As filed with the Securities and Exchange Commission on November 27, 1996
Registration Nos. 33-7647 and 811-4782
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 40
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 41
Republic Funds
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219-3035
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(614) 470-8000
George O. Martinez
3435 Stelzer Road, Columbus, Ohio 43219-3035
(Name and Address of Agent for Service)
Copy to:
Allan S. Mostoff, Esq.
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, DC 20005
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[X] on January 31, 1997 pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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, 1996) on November 26, 1996;
Republic New York Tax Free Money Market Fund, Republic New York Tax Free Bond
Fund, Republic Equity Fund, Republic Fixed Income Fund and Republic
International Equity Fund for their fiscal years ended October 31, 1995 on
December 28, 1995. The Registrant expects to file a Rule 24f-2 notice with
respect to Republic Bond Fund, Republic Overseas Equity Fund, and Republic
Opportunity Fund for their fiscal years ending October 31, 1996 on or before
December 30, 1996.
Republic Portfolios has also executed this Registration Statement.
<PAGE>
CROSS REFERENCE SHEET
PART A; INFORMATION REQUIRED IN PROSPECTUS
ITEM NUMBER PROSPECTUS CAPTION
Item 1. Cover Page Cover Page
Item 2. Synopsis Highlights
Item 3. Condensed Financial Financial Highlights
Information
Item 4. General Description of Investment Objective
Registrant and Policies; Additional
Risk Factors and Policies
Item 5. Management of the Fund Management of the Fund
Item 5A. Management's Discussion Not Applicable
of Fund Performance
Item 6. Capital Stock and Other Dividends and
Securities Distributions; Tax Matters;
Description of
Shares, Voting Rights and
Liabilities
Item 7. Purchase of Securities Purchase of Shares;
Being Offered Determination of Net
Asset Value
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Legal Proceedings Not Applicable
PART B; INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
Statement of Additional
ITEM NUMBER INFORMATION CAPTION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and Not Applicable
History
Item 13. Investment Objectives and Investment Objective,
Policies Policies and Restrictions
Item 14. Management of the Registrant Management of the Fund;
Management of the Trust
Item 15. Control Persons and Other Information
Principal Holders of
Securities
Item 16. Investment Advisory and Management of the Fund;
Other Services Management of the Trust
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Other Information
Securities
<PAGE>
Item 19. Purchase, Redemption and Prospectus - Purchase of
Pricing of Securities Being Shares; Prospectus -
Offered Redemption of Shares;
Prospectus - Determination
of Net Asset Value
Item 20. Tax Status Taxation
Item 21. Underwriters Management of the Fund -
Distributor and Sponsor;
Management of the Trust
Item 22. Calculation of Performance Performance Information
Data
Item 23. Financial Statements Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate items, so numbered, in Part C of this Registration Statement.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment no. 40 (the "Amendment") to the Registrant's
registration statement on Form N-1A (File no. 33-7647) (the "Registration
Statement") is being filed to amend the Registrant's disclosure with respect to
the Republic Bond Fund, Republic Overseas Equity Fund, and Republic Opportunity
Fund, three series of shares of the Registrant (the "Funds"). The Amendment does
not affect any of the Registrant's currently effective prospectuses or
statements of additional information, each of which is hereby incorporated
herein by reference as most recently filed pursuant to Rule 497 under the
Securities Act of 1933, as amended.
<PAGE>
REPUBLIC BOND FUND
3435 STELZER ROAD, COLUMBUS, OHIO 43219-3035
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ACCOUNT AND GENERAL INFORMATION: (888) 525-5757 (TOLL FREE)
Republic Bond Fund (the "Fund") is a diversified series of Republic Funds
(the "Trust"), an open-end management investment company which currently
consists of seven funds, each of which has different and distinct investment
objectives and policies. Only shares of the Fund are being offered by this
Prospectus. Republic National Bank of New York ("Republic" or the "Manager") is
the investment manager of Fixed Income Portfolio (the "Portfolio"). Miller
Anderson & Sherrerd ("MAS" or the "Sub-Adviser") continuously manages the
investments of the Portfolio.
UNLIKE OTHER OPEN-END MANAGEMENT INVESTMENT COMPANIES (MUTUAL FUNDS) WHICH
DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, THE TRUST SEEKS
TO ACHIEVE THE INVESTMENT OBJECTIVE OF THE FUND BY INVESTING ALL OF THE FUND'S
INVESTABLE ASSETS ("ASSETS") IN THE PORTFOLIO, WHICH HAS THE SAME INVESTMENT
OBJECTIVE AS THE FUND. THE INVESTMENT EXPERIENCE OF THE FUND WILL CORRESPOND
DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE PORTFOLIO. THE PORTFOLIO IS A
DIVERSIFIED SERIES OF THE REPUBLIC PORTFOLIOS, WHICH IS AN OPEN-END MANAGEMENT
INVESTMENT COMPANY. SEE "SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND
STRUCTURE."
The investment objective of the Fund is to seek to realize above-average
total return over a market cycle of three to five years, consistent with
reasonable risk, through investment primarily in a diversified portfolio of U.S.
Government securities, corporate bonds, mortgage-backed securities and other
fixed-income securities. The Portfolio's average weighted maturity will
ordinarily exceed five years.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
Shares are continuously offered for sale at net asset value with no sales
charge by BISYS Fund Services ("BISYS") (i) directly to the public, (ii) to
customers of a financial institution, such as a federal or state-chartered bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Trust (collectively, "Shareholder
Servicing Agents"), and (iii) to customers of a securities broker that has
entered into a dealer agreement with BISYS.
AN INVESTOR WHO IS NOT PURCHASING DIRECTLY FROM BISYS SHOULD OBTAIN FROM
HIS SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT, AND SHOULD READ IN
CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE SECURITIES
BROKER OR SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER WHICH
SHARES MAY BE PURCHASED AND REDEEMED THROUGH SUCH SECURITIES BROKER OR
SHAREHOLDER SERVICING AGENT.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor should know before investing. The Trust has filed
with the Securities and Exchange Commission a Statement of Additional
Information, dated February 1, 1997, with respect to the Fund, containing
additional and more detailed information about the Fund, which is hereby
incorporated by reference into this Prospectus. An investor may obtain a copy of
the Statement of Additional Information without charge by contacting the Fund at
the address and telephone number printed above.
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Investors should read this Prospectus and retain it for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1997
<PAGE>
HIGHLIGHTS
THE FUND PAGE 1
Republic Bond Fund (the "Fund") is a separate series of Republic Funds (the
"Trust"), a Massachusetts business trust organized on April 22, 1987, which
currently consists of seven funds, each of which has different and distinct
investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES PAGE 6
The investment objective of the Fund is to seek to realize above-average
total return over a market cycle of three to five years, consistent with
reasonable risk, through investment primarily in a diversified portfolio of U.S.
Government securities, corporate bonds, mortgage-backed securities and other
fixed-income securities. The Trust seeks to achieve the investment objective of
the Fund by investing all of the Fund's Assets in Fixed Income Portfolio (the
"Portfolio"), which has the same investment objective as the Fund. The Portfolio
is a series of Republic Portfolios (the "Portfolio Trust"), a master trust fund
established under the law of the State of New York and organized on November 1,
1994. The Portfolio's average weighted maturity will ordinarily exceed five
years. There can be no assurance that the investment objective of the Fund or
the Portfolio will be achieved.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST PAGE 19
Republic acts as investment manager to the Portfolio pursuant to an
Investment Management Contract with the Portfolio Trust. For its services, the
Manager receives from the Portfolio a fee at the annual rate of 0.20% of the
Portfolio's average daily net assets.
MAS continuously manages the investment portfolio of the Portfolio pursuant
to a Sub-Advisory Agreement with the Manager. For its services, the Sub-Adviser
is paid a fee by the Portfolio, computed daily and based on the Portfolio's
average daily net assets, equal on an annual basis to 0.375% 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. See "Management of the Trust and the Portfolio Trust."
BISYS acts as sponsor (the "Sponsor") and administrator of the Fund (the
"Fund Administrator"), and as distributor (the "Distributor") of shares of the
Fund (the "Shares"). For its services to the Fund, the Fund Administrator
receives from the Fund a fee payable monthly equal on an annual basis to 0.05%
of the Fund's average daily net assets, subject to certain breakpoints on assets
in excess of $1 billion. BISYS Fund Services (Ireland) Limited ("BISYS
(Ireland)") acts as administrator of the Portfolio (the "Portfolio
Administrator"). For its services to the Portfolio, the Portfolio Administrator
receives from the Portfolio a fee payable monthly equal on an annual basis to
0.05% of the average daily net assets of the Portfolio, subject to certain
breakpoints on assets in excess of $1 billion.
The Trust also has retained BISYS to distribute Shares pursuant to a
distribution plan (the "Distribution Plan") adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"). Pursuant to the
terms of the Distribution Plan, the Distributor is reimbursed from the Fund for
marketing costs and payments to other organizations for services rendered in
distributing the Shares. This fee may not exceed 0.25% of the average daily net
assets of the Fund represented by Shares outstanding and is expected to be
limited to an amount such that the aggregate fees paid to the Distributor
pursuant to the Distribution Plan and to the Shareholder Servicing Agents
pursuant to the Administrative Services Plan do not exceed 0.25% of such assets.
See "Management of the Trust."
PURCHASES AND REDEMPTIONS PAGE 25 & 27
Shares are continuously offered for sale by the Distributor at net asset
value with no sales charge (i) directly to the public, (ii) to customers of a
financial institution, such as a federal or state-chartered bank, trust company
or savings and loan association, that has entered into a shareholder servicing
agreement with the Trust (collectively, "Shareholder Servicing Agents"), and
(iii) to customers of a securities broker that has entered into a dealer
agreement with the Distributor. For investors who purchase Shares directly from
the Distributor, the minimum initial investment is $1,000 and the minimum
subsequent investment is $100. The Trust offers to buy back (redeem) Shares from
shareholders of the Fund at any time at net asset value. See "Purchase of
Shares" and "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS PAGE 29
The Trust declares all of the Fund's net investment income daily as a
dividend to Fund shareholders and distributes all such dividends monthly. Any
net realized capital gains are distributed at least annually. All Fund
distributions will be invested in additional Fund shares, unless the shareholder
instructs the Fund otherwise. See "Dividends and Distributions."
<PAGE>
FEE TABLE
The following table summarizes an investor's maximum transaction costs from
investing in the Fund and the estimated aggregate annual operating expenses of
the Fund and the Portfolio as a percentage of the average daily net assets of
the Fund during the Fund's and the Portfolio's fiscal years. The fiscal year
ends of the Fund and the Portfolio are both October 31. The example illustrates
the dollar cost of such estimated expenses on a $1,000 investment in the Fund.
The Trustees of the Trust believe that the aggregate per share expenses of the
Fund and the Portfolio will be less than or approximately equal to the expenses
which the Fund would incur if the Trust retained the services of an investment
adviser on behalf of the Fund and the Assets of the Fund were invested directly
in the type of securities being held by the Portfolio.
Shareholder Transaction Expenses ................................ None
Annual Fund Operating Expenses
Investment Advisory Fee after waiver* ....................... 0.33%
Distribution Fees (Rule 12b-1 fees) ......................... 0.15%
Other Expenses .............................................. 0.62%
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-- Shareholder Servicing Fee ........................ 0.10%
-- Administrative Services Fee ........................ 0.10%
-- Other Operating Expenses ........................... 0.42%
Total Operating Expenses after waiver** ......................... 1.10%
====
* Reflects a waiver of the investment management fee payable to
Republic and an investment sub-advisory fee payable to MAS equal on
an annual basis to 0.33% of the Fund's average daily net assets.
Without such waiver, the Investment Advisory Fee would be equal on
an annual basis to 0.53% of the Fund's average net assets. See
"Management of the Trust and the Portfolio Trust."
** Total Operating Expenses are shown net of investment
management fee waiver. Without such fee waiver, Total
Operating Expenses would be equal on an annual basis to 1.30%
of the Fund's average net assets.
<PAGE>
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in Fund shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year .................................................... $11
3 years .................................................... $35
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE AGGREGATE EXPENSES OF THE FUND AND THE PORTFOLIO, AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the expense table provided above is to assist investors in
understanding the expenses of investing in the Fund and an investor's share of
the aggregate operating expenses of the Fund and the Portfolio. The information
is based on the expenses the Fund and the Portfolio expect to incur for the
current fiscal years of the Portfolio and the Fund.** The expense table shows
the expected investment management fee, investment subadvisory fee, distribution
(Rule 12b-1) fee, administrative services fee and shareholder servicing fee. For
a more detailed discussion of the costs and expenses of investing in the Fund,
see "Management of the Trust and the Portfolio Trust."
- ------------
**Assuming average daily net assets of $50 million in the Fund and $75 million
in the Portfolio for the current fiscal years.
The fees paid from the Fund to each Shareholder Servicing Agent are
determined by a formula based upon the number of accounts serviced by such
Shareholder Servicing Agent during the period for which payment is being made,
the level of activity in such accounts during such period, and the expenses
incurred by such Shareholder Servicing Agent. Similarly, the fee from the Fund
to the Distributor is in anticipation of, or as reimbursement for, expenses
incurred by the Distributor in connection with the sale of Shares. The aggregate
fees paid to the Distributor pursuant to the Distribution Plan and to the
Shareholder Servicing Agents pursuant to the Administrative Services Plan may
not exceed 0.25% of the average daily net assets of the Fund represented by
Shares outstanding during the period for which payment is being made. Long-term
shareholders may pay more than the economic equivalent of the maximum
distribution charges permitted by the National Association of Securities
Dealers, Inc.
Some Shareholder Servicing Agents and securities brokers 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 with respect to the
Fund, such as requiring a minimum initial investment or charging their customers
a direct fee for their services. The effect of any such fees will be to reduce
the net return on the investment of customers of that Shareholder Servicing
Agent or securities broker. Each Shareholder Servicing Agent and securities
broker has agreed to transmit to shareholders who are its customers appropriate
written disclosure of any transaction fees that it may charge them directly at
least 30 days before the imposition of any such charge.
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Fund since commencement of operations through October 31,
1996. The information shown in the following schedule has been audited by
______________________, independent auditors, whose report on the Fund's
financial statements is incorporated by reference into the Statement of
Additional Information from the Fund's Annual Report dated October 31, 1996. The
Annual Report also includes management's discussion of fund performance, and may
be obtained without charge upon request. This information should be read in
conjunction with the financial statements.
<PAGE>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
THE INDICATED PERIOD:
FOR THE PERIOD
SEPTEMBER 3, 1996
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1996
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Net asset value, beginning of period .................. $_____
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INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................. ____
Net realized and unrealized gain from Portfolio ... ____
------
Total increase from investment operations ......... ____
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LESS DIVIDENDS:
From net investment income ........................ ______
Net realized capital gains ........................ --
------
Total distributions to shareholders ............... ______
Net asset value, end of period ........................ $_____
======
TOTAL RETURN (a) .......................................... _____%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .............. $______
Ratio of expenses to average net assets (b) ....... ____%(c)
Ratio of net investment income to average net
assets (b) ...................................... ____%(c)
Portfolio turnover rate ........................... ____%(c)
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(a) Not annualized.
(b) Reflects a voluntary expense limitation and waiver of fees by affiliated
parties of the Fund. If this limitation had not been in effect, the
annualized ratios of expenses and net investment income to average
net assets for the period August 1, 1996 (commencement of operations) to
October 31, 1996 would have been:
Ratio of expenses to average net assets ......... ___%(c)
Ratio of net investment income to average
net assets ........................................ ___%(c)
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek 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 Portfolio's average weighted maturity will ordinarily exceed
five years. The investment objective of the Portfolio is the same as the
investment objective of the Fund.
There can be no assurance that the investment objective of the Fund will be
achieved. The investment objective of each of the Fund and the Portfolio may be
changed without investor approval. If there is a change in the investment
objective of the Fund, shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial position and
needs. Shareholders of the Fund shall receive 30 days' prior written notice of
any change in the investment objective of the Fund or the Portfolio.
Since the investment characteristics of the Fund will correspond to those of
the Portfolio, the following is a discussion of the various investment policies
of the Portfolio.
INVESTMENT POLICIES
The Portfolio will normally invest at least 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.
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. See the Appendix to
this Prospectus for a description of the ratings assigned by Moody's, S&P, and
Fitch.
<PAGE>
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 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. For a complete
discussion of the special risks associated with investments in lower rated
securities, see "Additional Risk Factors and Policies: High Yield/High Risk
Securities."
From time to time, the 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. For a description of the risks associated with mortgage-backed
securities, see "Additional Risk Factors and Policies: Mortgage Related
Securities." When investing in mortgage-backed securities, it is expected that
the 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 warrant such
investments. It is currently not anticipated that greater than 25% of Portfolio
assets will be invested in mortgage pools comprised of securities issued by
private organizations. 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.
For a complete discussion of mortgage-backed securities, see "Additional Risk
Factors and Policies: Mortgage-Related Securities."
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. See
"Additional Risk Factors and Policies: Foreign Securities" below and the
Statement of Additional Information.
The Portfolio may invest in Eurodollar bank obligations and Yankee bank
obligations. See "Additional Risk Factors and Policies -- Eurodollar and Yankee
Bank Obligations" below. 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". See "Additional Risk Factors and
Policies -- Brady Bonds" below. The Portfolio may also invest in the following
instruments on a temporary basis when economic or market conditions are such
that the 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.
ADDITIONAL RISK FACTORS AND POLICIES
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. A mutual fund, of course, derives its value from the value of the
investments it holds and so might even be called a "derivative." Some
"derivatives" such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more volatile or
less liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There are a
range of risks associated with those uses. Futures and options are commonly used
for traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities. The
Portfolio may use derivatives for hedging purposes, cash management purposes, as
a substitute for investing directly in fixed income instruments, and to enhance
return when the Sub-Adviser believes the investment will assist the Portfolio in
achieving its investment objective. A description of the derivatives that the
Portfolio may use and some of their associated risks follows.
OPTIONS AND FUTURES TRANSACTIONS
The Portfolio may use 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 Portfolio's return. While the use of these
instruments by the Portfolio may reduce certain risks associated with owning its
portfolio securities, these techniques themselves entail certain other risks. If
the Sub-Adviser applies a strategy at an inappropriate time or judges market
conditions or trends incorrectly, options and futures strategies may lower the
Portfolio's return. Certain strategies limit the Portfolio's potential to
realize gains as well as limit its exposure to losses. The Portfolio could also
experience losses if the prices of its options and futures positions were poorly
correlated with its other investments. There can be no assurance that a liquid
market will exist at a time when the Portfolio seeks to close out a futures
contract or a futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a particular
contract, no trades may be made that day at a price beyond that limit. In
addition, certain of these instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Portfolio from liquidating an unfavorable position
and the Portfolio would remain obligated to meet margin requirements until the
position is closed. In addition, the Portfolio will incur transaction costs,
including trading commissions and options premiums, in connection with its
futures and options transactions, and these transactions could significantly
increase the Portfolio's turnover rate.
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 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.
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. 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.
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.
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 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 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.
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 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 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.
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
Portfolio, the Portfolio may retain the security if the Sub-Adviser deems it in
the best interest of investors.
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
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 that those available on ordinary
interest-paying obligations of similar credit quality and maturity. However,
zero coupon obligation prices may also exhibit greater price volatility than
ordinary fixed-income securities because of the manner in which their principal
and interest are returned to the investor.
MORTGAGE-RELATED SECURITIES
Mortgage-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. Generally,
prepayment rates increase if interest rates fall and decrease if interest rates
rise. For many types of mortgage-backed securities, this can result in
unfavorable changes in price and yield characteristics in response to changes in
interest rates and other market conditions. For example, as a result of their
prepayment aspects, the Portfolio's mortgage-backed securities may have less
potential for capital appreciation during periods of declining interest rates
than other fixed income securities of comparable maturities, although such
obligations may have a comparable risk of decline in market value during periods
of rising interest rates.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
Investment in mortgage-backed securities poses several risks, including
prepayment, market, and credit risk. Prepayment risk reflects the risk that
borrowers may prepay their mortgages faster than expected, thereby affecting the
investment's average life and perhaps its yield. Whether or not a mortgage loan
is prepaid is almost entirely controlled by the borrower. Borrowers are most
likely to exercise prepayment options at the time when it is least advantageous
to investors, generally prepaying mortgages as interest rates fall, and slowing
payments as interest rates rise. Besides the effect of prevailing interest
rates, the rate of prepayment and refinancing of mortgages may also be affected
by home value appreciation, ease of the refinancing process and local economic
conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and a fund invested in such securities wishing to sell them may find
it difficult to find a buyer, which may in turn decrease the price at which they
may be sold.
Credit risk reflects the risk that the Portfolio may not receive all or
part of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions.
For further information, see the Statement of Additional Information.
Stripped Mortgage-Backed Securities. The Portfolio may invest in Stripped
Mortgage-Backed Securities ("SMBS") which are derivative multi-class mortgage
securities. SMBS may be issued by agencies or instrumentalities of the U.S.
Government and private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing. The Portfolio's
investments in SMBS will be limited to 10% of net assets.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In some cases,
one class will receive all of the interest (the interest-only or IO class),
while the other class will receive all of the principal (the principal-only or
PO class). The cash flows and yields on IO and PO classes can be extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets. For example, a rapid or slow rate of
principal payments may have a material adverse effect on the yield to maturity
of IOs or POs, respectively. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, an investor may fail to
recoup fully its initial investment in an IO class of a stripped mortgage-backed
security. Conversely, if the underlying mortgage assets experience slower than
anticipated prepayments of principal, the yield on a PO class will be affected
more severely than would be the case with a traditional mortgage-backed
security.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
illiquid and subject to the Portfolio's limitations on investment in illiquid
securities. For further information on these securities, see the Statement of
Additional Information.
Other Asset-Backed Securities. The Portfolio may invest in securities
representing interests in other types of financial assets, such as credit card
receivables, automobile loan and lease receivables, aircraft lease receivables,
home equity loan receivables, manufactured housing receivables, equipment loan
and lease receivables, and student loan receivables. Such securities are subject
to many of the same risks as are mortgage-backed securities, including
prepayment risks and risks of foreclosure. They may or may not be secured by the
receivables themselves or may be unsecured obligations of their issuers. For
further information on these securities, see the Statement of Additional
Information.
EURODOLLAR AND YANKEE BANK OBLIGATIONS
The 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 the 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 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 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 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. While the Portfolio Trust's management acknowledges 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 (i) eligible for resale to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933 or (ii) 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
separate policy that no more than 10% of its net assets may be invested in
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
illiquidity to the extent that qualified institutions might become, for a time,
uninterested in purchasing these securities.
BRADY BONDS
A portion of the Portfolio's assets may be invested in certain debt
obligations customarily referred to as Brady Bonds, which are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
former Treasury Secretary Nicholas F. Brady (the "Brady Plan"). Brady Bonds have
been issued only recently and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and are actively traded in the
over-the-counter secondary market. Brady Bonds have been issued by the
governments of Argentina, Costa Rica, Mexico, Nigeria, Uruguay, Venezuela,
Brazil and the Philippines, as well as other emerging markets countries. Most
Brady Bonds are currently rated below BBB by S&P or Baa by Moody's. In light of
the risk characteristics of Brady Bonds (including uncollateralized repayment of
principal at maturity for some instruments) and, among other factors, the
history of default with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds, investments in Brady Bonds should be
viewed as speculative. For further information on these securities, see the
Statement of Additional Information.
FLOATING AND VARIABLE RATE OBLIGATIONS
Certain obligations that the 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 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 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.
LOANS OF PORTFOLIO SECURITIES
The Portfolio may lend its securities to qualified brokers, dealers, banks
and other financial institutions for the purpose of realizing additional income.
Loans of securities will be collateralized by cash, letters of credit, or
securities issued or guaranteed by the U.S. Government or its agencies. The
collateral will equal at least 100% of the current market value of the loaned
securities. In addition, the Portfolio will not lend its portfolio securities to
the extent that greater than one-third of its total assets, at fair market
value, would be committed to loans at that time.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Portfolio may purchase and sell securities on a when-issued or
firm-commitment basis, in which a security's price and yield are fixed on the
date of the commitment but payment and delivery are scheduled for a future date.
On the settlement date, the market value of the security may be higher or lower
than its purchase or sale price under the agreement. If the other party to a
when-issued or firm-commitment transaction fails to deliver or pay for the
security, the Portfolio could miss a favorable price or yield opportunity or
suffer a loss. The Portfolio will not earn interest on securities until the
settlement date. The Portfolio will maintain in a segregated account with the
custodian cash or liquid, high-grade debt securities equal (on a daily
marked-to-market basis) to the amount of its commitment to purchase the
securities on a when-issued basis.
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 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 high-grade debt obligations,
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 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 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's annual
turnover rate may exceed 100% due to changes in portfolio duration, yield curve
strategy or commitments to forward delivery mortgage-backed securities. However,
it is expected that the annual turnover rate for the Portfolio will not exceed
250%. Because the Portfolio may have a portfolio turnover rate of 100% or more,
transaction costs incurred by the Portfolio, and the realized capital gains and
losses of the Portfolio, may be greater than those of a fund with a lesser
portfolio turnover rate. See "Portfolio Transactions" and "Tax Matters" below.
<PAGE>
INVESTMENT RESTRICTIONS
Each of the Portfolio and the Fund has adopted certain investment
restrictions designed to reduce exposure to specific situations (except that
none of these investment restrictions shall prevent the Fund from investing all
of its Assets in a registered investment company with substantially the same
investment objective). Some of these investment restrictions are:
(1) with respect to 75% of its assets, the Portfolio (Fund) will not purchase
securities of any issuer if, as a result, more than 5% of the Portfolio's
(Fund's) total assets taken at market value would be invested in the
securities of any single issuer, except that this restriction does not
apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(2) with respect to 75% of its assets, the Portfolio (Fund) will not purchase a
security if, as a result, the Portfolio (Fund) would hold more than 10% of
the outstanding voting securities of any issuer;
(3) the Portfolio (Fund) will not invest more than 5% of its total assets in
the securities of issuers (other than securities issued or guaranteed by
U.S. or foreign governments or political subdivisions thereof) which have
(with predecessors) a record of less than three years of continuous
operation;
(4) the Portfolio (Fund) will not acquire any securities of companies within
one industry if, as a result of such acquisition, more than 25% of the
value of the Portfolio's (Fund's) total assets would be invested in
securities of companies within such industry; provided, however, that there
shall be no limitation on the purchase of obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, or instruments
issued by U.S. banks when the Portfolio (Fund) adopts a temporary defensive
position (For the purposes of this 25% limitation, mortgage-backed
securities shall not be considered a single industry.);
(5) the Portfolio (Fund) will not 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;
(6) the Portfolio (Fund) will not 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;
(7) the Portfolio (Fund) will not issue senior securities, except as permitted
under the 1940 Act; and,
(8) the Portfolio (Fund) will not invest its assets in securities of any
investment company, except by purchase in the open market involving only
customary brokers' commissions or in connection with mergers, acquisitions
of assets or consolidations and except as may otherwise be permitted by the
1940 Act; provided, however, that the Portfolio shall not invest in the
shares of any open-end investment company unless (1) the Portfolio's
Sub-Adviser waives any investment advisory fees with respect to such assets
and (2) the Portfolio pays no sales charge in connection with the
investment.
Limitations (1), (2), (4), (5), (6) and (7) and certain other limitations
described in the Statement of Additional Information are fundamental and may be
changed only with the approval of the holders of a "majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Portfolio or the Fund, as
the case may be. The other investment restrictions described here and in the
Statement of Additional Information are not fundamental policies meaning that
the Board of Trustees of the Portfolio Trust may change them without investor
approval. If a percentage limitation on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the value or total cost of the
Portfolio's assets will not be considered a violation of the restriction, and
the sale of securities will not be required.
SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE
The Trust, which is an open-end investment company, seeks to achieve the
investment objective of the Fund by investing all of the Fund's Assets in the
Portfolio, a series of a separate open-end investment company with the same
investment objective as the Fund. Other mutual funds or institutional investors
may invest in the Portfolio on the same terms and conditions as the Fund.
However, these other investors may have different sales commissions and other
operating expenses which may generate different aggregate performance results.
Information concerning other investors in the Portfolio is available by calling
the Sponsor at (614) 470-8000. The two-tier investment fund structure has been
developed relatively recently, so shareholders should carefully consider this
investment approach.
The investment objective of the Fund may be changed without the approval of
the shareholders of the Fund and the investment objective of the Portfolio may
be changed without the approval of the investors in the Portfolio. Shareholders
of the Fund shall receive 30 days prior written notice of any change in the
investment objective of the Fund or the Portfolio. For a description of the
investment objective, policies and restrictions of the Portfolio, see
"Investment Objective and Policies" above.
Except as permitted by the Securities and Exchange Commission, whenever the
Trust is requested to vote on a matter pertaining to the Portfolio, the Trust
will hold a meeting of the shareholders of the Fund and, at the meeting of
investors in the Portfolio, the Trust will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Trust votes all its shares at the Portfolio meeting,
other investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
The Trust may withdraw the Fund's investment in the Portfolio as a result
of certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Trustees of the Trust determines that it is
otherwise in the best interests of the Fund to do so. Upon any such withdrawal,
the Board of Trustees of the Trust would consider what action might be taken,
including the investment of all of the assets of the Fund in another pooled
investment entity or the retaining of an investment adviser to manage the Fund's
assets in accordance with the investment policies described above with respect
to the Portfolio. In the event the Trustees of the Trust were unable to
accomplish either, the Trustees will determine the best course of action.
As with traditionally structured funds which have large investors, the
actions of such large investors may have a material effect on smaller investors.
For example, if a large investor withdraws from the Portfolio, a small remaining
fund may experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk.
For descriptions of the management and expenses of the Portfolio, see
"Management of the Trust and the Portfolio Trust" below and in the Statement of
Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
The business and affairs of the Trust and the Portfolio Trust are managed
under the direction of their respective Boards of Trustees. The Trustees of each
of the Trust and the Portfolio Trust are Frederick C. Chen, Alan S. Parsow,
Larry M. Robbins and Michael Seely. Additional information about the Trustees,
as well as the executive officers of the Trust and the Portfolio Trust, may be
found in the Statement of Additional Information under the caption "Management
of the Trust and the Portfolio Trust -- Trustees and Officers."
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Portfolio Trust. Under the conflicts of interest procedures, the Trustees will
review on a quarterly basis any potential conflicts of interests after
consulting with Fund counsel, the Manager and the Fund Administrator. If a
potential conflict of interest arises, the Board of Trustees of the entity that
may be adversely affected will take such action as is reasonably appropriate to
resolve the conflict, up to and including establishing a new Board of Trustees
for such entity. See "Management of the Trust and the Portfolio Trust" in the
Statement of Additional Information for more information about the Trustees and
the executive officers of the Trust and the Portfolio Trust.
INVESTMENT MANAGER
Republic, whose address is 452 Fifth Avenue, New York, New York 10018,
serves as investment manager to the Portfolio pursuant to an Investment
Management Contract with the Portfolio Trust. Subject to the general guidance
and the policies set by the Trustees of the Portfolio Trust, Republic provides
general supervision over the investment management functions performed by the
Sub-Adviser. For its services under the Investment Management Contract, the
Manager receives from the Portfolio Trust a fee, payable monthly, at the annual
rate of 0.20% of the Portfolio's average daily net assets.
Republic is a wholly owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of December 31, 1996, Republic was the ____
largest commercial bank in the United States measured by deposits and the ____
largest commercial bank measured by shareholder equity.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the
Portfolio, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of obligations so purchased.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Portfolio will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Republic from continuing to perform such services for
the Portfolio. If Republic were prohibited from acting as investment manager to
the Portfolio, it is expected that the Trust's Board of Trustees would recommend
to Fund shareholders approval of a new investment advisory agreement with
another qualified investment adviser selected by the Board or that the Board
would recommend other appropriate action.
SUB-ADVISER
MAS continuously manages the investment portfolio of the Portfolio pursuant
to a Sub-Advisory Agreement with the Manager. For its services, the Sub-Adviser
is paid a fee by the Portfolio, computed daily and based on the Portfolio's
average daily net assets, equal to 0.375% of net assets up to $50 million, 0.25%
of net assets over $50 million up to $95 million, $300,000 of net assets over
$95 million up to $150 million, 0.20% of net assets over $150 million up to $250
million, and 0.15% of net assets over $250 million. For the fiscal year ended
October 31, 1996, such fee equaled ___% of the Portfolio's average daily net
assets. It is the responsibility of the Sub-Adviser not only to make investment
decisions for the Portfolio, but also to place purchase and sale orders for the
portfolio transactions of the Portfolio. See "Portfolio Transactions."
MAS, whose address is One Tower Bridge, West Conshohocken, Pennsylvania
19428, is a Pennsylvania limited partnership founded in 1969. MAS provides
investment services to employee benefit plans, endowment funds, foundations and
other institutional investors. As of October 31, 1996, MAS had in excess of
$____ billion in assets under management.
On January 3, 1996, Morgan Stanley Group Inc. acquired MAS in a transaction
in which Morgan Stanley Asset Management Holdings Inc., an indirect wholly owned
subsidiary of Morgan Stanley Group Inc., became the sole general partner of MAS.
Morgan Stanley Asset Management Holdings Inc. and two other wholly owned
subsidiaries of Morgan Stanley Group Inc. became the limited partners of MAS.
Morgan Stanley Group Inc. and various of its directly or indirectly owned
subsidiaries are engaged in a wide range of financial services.
Kenneth B. Dunn, whose business experience for the past five years is
provided below, is the individual portfolio manager responsible for management
of the Portfolio.
Partner, MAS, since prior to 1991. Portfolio Manager, MAS Fixed Income
and MAS Domestic Fixed Income Portfolios, since 1987; MAS Fixed Income
II Portfolio, since 1990; MAS Mortgage-Backed Securities and Special
Purpose Fixed Income Portfolios, since 1992; and, MAS Municipal and PA
Municipal Portfolios, since 1994.
DISTRIBUTOR AND SPONSOR
BISYS, whose address is 3435 Stelzer Road, Columbus, Ohio 43219-3035, acts
as sponsor and principal underwriter and distributor of the Shares pursuant to a
Distribution Contract with the Trust. The Distributor may, out of its own
resources, make payments to broker-dealers for their services in distributing
Shares. BISYS and its affiliates also serve as administrator or distributor to
other investment companies. BISYS is a wholly owned subsidiary of BISYS Group,
Inc.
Pursuant to a Distribution Plan adopted by the Trust (the "Plan"), the
Distributor is reimbursed from the Fund monthly for costs and expenses incurred
by the Distributor in connection with the distribution of Fund Shares and for
the provision of certain shareholder services with respect to Shares. The amount
of this reimbursement may not exceed on an annual basis 0.25% of the average
daily net assets of the Fund represented by Shares outstanding during the period
for which payment is being made. Payments to the Distributor are for various
types of activities, including: (1) payments to broker-dealers who advise
shareholders regarding the purchase, sale or retention of Shares and who provide
shareholders with personal services and account maintenance services ("service
fees"), (2) payments to employees of the Distributor, and (3) printing and
advertising expenses. It is currently intended that the aggregate fees paid to
the Distributor pursuant to the Plan and to Shareholder Servicing Agents
pursuant to the Administrative Services Plan will not exceed on an annual basis
0.25% of the Fund's average daily net assets represented by Shares outstanding
during the period for which payment is being made. Salary expense of BISYS
personnel who are responsible for marketing shares of the various portfolios of
the Trust may be allocated to such portfolios on the basis of average net
assets; travel expense is allocated to, or divided among, the particular
portfolios for which it is incurred.
Any payment by the Distributor or reimbursement of the Distributor from the
Fund made pursuant to the Plan is contingent upon the Board of Trustees'
approval. The Fund is not liable for distribution and shareholder servicing
expenditures made by the Distributor in any given year in excess of the maximum
amount (0.25% per annum of the Fund's average daily net assets represented by
Shares outstanding) payable under the Plan in that year.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the "Administrative
Services Plan") with respect to Fund Shares which provides that the Trust may
obtain the services of an administrator, transfer agent, custodian and one or
more Shareholder Servicing Agents, and may enter into agreements providing for
the payment of fees for such services.
FUND ADMINISTRATOR AND PORTFOLIO ADMINISTRATOR
Pursuant to Administration Agreements, BISYS and BISYS (Ireland) provide
each of the Fund and the Portfolio, respectively, with general office
facilities, and supervise the overall administration of the Fund and the
Portfolio including, among other responsibilities, the preparation and filing of
all documents required for compliance by the Fund and the Portfolio with
applicable laws and regulations and arranging for the maintenance of books and
records of the Fund and the Portfolio. For its services to the Fund, the Fund
Administrator 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 Fund's average daily net assets
in excess of $1 billion up to $2 billion, and 0.035% of the Fund's average daily
net assets in excess of $2 billion. The administrative services fees of the Fund
are subject to an annual minimum fee. See the Statement of Additional
Information. For its services to the Portfolio, the Portfolio Administrator
receives from the Portfolio fees payable monthly equal on an annual basis (for
the Portfolio's then-current fiscal year) to 0.05% of the Portfolio's average
daily net assets up to $1 billion, 0.04% of the Portfolio's average daily net
assets in excess of $1 billion up to $2 billion, and 0.035% of the Portfolio's
averge daily net assets in excess of $2 billion.
The Fund Administrator and the Portfolio Administrator provide persons
satisfactory to the respective Boards of Trustees to serve as officers of the
Trust and the Portfolio Trust. Such officers, as well as certain other employees
of the Trust and of the Portfolio Trust, may be directors, officers or employees
of the Fund Administrator, the Portfolio Administrator, or their affiliates.
BISYS, BISYS (Ireland) and their affiliates also serve as administrator and
distributor of other investment companies. BISYS and BISYS (Ireland) are wholly
owned subsidiaries of BISYS Group, Inc.
TRANSFER AGENT AND CUSTODIAN
Each of the Trust and the Portfolio Trust has entered into a Transfer
Agency Agreement with Investors Bank & Trust Company ("IBT") pursuant to which
IBT acts as transfer agent (the "Transfer Agent") for the Fund and the
Portfolio. The Transfer Agent maintains an account for each shareholder of the
Fund and investor in the Portfolio, performs other transfer agency functions,
and acts as dividend disbursing agent for the Fund. Pursuant to respective
Custodian Agreements, IBT also acts as the custodian (the "Custodian") of the
assets of the Fund and the Portfolio. The Portfolio Trust's Custodian Agreement
provides that the Custodian may use the services of sub-custodians with respect
to the Portfolio. The Custodian's responsibilities include safeguarding and
controlling the Fund's cash and the Portfolio's cash and securities, and
handling the receipt and delivery of securities, determining income and
collecting interest on the Portfolio's investments, maintaining books of
original entry for portfolio accounting and other required books and accounts,
and calculating the daily net asset value of the Portfolio. Securities held for
the Portfolio may be deposited into the Federal Reserve-Treasury Department Book
Entry System or the Depositary Trust Company. The Custodian does not determine
the investment policies of the Fund or the Portfolio or decide which securities
will be purchased or sold for the Portfolio. Assets of the Portfolio may,
however, be invested in securities of the Custodian and the Portfolio Trust may
deal with the Custodian as principal in securities transactions for the
Portfolio. For its services, IBT receives such compensation as may from time to
time be agreed upon by it and the Trust or the Portfolio Trust.
SHAREHOLDER SERVICING AGENTS
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent, including Republic, pursuant
to which a Shareholder Servicing Agent, as agent for its customers, among other
things: answers customer inquiries regarding account status and history, the
manner in which purchases and redemptions of Shares may be effected and certain
other matters pertaining to the 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. For these services, each Shareholder Servicing
Agent receives a fee from the Fund, which may be paid periodically, determined
by a formula based upon the number of accounts serviced by such Shareholder
Servicing Agent during the period for which payment is being made, the level of
activity in accounts serviced by such Shareholder Servicing Agent during such
period, and the expenses incurred by such Shareholder Servicing Agent. It is
currently intended that the aggregate fees paid to the Distributor pursuant to
the Plan and to Shareholder Servicing Agents pursuant to the Administrative
Services Plan will not exceed on an annual basis 0.25% of the Fund's average
daily net assets represented by Shares outstanding during the period for which
payment is being made.
The Trust understands that some Shareholder Servicing Agents also may
impose certain conditions on their customers, subject to the terms of this
Prospectus, in addition to or different from those imposed by the Trust, such as
requiring a different minimum initial or subsequent investment, account fees (a
fixed amount per transaction processed), compensating balance requirements (a
minimum dollar amount a customer must maintain in order to obtain the services
offered), or account maintenance fees (a periodic charge based on a percentage
of the assets in the account or of the dividends paid on those assets). Each
Shareholder Servicing Agent has agreed to transmit to its customers who are
holders of Shares appropriate prior written disclosure of any fees that it may
charge them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the Fund. The Trust engages banks as Shareholder
Servicing Agents on behalf of the Fund only to perform administrative and
shareholder servicing functions as described above. The Trust believes that the
Glass-Steagall Act should not preclude a bank from acting as a Shareholder
Servicing Agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain Fund shareholders, and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trustees of the Trust do not expect that
shareholders of the Fund would suffer any adverse financial consequences as a
result of these occurrences.
<PAGE>
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by the Distributor, Manager or the Sub-Adviser. See "Management of the
Trust -- Expenses and Expense Limits" in the Statement of Additional
Information. Trust expenses directly attributable to the Fund are charged to the
Fund; other expenses are allocated proportionately among all the portfolios in
the Trust in relation to the net assets of each portfolio. For the period from
August 1, 1996 (commencement of operations) through October 31, 1996, the Fund's
operating expenses equaled on an annual basis ____% of its average daily net
assets.
PORTFOLIO TRANSACTIONS
To the extent consistent with applicable legal requirements, the
Sub-Adviser may place orders for the purchase and sale of portfolio investments
for the Portfolio with Republic New York Securities Corporation, subject to
obtaining best price and execution for a particular transaction. See the
Statement of Additional Information.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Shares is determined on each day on which the
New York Stock Exchange is open for regular trading ("Fund Business Day"). This
determination is made once during each such day as of 4:00 p.m., New York time,
by dividing the value of the Fund's net assets (i.e., the value of its
investment in the Portfolio and other assets less its liabilities, including
expenses payable or accrued) by the number of Shares outstanding at the time the
determination is made.
The value of the Fund's investment in the Portfolio is also determined once
daily at 4:00 p.m., New York time, on each day the New York Stock Exchange is
open for regular trading ("Portfolio Business Day").
The determination of the value of the Fund's investment in the Portfolio is
made by subtracting from the value of the total assets of the Portfolio the
amount of the Portfolio's liabilities and multiplying the difference by the
percentage, effective for that day, which represents the Fund's share of the
aggregate beneficial interests in the Portfolio.
Values of assets held by the Portfolio are determined on the basis of their
market or other fair value, as described in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares may be purchased through Shareholder Servicing Agents or through
securities brokers that have entered into a dealer agreement with the Distibutor
("Securities Brokers"). Shares may be purchased without a sales load at their
net asset value next determined after an order is transmitted to and accepted by
the Distributor or is received by a Shareholder Servicing Agent or a Securities
Broker if it is transmitted to and accepted by the Distributor. Purchases are
therefore effected on the same day the purchase order is received by the
Distributor provided such order is received prior to 4:00 p.m., New York time,
on any Fund Business Day. The Trust intends the Fund to be as fully invested at
all times as is reasonably practicable in order to enhance the yield on its
assets. Each Shareholder Servicing Agent or Securities Broker is responsible for
and required to promptly forward orders for Shares to the Distributor.
While there is no sales load on purchases of Shares, the Distributor may
receive fees from the Fund. See "Management of the Trust -- Distributor and
Sponsor." Other funds which have investment objectives similar to those of the
Fund but which do not pay some or all of such fees from their assets may offer a
higher yield.
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 or his securities broker to purchase
such Shares on his behalf through the Distributor.
Exchange Privilege. By contacting the Transfer Agent or his Shareholder
Servicing Agent or his securities broker, a shareholder may exchange some or all
of his Shares for shares of the retail class 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, Republic New York Tax Free
Money Market Fund, Republic New York Tax Free Bond Fund, Republic Equity Fund,
Republic Overseas Equity Fund, Republic Opportunity 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.
DIRECTLY THROUGH THE DISTRIBUTOR
For each shareholder who purchases Shares directly through the Distributor,
the Trust, as the shareholder's agent, establishes an open account to which all
Shares purchased are credited together with any dividends and capital gains
distributions which are paid in additional Shares. See "Dividends and
Distributions." The minimum initial investment is $1,000, except the minimum
initial investment for an Individual Retirement Account is $250. The minimum
subsequent investment is $100. Initial and subsequent purchases may be made by
writing a check (in U.S. dollars) payable to the Republic Funds -- Taxable Bond
Fund and mailing it to:
Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
In the case of an initial purchase, the check must be accompanied by a
completed Purchase Application.
In the case of subsequent purchases, a shareholder may transmit purchase
payments by wire directly to the Fund's custodian bank at the following address:
Investors Bank & Trust Company
Boston, Massachusetts
Attn: Transfer Agent
ABA # 011001438
Acct. # 5999-99451
For further credit to the Republic Funds
(Republic Taxable Bond Fund, account name, account #)
The wire order must specify the Fund, the account name, number,
confirmation number, address, amount to be wired, name of the wiring bank and
name and telephone number of the person to be contacted in connection with the
order.
Automatic Investment Plan. The Trust offers a plan for regularly investing
specified dollar amounts ($25.00 minimum in monthly, quarterly, semi-annual or
annual intervals) in the Fund. 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
the 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 IBT at the telephone number listed on the back cover.
For further information on how to purchase Shares from the Distributor, an
investor should contact the Distributor directly (see back cover for address and
phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shares are being offered to the public, to customers of a Shareholder
Servicing Agent and to customers of a securities broker that has entered into a
dealer agreement with the Distributor. 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 and
securities broker 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 or securities broker. Conversely, certain Shareholder Servicing
Agents may (although they are not required by the Trust to do so) credit to the
accounts of their customers from whom they are already receiving other fees
amounts not exceeding such other fees or the fees received by the Shareholder
Servicing Agent from the Fund, which will have the effect of increasing the net
return on the investment of such customers of those Shareholder Servicing
Agents.
Shareholder Servicing Agents and securities brokers may transmit purchase
payments on behalf of their customers by wire directly to the Fund's custodian
bank by following the procedures described above.
For further information on how to direct a securities broker or a
Shareholder Servicing Agent to purchase Shares, an investor should contact his
securities broker or his Shareholder Servicing Agent (see back cover for address
and phone number).
RETIREMENT PLANS
Shares 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.
Recently enacted federal tax legislation has substantially affected the tax
treatment of contributions to certain retirement plans. 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 may be used as a funding medium for an IRA. An Internal Revenue
Service-approved IRA plan may be available from an investor's Shareholder
Servicing Agent. In any event, such a plan is available from the Sponsor naming
IBT, as custodian. The minimum initial investment for an IRA is $250; the
minimum subsequent investment is $100. IRAs are available to individuals who
receive compensation or earned income and their spouses whether or not they are
active participants in a tax-qualified or Government-approved retirement plan.
An IRA contribution by an individual who participates, or whose spouse
participates, in a tax-qualified or Government-approved retirement plan may not
be deductible 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 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.
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 Transfer Agent, with respect
to Shares purchased directly through the Distributor, or to his securities
broker or his Shareholder Servicing Agent, and is transmitted to and received by
the Transfer Agent. Redemptions are effected on the same day the redemption
order is received by the Transfer Agent provided such order is received prior to
4:00 p.m., New York time, on any Fund Business Day. Shares redeemed earn
dividends up to and including the Fund Business Day prior to the day the
redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the next Fund Business Day 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. However, a shareholder will be
allowed to make additional investments prior to the date fixed for redemption to
avoid liquidation of the account.
Unless Shares have been purchased directly from the Distributor, a
shareholder may redeem Shares only by authorizing his securities broker or 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
securities broker or 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 (see back cover for address and phone number).
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns Shares with an aggregate value of $10,000 or more
may establish a Systematic Withdrawal Plan under which they redeem at net asset
value the number of full and fractional shares which will produce the monthly,
quarterly, semi-annual or annual payments specified (minimum $50.00 per
payment). Depending on the amounts withdrawn, systematic withdrawals may deplete
the investor's principal. Investors contemplating participation in this Plan
should consult their tax advisers. No additional charge to the shareholder is
made for this service.
REDEMPTION OF SHARES PURCHASED DIRECTLY THROUGH THE DISTRIBUTOR
Redemption by Letter. Redemptions may be made by letter to the Transfer
Agent specifying the dollar amount or number of Shares to be redeemed, account
number and the Fund. The letter must be signed in exactly the same way the
account is registered (if there is more than one owner of the Shares all must
sign). In connection with a written redemption request, all signatures of all
registered owners or authorized parties must be guaranteed by an Eligible
Guarantor Institution, which includes a domestic bank, broker, dealer, credit
union, national securities exchange, registered securities association, clearing
agency or savings association. The Fund's transfer agent, however, may reject
redemption instructions if the guarantor is neither a member or not a
participant in a signature guarantee program (currently known as "STAMP",
"SEMP", or "NYSE MPS"). Corporations, partnerships, trusts or other legal
entities may be required to submit additional documentation.
An investor may redeem Shares in any amount by written request mailed to the
Transfer Agent at the following address:
The Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
Checks for redemption proceeds normally will be mailed within seven days,
but will not be mailed until all checks in payment for the purchase of the
Shares to be redeemed have been cleared, which may take up to 15 days or more.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to the shareholder's address of record.
Redemption by Wire or Telephone. An investor may redeem Shares by wire or
by telephone if he has checked the appropriate box on the Purchase Application
or has filed a Telephone Authorization Form with the Trust. These redemptions
may be paid from the Fund by wire or by check. The Trust reserves the right to
refuse telephone and wire redemptions and may limit the amount involved or the
number of telephone redemptions. The telephone redemption procedure may be
modified or discontinued at any time by the Trust. Instructions for wire
redemptions are set forth in the Purchase Application. The Trust employs
reasonable procedures to confirm that instructions communicated by telephone are
genuine. For instance, the following information must be verified by the
shareholder or securities broker at the time a request for a telephone
redemption is effected: (1) shareholder's account number; (2) shareholder's
social security number; and (3) name and account number of shareholder's
designated securities dealer or bank. If the Trust fails to follow these or
other established procedures, it may be liable for any losses due to
unauthorized or fraudulent instructions.
DIVIDENDS AND DISTRIBUTIONS
The Trust declares all of the Fund's net investment income daily as a
dividend to Fund shareholders. Dividends substantially equal to all of the
Fund's net investment income earned during the month are distributed in that
month to Fund 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 short-term and long-term capital gains, if any, are
distributed to shareholders annually. Additional distributions are also made to
the Fund's shareholders to the extent necessary to avoid application of the 4%
non-deductible federal excise tax on certain undistributed income and net
capital gains of regulated investment companies.
Unless a shareholder elects to receive dividends in cash, 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 Portfolio and therefore will not be
distributed as dividends to Fund shareholders. Rather, these payments on
mortgage-backed securities generally will be reinvested by the Portfolio in
accordance with its investment objective and policies.
TAX MATTERS
This discussion is intended for general information only. An investor should
consult with his own tax advisor as to the tax consequences of an investment in
the Fund, including the status of distributions from the Fund under applicable
state or local law.
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Code. To so qualify, the Fund must meet certain income, distribution and
diversification requirements. Provided such requirements are met and all
investment company taxable income and net realized capital gains of the Fund are
distributed to shareholders in accordance with the timing requirements imposed
by the Code, generally no federal income or excise taxes will be paid by the
Fund on amounts so distributed.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional shares of the Fund. Shareholders must treat
dividends, other than long-term capital gain dividends, as ordinary income.
Dividends designated by the Fund as long-term capital gain dividends are taxable
to shareholders as long-term capital gain regardless of the length of time the
shares of the Fund have been held by the shareholders. Certain dividends
declared in October, November, or December of a calendar year to shareholders of
record on a date in such a month are taxable to shareholders (who otherwise are
subject to tax on dividends) as though received on December 31 of that year if
paid to shareholders during January of the following calendar year.
Foreign Tax Withholding. Income received by the Portfolio from sources
within foreign countries may be subject to withholding and other income or
similar taxes imposed by such countries. If more than 50% of the value of the
Portfolio's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible and intends to elect to treat
its share of any non-U.S. income and similar taxes it pays (or which are paid by
the Portfolio) as though the taxes were paid by the Fund's shareholders.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his pro rata share
of the foreign taxes paid by the Fund or Portfolio, and will be entitled either
to deduct (as an itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. federal income tax liability, subject to limitations. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions, but such a shareholder may be eligible to claim the foreign tax
credit. Shareholders will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund or Portfolio will
be treated as paid by the Fund's shareholders for that year. Furthermore,
foreign shareholders may be subject to U.S. tax at the rate of 30% (or lower
treaty rate) of the income resulting from the Fund's election to treat any
foreign taxes paid by it as paid by its shareholders, but will not be able to
claim a credit or deduction for the foreign taxes treated as having been paid by
them.
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish the Fund with the shareholder's correct taxpayer identification
number ("TIN") or social security number and to make such certifications as the
Fund may require, (2) the Internal Revenue Service notifies the shareholder or
the Fund that the shareholder has failed to report properly certain interest and
dividend income to the Internal Revenue Service and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he is not subject to backup withholding. Backup withholding is not an
additional tax and any amounts withheld may be credited against the
shareholder's federal income tax liability. Dividends from the Fund attributable
to the Fund's net investment income and short-term capital gains generally will
be subject to U.S. withholding tax when paid to shareholders treated under U.S.
tax law as nonresident alien individuals or foreign corporations, estates,
partnerships or trusts.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each series of the Trust (including the Fund) qualifies
as a "regulated investment company" under the Code.
For additional information relating to the tax aspects of investing in the
Fund, see the Statement of Additional Information.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (par value $0.001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. Currently, the Trust has seven series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share. Shares have no preference, preemptive, conversion or
similar rights. Shares when issued are fully paid and non-assessable, except as
set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. The Trust is not required and has no
current intention to hold annual meetings of shareholders, although the Trust
will hold special meetings of Fund shareholders when in the judgment of the
Trustees of the Trust it is necessary or desirable to submit matters for a
shareholder vote. Shareholders of each series generally vote separately, for
example, to approve investment advisory agreements or changes in fundamental
investment policies or restrictions, but shareholders of all series may vote
together to the extent required under the 1940 Act, such as in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Under certain circumstances the shareholders of one or more series could control
the outcome of these votes.
The series of the Portfolio Trust will vote separately or together in the
same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of the Portfolio Trust could control the outcome
of these votes.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing subscribed to by a specified
number of shareholders. Upon liquidation or dissolution of the Fund,
shareholders of the Fund would be entitled to share pro rata in the net assets
of the Fund available for distribution to shareholders.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust is organized as a master trust fund under the laws of
the State of New York. The Portfolio is a separate series of the Portfolio
Trust, which currently has two other series. The Portfolio Trust's Declaration
of Trust provides that the Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) are each liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the investment of all of
the Assets of the Fund in the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each Portfolio Business Day. At 4:00 p.m.,
New York time, on each Portfolio Business Day, the value of each investor's
beneficial interest in the Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be effected on that day,
are then effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio is then recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of 4:00 p.m., New York time, on such day plus or minus, as
the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m., New York time, on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate investments in
the Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the Portfolio
as of 4:00 p.m., New York time, on the following Portfolio Business Day.
PERFORMANCE INFORMATION
Yield and total return data for the Fund may from time to time be included
in advertisements about the Trust. "Total return" is expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years. All total return figures reflect the
deduction of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. "Yield"
refers to the income generated by an investment in the Fund over the 30-day (or
one month) period ended on the date of the most recent balance sheet of the Fund
included in the Trust's registration statement with respect to the Fund. See the
Statement of Additional Information for further information concerning the
calculation of yield and total return data.
The following table sets forth the average annual total returns of all
institutional separate accounts managed by the Sub-Adviser with investment
objectives, policies and restrictions substantially similar to the Fund and the
Portfolio and which have been managed as the Portfolio has been, and is expected
to be, managed.
The composite data is provided to illustrate the past performance of the
Sub-Adviser in managing substantially similar accounts as measured against the
specified market index and does not represent the performance of the Fund or the
Portfolio. While the Fund was not operational before August 1, 1996 and has no
performance history to compare to the Sub-Adviser composite or the specified
index, the Portfolio has been operational since January 9, 1995. Accordingly, a
Fund composite reflecting the Portfolio's performance, adjusted to assume that
all charges, expenses and fees of the Fund currently in effect were deducted
during the relevant time periods, is also provided below. Investors should not
consider this composite performance data as an indication of future performance
of the Fund, the Portfolio or the Sub-Adviser.
The institutional separate accounts that are included in the Sub-Adviser's
composite are not subject to the diversification requirements, specific tax
restrictions and investment limitations imposed on the Fund and the Portfolio by
the 1940 Act or the Code. Consequently, the performance results of the
Sub-Adviser's composite could have been adversely affected if the institutional
separate accounts included in the composite had been regulated as investment
companies under the federal securities laws.
Returns for each period assume reinvestment of all net investment income,
are adjusted to assume that all charges, expenses and fees of the Fund and the
Portfolio which are currently in effect (as measured by the current expense
ratios of the Fund and the Portfolio) were deducted during such periods, and are
calculated in accordance with Securities and Exchange Commission guidelines. The
investment results of the Sub- Adviser's composite presented below are unaudited
and are not intended to predict or suggest the returns that might be experienced
by the Fund or an individual investing in the Fund.
<PAGE>
Annualized Returns
Sub-Adviser Salomon BIG
Composite Index(2) Fund Composite
1 Year(1)................... 7.62% 4.98% 5.56%
Since Portfolio Inception
1/9/95....................... N/A 11.21% 10.66%
5 Years(1).................. 9.29% 8.34% N/A
10 Years(1)................. 8.72% 8.61% N/A
- -------------
(1) Through June 30, 1996.
(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.
Any performance information should be considered in light of the Fund's
investment objective and policies, characteristics and quality of the Fund's
portfolio and the market conditions during the time period indicated, and should
not be considered to be representative of what may be achieved in the future.
From time to time the Trust may also use comparative performance information in
such advertisements, including the performance of unmanaged indices, the
performance of the Consumer Price Index (as a measure for inflation), and data
from Lipper Analytical Services, Inc. and other industry publications.
A Shareholder Servicing Agent or a securities broker may charge its
customers direct fees in connection with an investment in the Fund, which will
have the effect of reducing the net return on the investment of customers of
that Shareholder Servicing Agent or that securities broker. Such customers may
be able to obtain through their Shareholder Servicing Agent or securities broker
quotations reflecting such decreased return.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
GENERAL AND ACCOUNT INFORMATION (888) 525-5757 (TOLL FREE)
--------------------
The Trust's Statement of Additional Information, dated February 1, 1997,
with respect to the Fund contains more detailed information about the Fund,
including information related to (i) the Fund's investment restrictions, (ii)
the Trustees and officers of the Trust and the Manager, Sub-Adviser and Sponsor
of the Fund, (iii) portfolio transactions, (iv) the Fund's shares, including
rights and liabilities of shareholders, and (v) additional yield information,
including the method used to calculate the total return and yield of the Fund.
<PAGE>
APPENDIX
The characteristics of corporate debt obligations rated by Moody's are
generally as follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements. The
future of such bonds cannot be considered as well assured.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment.
Caa -- Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds rated Ca are speculative to a high degree.
C -- Bonds rated C are the lowest rated class of bonds and are regarded as
having extremely poor prospects.
The characteristics of corporate debt obligations rated by S&P are
generally as follows:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debts in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB -- Debt rated BB is predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with terms of the obligation.
BB indicates the lowest degree of speculation; CC indicates the highest degree
of speculation.
BB, B, CCC AND CC -- Debt in these ratings is predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
terms of the obligation. BB indicates the lowest degree of speculation and CC
the highest.
A bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by the rating services from other sources which they consider reliable.
The ratings may be changed, suspended or withdrawn as a result of changes in or
unavailability of, such information, or for other reasons.
The characteristics of corporate debt obligations rated by Fitch are
generally as follows:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short term debt of these issuers is generally rated "- +".
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payments of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD AND D-- Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the DDD, DD, or D categories.
RATINGS OF COMMERCIAL PAPER
Commercial paper rated A-1 by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements; the issuer's long-term
debt is rated A or better; the issuer has access to at least two additional
channels of borrowing; and basic earnings and cash flow have an upward trend
with allowances made for unusual circumstances. Typically, the issuer's industry
is well established and the issuer has a strong position within the industry.
Commercial paper rated Prime-1 by Moody's is the highest commercial paper
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and consumer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative strength or
weakness of the above factors determine how the issuer's commercial paper is
rated with various categories.
<PAGE>
- ------
REPUBLIC
BOND FUND
INVESTMENT MANAGER
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
SUB-ADVISER
Miller Anderson & Sherred
One Tower Bridge
West Conshohocken, PA 19428
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
REPUBLIC
BOND FUND
PROSPECTUS
February 1, 1997
<PAGE>
REPUBLIC OVERSEAS EQUITY FUND
3435 STELZER ROAD, COLUMBUS, OHIO 43219-3035
- ------------------------------------------------------------------------------
ACCOUNT AND GENERAL INFORMATION: (888) 525-5757 (TOLL FREE)
Republic Overseas Equity Fund (the "Fund") is a diversified series of
Republic Funds (the "Trust"), an open-end diversified management investment
company which currently consists of seven funds, each of which has different and
distinct investment objectives and policies. Only shares of the Fund are being
offered by this Prospectus. Republic National Bank of New York ("Republic" or
the "Manager") is the investment manager of International Equity Portfolio (the
"Portfolio"). Capital Guardian Trust Company ("CGTC" or the "Sub-Adviser")
continuously manages the investments of the Portfolio.
UNLIKE OTHER OPEN-END MANAGEMENT INVESTMENT COMPANIES (MUTUAL FUNDS) WHICH
DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, THE TRUST SEEKS
TO ACHIEVE THE INVESTMENT OBJECTIVE OF THE FUND BY INVESTING ALL OF THE FUND'S
INVESTABLE ASSETS ("ASSETS") IN THE PORTFOLIO, WHICH HAS THE SAME INVESTMENT
OBJECTIVE AS THE FUND. THE INVESTMENT EXPERIENCE OF THE FUND WILL CORRESPOND
DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE PORTFOLIO. THE PORTFOLIO IS A
DIVERSIFIED SERIES OF THE REPUBLIC PORTFOLIOS, WHICH IS AN OPEN-END MANAGEMENT
INVESTMENT COMPANY. SEE "SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND
STRUCTURE."
The investment objective of the Fund is to seek long-term growth of capital
and future income through investment primarily in securities of non-U.S. issuers
(including American Depositary Receipts and U.S. registered securities) and
securities whose principal markets are outside of the United States. The
principal investments of the Portfolio will be in equity securities of companies
in developed nations, including Europe, Canada, Australia and the Far East. The
Portfolio may also invest in emerging market equity securities.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
Shares are continuously offered for sale at net asset value with no sales
charge by BISYS Fund Services ("BISYS") (i) directly to the public, (ii) to
customers of a financial institution, such as a federal or state-chartered bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Trust (collectively, "Shareholder
Servicing Agents"), and (iii) to customers of a securities broker that has
entered into a dealer agreement with BISYS.
AN INVESTOR WHO IS NOT PURCHASING DIRECTLY FROM BISYS SHOULD OBTAIN FROM
HIS SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT, AND SHOULD READ IN
CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE SECURITIES
BROKER OR SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER WHICH
SHARES MAY BE PURCHASED AND REDEEMED THROUGH SUCH SECURITIES BROKER OR
SHAREHOLDER SERVICING AGENT.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor should know before investing. The Trust has filed
with the Securities and Exchange Commission a Statement of Additional
Information, dated February 1, 1997, with respect to the Fund, containing
additional and more detailed information about the Fund, which is hereby
incorporated by reference into this Prospectus. An investor may obtain a copy of
the Statement of Additional Information without charge by contacting the Fund at
the address and telephone number printed above.
--------------------
Investors should read this Prospectus and retain it for future reference.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1997
<PAGE>
HIGHLIGHTS
THE FUND PAGE 1
Republic Overseas Equity Fund (the "Fund") is a separate series of Republic
Funds (the "Trust"), a Massachusetts business trust organized on April 22, 1987,
which currently consists of seven funds, each of which has different and
distinct investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES PAGE 6
The investment objective of the Fund is to seek long-term growth of capital
and future income through investment primarily in securities of non-U.S. issuers
(including American Depositary Receipts ("ADRs") and U.S. registered securities)
and securities whose principal markets are outside of the United States. The
Trust seeks to achieve the investment objective of the Fund by investing all of
the Fund's Assets in International Equity Portfolio (the "Portfolio"), which has
the same investment objective as the Fund. The Portfolio is a series of Republic
Portfolios (the "Portfolio Trust"), a master trust fund established under the
law of the State of New York and organized on November 1, 1994. There can be no
assurance that the investment objective of the Fund or the Portfolio will be
achieved.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST PAGE 14
Republic acts as investment manager to the Portfolio pursuant to an
Investment Management Contract with the Portfolio Trust. For its services, the
Manager receives from the Portfolio a fee at the annual rate of 0.25% of the
Portfolio's average daily net assets.
Capital Guardian Trust Company ("CGTC" or the "Sub-Adviser") continuously
manages the investment portfolio of the Portfolio pursuant to a Sub-Advisory
Agreement with the Manager. For its services, the Sub-Adviser is paid a fee by
the Portfolio, computed daily and based on the Portfolio's average daily net
assets, equal on an annual basis to 0.70% of net assets up to $25 million, 0.55%
of net assets over $25 million and up to $50 million, 0.425% of net assets over
$50 million and up to $250 million, and 0.375% of net assets over $250 million.
See "Management of the Trust and the Portfolio Trust."
BISYS acts as sponsor (the "Sponsor") and administrator of the Fund (the
"Fund Administrator"), and as distributor (the "Distributor") of shares of the
Fund (the "Shares"). For its services to the Fund, the Fund Administrator
receives from the Fund a fee payable monthly equal on an annual basis to 0.05%
of the Fund's average daily net assets, subject to certain breakpoints on assets
in excess of $1 billion. BISYS Fund Services (Ireland) Limited ("BISYS
(Ireland)") acts as administrator of the Portfolio (the "Portfolio
Administrator"). For its services to the Portfolio, the Portfolio Administrator
receives from the Portfolio a fee payable monthly equal on an annual basis to
0.05% of the average daily net assets of the Portfolio, subject to certain
breakpoints on assets in excess of $1 billion.
The Trust also has retained BISYS to distribute Shares pursuant to a
distribution plan (the "Distribution Plan") adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"). Pursuant to the
terms of the Distribution Plan, the Distributor is reimbursed from the Fund for
marketing costs and payments to other organizations for services rendered in
distributing the Shares. This fee may not exceed 0.25% of the average daily net
assets of the Fund represented by Shares outstanding and is expected to be
limited to an amount such that the aggregate fees paid to the Distributor
pursuant to the Distribution Plan and to the Shareholder Servicing Agents
pursuant to the Administrative Services Plan do not exceed 0.25% of such assets.
See "Management of the Trust."
<PAGE>
PURCHASES AND REDEMPTIONS PAGE 19
Shares are continuously offered for sale by the Distributor at net asset
value with no sales charge (i) directly to the public, (ii) to customers of a
financial institution, such as a federal or state-chartered bank, trust company
or savings and loan association, that has entered into a shareholder servicing
agreement with the Trust (collectively, "Shareholder Servicing Agents"), and
(iii) to customers of a securities broker that has entered into a dealer
agreement with the Distributor. For investors who purchase Shares directly from
the Distributor, the minimum initial investment is $1,000 and the minimum
subsequent investment is $100. The Trust offers to buy back (redeem) Shares from
shareholders of the Fund at any time at net asset value. See "Purchase of
Shares" and "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS PAGE 24
The Trust declares and distributes all of the Fund's net investment income
as a dividend to Fund shareholders semi-annually. Any net realized capital gains
are distributed at least annually. All Fund distributions will be invested in
additional Fund shares, unless the shareholder instructs the Fund otherwise. See
"Dividends and Distributions."
<PAGE>
FEE TABLE
The following table summarizes an investor's maximum transaction costs from
investing in the Fund and the estimated aggregate annual operating expenses of
the Fund and the Portfolio as a percentage of the average daily net assets of
the Fund during the Fund's and the Portfolio's current fiscal years. The fiscal
year ends of the Fund and the Portfolio are both October 31. The example
illustrates the dollar cost of such estimated expenses on a $1,000 investment in
the Fund. The Trustees of the Trust believe that the aggregate per share
expenses of the Fund and the Portfolio will be less than or approximately equal
to the expenses which the Fund would incur if the Trust retained the services of
an investment adviser on behalf of the Fund and the Assets of the Fund were
invested directly in the type of securities being held by the Portfolio.
Shareholder Transaction Expenses ................................... None
Annual Fund Operating Expenses
Investment Advisory Fee after waiver*........................... 0.53%
Distribution Fees (Rule 12b-1 fees) ............................ 0.15%
Other Expenses ................................................. 1.02%
----
-- Shareholder Servicing Fee ............................. 0.10%
-- Administrative Services Fee ........................... 0.10%
-- Other Operating Expenses .............................. 0.82%
Total Operating Expenses after waiver**............................ 1.70%
====
- ----------
* Reflects a waiver of the investment management fee payable to
Republic and an investment sub-advisory fee payable to CGTC equal
on an annual basis to 0.53% of the Fund's average daily net assets.
Without such waiver, the Investment Advisory Fee would be equal on
an annual basis to 0.78% of the Fund's average net assets. See
"Management of the Trust and the Portfolio Trust."
** Total Operating Expenses are shown net of investment
management fee waiver. Without such fee waiver, Total
Operating Expenses would be equal on an annual basis to 1.95%
of the Fund's average net assets.
<PAGE>
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in Fund shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year ................................................... $17
3 years ................................................... $54
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE AGGREGATE EXPENSES OF THE FUND AND THE PORTFOLIO, AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the expense table provided above is to assist investors in
understanding the expenses of investing in the Fund and an investor's share of
the aggregate operating expenses of the Fund and the Portfolio. The information
is based on the expenses the Fund and the Portfolio expect to incur for the
current fiscal years of the Portfolio and the Fund.** The expense table shows
the expected investment management fee, investment subadvisory fee, distribution
(Rule 12b-1) fee, administrative services fee and shareholder servicing fee. For
a more detailed discussion of the costs and expenses of investing in the Fund,
see "Management of the Trust and the Portfolio Trust."
- ----------
**Assuming average daily net assets of $75 million in the Fund and $100 million
in the Portfolio for the current fiscal years.
The fees paid from the Fund to each Shareholder Servicing Agent are
determined by a formula based upon the number of accounts serviced by such
Shareholder Servicing Agent during the period for which payment is being made,
the level of activity in such accounts during such period, and the expenses
incurred by such Shareholder Servicing Agent. Similarly, the fee from the Fund
to the Distributor is in anticipation of, or as reimbursement for, expenses
incurred by the Distributor in connection with the sale of Shares. The aggregate
fees paid to the Distributor pursuant to the Distribution Plan and to the
Shareholder Servicing Agents pursuant to the Administrative Services Plan may
not exceed 0.25% of the average daily net assets of the Fund represented by
Shares outstanding during the period for which payment is being made. Long-term
shareholders may pay more than the economic equivalent of the maximum
distribution charges permitted by the National Association of Securities
Dealers, Inc.
Some Shareholder Servicing Agents and securities brokers 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 with respect to the
Fund, such as requiring a minimum initial investment or charging their customers
a direct fee for their services. The effect of any such fees will be to reduce
the net return on the investment of customers of that Shareholder Servicing
Agent or securities broker. Each Shareholder Servicing Agent and securities
broker has agreed to transmit to shareholders who are its customers appropriate
written disclosure of any transaction fees that it may charge them directly at
least 30 days before the imposition of any such charge.
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Fund since commencement of operations through October 31,
1996. The information shown in the following schedule has been audited by
_______________________, independent auditors, whose report on the Fund's
financial statements is incorporated by reference into the Statement of
Additional Information from the Fund's Annual Report dated October 31, 1996. The
Annual Report also includes management's discussion of fund performance, and may
be obtained without charge upon request. This information should be read in
conjunction with the financial statements.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
THE INDICATED PERIOD:
FOR THE PERIOD
AUGUST 1, 1996
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1996
----------------
Net asset value, beginning of period .................. $_____
<PAGE>
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................. ____
Net realized and unrealized gain from Portfolio ... ____
------
Total increase from investment operations ......... ____
------
LESS DIVIDENDS:
From net investment income ........................ ______
Net realized capital gains ........................ --
------
Total distributions to shareholders ............... ______
Net asset value, end of period ........................ $_____
======
TOTAL RETURN .......................................... _____%(a)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)............... $______
Ratio of expenses to average net assets (b)........ _____%(c)
Ratio of net investment income to average net
assets(b) ....................................... ____%(c)
Portfolio turnover rate ........................... ____%(c)
Average commission rate paid....................... ____%
- ----------
(a) Not annualized.
(b) Reflects a voluntary expense limitation and waiver of fees by affiliated
parties of the Fund. If this limitation had not been in effect, the
annualized ratios of expenses and net investment income to average
net assets for the period August 1, 1996 (commencement of operations) to
October 31, 1996 would have been:
Ratio of expenses to average net assets ......... ___%(c)
Ratio of net investment income to average
net assets ........................................ ___%(c)
(c) Annualized.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term growth of capital
and future income through investment primarily in securities of non-U.S. issuers
(including ADRs and U.S. registered securities) and securities whose principal
markets are outside of the United States. The investment objective of the
Portfolio is the same as the investment objective of the Fund.
There can be no assurance that the investment objective of the Fund will be
achieved. The investment objective of each of the Fund and the Portfolio may be
changed without investor approval. If there is a change in the investment
objective of the Fund, shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial position and
needs. Shareholders of the Fund shall receive 30 days' prior written notice of
any change in the investment objective of the Fund or the Portfolio.
Since the investment characteristics of the Fund will correspond to those of
the Portfolio, the following is a discussion of the various investment policies
of the Portfolio.
INVESTMENT POLICIES
The Portfolio will normally invest at least 80% of its total assets in
equity securities of foreign corporations, consisting of common stocks, and
other securities with equity characteristics, including preferred stock,
warrants, rights, securities convertible into common stock ("convertible
securities"), trust certificates, limited partnership interests and equity
participations. The common stock in which the Portfolio may invest includes the
common stock of any class or series 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. See "Additional
Risk Factors and Policies: Foreign Securities -- Emerging Markets." The
Portfolio intends to have at least three different countries represented in its
portfolio. It is the current intention of the Portfolio to invest primarily in
companies with large market capitalizations. The Portfolio seeks to outperform
the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East)
Index (the "EAFE 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 the
Sub-Adviser, economic or market conditions warrant, the Portfolio may
temporarily invest part or all of its assets in fixed income securities
denominated in foreign currencies, obligations of domestic or foreign
governments and their political subdivisions ("Government Securities"), and
nonconvertible preferred stock, or hold its assets in cash or equivalents. Debt
securities purchased by the Portfolio will be limited to those rated, at the
time of investment, in the four highest rating categories by a nationally
recognized statistical rating organization ("NRSRO") or, if unrated, determined
by the Sub-Adviser to be of comparable quality. Securities rated by a NRSRO in
the fourth highest rating category are considered to have some speculative
characteristics. When the total return opportunities in a foreign bond market
appear attractive in local currency terms, but, in the Sub-Adviser's judgment,
unacceptable currency risk exists, currency futures, forwards and options may be
used to hedge the currency risk. See "Additional Risk Factors and Policies:
Forward Foreign Currency Contracts and Options on Foreign Currencies."
As described under "Management of the Trust and the Portfolio Trust--Sub
Adviser," CGTC, the Portfolio's Sub-Adviser, uses a system of multiple portfolio
managers pursuant to which the Portfolio is divided into segments which are
assigned to individual portfolio managers. Within investment guidelines, each
portfolio manager makes individual decisions as to company, country, industry,
timing and percentage based on extensive field research and direct company
contact.
Because of the risks associated with common stocks and other equity
investments, the Portfolio is intended to be a long-term investment vehicle and
is not designed to provide investors with a means of speculating on short-term
stock market movements. The Sub-Adviser seeks to reduce these risks by
diversifying the portfolio as well as by monitoring broad economic trends and
corporate and legislative developments.
ADDITIONAL RISK FACTORS AND POLICIES
FOREIGN SECURITIES
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject to
the disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of cash or
other assets of the Portfolio, political or financial instability, or diplomatic
and other developments which could affect such investments. Further, economies
of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the United States. Changes in foreign exchange
rates will affect the value of securities denominated or quoted in currencies
other than the U.S. dollar. Foreign securities often trade with less frequency
and volume than domestic securities and therefore may exhibit greater price
volatility. Furthermore, dividends from foreign securities may be withheld at
the source. Additional costs associated with an investment in foreign securities
may include higher custodial fees than apply to domestic custodial arrangements,
and transaction costs of foreign currency conversions.
Emerging Markets. Investing in emerging market countries presents greater
risk than investing in foreign issuers in general. A number of emerging markets
restrict foreign investment in stocks. Repatriation of investment income,
capital, and the proceeds of sales by foreign investors may require governmental
registration and/or approval in some emerging market countries. A number of the
currencies of developing countries have experienced significant declines against
the U.S. dollar in recent years, and devaluation may occur subsequent to
investments in these currencies by the Portfolio. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries. Many of the emerging securities markets are relatively small, have
low trading volumes, suffer periods of relative illiquidity, and are
characterized by significant price volatility. There is the risk that a future
economic or political crisis could lead to price controls, forced mergers of
companies, expropriation or confiscatory taxation, seizure, nationalization, or
creation of government monopolies, any of which could have a detrimental effect
on the Portfolio's investments.
Investing in formerly communist East European countries involves the
additional risk that the government or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the fall of communism and could follow radically different political and/or
economic policies to the detriment of investors, including non-market oriented
policies such as the support of certain industries at the expense of other
sectors or a return to a completely centrally planned economy. The Portfolio
does not currently intend to invest a significant portion of its assets in
formerly communist East European countries.
As used in this Prospectus, "emerging markets" include any country which in
the opinion of the Sub-Adviser is generally considered to be an emerging or
developing country by the International Bank for Reconstruction and Development
(the World Bank) and the International Monetary Fund. Currently, these countries
generally include every country in the world except Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, United
Kingdom and United States.
A company in an emerging market is one that: (i) is domiciled and has its
principal place of business in an emerging market or (ii) (alone or on a
consolidated basis) derives or expects to derive a substantial portion of its
total revenue from either goods produced, sales made or services performed in
emerging markets. The Portfolio may invest up to 20% of its assets in the equity
securities of companies based in emerging markets.
Sovereign and Supranational Debt Obligations. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a high degree of risk, and may be in default
or present the risk of default. The issuer of the obligation or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
DEPOSITARY RECEIPTS
The Portfolio may invest in ADRs, European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs"), and International Depositary Receipts
("IDRs"), or other similar securities convertible into securities of foreign
issuers. ADRs (sponsored or unsponsored) are receipts typically issued by a U.S.
bank or trust company evidencing the deposit with such bank or company of a
security of a foreign issuer, and are publicly traded on exchanges or
over-the-counter in the United States. In sponsored programs, an issuer has made
arrangements to have its securities trade in the form of ADRs. In unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, in some cases it may be easier to
obtain financial information from an issuer that has participated in the
creation of a sponsored program.
EDRs, which are sometimes referred to as Continental Depositary Receipts,
are receipts issued in Europe typically by foreign bank and trust companies that
evidence ownership of either foreign or domestic underlying securities. IDRs are
receipts typically issued by a European bank or trust company evidencing
ownership of the underlying foreign securities. GDRs are receipts issued by
either a U.S. or non-U.S. banking institution evidencing ownership of the
underlying foreign securities.
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. A mutual fund, of course, derives its value from the value of the
investments it holds and so might even be called a "derivative." Some
"derivatives" such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more volatile or
less liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There are a
range of risks associated with those uses. Futures and options are commonly used
for traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities. The
Portfolio may use derivatives for hedging purposes, cash management purposes, as
a substitute for investing directly in fixed income instruments, and to enhance
return when the Sub-Adviser believes the investment will assist the Portfolio in
achieving its investment objective. A description of the derivatives that the
Portfolio may use and some of their associated risks follows.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Forward foreign currency exchange contracts ("forward contracts") are
intended to minimize the risk of loss to the Portfolio from adverse changes in
the relationship between the U.S. dollar and foreign currencies. The Portfolio
may not enter into such contracts for speculative purposes, and will commit no
more than 100% of the value of its assets to forward contracts entered into for
hedging purposes.
A forward contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date which is individually negotiated and
privately traded by currency traders and their customers. A forward contract may
be used, for example, when the Portfolio enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of the security. The Portfolio may also purchase and write
put and call options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired.
OPTIONS AND FUTURES TRANSACTIONS
For hedging purposes only, the Portfolio may invest in foreign currency
futures contracts and options on foreign currencies and foreign currency futures
contracts. Futures contracts provide for the sale by one party and purchase by
another party of a specified amount of a specific security, at a specified
future time and price. An option is a legal contract that gives the holder the
right to buy or sell a specified amount of the underlying security or futures
contract at a fixed or determinable price upon the exercise of the option. A
call option conveys the right to buy and a put option conveys the right to sell
a specified quantity of the underlying security. The Portfolio will segregate
assets or "cover" its positions consistent with requirements under the 1940 Act.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Portfolio's return. While the use of these
instruments by the Portfolio may reduce certain risks associated with owning its
portfolio securities, these techniques themselves entail certain other risks. If
the Sub-Adviser applies a strategy at an inappropriate time or judges market
conditions or trends incorrectly, options and futures strategies may lower the
Portfolio's return. Certain strategies limit the Portfolio's potential to
realize gains as well as limit its exposure to losses. The Portfolio could also
experience losses if the prices of its options and futures positions were poorly
correlated with its other investments. There can be no assurance that a liquid
market will exist at a time when the Portfolio seeks to close out a futures
contract or a futures option position. Most futures exchanges and boards of
trade limit the amount of fluctuation permitted in futures contract prices
during a single day; once the daily limit has been reached on a particular
contract, no trades may be made that day at a price beyond that limit. In
addition, certain of these instruments are relatively new and without a
significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Portfolio from liquidating an unfavorable position
and the Portfolio would remain obligated to meet margin requirements until the
position is closed. In addition, the Portfolio will incur transaction costs,
including trading commissions and options premiums, in connection with its
futures and options transactions, and these transactions could significantly
increase the portfolio's turnover rate.
CONVERTIBLE SECURITIES
Although the Portfolio's equity investments consist primarily of common and
preferred stocks, the Portfolio may buy securities convertible into common stock
if, for example, the Sub-Adviser believes that a company's convertible
securities are undervalued in the market. Convertible securities eligible for
purchase by the Portfolio consist of convertible bonds, convertible preferred
stocks, warrants and rights. See "Additional Risk Factors and Policies --
Warrants" below and the Statement of Additional Information for a discussion of
these instruments.
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in securities that are
illiquid by virtue of the absence of a readily available market, or because of
legal or contractual restrictions on resale. This policy does not limit the
acquisition of securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as described below. The
Portfolio may not invest more than 10% of its assets in restricted securities
(including Rule 144A securities). There may be delays in selling these
securities and sales may be made at less favorable prices.
The Sub-Adviser may determine that a particular Rule 144A security is
liquid and thus not subject to the Portfolio's limits on investment in illiquid
securities, pursuant to guidelines adopted by the Board of Trustees. Factors
that the Sub-Adviser must consider in determining whether a particular Rule 144A
security is liquid include the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and the nature of the market for the
security (i.e., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). Investing in Rule 144A
securities could have the effect of increasing the level of the Portfolio's
illiquidity to the extent that qualified institutions might become, for a time,
uninterested in purchasing these securities.
WARRANTS
The Portfolio may invest up to 10% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached to
securities. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specific amount of the corporation's capital
stock at a set price for a specified period of time. Warrants do not represent
ownership of the securities, but only the right to buy the securities. The
prices of warrants do not necessarily move parallel to the prices of underlying
securities. Warrants may be considered speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of a
corporation issuing them. Warrant positions will not be used to increase the
leverage of the Portfolio. Consequently, warrant positions are generally
accompanied by cash positions equivalent to the required exercise amount.
LOANS OF PORTFOLIO SECURITIES
The Portfolio may lend its securities to qualified brokers, dealers, banks
and other financial institutions for the purpose of realizing additional income.
Loans of securities will be collateralized by cash, letters of credit, or
securities issued or guaranteed by the U.S. Government or its agencies. The
collateral will equal at least 100% of the current market value of the loaned
securities. In addition, the Portfolio will not lend its portfolio securities to
the extent that greater than one-third of its total assets, at fair market
value, would be committed to loans at that time.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Portfolio may purchase and sell securities on a when-issued or
firm-commitment basis, in which a security's price and yield are fixed on the
date of the commitment but payment and delivery are scheduled for a future date.
On the settlement date, the market value of the security may be higher or lower
than its purchase or sale price under the agreement. If the other party to a
when-issued or firm-commitment transaction fails to deliver or pay for the
security, the Portfolio could miss a favorable price or yield opportunity or
suffer a loss. The Portfolio will not earn interest on securities until the
settlement date. The Portfolio will maintain in a segregated account with the
custodian cash or liquid, high-grade debt securities equal (on a daily
marked-to-market basis) to the amount of its commitment to purchase the
securities on a when-issued basis.
PORTFOLIO TURNOVER
The Sub-Adviser manages the Portfolio generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the Portfolio will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held. It is expected that the
annual turnover rate for the Portfolio will not exceed 40%.
INVESTMENT RESTRICTIONS
Each of the Portfolio and the Fund has adopted certain investment
restrictions designed to reduce exposure to specific situations (except that
none of these investment restrictions shall prevent the Fund from investing all
of its assets in a registered investment company with substantially the same
investment objective). Some of these investment restrictions are:
(1) with respect to 75% of its assets, the Portfolio (Fund) will not
purchase securities of any issuer if, as a result, more than 5% of the
Portfolio's (Fund's) total assets taken at market value would be
invested in the securities of any single issuer;
(2) with respect to 75% of its assets, the Portfolio (Fund) will not
purchase a security if, as a result, the Portfolio (Fund) would hold
more than 10% of the outstanding voting securities of any issuer;
(3) the Portfolio (Fund) will not invest more than 5% of its total assets in
the securities of issuers (other than securities issued or guaranteed by
U.S. or foreign governments or political subdivisions thereof) which
have (with predecessors) a record of less than three years of continuous
operation;
(4) the Portfolio (Fund) will not acquire any securities of companies within
one industry, if, as a result of such acquisition, more than 25% of the
value of the Portfolio's (Fund's) total assets would be invested in
securities of companies within such industry; provided, however, that
there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
when the Portfolio (Fund) adopts a temporary defensive position;
(5) the Portfolio (Fund) will not make loans except for the lending of
portfolio securities pursuant to guidelines established by its Board of
Trustees and except as otherwise in accordance with its investment
objective and policies;
(6) the Portfolio (Fund) will not borrow money except from a bank as a
temporary measure to satisfy redemption requests or for extraordinary
or emergency purposes, provided that the Portfolio (Fund) maintains
asset coverage of at least 300% for all such borrowings;
(7) the Portfolio (Fund) will not purchase warrants, valued at the lower of
cost or market, in excess of 10% of the Portfolio's (Fund's) net assets.
Included within that amount, but not to exceed 2% of the Portfolio's
(Fund's) net assets, are warrants whose underlying securities are not
traded on principal domestic or foreign exchanges. Warrants acquired by
the Portfolio (Fund) in units or attached to securities are not subject
to these restrictions;
(8) the Portfolio (Fund) will not issue senior securities, except as
permitted under the 1940 Act; and
(9) the Portfolio (Fund) will not invest its assets in securities of any
investment company, except by purchase in the open market involving only
customary brokers' commissions or in connection with mergers,
acquisitions of assets or consolidations and except as may otherwise be
permitted by the 1940 Act; provided, however, that the Portfolio shall
not invest in the shares of any open-end investment company unless (1)
the Portfolio's Sub-Adviser waives any investment advisory fees with
respect to such assets and (2) the Portfolio pays no sales charge in
connection with the investment.
Limitations (1), (2), (4), (5), (6) and (8), and certain other limitations
described in the Statement of Additional Information are fundamental and may be
changed only with the approval of the holders of a "majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Portfolio or the Fund, as
the case may be. The other investment restrictions described here and in the
Statement of Additional Information are not fundamental policies meaning that
the Board of Trustees of the Portfolio Trust may change them without investor
approval. If a percentage limitation on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the value or total cost of the
Portfolio's assets will not be considered a violation of the restriction, and
the sale of securities will not be required.
SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE
The Trust, which is an open-end investment company, seeks to achieve the
investment objective of the Fund by investing all of the Fund's Assets in the
Portfolio, a series of a separate open-end investment company with the same
investment objective as the Fund. Other mutual funds or institutional investors
may invest in the Portfolio on the same terms and conditions as the Fund.
However, these other investors may have different sales commissions and other
operating expenses which may generate different aggregate performance results.
Information concerning other investors in the Portfolio is available by calling
the Sponsor at (614) 470-8000. The two-tier investment fund structure has been
developed relatively recently, so shareholders should carefully consider this
investment approach.
The investment objective of the Fund may be changed without the approval of
the shareholders of the Fund and the investment objective of the Portfolio may
be changed without the approval of the investors in the Portfolio. Shareholders
of the Fund will receive 30 days prior written notice of any change in the
investment objective of the Fund or the Portfolio. For a description of the
investment objective, policies and restrictions of the Portfolio, see
"Investment Objective and Policies" above.
Except as permitted by the Securities and Exchange Commission, whenever the
Trust is requested to vote on a matter pertaining to the Portfolio, the Trust
will hold a meeting of the shareholders of the Fund and, at the meeting of
investors in the Portfolio, the Trust will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Trust votes all its shares at the Portfolio meeting,
other investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
The Trust may withdraw the Fund's investment in the Portfolio as a result
of certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Trustees of the Trust determines that it is
otherwise in the best interests of the Fund to do so. Upon any such withdrawal,
the Board of Trustees of the Trust would consider what action might be taken,
including the investment of all of the Assets of the Fund in another pooled
investment entity or the retaining of an investment adviser to manage the Fund's
Assets in accordance with the investment policies described above with respect
to the Portfolio. In the event the Trustees of the Trust were unable to
accomplish either, the Trustees will determine the best course of action.
As with traditionally structured funds which have large investors, the
actions of such large investors may have a material effect on smaller investors.
For example, if a large investor withdraws from the Portfolio, a small remaining
fund may experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk.
For descriptions of the management and expenses of the Portfolio, see
"Management of the Trust and the Portfolio Trust" below and in the Statement of
Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
The business and affairs of the Trust and the Portfolio Trust are managed
under the direction of their respective Boards of Trustees. The Trustees of each
of the Trust and the Portfolio Trust are Frederick C. Chen, Alan S. Parsow,
Larry M. Robbins and Michael Seely. Additional information about the Trustees,
as well as the executive officers of the Trust and the Portfolio Trust, may be
found in the Statement of Additional Information under the caption "Management
of the Trust and the Portfolio Trust -- Trustees and Officers."
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Portfolio Trust. Under the conflicts of interest procedures, the Trustees will
review on a quarterly basis any potential conflicts of interests after
consulting with Fund counsel, the Manager and the Fund Administrator. If a
potential conflict of interest arises, the Board of Trustees of the entity that
may be adversely affected will take such action as is reasonably appropriate to
resolve the conflict, up to and including establishing a new Board of Trustees
for such entity. See "Management of the Trust and the Portfolio Trust" in the
Statement of Additional Information for more information about the Trustees and
the executive officers of the Trust and the Portfolio Trust.
INVESTMENT MANAGER
Republic, whose address is 452 Fifth Avenue, New York, New York 10018,
serves as investment manager to the Portfolio pursuant to an Investment
Management Contract with the Portfolio Trust. Subject to the general guidance
and the policies set by the Trustees of the Portfolio Trust, Republic provides
general supervision over the investment management functions performed by the
Sub-Adviser. For its services under the Investment Management Contract, the
Manager receives from the Portfolio Trust a fee, payable monthly, at the annual
rate of 0.25% of the Portfolio's average daily net assets.
Republic is a wholly owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of December 31, 1996, Republic was the ____
largest commercial bank in the United States measured by deposits and the ____
largest commercial bank measured by shareholder equity.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the
Portfolio, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of obligations so purchased.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Portfolio will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Republic from continuing to perform such services for
the Portfolio. If Republic were prohibited from acting as investment manager to
the Portfolio, it is expected that the Trust's Board of Trustees would recommend
to Fund shareholders approval of a new investment advisory agreement with
another qualified investment adviser selected by the Board or that the Board
would recommend other appropriate action.
SUB-ADVISER
CGTC continuously manages the investment portfolio of the Portfolio
pursuant to a Sub-Advisory Agreement with the Manager. For its services, the
Sub-Adviser is paid a fee by the Portfolio, computed daily and based on the
Portfolio's average daily net assets, equal to 0.70% of net assets up to $25
million, 0.55% of net assets over $25 million up to $50 million, 0.425% of net
assets over $50 million up to $250 million, and 0.375% of net assets over $250
million. For the fiscal year ended October 31, 1996, such fee equaled ___% of
the Portfolio's average daily net assets. It is the responsibility of the
Sub-Adviser not only to make investment decisions for the Portfolio, but also to
place purchase and sale orders for the portfolio transactions of the Portfolio.
See "Portfolio Transactions."
CGTC, which was founded in 1968, is a wholly owned subsidiary of The Capital
Group Companies, Inc., both of which are located at 333 South Hope Street, Los
Angeles, California 90071. As of December 31, 1996 CGTC managed in excess of $__
billion of assets primarily for large institutional clients. CGTC's research
activities are conducted by affiliated companies with offices in Los Angeles,
San Francisco, New York, Washington, D.C., Atlanta, London, Geneva, Singapore,
Hong Kong and Tokyo.
Capital Research and Management Company ("CRMC"), another wholly owned
subsidiary of The Capital Group Companies, Inc., provides investment advisory
services to the following mutual funds, which are know collectively as the
American Funds Group: AMCAP Fund, American Balanced Fund, American High Income
Municipal Bond Fund, American High Income Trust, American Mutual Fund, The Bond
Fund of America, The Cash Management Trust of America, Capital Income Builder,
Inc., Capital World Bond Fund, EuroPacific Growth Fund, Fundamental Investors,
The Growth Fund of America, Income Fund of America, Intermediate Bond Fund of
America, The Investment Company of America, Limited Term Tax-Exempt Bond Fund of
America, The New Economy Fund, New Perspective Fund, Smallcap World Fund, The
Tax-Exempt Bond Fund of America, The American Funds Tax-Exempt Series I, The
American Funds Tax-Exempt Series II, The Tax-Exempt Money Fund of America, The
American Funds Income Series, The U.S. Treasury Money Fund of America,
Washington Mutual Investors Fund, and Capital World Growth and Income Fund. CRMC
also provides investment advisory services to: American Variable Insurance
Series and Anchor Pathway Fund, which are used exclusively as underlying
investment vehicles for variable insurance contracts and policies, and to
Endowments, Inc. and Bond Portfolio for Endowments, Inc., whose shares may be
owned only by tax-exempt organizations. Capital International, Inc., an indirect
wholly owned subsidiary of The Capital Group Companies, Inc., provides
investment advisory services to Emerging Markets Growth Fund, Inc., which is a
closed-end investment company.
The following persons are primarily responsible for portfolio management of
the Portfolio: David Fisher, Vice Chairman of CGTC, has had 30 years experience
as an investment professional (26 years with CGTC or its affiliates); Harmut
Giesecke, Senior Vice President and Director of Capital International, Inc., has
had 24 years experience as an investment professional (23 years with CGTC or its
affiliates); Nancy Kyle, Senior Vice President of CGTC, has had 22 years
experience as an investment professional (5 years with CGTC or its affiliates;
from 1980 to 1990, Ms. Kyle was managing director of J. P. Morgan Investment
Management, Inc.); John McIlwraith, Senior Vice President of CGTC, has had 26
years experience as an investment professional (12 years with CGTC or its
affiliates); Robert Ronus, President of CGTC, has had 27 years experience as an
investment professional (23 years with CGTC or its affiliates); and Nilly
Sikorsky, Director of The Capital Group, Inc., has had 33 years experience as an
investment professional, all of which was with CGTC or its affiliates.
DISTRIBUTOR AND SPONSOR
BISYS, whose address is 3435 Stelzer Road, Columbus, Ohio 43219-3035, acts
as sponsor and principal underwriter and distributor of the Shares pursuant to a
Distribution Contract with the Trust. The Distributor may, out of its own
resources, make payments to broker-dealers for their services in distributing
Shares. BISYS and its affiliates also serve as administrator or distributor to
other investment companies. BISYS is a wholly owned subsidiary of BISYS Group,
Inc.
Pursuant to a Distribution Plan adopted by the Trust (the "Plan"), the
Distributor is reimbursed from the Fund monthly for costs and expenses incurred
by the Distributor in connection with the distribution of Fund Shares and for
the provision of certain shareholder services with respect to Shares. The amount
of this reimbursement may not exceed on an annual basis 0.25% of the average
daily net assets of the Fund represented by Shares outstanding during the period
for which payment is being made. Payments to the Distributor are for various
types of activities, including: (1) payments to broker-dealers who advise
shareholders regarding the purchase, sale or retention of Shares and who provide
shareholders with personal services and account maintenance services ("service
fees"), (2) payments to employees of the Distributor, and (3) printing and
advertising expenses. It is currently intended that the aggregate fees paid to
the Distributor pursuant to the Plan and to Shareholder Servicing Agents
pursuant to the Administrative Services Plan will not exceed on an annual basis
0.25% of the Fund's average daily net assets represented by Shares outstanding
during the period for which payment is being made. Salary expense of BISYS
personnel who are responsible for marketing shares of the various portfolios of
the Trust may be allocated to such portfolios on the basis of average net
assets; travel expense is allocated to, or divided among, the particular
portfolios for which it is incurred.
Any payment by the Distributor or reimbursement of the Distributor from the
Fund made pursuant to the Plan is contingent upon the Board of Trustees'
approval. The Fund is not liable for distribution and shareholder servicing
expenditures made by the Distributor in any given year in excess of the maximum
amount (0.25% per annum of the Fund's average daily net assets represented by
Shares outstanding) payable under the Plan in that year.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the "Administrative
Services Plan") with respect to Fund Shares which provides that the Trust may
obtain the services of an administrator, transfer agent, custodian and one or
more Shareholder Servicing Agents, and may enter into agreements providing for
the payment of fees for such services.
FUND ADMINISTRATOR AND PORTFOLIO ADMINISTRATOR
Pursuant to Administration Agreements, BISYS and BISYS (Ireland) provide
each of the Fund and the Portfolio, respectively, with general office facilities
and supervise the overall administration of the Fund and the Portfolio
including, among other responsibilities, the preparation and filing of all
documents required for compliance by the Fund and the Portfolio with applicable
laws and regulations and arranging for the maintenance of books and records of
the Fund and the Portfolio. For its services to the Fund, the Fund Administrator
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 Fund's average daily net assets in excess of $1
billion up to $2 billion, and 0.035% of the Fund's average daily net assets in
excess of $2 billion. The administrative services fees of the Fund are subject
to an annual minimum fee. See the Statement of Additional Information. For its
services to the Portfolio, the Portfolio Administrator receives from the
Portfolio fees payable monthly equal on an annual basis (for the Portfolio's
then-current fiscal year) to 0.05% of the Portfolio's average daily net assets
up to $1 billion, 0.04% of the Portfolio's average daily net assets in excess of
$1 billion up to $2 billion, and 0.035% of the Portfolio's average daily net
assets in excess of $2 billion.
The Fund Administrator and the Portfolio Administrator provide persons
satisfactory to the respective Boards of Trustees to serve as officers of the
Trust and the Portfolio Trust. Such officers, as well as certain other employees
of the Trust and of the Portfolio Trust, may be directors, officers or employees
of the Fund Administrator, the Portfolio Administrator, or their affiliates.
BISYS, BISYS (Ireland) and their affiliates also serve as administrator and
distributor of other investment companies. BISYS and BISYS (Ireland) are wholly
owned subsidiaries of BISYS Group, Inc.
TRANSFER AGENT AND CUSTODIAN
Each of the Trust and the Portfolio Trust has entered into a Transfer
Agency Agreement with Investors Bank & Trust Company ("IBT") pursuant to which
IBT acts as transfer agent (the "Transfer Agent") for the Fund and the
Portfolio. The Transfer Agent maintains an account for each shareholder of the
Fund and investor in the Portfolio, performs other transfer agency functions,
and acts as dividend disbursing agent for the Fund. Pursuant to respective
Custodian Agreements, IBT also acts as the custodian (the "Custodian") of the
assets of the Fund and the Portfolio. The Portfolio Trust's Custodian Agreement
provides that the Custodian may use the services of sub-custodians with respect
to the Portfolio. The Custodian's responsibilities include safeguarding and
controlling the Fund's cash and the Portfolio's cash and securities, and
handling the receipt and delivery of securities, determining income and
collecting interest on the Portfolio's investments, maintaining books of
original entry for portfolio accounting and other required books and accounts,
and calculating the daily net asset value of the Portfolio. Securities held for
the Portfolio may be deposited into the Federal Reserve-Treasury Department Book
Entry System or the Depositary Trust Company. The Custodian does not determine
the investment policies of the Fund or the Portfolio or decide which securities
will be purchased or sold for the Portfolio. Assets of the Portfolio may,
however, be invested in securities of the Custodian and the Portfolio Trust may
deal with the Custodian as principal in securities transactions for the
Portfolio. For its services, IBT receives such compensation as may from time to
time be agreed upon by it and the Trust or the Portfolio Trust.
SHAREHOLDER SERVICING AGENTS
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent, including Republic, pursuant
to which a Shareholder Servicing Agent, as agent for its customers, among other
things: answers customer inquiries regarding account status and history, the
manner in which purchases and redemptions of Shares may be effected and certain
other matters pertaining to the 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. For these services, each Shareholder Servicing
Agent receives a fee from the Fund, which may be paid periodically, determined
by a formula based upon the number of accounts serviced by such Shareholder
Servicing Agent during the period for which payment is being made, the level of
activity in accounts serviced by such Shareholder Servicing Agent during such
period, and the expenses incurred by such Shareholder Servicing Agent. It is
currently intended that the aggregate fees paid to the Distributor pursuant to
the Plan and to Shareholder Servicing Agents pursuant to the Administrative
Services Plan will not exceed on an annual basis 0.25% of the Fund's average
daily net assets represented by Shares outstanding during the period for which
payment is being made.
The Trust understands that some Shareholder Servicing Agents also may
impose certain conditions on their customers, subject to the terms of this
Prospectus, in addition to or different from those imposed by the Trust, such as
requiring a different minimum initial or subsequent investment, account fees (a
fixed amount per transaction processed), compensating balance requirements (a
minimum dollar amount a customer must maintain in order to obtain the services
offered), or account maintenance fees (a periodic charge based on a percentage
of the assets in the account or of the dividends paid on those assets). Each
Shareholder Servicing Agent has agreed to transmit to its customers who are
holders of Shares appropriate prior written disclosure of any fees that it may
charge them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the Fund. The Trust engages banks as Shareholder
Servicing Agents on behalf of the Fund only to perform administrative and
shareholder servicing functions as described above. The Trust believes that the
Glass-Steagall Act should not preclude a bank from acting as a Shareholder
Servicing Agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain Fund shareholders, and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trustees of the Trust do not expect that
shareholders of the Fund would suffer any adverse financial consequences as a
result of these occurrences.
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by the Distributor, Manager or the Sub-Adviser. See "Management of the
Trust -- Expenses and Expense Limits" in the Statement of Additional
Information. Trust expenses directly attributable to the Fund are charged to the
Fund; other expenses are allocated proportionately among all the portfolios in
the Trust in relation to the net assets of each portfolio. For the period from
August 1, 1996 (commencement of operations) through October 31, 1996, the
Fund's operating expenses equaled on an annual basis ____% of its average daily
net assets.
PORTFOLIO TRANSACTIONS
To the extent consistent with applicable legal requirements, the Sub-Adviser
may place orders for the purchase and sale of portfolio investments for the
Portfolio with Republic New York Securities Corporation, subject to obtaining
best price and execution for a particular transaction. See the Statement of
Additional Information.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Shares is determined on each day on which the New
York Stock Exchange is open for regular trading ("Fund Business Day"). This
determination is made once during each such day as of 4:00 p.m., New York time,
by dividing the value of the Fund's net assets (i.e., the value of its
investment in the Portfolio and other assets less its liabilities, including
expenses payable or accrued) by the number of Shares outstanding at the time the
determination is made.
The value of the Fund's investment in the Portfolio is also determined once
daily at 4:00 p.m., New York time, on each day the New York Stock Exchange is
open for regular trading ("Portfolio Business Day").
The determination of the value of the Fund's investment in the Portfolio is
made by subtracting from the value of the total assets of the Portfolio the
amount of the Portfolio's liabilities and multiplying the difference by the
percentage, effective for that day, which represents the Fund's share of the
aggregate beneficial interests in the Portfolio.
Values of assets held by the Portfolio are determined on the basis of their
market or other fair value, as described in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares may be purchased through Shareholder Servicing Agents or through
securities brokers that have entered into a dealer agreement with the
Distributor ("Securities Brokers"). Shares may be purchased without a sales load
at their net asset value next determined after an order is transmitted to and
accepted by the Distributor or is received by a Shareholder Servicing Agent or a
Securities Broker if it is transmitted to and accepted by the Distributor.
Purchases are therefore effected on the same day the purchase order is received
by the Distributor provided such order is received prior to 4:00 p.m., New York
time, on any Fund Business Day. The Trust intends the Fund to be as fully
invested at all times as is reasonably practicable in order to enhance the yield
on its assets. Each Shareholder Servicing Agent or Securities Broker is
responsible for and required to promptly forward orders for Shares to the
Distributor.
While there is no sales load on purchases of Shares, the Distributor may
receive fees from the Fund. See "Management of the Trust -- Distributor and
Sponsor." Other funds which have investment objectives similar to those of the
Fund but which do not pay some or all of such fees from their assets may offer a
higher yield.
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 or his securities broker to purchase
such Shares on his behalf through the Distributor.
Exchange Privilege. By contacting the Transfer Agent or his Shareholder
Servicing Agent or his securities broker, a shareholder may exchange some or all
of his Shares for shares of the retail class 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, Republic New York Tax Free
Money Market Fund, Republic New York Tax Free Bond Fund, Republic Equity Fund,
Republic Taxable Bond Fund, Republic Opportunity 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.
DIRECTLY THROUGH THE DISTRIBUTOR
For each shareholder who purchases Shares directly through the Distributor,
the Trust, as the shareholder's agent, establishes an open account to which all
Shares purchased are credited together with any dividends and capital gains
distributions which are paid in additional Shares. See "Dividends and
Distributions." The minimum initial investment is $1,000, except the minimum
initial investment for an Individual Retirement Account is $250. The minimum
subsequent investment is $100. Initial and subsequent purchases may be made by
writing a check (in U.S. dollars) payable to the Republic Funds -- International
Large Cap Equity Fund and mailing it to:
Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
In the case of an initial purchase, the check must be accompanied by a
completed Purchase Application.
In the case of subsequent purchases, a shareholder may transmit purchase
payments by wire directly to the Fund's custodian bank at the following address:
Investors Bank & Trust Company
Boston, Massachusetts
Attn: Transfer Agent
ABA # 011001438
Acct. # 5999-99451
For further credit to the Republic Funds (Republic Overseas Equity
Fund, account name, account #)
The wire order must specify the Fund, the account name, number, confirmation
number, address, amount to be wired, name of the wiring bank and name and
telephone number of the person to be contacted in connection with the order.
Automatic Investment Plan. The Trust offers a plan for regularly investing
specified dollar amounts ($25.00 minimum in monthly, quarterly, semi-annual or
annual intervals) in the Fund. 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
the 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 IBT at the telephone number listed on the back cover.
For further information on how to purchase Shares from the Distributor, an
investor should contact the Distributor directly (see back cover for address and
phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shares are being offered to the public, to customers of a Shareholder
Servicing Agent and to customers of a securities broker that has entered into a
dealer agreement with the Distributor. 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 and
securities broker 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 or securities broker. Conversely, certain Shareholder Servicing
Agents may (although they are not required by the Trust to do so) credit to the
accounts of their customers from whom they are already receiving other fees
amounts not exceeding such other fees or the fees received by the Shareholder
Servicing Agent from the Fund, which will have the effect of increasing the net
return on the investment of such customers of those Shareholder Servicing
Agents.
Shareholder Servicing Agents and securities brokers may transmit purchase
payments on behalf of their customers by wire directly to the Fund's custodian
bank by following the procedures described above.
For further information on how to direct a securities broker or a
Shareholder Servicing Agent to purchase Shares, an investor should contact his
securities broker or his Shareholder Servicing Agent (see back cover for address
and phone number).
RETIREMENT PLANS
Shares 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.
Recently enacted federal tax legislation has substantially affected the tax
treatment of contributions to certain retirement plans. 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 may be used as a funding medium for an IRA. An Internal Revenue
Service-approved IRA plan may be available from an investor's Shareholder
Servicing Agent. In any event, such a plan is available from the Sponsor naming
IBT, as custodian. The minimum initial investment for an IRA is $250; the
minimum subsequent investment is $100. IRAs are available to individuals who
receive compensation or earned income and their spouses whether or not they are
active participants in a tax-qualified or Government-approved retirement plan.
An IRA contribution by an individual who participates, or whose spouse
participates, in a tax-qualified or Government-approved retirement plan may not
be deductible 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 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.
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 Transfer Agent, with respect
to Shares purchased directly through the Distributor, or to his securities
broker or his Shareholder Servicing Agent, and is transmitted to and received by
the Transfer Agent. Redemptions are effected on the same day the redemption
order is received by the Transfer Agent provided such order is received prior to
4:00 p.m., New York time, on any Fund Business Day. Shares redeemed earn
dividends up to and including the Fund Business Day prior to the day the
redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the next Fund Business Day 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. However, a shareholder will be
allowed to make additional investments prior to the date fixed for redemption to
avoid liquidation of the account.
Unless Shares have been purchased directly from the Distributor, a
shareholder may redeem Shares only by authorizing his securities broker or 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
securities broker or 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 (see back cover for address and phone number).
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns Shares with an aggregate value of $10,000 or more
may establish a Systematic Withdrawal Plan under which they redeem at net asset
value the number of full and fractional shares which will produce the monthly,
quarterly, semi-annual or annual payments specified (minimum $50.00 per
payment). Depending on the amounts withdrawn, systematic withdrawals may deplete
the investor's principal. Investors contemplating participation in this Plan
should consult their tax advisers. No additional charge to the shareholder is
made for this service.
REDEMPTION OF SHARES PURCHASED DIRECTLY THROUGH THE DISTRIBUTOR
Redemption by Letter. Redemptions may be made by letter to the Transfer
Agent specifying the dollar amount or number of Shares to be redeemed, account
number and the Fund. The letter must be signed in exactly the same way the
account is registered (if there is more than one owner of the Shares all must
sign). In connection with a written redemption request, all signatures of all
registered owners or authorized parties must be guaranteed by an Eligible
Guarantor Institution, which includes a domestic bank, broker, dealer, credit
union, national securities exchange, registered securities association, clearing
agency or savings association. The Fund's transfer agent, however, may reject
redemption instructions if the guarantor is neither a member or not a
participant in a signature guarantee program (currently known as "STAMP",
"SEMP", or "NYSE MPS"). Corporations, partnerships, trusts or other legal
entities may be required to submit additional documentation.
An investor may redeem Shares in any amount by written request mailed to the
Transfer Agent at the following address:
The Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
Checks for redemption proceeds normally will be mailed within seven days,
but will not be mailed until all checks in payment for the purchase of the
Shares to be redeemed have been cleared, which may take up to 15 days or more.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to the shareholder's address of record.
Redemption by Wire or Telephone. An investor may redeem Shares by wire or by
telephone if he has checked the appropriate box on the Purchase Application or
has filed a Telephone Authorization Form with the Trust. These redemptions may
be paid from the Fund by wire or by check. The Trust reserves the right to
refuse telephone and wire redemptions and may limit the amount involved or the
number of telephone redemptions. The telephone redemption procedure may be
modified or discontinued at any time by the Trust. Instructions for wire
redemptions are set forth in the Purchase Application. The Trust employs
reasonable procedures to confirm that instructions communicated by telephone are
genuine. For instance, the following information must be verified by the
shareholder or securities broker at the time a request for a telephone
redemption is effected: (1) shareholder's account number; (2) shareholder's
social security number; and (3) name and account number of shareholder's
designated securities dealer or bank. If the Trust fails to follow these or
other established procedures, it may be liable for any losses due to
unauthorized or fraudulent instructions.
DIVIDENDS AND DISTRIBUTIONS
Dividends substantially equal to all of the Fund's net investment income
earned are distributed to Fund shareholders of record semi-annually. Generally,
the Fund's net investment income consists of the interest and dividend income it
earns, less expenses. In computing interest income, premiums are not amortized
nor are discounts accrued on long-term debt securities in the Portfolio, except
as required for federal income tax purposes.
The Fund's net realized short-term and long-term capital gains, if any, are
distributed to shareholders annually. Additional distributions are also made to
the Fund's shareholders to the extent necessary to avoid application of the 4%
non-deductible federal excise tax on certain undistributed income and net
capital gains of regulated investment companies.
Unless a shareholder elects to receive dividends in cash, dividends are
distributed in the form of additional shares of the Fund (purchased at their net
asset value without a sales charge).
TAX MATTERS
This discussion is intended for general information only. An investor should
consult with his own tax advisor as to the tax consequences of an investment in
the Fund, including the status of distributions from the Fund under applicable
state or local law.
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Code. To so qualify, the Fund must meet certain income, distribution and
diversification requirements. Provided such requirements are met and all
investment company taxable income and net realized capital gains of the Fund are
distributed to shareholders in accordance with the timing requirements imposed
by the Code, generally no federal income or excise taxes will be paid by the
Fund on amounts so distributed.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional shares of the Fund. Shareholders must treat
dividends, other than long-term capital gain dividends, as ordinary income.
Dividends designated by the Fund as long-term capital gain dividends are taxable
to shareholders as long-term capital gain regardless of the length of time the
shares of the Fund have been held by the shareholders. Certain dividends
declared in October, November, or December of a calendar year to shareholders of
record on a date in such a month are taxable to shareholders (who otherwise are
subject to tax on dividends) as though received on December 31 of that year if
paid to shareholders during January of the following calendar year.
Foreign Tax Withholding. Income received by the Portfolio from sources
within foreign countries may be subject to withholding and other income or
similar taxes imposed by such countries. If more than 50% of the value of the
Portfolio's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible and intends to elect to treat
its share of any non-U.S. income and similar taxes it pays (or which are paid by
the Portfolio) as though the taxes were paid by the Fund's shareholders.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his pro rata share
of the foreign taxes paid by the Fund or Portfolio, and will be entitled either
to deduct (as an itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. federal income tax liability, subject to limitations. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions, but such a shareholder may be eligible to claim the foreign tax
credit. Shareholders will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund or Portfolio will
be treated as paid by the Fund's shareholders for that year. Furthermore,
foreign shareholders may be subject to U.S. tax at the rate of 30% (or lower
treaty rate) of the income resulting from the Fund's election to treat any
foreign taxes paid by it as paid its shareholders, but will not be able to claim
a credit or deduction for the foreign taxes treated as having been paid by them.
The Fund generally will be required to withhold federal income tax at a rate
of 31% ("backup withholding") from dividends paid, capital gain distributions,
and redemption proceeds to shareholders if (1) the shareholder fails to furnish
the Fund with the shareholder's correct taxpayer identification number ("TIN")
or social security number and to make such certifications as the Fund may
require, (2) the Internal Revenue Service notifies the shareholder or the Fund
that the shareholder has failed to report properly certain interest and dividend
income to the Internal Revenue Service and to respond to notices to that effect,
or (3) when required to do so, the shareholder fails to certify that he is not
subject to backup withholding. Backup withholding is not an additional tax and
any amounts withheld may be credited against the shareholder's federal income
tax liability. Dividends from the Fund attributable to the Fund's net investment
income and short-term capital gains generally will be subject to U.S.
withholding tax when paid to shareholders treated under U.S. tax law as
nonresident alien individuals or foreign corporations, estates, partnerships or
trusts.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each series of the Trust (including the Fund) qualifies
as a "regulated investment company" under the Code.
For additional information relating to the tax aspects of investing in the
Fund and for information about the tax aspects of the Portfolio, see the
Statement of Additional Information.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (par value $0.001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. Currently, the Trust has seven series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share. Shares have no preference, preemptive, conversion or
similar rights. Shares when issued are fully paid and non-assessable, except as
set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. The Trust is not required and has no
current intention to hold annual meetings of shareholders, although the Trust
will hold special meetings of Fund shareholders when in the judgment of the
Trustees of the Trust it is necessary or desirable to submit matters for a
shareholder vote. Shareholders of each series generally vote separately, for
example, to approve investment advisory agreements or changes in fundamental
investment policies or restrictions, but shareholders of all series may vote
together to the extent required under the 1940 Act, such as in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Under certain circumstances the shareholders of one or more series could control
the outcome of these votes.
The series of the Portfolio Trust will vote separately or together in the
same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of the Portfolio Trust could control the outcome
of these votes.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing subscribed to by a specified
number of shareholders. Upon liquidation or dissolution of the Fund,
shareholders of the Fund would be entitled to share pro rata in the net assets
of the Fund available for distribution to shareholders.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust is organized as a master trust fund under the laws of
the State of New York. The Portfolio is a separate series of the Portfolio
Trust, which currently has two other series. The Portfolio Trust's Declaration
of Trust provides that the Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) are each liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the investment of all of
the Assets of the Fund in the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each Portfolio Business Day. At 4:00 p.m., New
York time, on each Portfolio Business Day, the value of each investor's
beneficial interest in the Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be effected on that day,
are then effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio is then recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of 4:00 p.m., New York time, on such day plus or minus, as
the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m., New York time, on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate investments in
the Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the Portfolio
as of 4:00 p.m., New York time, on the following Portfolio Business Day.
PERFORMANCE INFORMATION
Yield and total return data for the Fund may from time to time be included
in advertisements about the Trust. "Total return" is expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years. All total return figures reflect the
deduction of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. "Yield"
refers to the income generated by an investment in the Fund over the 30-day (or
one month) period ended on the date of the most recent balance sheet of the Fund
included in the Trust's registration statement with respect to the Fund. See the
Statement of Additional Information for further information concerning the
calculation of yield and total return data.
The following table sets forth the average annual total returns of all
relevant institutional private accounts and collective investment vehicles
managed by the Sub-Adviser with general investment objectives and policies
substantially similar to the Fund and the Portfolio and which have been managed
as the Portfolio has been, and is expected to be, managed.
The composite data is provided to illustrate the past performance of the
Sub-Adviser in managing substantially similar accounts as measured against the
specified market index and does not represent the performance of the Fund or the
Portfolio. While the Fund was not operational before August 1, 1996 and has no
performance history to compare to the Sub-Adviser composite or the specified
index, the Portfolio has been operational since January 9, 1995. Accordingly, a
Fund composite reflecting the Portfolio's performance, adjusted to assume that
all charges, expenses and fees of the Fund currently in effect were deducted
during the relevant time periods, is also provided below. Investors should not
consider this composite performance data as an indication of future performance
of the Fund, the Portfolio or the Sub-Adviser.
The institutional private accounts and collective investment vehicles that
are included in the Sub-Adviser's composite are not subject to the
diversification requirements, specific tax restrictions and investment
limitations imposed on the Fund and the Portfolio by the 1940 Act or the Code.
Consequently, the performance results of the Sub-Adviser's composite could have
been adversely affected if the institutional private accounts and collective
investment vehicles included in the composite had been regulated as investment
companies under the federal securities laws.
The Sub-Adviser's composite returns (which reflect the reinvestment of all
dividends) for each period are based upon the Sub-Adviser's historical results,
but have been adjusted by assuming that all charges, expenses and fees of the
Fund and the Portfolio which are currently in effect (as measured by the current
expense ratios of the Fund and the Portfolio) were deducted during such periods,
and are calculated in accordance with Securities and Exchange Commission
guidelines. The investment results of the Sub- Adviser's composite presented
below are unaudited and are not intended to predict or suggest the returns that
might be experienced by the Fund or an individual investing in the Fund.
Annualized Returns
Sub-Adviser EAFE
Composite Index(2) Fund Composite
1 Year(1).................. 16.21% 13.62% 16.75%
Since Portfolio Inception
(1/9/95)................... N/A 12.59% 13.45%
5 Years(1)................. 12.24% 10.33% N/A
10 Years(1)................ 11.52% 10.57% N/A
- -------------
(1) Through June 30, 1996.
(2) The EAFE Index includes 1112 companies in twenty countries
representing the stock markets of Europe, Australia, New Zealand
and the Far East. The combined market capitalization of these
companies represents approximately 60% of the aggregate market value
of the stock exchanges. The EAFE Index is capitalization weighted in
U.S. dollars and includes dividends.
Any performance information should be considered in light of the Fund's
investment objective and policies, characteristics and quality of the Fund's
portfolio and the market conditions during the time period indicated, and should
not be considered to be representative of what may be achieved in the future.
From time to time the Trust may also use comparative performance information in
such advertisements, including the performance of unmanaged indices, the
performance of the Consumer Price Index (as a measure for inflation), and data
from Lipper Analytical Services, Inc. and other industry publications.
A Shareholder Servicing Agent or a securities broker may charge its
customers direct fees in connection with an investment in the Fund, which will
have the effect of reducing the net return on the investment of customers of
that Shareholder Servicing Agent or that securities broker. Such customers may
be able to obtain through their Shareholder Servicing Agent or securities broker
quotations reflecting such decreased return.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
GENERAL AND ACCOUNT INFORMATION (888) 525-5757 (TOLL FREE)
--------------------
The Trust's Statement of Additional Information, dated February 1, 1997,
with respect to the Fund contains more detailed information about the Fund,
including information related to (i) the Fund's investment restrictions, (ii)
the Trustees and officers of the Trust and the Manager, Sub-Adviser and Sponsor
of the Fund, (iii) portfolio transactions, (iv) the Fund's shares, including
rights and liabilities of shareholders, and (v) additional yield information,
including the method used to calculate the total return and yield of the Fund.
<PAGE>
- ------
REPUBLIC
OVERSEAS EQUITY
FUND
INVESTMENT MANAGER
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
SUB-ADVISER
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, CA 90071
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
REPUBLIC
OVERSEAS EQUITY
FUND
PROSPECTUS
February 1, 1997
<PAGE>
REPUBLIC OPPORTUNITY FUND
3435 STELZER ROAD, COLUMBUS, OHIO 43219-3035
- ----------------------------------------------------------------------
ACCOUNT AND GENERAL INFORMATION: (888) 525-5757 (TOLL FREE)
Republic Opportunity Fund (the "Fund") is a diversified series of Republic
Funds (the "Trust"), an open-end management investment company which currently
consists of seven funds, each of which has different and distinct investment
objectives and policies. Only shares of the Fund are being offered by this
Prospectus. Republic National Bank of New York ("Republic" or the "Manager") is
the investment manager of Small Cap Equity Portfolio (the "Portfolio"). MFS
Asset Management, Inc. (the "Sub-Adviser"), a wholly owned subsidiary of
Massachusetts Financial Services Company, continuously manages the investments
of the Portfolio.
UNLIKE OTHER OPEN-END MANAGEMENT INVESTMENT COMPANIES (MUTUAL FUNDS)
WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, THE TRUST
SEEKS TO ACHIEVE THE INVESTMENT OBJECTIVE OF THE FUND BY INVESTING ALL OF THE
FUND'S INVESTABLE ASSETS ("ASSETS") IN THE PORTFOLIO, WHICH HAS THE SAME
INVESTMENT OBJECTIVE AS THE FUND. THE INVESTMENT EXPERIENCE OF THE FUND WILL
CORRESPOND DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE PORTFOLIO. THE
PORTFOLIO IS A DIVERSIFIED SERIES OF THE REPUBLIC PORTFOLIOS, WHICH IS AN
OPEN-END MANAGEMENT INVESTMENT COMPANY. SEE "SPECIAL INFORMATION CONCERNING THE
TWO-TIER FUND STRUCTURE."
The investment objective of the Fund is to seek long-term growth of
capital by investing primarily in equity securities of small- and medium-sized
companies that are early in their life cycle but which may have potential to
become major enterprises ("Emerging Growth Companies").
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
Shares are continuously offered for sale at net asset value with no sales
charge by BISYS Fund Services ("BISYS")(i) directly to the public, (ii) to
customers of a financial institution, such as a federal or state-chartered bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Trust (collectively, "Shareholder
Servicing Agents"), and (iii) to customers of a securities broker that has
entered into a dealer agreement with BISYS.
AN INVESTOR WHO IS NOT PURCHASING DIRECTLY FROM BISYS SHOULD OBTAIN FROM
HIS SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT, AND SHOULD READ IN
CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE SECURITIES
BROKER OR SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER WHICH
SHARES MAY BE PURCHASED AND REDEEMED THROUGH SUCH SECURITIES BROKER OR
SHAREHOLDER SERVICING AGENT.
Prospectus sets forth concisely the information concerning the Fund that a
prospective investor should know before investing. The Trust has filed with the
Securities and Exchange Commission a Statement of Additional Information, dated
February 1, 1997, with respect to the Fund, containing additional and more
detailed information about the Fund, which is hereby incorporated by
referenceinto this Prospectus. An investor may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address and
telephone number printed above.
-------------------
Investors should read this Prospectus and retain it for future reference.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1997
HIGHLIGHTS
THE FUND PAGE __
Republic Opportunity Fund (the "Fund") is a separate series of Republic
Funds (the "Trust"), a Massachusetts business trust organized on April 22, 1987,
which currently consists of seven funds, each of which has different and
distinct investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES PAGE __
The investment objective of the Fund is to seek long-term growth of capital
by investing, under normal market conditions, at least 80% of its Assets in
equity securities of small- and medium-sized companies that are early in their
life cycle but which may have potential to become major enterprises (emerging
growth companies). The Trust seeks to achieve the investment objective of the
Fund by investing all of the Fund's Assets in Small Cap Equity Portfolio (the
"Portfolio"), which has the same investment objective as the Fund. The Portfolio
is a series of Republic Portfolios (the "Portfolio Trust"), a master trust fund
established under the law of the State of New York and organized on November 1,
1994. There can be no assurance that the investment objective of the Fund or the
Portfolio will be achieved.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST PAGE __
Republic acts as investment manager to the Portfolio pursuant to an
Investment Management Contract with the Portfolio Trust. For its services, the
Manager receives from the Portfolio a fee at the annual rate of 0.25% of the
Portfolio's average daily net assets.
MFS Asset Management, Inc. continuously manages the investment portfolio of
the Portfolio pursuant to a Sub-Advisory Agreement with the Manager. For its
services, the Sub-Adviser is paid a fee by the Portfolio, computed daily and
based on the Portfolio's average daily net assets, equal on an annual basis to
0.75% of assets up to $50,000,000 and 0.60% of assets in excess of $50,000,000.
See "Management of the Trust and the Portfolio Trust".
BISYS acts as sponsor (the "Sponsor") and administrator of the Fund (the
"Fund Administrator"), and as distributor (the "Distributor") of shares of the
Fund (the "Shares"). For its services to the Fund, the Fund Administrator
receives from the Fund a fee payable monthly equal on an annual basis to 0.05%
of the Fund's average daily net assets, subject to certain breakpoints on assets
in excess of $1 billion. BISYS Fund Services (Ireland) Limited ("BISYS
(Ireland)")acts as administrator of the Portfolio (the "Portfolio
Administrator"). For its services to the Portfolio, the Portfolio Administrator
receives from the Portfolio a fee payable monthly equal on an annual basis to
0.05% of the average daily net assets of the Portfolio, subject to certain
breakpoints on assets in excess of $1 billion.
The Trust also has retained BISYS to distribute Shares pursuant to a
distribution plan (the "Distribution Plan") adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"). Pursuant to the
terms of the Distribution Plan, the Distributor is reimbursed from the Fund for
marketing costs and payments to other organizations for services rendered in
distributing the Shares. This fee may not exceed 0.25% of the average daily net
assets of the Fund represented by Shares outstanding and is expected to be
limited to an amount such that the aggregate fees paid to the Distributor
pursuant to the Distribution Plan and to the Shareholder Servicing Agents
pursuant to the Administrative Services Plan do not exceed 0.25% of such assets.
See "Management of the Trust."
PURCHASES AND REDEMPTIONS PAGE __
Shares are continuously offered for sale by the Distributor at net asset
value with no sales charge (i) directly to the public, (ii) to customers of a
financial institution, such as a federal or
<PAGE>
state-chartered bank, trust company or savings and loan association, that
has entered into a shareholder servicing agreement with the Trust (collectively,
"Shareholder Servicing Agents"), and (iii) to customers of a securities broker
that has entered into a dealer agreement with the Distributor. For investors who
purchase Shares directly from the Distributor, the minimum initial investment is
$1,000 and the minimum subsequent investment is $100. The Trust offers to buy
back (redeem) Shares from shareholders of the Fund at any time at net asset
value. See "Purchase of Shares" and "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS PAGE --
The Trust declares and distributes all of the Fund's net investment income
as a dividend to Fund shareholders semi-annually. Any net realized capital gains
are distributed at least annually. All Fund distributions will be invested in
additional Fund shares, unless the shareholder instructs the Fund otherwise. See
"Dividends and Distributions."
FEE TABLE
The following table summarizes an investor's maximum transaction costs
from investing in the Fund and the estimated aggregate annual operating expenses
of the Fund and the Portfolio as a percentage of the average daily net assets of
the Fund during the Fund's and the Portfolio's current fiscal years. The fiscal
year ends of the Fund and the Portfolio are both October 31. The example
illustrates the dollar cost of such estimated expenses on a $1,000 investment in
the Fund. The Trustees of the Trust believe that the aggregate per share
expenses of the Fund and the Portfolio will be less than or approximately equal
to the expenses which the Fund would incur if the Trust retained the services of
an investment adviser on behalf of the Fund and the Assets of the Fund were
invested directly in the type of securities being held by the Portfolio.
Shareholder Transaction Expenses ........................... None
Annual Fund Operating Expenses
Investment Advisory Fee after waiver* ................. 0.66%
Distribution Fees (Rule 12b-1 fees) ................... 0.15%
Other Expenses ........................................ 0.74%
-- Shareholder Servicing Fee ................. 0.10%
-- Administrative Services Fee .............. 0.10%
-- Other Operating Expenses .................. 0.54%
Total Operating Expenses after waiver** .................... 1.55%
=====
* Reflects a waiver of the investment management fee payable to
Republic and an investment sub-advisory fee payable to the
Sub-Adviser equal on an annual basis to 0.66% of the Fund's
average daily net assets. Without such waiver, the Investment
Advisory Fee would be equal on an annual basis to 0.91% of the
Fund's average net assets. See "Management of the Trust and
the Portfolio Trust."
** Total Operating Expenses are shown net of investment management fee
waiver. Without such fee waiver, Total Operating Expenses would be
equal on an annual basis to 1.80% of the Fund's average net assets.
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in Fund Shares, assuming (1) 5% annual return and (2) redemption at
the end of:
1 year ............................................... $16
3 years ............................................... $49
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE AGGREGATE EXPENSES OF THE FUND AND THE PORTFOLIO, AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
The purpose of the expense table provided above is to assist investors in
understanding the expenses of investing in the Fund and an investor's share of
the aggregate operating expenses of the Fund and the Portfolio. The information
is based on the expenses the Fund and the Portfolio expect to incur for the
current fiscal years of the Portfolio and the Fund.* The expense table shows the
expected investment management fee, investment subadvisory fee, distribution
(Rule 12b- 1) fee, administrative services fee and shareholder servicing fee.
For a more detailed discussion of the costs and expenses of investing in the
Fund, see "Management of the Trust and the Portfolio Trust."
- ----------
*Assuming average daily net assets of $25 million in the Fund and $125
million in the Portfolio for the fiscal years.
The fees paid from the Fund to each Shareholder Servicing Agent are
determined by a formula based upon the number of accounts serviced by such
Shareholder Servicing Agent during the period for which payment is being made,
the level of activity in such accounts during such period, and the expenses
incurred by such Shareholder Servicing Agent. Similarly, the fee from the Fund
to the Distributor is in anticipation of, or as reimbursement for, expenses
incurred by the Distributor in connection with the sale of Shares. The aggregate
fees paid to the Distributor pursuant to the Distribution Plan and to the
Shareholder Servicing Agents pursuant to the Administrative Services Plan may
not exceed 0.25% of the average daily net assets of the Fund represented by
Shares outstanding during the period for which payment is being made. Long-term
shareholders may pay more than the economic equivalent of the maximum
distribution charges permitted by the National Association of Securities
Dealers, Inc.
Some Shareholder Servicing Agents and securities brokers 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 with respect to the
Fund, such as requiring a minimum initial investment or charging their customers
a direct fee for their services. The effect of any such fees will be to reduce
the net return on the investment of customers of that Shareholder Servicing
Agent or securities broker. Each Shareholder Servicing Agent and securities
broker has agreed to transmit to shareholders who are its customers appropriate
written disclosure of any transaction fees that it may charge them directly at
least 30 days before the imposition of any such charge.
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Fund since commencement of operations through October 31,
1996. The information shown in the following schedule has been audited by
_________________ independent auditors, whose report on the Fund's financial
statements is incorporated by reference into the Statement of Additional
Information from the Fund's Annual Report dated October 31, 1996. The Annual
Report also includes management's discussion of fund performance, and may be
obtained without charge upon request. This information should be read in
conjunction with the financial statements.
<PAGE>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
THE INDICATED PERIOD:
FOR THE PERIOD
SEPTEMBER 3, 1996
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1995
------------------
Net asset value, beginning of period .................. $_____
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............................. ____
Net realized and unrealized gain from Portfolio ... ____
------
Total increase from investment operations ......... ____
------
LESS DIVIDENDS:
From net investment income ........................ _____
Net realized capital gains ........................ _____
------
Total distributions to shareholders ............... _____
Net asset value, end of period ........................ $_____
======
TOTAL RETURN .......................................... _____%(a)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .............. $______
Ratio of expenses to average net assets(b) ........ ____%(c)
Ratio of net investment income to average net
assets (b)....................................... ____%(c)
Portfolio turnover rate ........................... ____%(c)
Average commission rate paid ...................... ____%(c)
- ----------
(a) Not annualized.
(b) Reflects a voluntary expense limitation and waiver of fees by
affiliated parties of the Fund. If this limitation had not been in
effect, the annualized ratios of expenses and net investment income
to average net assets for the period September 3, 1996
(commencement of operations) to October 31, 1996 would have been:
Ratio of expenses to average net assets .................. ___%(c)
Ratio of net investment income to average net assets....... ___%(c)
(c) Annualized.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term growth of
capital by investing primarily in equity securities of small- and medium-sized
companies that are early in their life cycle but which may have potential to
become major enterprises ("Emerging Growth Companies"). The investment objective
of the Portfolio is the same as the investment objective of the Fund.
There can be no assurance that the investment objective of the Fund or
the Portfolio will be achieved. The investment objective of each of the Fund and
the Portfolio may be changed without investor approval. If there is a change in
the investment objective of the Fund, shareholders should consider whether the
Fund remains an appropriate investment in light of their then-current financial
position and needs. Shareholders of the Fund shall receive 30 days' prior
written notice of any change in the investment objective of the Fund or the
Portfolio.
Since the investment characteristics of the Fund will correspond to
those of the Portfolio, the following is a discussion of the various investment
policies of the Portfolio.
<PAGE>
INVESTMENT POLICIES
The Portfolio seeks to achieve its objective by investing, under normal
market conditions, at least 80% of its assets in equity securities (see
"Investment Techniques - Equity Securities" below) of Emerging Growth Companies.
Emerging Growth Companies generally have small (under $1 billion) market
capitalizations and annual gross revenues ranging from $10 million to $1
billion, would be expected to show earnings growth over time that is well above
the growth rate of the overall economy and the rate of inflation, and would have
the products, management and market opportunities which are usually necessary to
become more widely recognized. However, the Portfolio may also invest in more
established companies whose rates of earnings growth are expected to accelerate
because of special factors, such as rejuvenated management, new products,
changes in consumer demand or basic changes in the economic environment. The
Portfolio may invest up to 20% (and generally expects to invest between 5% and
10%) of its assets in foreign securities (excluding American Depositary
Receipts) (see "Additional Risk Factors - Foreign Securities" below).
While the Portfolio will invest primarily in common stocks, the
Portfolio may, to a limited extent, seek appreciation in other types of
securities such as foreign or convertible securities and warrants when relative
values make such purchases appear attractive either as individual issues or as
types of securities in certain economic environments.
While the Portfolio may engage in certain investment techniques as
described below under the caption "Investment Techniques." The Portfolio's
investments are subject to certain risks, as described in the above-referenced
sections of this Prospectus and the Statement of Additional Information and as
described below under the caption "Additional Risk Factors."
INVESTMENT TECHNIQUES
Consistent with the Portfolio's investment objective and policies, the
Portfolio may engage in the following investment techniques. See also
"Investment Objective, Policies and Restrictions" in the Statement of Additional
Information.
Equity Securities: The Portfolio may invest in all types of equity
securities, including the following: common stocks, preferred stocks and
preference stocks; securities such as bonds, warrants or rights that are
convertible into stocks; and depositary receipts for those securities. These
securities may be listed on securities exchanges, traded in various
over-the-counter markets or have no organized market.
Fixed Income Securities: Fixed income securities in which the Portfolio
may invest include bonds (including zero coupon bonds, deferred interest bonds
and payable in-kind bonds), debentures, mortgage securities, notes, bills,
commercial paper, obligations issued or guaranteed by a government or any of its
political subdivisions, agencies or instrumentalities, and certificates of
deposit, as well as debt obligations which may have a call on common stock by
means of a conversion privilege or attached warrants.
U.S. Government Securities: For temporary defensive reasons, the Portfolio
may invest in Government securities, including: (1) U.S. Treasury obligations,
which differ only in their interest rates, maturities and times of issuance,
including: U.S. Treasury bills (maturities of one year or less); U.S. Treasury
notes (maturities of one to ten years); and U.S. Treasury bonds (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
<PAGE>
certificates of the Government National Mortgage Association ("GNMA"); some of
which are supported by the right of the issuer to borrow from the U.S.
Government, e.g., obligations of Federal Home Loan Banks; and some of which are
backed only by the credit of the issuer itself, e.g., obligations of the Student
Loan Marketing Association (collectively, "U.S. Government Securities").
Repurchase Agreements: The Portfolio may enter into repurchase
agreements in order to earn income on available cash or as a temporary defensive
measure. Under a repurchase agreement, the Portfolio acquires securities subject
to the seller's agreement to repurchase at a specified time and price. If the
seller becomes subject to a proceeding under the bankruptcy laws or its assets
are otherwise subject to a stay order, the Portfolio's right to liquidate the
securities may be restricted (during which time the value of the securities
could decline). As discussed in the Statement of Additional Information, the
Portfolio has adopted certain procedures intended to minimize the risks of
investing in repurchase agreements.
Lending of Portfolio Securities: The Portfolio may seek to increase its
income by lending portfolio securities to entities deemed creditworthy by the
Adviser. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System, and would be required to be secured continuously by collateral
in cash, letters of credit or U.S. Government securities maintained on a current
basis at an amount at least equal to the market value of the securities loaned.
If the Sub-Adviser determines to make securities loans, it is intended that the
value of the securities loaned would not exceed 30% of the value of the total
assets of the Portfolio.
Restricted Securities: The Portfolio may also purchase securities that
are not registered under the Securities Act of 1933 (the "1933 Act")
("restricted securities"), including those that can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act ("Rule 144A
securities"). The Board of Trustees determines, based upon a continuing review
of the trading markets for a specific Rule 144A security, whether such security
is liquid and thus not subject to the Portfolio's limitation on investing not
more than 15% of its net assets in illiquid investments. The Board of Trustees
has adopted guidelines and delegated to the Sub-Adviser the daily function of
determining and monitoring the liquidity of Rule 144A securities. The Board,
however, will retain sufficient oversight and be ultimately responsible for the
determinations. The Board will carefully monitor the Portfolio's investment in
Rule 144A securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of decreasing the level of liquidity in the Portfolio to
the extent that qualified institutional buyers become for a time uninterested in
purchasing Rule 144A securities held in the Portfolio's portfolio. Subject to
the Portfolio's 15% limitation on investments in illiquid investments, the
Portfolio may also invest in restricted securities that may not be sold under
Rule 144A, which presents certain risks. As a result, the Portfolio might not be
able to sell these securities when the Sub-Adviser wishes to do so, or might
have to sell them at less than fair value. In addition, market quotations are
less readily available. Therefore, the judgment of the Sub-Adviser may at times
play a greater role in valuing these securities than in the case of unrestricted
securities.
American Depositary Receipts ("ADRs"): The Portfolio may invest in ADRs,
which are certificates issued by a U.S. depository (usually a bank) and
represent a specified quantity of shares of an underlying non-U.S. stock on
deposit with a custodian bank as collateral. Because ADRs trade on U.S.
securities exchanges, the Sub-Adviser does not treat them as foreign securities.
However, they are subject to many of the risks of foreign securities such as
exchange rates and more limited information about foreign issuers. See
"Additional Risk Factors - Foreign Securities" below.
<PAGE>
Foreign Growth Securities: The Portfolio may invest in securities of
foreign growth companies, including established foreign companies, whose rates
of earnings growth are expected to accelerate because of special factors, such
as rejuvenated management, new products, changes in consumer demand, or basic
changes in the economic environment or which otherwise represent opportunities
for long-term growth. See "Additional Risk Factors -Foreign Securities" below.
It is anticipated that these companies will primarily be in nations with more
developed securities markets, such as Japan, Australia, Canada, New Zealand and
most Western European countries, including Great Britain.
Emerging Market Securities: The Portfolio may invest in securities of
issuers located in countries or regions with relatively low gross national
product per capita compared to the world's major economies, and in countries or
regions with the potential for rapid economic growth ("Emerging Markets").
Emerging Markets include any country: (i) having and "emerging stock market" as
defined by the International Finance Corporation; (ii) with low- to
middle-income economies according to the International Bank for Reconstruction
and Development (the "World Bank"); (iii) listed in World Bank publications as
developing; or (iv) determined by the Adviser to be an emerging market as
defined above. See "Additional Risk Factors - Emerging Markets" below. In
determining where a company's principal activities are located, the Sub-Adviser
considers such factors as its country of organization, the principal trading
market for its securities and the source of its revenues and assets. The
company's principal activities are deemed to be located in a particular country
if: (a) the company is organized under the laws of, and maintains a principal
office in that country; (b) the company has its principal securities trading
market in that country, (c) the company derives 50% or more of its total
revenues from goods sold or services performed in that country; or (d) the
company has 50% or more of its assets in that country.
Options on Securities: The Portfolio may write (sell) covered put and
call options on securities ("Options") and purchase put and call Options that
are traded on foreign or U.S. securities exchanges and over the counter. The
Portfolio will write such Options for the purpose of increasing its return
and/or protecting the value of its portfolio. In particular, where the Portfolio
writes an Option which expires unexercised or is closed out by the Portfolio at
a profit, it will retain the premium paid for the Option, which will increase
its gross income and will offset in part the reduced value of a portfolio
security in connection with which the Option may have been written or the
increased cost of portfolio securities to be acquired. In contrast, however, if
the price of the security underlying the Option moves adversely to the
Portfolio's position, the Option may be exercised and the Portfolio will be
required to purchase or sell the security at a disadvantageous price, resulting
in losses which may only be partially offset by the amount of the premium. The
Portfolio may also write combinations of put and call Options on the same
security, known as "straddles". Such transactions can generate additional
premium income but also present increased risk.
The Portfolio may purchase put or call Options in anticipation of
declines in the value of portfolio securities or increases in the value of
securities to be acquired. In the event that the expected changes occur, the
Portfolio may be able to offset the resulting adverse effect on its portfolio,
in whole or in part, through the Options purchased. The risk assumed by the
Portfolio in connection with such transactions is limited to the amount of the
premium and related transaction costs associated with the Option, although the
Portfolio may be required to forfeit such amounts in the event that the prices
of securities underlying the Options do not move in the direction or to the
extent anticipated.
Futures Contracts: The Portfolio may enter into contracts for the
purchase or sale for future delivery of fixed income securities or foreign
currencies or contracts based on indexes of securities as such instruments
become available for trading ("Futures Contracts"). Such transactions will be
entered into for hedging purposes, in order to protect the Portfolio's current
or intended investments from the effects of changes in interest or exchange
rates, or for non-hedging purposes, to the extent permitted by applicable law.
For example, in the event that an anticipated decrease in the value of portfolio
<PAGE>
securities occurs as a result of a general increase in interest rates or a
decline in the dollar value of foreign currencies in which portfolio securities
are denominated, the adverse effects of such changes may be offset, in whole or
part, by gains on Futures Contracts sold by the Portfolio. Conversely, the
adverse effects of an increase in the cost of portfolio securities to be
acquired, occurring as a result of a decline in interest rates or a rise in the
dollar value of securities denominated in foreign currencies, may be offset, in
whole or in part, by gains on Futures Contracts purchased by the Portfolio. The
Portfolio will incur brokerage fees when it purchases and sells Futures
Contracts, and will be required to maintain margin deposits. In addition,
Futures Contracts entail risks. Although the Portfolio believes that use of such
contracts will benefit the Portfolio, if the Sub-Adviser's investment judgment
about the general direction of interest or exchange rates is incorrect, the
Portfolio's overall performance may be poorer than if it had not entered into
any such contract and the Portfolio may realize a loss. Transactions entered
into for non-hedging purposes involve greater risk, including the risk of losses
which are not offset by gains on other portfolio assets. The Portfolio will not
enter into any Futures Contract if immediately thereafter the value of
securities and other obligations underlying all such Futures Contracts would
exceed 50% of the value of its total assets.
Options on Futures Contracts: The Portfolio may purchase and write
options on Futures Contracts ("Options on Futures Contracts") for the purpose of
protecting against declines in the value of portfolio securities or against
increases in the costs of securities to be acquired, or for non-hedging
purposes, to the extent permitted by applicable law. Purchases of Options on
Futures Contracts may present less risk in hedging the portfolio of the
Portfolio than the purchase or sale of the underlying Futures Contracts, since
the potential loss is limited to the amount of the premium paid for the option,
plus related transaction costs. The writing of such options, however, does not
present less risk than the trading of Futures Contracts, and will constitute
only a partial hedge, up to the amount of the premium received, less related
transaction costs. In addition, if an option is exercised, the Portfolio may
suffer a loss on the transaction. Transactions entered into for non-hedging
purposes involve greater risk, including the risk of losses which are not offset
by gains on other portfolio assets.
Forward Contracts: The Portfolio may enter into forward foreign
currency exchange contracts for the purchase and sale of a fixed quantity of a
foreign currency at a future date ("Forward Contracts"). The Portfolio may enter
into Forward Contracts for hedging purposes as well as for non- hedging
purposes. By entering into transactions in Forward Contracts, however, the
Portfolio may be required to forego the benefits of advantageous changes in
exchange rates and, in the case of Forward Contracts entered into for
non-hedging purposes, the Portfolio may sustain losses which will reduce its
gross income. Forward Contracts are traded over-the-counter and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments and their use involves certain
risks beyond those associated with transactions in Futures Contracts or options
traded on exchanges. The Portfolio may also enter into a Forward Contract on one
currency in order to hedge against risk of loss arising from fluctuations in the
value of a second currency (referred to as a "cross hedge") if, in the judgment
of the Sub-Adviser, a reasonable degree of correlation can be expected between
movements in the values of the two currencies. The Portfolio has established
procedures consistent with statements of the Securities and Exchange Commission
(the "SEC") and its staff regarding the use of Forward Contracts by registered
investment companies, which requires use of segregated assets or "cover" in
connection with the purchase and sale of such contracts.
Options on Stock Indices: The Portfolio may write (sell) covered call and
put options and purchase call and put options on domestic or foreign stock
indices ("Options on Stock Indices"). The Portfolio may write such options for
the purpose of increasing its current income and/or to protect its portfolio
against declines in the value of securities it owns or increases in the value of
securities to be acquired. When the Portfolio writes an option on a stock index,
and the value of the index moves adversely to the holder's position, the option
will not be exercised, and the Portfolio will either close out the option at a
profit or allow it to expire unexercised. The Portfolio will thereby retain the
amount of the premium, less related transaction costs, which will increase its
gross income and offset part of the reduced value of portfolio securities or the
increased cost of securities to be acquired. Such transactions, however, will
constitute only partial hedges against adverse price fluctuations, since any
such fluctuations will be offset only to the extent of the premium received by
the Portfolio for the writing of the option, less related transaction costs. In
addition, if the value of an underlying index moves adversely to the Portfolio's
option position, the option may be exercised, and the Portfolio will experience
a loss which may only be partially offset by the amount of the premium received.
The Portfolio may also purchase put or call options on stock indices in
order, respectively, to hedge its investments against a decline in value or to
attempt to reduce the risk of missing a market or industry segment advance. The
Portfolio's possible loss in either case will be limited to the premium paid for
the option, plus related transaction costs.
Defensive Investments: When the Sub-Adviser believes that investing for
temporary defensive reasons is appropriate, such as during times of
international, political or economic uncertainty or turmoil, or in order to meet
anticipated redemption requests, part or all of the Portfolio's assets may be
invested in cash (including foreign currency) or cash equivalent short-term
obligations including, but not limited to, certificates of deposit, commercial
paper, short-term notes and U.S. Government Securities.
Portfolio Turnover: The Sub-Adviser manages the Portfolio generally without
regard to restrictions on portfolio turnover, except those imposed by provisions
of the federal tax laws regarding short-term trading. In general, the Portfolio
will not trade for short-term profits, but when circumstances warrant,
investments may be sold without regard to the length of time held. Because the
Portfolio may have a portfolio turnover rate of 100% or more, transaction costs
incurred by the Portfolio and the realized capital gains and losses of the
Portfolio may be greater than those of a fund with a lesser portfolio turnover
rate. See "Portfolio Transactions" and "Tax Matters" below.
ADDITIONAL RISK FACTORS AND POLICIES
Foreign Securities: Transactions involving foreign equity and debt
securities or foreign currencies, and transactions entered into in foreign
countries, involve considerations and risks not typically associated with
investing in U.S. markets. These include changes in currency rates, exchange
control regulations, governmental administration or economic or monetary policy
(in the U.S. or abroad) or circumstances in dealings between nations. Costs may
be incurred in connection with conversions between various currencies. Special
considerations may also include more limited information about foreign issuers,
higher brokerage costs, different or less stringent accounting standards and
thinner trading markets. Foreign securities markets may also be less liquid,
more volatile and less subject to government supervision than in the U.S.
Investments in foreign countries could be affected by other factors including
expropriation, confiscatory taxation and potential difficulties in enforcing
contractual obligations and could be subject to extended settlement periods.
Furthermore, dividends from foreign securities may be withheld at the source.
Emerging Markets: The risks of investing in foreign securities may be
intensified in the case of investments in emerging markets. Securities of many
issuers in emerging markets may be less liquid and more volatile than securities
of comparable domestic issuers. Emerging markets also have different clearance
and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of the
Portfolio is uninvested and no return is earned thereon. The inability of the
Portfolio
<PAGE>
to make intended security purchases due to settlement problems could cause the
Portfolio to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems could result either in losses to
the Portfolio due to subsequent declines in value of the portfolio security or
if the Portfolio has entered into a contract to sell the security, in possible
liability to the purchaser. Certain markets may require payment for securities
before delivery, and in such markets the Portfolio bears the risk that the
securities will not be delivered and that the Portfolio's payment will not be
returned. Securities prices in emerging markets can be significantly more
volatile than in the more developed nations of the world, reflecting the greater
uncertainties of investing in less established markets and economies. In
particular, countries with emerging markets may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions on
foreign ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. The economies of
countries with emerging markets may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
times. Securities of issuers located in countries with emerging markets may have
limited marketability and may be subject to more abrupt or erratic price
movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Portfolio
could be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Portfolio of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls may
at times preclude investment in certain foreign emerging market debt obligations
and increase the expenses of the Portfolio.
Fixed Income Securities: To the extent the Portfolio invests in fixed
income securities, the net asset value of the Portfolio may change as the
general levels of interest rates fluctuate. When interest rates decline, the
value of fixed income securities can be expected to rise. Conversely, when
interest rates rise, the value of fixed income securities can be expected to
decline. The Portfolio has no restrictions with respect to the maturities or
duration of the fixed income securities it holds. The Portfolio's investments in
fixed income securities with longer terms to maturity or greater duration are
subject to greater volatility than the Portfolio's shorter-term obligations.
Options, Futures Contracts and Forward Contracts: Although the Portfolio
may enter into transactions in Options, Futures Contracts, Options on Futures
Contracts and Forward Contracts for hedging purposes, such transactions
nevertheless involve certain risks. For example, a lack of correlation between
the instrument underlying an Option or Futures Contract and the assets being
hedged, or unexpected adverse price movements, could render the Portfolio's
hedging strategy unsuccessful and could result in losses. The Portfolios also
may enter into transactions in Options, Futures Contracts, Options on Futures
Contracts and Forward Contracts for other than hedging purposes, which involves
greater risk. In particular, such transactions may result in losses for the
Portfolio which are not offset by gains on other portfolio positions, thereby
reducing gross income. In addition, foreign currency markets may be extremely
volatile from time to time. There also can be no assurance that a liquid
secondary market will exist for any contract purchased or sold, and the
<PAGE>
Portfolio may be required to maintain a position until exercise or expiration,
which could result in losses. The Statement of Additional Information contains a
description of the nature and tradingmechanics of Options, Futures Contracts,
Options on Futures Contracts and Forward Contracts, and includes a discussion of
the risks related to transactions therein.
Transactions in Forward Contracts may be entered into only in the
over-the-counter market. Futures Contracts and Options on Futures Contracts may
be entered into on U.S. exchanges regulated by the Commodity Futures Trading
Commission and on foreign exchanges. In addition, the securities and indexes
underlying Options, Futures Contracts and Options on Futures Contracts traded by
the Portfolio will include both domestic and foreign securities.
-----------------------
The policies described above are not fundamental and may be changed
without shareholder approval.
The Statement of Additional Information includes a discussion of
investment policies and a listing of specific investment restrictions which
govern the Portfolio's investment policies. The specific investment restrictions
listed in the Statement of Additional Information may be changed without
shareholder approval unless otherwise indicated. See "Investment Objective,
Policies and Restrictions" in the Statement of Additional Information. The
Portfolio's investment limitations and policies are adhered to at the time of
purchase or utilization of assets; a subsequent change in circumstances will not
be considered to result in a violation of policy.
SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE
The Trust, which is an open-end investment company, seeks to achieve the
investment objective of the Fund by investing all of the Fund's Assets in the
Portfolio, a series of a separate open-end investment company with the same
investment objective as the Fund. Other mutual funds or institutional investors
may invest in the Portfolio on the same terms and conditions as the Fund.
However, these other investors may have different sales commissions and other
operating expenses which may generate different aggregate performance results.
Information concerning other investors in the Portfolio is available by calling
the Sponsor at (614) 470-8000. The two-tier investment fund structure has been
developed relatively recently, so shareholders should carefully consider this
investment approach.
The investment objective of the Fund may be changed without the
approval of the shareholders of the Fund and the investment objective of the
Portfolio may be changed without the approval of the investors in the Portfolio.
Shareholders of the Fund will receive 30 days prior written notice of any change
in the investment objective of the Fund or the Portfolio. For a description of
the investment objective, policies and restrictions of the Portfolio, see
"Investment Objective and Policies" above.
Except as permitted by the Securities and Exchange Commission, whenever
the Trust is requested to vote on a matter pertaining to the Portfolio, the
Trust will hold a meeting of the shareholders of the Fund and, at the meeting of
investors in the Portfolio, the Trust will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Trust votes all its shares at the Portfolio meeting,
other investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
The Trust may withdraw the Fund's investment in the Portfolio as a
result of certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Trustees of the Trust determines that it is
otherwise in the best interests of the Fund to do so. Upon any such withdrawal,
the Board of Trustees of the Trust would consider what action might be taken,
including the investment of all of the Assets of the Fund in another pooled
investment entity or the retaining of an investment adviser to manage the Fund's
Assets in accordance with the investment policies described
<PAGE>
above with respect to the Portfolio. In the event the Trustees of the Trust were
unable to accomplish either, the Trustees will determine the best course of
action.
As with traditionally structured funds which have large investors, the
actions of such large investors may have a material effect on smaller investors.
For example, if a large investor withdraws from the Portfolio, a small remaining
fund may experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk.
For descriptions of the management and expenses of the Portfolio, see
"Management of the Trust and the Portfolio Trust" below and in the Statement of
Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
The business and affairs of the Trust and the Portfolio Trust are
managed under the direction of their respective Boards of Trustees. The Trustees
of each of the Trust and the Portfolio Trust are Frederick C. Chen, Alan S.
Parsow, Larry M. Robbins and Michael Seely. Additional information about the
Trustees, as well as the executive officers of the Trust and the Portfolio
Trust, may be found in the Statement of Additional Information under the caption
"Management of the Trust and the Portfolio Trust -- Trustees and Officers."
A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust and of
the Portfolio Trust . Under the conflicts of interest procedures, the Trustees
will review on a quarterly basis any potential conflicts of interests after
consulting with fund counsel, the Manager and the Fund Administrator. If a
potential conflict of interest arises, the Board of Trustees of the entity that
may be adversely affected will take such action as is reasonably appropriate to
resolve the conflict, up to and including establishing a new Board of Trustees
for such entity. See "Management of the Trust and the Portfolio Trust" in the
Statement of Additional Information for more information about the Trustees and
the executive officers of the Trust and the Portfolio Trust.
INVESTMENT MANAGER
Republic, whose address is 452 Fifth Avenue, New York, New York 10018,
serves as investment manager to the Portfolio pursuant to an Investment
Management Contract with the Portfolio Trust. Subject to the general guidance
and the policies set by the Trustees of the Portfolio Trust, Republic provides
general supervision over the investment management functions performed by the
Sub-Adviser. For its services under the Investment Management Contract, the
Manager receives from the Portfolio Trust a fee, payable monthly, at the annual
rate of 0.25% of the Portfolio's average daily net assets.
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. As of December 31, 1996, Republic was the
____ largest commercial bank in the United States measured by deposits and the
____ largest commercial bank measured by shareholder equity.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the
Portfolio, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of obligations so purchased.
Based upon the advice of counsel, Republic believes that the
performance of investment advisory and other services for the Portfolio will not
violate the Glass-Steagall Act or other applicable banking laws or regulations.
However, future statutory or regulatory changes, as well as future judicial
<PAGE>
or administrative decisions and interpretations of present and future statutes
and regulations, could prevent Republic from continuing to perform such services
for the Portfolio. If Republic were prohibited from acting as investment manager
to the Portfolio, it is expected that the Trust's Board of Trustees would
recommend to Fund shareholders approval of a new investment advisory agreement
with another qualified investment adviser selected by the Board or that the
Board would recommend other appropriate action.
SUB-ADVISER
The Sub-Adviser continuously manages the investment portfolio of the
Portfolio pursuant to a Sub-Advisory Agreement with the Manager. For its
services, the Sub-Adviser is paid a fee by the Portfolio, computed daily and
based on the Portfolio's average daily net assets, equal on an annual basis to
0.75% of assets up to $50 million and 0.60% of assets in excess of $50 million.
For the fiscal year ended October 31, 1996, such fee equaled ___% of the
Portfolios average daily net assets. It is the responsibility of the Sub-Adviser
not only to make investment decisions for the Portfolio, but also to place
purchase and sale orders for the portfolio transactions of the Portfolio. See
"Portfolio Transactions."
The Sub-Adviser, together with its parent company, Massachusetts Financial
Services Company ("MFS"), is America's oldest mutual fund organization. MFS and
its predecessor organizations have a history of money management dating from
1924 and the founding of the first mutual fund in the U.S., Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $____ billion on behalf of approximately ____million investor
accounts as of October 31, 1996. As of such date, the MFS organization managed
approximately $____ billion of assets invested in equity securities,
approximately $____ billion of assets invested in fixed income securities, and
$___ billion of assets invested in securities of foreign issuers and non-U.S.
dollar securities. MFS is a wholly owned subsidiary of Sun Life Assurance
Company of Canada (U.S.), which in turn is a wholly owned subsidiary of Sun Life
Assurance Company of Canada ("Sun Life"). Sun Life, a mutual life insurance
company, is one of the largest international life insurance companies and has
been operating in the U.S. since 1895, establishing a headquarters office in the
U.S. in 1973. The executive officers of MFS report to the Chairman of Sun Life.
MFS has established a strategic alliance with Foreign & Colonial
Management Ltd. ("Foreign & Colonial"). Foreign & Colonial is a subsidiary of
two of the world's oldest financial services institutions, the London-based
Foreign & Colonial Investment Trust PLC, which pioneered the idea of investment
management in 1868, and HYPO-BANK (Bayerische Hypotheken-und Weschsel-Bank AG),
the oldest publicly listed bank in Germany, founded in 1835. As part of this
alliance, the portfolio managers and investment analysts of MFS and Foreign &
Colonial will share their views on a variety of investment-related issues, such
as the economy, securities markets, portfolio securities and their issuers,
investment recommendations, strategies and techniques, risk analysis, trading
strategies and other portfolio management matters. MFS will have access to the
extensive international equity investment expertise of Foreign & Colonial, and
Foreign & Colonial will have access to the extensive U.S. equity investment
expertise of MFS. One or more MFS investment analysts are expected to work for
an extended period with Foreign & Colonial's portfolio managers and investment
analysts at their offices in London. In return, one or more Foreign & Colonial
employees are expected to work in a similar manner at MFS' Boston offices.
In certain instances there may be securities which are suitable for the
Portfolio as well as for portfolios of other clients of the Sub-Adviser or MFS
or clients of Foreign & Colonial. Some simultaneous transactions are inevitable
when several clients receive investment advice from MFS and Foreign & Colonial,
particularly when the same security is suitable for more than one client. While
in some cases this arrangement could have a detrimental effect on the price or
availability of the security as far as the Portfolio is concerned, in other
cases, however, it may produce increased investment opportunities for the
Portfolio.
<PAGE>
The portfolio managers of the Portfolio are John W. Ballen and Brian Stack,
Senior Vice President and Vice President respectively, of the Sub-Adviser. Mr.
Ballen has been employed as a portfolio manager by the Sub-Adviser or MFS since
prior to 1992. Mr. Stack has been employed as a portfolio manager or analyst by
the Sub-Adviser or MFS since prior to 1992.
MFS also serves as investment adviser to the MFS Family of Funds and to
MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS Government Markets
Income Trust, MFS Intermediate Income Trust, MFS Charter Income Trust, MFS
Special Value Trust, MFS Union Standard Trust, MFS Variable Insurance Trust,
MFS/Sun Life Series Trust, Sun Growth Variable Annuity Fund, Inc. and seven
variable accounts, each of which is a registered investment company established
by Sun Life of Canada (U.S.) in connection with the sale of various
fixed/variable annuity contracts. MFS and the Sub-Adviser also provide
investment advice to substantial private clients.
DISTRIBUTOR AND SPONSOR
BISYS, whose address is 3435 Stelzer Road, Columbus, Ohio 43219-3035, acts
as sponsor and principal underwriter and distributor of the Shares pursuant to a
Distribution Contract with the Trust. The Distributor may, out of its own
resources, make payments to broker-dealers for their services in distributing
Shares. BISYS and its affiliates also serve as administrator or distributor to
other investment companies. BISYS is a wholly owned subsidiary of BISYS Group,
Inc.
Pursuant to a Distribution Plan adopted by the Trust (the "Plan"), the
Distributor is reimbursed from the Fund monthly for costs and expenses incurred
by the Distributor in connection with the distribution of Fund Shares and for
the provision of certain shareholder services with respect to Shares. The amount
of this reimbursement may not exceed on an annual basis 0.25% of the average
daily net assets of the Fund represented by Shares outstanding during the period
for which payment is being made. Payments to the Distributor are for various
types of activities, including: (1) payments to broker-dealers who advise
shareholders regarding the purchase, sale or retention of Shares and who provide
shareholders with personal services and account maintenance services ("service
fees"), (2) payments to employees of the Distributor, and (3) printing and
advertising expenses. It is currently intended that the aggregate fees paid to
the Distributor pursuant to the Plan and to Shareholder Servicing Agents
pursuant to the Administrative Services Plan will not exceed on an annual basis
0.25% of the Fund's average daily net assets represented by Shares outstanding
during the period for which payment is being made. Salary expense of BISYS
personnel who are responsible for marketing shares of the various portfolios of
the Trust may be allocated to such portfolios on the basis of average net
assets; travel expense is allocated to, or divided among, the particular
portfolios for which it is incurred.
Any payment by the Distributor or reimbursement of the Distributor from
the Fund made pursuant to the Plan is contingent upon the Board of Trustees'
approval. The Fund is not liable for distribution and shareholder servicing
expenditures made by the Distributor in any given year in excess of the maximum
amount (0.25% per annum of the Fund's average daily net assets represented by
Shares outstanding) payable under the Plan in that year.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the
"Administrative Services Plan") with respect to Fund Shares which provides that
the Trust may obtain the services of an administrator, transfer agent, custodian
and one or more Shareholder Servicing Agents, and may enter into agreements
providing for the payment of fees for such services.
<PAGE>
FUND ADMINISTRATOR AND PORTFOLIO ADMINISTRATOR
Pursuant to an Administration Agreements, BISYS and BISYS (Ireland) provide
each of the Fund and the Portfolio, respectively, with general office facilities
and supervise the overall administration of the Fund and the Portfolio
including, among other responsibilities, the preparation and filing of all
documents required for compliance by the Fund and the Portfolio with applicable
laws and regulations and arranging for the maintenance of books and records of
the Fund and the Portfolio. For its services to the Fund, the Fund Administrator
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
$1 billion, 0.04% of the Fund's average daily net assets in excess of $1 billion
up to $2 billion, and 0.035% of the Fund's average daily net assets in excess of
up to $2 billion. The administrative services fees of the Fund are subject to an
annual minimum fee. See the Statement of Additional Information. For its
services to the Portfolio, the Portfolio Administrator receives from the
Portfolio fees payable monthly equal on an annual basis (for the Portfolio's
then-current fiscal year) to 0.05% of the Portfolio's average daily net assets
up to $1 billion, 0.04% of the Portfolio's average daily net assets in excess of
$1 billion up to $2 billion, and 0.035% of the Portfolio's average daily net
assets in excess of $2 billion.
The Fund Administrator and the Portfolio Administrator provide persons
satisfactory to the respective Boards of Trustees to serve as officers of the
Trust and the Portfolio Trust. Such officers, as well as certain other employees
of the Trust and of the Portfolio Trust, may be directors, officers or employees
the Fund Administrator, the Portfolio Administrator, or their affiliates.
BISYS, BISYS (Ireland) and their affiliates also serve as administrator and
distributor of other investment companies. BISYS and BISYS (Ireland) are wholly
owned subsidiaries of BISYS Group, Inc.
TRANSFER AGENT AND CUSTODIAN
Each of the Trust and the Portfolio Trust has entered into a Transfer
Agency Agreement with Investors Bank & Trust Company ("IBT") pursuant to which
IBT acts as transfer agent (the "Transfer Agent") for the Fund and the
Portfolio. The Transfer Agent maintains an account for each shareholder of the
Fund and investor in the Portfolio, performs other transfer agency functions,
and acts as dividend disbursing agent for the Fund. Pursuant to respective
Custodian Agreements, IBT also acts as the custodian (the "Custodian") of the
assets of the Fund and the Portfolio. The Portfolio Trust's Custodian Agreement
provides that the Custodian may use the services of sub-custodians with respect
to the Portfolio. The Custodian's responsibilities include safeguarding and
controlling the Fund's cash and the Portfolio's cash and securities, and
handling the receipt and delivery of securities, determining income and
collecting interest on the Portfolio's investments, maintaining books of
original entry for portfolio accounting and other required books and accounts,
and calculating the daily net asset value of the Portfolio. Securities held for
the Portfolio may be deposited into the Federal Reserve- Treasury Department
Book Entry System or the Depositary Trust Company. The Custodian does not
determine the investment policies of the Fund or the Portfolio or decide which
securities will be purchased or sold for the Portfolio. Assets of the Portfolio
may, however, be invested in securities of the Custodian and the Portfolio Trust
may deal with the Custodian as principal in securities transactions for the
Portfolio. For its services, IBT receives such compensation as may from time to
time be agreed upon by it and the Trust or the Portfolio Trust.
SHAREHOLDER SERVICING AGENTS The Trust has entered into a shareholder
servicing agreement (a "Servicing Agreement") with each Shareholder Servicing
Agent, including Republic, pursuant to which a Shareholder Servicing Agent, as
<PAGE>
agent for its customers, among other things: answers customer inquiries
regarding account status and history, the manner in which purchases and
redemptions of Shares may be effected and certain other matters pertaining to
the Fund; assists shareholders in designating and changing dividend options,
account designations and addresses; provides necessary personnel and facilities
to establish and maintain shareholder accounts and records; assists in
processing purchase and redemption transactions; arranges for the wiring of
funds; transmits and receives funds in connection with customer orders to
purchase or redeem Shares; verifies and guarantees shareholder signatures in
connection with redemption orders and transfers and changes in
shareholder-designated accounts; furnishes (either separately or on an
integrated basis with other reports sent to a shareholder by a Shareholder
Servicing Agent) monthly and year-end statements and confirmations of purchases
and redemptions; transmits, on behalf of the Trust, proxy statements, annual
reports, updated prospectuses and other communications from the Trust to the
Fund's shareholders; receives, tabulates and transmits to the Trust proxies
executed by shareholders with respect to meetings of shareholders of the Fund or
the Trust; and provides such other related services as the Trust or a
shareholder may request. For these services, each Shareholder Servicing Agent
receives a fee from the Fund, which may be paid periodically, determined by a
formula based upon the number of accounts serviced by such Shareholder Servicing
Agent during the period for which payment is being made, the level of activity
in accounts serviced by such Shareholder Servicing Agent during such period, and
the expenses incurred by such Shareholder Servicing Agent. It is currently
intended that the aggregate fees paid to the Distributor pursuant to the Plan
and to Shareholder Servicing Agents pursuant to the Administrative Services Plan
will not exceed on an annual basis 0.25% of the Fund's average daily net assets
represented by Shares outstanding during the period for which payment is being
made.
The Trust understands that some Shareholder Servicing Agents also may
impose certain conditions on their customers, subject to the terms of this
Prospectus, in addition to or different from those imposed by the Trust, such as
requiring a different minimum initial or subsequent investment, account fees (a
fixed amount per transaction processed), compensating balance requirements (a
minimum dollar amount a customer must maintain in order to obtain the services
offered), or account maintenance fees (a periodic charge based on a percentage
of the assets in the account or of the dividends paid on those assets). Each
Shareholder Servicing Agent has agreed to transmit to its customers who are
holders of Shares appropriate prior written disclosure of any fees that it may
charge them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the Fund. The Trust engages banks as Shareholder
Servicing Agents on behalf of the Fund only to perform administrative and
shareholder servicing functions as described above. The Trust believes that the
Glass-Steagall Act should not preclude a bank from acting as a Shareholder
Servicing Agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain Fund shareholders, and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trustees of the Trust do not expect that
shareholders of the Fund would suffer any adverse financial consequences as a
result of these occurrences.
<PAGE>
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by the Distributor, Manager or the Sub-Adviser. See "Management of the
Trust -- Expenses and Expense Limits" in the Statement of Additional
Information. Trust expenses directly attributable to the Fund are charged to the
Fund; other expenses are allocated proportionately among all the portfolios in
the Trust in relation to the net assets of each portfolio. For the period from
September 3, 1996 (commencement of operations) through October 31, 1996, the
Fund's operating expenses equaled on an annual basis ____% of its average daily
net assets.
PORTFOLIO TRANSACTIONS
While it is not generally the Portfolio's policy to invest or trade for
short-term profits, the Portfolio may dispose of a portfolio security whenever
the Sub-Adviser believes it is appropriate to do so without regard to the length
of time the particular asset may have been held. A high turnover rate involves
greater expenses to the Portfolio. The Portfolio engages in portfolio trading if
it believes a transaction net of costs (including custodian charges) will help
in achieving its investment objective.
The primary consideration in placing security transactions is execution at
the most favorable prices. Consistent with the foregoing primary consideration,
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. and such other policies as the Trustees may determine, the Sub- Adviser may
consider sales of shares of the Fund and of the investment company clients of
MFS Fund Distributors, Inc., a wholly owned subsidiary of MFS and the principal
underwriter of certain funds in the MFS Family of Funds, as a factor in the
selection of broker-dealers to execute the Portfolio's portfolio transactions.
From time to time, the Sub-Adviser may direct certain portfolio transactions to
broker-dealer firms which, in turn, have agreed to pay a portion of the Fund's
operating expenses (e.g., fee charged by the custodian of the Fund's and the
Portfolio's assets). For a further discussion of portfolio trading, see the
Statement of Additional Information. Transaction costs incurred by the Portfolio
and the realized capital gains and losses of the Portfolio may be greater than
that of a fund with a lesser portfolio turnover rate.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Shares is determined on each day on which
the New York Stock Exchange is open for regular trading ("Fund Business Day").
This determination is made once during each such day as of 4:00 p.m., New York
time, by dividing the value of the Fund's net assets (i.e., the value of its
investment in the Portfolio and other assets less its liabilities, including
expenses payable or accrued) by the number of Shares outstanding at the time the
determination is made.
The value of the Fund's investment in the Portfolio is also determined
once daily at 4:00 p.m., New York time, on each day the New York Stock Exchange
is open for regular trading ("Portfolio Business Day").
The determination of the value of the Fund's investment in the
Portfolio is made by subtracting from the value of the total assets of the
Portfolio the amount of the Portfolio's liabilities and multiplying the
difference by the percentage, effective for that day, which represents the
Fund's share of the aggregate beneficial interests in the Portfolio.
Values of assets held by the Portfolio are determined on the basis of
their market or other fair value, as described in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares may be purchased through Shareholder Servicing Agents or through
securities brokers that have entered into a dealer agreement with the
Distributor ("Securities Brokers"). Shares may be purchased without a sales load
at their net asset value next determined after an order is transmitted to and
accepted by the Distributor or is received by a Shareholder Servicing Agent or a
Securities Broker if it is transmitted to and accepted by the Distributor.
Purchases are therefore effected on the same day the purchase order is received
by the Distributor provided such order is received prior to 4:00 p.m., New York
time, on any Fund Business Day. The Trust intends the Fund to be as fully
invested at all times as is reasonably practicable in order to enhance the yield
on its assets. Each Shareholder Servicing Agent or Securities Broker is
responsible for and required to promptly forward orders for Shares to the
Distributor.
While there is no sales load on purchases of Shares, the Distributor
may receive fees from the Fund. See "Management of the Trust -- Distributor and
Sponsor." Other funds which have investment objectives similar to those of the
Fund but which do not pay some or all of such fees from their assets may offer a
higher yield.
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 or his securities broker to purchase
such Shares on his behalf through the Distributor.
Exchange Privilege. By contacting the Transfer Agent or his Shareholder
Servicing Agent or his securities broker, a shareholder may exchange some or all
of his Shares for shares of the retail class 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, Republic New York Tax Free
Money Market Fund, Republic New York Tax Free Bond Fund, Republic Equity Fund,
Republic Overseas Equity Fund, Republic Taxable Bond Fund060B 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.
DIRECTLY THROUGH THE DISTRIBUTOR For each shareholder who purchases Shares
directly through the Distributor, the Trust, as the shareholder's agent,
<PAGE>
establishes an open account to which all Shares purchased are credited
togetherwith any dividends and capital gains distributions which are paid in
additional Shares. See "Dividends and Distributions." The minimum initial
investment is $1,000, except the minimum initial investment for an Individual
Retirement Account is $250. The minimum subsequent investment is $100. Initial
and subsequent purchases may be made by writing a check (in U.S. dollars)
payable to the Republic Funds -- Emerging Equities Fund and mailing it to:
Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
In the case of an initial purchase, the check must be accompanied by a
completed Purchase Application.
In the case of subsequent purchases, a shareholder may transmit
purchase payments by wire directly to the Fund's custodian bank at the following
address:
Investors Bank & Trust Company
Boston, Massachusetts
Attn: Transfer Agent
ABA # 011001438
Acct. # 5999-99451
For further credit to the Republic Funds (Republic Opportunity
Fund, account name, account #)
The wire order must specify the Fund, the account name, number,
confirmation number, address, amount to be wired, name of the wiring bank and
name and telephone number of the person to be contacted in connection with the
order.
Automatic Investment Plan. The Trust offers a plan for regularly
investing specified dollar amounts ($25.00 minimum in monthly, quarterly,
semi-annual or annual intervals) in the Fund. 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 the 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 IBT at the telephone number listed on the back cover.
For further information on how to purchase Shares from the Distributor,
an investor should contact the Distributor directly (see back cover for address
and phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER Shares are
being offered to the public, to customers of a Shareholder Servicing Agent and
to customers of a securities broker that has entered into a dealer agreement
with the Distributor. 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 and securities broker
may establish its own terms, conditions and charges, including limitations on
the amounts of transactions, with respect to such services. Charges for these
<PAGE>
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 or
securities broker. Conversely, certain Shareholder Servicing Agents may
(although they are not required by the Trust to do so) credit to the accounts of
their customers from whom they are already receiving other fees amounts not
exceeding such other fees or the fees received by the Shareholder Servicing
Agent from the Fund, which will have the effect of increasing the net return on
the investment of such customers of those Shareholder Servicing Agents.
Shareholder Servicing Agents and securities brokers may transmit
purchase payments on behalf of their customers by wire directly to the Fund's
custodian bank by following the procedures described above.
For further information on how to direct a securities broker or a
Shareholder Servicing Agent to purchase Shares, an investor should contact his
securities broker or his Shareholder Servicing Agent (see back cover for address
and phone number).
RETIREMENT PLANS
Shares 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.
Recently enacted federal tax legislation has substantially affected the tax
treatment of contributions to certain retirement plans. 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 may be used as a funding medium for an IRA. An Internal Revenue
Service-approved IRA plan may be available from an investor's Shareholder
Servicing Agent. In any event, such a plan is available from the Sponsor naming
IBT, as custodian. The minimum initial investment for an IRA is $250; the
minimum subsequent investment is $100. IRAs are available to individuals who
receive compensation or earned income and their spouses whether or not they are
active participants in a tax-qualified or Government-approved retirement plan.
An IRA contribution by an individual who participates, or whose spouse
participates, in a tax-qualified or Government-approved retirement plan may not
be deductible 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 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.
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 Transfer Agent, with
respect to Shares purchased directly through the Distributor, or to his
securities broker or his Shareholder Servicing Agent, and is transmitted to and
received by the Transfer Agent. Redemptions are effected on the same day the
redemption order is received by the Transfer Agent provided such order is
received prior to 4:00 p.m., New York time, on any Fund Business Day.
<PAGE>
Shares redeemed earn dividends up to and including the Fund Business Day prior
to the day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the next Fund Business Day 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. However, a shareholder will be
allowed to make additional investments prior to the date fixed for redemption to
avoid liquidation of the account.
Unless Shares have been purchased directly from the Distributor, a
shareholder may redeem Shares only by authorizing his securities broker or 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
securities broker or 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 (see back cover for address and phone number).
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns Shares with an aggregate value of $10,000 or
more may establish a Systematic Withdrawal Plan under which they redeem at net
asset value the number of full and fractional shares which will produce the
monthly, quarterly, semi-annual or annual payments specified (minimum $50.00 per
payment). Depending on the amounts withdrawn, systematic withdrawals may deplete
the investor's principal. Investors contemplating participation in this Plan
should consult their tax advisers. No additional charge to the shareholder is
made for this service.
REDEMPTION OF SHARES PURCHASED DIRECTLY THROUGH THE DISTRIBUTOR
Redemption by Letter. Redemptions may be made by letter to the Transfer
Agent specifying the dollar amount or number of Shares to be redeemed, account
number and the Fund. The letter must be signed in exactly the same way the
account is registered (if there is more than one owner of the Shares all must
sign). In connection with a written redemption request, all signatures of all
registered owners or authorized parties must be guaranteed by an Eligible
Guarantor Institution, which includes a domestic bank, broker, dealer, credit
union, national securities exchange, registered securities association, clearing
agency or savings association. The Fund's transfer agent, however, may reject
redemption instructions if the guarantor is neither a member or not a
participant in a signature guarantee program (currently known as "STAMP",
"SEMP", or "NYSE MPS"). Corporations, partnerships, trusts or other legal
entities may be required to submit additional documentation.
An investor may redeem Shares in any amount by written request mailed
to the Transfer Agent at the following address:
The Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
Checks for redemption proceeds normally will be mailed within seven days,
but will not be mailed until all checks in payment for the purchase of the
<PAGE>
Shares to be redeemed have been cleared, which may take up to 15 days or more.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to the shareholder's address of record.
Redemption by Wire or Telephone. An investor may redeem Shares by wire
or by telephone if he has checked the appropriate box on the Purchase
Application or has filed a Telephone Authorization Form with the Trust. These
redemptions may be paid from the Fund by wire or by check. The Trust reserves
the right to refuse telephone and wire redemptions and may limit the amount
involved or the number of telephone redemptions. The telephone redemption
procedure may be modified or discontinued at any time by the Trust. Instructions
for wire redemptions are set forth in the Purchase Application. The Trust
employs reasonable procedures to confirm that instructions communicated by
telephone are genuine. For instance, the following information must be verified
by the shareholder or securities broker at the time a request for a telephone
redemption is effected: (1) shareholder's account number; (2) shareholder's
social security number; and (3) name and account number of shareholder's
designated securities dealer or bank. If the Trust fails to follow these or
other established procedures, it may be liable for any losses due to
unauthorized or fraudulent instructions.
DIVIDENDS AND DISTRIBUTIONS
Dividends substantially equal to all of the Fund's net investment
income earned are distributed to Fund shareholders of record semi-annually.
Generally, the Fund's net investment income consists of the interest and
dividend income it earns, less expenses. In computing interest income, premiums
are not amortized nor are discounts accrued on long-term debt securities in the
Portfolio, except as required for federal income tax purposes.
The Fund's net realized short-term and long-term capital gains, if any,
are distributed to shareholders annually. Additional distributions are also made
to the Fund's shareholders to the extent necessary to avoid application of the
4% non-deductible federal excise tax on certain undistributed income and net
capital gains of regulated investment companies.
Unless a shareholder elects to receive dividends in cash, dividends are
distributed in the form of additional shares of the Fund (purchased at their net
asset value without a sales charge).
TAX MATTERS
This discussion is intended for general information only. An investor
should consult with his own tax advisor as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Code. To so qualify, the Fund must meet certain income, distribution and
diversification requirements. Provided such requirements are met and all
investment company taxable income and net realized capital gains of the Fund are
distributed to shareholders in accordance with the timing requirements imposed
by the Code, generally no federal income or excise taxes will be paid by the
Fund on amounts so distributed.
Dividends and capital gains distributions, if any, paid to shareholders
are treated in the same manner for federal income tax purposes whether received
in cash or reinvested in additional shares of the Fund. Shareholders must treat
dividends, other than long-term capital gain dividends, as ordinary income.
Dividends designated by the Fund as long-term capital gain dividends are taxable
to shareholders as long-term capital gain regardless of the length of time the
shares of the Fund have been held by the shareholders. Certain dividends
declared in October, November, or December of a calendar year to shareholders of
record on a date in such a month are taxable to shareholders (who
<PAGE>
otherwise are subject to tax on dividends) as though received on December 31 of
that year if paid to shareholders during January of the following calendar year.
Foreign Tax Withholding. Income received by the Portfolio from sources
within foreign countries may be subject to withholding and other income or
similar taxes imposed by such countries. If more than 50% of the value of the
Portfolio's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible and intends to elect to treat
its share of any non-U.S. income and similar taxes it pays (or which are paid by
the Portfolio) as though the taxes were paid by the Fund's shareholders.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his pro rata share
of the foreign taxes paid by the Fund or Portfolio, and will be entitled either
to deduct (as an itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. federal income tax liability, subject to limitations. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions, but such a shareholder may be eligible to claim the foreign tax
credit. Shareholders will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund or Portfolio will
be treated as paid by the Fund's shareholders for that year. Furthermore,
foreign shareholders may be subject to U.S. tax at the rate of 30% (or lower
treaty rate) of the income resulting from the Fund's election to treat any
foreign taxes paid by it as paid its shareholders, but will not be able to claim
a credit or deduction for the foreign taxes treated as having been paid by them.
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish the Fund with the shareholder's correct taxpayer identification
number ("TIN") or social security number and to make such certifications as the
Fund may require, (2) the Internal Revenue Service notifies the shareholder or
the Fund that the shareholder has failed to report properly certain interest and
dividend income to the Internal Revenue Service and to respond to notices to
that effect, or (3) when required to do so, the shareholder fails to certify
that he is not subject to backup withholding. Backup withholding is not an
additional tax and any amounts withheld may be credited against the
shareholder's federal income tax liability. Dividends from the Fund attributable
to the Fund's net investment income and short-term capital gains generally will
be subject to U.S. withholding tax when paid to shareholders treated under U.S.
tax law as nonresident alien individuals or foreign corporations, estates,
partnerships or trusts.
The Trust is organized as a Massachusetts business trust and, under
current law, is not liable for any income or franchise tax in the Commonwealth
of Massachusetts as long as each series of the Trust (including the Fund)
qualifies as a "regulated investment company" under the Code.
For additional information relating to the tax aspects of investing in
the Fund and for information about the tax aspects of the Portfolio, see the
Statement of Additional Information.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest (par value
$0.001 per share) and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
in the Trust. The shares of each series participate equally in the earnings,
dividends and assets of the particular series. Currently, the Trust has seven
series of shares, each of which constitutes a separately managed fund. The Trust
reserves the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share. Shares have no preference, preemptive, conversion or
<PAGE>
similar rights. Shares when issued are fully paid and non-assessable, except as
set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. The Trust is not required and has no
current intention to hold annual meetings of shareholders, although the Trust
will hold special meetings of Fund shareholders when in the judgment of the
Trustees of the Trust it is necessary or desirable to submit matters for a
shareholder vote. Shareholders of each series generally vote separately, for
example, to approve investment advisory agreements or changes in fundamental
investment policies or restrictions, but shareholders of all series may vote
together to the extent required under the 1940 Act, such as in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Under certain circumstances the shareholders of one or more series could control
the outcome of these votes.
The series of the Portfolio Trust will vote separately or together in
the same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of the Portfolio Trust could control the outcome
of these votes.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing subscribed to by a specified
number of shareholders. Upon liquidation or dissolution of the Fund,
shareholders of the Fund would be entitled to share pro rata in the net assets
of the Fund available for distribution to shareholders.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust is organized as a master trust fund under the laws
of the State of New York. The Portfolio is a separate series of the Portfolio
Trust, which currently has two other series. The Portfolio Trust's Declaration
of Trust provides that the Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) are each liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the investment of all of
the Assets of the Fund in the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce
its investment in the Portfolio on each Portfolio Business Day. At 4:00 p.m.,
New York time, on each Portfolio Business Day, the value of each investor's
beneficial interest in the Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be effected on that day,
are then effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio is then recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of 4:00 p.m., New York time, on such day plus or minus, as
the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m., New York time, on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate investments in
the Portfolio by all investors in the Portfolio. The percentage so determined is
then
<PAGE>
applied to determine the value of the investor's interest in the Portfolio as of
4:00 p.m., New York time, on the following Portfolio Business Day.
PERFORMANCE INFORMATION
Yield and total return data for the Fund may from time to time be
included in advertisements about the Trust. "Total return" is expressed in terms
of the average annual compounded rate of return of a hypothetical investment in
the Fund over periods of 1, 5 and 10 years. All total return figures reflect the
deduction of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. "Yield"
refers to the income generated by an investment in the Fund over the 30-day (or
one month) period ended on the date of the most recent balance sheet of the Fund
included in the Trust's registration statement with respect to the Fund. See the
Statement of Additional Information for further information concerning the
calculation of yield and total return data.
The following table sets forth the average annual total returns of all
institutional separate accounts managed by the Sub-Adviser with investment
objectives, policies and restrictions substantially similar to the Fund and the
Portfolio and which have been managed as the Portfolio has been, and is expected
to be, managed.
The composite data is provided to illustrate the past performance of the
Sub-Adviser in managing substantially similar accounts as measured against the
specified market index and does not represent the performance of the Fund or the
Portfolio. The Portfolio has been operational since September 3, 1996.
Accordingly, a Fund composite reflecting the Portfolio's performance, adjusted
to assume that all charges, expenses and fees of the Fund currently in effect
were deducted during the relevant time periods, is also provided below.
Investors should not consider this composite performance data as an indication
of future performance of the Fund, the Portfolio or the Sub-Adviser.
The institutional separate accounts that are included in the Sub-Adviser's
composite are not subject to the diversification requirements, specific tax
restrictions and investment limitations imposed on the Fund and the Portfolio by
the 1940 Act or the Code. Consequently, the performance results of the
Sub-Adviser's composite could have been adversely affected if the institutional
separate accounts included in the composite had been regulated as investment
companies under the federal securities laws.
Returns for each period assume reinvestment of all net investment income,
are adjusted to assume that all charges, expenses and fees of the Fund and the
Portfolio which are currently in effect (as measured by the current expense
ratios of the Fund and the Portfolio) were deducted during such periods, and are
calculated in accordance with SEC guidelines. The investment results of the Sub-
Adviser's composite presented below are unaudited and are not intended to
predict or suggest the returns that might be experienced by the Fund or an
individual investing in the Fund.
<PAGE>
Annualized Returns
Sub-Adviser Russell 2000
Composite Index(2) Fund Composite
1 Year(1)................... ____% ____% N/A
Since Portfolio Inception
9/3/96....................... N/A ____% ____%
5 Years(1).................. ____% ____% N/A
10 Years(1)................. ____% ____% N/A
- -------------
(1) Through June 30, 1996.
(2) The Russell 2000 Small Stock Index is an unmanaged index of the 2000
smallest securities in the Russell 3000 Index, representing approximately
7% of the Russell 3000 Index, which represents approximately 98% of the
U.S. equity market by capitalization.
Any performance information should be considered in light of the Fund's
investment objective and policies, characteristics and quality of the Fund's
portfolio and the market conditions during the time period indicated, and should
not be considered to be representative of what may be achieved in the future.
From time to time the Trust may also use comparative performance information in
such advertisements, including the performance of unmanaged indices, the
performance of the Consumer Price Index (as a measure for inflation), and data
from Lipper Analytical Services, Inc. and other industry publications.
A Shareholder Servicing Agent or a securities broker may charge its
customers direct fees in connection with an investment in the Fund, which will
have the effect of reducing the net return on the investment of customers of
that Shareholder Servicing Agent or that securities broker. Such customers may
be able to obtain through their Shareholder Servicing Agent or securities broker
quotations reflecting such decreased return.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
GENERAL AND ACCOUNT INFORMATION (888) 525-5757 (TOLL FREE)
--------------------
The Trust's Statement of Additional Information, dated February 1, 1997,
with respect to the Fund contains more detailed information about the Fund,
including information related to (i) the Fund's investment restrictions, (ii)
the Trustees and officers of the Trust and the Manager, Sub-Adviser and Sponsor
of the Fund, (iii) portfolio transactions, (iv) the Fund's shares, including
rights and liabilities of shareholders, and (v) additional yield information,
including the method used to calculate the total return and yield of the Fund.
<PAGE>
- ----------
REPUBLIC
OPPORTUNITY
FUND
Investment Manager
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
Sub-Adviser
MFS Asset Management, Inc.
500 Boylston Street
Boston, MA 02116
Administrator, Distributor and Sponsor
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
Custodian and Transfer Agent
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
REPUBLIC
OPPORTUNITY
FUND
PROSPECTUS
February 1, 1997
RF069B
<PAGE>
REPUBLIC TAXABLE BOND FUND
6 St. James Avenue
Boston, MA 02116
(800) 782-8183
Republic National Bank of New York - Investment Manager
("Republic" or the "Manager")
Miller Anderson & Sherrerd - Sub-Adviser
("MAS" or the "Sub-Adviser")
Signature Broker-Dealer Services, Inc. - Administrator, Distributor and
Sponsor ("SBDS" or the "Administrator of the Fund" or the "Distributor" or the
"Sponsor")
Signature Financial Group (Grand Cayman) Limited -
Administrator of the Portfolio
("Signature (Cayman)")
Signature Financial Services, Inc. -
Fund Accounting Agent
("Signature")
STATEMENT OF ADDITIONAL INFORMATION
Republic Taxable Bond Fund (the "Fund") is a separate series of
Republic Funds (the "Trust"), an open-end, management investment company which
currently consists of seven 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 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 __________, 1996 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Fund at the address and
telephone number printed above.
__________, 1996 RF054C
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS......................... 1
Mortgage-Related and Other Asset-Backed Securities..............1
Brady Bonds.....................................................6
Foreign Currency Exchange-Related Securities....................6
Eurodollar and Yankee Obligations...............................6
Portfolio Management............................................8
Investment Restrictions.........................................8
Percentage and Rating Restrictions.............................11
PORTFOLIO TRANSACTIONS..................................................11
PERFORMANCE INFORMATION.................................................12
Consumer Price Index...........................................12
Lehman Brothers Government/Corporate Index.....................13
Salomon Broad Index............................................13
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST.........................13
Trustees and Officers..........................................13
Investment Manager.............................................16
Sub-Adviser....................................................16
Administrator and Portfolio Administrator......................17
Distribution Plan..............................................17
Administrative Services Plan...................................17
Shareholder Servicing Agents...................................18
Fund Accounting Agent..........................................18
Custodian and Transfer Agent...................................18
DETERMINATION OF NET ASSET VALUE........................................18
TAXATION ...............................................................19
Options, Futures, Forward Contracts and Swap Contracts.........20
OTHER INFORMATION.......................................................22
Capitalization.................................................22
Voting Rights..................................................23
Independent Auditors...........................................23
Counsel ......................................................23
Registration Statement.........................................24
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated __________, 1996, of the Fund by which
shares of the Fund are offered. Unless the context otherwise requires, terms
defined in the Prospectus have the same meaning in this Statement of Additional
Information as in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Portfolio discussed under the caption "Investment
Objective and Policies" in the Prospectus.
Mortgage-Related and Other Asset-Backed Securities
Mortgage-related securities are interests in pools of mortgage loans
made to residential home buyers, including mortgage loans made by savings and
loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations (see "Mortgage
Pass-Through Securities"). The Portfolio may also invest in debt securities
which are secured with collateral consisting of mortgage-related securities (see
"Collateralized Mortgage Obligations") and in other types of mortgage-related
securities.
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 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 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.
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
<PAGE>
("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 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.
<PAGE>
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.
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
<PAGE>
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. Stripped mortgage-backed
securities ("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.
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 IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is 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.
<PAGE>
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.
The ratings of mortgage-backed securities and asset-backed securities for
which third-party credit enhancement provides liquidity protection or protection
<PAGE>
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.
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 totalling 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.
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
<PAGE>
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 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
<PAGE>
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 CEWsSM, PERLsSM or PIPsSM.
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.
<PAGE>
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.
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.
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
Each of the Portfolio Trust (with respect to the Portfolio) and the
Trust (with respect to the Fund) has adopted the following investment
restrictions which may not be changed without approval by holders of a "majority
of the outstanding voting securities" of the Portfolio or Fund, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding "voting securities" of the Fund present at a meeting,
if the holders of more than 50% of the outstanding "voting securities" are
present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities". The term "voting securities" as used in this paragraph has
the same meaning as in the 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):
<PAGE>
(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;
(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.
Each of the Portfolio and the Fund is 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
<PAGE>
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;
(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 10% 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-Adviser waives any investment advisory fees with
respect to such assets and (2) the Portfolio pays no sales charge in connection
with the investment;
<PAGE>
(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 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
<PAGE>
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:
Average Annual Total Return -- Commencement of Operations* to Period Ended
10/31/95: _____%.
*Fixed Income Portfolio commenced operations on January 9, 1995.
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:
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.
<PAGE>
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
Trustees and Officers
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust and the Portfolio Trust. The address of each, unless otherwise
indicated, is 6 St. James Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, Trustee 126 Butternut Hollow Road, Greenwich,
Connecticut 06830 - Management Consultant.
ALAN S. PARSOW*, Trustee 2222 Skyline Drive, Elkhorn, Nebraska 68022 -
General Partner of Parsow Partnership, Ltd. (investments).
LARRY M. ROBBINS, Trustee
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, Trustee
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, President
Chairman, President and Chief Executive Officer, Signature Financial
Group, Inc. ("SFG"); Chairman, President and Chief Executive Officer,
SBDS (since April, 1989), Chairman, President and Chief Executive
Officer, Signature (since May, 1993); Director, Chairman and President,
Signature (Cayman) (since March, 1992).
JOHN R. ELDER*, Treasurer
Vice President, SFG (since April, 1995); Treasurer, Phoenix Family of
Mutual Funds (prior to April, 1995).
LINDA T. GIBSON*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, SBDS (since October, 1992); Assistant Secretary,
Signature (since March, 1993); law student, Boston University School of
Law (prior to May, 1992).
JAMES E. HOOLAHAN*, Vice President
Senior Vice President, SFG (since December, 1989).
SUSAN JAKUBOSKI*, Assistant Secretary and
Assistant Treasurer P.O. Box 2494, Elizabethan Square, George Town,
Grand Cayman, Cayman Islands, B.W.I. - Manager and Senior Fund
Administrator, SFG and Signature (Cayman) (since August 1994);
Assistant Treasurer, SBDS (since September 1994); Fund Compliance
Administrator, Concord Financial Group, Inc. (from November
1990 to August 1994).
<PAGE>
THOMAS M. LENZ*, Secretary
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, SBDS (since February, 1991);
Assistant Secretary, Signature (since March, 1993).
MOLLY S. MUGLER*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary, SBDS
(since April, 1989); Assistant Secretary, Signature (since March,
1993).
BARBARA M. O'DETTE*, Assistant Treasurer
Assistant Treasurer, SFG; Assistant Treasurer, SBDS (since April,
1989); Assistant Treasurer, Signature (since March, 1993).
ANDRES E. SALDANA*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Assistant Secretary, SBDS (since September, 1993); Assistant Secretary,
Signature (since March, 1993); Attorney, Ropes & Gray (September, 1990
to November, 1992).
Messrs. Coolidge, Elder, Lenz and Saldana and Mss. Gibson, Jakuboski,
Mugler and O'Dette are also Trustees and/or officers of certain other investment
companies of which SBDS or an affiliate is the administrator.
COMPENSATION TABLE
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual from Fund
Name of Compensation Part of Fund Benefits Upon Complex* Paid
Trustee from Trust Expenses Retirement to Trustees
Frederick C. $4,096.42 none none $4,873,21
Chen
Alan S. Parsow $4,096.42 none none $4,873.21
Larry M. $3,696.43 none none $4,373.22
Robbins
Michael Seely $4,096.42 none none $4,873.21
*The Fund Complex consists of the Trust,
Republic Advisor Funds Trust (another investor in the Portfolio Trust) and the
Portfolio Trust.
The compensation table above reflects the fees received by the Trustees
from the Trust and Portfolio Trust for the fiscal year ended October 31, 1995.
The Trustees who are not "interested persons" (as defined in the 1940 Act) of
the Trust, Republic Advisor Funds Trust, and the Portfolio Trust will receive an
annual retainer of $3,600 and a fee of $1,000 for each meeting of the Board of
Trustees or committee thereof attended.
As of __________, 1996, the Trustees and officers of the Trust and the
Portfolio Trust, as a group, owned less than 1% of the outstanding shares of the
Fund. As of the same date, 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): Republic NY Securities Co., FBO Republic
Bank of New York, Miller Anderson, 452 Fifth Avenue, 14th Floor, New York, New
York, 10018 - 39.1%;
<PAGE>
Republic National Bank of New York, 452 Fifth Avenue, New York, New York, 10018
- - 25.5%; Kinco & Co., c/o RNB Securities Services, One Hanson Place - Lower
Level, Brooklyn, New York, 11243 - 17.0%. Shareholders who own more than 25% of
the outstanding voting securities of the Fund may take action without the
approval of other shareholders of the Fund.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
Investment Manager
Republic is the investment manager to the Portfolio pursuant to an
investment management agreement (the "Investment Management Contract") with the
Portfolio Trust. For its services, the Manager is paid a fee by the Portfolio,
computed daily and paid monthly, equal on an annual basis to 0.20% of the
Portfolio's average daily net assets.
The Investment Management Contract will continue in effect with respect
to the Portfolio, provided such continuance is approved at least annually (i) by
the holders of a majority of the outstanding voting securities of the Portfolio
or by the Portfolio Trust's Board of Trustees, and (ii) by a majority of the
Trustees of the Portfolio Trust who are not parties to the Investment Management
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Investment Management Contract may be terminated with respect to the
Portfolio without penalty by either party on 60 days' written notice and will
terminate automatically if assigned.
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Portfolio.
Republic complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary shall not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees or other persons with substantial connections
with the bank. The regulations further provide that fiduciary assets shall not
be sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above. Republic, in accordance with federal banking
laws, may not purchase for its own account securities of any investment company
the investment adviser of which it controls, extend credit to any such
investment company, or accept the securities of any such investment company as
collateral for a loan to purchase such securities. Moreover, Republic, its
officers and employees do not express any opinion with respect to the
advisability of any purchase of such securities.
The investment advisory services of Republic to the Portfolio are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment advisory services to others.
<PAGE>
Sub-Adviser
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. For the period from January 9, 1995 (Portfolio
commencement of operations) to October 31, 1995, sub-advisory fees aggregated
$53,963.
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.
Administrator and Portfolio Administrator
Each Administrative Services Agreement is terminable with respect to
the Fund or the Portfolio, as the case may be, without penalty at any time by
vote of a majority of the respective Trustees, or by the respective
Administrator, upon not less than 60 days' written notice to the Fund or the
Portfolio, as the case may be. Each Agreement provides that neither the
respective Administrator nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Fund or the Portfolio, as the case may be, except for willful misfeasance,
bad faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
respective Administrative Services Agreement. The minimum annual administrative
services fees paid by the Fund shall be $25,000. For the period from January 9,
1995 (Portfolio commencement of operations) to October 31, 1995, the Portfolio
accrued administrative services fees of $7,195.
Distribution Plan
A Distribution Plan has been adopted by the Trust (the "Distribution
Plan") with respect to the Shares, and provides that it may not be amended to
increase materially the costs which the Fund may bear pursuant to the
Distribution Plan without approval by shareholders of the Fund and that any
material amendments of the Distribution Plan must be approved by the Board of
Trustees, and by the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust and have no direct or indirect financial interest in
the operation of the Distribution Plan or in any related agreement ("Qualified
Trustees"), by vote cast in person at a meeting called for the purpose of
considering such amendments. The selection and nomination of the Trustees who
are not "interested persons" of the Trust (the "Independent Trustees") has been
committed to the discretion of the Independent Trustees. The Distribution Plan
has been approved, and is subject to annual approval, by a majority vote of the
Board of Trustees and by a majority vote of the Qualified Trustees, by vote cast
in person at a meeting called for the purpose of voting on the Distribution
Plan. In adopting the Distribution Plan, the Trustees considered alternative
methods to distribute the Shares and to reduce the Fund's per share expense
ratio and concluded that there was a reasonable likelihood that the Distribution
Plan will benefit the Fund and its shareholders. The Distribution Plan is
terminable with respect to the Fund at any time by a vote of a majority of the
Qualified Trustees or by vote of the holders of a majority of the Shares.
<PAGE>
Administrative Services Plan
An Administrative Services Plan has been adopted by the Trust with
respect to the Fund, and continues in effect indefinitely if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trustees and a majority of the Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the operation of
the Administrative Services Plan or in any agreement related to such Plan
("Qualified Trustees"). The Administrative Services Plan may be terminated at
any time by a vote of a majority of the Qualified Trustees or with respect to
the Fund by a majority vote of shareholders of the Fund. The Administrative
Services Plan may not be amended to increase materially the amount of permitted
expenses thereunder with respect to the Fund without the approval of a majority
of shareholders of the Fund, and may not be materially amended in any case
without a vote of the majority of both the Trustees and the Qualified Trustees.
Shareholder Servicing Agents
The Trust has entered into a shareholder servicing agreement with each
Shareholder Servicing Agent. For additional information, including a description
of the fees paid to Shareholder Servicing Agents from assets attributable to the
Shares, see "Management of the Trust - Shareholder Servicing Agents" in the
Prospectus.
Fund Accounting Agent
Pursuant to respective fund accounting agreements, Signature serves as
fund accounting agent to each of the Fund and the Portfolio. For its services to
the Fund, Signature receives from the Fund fees payable monthly equal on an
annual basis to $12,000. For its services to the Portfolio, Signature receives
fees payable monthly equal on an annual basis to $40,000. For the period from
January 9, 1995 (Portfolio commencement of operations) to October 31, 1995,
Signature's fee for these services aggregated $32,438, of which $10,115 was
waived.
Custodian and Transfer Agent
Investors Bank & Trust Company ("IBT") serves as custodian and transfer
agent for each of the Fund and the Portfolio pursuant to Custodian Agreements
and Transfer Agency Agreements, respectively. The Custodian may use the services
of sub-custodians with respect to the Portfolio.
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, 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.
<PAGE>
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 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.
TAXATION
Each year, to qualify as a separate "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), at least 90%
of the Fund's investment company taxable income (which includes, among other
items, interest, dividends and the excess of net short-term capital gains over
net long-term capital losses) must be distributed to Fund shareholders and the
Fund must meet certain diversification of assets, source of income, and other
requirements. If the Fund does not so qualify, it will be taxed as an ordinary
corporation.
The Fund intends to apply to the Internal Revenue Service for rulings
including, among others, rulings to the effect that, (1) the Portfolio will be
treated for federal income tax purposes as a partnership and (2) for purposes of
determining whether the Fund satisfies the income and diversification
requirements to maintain its status as a RIC, the Fund, as an investor in its
corresponding Portfolio, will be deemed to own a proportionate share of the
Portfolio's income attributable to that share. While the IRS has issued
substantially similar rulings in the past and SBDS anticipates that the Fund
will receive the rulings it seeks, the IRS has complete discretion in granting
rulings and complete assurance cannot be given that such rulings will be
obtained. The Portfolio has advised its corresponding Fund that it intends to
conduct its operations so as to enable its investors, including the Fund, to
satisfy those requirements.
<PAGE>
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.
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.
<PAGE>
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.
The 30% limit on gains from the disposition of certain options,
futures, forward contracts and swap contracts held less than three months, and
the qualifying income and diversification requirements applicable to the
Portfolio assets, may limit the extent to which the Portfolio will be able to
engage in these transactions.
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 Internal Revenue Service 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
<PAGE>
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, and will be long-term if the shareholder's
holding period for the shares is more than one year and generally otherwise will
be short-term. Any loss realized on a sale or exchange of Fund shares will be
disallowed to the extent that the shares disposed of are replaced (including
replacement through reinvesting of dividends and capital gain distributions in
the Fund) within a period of 61 days beginning 30 days before and ending 30 days
after the disposition of the shares. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
The information above is only a summary of some of the tax
considerations affecting the Fund and its shareholders. The Portfolio, the Fund,
and the Fund's distributions may also be subject to state, local, foreign or
other taxes not discussed above. A prospective investor may wish to consult a
tax advisor to determine the suitability of an investment in the Fund based on
the prospective investor's tax situation.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax- Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource). Prior to October 3, 1994 the name of the Trust was
"FundTrust".
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.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
<PAGE>
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Portfolio Trust's Trustees,
it is necessary or desirable to submit matters for an investor vote. Each
investor is entitled to a vote in proportion to the share of its investment in
the Portfolio.
Except as described below, whenever the Trust is requested to vote on a
matter pertaining to the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast all of its votes on each matter at a meeting of
investors in the Portfolio proportionately as instructed by the Fund's
shareholders. However, subject to applicable statutory and regulatory
requirements, the Trust would not request a vote of the Fund's shareholders with
respect to any proposal relating to the Portfolio which proposal, if made with
respect to the Fund, would not require the vote of the shareholders of the Fund.
Independent Auditors
For the fiscal year ended October 31, 1995, Ernst & Young, One Capital
Place, George Town, Grand Cayman, Cayman Islands, B.W.I., served as independent
auditors of the Portfolio.
The Board of Trustees has appointed KPMG Peat Marwick LLP as independent
accountants of the Trust and the Fund for the fiscal year ending October 31,
1996. KPMG Peat Marwick LLP will audit the Trust's annual financial statements,
prepare the Trust's income tax returns, and assist in the preparation of filings
with the Securities and Exchange Commission. The address of KPMG Peat Marwick
LLP is 99 High Street, Boston, Massachusetts 02108. The Portfolio Trust has
appointed KPMG Peat Marwick, Toronto, Ontario, as its independent accountants to
audit the Portfolio's financial statements for the fiscal year ending October
31, 1996.
Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares 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.
<PAGE>
REPUBLIC OVERSEAS EQUITY FUND
6 St. James Avenue
Boston, MA 02116
(800) 782-8183
Republic National Bank of New York - Investment Manager
("Republic" or the "Manager")
Capital Guardian Trust Company - Sub-Adviser
("CGTC" or the "Sub-Adviser")
Signature Broker-Dealer Services, Inc. -
Administrator of the Fund, Distributor and Sponsor
("SBDS" or the "Administrator of the Fund" or the "Distributor" or the
"Sponsor")
Signature Financial Group (Grand Cayman) Limited -
Administrator of the Portfolio
("Signature (Cayman)")
Signature Financial Services, Inc. -
Fund Accounting Agent
("Signature")
STATEMENT OF ADDITIONAL INFORMATION
Republic Overseas Equity Fund (the "Fund") is a separate series of
Republic Funds (the "Trust"), an open-end, management investment company which
currently consists of seven 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 International Equity
<PAGE>
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 __________, 1996 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Fund at the address and
telephone number printed above.
__________, 1996 RF055C
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS..................1
U.S. Government Securities .........1
Convertible Securities...........................................1
Repurchase Agreements............................................2
Investment Restrictions .........2
Percentage and Rating Restrictions .........4
PORTFOLIO TRANSACTIONS...........................................5
PERFORMANCE INFORMATION..........................................6
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST..................7
Trustees and Officers .........7
Investment Manager .........9
Sub-Adviser.....................................................10
Administrator and Portfolio Administrator ........10
Distribution Plan...............................................11
Administrative Services Plan....................................11
Shareholder Servicing Agents ........11
Fund Accounting Agent...........................................11
Custodian and Transfer Agent....................................12
DETERMINATION OF NET ASSET VALUE................................12
TAXATION........................................................12
Options, Futures and Forward Contracts ........13
Swap Agreements ........14
Investment in Passive Foreign Investment Companies..............14
Disposition of Shares...........................................15
OTHER INFORMATION...............................................16
Capitalization ........16
Voting Rights ........16
Independent Auditors............................................17
Counsel ........17
Registration Statement ........17
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated __________, 1996, of the Fund by which
shares of the Fund are offered. Unless the context otherwise requires, terms
defined in the Prospectus have the same meaning in this Statement of Additional
Information as in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Portfolio discussed under the caption "Investment
Objective and Policies" in the Prospectus.
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 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.
Warrants entitle the holder to buy the issuer's stock at a specific
price for a specific period of time. The price of a warrant tends to be more
volatile than, and does not always track, the price of its underlying stock.
Warrants are issued with expiration dates. Once a warrant expires, it has no
value in the market.
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.
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
<PAGE>
insulated from market fluctuations during such period. A repurchase agreement is
subject to the risk that the seller may fail to repurchase the security.
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
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.
Investment Restrictions
Each of the Portfolio Trust (with respect to the Portfolio) and the
Trust (with respect to the Fund) has adopted the following investment
restrictions which may not be changed without approval by holders of a "majority
of the outstanding voting securities" of the Portfolio or Fund, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding "voting securities" of the Fund present at a meeting,
if the holders of more than 50% of the outstanding "voting securities" are
present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities". The term "voting securities" as used in this paragraph has
the same meaning as in the 1940 Act.
As a matter of fundamental policy, the Portfolio (Fund) will not
(except that none of the following investment restrictions shall prevent the
Trust from investing all of the Fund's Assets in a separate registered
investment company with substantially the same investment objectives):
(1) invest in physical commodities or contracts on physical commodities:
(2) purchase or sell real estate, although it may purhase 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;
(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;
<PAGE>
(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.
Each of the Portfolio and the Fund is also subject to the following
restrictions which may be changed by the Board of Trustees without shareholder
approval (except that none of the following investment policies shall prevent
the Trust from investing all of the Assets of the Fund in a separate registered
investment company with 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;
<PAGE>
(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;
(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;
<PAGE>
(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.
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 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 period
January 9, 1995 (commencement of operations) to October 31, 1995, there were no
brokerage commissions paid from the Portfolio.
Consistent with the Rules of Fair Practice 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
<PAGE>
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 the yield and total return
for the Fund, both computed in accordance with formulas prescribed by the
Securities and Exchange Commission ("SEC"), in advertisements or reports to
shareholders or prospective investors.
Quotations of yield for the Fund will be based on all investment income
per share (as defined by the SEC during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
YIELD = 2[( a-b + 1)6-1] 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:
Average Annual Total Return -- Commencement of Operations* to Period Ended
10/31/95: _____%.
* International Equity Portfolio commenced operations on January 9, 1995.
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
<PAGE>
costs and expenses. Comparative information may be compiled or provided by
independent ratings services or by news organizations. Any performance
information should be considered in light of the Fund's investment objectives
and policies, characteristics and quality of the Fund, and the market conditions
during the given time period, and should not be considered to be representative
of what may be achieved in the future.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
Trustees and Officers
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust and the Portfolio Trust. The address of each, unless otherwise
indicated, is 6 St. James Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, Trustee 126 Butternut Hollow Road, Greenwich,
Connecticut 06830 - Management Consultant.
ALAN S. PARSOW*, Trustee 2222 Skyline Drive, Elkhorn, Nebraska 68022 -
General Partner of Parsow Partnership, Ltd. (investments).
LARRY M. ROBBINS, Trustee
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, Trustee
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, President
Chairman, President and Chief Executive Officer, Signature Financial
Group, Inc. ("SFG"); Chairman, President and Chief Executive Officer,
SBDS (since April, 1989), Chairman, President and Chief Executive
Officer, Signature (since May, 1993); Director, Chairman and President,
Signature (Cayman) (since March, 1992).
JOHN R. ELDER*, Treasurer
Vice President, SFG (since April, 1995); Treasurer, Phoenix Family of
Mutual Funds (prior to April, 1995).
LINDA T. GIBSON*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, SBDS (since October, 1992); Assistant Secretary,
Signature (since March, 1993); law student, Boston University School of
Law (prior to May, 1992).
JAMES E. HOOLAHAN*, Vice President
Senior Vice President, SFG (since December, 1989).
SUSAN JAKUBOSKI*, Assistant Secretary and Assistant Treasurer
P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I.; Manager and Senior Fund Administrator, SFG and
Signature (Cayman) (since August 1994); Assistant Treasurer, SBDS
(since September 1994); Fund Compliance Administrator, Concord
Financial Group, Inc. (from November 1990 to August 1994).
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THOMAS M. LENZ*, Secretary
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, SBDS (since February, 1991);
Assistant Secretary, Signature (since March, 1993).
MOLLY S. MUGLER*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary, SBDS
(since April, 1989); Assistant Secretary, Signature (since March,
1993).
BARBARA M. O'DETTE*, Assistant Treasurer
Assistant Treasurer, SFG; Assistant Treasurer, SBDS (since April,
1989); Assistant Treasurer, Signature (since March, 1993).
ANDRES E. SALDANA*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Assistant Secretary, SBDS (since September, 1993); Assistant Secretary,
Signature (since March, 1993); Attorney, Ropes & Gray (September, 1990
to November, 1992).
Messrs. Coolidge, Elder, Lenz and Saldana and Mss. Gibson, Jakuboski,
Mugler and O'Dette are also Trustees and/or officers of certain other investment
companies of which SBDS or an affiliate is the administrator.
COMPENSATION TABLE
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual from Fund
Name of Compensation Part of Fund Benefits Upon Complex* Paid
Trustee from Trust Expenses Retirement to Trustees
Frederick C. $4,096.42 none none $4,873,21
Chen
Alan S. Parsow $4,096.42 none none $4,873.21
Larry M. $3,696.43 none none $4,373.22
Robbins
Michael Seely $4,096.42 none none $4,873.21
*The Fund Complex consists of the Trust, Republic Advisor Funds Trust
(another investor in the Portfolio Trust) and the Portfolio Trust.
The compensation table above reflects the fees received by the Trustees
from the Trust and the Portfolio Trust for the fiscal year ended October 31,
1995. The Trustees who are not "interested persons" (as defined in the 1940 Act)
of either the Trust, Republic Advisor Funds Trust or Portfolio Trust will
receive an annual retainer of $3,600 and a fee of $1,000 for each meeting of the
Board of Trustees or committee thereof attended.
As of __________, 1996, the Trustees and officers of the Trust and the
Portfolio Trust, as a group, owned less than 1% of the outstanding shares of the
Fund. As of the same date, 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): Republic NY Securities Co., FBO Republic
Bank of New York, Cap Guard, 452 Fifth Avenue, 14th Floor, New York, New York,
10018 - 32.8%; Republic National Bank of New York, 452 Fifth Avenue, New York,
New York, 10018 - 9.9%; Kinco & Co., c/o RNB Securities Services, One
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Hanson Place - Lower Level, Brooklyn, New York, 11243 - 5.5%. Shareholders who
own more than 25% of the outstanding voting securities of the Fund may take
action without the approval of other shareholders of the Fund.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
Investment Manager
Republic is the investment manager to the Portfolio pursuant to an
investment management agreement (the "Investment Management Contract") with the
Portfolio Trust. For its services, the Manager is paid a fee by the Portfolio,
computed daily and paid monthly, equal on an annual basis to 0.25% of the
Portfolio's average daily net assets.
The Investment Management Contract will continue in effect with respect
to the Portfolio, provided such continuance is approved at least annually (i) by
the holders of a majority of the outstanding voting securities of the Portfolio
or by the Portfolio Trust's Board of Trustees, and (ii) by a majority of the
Trustees of the Portfolio Trust who are not parties to the Investment Management
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Investment Management Contract may be terminated with respect to the
Portfolio without penalty by either party on 60 days' written notice and will
terminate automatically if assigned.
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Portfolio.
Republic complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary shall not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees or other persons with substantial connections
with the bank. The regulations further provide that fiduciary assets shall not
be sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above. Republic, in accordance with federal banking
laws, may not purchase for its own account securities of any investment company
the investment adviser of which it controls, extend credit to any such
investment company, or accept the securities of any such investment company as
collateral for a loan to purchase such securities. Moreover, Republic, its
officers and employees do not express any opinion with respect to the
advisability of any purchase of such securities.
The investment advisory services of Republic to the Portfolio are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment advisory services to others.
Sub-Adviser
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
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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 period from January 9,
1995 (Portfolio commencement of operations) to October 31, 1995, sub-advisory
fees aggregated $131,059.
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.
Administrator and Portfolio Administrator
Each Administrative Services Agreement is terminable with respect to
the Fund or the Portfolio, as the case may be, without penalty at any time by
vote of a majority of the respective Trustees, or by the respective
Administrator, upon not less than 60 days' written notice to the Fund or the
Portfolio, as the case may be. Each Agreement provides that neither the
respective Administrator nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Fund or the Portfolio, as the case may be, except for willful misfeasance,
bad faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
respective Administrative Services Agreement. The minimum annual administrative
services fees paid by the Fund shall be $25,000. For the period from January 9,
1995 (Portfolio commencement of operations) to October 31, 1995, the Portfolio
accrued administrative services fees of $9,433.
Distribution Plan
A Distribution Plan has been adopted by the Trust (the "Distribution
Plan") with respect to the Shares, and provides that it may not be amended to
increase materially the costs which the Fund may bear pursuant to the
Distribution Plan without approval by shareholders of the Fund and that any
material amendments of the Distribution Plan must be approved by the Board of
Trustees, and by the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust and have no direct or indirect financial interest in
the operation of the Distribution Plan or in any related agreement ("Qualified
Trustees"), by vote cast in person at a meeting called for the purpose of
considering such amendments. The selection and nomination of the Trustees who
are not "interested persons" of the Trust (the "Independent Trustees") has been
committed to the discretion of the Independent Trustees. The Distribution Plan
has been approved, and is subject to annual approval, by a majority vote of the
Board of Trustees and by a majority vote of the Qualified Trustees, by vote cast
in person at a meeting called for the purpose of voting on the Distribution
Plan. In adopting the Distribution Plan, the Trustees considered alternative
methods to distribute the Shares and to reduce the Fund's per share expense
ratio and concluded that there was a reasonable likelihood that the Distribution
Plan will benefit the Fund and its shareholders. The Distribution Plan is
terminable with respect to the Fund at any time by a vote of a majority of the
Qualified Trustees or by vote of the holders of a majority of the Shares.
Administrative Services Plan
An Administrative Services Plan has been adopted by the Trust with
respect to the Fund, and continues in effect indefinitely if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trustees and a majority of the Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the operation of
the Administrative Services Plan or in any agreement related to such Plan
("Qualified Trustees"). The Administrative Services Plan may be terminated at
any time by a vote of a majority of the Qualified Trustees or with respect to
the Fund by a majority vote of shareholders of the Fund. The Administrative
Services Plan may not be amended to increase materially
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the amount of permitted expenses thereunder with respect to the Fund without the
approval of a majority of shareholders of the Fund, and may not be materially
amended in any case without a vote of the majority of both the Trustees and the
Qualified Trustees.
Shareholder Servicing Agents
The Trust has entered into a shareholder servicing agreement with each
Shareholder Servicing Agent. For additional information, including a description
of the fees paid to Shareholder Servicing Agents from assets attributable to the
Shares, see "Management of the Trust - Shareholder Servicing Agents" in the
Prospectus.
Fund Accounting Agent
Pursuant to respective fund accounting agreements, Signature serves as
fund accounting agent to each of the Fund and the Portfolio. For its services to
the Fund, Signature receives from the Fund fees payable monthly equal on an
annual basis to $12,000. For its services to the Portfolio, Signature receives
fees payable monthly equal on an annual basis to $50,000. For the period from
January 9, 1995 (Portfolio commencement of operations) to October 31, 1995,
Signature's fee for these services aggregated $40,548, of which $12,835 was
waived.
Custodian and Transfer Agent
Investors Bank & Trust Company serves as custodian and transfer agent
for each of the Fund and the Portfolio pursuant to Custodian Agreements and
Transfer Agency Agreements, respectively. The Custodian may use the services of
sub-custodians with respect to the Portfolio.
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, 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.
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TAXATION
Each year, to qualify as a separate "regulated investment company"
under the Code, at least 90% of the Fund's investment company taxable income
(which includes, among other items, interest, dividends and the excess of net
short-term capital gains over net long-term capital losses) must be distributed
to Fund shareholders and the Fund must meet certain diversification of assets,
source of income, and other requirements. If the Fund does not so qualify, it
will be taxed as an ordinary corporation.
The Fund intends to apply to the Internal Revenue Service for rulings,
including, among others, rulings to the effect that (1) the Portfolio will be
treated for federal income tax purposes as a partnership and (2) for purposes of
determining whether the Fund satisfies the income and diversification
requirements to maintain its status as a RIC, the Fund, as an investor in its
corresponding Portfolio, will be deemed to own a proportionate share of the
Portfolio's income attributable to that share. While the IRS has issued
substantially similar rulings in the past, and SBDS anticipates that the Fund
will receive the rulings it seeks, the IRS has complete discretion in granting
rulings and complete assurance cannot be given that such rulings will be
obtained. The Portfolio has advised its corresponding Fund that it intends to
conduct its operations so as to enable its investors, including the Fund, to
satisfy those requirements.
Amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, for each calendar year an
amount must be distributed equal to the sum of (1) at least 98% of the Fund's
ordinary income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of the Fund's capital gain net income for the
12-month period ending, as a general rule, on October 31 of the calendar year,
and (3) all such ordinary income and capital gains for previous years that were
not distributed during such years.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
If the Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Portfolio's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
Some of the debt securities that may be acquired by the Portfolio may
be treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Portfolio, original issue
discount on a taxable debt security earned in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the 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.
<PAGE>
Options, Futures and Forward Contracts
Some of the options, futures contracts and forward contracts entered
into by the Portfolio may be "Section 1256 contracts." Section 1256 contracts
held by the Portfolio at the end of its taxable year (and, for purposes of the
4% excise tax, on certain other dates as prescribed under the Code) are
"marked-to- market" with unrealized gains or losses being treated as though they
were realized. Any gains or losses, including "marked-to-market" gains or
losses, on Section 1256 contracts are generally 60% long-term and 40% short-term
capital gains or losses ("60/40") although all foreign currency gains and losses
from such contracts may be treated as ordinary in character absent a special
election.
Generally, hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by the Portfolio may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gain or loss realized by the Portfolio. In addition, losses
realized by the Portfolio on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Portfolio are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by the Portfolio.
Short-term gain is taxed as ordinary income when distributed to Fund
shareholders.
The Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If the Portfolio makes any of the
elections, the amount, character, and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Fund shareholders, and which will be taxed to Fund shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The 30% limit on gains from the disposition of certain options, futures
and forward contracts held less than three months, and the qualifying income and
diversification requirements applicable to the Portfolio assets, may limit the
extent to which the Portfolio will be able to engage in these transactions.
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 Internal Revenue Service 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
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held the PFIC shares. The Fund itself will be subject to tax on the portion, if
any, of an excess distribution that is so allocated to prior Fund taxable years
and an interest factor will be added to the tax, as if the tax had been payable
in such prior taxable years. Certain distributions from a PFIC as well as gain
from the sale of PFIC shares are treated as excess distributions. Excess
distributions are characterized as ordinary income even though, absent
application of the PFIC rules, certain excess distributions might have been
classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares held by the Portfolio. Under an election that currently
is available in some circumstances, the Fund generally would be required to
include in its gross income its share of the earnings of a PFIC on a current
basis, regardless of whether distributions are received from the PFIC in a given
year. If this election were made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Fund's PFIC
shares at the end of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would generally be eliminated, but the Fund could, in limited circumstances,
incur nondeductible interest charges. The Fund's intention to qualify annually
as a regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time the Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Portfolio actually collects such receivables or pays
such liabilities generally are treated as ordinary income or loss. Similarly, in
disposing of debt securities denominated in foreign currencies and certain other
foreign currency contracts, gains or losses attributable to fluctuations in the
value of a foreign currency between the date the security or contract is
acquired and the date it is disposed of are also usually treated as ordinary
income or loss. Under Section 988 of the Code, these gains or losses may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to shareholders as ordinary income.
Disposition of Shares
Upon the sale or exchange of shares of the Fund, a shareholder
generally will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and will be long-term if the
shareholder's holding period for the shares is more than one year and generally
otherwise will be short-term. Any loss realized on a sale or exchange of Fund
shares will be disallowed to the extent that the shares disposed of are replaced
(including replacement through reinvesting of dividends and capital gain
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
The information above is only a summary of some of the tax
considerations affecting the Fund and its shareholders. The Portfolio, the Fund,
and the Fund's distributions may also be subject to state, local, foreign or
other taxes not discussed above. A prospective investor may wish to consult a
tax advisor to determine the suitability of an investment in the Fund based on
the prospective investor's tax situation.
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OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource).
Prior to October 3, 1994 the name of the Trust was "FundTrust".
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.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Portfolio Trust's Trustees,
it is necessary or desirable to submit matters for an investor vote. Each
investor is entitled to a vote in proportion to the share of its investment in
the Portfolio.
Except as described below, whenever the Trust is requested to vote on a
matter pertaining to the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast all of its votes on each matter at a meeting of
investors in the Portfolio proportionately as instructed by the Fund's
shareholders. However, subject to applicable statutory and regulatory
requirements, the Trust would not request a vote of the Fund's shareholders with
respect to any proposal relating to the Portfolio which proposal, if made with
respect to the Fund, would not require the vote of the shareholders of the Fund.
Independent Auditors
For the fiscal year ended October 31, 1995, Ernst & Young, One Capital
Place, George Town, Grand Cayman, Cayman Islands, B.W.I., served as independent
auditors of the Portfolio.
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent accountants of the Trust and the Fund for the fiscal year ending
October 31, 1996. KPMG Peat Marwick LLP will audit the Trust's annual financial
statements, prepare the Trust's income tax returns, and assist in the
preparation of filings with the Securities and Exchange Commission. The address
of KPMG Peat Marwick LLP is 99 High
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Street, Boston, Massachusetts 02108. The Portfolio Trust has appointed KPMG
Peat Marwick, Toronto, Ontario, as its independent accountants to audit the
Portfolio's financial statements for the fiscal year ending October 31, 1996.
Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares 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.
RF055C
<PAGE>
REPUBLIC OPPORTUNITY FUND
6 St. James Avenue
Boston, MA 02116
(800) 782-8183
Republic National Bank of New York - Investment Manager
("Republic" or the "Manager")
MFS Asset Management, Inc. - Sub-Adviser
("Sub-Adviser")
Signature Broker-Dealer Services, Inc. - Administrator of the Fund,
Distributor and Sponsor ("SBDS" or the "Administrator of the Fund" or the
"Distributor" or the "Sponsor")
Signature Financial Group (Grand Cayman) Limited -
Administrator of the Portfolio
("Signature (Cayman)")
Signature Financial Services, Inc. -
Fund Accounting Agent
("Signature")
STATEMENT OF ADDITIONAL INFORMATION
Republic Opportunity Fund (the "Fund") is a separate series of Republic
Funds (the "Trust"), an open-end, management investment company which currently
consists of seven 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 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. The Fund
is described in this Statement of Additional Information.
Shares of the Fund (the "Shares") are offered only to clients of
Republic and its affiliates for which Republic or its affiliates exercises
investment discretion.
This Statement of Additional Information is not a prospectus and is
only authorized for distribution when preceded or accompanied by the Prospectus
for the Fund, dated __________, 1996 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Fund at the address and
telephone number printed above.
__________, 1996 RF070B
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS..................1
Investment Restrictions ........[]
Percentage and Rating Restrictions ........[]
PORTFOLIO TRANSACTIONS..........................................[]
PERFORMANCE INFORMATION.........................................[]
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST.................[]
Trustees and Officers ........[]
Investment Manager ........[]
Sub-Adviser.....................................................[]
Administrator and Portfolio Administrator ........[]
Distribution Plan...............................................[]
Administrative Services Plan ........[]
Shareholder Servicing Agents....................................[]
Fund Accounting Agent...........................................[]
Custodian and Transfer Agent....................................[]
DETERMINATION OF NET ASSET VALUE................................[]
TAXATION........................................................[]
Options, Futures and Forward Contracts ........[]
Swap Agreements ........[]
Investment in Passive Foreign Investment Companies..............[]
Disposition of Shares...........................................[]
OTHER INFORMATION...............................................[]
Capitalization ........[]
Voting Rights ........[]
Independent Auditors............................................[]
Counsel ........[]
Registration Statement ........[]
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated __________, 1996, of the Fund by which
shares of the Fund are offered. Unless the context otherwise requires, terms
defined in the Prospectus have the same meaning in this Statement of Additional
Information as in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Portfolio discussed under the caption "Investment
Objective and Policies" in the Prospectus.
EMERGING MARKETS: The Portfolio may invest in Emerging Market Securities.
Such investments entail significant risks as described in the Prospectus under
the caption "Additional Risk Factors -- Emerging Markets" and as more fully
described below.
COMPANY DEBT -- Governments of many emerging market countries have
exercised and continue to exercise substantial influence over many aspects of
the private sector through the ownership or control of many companies, including
some of the largest in any given country. As a result, government actions in the
future could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities
held by the Portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect the Portfolio's assets should these conditions recur.
SOVEREIGN DEBT -- Investment in sovereign debt can involve a high
degree of risk. The governmental entity that controls the repayment of sovereign
debt may not be able or willing to repay the principal and/or interest when due
in accordance with the terms of such debt. A governmental entity's willingness
or ability to repay principal and interest due in a timely manner may be
affected by, among other factors, its cash flow situation, the extent of its
foreign reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as a
whole, the governmental entity's policy towards the International Monetary Fund,
and the political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest averages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Portfolio) may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which sovereign debt
on which governmental entities have defaulted may be collected in whole or in
part.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. Certain emerging market governmental issuers have
not been able to make payments of interest on or principal of debt obligations
as those payments have come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of those issuers.
The ability of emerging market governmental issuers to make timely
payments on their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and tarnish its trade account surplus, if
any. To the extent that emerging markets receive payment for its exports in
currencies other than dollars or non-emerging market currencies, its ability to
make debt payments denominated in dollars or non-emerging market currencies
could be affected.
<PAGE>
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 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.
<PAGE>
FOREIGN CURRENCIES -- Some emerging market countries also may have
managed currencies, which are not free floating against the U.S. dollar. In
addition, there is risk that certain emerging market countries may restrict the
free conversion of their currencies into other currencies. Further, certain
emerging market currencies may not be internationally traded. Certain of these
currencies have experienced a steep devaluation relative to the U.S. dollar. Any
devaluations in the currencies in which the Portfolio's portfolio securities are
denominated may have a detrimental impact on the Portfolio's net asset value.
REPURCHASE AGREEMENTS: As described in the Prospectus, the Portfolio
may enter into repurchase agreements with sellers who are member firms (or a
subsidiary thereof) of the New York Stock Exchange or members of the Federal
Reserve System, recognized domestic or foreign securities dealers or
institutions which the Sub-Adviser has determined to be of comparable
creditworthiness. The securities that the Portfolio purchases and holds have
values that are equal to or greater than the repurchase price agreed to be paid
by the seller. The repurchase price may be higher than the purchase price, the
difference being income to the Portfolio, or the purchase and repurchase prices
may be the same, with interest at a standard rate due to the Portfolio together
with the repurchase price on repurchase.
The repurchase agreement provides that in the event the seller fails to
pay the price agreed upon on the agreed upon delivery date or upon demand, as
the case may be, the Portfolio will have the right to liquidate the securities.
If at the time the Portfolio is contractually entitled to exercise its right to
liquidate the securities, the seller is subject to a proceeding under the
bankruptcy laws or its assets are otherwise subject to a stay order, the
Portfolio's exercise of its right to liquidate the securities may be delayed and
result in certain losses and costs to the Portfolio. The Portfolio has adopted
and follows procedures which are intended to minimize the risks of repurchase
agreements. For example, the Portfolio only enters into repurchase agreements
after the Sub-Adviser has determined that the seller is creditworthy, and the
Sub- Adviser monitors that seller's creditworthiness on an ongoing basis.
Moreover, under such agreements, the value of the securities (which are marked
to market every business day) is required to be greater than the repurchase
price, and the Portfolio has the right to make margin calls at any time if the
value of the securities falls below the agreed upon margin.
LENDING OF PORTFOLIO SECURITIES: The Portfolio may seek to increase its
income by lending portfolio securities to entities deemed creditworthy by the
Sub-Adviser. The Portfolio would have the right to call a loan and obtain the
securities loaned at any time on customary industry settlement notice (which
will usually not exceed five days). During the existence of a loan, the
Portfolio would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would also receive compensation
based on investment of the collateral. The Portfolio would not, however, have
the right to vote any securities having voting rights during the existence of
the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the Sub-Adviser to be of good
standing, and when, in the judgment of the Sub-Adviser, the consideration which
could be earned currently from securities loans of this type justifies the
attendant risk. If the Sub-Adviser determines to make securities loans, it is
not intended that the value of the securities loaned would exceed 30% of the
value of the Portfolio's total assets.
FOREIGN SECURITIES: The Portfolio may invest in foreign securities as
discussed in the Prospectus. Investments in foreign issues involve
considerations and possible risks not typically associated with investments in
securities issued by domestic companies or with debt securities issued by
foreign governments. There may be less publicly available information about a
foreign company than about a domestic company, and many foreign companies are
not subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject. Foreign
securities markets, while growing in volume, have substantially less volume than
U.S markets, and securities of many foreign companies are less liquid and their
prices more volatile than securities of
<PAGE>
comparable domestic companies. Fixed brokerage commissions and other transaction
costs on foreign securities exchanges are generally higher than in the U.S.
There is also less government supervision and regulation of exchanges, brokers
and issuers in foreign countries than there is in the U.S.
AMERICAN DEPOSITARY RECEIPTS: American Depositary Receipts ("ADRs") are
certificates issued by a U.S. depository (usually a bank) and represent a
specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. ADRs may be sponsored or unsponsored. A sponsored
ADR is issued by a depository which has an exclusive relationship with the
issuer of the underlying security. An unsponsored ADR may be issued by any
number of U.S. depositories. Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities. The
depository of an unsponsored ADR, on the other hand, is under no obligation to
distribute shareholder communications received from the issuer of the deposited
securities or to pass through voting rights to ADR holders in respect of the
deposited securities. The Portfolio may invest in either type of ADR. Although
the U.S. investor holds a substitute receipt of ownership rather than direct
stock certificates, the use of the depository receipts in the United States can
reduce costs and delays as well as potential currency exchange and other
difficulties. The Portfolio may purchase securities in local markets and direct
delivery of these ordinary shares to the local depository of an ADR agent bank
in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the Portfolio's custodian in five days. The Portfolio may also
execute trades on the U.S. markets using existing ADRs. A foreign issuer of the
security underlying an ADR is generally not subject to the same reporting
requirements in the United States as a domestic issuer. Accordingly the
information available to a U.S. investor will be limited to the information the
foreign issuer is required to disclose in its own country and the market value
of an ADR may not reflect undisclosed material information concerning the issuer
of the underlying security. ADRs may also be subject to exchange rate risks if
the underlying foreign securities are denominated in foreign currency.
OPTIONS ON SECURITIES: The Portfolio may write (sell) covered call and
put options on securities ("Options") and purchase call and put Options. The
Portfolio may write Options for the purpose of 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
<PAGE>
received on the writing of the two Options. Conversely, if the price of the
security declines by a sufficient amount, the put will likely be exercised. The
writing of straddles will likely be effective, therefore, only where the price
of a security remains stable and neither the call nor the put is exercised. In
an instance where one of the Options is exercised, the loss on the purchase or
sale of the underlying security may exceed the amount of the premiums received.
By writing a call Option on a portfolio security, the Portfolio limits
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the Option. By writing a put
Option, the Portfolio assumes the risk that it may be required to purchase the
underlying security for an exercise price above its then current market value,
resulting in a loss unless the security subsequently appreciates in value. The
writing of Options will not be undertaken by the Portfolio solely for hedging
purposes, and may involve certain risks which are not present in the case of
hedging transactions. Moreover, even where Options are written for hedging
purposes, such transactions will constitute only a partial hedge against
declines in the value of portfolio securities or against increases in the value
of securities to be acquired, up to the amount of the premium.
The Portfolio may also purchase put and call Options. Put Options are
purchased to hedge against a decline in the value of securities held in the
Portfolio's portfolio. If such a decline occurs, the put Options will permit the
Portfolio to sell the securities underlying such Options at the exercise price,
or to close out the Options at a profit. The Portfolio will purchase call
Options to hedge against an increase in the price of securities that the
Portfolio anticipates purchasing in the future. If such an increase occurs, the
call Option will permit the Portfolio to purchase the securities underlying such
Option at the exercise price or to close out the Option at a profit. The premium
paid for a call or put Option plus any transaction costs will reduce the
benefit, if any, realized by the Portfolio upon exercise of the Option, and,
unless the price of the underlying security rises or declines sufficiently, the
Option may expire worthless to the Portfolio. In addition, in the event that the
price of the security in connection with which an Option was purchased moves in
a direction favorable to the Portfolio, the benefits realized by the Portfolio
as a result of such favorable movement will be reduced by the amount of the
premium paid for the Option and related transaction costs.
The staff of the SEC has taken the position that purchased
over-the-counter options and certain assets used to cover written
over-the-counter options are illiquid and, therefore, together with other
illiquid securities, cannot exceed a certain percentage of the Portfolio's
assets (the "SEC illiquidity ceiling"). Although the Sub-Adviser disagrees with
this position, the Sub-Adviser intends to limit the Portfolio's writing of
over-the-counter options in accordance with the following procedure. Except as
provided below, the Portfolio intends to write over-the-counter options only
with primary U.S. Government securities dealers recognized by the Federal
Reserve Bank of New York. Also, the contracts the Portfolio has in place with
such primary dealers will provide that the Portfolio has the absolute right to
repurchase an option it writes at any time at a price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula in the contract. Although the specific formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount that the
option is in-the-money). The formula may also include a factor to account for
the difference between the price of the security and the strike price of the
option if the option is written out-of- the-money. The Portfolio will treat all
or a portion of the formula as illiquid for purposes of the SEC illiquidity
ceiling imposed by the SEC staff. The Portfolio may also write over-the-counter
options with non-primary dealers, including foreign dealers, and will treat the
assets used to cover these options as illiquid for purposes of such SEC
illiquidity ceiling.
OPTIONS ON STOCK INDICES: The Portfolio may write (sell) covered call
and put options and purchase call and put options on stock indices ("Options on
Stock Indices"). The Portfolio may cover call Options on Stock Indices by owning
securities whose price changes, in the opinion of the Sub-Adviser, are expected
to be similar to those of the underlying index, or by having an absolute and
immediate right to acquire such securities without additional cash consideration
(or for additional cash consideration held
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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
advance, or a decline in interest rates or a rise in the dollar value of foreign
currencies in which securities to be acquired are denominated, the Portfolio may
purchase call Options on Futures Contracts, rather than purchasing the
underlying Futures Contracts. As in the case of Options, the writing of Options
on Futures Contracts may require the Portfolio to forego all or a portion of the
benefits of favorable movements in the price of portfolio securities, and the
purchase of Options on Futures Contracts may require the Portfolio to forego all
or a portion of such benefits up to the amount of the premium paid and related
transaction costs. Transactions entered into for non-hedging purposes include
greater risk, including the risk of losses which are not offset by gains on
other portfolio assets.
FORWARD CONTRACTS: The Portfolio may enter into forward foreign
currency exchange contracts for the purchase or sale of a specific currency at a
future date at a price set at the time of the contract (a "Forward Contract").
The Portfolio may enter into Forward Contracts for hedging purposes as well as
for non-hedging purposes. The Portfolio may also enter into Forward Contracts
for "cross hedging" purposes as noted in the Prospectus. Transactions in Forward
Contracts entered into for hedging purposes will include forward purchases or
sales of foreign currencies for the purpose of protecting the dollar value of
securities denominated in a foreign currency or protecting the dollar equivalent
of interest or dividends to be paid on such securities. By entering into such
transactions, however, the Portfolio may be required to forego the benefits of
advantageous changes in exchange rates. The Portfolio may also enter into
transactions in Forward Contracts for other than hedging purposes, which
presents greater profit potential but also involves increased risk. For example,
if the Sub- Adviser believes that the value of a particular foreign currency
will increase or decrease relative to the value of the U.S. dollar, the
Portfolio may purchase or sell such currency, respectively, through a Forward
<PAGE>
Contract. If the expected changes in the value of the currency occur, the
Portfolio will realize profits which will increase its gross income. Where
exchange rates do not move in the direction or to the extent anticipated,
however, the Portfolio may sustain losses which will reduce its gross income.
Such transactions, therefore, could be considered speculative.
The Portfolio has established procedures consistent with statements by
the SEC and its staff regarding the use of Forward Contracts by registered
investment companies, which require the use of segregated assets or "cover" in
connection with the purchase and sale of such contracts. In those instances in
which the Portfolio satisfies this requirement through segregation of assets, it
will maintain, in a segregated account, cash, cash equivalents or high grade
debt securities, which will be marked to market on a daily basis, in an amount
equal to the value of its commitments under Forward Contracts.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH THE
PORTFOLIO'S PORTFOLIO -- The Portfolio's ability effectively to hedge all or a
portion of its portfolio through transactions in options, Futures Contracts, and
Forward Contracts will depend on the degree to which price movements in the
underlying instruments correlate with price movements in the relevant portion of
that Fund's portfolio. If the values of portfolio securities being hedged do not
move in the same amount or direction as the instruments underlying options,
Futures Contracts or Forward Contracts traded, the Portfolio's hedging strategy
may not be successful and the Portfolio could sustain losses on its hedging
strategy which would not be offset by gains on its portfolio. It is also
possible that there may be a negative correlation between the instrument
underlying an option, Future Contract or Forward Contract traded and the
portfolio securities being hedged, which could result in losses both on the
hedging transaction and the portfolio securities. In such instances, the
Portfolio's overall return could be less than if the hedging transaction had not
been undertaken. In the case of futures and options based on an index of
securities or individual fixed income securities, the portfolio will not
duplicate the components of the index, and in the case of futures and options on
fixed income securities, the portfolio securities which are being hedged may not
be the same type of obligation underlying such contract. As a result, the
correlation probably will not be exact. Consequently, the Portfolio bears the
risk that the price of the portfolio securities being hedged will not move in
the same amount or direction as the underlying index or obligation. In addition,
where the Portfolio enters into Forward Contracts as a "cross hedge" (i.e., the
purchase or sale of a Forward Contract on one currency to hedge against risk of
loss arising from changes in value of a second currency), the Portfolio incurs
the risk of imperfect correlation between changes in the values of the two
currencies, which could result in losses.
The correlation between prices of securities and prices of options,
Futures Contracts or Forward Contracts may be distorted due to differences in
the nature of the markets, such as differences in margin requirements, the
liquidity of such markets and the participation of speculators in the option,
Futures Contract and Forward Contract markets. Due to the possibility of
distortion, a correct forecast of general interest rate trends by the
Sub-Adviser may still not result in a successful transaction. The trading of
Options on Futures Contracts also entails the risk that changes in the value of
the underlying Futures Contract will not be fully reflected in the value of the
option. The risk of imperfect correlation, however, generally tends to diminish
as the maturity or termination date of the option, Futures Contract or Forward
Contract approaches.
The trading of options, Futures Contracts and Forward Contracts also
entails the risk that, if the Sub-Adviser's judgment as to the general direction
of interest or exchange rates is incorrect, the Portfolio's overall performance
may be poorer than if it had not entered into any such contract. For example, if
the Portfolio has hedged against the possibility of an increase in interest
rates, and rates instead decline, the Portfolio will lose part or all of the
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.
<PAGE>
POTENTIAL LACK OF A LIQUID SECONDARY MARKET -- Prior to exercise or
expiration, a position in an exchange-traded Option, Futures Contract or Option
on a Futures Contract can only be terminated by entering into a closing purchase
or sale transaction, which requires a secondary market for such instruments on
the exchange on which the initial transaction was entered into. If no such
market exists, it may not be possible to close out a position, and the Portfolio
could be required to purchase or sell the underlying instrument or meet ongoing
variation margin requirements. The inability to close out option or futures
positions also could have an adverse effect on the Portfolio's ability
effectively to hedge its portfolio.
The liquidity of a secondary market in an option or Futures Contract
may be adversely affected by "daily price fluctuation limits," established by
the exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day and prohibit trading beyond such limits once they
have been reached. Such limits could prevent the Portfolio from liquidating open
positions, which could render its hedging strategy unsuccessful and result in
trading losses. The exchanges on which options and Futures Contracts are traded
have also established a number of limitations governing the maximum number of
positions which may be traded by a trader, whether acting alone or in concert
with others. Further, the purchase and sale of exchange-traded options and
Futures Contracts is subject to the risk of trading halts, suspensions, exchange
or clearing corporation equipment failures, government intervention, insolvency
of a brokerage firm, intervening broker or clearing corporation or other
disruptions of normal trading activity, which could make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
OPTIONS ON FUTURES CONTRACTS -- In order to profit from the purchase of
an Option on a Futures Contract, it may be necessary to exercise the option and
liquidate the underlying Futures Contract, subject to all of the risks of
futures trading. The writer of an Option on a Futures Contract is subject to the
risks of futures trading, including the requirement of initial and variation
margin deposits.
ADDITIONAL RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND
TRANSACTIONS NOT CONDUCTED ON UNITED STATES EXCHANGES -- The available
information on which the Portfolio will make trading decisions concerning
transactions related to foreign currencies or foreign securities may not be as
complete as the comparable data on which the Portfolio makes investment and
trading decisions in 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.
<PAGE>
As a result of its investments in foreign securities, the Portfolio may
receive interest or dividend payments, or the proceeds of the sale or redemption
of such securities, in foreign currencies. The Portfolio may also be required to
receive delivery of the foreign currencies underlying options on foreign
currencies or Forward Contracts it has entered into. This could occur, for
example, if an option written by the Portfolio is exercised or the Portfolio is
unable to close out a Forward Contract it has entered into. In addition, the
Portfolio may elect to take delivery of such currencies. Under such
circumstances, the Portfolio may promptly convert the foreign currencies into
dollars at the then current exchange rate. Alternatively, the Portfolio may hold
such currencies for an indefinite period of time if the Sub-Adviser believes
that the exchange rate at the time of delivery is unfavorable or if, for any
other reason, the Sub- Adviser anticipates favorable movements in such rates.
While the holding of currencies will permit the Portfolio to take
advantage of favorable movements in the applicable exchange rate, it also
exposes the Portfolio to risk of loss if such rates move in a direction adverse
to the Portfolio's position. Such losses could also adversely affect the
Portfolio's hedging strategies. Certain tax requirements may limit the extent to
which the Portfolio will be able to hold currencies.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES: In order to assure that
the Portfolio will not be deemed to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the CFTC require that the Portfolio enter
into transactions in Futures Contracts and Options on Futures Contracts only (i)
for bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums on
such non-hedging positions does not exceed 5% of the liquidation value of the
Portfolio's assets. In addition, the Portfolio must comply with the requirements
of various state securities laws in connection with such transactions.
The Portfolio has adopted the additional policy that it will not enter
into a Futures Contract if, immediately thereafter, the value of securities and
other obligations underlying all such Futures Contracts would exceed 50% of the
value of the Portfolio's total assets. Moreover, the Portfolio will not purchase
put and call options if, as a result, more than 5% of its total assets would be
invested in such options.
When the Portfolio purchases a Futures Contract, an amount of cash and
cash equivalents will be deposited in a segregated account with the Portfolio's
custodian so that the amount so segregated will at all times equal the value of
the Futures Contract, thereby insuring that the leveraging effect of such
Futures is minimized.
Investment Restrictions
Each of the Portfolio Trust (with respect to the Portfolio) and the
Trust (with respect to the Fund) has adopted the following investment
restrictions which may not be changed without approval by holders of a "majority
of the outstanding voting securities" of the Portfolio or Fund, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding "voting securities" of the Fund present at a meeting,
if the holders of more than 50% of the outstanding "voting securities" are
present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities". The term "voting securities" as used in this paragraph has
the same meaning as in the 1940 Act.
As a matter of fundamental policy, the Portfolio (Fund) will not
(except that none of the following investment restrictions shall prevent the
Trust from investing all of the Fund's Assets in a separate registered
investment company with substantially the same investment objective):
(1) borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's net assets, it may borrow money (including from a bank or through
reverse repurchase agreements, forward roll transactions involving mortgage
backed securities or other investment 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,
<PAGE>
provided that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not considered a
pledge of assets for purposes of this restriction and except that assets may be
pledged to secure letters of credit solely for the purpose of participating in a
captive insurance company sponsored by the Investment Company Institute; for
additional related restrictions, see clause (i) under the caption "State and
Federal Restrictions" below;
(2) underwrite securities issued by other persons except insofar as the
Portfolios may technically be deemed an underwriter under the 1933 Act in
selling a portfolio security;
(3) make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans not exceed 30%
of the Portfolio's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately;
(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business (except
that the Portfolio may hold and sell, for the Portfolio's portfolio, real estate
acquired as a result of the Portfolio's ownership of securities);
(5) concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement
of a
Portfolio's investment objective(s), up to 25% of its total assets may be
invested in any one industry;
(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements with
respect to options and futures, including deposits of initial deposit and
variation margin, are not considered to be the issuance of a senior security for
purposes of this restriction; and
(7) with respect to 75% of its assets, invest more than 5% of its total
assets in the securities (excluding U.S. Government securities) of any one
issuer.
Each of the Portfolio and the Fund is also subject to the following
restrictions which may be changed by the Board of Trustees without shareholder
approval (except that none of the following investment policies shall prevent
the Trust from investing all of the Assets of the Fund in a separate registered
investment company with substantially the same investment objective).
As a matter of non-fundamental policy, the Portfolio (Fund) will not:
(i) borrow money (including from a bank or through reverse repurchase
agreements or forward roll transactions involving mortgage backed securities or
similar investment techniques entered into for leveraging purposes), except that
the Portfolio may borrow for temporary or emergency purposes up to 10% of its
total assets; provided, however, that no Portfolio may purchase any security
while outstanding borrowings exceed 5%;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10%
of the Portfolio's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including deposits
of initial deposit and variation margin, and reverse repurchase agreements are
not considered a pledge of assets for purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits of
initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;
<PAGE>
(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 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
(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 Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (the "NASD")
and such other policies as the Trustees may determine, the Sub-Adviser may
consider sales of shares of the Fund and of certain investment company clients
of MFS Fund Distributors, Inc., the principal underwriter of certain funds in
the MFS Family of Funds, as a factor in the selection of broker-dealers to
execute the Portfolio's portfolio transactions.
Under the Sub-Advisory Agreement and as permitted by Section 28(e) of
the Securities Exchange Act of 1934, the Sub-Adviser may cause the Portfolio to
pay a broker-dealer which provides brokerage and research services to the
Sub-Adviser an amount of commission for effecting a securities transaction for
the Portfolio in excess of the amount other broker-dealers would have charged
for the transaction if the Sub-Adviser determines in good faith that the greater
commission is reasonable in relation to the value of the brokerage and research
services provided by the executing broker-dealer viewed in terms of either a
particular transaction or their respective overall responsibilities to the
Portfolio or to their other clients. Not all of such services are useful or of
value in advising the Portfolio.
The term "brokerage and research services" includes advice as to the
value of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts; and effecting securities transactions and performing functions
incidental thereto, such as clearance and settlement.
Although commissions paid on every transaction will, in the judgment of
the Sub-Adviser, be reasonable in relation to the value of the brokerage
services provided, commissions exceeding those which another broker might charge
may be paid to broker-dealers who were selected to execute transactions on
behalf of the Portfolio and the Sub-Adviser's other clients in part for
providing advice as to the availability of securities or of purchasers or
sellers of securities and services in effecting securities transactions and
performing functions incidental thereto, such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and
other factual information or services ("Research") to the Sub-Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold through such broker-dealers, but at present, unless otherwise
directed by the Portfolio, a commission higher than one charged elsewhere will
not be paid to such a firm solely because it provided such Research.
In certain instances there may be securities which are suitable for the
Portfolio as well as for the portfolio of one or more of the other clients of
the Sub-Adviser or any affiliate of the Sub- Adviser. Investment decisions for
the Portfolio and for such other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought or
sold for, other clients. Likewise, a particular security may be bought for one
or more clients when one or more other clients are selling that same security.
Some simultaneous transactions are inevitable when several clients receive
investment advice from the same investment adviser, particularly when the same
security is suitable for the investment objectives of more than one client. When
two or more clients are simultaneously engaged in the purchase or sale of the
same security, the securities are allocated among clients in a manner believed
by the Sub-Adviser to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security as far as the Portfolio is concerned. In other cases, however, the
Sub-Adviser believes that the Portfolio's ability to participate in volume
transactions will produce better executions for the Portfolio.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and total return
for the Fund, both computed in accordance with formulas prescribed by the
Securities and Exchange Commission ("SEC"), in advertisements or reports to
shareholders or prospective investors.
Quotations of yield for the Fund will be based on all investment income
per share (as defined by the SEC during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
YIELD = 2[( a-b + 1)6-1] 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 accomplished by standardized total return information.
Performance information for the Fund may also be compared to various
unmanaged indices, such as the [ ]. Unmanaged indices (i.e., other than Lipper)
generally do not reflect deductions for administrative and management costs and
expenses. Comparative information may be compiled or provided by independent
ratings services or by news organizations. Any performance information should be
considered in light of the Fund's investment objectives and policies,
characteristics and quality of the Fund, and the market conditions during the
given time period, and should not be considered to be representative of what may
be achieved in the future.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
Trustees and Officers
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust and the Portfolio Trust. The address of each, unless otherwise
indicated, is 6 St. James Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, Trustee 126 Butternut Hollow Road, Greenwich,
Connecticut 06830 - Management Consultant.
ALAN S. PARSOW*, Trustee
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd.
(investments).
LARRY M. ROBBINS, Trustee
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, Trustee
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, President
Chairman, President and Chief Executive Officer, Signature Financial
Group, Inc. ("SFG"); Chairman, President and Chief Executive Officer,
SBDS (since April, 1989), Chairman, President and Chief Executive
Officer, Signature (since May, 1993); Director, Chairman and President,
Signature (Cayman) (since March, 1992).
JOHN R. ELDER*, Treasurer
Vice President, SFG (since April, 1995); Treasurer, Phoenix Family of
Mutual Funds (prior to April, 1995).
LINDA T. GIBSON*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, SBDS (since October, 1992); Assistant Secretary,
Signature (since March, 1993); law student, Boston University School of
Law (prior to May, 1992).
JAMES E. HOOLAHAN*, Vice President
Senior Vice President, SFG (since December, 1989).
SUSAN JAKUBOSKI*, Assistant Secretary and Assistant Treasurer
P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I.; Manager and Senior Fund Administrator, SFG and
Signature (Cayman) (since August 1994); Assistant Treasurer, SBDS
(since September 1994); Fund Compliance Administrator, Concord
Financial Group, Inc. (from November 1990 to August 1994).
THOMAS M. LENZ*, Secretary
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, SBDS (since February, 1991);
Assistant Secretary, Signature (since March, 1993).
MOLLY S. MUGLER*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary, SBDS
(since April, 1989); Assistant Secretary, Signature (since March,
1993).
BARBARA M. O'DETTE*, Assistant Treasurer
Assistant Treasurer, SFG; Assistant Treasurer, SBDS (since April,
1989); Assistant Treasurer, Signature (since March, 1993).
<PAGE>
ANDRES E. SALDANA*, Assistant Secretary
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Assistant Secretary, SBDS (since September, 1993); Assistant Secretary,
Signature (since March, 1993); Attorney, Ropes & Gray (September, 1990
to November, 1992).
Messrs. Coolidge, Elder, Lenz and Saldana and Mss. Gibson, Jakuboski,
Mugler and O'Dette are also Trustees and/or officers of certain other investment
companies of which SBDS or an affiliate is the administrator.
COMPENSATION TABLE
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual from Fund
Name of Compensation Part of Fund Benefits Upon Complex* Paid
Trustee from Trust Expenses Retirement to Trustees
Frederick C. $4,096.42 none none $4,873,21
Chen
Alan S. Parsow $4,096.42 none none $4,873.21
Larry M. $3,696.43 none none $4,373.22
Robbins
Michael Seely $4,096.42 none none $4,873.21
*The Fund Complex consists of the Trust, Republic Advisor Funds Trust and
the Portfolio Trust.
The compensation table above reflects the fees received by the Trustees
from the Trust and the Portfolio Trust for the fiscal year ended October 31,
1995. The Trustees who are not "interested persons" (as defined in the 1940 Act)
of either the Trust, Republic Advisor Funds Trust (another investor in the
Portfolio Trust) or the Portfolio Trust will receive an annual retainer of
$3,600 and a fee of $1,000 for each meeting of the Board of Trustees or
committee thereof attended.
As of [ ], 1996, the Trustees and officers of the Trust and the Portfolio
Trust, as a group, owned less than 1% of the outstanding shares of the Fund.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
<PAGE>
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 __% of the
Portfolio's average daily net assets.
The Investment Management Contract will continue in effect with respect
to the Portfolio, provided such continuance is approved at least annually (i) by
the holders of a majority of the outstanding voting securities of the Portfolio
or by the Portfolio Trust's Board of Trustees, and (ii) by a majority of the
Trustees of the Portfolio Trust who are not parties to the Investment Management
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Investment Management Contract may be terminated with respect to the
Portfolio without penalty by either party on 60 days' written notice and will
terminate automatically if assigned.
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Portfolio.
Republic complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary shall not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees or other persons with substantial connections
with the bank. The regulations further provide that fiduciary assets shall not
be sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above. Republic, in accordance with federal banking
laws, may not purchase for its own account securities of any investment company
the investment adviser of which it controls, extend credit to any such
investment company, or accept the securities of any such investment company as
collateral for a loan to purchase such securities. Moreover, Republic, its
officers and employees do not express any opinion with respect to the
advisability of any purchase of such securities.
The investment advisory services of Republic to the Portfolio are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment advisory services to others.
Sub-Adviser
MFS Asset Management, Inc., as the Portfolio's Sub-Adviser, is
responsible for the investment management of the Portfolio's assets, including
making investment decisions and placing orders for the purchase and sale of
securities for the Portfolio directly with the issuers or with brokers or
dealers selected by the Sub-Adviser or Republic in their discretion. See
"Portfolio Transactions." The Sub- Adviser also furnishes to the Board of
Trustees of the Portfolio Trust, which has overall responsibility for the
business and affairs of the Portfolio Trust, periodic reports on the investment
performance of the Portfolio.
The Sub-Adviser, together with its parent company, MFS, and their
predecessor organizations , has a history of money management dating from 1924.
MFS is a wholly owned subsidiary of Sun Life Assurance Company of Canada (U.S.)
which in turn is a wholly owned subsidiary of Sun Life Assurance Company of
Canada. The Prospectus contains information with respect to the management of
the Sub- Adviser and other investment companies for which the Sub-Adviser or MFS
serve as 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 $50,000,000 and 0.60% of assets in
excess of $50,000,000.
<PAGE>
The investment advisory services of the Sub-Adviser to the Portfolio
are not exclusive under the terms of the Sub-Advisory Agreement. The Sub-Adviser
is free to and does render investment advisory services to others.
Administrator and Portfolio Administrator
Each Administrative Services Agreement is terminable with respect to
the Fund or the Portfolio, as the case may be, without penalty at any time by
vote of a majority of the respective Trustees, or by the respective
Administrator, upon not less than 60 days' written notice to the Fund or the
Portfolio, as the case may be. Each Agreement provides that neither the
respective Administrator nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Fund or the Portfolio, as the case may be, except for willful misfeasance,
bad faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
respective Administrative Services Agreement. The minimum annual administrative
services fees paid by the Fund shall be $25,000.
Distribution Plan
A Distribution Plan has been adopted by the Trust (the "Distribution
Plan") with respect to the Shares, and provides that it may not be amended to
increase materially the costs which the Fund may bear pursuant to the
Distribution Plan without approval by shareholders of the Fund, and that any
material amendments of the Distribution Plan must be approved by the Board of
Trustees, and by the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust and have no direct or indirect financial interest in
the operation of the Distribution Plan or in any related agreement ("Qualified
Trustees"), by vote cast in person at a meeting called for the purpose of
considering such amendments. The selection and nomination of the Trustees who
are not "interested persons" of the Trust (the "Independent Trustees") has been
committed to the discretion of the Independent Trustees. The Distribution Plan
has been approved, and is subject to annual approval, by a majority vote of the
Board of Trustees and by a majority vote of the Qualified Trustees, by vote cast
in person at a meeting called for the purpose of voting on the Distribution
Plan. In adopting the Distribution Plan, the Trustees considered alternative
methods to distribute the Shares and to reduce the Fund's per share expense
ratio and concluded that there was a reasonable likelihood that the Distribution
Plan will benefit the Fund and its shareholders. The Distribution Plan is
terminable with respect to the Fund at any time by a vote of a majority of the
Qualified Trustees or by vote of the holders of a majority of the Shares.
Administrative Services Plan
An Administrative Services Plan has been adopted by the Trust with
respect to the Fund, and continues in effect indefinitely if such continuance is
specifically approved at least annually by a vote of both a majority of the
Trustees and a majority of the Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the operation of
the Administrative Services Plan or in any agreement related to such Plan
("Qualified Trustees"). The Administrative Services Plan may be terminated at
any time by a vote of a majority of the Qualified Trustees or with respect to
the Fund by a majority vote of shareholders of the Fund. The Administrative
Services Plan may not be amended to increase materially the amount of permitted
expenses thereunder with respect to the Fund without the approval of a majority
of shareholders of the Fund, and may not be materially amended in any case
without a vote of the majority of both the Trustees and the Qualified Trustees.
Shareholder Servicing Agents
The Trust has entered into a shareholder servicing agreement with each
Shareholder Servicing Agent. For additional information, including a description
of the fees paid to Shareholder Servicing Agents from assets attributable to the
Shares, see "Management of the Trust - Shareholder Servicing Agents" in the
Prospectus.
<PAGE>
Fund Accounting Agent
Pursuant to respective fund accounting agreements, Signature serves as
fund accounting agent to each of the Fund and the Portfolio. For its services to
the Fund, Signature receives from the Fund fees payable monthly equal on an
annual basis to $12,000. For its services to the Portfolio, Signature receives
fees payable monthly equal on an annual basis to $50,000.
Custodian and Transfer Agent
Investors Bank & Trust Company serves as custodian and transfer agent
for each of the Fund and the Portfolio pursuant to Custodian Agreements and
Transfer Agency Agreements, respectively. The Custodian may use the services of
sub-custodians with respect to the Portfolio.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the Shares of the Fund is determined on
each day on which the New York Stock Exchange ("NYSE") is open for trading. As
of the date of this Statement of Additional Information, the NYSE is open every
weekday except for the days on which the following holidays are observed: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The Sub-Adviser typically completes its trading on behalf of the
Portfolio in various markets before 4:00 p.m., and the value of portfolio
securities is determined when the primary market for those securities closes for
the day. Foreign currency exchange rates are also determined prior to 4:00 p.m.
However, if extraordinary events occur that are expected to affect the value of
a portfolio security after the close of the primary exchange on which it is
traded, the security will be valued at fair value as determined in good faith
under the direction of the Board of Trustees of the Portfolio Trust.
Subject to the Trust's compliance with applicable regulations, the
Trust on behalf of the Fund and the Portfolio have reserved the right to pay the
redemption or repurchase price of Shares, either totally or partially, by a
distribution in kind of portfolio securities from the Portfolio (instead of
cash). The securities so distributed would be valued at the same amount as that
assigned to them in calculating the net asset value for the Shares being sold.
If a shareholder received a distribution in kind, the shareholder could incur
brokerage or other charges in converting the securities to cash. The Trust will
redeem Fund shares in kind only if it has received a redemption in kind from the
Portfolio and therefore shareholders of the Fund that receive redemptions in
kind will receive securities of the Portfolio. The Portfolio has advised the
Trust that the Portfolio will not redeem in kind except in circumstances in
which the Fund is permitted to redeem in kind.
TAXATION
Each year, to qualify as a separate "regulated investment company"
under the Code, at least 90% of the Fund's investment company taxable income
(which includes, among other items, interest, dividends and the excess of net
short-term capital gains over net long-term capital losses) must be distributed
to Fund shareholders and the Fund must meet certain diversification of assets,
source of income, and other requirements. If the Fund does not so qualify, it
will be taxed as an ordinary corporation.
The Fund intends to apply to the Internal Revenue Service for rulings,
including, among others, rulings to the effect that (1) the Portfolio will be
treated for federal income tax purposes as a partnership and (2) for purposes of
determining whether the Fund satisfies the income and diversification
requirements to maintain its status as a RIC, the Fund, as an investor in its
corresponding Portfolio, will be deemed to own a proportionate share of the
Portfolio's income attributable to that share. While the IRS has issued
substantially similar rulings in the past, and SBDS anticipates that the Fund
will receive the rulings it seeks, the IRS has complete discretion in granting
rulings and complete assurance cannot be given that such rulings will be
obtained. The Portfolio has advised its corresponding Fund that it intends to
conduct its operations so as to enable its investors, including the Fund, to
satisfy those requirements.
Amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, for each calendar year an
amount must be distributed equal to the sum of (1) at least 98% of the Fund's
ordinary income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of the Fund's capital gain net income for the
12-month period ending, as a general rule, on October 31 of the calendar year,
and (3) all such ordinary income and capital gains for previous years that were
not distributed during such years.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
If the Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Portfolio's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to such
dividends (i.e., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
Some of the debt securities that may be acquired by the Portfolio may
be treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Portfolio, original issue
discount on a taxable debt security earned in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Portfolio at a
discount which exceeds the original issue discount on such debt securities, if
any. This additional discount represents market discount for federal income tax
purposes. Generally, the gain realized on the disposition of any debt security
acquired by the Portfolio will be treated as ordinary income to the extent it
does not exceed the accrued market discount on such debt security.
Options, Futures and Forward Contracts
Some of the options, futures contracts and forward contracts entered
into by the Portfolio may be "Section 1256 contracts." Section 1256 contracts
held by the Portfolio at the end of its taxable year (and, for purposes of the
4% excise tax, on certain other dates as prescribed under the Code) are
"marked-to- market" with unrealized gains or losses being treated as though they
were realized. Any gains or losses, including "marked-to-market" gains or
losses, on Section 1256 contracts are generally 60% long-term and 40% short-term
capital gains or losses ("60/40") although all foreign currency gains and losses
from such contracts may be treated as ordinary in character absent a special
election.
Generally, hedging transactions and certain other transactions in options,
futures and forward contracts undertaken by the Portfolio may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gain or loss realized by the Portfolio. In addition, losses
realized by the Portfolio on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Portfolio are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by the Portfolio.
Short-term gain is taxed as ordinary income when distributed to Fund
shareholders.
The Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If the Portfolio makes any of the
elections, the amount, character, and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Fund shareholders, and which will be taxed to Fund shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The 30% limit on gains from the disposition of certain options, futures
and forward contracts held less than three months, and the qualifying income and
diversification requirements applicable to the Portfolio assets, may limit the
extent to which the Portfolio will be able to engage in these transactions.
Investment in Passive Foreign Investment Companies
The Portfolio may invest in shares of foreign corporations (through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Portfolio receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Portfolio held the PFIC shares. The
Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years and an interest
factor will be added to the tax, as if the tax had been payable in such prior
taxable years. Certain distributions from a PFIC as well as gain from the sale
of PFIC shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares held by the Portfolio. Under an election that currently
is available in some circumstances, the Fund generally would be required to
include in its gross income its share of the earnings of a PFIC on a current
basis, regardless of whether distributions are received from the PFIC in a given
year. If this election were made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Fund's PFIC
shares at the end of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would generally be eliminated, but the Fund could, in limited circumstances,
incur nondeductible interest charges. The Fund's intention to qualify annually
as a regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time the Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Portfolio actually collects such receivables or pays
such liabilities generally are treated as ordinary income or loss. Similarly, in
disposing of debt securities denominated in foreign currencies and certain other
foreign currency contracts, gains or losses attributable to fluctuations in the
value of a foreign currency between the date the security or contract is
acquired and the date it is disposed of are also usually treated as ordinary
income or loss. Under Section 988 of the Code, these gains or losses may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to shareholders as ordinary income.
Disposition of Shares
Upon the sale or exchange of shares of the Fund, a shareholder
generally will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and will be long-term if the
shareholder's holding period for the shares is more than one year and generally
otherwise will be short-term. Any loss realized on a sale or exchange of Fund
shares will be disallowed to the extent that the shares disposed of are replaced
(including replacement through reinvesting of dividends and capital gain
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
The information above is only a summary of some of the tax
considerations affecting the Fund and its shareholders. The Portfolio, the Fund,
and the Fund's distributions may also be subject to state, local, foreign or
other taxes not discussed above. A prospective investor may wish to consult a
tax advisor to determine the suitability of an investment in the Fund based on
the prospective investor's tax situation.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource).
Prior to October 3, 1994 the name of the Trust was "FundTrust".
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.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Portfolio Trust's Trustees,
it is necessary or desirable to submit matters for an investor vote. Each
investor is entitled to a vote in proportion to the share of its investment in
the Portfolio.
Except as described below, whenever the Trust is requested to vote on a
matter pertaining to the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast all of its votes on each matter at a meeting of
investors in the Portfolio proportionately as instructed by the Fund's
shareholders. However, subject to applicable statutory and regulatory
requirements, the Trust would not request a vote of the Fund's shareholders with
respect to any proposal relating to the Portfolio which proposal, if made with
respect to the Fund, would not require the vote of the shareholders of the Fund.
Independent Auditors
The Board of Trustees has appointed KPMG Peat Marwick LLP as independent
accountants of the Trust and the Fund for the fiscal year ending October 31,
1996. KPMG Peat Marwick LLP will audit the Trust's annual financial statements,
prepare the Trust's income tax returns, and assist in the preparation of filings
with the Securities and Exchange Commission. The address of KPMG Peat Marwick
LLP is 99 High Street, Boston, Massachusetts 02108. The Portfolio Trust has
appointed KPMG Peat Marwick, Toronto, Ontario, as its independent accountants to
audit the Portfolio's financial statements for the fiscal year ending October
31, 1996.
Counsel
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares of the Fund
offered by the Trust, and also acts as counsel to the Trust.
Registration Statement
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
RF070B
<PAGE>
PART C
Item 24. Financial Statements.
(a) Incorporated by reference into Part A of the Registration
Statement:
FINANCIAL HIGHLIGHTS -- Republic U.S. Government Money Market Fund; Republic New
York Tax Free Money Market Fund; Republic New York Tax Free Bond Fund; Republic
Equity Fund; Republic Fixed Income Fund; Republic International Equity Fund.
(b) Incorporated by reference into Part B of the Registration
Statement:
REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
Statement of Net Assets, September 30, 1995
Statement of Operations for the year ended September 30, 1995
Statement of Changes in Net Assets for the years ended September 30, 1994 and
September 30, 1995
Financial Highlights
Notes to Financial Statements, September 30, 1995
Report of Ernst & Young LLP
Statement of Net Assets, March 31, 1996 (unaudited)
Statement of Operations for the six months ended March 31, 1996 (unaudited)
Statement of Changes in Net Assets for the year ended September 30, 1995 and
the six months ended March 31, 1996 (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, March 31, 1996 (unaudited)
REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
Statement of Net Assets, October 31, 1995
Statement of Operations for the period November 17, 1994 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period November 17, 1994
(commencement of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young LLP
REPUBLIC NEW YORK TAX FREE BOND FUND
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period May 1, 1995 (commencement of operations)
to October 31, 1995
Statement of Changes in Net Assets for the period May 1, 1995 (commencement of
operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young LLP
REPUBLIC EQUITY FUND
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period August 1, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the
period August 1, 1995 (commencement of operations) to October 31, 1995
Financial Highlights Notes to Financial Statements, October 31, 1995
Report of Ernst & Young LLP
Schedule of Investments, April 30, 1996 (unaudited)
Statement of Assets and Liabilities, April 30, 1996 (unaudited)
Statement of Operations for the Period November 1, 1995 through April 30,
1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
REPUBLIC FIXED INCOME FUND
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period January 9, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period January 9, 1995 (commencement
of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young LLP
Statement of Assets and Liabilities, April 30, 1996 (unaudited)
Statement of Operations for the Period November 1, 1995 through April 30,
1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
FIXED INCOME PORTFOLIO
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period January 9, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period January 9, 1995 (commencement
of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young
Schedule of Investments, April 30, 1996 (unaudited)
Statement of Assets and Liabilities, April 30, 1996 (unaudited)
Statement of Operations for the Period November 1, 1995 through April 30,
1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
REPUBLIC INTERNATIONAL EQUITY FUND
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period January 9, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period January 9, 1995 (commencement
of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young LLP
Statement of Assets and Liabilities, April 30, 1996 (unaudited) Statement of
Operations for the Period November 1, 1995 through April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited) Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
Report of Ernst & Young LLP
INTERNATIONAL EQUITY PORTFOLIO
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period January 9, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period January 9, 1995 (commencement
of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young
Schedule of Investments, April 30, 1996 (unaudited)
Statement of Assets and Liabilities, April 30, 1996 (unaudited)
Statement of Operations for the Period November 1, 1995 through April 30, 1996
(unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
(b) Exhibits
1. Amended and Restated Declaration of Trust, with establishments and
designations of series and further amendments.1
1(a). Establishment and designation of series for Republic Taxable Bond Fund,
Republic Overseas Equity Fund and Republic Opportunity Fund.7
2. By-Laws.1
4. Specimen certificate of shares of beneficial interest of Republic Funds.1
5(a). Master Investment Advisory Contract, with supplements regarding Republic
New York Tax Free Bond Fund, Republic New York Tax Free Money Market Fund and
Republic Equity Fund.1
5(b). Subadvisory Agreement between Lord, Abbett & Co. and Republic National
Bank of New York regarding Republic Equity Fund.1
5(c). Amended and Restated Second Master Investment Advisory Contract, with
supplement regarding Republic U.S. Government Money Market Fund.1
6(a). Master Distribution Contract, with supplements regarding Republic U.S.
Government Money Market Fund, Republic New York Tax Free Money Market Fund,
Republic New York Tax Free Bond Fund, Republic Equity Fund, Republic Taxable
Bond Fund, Republic Overseas Equity Fund and Republic Opportunity Fund.6
6(b). Second Master Distribution Contract, with supplements regarding Republic
International Equity Fund and Republic Fixed Income Fund.1
8(a). Custodian Agreement.1
8(b). Transfer Agency and Service Agreement.1
9(a). Form of Service Agreement.1
9(b). Master Administrative Services Contract, with supplements regarding
Republic Republic U.S. Government Money Market Fund, Republic New York Tax Free
Money Market Fund, Republic New York Tax Free Bond Fund, Republic Equity Fund,
Republic Taxable Bond Fund, Republic Overseas Equity Fund and Republic
Opportunity Fund.6
9(c). Second Master Administrative Services Contract, with supplements regarding
Republic Fixed Income Fund and Republic International Equity Fund.1
9(d). Amended and Restated Administrative Services Plan.6
10. Opinion of Counsel.2
11. Consent of Independent Auditors.8
13(a). Initial Investor Representation letter regarding Republic International
Equity Fund and Republic Fixed Income Fund.3
13(b). Initial Investor Representation letter regarding Republic Equity Fund.2
15(a). Amended and Restated Master Distribution Plan, with supplements regarding
Republic U.S. Government Money Market Fund, Republic New York Tax Free Money
Market Fund, Republic New York Tax Free Bond Fund, Republic Equity Fund,
Republic Taxable Bond Fund, Republic Overseas Equity Fund and Republic
Opportunity Fund.6
16. Schedule of Performance Computations.1
17. Financial Data Schedules.8
18. Multiple Class Plan.5
19. Powers of Attorney of Trustees and Officers of Registrant and Republic
Portfolios.8
- -----------------
1 Incorporated herein by reference from post-effective amendment No. 35 to
the registration statement on Form N-1A of the Registrant (File no. 33-7647)
(the "Registration Statement") as filed with the Securities and Exchange
Commission (the "SEC") on January 23, 1996.
2 Incorporated herein by reference from post-effective amendment No. 33 to
the Registration Statement as filed with the SEC on June 27, 1995.
3 Incorporated herein by reference from post-effective amendment No. 29 to
the Registration Statement as filed with the SEC on December 20, 1994.
4 Incorporated herein by reference from Exhibit 18 to post-effective
amendment No. 28 to the Registration Statement as filed with the SEC on December
2, 1994.
5 Incorporated herein by reference from post-effective amendment No. 36 to
the Registration Statement as filed with the SEC on March 1, 1996.
6 Incorporated herein by reference from post-effective amendment No. 37 to
the Registration Statement as filed with the SEC on April 4, 1996.
7 Incorporated herein by reference from post-effective amendment No. 39 to
the Registration Statement as filed with the SEC on June 17, 1996.
8 Filed herewith.
Item 25. Persons Controlled by or under Common Control with
Registrant.
Not applicable.
Item 26. Number of Holders of Securities
As of October 31, 1996, the number of shareholders of each Fund was as
follows:
Republic U.S. Government Money Market Fund: 789
Republic New York Tax Free Money Market Fund: 182
Republic New York Tax Free Bond Fund: 17
Republic Bond Fund: 2
Republic Equity Fund: 34
Republic Overseas Equity Fund: 3
Republic Opportunity Fund: 5
Item 27. 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 28. Business and Other Connections of Investment Advisers
(a) Republic National Bank of New York ("Republic") acts as investment
adviser to Republic Funds and Republic Advisor Funds Trust, and is a subsidiary
of Republic New York Corporation ("RNYC"), 452 Fifth Avenue, New York, New York
10018, a registered bank holding company. Republic's directors and principal
executive officers, and their business and other connections for at least the
past two years, are as follows (unless otherwise noted by footnote, the address
of all directors and officers is 452 Fifth Avenue, New York, New York 10018):
NAME -- BUSINESS AND OTHER CONNECTIONS
KURT ANDERSEN
Vice Chairman and a Director of Republic New York Corporation ("RNYC") and
Republic Bank.
ANTHONY G. CHAPPELL
Executive Vice President and Director of Republic Bank.
CYRIL S. DWEK
Vice Chairman of the Board and Director of Republic Bank and RNYC.
ERNEST GINSBERG
Vice Chairman of the Board and Director of RNYC and Republic Bank.
NATHAN HASSON
Vice Chairman of the Board, Director and Treasurer of Republic Bank and
Vice Chairman of the Board and Director of RNYC.
JEFFREY C. KEIL
President and Director of RNYC and Vice Chairman of the Board and
Director of Republic Bank.
PETER KIMMELMAN
A private investor and a Director of RNYC and Republic Bank.(1)
PAUL L. LEE
Executive Vice President and Director of Republic Bank;
Executive Vice President and General Counsel of RNYC.
LEONARD LIEBERMAN
Director of various companies, including Consolidated Cigar Corporation and
Outlet Communications, Inc.; Director of RNYC and Republic Bank.
WILLIAM C. MACMILLEN, JR.
President, William C. MacMillen & Co., Inc. (Investment Banking) and
a Director of RNYC and Republic Bank.(2)
PETER J. MANSBACH
Director and Chairman of the Executive Committee of Republic Bank and RNYC.
MARTIN F. MERTZ
Director of RNYC and Republic Bank.
CHARLES G. MEYER, JR.
President of Cord Meyer Development Co. and Director of Republic Bank.(3)
JAMES L. MORICE
Partner in the management consulting and executive search firm of
Mirtz Morice, Inc. and a Director of RNYC and Republic Bank.(4)
E. DANIEL MORRIS
President, Corsair Capital Corporation and Director of RNYC.
DR. JANET L. NORWOOD
Senior Fellow at The Urban Institute (research organization); Director of RNYC
and Republic Bank.
JOHN A. PANCETTI
Director of RNYC and Republic Bank.
VITO S. PORTERA
Vice Chairman of the Board, and a Director of RNYC and Republic Bank. Also,
Chairman of the Board of Republic International Bank of New York, the Florida
Edge Act subsidiary of Republic Bank.
WILLIAM P. ROGERS
Partner, Rogers & Wells and Director of RNYC and Republic Bank.
SLIAS SAAL
Vice Chairman and Director of Republic Bank and RNYC; Chief Trading Officer of
Republic Bank.
DOV C. SCHLEIN
President and Chief Operating Officer of Republic Bank, and a Director of RNYC
and Republic Bank.
RICHARD C. SPIKERMAN
Executive Vice President and Director of Republic Bank.
JOHN TAMBERLANE
Director of Republic Bank; President of the Consumer Bank Division of Republic
Bank.
WALTER H. WEINER
Chairman of the Board, Director and Chief Executive Officer of Republic Bank
and RNYC.
GEORGE T. WENDLER
Vice Chairman and Director of Republic Bank; Senior Credit Officer of Republic
Bank.
PETER WHITE
Senior Consultant and a Director of RNYC and Republic Bank.
- -----------------------------------
(1) 1270 Avenue of the Americas, Suite 3010, New York 10020.
(2) 254 Victoria Place, Lawrence, New York 11559.
(3) 111-15 Queens Boulevard, 2nd Floor, Forest Hills, New York,
New York 11375.
(4) One Dock Street, Stamford, CT 06902
ITEM 29. PRINCIPAL UNDERWRITER
(a) Signature Broker-Dealer Services, Inc. (the "Sponsor") and its
affiliates serve as distributor and administrator for other registered
investment companies.
(b) The information required by this Item 29 with respect to each
director or officer of Signature is hereby incorporated herein by reference from
Schedule A of Form BD as filed by the Sponsor pursuant to the Securities
Exchange Act of 1934 (File No. 8-41134).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The account books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of: Republic National
Bank of New York, 452 Fifth Avenue, New York, New York 10018; BISYS Fund
Services, 3435 Stelzer Road, Columbus, Ohio 43219-3035; and Investors Bank &
Trust Company, N.A., 89 South Street, Boston, Massachusetts 02110.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. 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 least 10% of the
outstanding shares of the Registrant, regardless of the net asset value or
values of shares held by such requesting shareholders.
(c) The Registrant undertakes to file a post-effective amendment, using
financials which need not be certified, within four to six months following the
latter of the effective date of Post-Effective Amendment No. 39 or the date
that shares of the Republic Bond Fund, Republic Overseas Equity Fund and
Republic Opportunity Fund were publicly offered. The financial statements
included in such amendment will be as of and for the time period ended on a date
reasonably close or as soon as practicable to the date of the filing of the
amendment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Republic Funds certifies that it has duly caused
this registration statement on Form N-1A (File No. 33-7647) (the "Registration
Statement") to be signed on its behalf by the undersigned, thereto duly
authorized in Columbus, Ohio on the 25th day of November, 1997.
REPUBLIC FUNDS
By /S/ GEORGE MARTINEZ
---------------------------
George Martinez
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 November 25th, 1997.
/S/ GEORGE MARTINEZ
- --------------------------
George Martinez
President
/S/ADRIAN WATERS
- --------------------------
Adrian Waters
Treasurer and Principal Accounting and Financial Officer
ALAN S. PARSOW*
- --------------------------
Alan S. Parsow
Trustee
LARRY M. ROBBINS*
- --------------------------
Larry M. Robbins
Trustee
MICHAEL SEELY*
- --------------------------
Michael Seely
Trustee
FREDERICK C. CHEN*
- --------------------------
Frederick C. Chen
Trustee
*By /S/ALLAN S. MOSTOFF
--------------------------
Allan S. Mostoff,
as attorney-in-fact pursuant to a power of attorney filed herewith.
<PAGE>
SIGNATURES
Republic Portfolios (the "Portfolio Trust") has duly caused this amendment
to the registration statement on Form N-1A (File No. 33-7647) ("Registration
Statement") of Republic Funds (the "Trust") to be signed on its behalf by the
undersigned, thereto duly authorized in Ireland on the 26th day of November,
1997
REPUBLIC PORTFOLIOS
By GEORGE MARTINEZ**
--------------------------
George Martinez
President
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on November 27, 1997.
GEORGE MARTINEZ**
- --------------------------
George Martinez
President of the Portfolio Trust
/S/ 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/ ALLAN S. MOSTOFF
--------------------------
Allan S. Mostoff,
as attorney-in-fact pursuant to a power of attorney filed herewith.
** By /S/ ADRIAN WATERS
------------------------
Adrian Waters,
as attorney-in-fact pursuant to a power of attorney filed herewith.
<PAGE>
EXHIBIT LIST
Exhibit No. Exhibit Name
11 Consents of Independent Auditors
17 (filed as 27) Financial Data Schedules
19 Powers of Attorney
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
Republic Portfolios:
We consent to the reference to our firm under the caption "Independent
Auditors" in the statements of additional information included herein.
KPMG Peat Marwick
Toronto, Ontario
November 25, 1996
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
Republic Funds:
We consent to the reference to our firm under the caption "Independent
Auditors" in the statements of additional information included herein.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 25, 1996
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information of the Republic Equity Fund-Class C Shares/Retail Class
in Post-Effective Amendment No. 40 to the Registration Statement (Form N-1A, No.
337647) of Republic Funds.
We also consent to the incorporation by reference therein of our reports on
the financial statements included in the Annual Reports dated November 10, 1995
for Republic U.S. Government Money Market Fund, and December 8, 1995 for
Republic Equity Fund, Republic New York Tax Free Bond Fund, Republic New York
Tax Free Money Market Fund, Republic International Equity Fund, and Republic
Fixed Income Fund portfolios of Republic Funds.
ERNST & YOUNG LLP
November 22, 1996
Boston, Massachusetts
<PAGE>
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment
No. 40 to the Registration Statement (Form N-1A, No. 33-7647) of Republic Funds,
of our reports, dated December 8, 1995 for Republic International Equity and
Republic Fixed Income Portfolios of Republic Portfolio Trust, on the financial
statements and financial highlights included in their respective Annual Reports.
ERNST & YOUNG
November 22, 1996
Grand Cayman, Cayman Islands
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Allan S. Mostoff, David J. Harris, and Keith T.
Robinson, and each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the undersigned in any and
all capacities to sign the Registration Statement of Republic Funds, Republic
Advisor Funds Trust, and Republic Portfolios, and any pre- or post-effective
amendments thereto, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and conforming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by virtue hereof.
/s/ Alan S. Parsow
------------------------------
Alan S. Parsow
Date: July 22, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Allan S. Mostoff, David J. Harris, and Keith T.
Robinson, and each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the undersigned in any and
all capacities to sign the Registration Statement of Republic Funds, Republic
Advisor Funds Trust, and Republic Portfolios, and any pre- or post-effective
amendments thereto, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and conforming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by virtue hereof.
/s/ Larry M. Robbins
------------------------------
Larry M. Robbins
Date: July 22, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Allan S. Mostoff, David J. Harris, and Keith T.
Robinson, and each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the undersigned in any and
all capacities to sign the Registration Statement of Republic Funds, Republic
Advisor Funds Trust, and Republic Portfolios, and any pre- or post-effective
amendments thereto, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and conforming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by virtue hereof.
/s/ Michael Seely
------------------------------
Michael Seely
Date: July 22, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Allan S. Mostoff, David J. Harris, and Keith T.
Robinson, and each of them, to act severally as attorneys-in-fact and agents,
with power of substitution and resubstitution, for the undersigned in any and
all capacities to sign the Registration Statement of Republic Funds, Republic
Advisor Funds Trust, and Republic Portfolios, and any pre- or post-effective
amendments thereto, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and conforming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by virtue hereof.
/s/ Frederick C. Chen
------------------------------
Frederick C. Chen
Date: July 22, 1996
<PAGE>
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the person whose signature appears below
constitutes and appoints Adrian Waters and Catherine Brady, and each of them, to
act severally as attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all capacities to sign the
Registration Statement of Republic Funds, Republic Advisor Funds Trust, and
Republic Portfolios, and any pre- or post-effective amendments thereto, and to
file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
conforming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
/s/ George O. Martinez
------------------------------
George O. Martinez
Date: November 25, 1996
Accepted By:
/s/ Adrian Waters
Adrian Waters
Date: November 25, 1996
/s/ Catherine Brady
Catherine Brady
Date: November 25, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 007
<NAME> REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-17-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 52,457,495
<INVESTMENTS-AT-VALUE> 52,457,495
<RECEIVABLES> 373,850
<ASSETS-OTHER> 29,570
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,860,915
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 208,438
<TOTAL-LIABILITIES> 208,438
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,652,477
<SHARES-COMMON-STOCK> 52,652,477
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 52,652,477
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,983,859
<OTHER-INCOME> 0
<EXPENSES-NET> 210,066
<NET-INVESTMENT-INCOME> 1,773,793
<REALIZED-GAINS-CURRENT> (13,869)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,759,924
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,759,924
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 191,998,598
<NUMBER-OF-SHARES-REDEEMED> 140,393,043
<SHARES-REINVESTED> 1,046,922
<NET-CHANGE-IN-ASSETS> 52,652,477
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77,177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 334,167
<AVERAGE-NET-ASSETS> 53,659,095
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.033
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.033
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC FIXED INCOME FUND AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 008
<NAME> REPUBLIC FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-09-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 26,119,355
<INVESTMENTS-AT-VALUE> 26,119,355
<RECEIVABLES> 0
<ASSETS-OTHER> 52,565
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,171,920
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 43,913
<TOTAL-LIABILITIES> 43,913
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,128,007
<SHARES-COMMON-STOCK> 2,384,633
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 26,128,007
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 812,161
<OTHER-INCOME> 0
<EXPENSES-NET> 56,649
<NET-INVESTMENT-INCOME> 755,512
<REALIZED-GAINS-CURRENT> 995,337
<APPREC-INCREASE-CURRENT> 338,733
<NET-CHANGE-FROM-OPS> 2,089,582
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 755,512
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,295,445
<NUMBER-OF-SHARES-REDEEMED> 245,291
<SHARES-REINVESTED> 743,683
<NET-CHANGE-IN-ASSETS> 26,128,007
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 107,372
<AVERAGE-NET-ASSETS> 16,557,823
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.96
<PER-SHARE-DIVIDEND> 0.46
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.96
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC INTERNATIONAL EQUITY FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 009
<NAME> REPUBLIC INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-09-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 34,220,743
<INVESTMENTS-AT-VALUE> 34,220,743
<RECEIVABLES> 26,683
<ASSETS-OTHER> 51,355
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,298,781
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,752
<TOTAL-LIABILITIES> 54,752
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,244,029
<SHARES-COMMON-STOCK> 3,171,731
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 34,244,029
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 300,087
<OTHER-INCOME> 0
<EXPENSES-NET> 82,467
<NET-INVESTMENT-INCOME> 217,620
<REALIZED-GAINS-CURRENT> (93,408)
<APPREC-INCREASE-CURRENT> 1,635,933
<NET-CHANGE-FROM-OPS> 1,760,145
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 69,610
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,852,624
<NUMBER-OF-SHARES-REDEEMED> 368,840
<SHARES-REINVESTED> 69,610
<NET-CHANGE-IN-ASSETS> 34,244,029
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 116,717
<AVERAGE-NET-ASSETS> 21,294,241
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.75
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.80
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC NEW YORK TAX FREE BOND FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 010
<NAME> REPUBLIC NEW YORK TAX FREE BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> MAY-01-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 6,433,758
<INVESTMENTS-AT-VALUE> 6,620,124
<RECEIVABLES> 609,546
<ASSETS-OTHER> 81,947
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,311,617
<PAYABLE-FOR-SECURITIES> 346,378
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,185
<TOTAL-LIABILITIES> 403,563
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,908,054
<SHARES-COMMON-STOCK> 665,278
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,908,054
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 195,996
<OTHER-INCOME> 0
<EXPENSES-NET> 18,026
<NET-INVESTMENT-INCOME> 177,970
<REALIZED-GAINS-CURRENT> 48,739
<APPREC-INCREASE-CURRENT> 186,366
<NET-CHANGE-FROM-OPS> 413,075
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 177,970
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,334,583
<NUMBER-OF-SHARES-REDEEMED> 1,679,949
<SHARES-REINVESTED> 18,315
<NET-CHANGE-IN-ASSETS> 6,908,054
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,063
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 86,378
<AVERAGE-NET-ASSETS> 3,916,331
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.38
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC EQUITY FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 011
<NAME> REPUBLIC EQUITY FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 20,833,025
<INVESTMENTS-AT-VALUE> 20,987,383
<RECEIVABLES> 82,240
<ASSETS-OTHER> 1,212,364
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,281,987
<PAYABLE-FOR-SECURITIES> 138,502
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,085
<TOTAL-LIABILITIES> 189,587
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,092,400
<SHARES-COMMON-STOCK> 2,157,255
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 22,092,400
<DIVIDEND-INCOME> 89,540
<INTEREST-INCOME> 17,635
<OTHER-INCOME> 0
<EXPENSES-NET> 51,552
<NET-INVESTMENT-INCOME> 55,623
<REALIZED-GAINS-CURRENT> (7,450)
<APPREC-INCREASE-CURRENT> 154,358
<NET-CHANGE-FROM-OPS> 202,531
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 45,346
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,934,564
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 651
<NET-CHANGE-IN-ASSETS> 22,092,400
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 85,885
<AVERAGE-NET-ASSETS> 17,359,825
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED SEPTEMBER 30, 1995 FOR THE REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 006
<NAME> REPUBLIC U.S. GOV'T MONEY MKT. FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 113,610,700
<INVESTMENTS-AT-VALUE> 113,610,700
<RECEIVABLES> 120,937
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 113,731,637
<PAYABLE-FOR-SECURITIES> 58,468
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,197
<TOTAL-LIABILITIES> 73,665
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 113,196,899
<SHARES-COMMON-STOCK> 113,218,042
<SHARES-COMMON-PRIOR> 111,557,380
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 113,218,042
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,377,771
<OTHER-INCOME> 0
<EXPENSES-NET> 642,995
<NET-INVESTMENT-INCOME> 5,734,776
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,734,776
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,727,567
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 366,028,959
<NUMBER-OF-SHARES-REDEEMED> 356,309,344
<SHARES-REINVESTED> 3,048,453
<NET-CHANGE-IN-ASSETS> 12,775,277
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 221,919
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 858,878
<AVERAGE-NET-ASSETS> 110,959,533
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED MARCH 31, 1996 FOR THE REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 006
<NAME> REPUBLIC U.S. GOV'T MONEY MKT. FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 205,115,719
<INVESTMENTS-AT-VALUE> 205,115,719
<RECEIVABLES> 1,799,494
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 206,915,213
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 804,736
<TOTAL-LIABILITIES> 804,736
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 206,089,334
<SHARES-COMMON-STOCK> 206,110,477
<SHARES-COMMON-PRIOR> 113,218,042
<ACCUMULATED-NII-CURRENT> 21,143
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 206,110,477
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,364,619
<OTHER-INCOME> 0
<EXPENSES-NET> 436,791
<NET-INVESTMENT-INCOME> 3,927,828
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,927,828
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,927,828
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 387,129,359
<NUMBER-OF-SHARES-REDEEMED> 297,533,330
<SHARES-REINVESTED> 3,296,406
<NET-CHANGE-IN-ASSETS> 92,892,435
<ACCUMULATED-NII-PRIOR> 21,143
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 160,436
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581,184
<AVERAGE-NET-ASSETS> 160,435,741
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.025
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.025
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE REPUBLIC EQUITY FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 11
<NAME> REPUBLIC EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 30,509,002
<INVESTMENTS-AT-VALUE> 33,194,459
<RECEIVABLES> 41,103
<ASSETS-OTHER> 23,364
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,258,926
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79,138
<TOTAL-LIABILITIES> 79,138
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,178,246
<SHARES-COMMON-STOCK> 2,896,559
<SHARES-COMMON-PRIOR> 2,157,255
<ACCUMULATED-NII-CURRENT> 14,853
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 301,232
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,685,457
<NET-ASSETS> 33,179,788
<DIVIDEND-INCOME> 353,280
<INTEREST-INCOME> 31,809
<OTHER-INCOME> 0
<EXPENSES-NET> 180,758
<NET-INVESTMENT-INCOME> 204,331
<REALIZED-GAINS-CURRENT> 308,682
<APPREC-INCREASE-CURRENT> 2,531,099
<NET-CHANGE-FROM-OPS> 3,044,112
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 199,755
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 784,472
<NUMBER-OF-SHARES-REDEEMED> 45,594
<SHARES-REINVESTED> 426
<NET-CHANGE-IN-ASSETS> 11,087,388
<ACCUMULATED-NII-PRIOR> 10,277
<ACCUMULATED-GAINS-PRIOR> (7,450)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 45,239
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 243,305
<AVERAGE-NET-ASSETS> 27,992,345
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 1.21
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.45
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR REPUBLIC FIXED INCOME FUND, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 008
<NAME> REPUBLIC FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 39,857,116
<INVESTMENTS-AT-VALUE> 39,348,221
<RECEIVABLES> 59,419
<ASSETS-OTHER> 42,280
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,449,920
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 147,155
<TOTAL-LIABILITIES> 147,155
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,625,691
<SHARES-COMMON-STOCK> 3,778,428
<SHARES-COMMON-PRIOR> 2,384,633
<ACCUMULATED-NII-CURRENT> 37,525
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 148,444
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (508,895)
<NET-ASSETS> 39,302,765
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 997,356
<OTHER-INCOME> 0
<EXPENSES-NET> 22,806
<NET-INVESTMENT-INCOME> 866,476
<REALIZED-GAINS-CURRENT> 175,019
<APPREC-INCREASE-CURRENT> (847,628)
<NET-CHANGE-FROM-OPS> 193,867
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 866,477
<DISTRIBUTIONS-OF-GAINS> 984,386
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,326,605
<NUMBER-OF-SHARES-REDEEMED> 78,556
<SHARES-REINVESTED> 145,746
<NET-CHANGE-IN-ASSETS> 13,174,758
<ACCUMULATED-NII-PRIOR> 37,525
<ACCUMULATED-GAINS-PRIOR> 957,812
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 204,512
<AVERAGE-NET-ASSETS> 31,759,117
<PER-SHARE-NAV-BEGIN> 10.96
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.19)
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0.37
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.40
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR REPUBLIC INTERNATIONAL EQUITY FUND, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 009
<NAME> REPUBLIC INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 73,710,901
<INVESTMENTS-AT-VALUE> 80,513,933
<RECEIVABLES> 43,475
<ASSETS-OTHER> 42,869
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,600,277
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,809
<TOTAL-LIABILITIES> 36,809
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,203,495
<SHARES-COMMON-STOCK> 6,789,373
<SHARES-COMMON-PRIOR> 3,171,731
<ACCUMULATED-NII-CURRENT> 65,437
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 491,504
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,803,032
<NET-ASSETS> 80,563,468
<DIVIDEND-INCOME> 443,002
<INTEREST-INCOME> 153,416
<OTHER-INCOME> 0
<EXPENSES-NET> 113,497
<NET-INVESTMENT-INCOME> 253,503
<REALIZED-GAINS-CURRENT> 832,585
<APPREC-INCREASE-CURRENT> 5,167,099
<NET-CHANGE-FROM-OPS> 6,253,187
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 552,556
<DISTRIBUTIONS-OF-GAINS> 31,193
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,688,325
<NUMBER-OF-SHARES-REDEEMED> 120,204
<SHARES-REINVESTED> 49,521
<NET-CHANGE-IN-ASSETS> 46,319,439
<ACCUMULATED-NII-PRIOR> 23,782
<ACCUMULATED-GAINS-PRIOR> 30,820
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 360,187
<AVERAGE-NET-ASSETS> 57,209,055
<PER-SHARE-NAV-BEGIN> 10.80
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.13
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.87
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC FIXED INCOME PORTFOLIO AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000934882
<NAME> REPUBLIC PORTFOLIOS
<SERIES>
<NUMBER>001
<NAME>REPUBLIC FIXED INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-09-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 37,854,514
<INVESTMENTS-AT-VALUE> 38,267,222
<RECEIVABLES> 1,629,600
<ASSETS-OTHER> 268,865
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,165,687
<PAYABLE-FOR-SECURITIES> 10,054,109
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89,051
<TOTAL-LIABILITIES> 10,143,160
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,022,527
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 30,022,527
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 935,978
<OTHER-INCOME> 0
<EXPENSES-NET> 66,214
<NET-INVESTMENT-INCOME> 869,764
<REALIZED-GAINS-CURRENT> 1,056,225
<APPREC-INCREASE-CURRENT> 349,074
<NET-CHANGE-FROM-OPS> 2,275,063
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 29,972,427
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 53,963
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 143,506
<AVERAGE-NET-ASSETS> 17,744,650
<PER-SHARE-NAV-BEGIN> 0
<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> 0
<EXPENSE-RATIO> 0.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC INTERNATIONAL EQUITY PORTFOLIO AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000934882
<NAME> REPUBLIC PORTFOLIOS
<SERIES>
<NUMBER>002
<NAME>REPUBLIC INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-09-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 38,082,840
<INVESTMENTS-AT-VALUE> 39,264,711
<RECEIVABLES> 244,657
<ASSETS-OTHER> 1,025,777
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,535,145
<PAYABLE-FOR-SECURITIES> 553,714
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52,523
<TOTAL-LIABILITIES> 606,237
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,928,908
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 39,928,908
<DIVIDEND-INCOME> 313,008
<INTEREST-INCOME> 101,630
<OTHER-INCOME> 0
<EXPENSES-NET> 121,303
<NET-INVESTMENT-INCOME> 293,335
<REALIZED-GAINS-CURRENT> (98,258)
<APPREC-INCREASE-CURRENT> 1,700,597
<NET-CHANGE-FROM-OPS> 1,895,674
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 39,878,808
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 131,059
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 263,972
<AVERAGE-NET-ASSETS> 23,263,334
<PER-SHARE-NAV-BEGIN> 0
<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> 0
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE REPUBLIC FIXED INCOME PORTFOLIO AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000934882
<NAME> REPUBLIC PORTFOLIOS
<SERIES>
<NAME> REPUBLIC FIXED INCOME PORTFOLIO
<NUMBER> 001
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 71,380,520
<INVESTMENTS-AT-VALUE> 70,431,540
<RECEIVABLES> 424,876
<ASSETS-OTHER> 152,696
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,009,112
<PAYABLE-FOR-SECURITIES> 19,045,941
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,155
<TOTAL-LIABILITIES> 19,100,096
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,909,016
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 51,909,016
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,303,405
<OTHER-INCOME> 0
<EXPENSES-NET> 141,810
<NET-INVESTMENT-INCOME> 1,161,595
<REALIZED-GAINS-CURRENT> 222,756
<APPREC-INCREASE-CURRENT> (1,196,864)
<NET-CHANGE-FROM-OPS> 187,487
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,886,489
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77,821
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146,810
<AVERAGE-NET-ASSETS> 41,732,610
<PER-SHARE-NAV-BEGIN> 0
<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> 0
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE REPUBLIC INTERNATIONAL EQUITY PORTFOLIO AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000934882
<NAME> REPUBLIC PORTFOLIOS
<SERIES>
<NAME> REPUBLIC INTERNATIONAL EQUITY PORTFOLIO
<NUMBER> 002
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 97,993,884
<INVESTMENTS-AT-VALUE> 106,471,719
<RECEIVABLES> 1,583,102
<ASSETS-OTHER> 50,219
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 108,105,040
<PAYABLE-FOR-SECURITIES> 1,020,579
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 124,622
<TOTAL-LIABILITIES> 1,145,201
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 106,959,839
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 106,959,839
<DIVIDEND-INCOME> 582,160
<INTEREST-INCOME> 174,583
<OTHER-INCOME> 0
<EXPENSES-NET> 299,211
<NET-INVESTMENT-INCOME> 457,532
<REALIZED-GAINS-CURRENT> 1,079,786
<APPREC-INCREASE-CURRENT> 6,780,659
<NET-CHANGE-FROM-OPS> 8,317,977
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 67,030,931
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 203,677
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 331,513
<AVERAGE-NET-ASSETS> 74,598,575
<PER-SHARE-NAV-BEGIN> 0
<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> 0
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
