeasance, bad faith,
negligence or reckless disregard with respect to BISYS' responsibilities and
duties hereunder and BISYS shall in no event be liable to the Trust or any Fund
or any shareholder or beneficial owner of the Trust for any action reasonably
taken pursuant to such advice.
8. Instructions.
-------------
Whenever BISYS is requested or authorized to take action hereunder
pursuant to instructions from a shareholder, or a properly authorized agent of a
shareholder ("shareholder's agent"), concerning an account in a Fund, BISYS
shall be entitled to rely upon any certificate, letter or other instrument or
communication, believed by BISYS to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely conclusively
upon the terms of the Prospectuses and Statement of Additional Information of
the Trust relating to the Funds to the extent that such services are described
therein unless BISYS receives written instructions to the contrary in a timely
manner from the Trust.
9. Standard of Care; Reliance on Records and Instructions; Indemnification.
------------------------------------------------------------------------
BISYS shall use its best efforts to ensure the accuracy of all services
performed under this Agreement, but shall not be liable to the Trust for any
action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
5
<PAGE> 6
10. Record Retention and Confidentiality.
-------------------------------------
BISYS shall keep and maintain on behalf of the Trust all books and
records which the Trust or BISYS is, or may be, required to keep and maintain
pursuant to any applicable statutes, rules and regulations, including without
limitation Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as
amended (the "1940 Act"), relating to the maintenance of books and records in
connection with the services to be provided hereunder. BISYS further agrees that
all such books and records shall be the property of the Trust and to make such
books and records available for inspection by the Trust or by the Securities and
Exchange Commission (the "Commission") at reasonable times and otherwise to keep
confidential all books and records and other information relative to the Trust
and its shareholders, except when requested to divulge such information by
duly-constituted authorities or court process, or requested by a shareholder or
shareholder's agent with respect to information concerning an account as to
which such shareholder has either a legal or beneficial interest or when
requested by the Trust, the shareholder, or shareholder's agent, or the dealer
of record as to such account.
11. Reports.
--------
BISYS will furnish to the Trust and to its properly-authorized auditors,
investment advisers, examiners, distributors, dealers, underwriters, salesmen,
insurance companies and others designated by the Trust in writing, such reports
at such times as are prescribed in Schedule C attached hereto, or as
subsequently agreed upon by the parties pursuant to an amendment to Schedule C.
The Trust agrees to cause the Trust's investment adviser(s) to examine each such
report or copy promptly and will report or cause to be reported any errors or
discrepancies therein.
12. Rights of Ownership.
--------------------
All computer programs and procedures developed to perform services
required to be provided by BISYS under this Agreement are the property of BISYS.
All records and other data except such computer programs and procedures are the
exclusive property of the Trust and all such other records and data will be
furnished to the Trust in appropriate form as soon as practicable after
termination of this Agreement for any reason.
13. Return of Records.
------------------
BISYS may at its option at any time, and shall promptly upon the Trust's
demand, turn over to the Trust and cease to retain BISYS' files, records and
documents created and maintained by BISYS pursuant to this Agreement which are
no longer needed by BISYS in the performance of its services or for its legal
protection. If not so turned over to the Trust, such documents and records will
be retained by BISYS for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
6
<PAGE> 7
14. Bank Accounts.
--------------
The Trust and the Funds shall establish and maintain such bank accounts
with such bank or banks as are selected by the Trust, as are necessary in order
that BISYS may perform the services required to be performed hereunder. To the
extent that the performance of such services shall require BISYS directly to
disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for BISYS to effect such
disbursements.
15. Representations of the Trust.
-----------------------------
The Trust certifies to BISYS that: (a) as of the close of business on
the Effective Date, each Fund which is in existence as of the Effective Date has
authorized unlimited shares, and (b) by virtue of its Declaration of Trust,
shares of each Fund which are redeemed by the Trust may be sold by the Trust
from its treasury, and (c) this Agreement has been duly authorized by the Trust
and, when executed and delivered by the Trust, will constitute a legal, valid
and binding obligation of the Trust, enforceable against the Trust in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties.
16. Representations of BISYS.
-------------------------
BISYS represents and warrants that: (a) BISYS has been in, and shall
continue to be in, substantial compliance with all provisions of law, including
Section 17A(c) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), required in connection with the performance of its duties under this
Agreement; and (b) the various procedures and systems which BISYS has
implemented with regard to safekeeping from loss or damage attributable to fire,
theft or any other cause of the blank checks, records, and other data of the
Trust and BISYS' records, data, equipment, facilities and other property used in
the performance of its obligations hereunder are adequate and that it will make
such changes therein from time to time as are required for the secure
performance of its obligations hereunder.
17. Insurance.
----------
BISYS represents that its insurance coverage is adequate given its
existing and planned business volumes. BISYS shall notify the Trust should its
insurance coverage with respect to professional liability or errors and
omissions coverage be canceled or reduced. Such notification shall include the
date of change and the reasons therefor. BISYS shall notify the Trust of any
material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Trust from time to time as may be appropriate of the total outstanding claims
made by BISYS under its insurance coverage.
18. Information to be Furnished by the Trust and Funds.
---------------------------------------------------
The Trust has furnished to BISYS the following:
7
<PAGE> 8
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the
state in which such Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of Trustees
covering the following matters:
A. Approval of this Agreement and authorization of
a specified officer of the Trust to execute and
deliver this Agreement and authorization for
specified officers of the Trust to instruct
BISYS hereunder; and
B. Authorization of BISYS to act as Transfer Agent
for the Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct
BISYS in all matters.
(d) Two copies of the following (if such documents are employed by
the Trust):
1. Prospectuses and Statement of Additional Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date of
BISYS' appointment as Transfer Agent (or as of the date on which
BISYS' services are commenced, whichever is the later date) and
as to receipt of full consideration by the Trust for all shares
outstanding, such statement to be certified by the Treasurer of
the Trust.
19. Information Furnished by BISYS.
-------------------------------
BISYS has furnished to the Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
8
<PAGE> 9
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver this
Agreement;
2. Authorization of BISYS to act as Transfer Agent for the
Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed with
the Commission pursuant to Rule 17Ad-13 under the Exchange Act.
20. Amendments to Documents.
------------------------
The Trust shall furnish BISYS written copies of any amendments to, or
changes in, any of the items referred to in Section 18 hereof forthwith upon
such amendments or changes becoming effective. In addition, the Trust agrees
that no amendments will be made to the Prospectuses or Statement of Additional
Information of the Trust which might have the effect of changing the procedures
employed by BISYS in providing the services agreed to hereunder or which
amendment might affect the duties of BISYS hereunder unless the Trust first
obtains BISYS' approval of such amendments or changes which approval will not be
unreasonably withheld, or unless such amendments are required by regulatory
action, including, but not limited to, requirements imposed by the SEC or the
NASD.
21. Reliance on Amendments.
-----------------------
BISYS may rely on any amendments to or changes in any of the documents
and other items to be provided by the Trust pursuant to Sections 18 and 20 of
this Agreement and the Trust hereby indemnifies and holds harmless BISYS from
and against any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, counsel fees and other expenses of every nature
and character which may result from actions or omissions on the part of BISYS in
reasonable reliance upon such amendments and/or changes. Although BISYS is
authorized to rely on the above-mentioned amendments to and changes in the
documents and other items to be provided pursuant to Sections 18 and 20 hereof,
BISYS shall be under no duty to comply with or take any action as a result of
any of such amendments or changes unless the Trust first obtains BISYS' written
consent to and approval of such amendments or changes which approval will not be
unreasonably withheld, or unless such amendments are required by regulatory
actions, including, but not limited to, requirements imposed by the SEC or the
NASD.
22. Compliance with Law.
--------------------
Except for the obligations of BISYS set forth in Section 10 hereof, the
Trust assumes full responsibility for the preparation, contents, and
distribution of each prospectus of the Trust as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to
9
<PAGE> 10
the sale of the Trust's shares. The Trust represents and warrants that no shares
of the Trust will be offered to the public until the Trust's registration
statement under the 1933 Act and the 1940 Act has been declared or becomes
effective.
23. Notices.
--------
Any notice provided hereunder shall be sufficiently given when sent by
registered or certified mail to the party required to be served with such notice
at the following address: 3435 Stelzer Road, Columbus, Ohio 43219, or at such
other address as such party may from time to time specify in writing to the
other party pursuant to this Section.
24. Headings.
---------
Paragraph headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
25. Assignment.
-----------
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Section 25 shall not limit or in any way affect
BISYS' right to appoint a Sub-transfer Agent pursuant to Section 1 hereof. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
26. Governing Law and Matters Relating to the Trust as a Massachusetts
------------------------------------------------------------------
Business Trust.
---------------
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the State of Ohio. It is expressly agreed that the
obligations of the Trust hereunder shall not be binding upon any of the
Trustees, shareholders, nominees, officers, agents or employees of the Trust
personally, but shall bind only the trust property of the Trust. The execution
and delivery of this Agreement have been authorized by the Trustees, and this
Agreement has been signed and delivered by an authorized officer of the Trust,
acting as such, and neither such authorization by the Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust as provided in the Trust's
Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
REPUBLIC ADVISOR FUNDS TRUST
By:
------------------------------
Title:
---------------------------
10
<PAGE> 11
BISYS FUND SERVICES OHIO, INC.
By:
------------------------------
Title:
---------------------------
11
<PAGE> 12
Dated: April 1, 1999
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
REPUBLIC ADVISOR FUNDS TRUST
AND
BISYS FUND SERVICES OHIO, INC.
SERVICES
--------
1. Shareholder Transactions
------------------------
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option, taxpayer
identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the Securities
Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares, through
dividend reimbursement.
2. Shareholder Information Services
--------------------------------
a. Make information available to shareholder servicing unit and other
remote access units regarding trade date, share price, current
holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or special
order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
A-1
<PAGE> 13
3. Compliance Reporting
--------------------
a. Provide reports to the Securities and Exchange Commission, the National
Association of Securities Dealers and the States in which the Fund is
registered.
b. Prepare and distribute appropriate Internal Revenue Service forms for
corresponding Fund and shareholder income and capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
--------------------------------------
a. Provide reports for tracking rights of accumulation and purchases made
under a Letter of Intent.
b. Account for separation of shareholder investments from transaction sale
charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and marketing
expenses.
d. Track sales and commission statistics by dealer and provide for payment
of commissions on direct shareholder purchases in a load Fund.
5. Shareholder Account Maintenance
-------------------------------
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing duplicate second
and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
A-2
<PAGE> 14
Dated: April 1, 1999
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
REPUBLIC ADVISOR FUNDS TRUST
AND
BISYS FUND SERVICES OHIO, INC.
FEES
----
BISYS shall be entitled to receive fees from each Fund in accordance with the
following schedule:
Annual Per Fund Fee: $ 22,000
- -------------------
Annual Per Account Fee: $ 12.00 for each shareholder account over 350
- ---------------------- shareholder accounts per Fund
Multiple Classes of Shares: $10,000 annual fee for each additional class per
- --------------------------- Fund
Additional Services: Additional services such as IRA processing,
- -------------------- development of interface capabilities, servicing
of 403(b) and 408(c) accounts, management of cash
sweeps between DDAs and mutual fund accounts and
coordination of the printing and distribution of
prospectuses, annual reports and semi-annual
reports are subject to additional fees which will
be quoted upon request. Programming costs or
database management fees for special reports or
specialized processing will be quoted upon
request.
Out-of-pocket Expenses: BISYS shall be entitled to be reimbursed for all
- ----------------------- reasonable out-of-pocket expenses including, but
not limited to, the expenses set forth in Section
3 of the Transfer Agency Agreement to which this
Schedule B is attached.
B-1
<PAGE> 15
Dated: April 1, 1999
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
REPUBLIC ADVISOR FUNDS TRUST
AND
BISYS FUND SERVICES OHIO, INC.
REPORTS
-------
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
C-1
<PAGE> 1
Exhibit (h)(2)
ADMINISTRATION AGREEMENT
------------------------
THIS AGREEMENT is made as of November 1, 1998, by and between REPUBLIC
ADVISOR FUNDS TRUST, a Massachusetts business trust (the "Company"), and BISYS
FUND SERVICES OHIO, INC. (the "Administrator"), an Ohio corporation.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of separate series ("Portfolios") each of which issues units
of beneficial interest ("Shares"); and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such Portfolios as the Company and the Administrator may agree on and as listed
on Schedule A attached hereto and made a part of this Agreement, on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Company and the Administrator hereby agree as
follows:
ARTICLE 1. Retention of the Administrator. The Company hereby retains
the Administrator to act as the administrator of the Portfolios and to furnish
the Portfolios with the management and administrative services as set forth in
Article 2 below. The Administrator hereby accepts such employment to perform the
duties set forth below. The Company consents to the performance of certain
services hereunder by the Administrator's affiliate, BISYS Fund Services
(Ireland) Limited.
The Administrator and its affiliates shall, for all purposes herein, be
deemed to be an independent contractor and, unless otherwise expressly provided
or authorized, shall have no authority to act for or represent the Company in
any way and shall not be deemed an agent of the Company.
ARTICLE 2. Administrative Services. The Administrator shall perform or
supervise the performance by others of other administrative services in
connection with the operations of the Portfolios, and, on behalf of the Company,
will investigate, assist in the selection of and conduct relations with
custodians, depositories, accountants, legal counsel, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Company with such reports
regarding investment performance as they may reasonably request but shall have
no responsibility for supervising the performance by any investment adviser or
sub-adviser of its responsibilities.
The Administrator shall provide the Company with, or procure for the
Company, regulatory reporting, all necessary office space, equipment, personnel,
compensation and facilities (including facilities for Shareholders' and
Trustees' meetings) for handling the affairs of the Portfolios and such other
services as the Administrator shall, from time to time, determine to be
necessary to perform its obligations under this Agreement. In addition, at the
request of the
<PAGE> 2
Board of Trustees, the Administrator shall make reports to the Company's
Trustees concerning the performance of its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator
shall:
(a) calculate contractual Company expenses and control all
disbursements for the Company, and as appropriate compute the
Company's yields, tax-equivalent yields, total return, expense
ratios, portfolio turnover rate and, if required, portfolio
average dollar-weighted maturity;
(b) assist Company counsel with the preparation of prospectuses,
statements of additional information, registration statements
and proxy materials;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with Federal and state securities
law) as may be necessary or desirable to register the Company's
Shares with state securities authorities, monitor the sale of
Company Shares for compliance with state securities laws, and
file with the appropriate state securities authorities the
registration statements and reports for the Company and the
Company's Shares and all amendments thereto, as may be necessary
or convenient to register and keep effective the Company and the
Company's Shares with state securities authorities to enable the
Company to make a continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Company's
investment adviser, communications to Shareholders, including
the annual report to Shareholders, coordinate the mailing of
prospectuses, notices, proxy statements, proxies and other
reports to Company Shareholders, and supervise and facilitate
the proxy solicitation process for all shareholder meetings,
including the tabulation of shareholder votes;
(e) administer contracts on behalf of the Company with, among
others, the Company's investment adviser, distributor or
placement agent, custodian, transfer agent and fund accountant;
(f) supervise the Company's transfer agent with respect to the
payment of dividends and other distributions to Shareholders;
(g) calculate performance data of the Portfolios for dissemination
to information services covering the investment company
industry;
(h) coordinate and supervise the preparation and filing of the
Company's tax returns;
(i) examine and review the operations and performance of the various
organizations
2
<PAGE> 3
providing services to the Company or any Portfolio of the
Company, including, without limitation, the Company's investment
adviser, distributor or placement agent, custodian, fund
accountant, transfer agent, outside legal counsel and
independent public accountants, and at the request of the Board
of Trustees, report to the Board on the performance of
organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and printing
of the Company's semi-annual and annual reports to Shareholders;
(k) assist with the design, development, and operation of the
Portfolios, including new classes, investment objectives,
policies and structure;
(l) provide individuals reasonably acceptable to the Company's Board
of Trustees to serve as officers of the Company, who will be
responsible for the management of certain of the Company's
affairs as determined by the Company's Board of Trustees;
(m) advise the Company and its Board of Trustees on matters
concerning the Company and its affairs;
(n) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the Company
in accordance with the requirements of Rules 17g-1 and 17d-1(7)
under the 1940 Act as such bonds and policies are approved by
the Company's Board of Trustees;
(o) monitor and advise the Company and its Portfolios on their
regulated investment company status under the Internal Revenue
Code of 1986, as amended;
(p) perform all administrative services and functions of the Company
and each Portfolio to the extent administrative services and
functions are not provided to the Company or such Portfolio
pursuant to the Company's or such Portfolio's distribution
agreement, transfer agent agreement and fund accounting
agreement;
(q) furnish advice and recommendations with respect to other aspects
of the business and affairs of the Portfolios as the Company and
the Administrator shall determine desirable;
3
<PAGE> 4
(r) prepare and file with the SEC the semi-annual reports for the
Company on Form N-SAR and all required notices pursuant to Rule
24f-2;
(s) design, implement and maintain a portfolio compliance program
which will reasonably be expected to monitor compliance with the
1940 Act, the Internal Revenue Code of 1986, as amended, and any
other relevant regulations, such as those issued by the NASD;
and
(t) make available an individual whose qualifications are acceptable
to the Company and whose time and activities will be dedicated
solely to the provision of such services on behalf of the
Portfolios that the parties may, from time to time, agree upon
(a "Qualified Dedicated Employee") and make available the
services of a second Qualified Dedicated Employee at such time
that Company assets, together with other mutual fund assets
under management by Republic National Bank of New York, equal or
exceed $700 million.
The Administrator shall perform such other services for the Company that
are mutually agreed upon by the parties from time to time. Such services may
include performing internal audit examinations; mailing the annual reports of
the Portfolios; preparing an annual list of Shareholders; and mailing notices of
Shareholders' meetings, proxies and proxy statements, for all of which the
Company will pay the Administrator's out-of-pocket expenses.
ARTICLE 3. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Trustees of the
Company who are affiliated persons of the Administrator or any affiliated
corporation of the Administrator; provided, however, that unless otherwise
specifically provided, the Administrator shall not be obligated to pay the
compensation of any employee of the Company retained by the Trustees of the
Company to perform services on behalf of the Company.
(B) The Company. The Company assumes and shall pay or cause to be paid
all other expenses of the Company not otherwise allocated herein, including,
without limitation, organization costs, taxes, expenses for legal and auditing
services, the expenses of preparing (including typesetting), printing and
mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
incurred in connection with issuing and redeeming Shares, the costs of custodial
services, the cost of initial and ongoing registration of the Shares under
Federal and state securities laws, fees and out-of-pocket expenses of Trustees
who are not affiliated persons of the Administrator or any affiliated
corporation of the Administrator, interest, brokerage costs, litigation and
other extraordinary or nonrecurring expenses.
4
<PAGE> 5
ARTICLE 4. Compensation of the Administrator.
(A) Administration Fee. For the services to be rendered, the facilities
furnished and the expenses assumed by the Administrator pursuant to this
Agreement, the Company shall pay to the Administrator compensation at an annual
rate specified in Schedule A attached hereto. Such compensation shall be
calculated and accrued daily, and paid to the Administrator monthly. The Company
shall also reimburse the Administrator for its reasonable out-of-pocket
expenses, including but not limited to the travel and lodging expenses incurred
by officers and employees of the Administrator in connection with attendance at
Board meetings.
If this Agreement becomes effective subsequent to the first day
of a month or terminates before the last day of a month, the Administrator's
compensation for that part of the month in which this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Administrator's compensation for the preceding month
shall be made promptly.
(B) Survival of Compensation Rights. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.
ARTICLE 5. Limitation of Liability of the Administrator. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Article 5, the term "Administrator" shall include
directors, affiliates, officers, employees and other agents of the Administrator
as well as the Administrator itself.)
So long as the Administrator acts in good faith and with due diligence
and without negligence, the Company assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
Administrator's actions taken or nonactions with respect to the performance of
services hereunder. The Administrator agrees to indemnify and hold harmless the
Company, its employees, agents, Trustees, officers and nominees from and against
any and all actions, suits and claims, whether groundless or otherwise, and from
and against any and all judgments, liabilities, losses, damages, costs, charges,
reasonable counsel fees and other expenses of every nature and character arising
out of or in any way relating to the Administrator's bad faith willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties, with respect to the performance of services under this Agreement. The
5
<PAGE> 6
indemnity and defense provisions set forth herein shall indefinitely survive the
termination of this Agreement.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provisions contained herein shall apply, however, it is
understood that if in any case the indemnifying party may be asked to indemnify
or hold the other party harmless, the indemnifying party shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the indemnified party will use all reasonable
care to identify and notify the indemnifying party promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against the indemnifying party, but failure to do so
in good faith shall not affect the rights hereunder.
The indemnifying party shall be entitled to participate at its own
expense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the indemnifying
party elects to assume the defense of any such claim, the defense shall be
conducted by counsel chosen by the indemnifying party and satisfactory to the
other party, whose approval shall not be unreasonably withheld. In the event
that the indemnifying party elects to assume the defense of any suit and retain
counsel, the indemnified party shall bear the fees and expenses of any
additional counsel retained by it. If the indemnifying party does not elect to
assume the defense of a suit, it will reimburse the other party for the
reasonable fees and expenses of any counsel retained by the other party.
The Administrator may apply to the Company at any time for instructions
and may consult counsel for the Company or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, the Administrator shall be protected in acting upon any document
which it reasonably believes to be genuine and to have been signed or presented
by the proper person or persons. The Administrator will not be held to have
notice of any change of authority of any officers, employees or agents of the
Company until receipt of written notice thereof from the Company.
ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. It is understood that directors, officers, employees
and Shareholders of the Company are or may be or become interested in the
Administrator, as officers, employees or otherwise and that directors, officers
and employees of the Administrator and its counsel are or may be or become
similarly interested in the Company, and that the Administrator may be or become
interested in the Company as a Shareholder or otherwise.
6
<PAGE> 7
ARTICLE 7. Duration of this Agreement. The Term of this Agreement shall
be as specified in Schedule A hereto.
ARTICLE 8. Assignment. This Agreement shall not be assignable by either
party without the written consent of the other party; provided, however, that
the Administrator may, at its expense, and, upon the prior written approval of
the Company, which approval shall not be unreasonably withheld, subcontract with
any entity or person concerning the provision of the services contemplated
hereunder. The Administrator shall not, however, be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that the Administrator shall be responsible, to the extent
provided in Article 5 hereof, for all acts of such subcontractor as if such acts
were its own. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors and permitted
assigns.
ARTICLE 9. Amendments. This Agreement may be amended by the parties
hereto only if such amendment is specifically approved (i) by the vote of a
majority of the Trustees of the Company, and (ii) by the vote of a majority of
the Trustees of the Company who are not parties to this Agreement or interested
persons of any such party.
For special cases, the parties hereto may amend such procedures set
forth herein as may be appropriate or practical under the circumstances, and the
Administrator may conclusively assume that any special procedure which has been
approved by the Company does not conflict with or violate any requirements of
its Declaration of Trust or then current prospectuses, or any rule, regulation
or requirement of any regulatory body.
ARTICLE 10. Certain Records. The Administrator shall maintain customary
records in connection with its duties as specified in this Agreement. Any
records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Company shall be prepared and maintained at the expense of the
Administrator, but shall be the property of the Company and will be made
available to or surrendered promptly to the Company or its designee on request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that the Administrator may exhibit such records to any person in any case where
it is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Company has agreed to indemnify the Administrator against such liability.
ARTICLE 11. Maintenance of Systems and Equipment. The Administrator
agrees to perform comprehensive date testing on the systems it utilizes to
provide the services hereunder to simulate the actual turning of the century and
leap year. These tests shall be intended to identify any operational issues
regarding the accurate processing of date/time data from, into and between
7
<PAGE> 8
the Twentieth and Twenty-First Century, including leap year calculations. The
Administrator agrees to use all commercially reasonable efforts to implement all
necessary updates and changes for its mission critical systems, if any, to
accommodate the turn of the century and leap year and shall have substantially
tested such upgrades and changes by March 31, 1999. The Administrator agrees to
provide the Company quarterly updates on the status of its Year 2000 readiness
project and to make its personnel reasonably available to address any questions
or concerns.
ARTICLE 12. Definitions of Certain Terms. The terms "interested person"
and "affiliated person," when used in this Agreement, shall have the respective
meanings specified in the 1940 Act and the rules and regulations thereunder,
subject to such exemptions as may be granted by the Securities and Exchange
Commission.
ARTICLE 13. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by (i) registered
or certified mail, postage prepaid, (ii) facsimile, or (iii) Federal Express or
similar delivery service, addressed by the party giving notice to the other
party at the last address furnished by the other party to the party giving
notice: if to the Company, at 3435 Stelzer Road, Suite 1000, Columbus, Ohio
43219; and if to the Administrator at 3435 Stelzer Road, Suite 1000, Columbus,
Ohio 43219.
ARTICLE 14. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Ohio and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the State of Ohio, or
any of the provisions herein, conflict with the applicable provisions of the
1940 Act, the latter shall control.
ARTICLE 15. Multiple Originals. This Agreement may be executed in two or
more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
REPUBLIC ADVISOR FUNDS TRUST
By:
-------------------------------
Title:
----------------------------
BISYS FUND SERVICES OHIO, INC.
By:
-------------------------------
Title:
----------------------------
9
<PAGE> 10
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
DATED AS OF ______________, 1998
BETWEEN REPUBLIC ADVISOR FUNDS TRUST
AND
BISYS FUND SERVICES OHIO, INC.
Portfolios: This Agreement shall apply to all Portfolios of the Company,
either now or hereafter created. The current Portfolios of the
Company are:
Republic Fixed Income Fund
Republic International Equity Fund
Republic Small Cap Equity Fund
Fees: Pursuant to Article 4, in consideration of services
rendered and expenses assumed pursuant to this Agreement, the
Company will pay the Administrator on the first business day of
each month, or at such time(s) as the Administrator shall
request and the parties hereto shall agree, a fee computed daily
at the annual rates set forth below:
A. Fees Payable From Effective Date Through March 31, 1999
-----------------------------------------------------------
Five one-hundredths of one percent (.05%) of the
Company's average daily net assets up to $1 billion.
Four one-hundredths of one percent (.04%) of the
Company's average daily net assets in excess of $1
billion up to $2 billion.
Three and one-half one-hundredths of one percent (.035%)
of the Company's average daily net assets in excess of $2
billion.
B. Fees Payable After March 31, 1999
-------------------------------------
Five one-hundredths of one percent (.05%) of the
Company's average daily net assets when the average daily
net assets of all investment companies that are advised
by Republic National Bank for which the Administrator or
any of its affiliates serves as fund administrator
("Republic-advised Investment Companies") are equal to or
less than $1 billion;
A-1
<PAGE> 11
Four one-hundredths of one percent (.04%) of the
Company's average daily net assets when the average daily
net assets of all Republic-advised Investment Companies
are in excess of $1 billion but do not exceed $2 billion;
Three and one-half one-hundredths of one percent (.035%)
of the Company's average daily net assets when the
average daily net assets of all Republic-advised
Investment Companies exceeds $2 billion.
The fee payable by the Company hereunder shall be allocated to
each Portfolio based upon its pro rata share of the total fee
payable hereunder. Such fee as is attributable to each Portfolio
shall be a separate (and not joint or joint and several)
obligation of each such Portfolio.
The Administrator may agree, from time to time, to waive any fees
payable under this Agreement. Such waiver shall be at
Administrator's sole discretion. The fees payable hereunder shall
be subject to a minimum fee as agreed to from time to time by the
parties.
Upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the full
monthly period and shall be payable upon the date of termination
of this Agreement.
For purposes of determining the fees payable to the
Administrator, the value of the Company's net assets shall be
computed in the manner described in the Company's Declaration of
Trust or in the Prospectus or Statement of Additional Information
as from time to time is in effect for the computation of the
value of such net assets in connection with the purchase and
redemption of Shares.
Term: Pursuant to Article 7, the term of this Agreement shall commence
on November 1, 1998, and shall remain in effect through March 31,
2003 (the "Initial Term"). Thereafter, unless otherwise
terminated as provided herein, this Agreement shall continue in
effect unless and until it is terminated as set forth in this
paragraph. This Agreement may be terminated without penalty (i)
by provision of advance written notice of nonrenewal to the other
party at least 60 days prior to the end of the Initial Term, (ii)
by mutual agreement of the parties, (iii) for "cause," as defined
below, upon the provision of 60 days advance written notice by
the party alleging cause, (iv) in accordance with the interim
evaluation procedures set forth below or (v) by provision of 60
days advance written notice to the other party following the
Initial Term.
A-2
<PAGE> 12
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence or reckless disregard on
the part of the party to be terminated with respect to its
obligations and duties set forth herein; (b) a final,
unappealable judicial, regulatory or administrative ruling or
order in which the party to be terminated has been found guilty
of criminal or unethical behavior in the conduct of its business;
(c) financial difficulties on the part of the party to be
terminated which are evidenced by the authorization or
commencement of, or involvement by way of pleading, answer,
consent or acquiescence in, a voluntary or involuntary case,
except for purposes for reconstruction or amalgamation, under any
applicable law of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of
the rights of creditors; or (d) a material breach of this
Agreement that has not been remedied within forty-five (45) days
following receipt of written notice of such breach from the
nonbreaching party.
Following July 1, 2001, the Company may conduct an interim
evaluation of (i) the Administrator's performance under this
Agreement (the "Performance Evaluation") and (ii) the market
conditions for the services provided under this Agreement (the
"Market Evaluation").
(a) If the Company's Performance Evaluation indicates
that the quality of service provided by the Administrator is
significantly less than that contemplated by this Agreement (but
otherwise not constituting a material breach), the Company shall,
on or before October 1, 2001, provide written notice to the
Administrator specifying the areas in which the quality of
service has been less than that contemplated by this Agreement.
The Administrator shall have a period of 90 days in which to
restore, to the reasonable satisfaction of the Company, the
quality of service to that contemplated by this Agreement. If, at
the end of such 90-day period, the Administrator has not restored
the quality of service to that contemplated by this Agreement,
the Company may by written notice to the Administrator terminate
this Agreement without penalty effective upon the later (i) of
April 1, 2002 or (ii) 90 days after such termination notice is
provided to the Administrator.
(b) If the Company's Market Evaluation indicates that the
market for the services provided pursuant to this Agreement by
established service providers, at comparable levels of service,
has changed since the date of this Agreement such that mutual
fund families of a comparable size have secured and are then able
to secure significantly better terms for such services under
agreements having the same initial term as this Agreement, the
Company may, on or before October 1, 2001, provide written notice
to the Administrator of such evaluation. At the Company's
request, the Administrator and the Company shall negotiate in
good faith an amendment to bring this Agreement into conformity
with then-current market terms effective not sooner than April 1,
2002, which amendment
A-3
<PAGE> 13
shall also extend the Initial Term of the Agreement until March
31, 2005.
Notwithstanding the foregoing, after such termination for so long
as the Administrator, with the written consent of the Company, in
fact continues to perform any one or more of the services
contemplated by this Agreement or any schedule or exhibit hereto,
the provisions of this Agreement, including without limitation
the provisions dealing with indemnification, shall continue in
full force and effect. Compensation due the Administrator and
unpaid by the Company upon such termination shall be immediately
due and payable upon and notwithstanding such termination. Upon
termination the Administrator shall deliver to the Company or its
designee, the Company's property, records, instruments and
documents. The Administrator shall be entitled to collect from
the Company, in addition to the compensation described above, the
amount of all of the Administrator's reasonable disbursements for
services in connection with the Administrator's activities in
effecting such termination, including without limitation, the
delivery to the Company and/or its designees of the Company's
property, records, instruments and documents, or any copies
thereof. Subsequent to such termination, the Administrator shall
remain obligated to provide the Company with reasonable access to
any Company documents or records remaining in its possession. If
requested by the Company, the Administrator shall deliver such
documents or records, or copies thereof, to the Company or its
designee for a reasonable fee.
If, during the Initial Term, for any reason other than as
provided in the first paragraph of this Section, the
Administrator is replaced as administrator, or if a third party
is added to perform all or a part of the services provided by the
Administrator under this Agreement (excluding any
sub-administrator appointed by the Administrator as provided in
Article 8 hereof), then the Company shall make a one-time cash
payment, in consideration of the fee structure and services to be
provided under this Agreement, and not as a penalty, to the
Administrator equal to the amount due the Administrator for the
remainder of the Initial Term of this Agreement, assuming for
purposes of calculation of the payment that the amount due the
Administrator for the remainder of the Initial Term shall be
based upon the average amount of the Company's assets for the
twelve months prior to the date the Administrator is replaced or
a third party is added.
In the event the Company is merged into another legal entity in
part or in whole pursuant to any form of business reorganization
or is liquidated in part or in whole prior to the expiration of
the Initial Term of this Agreement, the parties acknowledge and
agree that the liquidated damages provision set forth above shall
be applicable in those instances in which the Administrator is
not retained to provide administration services consistent with
this Agreement, including the level of assets administered. The
one-time cash payment referenced above shall be due and payable
on the day prior to the first day in which the Administrator is
replaced or a third party is added.
A-4
<PAGE> 1
Exhibit (h)(3)
FUND ACCOUNTING AGREEMENT
-------------------------
AGREEMENT made as of April 1, 1999, between REPUBLIC ADVISOR FUNDS TRUST
(the "Trust"), a Massachusetts business trust, and BISYS FUND SERVICES OHIO,
INC. ("Fund Accountant"), an Ohio corporation.
WHEREAS, the Trust desires that Fund Accountant perform certain fund
accounting services for each investment portfolio of the Trust, all as now or
hereafter may be established from time to time (individually referred to herein
as the "Fund" and collectively as the "Funds"); and
WHEREAS, Fund Accountant is willing to perform such services on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Fund Accountant.
----------------------------
(a) Maintenance of Books and Records. Fund Accountant will
keep and maintain the following books and records of each
Fund pursuant to Rule 31a-1 under the Investment Company
Act of 1940 (the "Rule"):
(i) Journals containing an itemized daily record in
detail of all purchases and sales of securities,
all receipts and disbursements of cash and all
other debits and credits, as required by
subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and
expense accounts, including interest accrued and
interest received, as required by subsection
(b)(2)(I) of the Rule;
(iii) Separate ledger accounts required by subsection
(b)(2)(ii) and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts
(except shareholder accounts) as required by
subsection (b)(8) of the Rule.
(b) Performance of Daily Accounting Services. In addition to
the maintenance of the books and records specified above,
Fund Accountant shall perform the following accounting
services daily for each Fund:
<PAGE> 2
(i) Calculate the net asset value per share utilizing
prices obtained from the sources described in
subsection 1(b)(ii) below;
(ii) Obtain security prices from independent pricing
services, as approved by the Trust's Board of
Trustees, or if such quotes are unavailable, then
obtain such prices from each Fund's designee, as
approved by the Trust's Board of Trustees;
(iii) Compute, as appropriate, each Fund's net income
and capital gains, dividend payables, dividend
factors, 7-day yields, 7-day effective yields,
30-day yields, and weighted average portfolio
maturity;
(iv) Review daily the net asset value calculation and
dividend factor (if any) for each Fund prior to
release to shareholders, check and confirm the net
asset values and dividend factors for
reasonableness and deviations, and distribute net
asset values and yields to NASDAQ;
(v) Post Fund transactions to appropriate categories;
(vi) Accrue expenses of each Fund according to
instructions received from the Trust's
Administrator;
(vii) Determine the outstanding receivables and payables
for all (1) security trades, (2) Fund share
transactions and (3) income and expense accounts;
(viii) Provide accounting reports in connection with the
Trust's regular annual audit and other audits and
examinations by regulatory agencies; and
(ix) Provide such periodic reports as the parties shall
agree upon, as set forth in a separate schedule.
(c) Special Reports and Services.
(i) Fund Accountant may provide additional special
reports upon the request of the Trust or a Fund's
investment adviser, which may result in an
additional charge, the amount of which shall be
agreed upon between the parties.
(ii) Fund Accountant may provide such other similar
services with respect to a Fund as may be
reasonably requested by the Trust,
2
<PAGE> 3
which may result in an additional charge, the
amount of which shall be agreed upon between the
parties.
(d) Additional Accounting Services. Fund Accountant shall
also perform the following additional accounting services
for each Fund:
(i) Provide monthly a download (and hard copy thereof)
of the financial statements described below, upon
request of the Trust. The download will include
the following items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(ii) Provide accounting information for the following:
(A) federal and state income tax returns and
federal excise tax returns;
(B) the Trust's semi-annual reports with the
Securities and Exchange Commission ("SEC")
on Form N-SAR;
(C) the Trust's annual, semi-annual and
quarterly (if any) shareholder reports;
(D) registration statements on Form N-1A and
other filings relating to the registration
of shares;
(E) the Administrator's monitoring of the
Trust's status as a regulated investment
company under Subchapter M of the Internal
Revenue Code, as amended;
(F) annual audit by the Trust's auditors; and
(G) examinations performed by the SEC.
2. Subcontracting.
---------------
Fund Accountant may, at its expense, upon the prior written
approval of the Trust, which approval shall not be unreasonably withheld,
subcontract with any entity or person concerning the provision of the services
contemplated hereunder; provided, however, that Fund Accountant shall not be
relieved of any of its obligations under this Agreement by the appointment of
such subcontractor and provided further, that Fund Accountant shall be
responsible, to the extent provided in Section 7 hereof, for all acts of such
subcontractor as if such acts were its own.
3
<PAGE> 4
3. Compensation.
-------------
The Trust shall pay Fund Accountant for the services to be
provided by Fund Accountant under this Agreement in accordance with, and in the
manner set forth in, Schedule A hereto, as such Schedule may be amended from
time to time.
4. Reimbursement of Expenses.
--------------------------
In addition to paying Fund Accountant the fees described in
Section 3 hereof, the Trust agrees to reimburse Fund Accountant for its
out-of-pocket expenses in providing services hereunder, including without
limitation the following:
(a) All freight and other delivery and bonding charges incurred by
Fund Accountant in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by Fund
Accountant in communication with the Trust, the Trust's
investment advisor or custodian, dealers or others as required
for Fund Accountant to perform the services to be provided
hereunder;
(c) The cost of obtaining security market quotes pursuant to Section
l(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) Any expenses Fund Accountant shall incur at the written direction
of an officer of the Trust thereunto duly authorized; and
(f) Any reasonably unforeseen additional expenses reasonably incurred
by Fund Accountant in the performance of its duties and
obligations under this Agreement.
5. Effective Date.
---------------
This Agreement shall become effective with respect to a Fund as
of the date first written above (or, if a particular Fund is not in existence on
that date, on the date such Fund commences operation) (the "Effective Date").
6. Term.
-----
This Agreement shall continue in effect with respect to a Fund,
unless earlier terminated by either party hereto as provided hereunder, until
March 31, 2003 (the "Initial Term"). Thereafter, this Agreement shall be
continue in effect unless and until it is terminated as set forth in this
paragraph. This Agreement may be terminated without penalty (i) by provision of
advance written notice of nonrenewal to the other party at least 60 days prior
to the end of the Initial Term, (ii) by mutual agreement of the parties, (iii)
for "cause," as defined below, upon the provision of 60 days advance written
notice by the party alleging cause, (iv) in accordance with
4
<PAGE> 5
the interim evaluation procedures set forth below or (v) by provision of 60 days
advance written notice to the other party following the Initial Term.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) a final, unappealable judicial, regulatory or administrative ruling
or order in which the party to be terminated has been found guilty of criminal
or unethical behavior in the conduct of its business; (c) financial difficulties
on the part of the party to be terminated which are evidenced by the
authorization or commencement of, or involvement by way of pleading, answer,
consent or acquiescence in, a voluntary or involuntary case under Title 11 of
the United States Code, as from time to time is in effect, or any applicable
law, other than said Title 11, of any jurisdiction relating to the liquidation
or reorganization of debtors or to the modification or alteration of the rights
of creditors; (d) a material breach of this Agreement that has not been remedied
within forty-five (45) days following receipt of written notice of such breach
from the non-breaching party.
Following July 1, 2001, the Trust may conduct an interim
evaluation of (i) Fund Accountant's performance under this Agreement (the
"Performance Evaluation") and (ii) the market conditions for the services
provided under this Agreement (the "Market Evaluation").
(a) If the Trust's Performance Evaluation indicates that the quality
of service provided by the Fund Accountant is significantly less
than that contemplated by this Agreement (but otherwise not
constituting a material breach), the Trust shall, on or before
October 1, 2001, provide written notice to the Fund Accountant
specifying the areas in which the quality of service has been
less than that contemplated by this Agreement. The Fund
Accountant shall have a period of 90 days in which to restore, to
the reasonable satisfaction of the Trust, the quality of service
to that contemplated by this Agreement. If, at the end of such
90-day period, the Fund Accountant has not restored the quality
of service to that contemplated by this Agreement, the Trust may
by written notice to the Fund Accountant terminate this Agreement
without penalty effective upon the later (i) of April 1, 2002 or
(ii) 90 days after such termination notice is provided to the
Fund Accountant.
(b) If the Trust's Market Evaluation indicates that the market for
the services provided pursuant to this Agreement by established
service providers, at comparable levels of service, has changed
since the date of this Agreement such that mutual fund families
of a comparable size have secured and are then able to secure
significantly better terms for such services under agreements
having the same initial term as this Agreement, the Trust may, on
or before October 1, 2001, provide written notice to the Fund
Accountant of such evaluation. At the Trust's request, the Fund
Accountant and the Trust shall negotiate in good faith an
amendment to bring this Agreement into conformity with
then-current market terms effective not sooner than April 1,
2002, which amendment shall also extend the Initial Term of the
Agreement until March 31, 2005.
5
<PAGE> 6
After such termination for so long as Fund Accountant, with the
written consent of the Trust, in fact continues to perform any one or more of
the services contemplated by this Agreement or any schedule or exhibit hereto,
the provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due Fund Accountant and unpaid by the Trust upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
Upon termination Fund Accountant shall deliver to the Trust or its designee, the
Trust's property, records, instruments and documents. Fund Accountant shall be
entitled to collect from the Trust, in addition to the compensation described
under Section 3 hereof, the amount of all of Fund Accountant's cash
disbursements for services in connection with Fund Accountant's activities in
effecting such termination, including without limitation, the delivery to the
Trust and/or its designees of the Trust's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination, for a
reasonable fee, Fund Accountant will provide the Trust with reasonable access to
any Trust documents or records remaining in its possession.
If, during the Initial Term, for any reason other than as
provided in the first paragraph of this Section 6, Fund Accountant is replaced
as Fund Accountant, or if a third party is added to perform all or a part of the
services provided by Fund Accountant under this Agreement (excluding any
sub-accountant appointed by Fund Accountant as provided in Section 2 hereof),
then the Trust shall make a one-time cash payment, in consideration of the fee
structure and services to be provided under this Agreement, and not as a
penalty, to Fund Accountant equal to the amount due Fund Accountant for the
remainder of the Initial Term of this Agreement, assuming for purposes of
calculation of the payment that the amount due Fund Accountant for the remainder
of the Initial Term shall be based upon the average amount of the Trust's assets
for the twelve months prior to the date Fund Accountant is replaced or a third
party is added.
In the event the Trust is merged into another legal entity in
part or in whole pursuant to any form of business reorganization or is
liquidated in part or in whole prior to the expiration of the Initial Term of
this Agreement, the parties acknowledge and agree that the liquidated damages
provision set forth above shall be applicable in those instances in which Fund
Accountant is not retained to provide fund accounting services consistent with
this Agreement. The one-time cash payment referenced above shall be due and
payable on the day prior to the first day in which Fund Accountant is replaced
or a third party is added.
7. Standard of Care; Reliance on Records and Instructions;
-------------------------------------------------------
Indemnification.
----------------
Fund Accountant shall use its best efforts to insure the accuracy
of all services performed under this Agreement, but shall not be liable to the
Trust for any action taken or omitted by Fund Accountant in the absence of bad
faith, willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties. The Trust agrees to indemnify and hold harmless Fund
Accountant, its employees, agents, directors, officers and nominees from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees
6
<PAGE> 7
and other expenses of every nature and character arising out of or in any way
relating to Fund Accountant's actions taken or nonactions with respect to the
performance of services under this Agreement with respect to such Fund or based,
if applicable, upon reasonable reliance on information, records, instructions or
requests with respect to such Fund given or made to Fund Accountant by a duly
authorized representative of the Trust; provided that this indemnification shall
not apply to actions or omissions of Fund Accountant in cases of its own bad
faith, willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties, and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, Fund Accountant
shall give the Trust written notice of and reasonable opportunity to defend
against said claim in its own name or in the name of Fund Accountant.
8. Record Retention and Confidentiality.
-------------------------------------
Fund Accountant shall keep and maintain on behalf of the Trust
all books and records which the Trust and Fund Accountant is, or may be,
required to keep and maintain pursuant to any applicable statutes, rules and
regulations, including without limitation Rules 31a-1 and 31a-2 under the
Investment Trust Act of 1940, as amended (the "1940 Act"), relating to the
maintenance of books and records in connection with the services to be provided
hereunder. Fund Accountant further agrees that all such books and records shall
be the property of the Trust and to make such books and records available for
inspection by the Trust or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Trust and its shareholders; except when
requested to divulge such information by duly-constituted authorities or court
process.
9. Uncontrollable Events; Maintenance of Systems and Equipment.
------------------------------------------------------------
Fund Accountant assumes no responsibility hereunder, and shall
not be liable, for any damage, loss of data, delay or any other loss whatsoever
caused by events beyond its reasonable control. Fund Accountant agrees to
perform comprehensive date testing on the systems it utilizes to provide the
services hereunder to simulate the actual turning of the century and leap year.
These tests shall be intended to identify any operational issues regarding the
accurate processing of date/time data from, into and between the Twentieth and
Twenty-First Century, including leap year calculations. Fund Accountant agrees
to use all commercially reasonable efforts to implement all necessary updates
and changes for its mission critical systems, if any, to accommodate the turn of
the century and leap year and shall have substantially tested such upgrades and
changes by March 31, 1999. Fund Accountant agrees to provide the Trust quarterly
updates on the status of its Year 2000 readiness project and to make its
personnel reasonably available to address any questions or concerns.
10. Reports.
--------
Fund Accountant will furnish to the Trust and to its properly
authorized auditors, investment advisers, examiners, distributors, dealers,
underwriters, salesmen, insurance companies and others designated by the Trust
in writing, such reports and at such times as are prescribed pursuant to the
terms and the conditions of this Agreement to be provided or
7
<PAGE> 8
completed by Fund Accountant, or as subsequently agreed upon by the parties
pursuant to an amendment hereto. The Trust agrees to cause the Trust's
investment adviser(s) to examine each such report or copy promptly and will
report or cause to be reported any errors or discrepancies therein.
11. Rights of Ownership.
--------------------
All computer programs and procedures developed to perform
services required to be provided by Fund Accountant under this Agreement are the
property of Fund Accountant. All records and other data except such computer
programs and procedures are the exclusive property of the Trust and all such
other records and data will be furnished to the Trust in appropriate form as
soon as practicable after termination of this Agreement for any reason.
12. Return of Records.
------------------
Fund Accountant may at its option at any time, and shall promptly
upon the Trust's demand, turn over to the Trust and cease to retain Fund
Accountant's files, records and documents created and maintained by Fund
Accountant pursuant to this Agreement which are no longer needed by Fund
Accountant in the performance of its services or for its legal protection. If
not so turned over to the Trust, such documents and records will be retained by
Fund Accountant for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
13. Representations of the Trust.
-----------------------------
The Trust certifies to Fund Accountant that: (1) as of the close
of business on the Effective Date, each Fund that is in existence as of the
Effective Date has authorized unlimited shares, and (2) this Agreement has been
duly authorized by the Trust and, when executed and delivered by the Trust, will
constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
14. Representations of Fund Accountant.
-----------------------------------
Fund Accountant represents and warrants that: (1) the various
procedures and systems which Fund Accountant has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
the records, and other data of the Trust and Fund Accountant's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by Fund Accountant
and, when executed and delivered by Fund Accountant, will constitute a legal,
valid and binding obligation of Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy,
8
<PAGE> 9
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
15. Insurance.
----------
Fund Accountant represents that its insurance coverage is
adequate given its existing and planned business volumes. Fund Accountant shall
notify the Trust should any of its insurance coverage be canceled or reduced.
Such notification shall include the date of change and the reasons therefor.
Fund Accountant shall notify the Trust of any material claims against it with
respect to services performed under this Agreement, whether or not they may be
covered by insurance, and shall notify the Trust from time to time as may be
appropriate of the total outstanding claims made by Fund Accountant under its
insurance coverage.
16. Information to be Furnished by the Trust and Funds.
---------------------------------------------------
The Trust has furnished to Fund Accountant the following:
(a) Copies of the Declaration of Trust of the Trust and of
any amendments thereto, certified by the proper official
of the state in which such document has been filed.
(b) Copies of the following documents:
(i) The Trust's Bylaws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of
Trustees covering the approval of this Agreement,
authorization of a specified officer of the Trust
to execute and deliver this Agreement and
authorization for specified officers of the Trust
to instruct Fund Accountant thereunder.
(c) A list of all the officers of the Trust, together with
specimen signatures of those officers who are authorized
to instruct Fund Accountant in all matters.
(d) Two copies of the Prospectuses and Statements of
Additional Information for each Fund.
17. Information Furnished by Fund Accountant.
-----------------------------------------
(a) Fund Accountant has furnished to the Trust the following:
(i) Fund Accountant's Articles of Incorporation; and
(ii) Fund Accountant's Bylaws and any amendments thereto.
9
<PAGE> 10
(b) Fund Accountant shall, upon request, furnish certified
copies of corporate actions covering the following
matters:
(i) Approval of this Agreement, and authorization of a
specified officer of Fund Accountant to execute
and deliver this Agreement; and
(ii) Authorization of Fund Accountant to act as fund
accountant for the Trust and to provide accounting
services for the Trust.
18. Amendments to Documents.
------------------------
The Trust shall furnish Fund Accountant written copies of any
amendments to, or changes in, any of the items referred to in Section 16 hereof
forthwith upon such amendments or changes becoming effective. In addition, the
Trust agrees that no amendments will be made to the Prospectuses or Statements
of Additional Information of the Trust which might have the effect of changing
the procedures employed by Fund Accountant in providing the services agreed to
hereunder or which amendment might affect the duties of Fund Accountant
hereunder unless the Trust first obtains Fund Accountant's approval of such
amendments or changes, which approval will not be unreasonably withheld, or
unless such amendments are required by regulatory action, including, but not
limited to, requirements imposed by the SEC, the NASD or developments in
generally accepted accounting practices.
19. Compliance with Law.
--------------------
Except for the obligations of Fund Accountant set forth in
Section 8 hereof, the Trust assumes full responsibility for the preparation,
contents and distribution of each prospectus of the Trust as to compliance with
all applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the 1940 Act and any other laws, rules and regulations of
governmental authorities having jurisdiction. Fund Accountant shall have no
obligation to take cognizance of any laws relating to the sale of the Trust's
shares. The Trust represents and warrants that no shares of the Trust will be
offered to the public until the Trust's registration statement under the
Securities Act and the 1940 Act has been declared or becomes effective.
20. Notices.
--------
Any notice provided hereunder shall be sufficiently given when
sent by registered or certified mail to the party required to be served with
such notice, at the following address: 3435 Stelzer Road, Columbus, Ohio 43219,
or at such other address as such party may from time to time specify in writing
to the other party pursuant to this Section.
10
<PAGE> 11
21. Headings.
---------
Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
22. Assignment.
-----------
This Agreement and the rights and duties hereunder shall not be
assignable with respect to a Fund by either of the parties hereto except by the
specific written consent of the other party. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
23. Governing Law.
--------------
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed all as of the day and year first above written.
REPUBLIC ADVISOR FUNDS TRUST
By:
-------------------------------
Title:
----------------------------
BISYS FUND SERVICES OHIO, INC.
By:
-------------------------------
Title:
----------------------------
11
<PAGE> 12
Dated: April 1, 1999
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN
REPUBLIC ADVISOR FUNDS TRUST
AND
BISYS FUND SERVICES OHIO, INC.
FEES
----
Fund Accountant shall be entitled to receive fees from each Fund in accordance
with the following schedule:
Annual Per Fund Fee: $10,000 plus one one-hundredths of one percent
- ------------------- (.01%) of each Fund's daily net asset value.
Multiple Classes of Shares: $5,000 annual fee for each additional class per
- --------------------------- Fund.
Out-of-Pocket Expenses: Fund Accountant shall be entitled to be
- ----------------------- reimbursed for all reasonable out-of-pocket
expenses, including, but not limited to, the
expenses set forth in Section 4 of the Fund
Accounting Agreement to which this Schedule A is
attached.
A-1
<PAGE> 1
Exhibit (j)
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
Republic Portfolios:
We consent to the use of our reports, dated October 31, 1998, incorporated
herein by reference and to the references to our firm under the caption
"Independent Auditors" in the statements of additional information included
herein.
KPMG
Toronto, Ontario
March 1, 1999
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
Republic Advisor Funds Trust:
We consent to the use of our reports, dated October 31, 1998, incorporated
herein by reference and to the references to our firm under the caption
"Financial Highlights" in the prospectus and "Independent Auditors" in the
statements of additional information included herein.
KPMG
Boston, Massachusetts
March 1, 1999
<PAGE> 1
[ARTICLE] 6
[CIK] 0000934882
[NAME] REPUBLIC PORTFOLIO TRUST
[SERIES]
[NUMBER] 01
[NAME] REPUBLIC FIXED INCOME PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[INVESTMENTS-AT-COST] 252084279
[INVESTMENTS-AT-VALUE] 250121087
[RECEIVABLES] 83645944
[ASSETS-OTHER] 16504
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 333783535
[PAYABLE-FOR-SECURITIES] 158957093
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1753764
[TOTAL-LIABILITIES] 160710857
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 149869137
[SHARES-COMMON-STOCK] 149869137
[SHARES-COMMON-PRIOR] 118404948
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 173072678
[DIVIDEND-INCOME] 109981
[INTEREST-INCOME] 9540277
[OTHER-INCOME] 0
[EXPENSES-NET] 899186
[NET-INVESTMENT-INCOME] 8751072
[REALIZED-GAINS-CURRENT] 4450864
[APPREC-INCREASE-CURRENT] (4437928)
[NET-CHANGE-FROM-OPS] 8764008
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 73620339
[NUMBER-OF-SHARES-REDEEMED] 27716618
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 54667730
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 639127
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 899196
[AVERAGE-NET-ASSETS] 145080444
[PER-SHARE-NAV-BEGIN] 1
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1
[EXPENSE-RATIO] .62
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[CIK] 0000934882
[NAME] REPUBLIC PORTFOLIO TRUST
[SERIES]
[NUMBER] 02
[NAME] REPUBLIC INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1998
[PERIOD-END] OCT-31-1998
[INVESTMENTS-AT-COST] 189656793
[INVESTMENTS-AT-VALUE] 208011065
[RECEIVABLES] 1695897
[ASSETS-OTHER] 1166623
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 210883585
[PAYABLE-FOR-SECURITIES] 628706
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 4517517
[TOTAL-LIABILITIES] 5146223
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 163983871
[SHARES-COMMON-STOCK] 163983871
[SHARES-COMMON-PRIOR] 207129075
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 205737362
[DIVIDEND-INCOME] 3532896
[INTEREST-INCOME] 474624
[OTHER-INCOME] 0
[EXPENSES-NET] 2198137
[NET-INVESTMENT-INCOME] 1809383
[REALIZED-GAINS-CURRENT] 6875073
[APPREC-INCREASE-CURRENT] (4090471)
[NET-CHANGE-FROM-OPS] 4593985
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 60542038
[NUMBER-OF-SHARES-REDEEMED] 66527738
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] (1391713)
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1619835
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2198137
[AVERAGE-NET-ASSETS] 225537
[PER-SHARE-NAV-BEGIN] 1
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1
[EXPENSE-RATIO] .97
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[CIK] 0000934882
[NAME] REPUBLIC PORTFOLIO TRUST
[SERIES]
[NUMBER] 03
[NAME] REPUBLIC SMALL CAP EQUITY PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[INVESTMENTS-AT-COST] 191222651
[INVESTMENTS-AT-VALUE] 185870377
[RECEIVABLES] 2427466
[ASSETS-OTHER] 90912
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 188388755
[PAYABLE-FOR-SECURITIES] 667036
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1204325
[TOTAL-LIABILITIES] 1871361
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 151428491
[SHARES-COMMON-STOCK] 151248491
[SHARES-COMMON-PRIOR] 213739842
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 186517394
[DIVIDEND-INCOME] 288182
[INTEREST-INCOME] 684292
[OTHER-INCOME] 0
[EXPENSES-NET] 2193271
[NET-INVESTMENT-INCOME] 1220797
[REALIZED-GAINS-CURRENT] 23431405
[APPREC-INCREASE-CURRENT] (33590706)
[NET-CHANGE-FROM-OPS] 11380098
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 55600548
[NUMBER-OF-SHARES-REDEEMED] 71442897
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 27222448
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1864536
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2252396
[AVERAGE-NET-ASSETS] 212793
[PER-SHARE-NAV-BEGIN] 1
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1
[EXPENSE-RATIO] 1.03
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[CIK] 0001010296
[NAME] REPUBLIC ADVISORS FUNDS TRUST
[SERIES]
[NUMBER] 01
[NAME] REPUBLIC FIXED INCOME FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[INVESTMENTS-AT-COST] 98021659
[INVESTMENTS-AT-VALUE] 98021659
[RECEIVABLES] 0
[ASSETS-OTHER] 3941
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 98025600
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 297756
[TOTAL-LIABILITIES] 297756
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 96304707
[SHARES-COMMON-STOCK] 9040133
[SHARES-COMMON-PRIOR] 6561974
[ACCUMULATED-NII-CURRENT] (5574)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2449277
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (1020566)
[NET-ASSETS] 97727844
[DIVIDEND-INCOME] 63193
[INTEREST-INCOME] 5388987
[OTHER-INCOME] 0
[EXPENSES-NET] 642824
[NET-INVESTMENT-INCOME] 4809356
[REALIZED-GAINS-CURRENT] 2615480
[APPREC-INCREASE-CURRENT] (2582750)
[NET-CHANGE-FROM-OPS] 4842086
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 4809356
[DISTRIBUTIONS-OF-GAINS] 908474
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3464663
[NUMBER-OF-SHARES-REDEEMED] 1446645
[SHARES-REINVESTED] 460141
[NET-CHANGE-IN-ASSETS] 26041674
[ACCUMULATED-NII-PRIOR] (5575)
[ACCUMULATED-GAINS-PRIOR] 742271
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 642824
[AVERAGE-NET-ASSETS] 81909
[PER-SHARE-NAV-BEGIN] 10.92
[PER-SHARE-NII] 0.68
[PER-SHARE-GAIN-APPREC] (0.01)
[PER-SHARE-DIVIDEND] 0.65
[PER-SHARE-DISTRIBUTIONS] 0.13
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.81
[EXPENSE-RATIO] 0.78
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[CIK] 0001010296
[NAME] REPUBLIC ADVISORS FUNDS TRUST
[SERIES]
[NUMBER] 02
[NAME] REPUBLIC INTERNATIONAL EQUITY FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[INVESTMENTS-AT-COST] 120189814
[INVESTMENTS-AT-VALUE] 120189814
[RECEIVABLES] 115545
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 120305359
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 55333
[TOTAL-LIABILITIES] 55333
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 102304775
[SHARES-COMMON-STOCK] 9082868
[SHARES-COMMON-PRIOR] 9659005
[ACCUMULATED-NII-CURRENT] 223762
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 5531961
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 12189528
[NET-ASSETS] 120250026
[DIVIDEND-INCOME] 2180903
[INTEREST-INCOME] 421738
[OTHER-INCOME] 0
[EXPENSES-NET] 1540656
[NET-INVESTMENT-INCOME] 1061985
[REALIZED-GAINS-CURRENT] 5537004
[APPREC-INCREASE-CURRENT] (2995027)
[NET-CHANGE-FROM-OPS] 3603962
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 2744205
[DISTRIBUTIONS-OF-GAINS] 64565438
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1824803
[NUMBER-OF-SHARES-REDEEMED] 3097969
[SHARES-REINVESTED] 697029
[NET-CHANGE-IN-ASSETS] 12673523
[ACCUMULATED-NII-PRIOR] 1905982
[ACCUMULATED-GAINS-PRIOR] 6451495
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1540656
[AVERAGE-NET-ASSETS] 138776
[PER-SHARE-NAV-BEGIN] 13.76
[PER-SHARE-NII] 0.11
[PER-SHARE-GAIN-APPREC] 0.32
[PER-SHARE-DIVIDEND] 0.27
[PER-SHARE-DISTRIBUTIONS] 0.68
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 13.24
[EXPENSE-RATIO] 1.09
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[CIK] 0001010296
[NAME] REPUBLIC ADVISOR FUNDS TRUST
[SERIES]
[NUMBER] 03
[NAME] REPUBLIC SMALL CAP EQUITY FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[INVESTMENTS-AT-COST] 112975384
[INVESTMENTS-AT-VALUE] 112975384
[RECEIVABLES] 0
[ASSETS-OTHER] 10397
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 112985781
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 51097
[TOTAL-LIABILITIES] 51097
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 102912907
[SHARES-COMMON-STOCK] 9840333
[SHARES-COMMON-PRIOR] 10263905
[ACCUMULATED-NII-CURRENT] (901701)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 14695019
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (3771541)
[NET-ASSETS] 112934684
[DIVIDEND-INCOME] 177459
[INTEREST-INCOME] 421992
[OTHER-INCOME] 0
[EXPENSES-NET] 1501152
[NET-INVESTMENT-INCOME] (901701)
[REALIZED-GAINS-CURRENT] 15278515
[APPREC-INCREASE-CURRENT] (2119973)
[NET-CHANGE-FROM-OPS] (6823159)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 13273574
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1816021
[NUMBER-OF-SHARES-REDEEMED] 3401955
[SHARES-REINVESTED] 1162362
[NET-CHANGE-IN-ASSETS] 13273574
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 6451495
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1529538
[AVERAGE-NET-ASSETS] 131239
[PER-SHARE-NAV-BEGIN] 13.44
[PER-SHARE-NII] (0.09)
[PER-SHARE-GAIN-APPREC] (0.50)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 1.38
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.48
[EXPENSE-RATIO] 1.14
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[CIK] 0000798290
[NAME] REPUBLIC FUNDS TRUST
[SERIES]
[NUMBER] 022
[NAME] REPUBLIC NEW YORK TAX FREE BOND FUND CLASS Y
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1998
[PERIOD-END] OCT-01-1998
[INVESTMENTS-AT-COST] 30571241
[INVESTMENTS-AT-VALUE] 32422474
[RECEIVABLES] 694274
[ASSETS-OTHER] 7132
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 33123880
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 711568
[TOTAL-LIABILITIES] 711568
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 30516300
[SHARES-COMMON-STOCK] 790619
[SHARES-COMMON-PRIOR] 836354
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 1200
[ACCUMULATED-NET-GAINS] 45979
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1851233
[NET-ASSETS] 32412312
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1588229
[OTHER-INCOME] 0
[EXPENSES-NET] 268124
[NET-INVESTMENT-INCOME] 1320105
[REALIZED-GAINS-CURRENT] 45989
[APPREC-INCREASE-CURRENT] 898647
[NET-CHANGE-FROM-OPS] 2264741
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 393477
[DISTRIBUTIONS-OF-GAINS] 33681
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 105274
[NUMBER-OF-SHARES-REDEEMED] 162716
[SHARES-REINVESTED] 11779
[NET-CHANGE-IN-ASSETS] 2717325
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 115458
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 35953
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 340240
[AVERAGE-NET-ASSETS] 8658526
[PER-SHARE-NAV-BEGIN] 10.64
[PER-SHARE-NII] .49
[PER-SHARE-GAIN-APPREC] .33
[PER-SHARE-DIVIDEND] .49
[PER-SHARE-DISTRIBUTIONS] .04
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.93
[EXPENSE-RATIO] .70
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE> 1
[ARTICLE] 6
[CIK] 0000798290
[NAME] REPUBLIC FUNDS TRUST
[SERIES]
[NUMBER] 032
[NAME] REPUBLIC EQUITY FUND CLASS Y
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1998
[PERIOD-END] OCT-31-1998
[INVESTMENTS-AT-COST] 197289555
[INVESTMENTS-AT-VALUE] 225483969
[RECEIVABLES] 10213043
[ASSETS-OTHER] 711948
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 236408960
[PAYABLE-FOR-SECURITIES] 557841
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 837420
[TOTAL-LIABILITIES] 1395261
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 202089980
[SHARES-COMMON-STOCK] 12415622
[SHARES-COMMON-PRIOR] 4202203
[ACCUMULATED-NII-CURRENT] 24247
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 4400256
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 28499216
[NET-ASSETS] 235013699
[DIVIDEND-INCOME] 2182925
[INTEREST-INCOME] 342914
[OTHER-INCOME] 0
[EXPENSES-NET] 1528761
[NET-INVESTMENT-INCOME] 997078
[REALIZED-GAINS-CURRENT] 4469866
[APPREC-INCREASE-CURRENT] 21654911
[NET-CHANGE-FROM-OPS] 27121855
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 918974
[DISTRIBUTIONS-OF-GAINS] 7858305
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 11008053
[NUMBER-OF-SHARES-REDEEMED] 3374186
[SHARES-REINVESTED] 579552
[NET-CHANGE-IN-ASSETS] 159590400
[ACCUMULATED-NII-PRIOR] 3482
[ACCUMULATED-GAINS-PRIOR] 8534683
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 902442
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1528761
[AVERAGE-NET-ASSETS] 170661857
[PER-SHARE-NAV-BEGIN] 15.01
[PER-SHARE-NII] .08
[PER-SHARE-GAIN-APPREC] 2.8
[PER-SHARE-DIVIDEND] .08
[PER-SHARE-DISTRIBUTIONS] .09
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 16.95
[EXPENSE-RATIO] .78
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>