<PAGE>
Registration Nos. 33-7647
811-4782
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 67 [x]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 68 [x]
(Check appropriate box or boxes)
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: (617) 470-8000
Walter B. Grimm
3435 Stelzer Road
Columbus, Ohio 43219-3035
(Name and address of agent for service)
Please send copies of all communications to:
Allan S. Mostoff
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
It is proposed that this filing will become effective:
------ immediately upon filing pursuant to paragraph (b)
------ on [date] pursuant to paragraph (b)
------ 60 days after filing pursuant to paragraph (a)
------ on [date] pursuant to paragraph (a) of Rule 485
X 75 days after filing pursuant to paragraph (a)
-------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
REPUBLIC FUNDS ___ RISK/RETURN SUMMARY AND FUND EXPENSES
<S> <C> <C>
Carefully review this ___ HSBC Mid Cap Fund
important section, which
summarizes the Fund's
investments, risks, past
performance, and fees.
___ INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
___ FUND MANAGEMENT
Review this section ___ The Investment Adviser
for details on ___ Portfolio Managers
the people and ___ The Distributor and Administrator
organizations who provide
services to the Fund.
___ SHAREHOLDER INFORMATION
Review this section for ___ Pricing of Fund Shares
details on how ___ Purchasing and Adding to Your Shares
shares are valued, ___ Selling Your Shares
and how to purchase, ___ Exchanging Your Shares
sell and exchange shares. ___ Dividends, Distributions and Taxes
This section also describes
related charges, and
payments of dividends
and distributions.
</TABLE>
<PAGE>
RISK/RETURN SUMMARY AND FUND EXPENSES
The following is a summary of certain key information about the Mid Cap Fund.
[THE HSBC MIDCAP FUND IS A SERIES OF THE REPUBLIC FUNDS.] You will find
additional information about the Fund, including a detailed description of the
risks of an investment in the Fund, after this summary.
MID CAP FUND
INVESTMENT OBJECTIVES The Fund's investment objective is to achieve a
higher rate of return than that generated by the
S&P 400. The Fund seeks to achieve its objective by
investing in common or preferred stocks and
convertible securities.
PRINCIPAL The Fund normally invests at least 65% of its total
INVESTMENT STRATEGIES assets in equity securities of mid-sized companies
with market capitalization falling within the range
of the S&P 400 Index at the time of acquisition.
Investments are primarily in common stocks but also
may include preferred stocks and convertible
securities. The Fund's Adviser selects stocks that
have attractive valuation, the potential for future
earnings growth and in the Adviser's opinion are
likely to outperform the S&P 400. In selecting
securities the Adviser uses quantitative and
fundamental research to identify stocks meeting its
criteria. Investment will be sold if they no longer
meet the Fund's criteria for growth-oriented
instruments.
2
<PAGE>
RETURN/RISK SUMMARY AND FUND EXPENSES
PRINCIPAL INVESTMENT RISKS The principal risks of investing in the Fund are
capitalization risk, market risk, security-specific
risk, foreign investment risk and management risk.
Additionally, there is the risk that stocks selected
because they represent value will remain undervalued
or out-of-favor.
3
<PAGE>
RISK/RETURN SUMMARY AND FUND EXPENSES
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
seeking a long-term goal such as retirement
looking to add a mid-cap growth component to your
portfolio
willing to accept higher risks of investing in the
stock market
This Fund will not be appropriate for anyone:
seeking monthly income
pursuing a short-term goal or investing emergency
reserves
seeking safety of principal
4
<PAGE>
RISK/RETURN SUMMARY AND FUND EXPENSES
The Fund offers three different classes of shares; Class A, Class B and Class C.
All classes of shares are offered in this prospectus.
The Risk/Return Summary describes certain kinds of risks that apply to the Fund.
These risks are:
CAPITALIZATION RISK. Investments in mid-capitalization companies involve
greater risk than is customarily associated with larger more established
companies due to the greater business risks of small size, limited markets
and financial resources, narrow product lines and frequent lack of depth of
management.
FOREIGN RISK. The Fund may invest in both sponsored and unsponsored ADR
programs. Investments in ADRs involve certain risks not typically involved
in purely domestic investments, including future foreign political and
economic developments, and the possible imposition of foreign governmental
laws or restrictions applicable to such investments. Securities of foreign
issuers through ADRs are subject to different economic, financial,
political and social factors. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. With respect
to certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which could adversely affect the value of the particular ADR.
There may be less publicly available information about a foreign company
than about a U.S. company, and there may be less governmental regulation
and supervision of foreign stock exchanges, brokers and listed companies.
In addition, such companies may use different accounting and financial
standards (and certain currencies may become unavailable for transfer from
a foreign currency), resulting in a Fund's possible inability to convert
proceeds realized upon the sale of portfolio securities of the affected
foreign companies immediately into U.S. currency.
MANAGEMENT RISK. Risk that the strategy used by the investment management
team may fail to produce the desired results.
MARKET RISK. Risk that the value of the Fund's investments will fluctuate
as the stock market fluctuates and that stock prices overall may decline
over short or longer-term periods.
SECURITY-SPECIFIC RISK. Risk that the issuer will be unable to achieve its
earnings or growth expectations.
Other important things for you to note:
You may lose money by investing in the Fund.
Because the value of the Fund's investments will fluctuate with market
conditions, so will the value of your investment in the Fund.
5
<PAGE>
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Fund, you will pay the following fees and expenses.
Shareholder transactions fees are paid from your account. Annual operating
expenses are paid out of Fund assets, and are reflected in the share price.
CONTINGENT DEFERRED SALES CHARGE
Some share classes impose a back end sales charge (load) if you sell your shares
before a certain period of time has elapsed. This is called a Contingent
Deferred Sales Charge.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID BY YOU DIRECTLY) A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Maximum sales charge (load) on purchases 3.50%(1) None None
Maximum deferred sales charge (load) None 4.00%(2) 1.00%(3)
<CAPTION>
ANNUAL FUND
OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Management fee % % %
Administrative Services fee(4)
Distribution (12b-I) fee(5)
Service Organization fee(6)
Other expenses % % %
Total fund operating expenses % % %
Fee waivers(4,5,6) % % %
Net expense(7) % % %
</TABLE>
6
<PAGE>
RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE EXAMPLE
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
$10,000 investment
5% annual return
no changes in the Fund's operating expenses except the expiration of
the current contractual fee waiver on April 30, 2001.
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
1 3
Year Years
<S> <C> <C>
Class A Shares
Assuming redemption $ $
Class B Shares
Assuming redemption $ $
Assuming no redemption $ $
Class C Shares
Assuming redemption $ $
Assuming no redemption $ $
</TABLE>
7
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISK
This section of the Prospectus provides a more complete description of the
principal investment objectives and policies of the Fund. Of course, there can
be no assurance that the Fund will achieve its investment objective. Additional
descriptions of the Fund's risks, strategies, and investments, as well as other
strategies and investments not described below, may be found in the Fund's
Statement of Additional Information or SAI.
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is to achieve a higher rate of return than that
generated by the S&P 400. The Fund seeks to achieve its objectives by investing
in common stock, preferred stocks and convertible securities. Under normal
conditions the Fund will invest at least 65% of its total assets in equity
securities of mid-sized companies with market capitalizations falling within
the S&P 400 Index at the time of acquisition.
The Adviser uses quantitative and fundamental research to select stocks for the
Fund's portfolio that the Adviser believes offer attractive growth opportunities
and are selling at reasonable prices. The Adviser pursues this strategy by first
considering fundamental factors such as book value, cash flow, earnings, and
sales. The Adviser's quantitative analysis also includes in-depth analysis of a
company's financial statements. Once a company passes this quantitative
screening process, the Adviser utilizes a more traditional qualitative approach.
This analysis considers factors such as liquidity, use of leverage, management
strength, and the company's ability to execute its business plan. The Fund
expects to invest primarily in securities of U.S.-based companies, but it may
also invest in securities of non-U.S. companies, generally through ADRs. The
Adviser will consider selling those securities which no longer meet the Fund's
criteria for investing. The Fund has authority to invest up to 100% of its total
assets in a variety of short-term debt securities for temporary defensive
purposes under unusual market conditions. While the Fund is invested in these
instruments, it will not be pursuing its investment objective.
The Fund may invest up to 35% of its total assets in fixed income securities and
money market instruments. The fixed income securities may include U.S.
Government securities, corporate bonds, asset-backed securities (including
mortgage-backed securities), obligations of savings and loans and U.S. and
foreign banks, commercial paper and related repurchase agreements. The Fund will
not purchase corporate debt securities rated below Baa by Moody's Investors
Service ("Moody's") or BBB by Standard & Poor's Corporation ("S&P").
The Fund's criteria for selecting equity securities are the issuer's managerial
strength, competitive position, price to earnings ratio, profitability,
prospects for growth, underlying asset value and relative market value. The
Fund's Adviser uses quantitative and fundamental research to identify stocks
meeting either or both growth and income criteria and selects securities for the
portfolio that appear to be undervalued. The Fund may invest in securities that
appear to be undervalued because the value or potential for growth has been
overlooked by many investors or because recent changes in the economy, industry
or the company have not yet been reflected in the price of the securities. In
order to increase the Fund's portfolio income, the Fund may invest in securities
that provide current dividends or, in the opinion of the Adviser, have a
potential for dividend growth in the future. Investments will be sold if they no
longer meet the Fund's criteria for growth-oriented instruments.
8
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISK
RISK CONSIDERATIONS
The principal risks of investing in the Fund are capitalization risk, foreign
risk, market risk, security specific risk and management risk. Capitalization
risk is the risk customarily associated with investments in smaller
capitalization companies due to limited markets and financial resources, narrow
product lines and frequent lack of depth of management. Stocks of smaller
companies may trade infrequently or in lower volumes, making it difficult for
the Fund to sell its shares at the desired price. Smaller companies may be more
sensitive to changes in the economy overall. Historically, small company stocks
have been more volatile than those of larger companies. As a result, the Fund's
net asset value may be subject to rapid and substantial changes. Market risk is
the possibility that the Fund's net asset value will decline with changes in the
market value of the Fund's portfolio securities. The Fund's investments
represent proportionate interests in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market value of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. There is also the risk that the issuer
will be unable to achieve its earnings or growth expectations or that the
strategy used by the investment management team may fail to produce the desired
results.
ADRs are U.S. dollar-denominated receipts generally issued by domestic banks,
which evidence the deposit with the bank of the common stock of a foreign issuer
and which are publicly traded on exchanges or over-the-counter in the United
States. The Fund may invest in both sponsored and unsponsored ADR programs.
There are certain risks associated with investments in unsponsored ADR programs.
Because the non-U.S. company does not actively participate in the creation of
the ADR program, the underlying agreement for service and payment will be
between the depository and the shareholder. In an unsponsored ADR program, there
also may be several depositories with no defined legal obligations to the
non-U.S. company. In addition, with respect to all ADRs there is always the risk
of loss due to currency fluctuations.
Investments in ADRs involve certain risks not typically involved in purely
domestic investments, including future foreign political and economic
developments, and the possible imposition of foreign governmental laws or
restrictions applicable to such investments. Securities of foreign issuers
through ADRs are subject to different economic, financial, political and social
factors. Individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. With respect to certain countries, there is the possibility
of expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect the value of
the particular ADR. There may be less publicly available information about a
foreign company than about a U.S. company, and there may be less governmental
regulation and supervision of foreign stock exchanges, brokers and listed
companies. In addition, such companies may use different accounting and
financial standards (and certain currencies may become unavailable for transfer
from a foreign currency), resulting in a Fund's possible inability to convert
proceeds realized upon the sale of portfolio securities of the affected foreign
companies immediately into U.S. currency.
9
<PAGE>
INVESTMENT OBJECTIVES, STRATEGIES AND RISK
OTHER CONSIDERATIONS--ALL FUNDS
Portfolio Turnover. The Fund is actively managed and, in some cases the Fund's
portfolio turnover, may exceed 100%. A higher rate of portfolio turnover
increases brokerage and other expenses, which must be borne by the Fund and its
shareholders. High portfolio turnover (over 100%) also may result in the
realization of substantial net short-term capital gains, which when distributed
are taxable to shareholders.
Temporary Defensive Positions. In order to meet liquidity needs or for temporary
defensive purposes, the Fund may invest up to 100% of its assets in fixed income
securities, money market securities, certificates of deposit, bankers'
acceptances, commercial paper or in equity securities which in the Adviser's
opinion are more conservative than the types of securities that the Fund
typically invests in. To the extent the Fund is engaged in temporary or
defensive investments, the Fund will not be pursuing its investment objective.
10
<PAGE>
FUND MANAGEMENT
THE INVESTMENT ADVISER
HSBC Asset Management Americas Inc. (HSBC or the "Adviser"), 140 Broadway, New
York, NY 10005 is the adviser for the Fund. HSBC manages more than $3.3 billion
of assets of individuals, pension plans, corporations and institutions. Through
its portfolio management team, HSBC makes the day-to-day investment decisions
and continuously reviews, supervises and administers the Fund's investment
programs. For these advisory services, the Fund will pay the Adviser % based
on the Funds average net assets.
11
<PAGE>
PORTFOLIO MANAGERS
The HSBC Asset Management (Americas) Inc. US Equities team is led by Mr. Fredric
Lutcher III, CFA, Chief Investment Officer, U.S. Equities. Mr. Thomas D'Auria,
CFA, Portfolio Manager is responsible for the day-to-day management of the
Mid-Cap Fund. Prior to joining the Adviser in late 1997, Mr. D'Auria worked as
Vice President and Senior Fund Analyst at Merrill Lynch Asset Management for
four years. The U.S. Equity team consists of 12 analysts, managers and dealers
who provide investment support for the fund.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS"), whose address is 3435 Stelzer Road, Columbus,
Ohio 43219-3035, serves as the Fund's administrator. Management and
administrative services of BISYS include providing office space, equipment and
clerical personnel to the Funds and supervising custodial, auditing, valuation,
bookkeeping, legal and dividend dispersing services.
BISYS also serves as the distributor of Fund shares. BISYS may provide financial
assistance in connection with pre-approved seminars, conferences and advertising
to the extent permitted by applicable state or self-regulatory agencies, such as
the National Association of Securities Dealers.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
Year 2000: Like other funds and business organizations around the world, the
Fund could be adversely affected if the computer systems used by the Adviser and
the Fund's other service providers do not properly process and calculate
date-related information for the Year 2000 and beyond. In addition, the Year
2000 problem may adversely affect the companies in which the Fund invests,
particularly since the Fund invests outside of the U.S. For example, these
companies may incur substantial costs to correct the problem and may suffer
losses caused by data processing errors. Since the ultimate costs or
consequences of incomplete or untimely resolution of the Year 2000 problem by
the Fund's service providers are unknown to the Fund at this time, no assurance
can be made that such costs or consequences will not have a material adverse
impact on the Fund or its service providers. The Fund and the Adviser will
continue to monitor developments relating to the Year 2000 problem.
12
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of a Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
Total Assets - Liabilities
--------------------------
Number of Shares
Outstanding
You can find the Fund's NAV daily in The Wall Street Journal and other
newspapers.
Per share net asset value (NAV) is determined and its shares are priced at the
close of regular trading on the New York Stock Exchange, normally at 4:00 p.m.
Eastern time on days the Exchange is open. Fund shares will not be priced on
days the New York Stock Exchange is closed for trading.
Some of the Fund's investments may be in securities that are primarily listed on
foreign exchanges and trade on weekends or other days when the Fund does not
price its shares. As a result, the Fund's NAVs may change on days when
shareholders will be unable to purchase or redeem the Funds' shares.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund less any applicable sales
charge as noted in the section on "Distribution Arrangements/Sales Charges."
This is what is known as the offering price.
The Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by the Fund's Trustees.
13
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You may purchase shares of the Fund through the Distributor or through banks,
brokers and other investment representatives, who may charge additional fees and
may require higher minimum investments or impose other limitations on buying and
selling shares. If you purchase shares through an investment representative,
that party is responsible for transmitting orders by close of business and may
have an earlier cut-off time for purchase and sale requests. Consult your
investment representative or institution for specific information.
The Fund may waive its minimum purchase requirement and the Distributor may
reject a purchase order if it considers it in the best interest of the Fund and
its shareholders.
There are no minimum investment requirements with respect to investments
effected through certain automatic purchase and redemption arrangements on
behalf of customer accounts maintained at Service Organizations. The minimum
investment requirements may be waived or lowered for investments effected on a
group basis by certain other institutions and their employees, such as pursuant
to a payroll deduction plan. All funds will be invested in full and fractional
shares.
Avoid 31% Tax Withholding
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
<TABLE>
<CAPTION>
ACCOUNT TYPE MINIMUM MINIMUM SUBSEQUENT INVESTMENT
INITIAL
INVESTMENT
<S> <C> <C>
Class A, B, or C Regular $1,000 $100
Retirement IRA $250 $100
Automatic Investment Plan $250 $25
</TABLE>
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
14
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
BY REGULAR MAIL
If purchasing through your financial advisor or brokerage account, simply tell
your advisor or broker that you wish to purchase shares of the Fund and he or
she will take care of the necessary documentation. For all other purchases,
follow the instructions below.
All investments made by regular mail or express delivery, whether initial or
subsequent, should be sent to:
By Regular Mail: By Express Mail:
Republic Funds Republic Funds
PO Box 182845 3435 Stelzer Road
Columbus, OH 43218-2845 Columbus, OH 43219
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "Republic Funds."
3. Mail or deliver application and payment to the address above.
Subsequent Investments:
1. Use the investment slip attached to your account statement. Or, if
unavailable, provide the following information:
Fund
Amount invested
Account name and number
2. Make check, bank draft or money order payable to "Republic Funds".
3. Mail or deliver investment slip and payment to the address above.
Shareholder Information
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be a
United States Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call 1-800-
782-8183. Your account can generally be set up for electronic purchases within
15 days.
Call 1-800-782-8183 to arrange a transfer from your bank account.
15
<PAGE>
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, the transaction is made
through the Automated Clearing House (ACH) and may take up to eight days to
clear. There is generally no fee for ACH transactions.
BY WIRE TRANSFER
Telephone the Transfer Agent at 1-800-782-8183 for instructions. Please note
your bank will normally charge you a fee for handling this transaction.
You can add to your account by using the following convenient options. The Fund
reserves the right to change or eliminate these privileges at any time with 60
days notice.
16
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Fund from your bank account, through
payroll deduction or from your federal employment, Social Security or other
regular government checks. Automatic investments can be as little as $25, once
you've invested the $250 minimum required to open the account.
To invest regularly from your bank account:
Complete the Automatic Investment Plan portion on your Account Application. Make
sure you note:
Your bank name, address and account number
The amount you wish to invest automatically (minimum $25)
How often you want to invest (every month, 4 times a year, twice a
year or once a year)
Attach a voided personal check.
To invest regularly from your paycheck or government check:
Call 1-800-782-8183 for an enrollment form.
DIRECTED DIVIDEND OPTION
By selecting the appropriate box in the Account Application, you can elect to
receive your distributions in cash (check) or have distributions (capital gains
and dividends) reinvested in another Republic Fund without a sales charge. You
must maintain the minimum balance in each Fund into which you plan to reinvest
dividends or the reinvestment will be suspended and your dividends paid to you.
The Fund may modify or terminate this reinvestment option without notice. You
can change or terminate your participation in the reinvestment option at any
time.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Class A shares than for Class B and C shares, because
Class A shares have lower distribution expenses. Capital gains are distributed
at least annually.
Distributions are made on a per share basis regardless of how long you've owned
your shares. Therefore, if you invest shortly before the distribution date, some
of your investment will be returned to you in the form of a distribution.
17
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
When you sell Class B or Class C shares, you will be charged a fee for any
shares that have not been held for a sufficient length of time. These fees will
be deducted from the money paid to you. See the section on "Distribution
Arrangements/Sales Charges" on page [ ] for details.
INSTRUCTIONS FOR SELLING SHARES
If selling your shares through your financial adviser or broker, ask him or her
for redemption procedures. Your adviser and/or broker may have transaction
minimums and/or transaction times which will affect your redemption. For all
other sales transactions, follow the instructions below.
BY TELEPHONE
(unless you have declined telephone sales privileges on your latest application)
1. Call 1-800-782-8183 with instructions as to how you wish to
receive your funds (mail, wire, electronic transfer).
BY MAIL
(See "Selling Your Shares--Redemptions in Writing Required")
1. Call 1-800-782-8183 to request redemption forms or write a letter
of instruction indicating:
your Fund and account number
amount you wish to redeem
address where your check should be sent
account owner signature
2. Mail to: Republic Funds, PO Box 182845, Columbus, OH
43218-2845
18
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SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
BY EXPRESS DELIVERY SERVICE
(See "Selling Your Shares--Redemptions in Writing Required")
See instruction 1 above.
1. Send to: Republic Funds, co/BISYS Fund Services, Attn: T.A.
Operations, 3435 Stelzer Road, Columbus, OH 43219
WIRE TRANSFER
You must indicate this option on your application.
Your financial institution may charge a wire transfer fee.
Call 1-800-782-8183 to request a wire transfer.
If you call in your redemption request by 4 p.m. Eastern time, your payment
will normally be wired to your bank on the next business day.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be a
U.S. bank.
Your bank may charge for this service.
Call 1-800-782-8183 to request an electronic redemption.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds credited within 7 days.
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis.
The minimum withdrawal is $50. To activate this feature:
Make sure you've checked the appropriate box on the Account
Application. Or call 1-800-782-8183.
Include a voided personal check.
Your account must have a value of $10,000 or more to start
withdrawals.
If the value of your account falls below $1000, you may be asked
to add sufficient funds to bring the account back to $1000, or
the Fund may close your account and mail the proceeds to you.
19
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemption requests requiring a signature guarantee which include
each of the following:
Redemptions over $10,000
Your account registration or the name(s) in your account has
changed within the last 30 days
The check is not being mailed to the address on your account
The check is not being made payable to the owner of the
account
The redemption proceeds are being transferred to another
Fund account with a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, or credit union, or from members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are
subject to dollar limitations which must be considered when requesting their
guarantee. The Transfer Agent may reject any signature guarantee if it believes
the transaction would otherwise be improper.
20
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Transfer Agent may be liable for losses due to unauthorized transactions.
Telephone redemption privileges will be suspended for a 30-day period following
a telephone address change.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, payment on redemption
requests will be delayed until the Transfer Agent is reasonably satisfied that
the check has cleared (which may require up to 15 days from purchase date). You
can avoid this delay by purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If the Fund deems it
advisable for the benefit of all shareholders, redemption in kind will consist
of securities equal in market value to your shares. When you convert these
securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $50, the Fund may ask you to increase your balance.
If it is still below $50 after 30 days, the Fund may close your account and
send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be considered void. The check will be canceled and the money
reinvested in the Fund.
21
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
The Fund offers investors a choice among multiple classes of shares with
different sales charges and expenses. In selecting which class of shares to
purchase, you should consider, among other things, (i) the length of time you
expect to hold your investment, (ii) the amount of any applicable sales charge
imposed at the time of redemption and Rule 12b-1 fees, as noted below, (iii)
whether you qualify for any reduction or waiver of any applicable sales charge,
(iv) the various exchange privileges among the different classes of shares and
(v) the fact that Class B shares automatically convert to Class A shares after
six years. The Class A, Class B and Class C shares are offered in this
Prospectus.
This section describes the sales charges and fees you will pay as an investor in
different share classes offered by the Fund and ways to qualify for reduced
sales charges.
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Sales Charge (Load) Percentage of investments No front-end sales charge. No front-end sales charge. A
for HSBC and non-HSBC A contingent deferred sales contingent deferred sales charge
customers: charge (CDSC) may be imposed (CDSC) may be imposed on shares
HSBC non-HSBC on shares redeemed within four redeemed within one year after
---- -------- years after purchase; shares purchase.
Less than $50,000 3.25% 3.50% automatically convert to Class A
$50,000 but<$100,000 2.25% 2.50% shares after 6 years.
$100,000 but<$250,000 1.25% 1.50%
$250,000 but<$500,000 0.75% 1.00%
$500,000 and over None None
Distribution (12b-1) Fee Subject to combined annual Subject to combined annual Subject to combined annual
and Service Fees distribution and shareholder distribution and shareholder distribution and shareholder
servicing fees of up to .25% servicing fees of up to 1.00% servicing fees of up to 1.00%
annually of the Fund's total annually of the Fund's average annually of the Fund's average
average daily net assets. daily net assets. daily net assets.
Fund Expenses Lower annual expenses Higher annual expenses than Higher annual expenses than
than Class B or C shares Class A shares. Class A shares.
</TABLE>
* The Service Organization fee is being contractually waived for Class A shares
and contractually limited to .25% for Class B and Class C shares.
22
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CLASS B AND CLASS C SHARES
Class B and C shares are offered at NAV, without any up-front sales charge.
Therefore, all the money you invest is used to purchase Fund shares. However, if
you sell your Class B shares of the Fund before the fourth anniversary of
purchase, you will have to pay a contingent deferred sales charge at the time of
redemption. If you sell your Class C shares before the first anniversary of
purchase, you will pay a 1% CDSC at the time of redemption. The CDSC will be
based upon the lower of the NAV at the time of purchase or the NAV at the time
of redemption according to the schedule below. There is no CDSC on reinvested
dividends or distributions.
<TABLE>
<CAPTION>
Years Since Purchase CDSC as a % of Dollar
Amount Subject to Charge
<S> <C>
0-1 4.00%
1-2 3.00%
2-3 2.00%
3-4 1.00%
more than 4 0.00%
</TABLE>
If you sell some but not all of your Class B or C shares, certain shares not
subject to the CDSC (i.e., shares purchased with reinvested dividends) will be
redeemed first, followed by shares subject to the lowest CDSC (typically shares
held for the longest time).
23
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
The Class B CDSC is paid to the Distributor to reimburse expenses incurred in
providing distribution-related services to the Fund in connection with the sale
of Class B shares. Although Class B shares are sold without an initial sales
charge, the Distributor normally pays a sales commission of the purchase price
of Class B shares to the dealer from its own resources at the time of the sale.
The Distributor and its agents may assign their right to receive any Class B
CDSC, certain distribution and service organization fees, to an entity that
provides funding for up-front sales commission payments.
CLASS C SHARES
There is no sales charge imposed upon purchases of Class C shares, but investors
may be subject to a CDSC. Specifically, if you redeem Class C shares of the
Fund, your redemption may be subject to a 1.00% CDSC if the shares are redeemed
less than one year after the original purchase of the Class C shares. The CDSC
will be assessed on an amount equal to the lesser of the current market value or
the cost of the shares being redeemed. Unlike Class B shares, Class C shares do
not convert to Class A shares.
CONVERSION FEATURE--CLASS B SHARES
Class B shares automatically convert to Class A shares of the same
Fund after six years from the end of the month of purchase.
After conversion, your shares will be subject to the lower
distribution and shareholder servicing fees charged on Class A shares
which will increase your investment return compared to the Class B
shares.
You will not pay any sales charge or fees when your shares convert,
nor will the transaction be subject to any tax.
If you purchased Class B shares of one Fund which you exchanged for
Class B shares of another Fund, your holding period will be calculated
from the time of your original purchase of Class B shares. The dollar
value of Class A shares you receive will equal the dollar value of the
Class B shares converted.
SALES CHARGE REDUCTIONS
CLASS A SHARES
Reduced sales charges are available to shareholders with investments of $50,000
or more. In addition, you may qualify for reduced sales charges under the
following circumstances.
Letter of Intent. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount
that you intend to purchase with your letter of intent.
Rights of Accumulation. When the value of shares you already own plus
the amount you intend to invest reaches the amount needed to qualify
for reduced sales charges, your added investment will qualify for the
reduced sales charge.
24
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
SALES CHARGE WAIVERS
CLASS A SHARES
The following qualify for waivers of sales charges:
Shares purchased by investment representatives through fee-based
investment products or accounts.
Proceeds from redemptions from another mutual fund complex within 60
days after redemption, if you paid a front end sales charge for those
shares.
Reinvestment of distributions from a deferred compensation plan,
agency, trust, or custody account that was maintained by the Adviser
or its affiliates or invested in any Republic Fund.
Shares purchased for trust or other advisory accounts established with
the Adviser or its affiliates.
Shares purchased by directors, trustees, employees, and family members
of the Adviser and its affiliates and any organization that provides
services to the Funds; retired Fund trustees; dealers who have an
agreement with the Distributor; and any trade organization to which
the Adviser or the Administrator belongs.
CLASS B SHARES AND CLASS C SHARES
The CDSC will be waived under certain circumstances, including the following:
Distributions following the death or disability of shareholder.
Redemptions representing the minimum distribution from an IRA or a
Custodial Account to a shareholder who has reached age 70 1/2.
Redemptions representing the minimum from 401(k) retirement plans
where such redemptions are necessary to make distributions to plan
participants.
REINSTATEMENT PRIVILEGE
If you have sold shares and decide to reinvest in the Fund within a 60 day
period, you will not be charged the applicable sales load on amounts up to the
value of the shares you sold. You must provide a written reinstatement request
and payment within 60 days of the date your instructions to sell were processed.
25
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
DISTRIBUTION (12B-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Fund's shares. 12b-1 fees are paid from Fund assets on an ongoing basis,
and will increase the cost of your investment. The 12b-1 fees vary by share
class as follows:
Class A shares of the Fund pay a 12b-1 fee of up to 0.25% of the
average daily net assets of the Fund.
Class B and Class C shares pay a 12b-1 fee of up to .75% of the
average daily net assets of the Fund. This will cause expenses for
Class B and Class C shares to be higher and dividends to be lower than
for Class A shares.
The higher 12b-1 fee on Class B and Class C Shares, together with the
CDSC, help the Distributor sell Class B and Class C shares without an
"up-front" sales charge. In particular, these fees help to defray the
Distributor's costs of advancing brokerage commissions to investment
representatives.
In addition to the 12b-1 fees, Class A, Class B and Class C Shares are
subject to a shareholder servicing fee of up to 0.25% of the average
daily net assets of the respective classes of the Fund.
The combination of the 12b-1 fees and shareholder servicing fees will
not exceed 1.00% of the average daily net assets of the respective
classes of the Fund for the Class B and Class C Shares.
Long-term shareholders of Class B and Class C may pay indirectly more
than the equivalent of the maximum permitted front-end sales charge
due to the recurring nature of 12b-1 distribution fees.
SERVICE ORGANIZATIONS
Various banks, trust companies, broker-dealers (other than the Distributor) and
other financial organizations ("Service Organizations") may provide certain
administrative services for its customers who invests in the Fund through
accounts maintained at that Service Organization. The Fund will pay the Service
Organization a fee at an annual rate of up to .35% for Class A shares and up to
.50% for Class B and Class C shares of the average daily net asset value of
shares for which the Service Organization from time to time performs these
services. The services provided include:
receiving and processing shareholder orders
performing the accounting for the customers' sub-accounts
maintaining retirement plan accounts
answering questions and handling correspondence for individual
accounts
acting as the sole shareholder of record for its customers' accounts
issuing shareholder reports and transaction confirmations
performing daily "sweep" functions
Investors who purchase, sell or exchange shares for the Fund through a customer
account maintained at a Service Organization may be charged extra for other
services which are not specified in the servicing agreement with the
26
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
Fund but are covered under separate fee schedules provided by the Service
Organization to their customers. Customers with accounts at Service
Organizations should consult their Service Organization for information
concerning their sub-accounts. The Adviser or Administrator also may pay Service
Organizations for rendering services to shareholders sub-accounts.
27
<PAGE>
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
You can exchange your shares that have been held for at least seven days in a
Fund for shares of the same class of another Republic Fund, usually without
paying additional sales charges (see "Notes on Exchanges"). No transaction
fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable. You should
review the prospectus of the Republic Fund before making an exchange.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Republic Funds, PO Box
182845, Columbus OH 43218-2845, or by calling 1-800-782-8183. Please provide
the following information:
Your name and telephone number
The exact name on your account and account number
Taxpayer identification number (usually your Social Security number)
Dollar value or number of shares to be exchanged
The name of the Fund from which the exchange is to be made
The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
The Fund reserves the right to modify or terminate the exchange privilege upon
60 days written notice.
28
<PAGE>
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
CONTINUED
NOTES ON EXCHANGES
When exchanging from a Fund that has no sales charge or a lower sales charge to
a Fund with a higher sales charge, you will pay the difference.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
Be sure to read the Prospectus carefully of any Fund into which you wish to
exchange shares.
29
<PAGE>
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income a Fund receives in the form of interest or dividends is paid out,
less expenses, to its shareholders as dividends. Income dividends on the Growth
and Income Fund are usually paid semi-annually. Dividends on all other Funds are
paid monthly. Capital gains for all Funds are distributed at least annually.
An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.
Dividends are taxable as ordinary income as are dividends paid by the New York
Tax-Free Bond Fund that are derived from taxable investments. Taxes on capital
gains by the Funds will vary with the length of time the Fund has held the
security--not how long you have invested in the Fund.
During normal market conditions, the New York Tax-Free Bond Fund expects that
substantially all of its dividends will be excluded from gross income for
federal income tax purposes. The Fund may invest in certain securities with
interest that may be a preference item for the purposes of the alternative
minimum tax or a factor in determining whether Social Security benefits are
taxable. In such event, a portion of the Fund's dividends would not be exempt
from federal income taxes.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year. Dividends and distributions are
treated in the same manner for federal income tax purposes whether you receive
them in cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by the Fund. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements. There
is a penalty on certain pre-retirement distributions from retirement accounts.
Consult your tax adviser about the federal, state and local tax consequences in
your particular circumstances.
30
<PAGE>
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS (REPORTS):
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, PROSPECTUSES OF OTHER FUNDS IN
THE REPUBLIC FAMILY, OR REQUEST OTHER INFORMATION AND DISCUSS YOUR QUESTIONS
ABOUT THE FUNDS BY CONTACTING A BROKER OR BANK THAT SELLS THE FUNDS. OR
CONTACT THE FUNDS AT:
Republic Funds
PO Box 182845, Columbus, Ohio 43218-2845
Telephone: 1-800-782-8183
You can review and copy the Fund's reports and SAIs at the Public Reference Room
of the Securities and Exchange Commission. You can get text-only copies:
For a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102 or by electronic request at
[email protected]. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at
202-942-8090.
Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-4782.
31
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HSBC Mid Cap Fund
PO Box 182845
Columbus, Ohio 43218-2845
General and Account Information (800) 782-8183 (Toll Free)
- --------------------------------------------------------------------------------
HSBC Asset Management (Americas) Inc. BISYS Fund Services
Investment Adviser-Mid Cap Fund Administrator, Distributor and Sponsor
(an "Adviser") ("BISYS," "Administrator," "Distributor,"
or "Sponsor")
The HSBC Mid Cap Fund (the "Fund") is a series of the Republic Funds (the
"Trust"), an open-end, management investment company that currently consists of
nine series, each of which has different and distinct investment objectives and
policies. The Fund is described in this Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS ONLY
AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE
FUND DATED [_________], 2000 (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 Trust at the address and telephone number
printed above.
References in this Statement of Additional Information to the "Prospectus"
are to the Prospectus, dated [_________], 2000 of the Trust 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.
[_________], 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS....................................1
Short-Term Trading.........................................................1
Depositary Receipts........................................................1
Foreign Securities.........................................................2
Writing Covered Calls......................................................3
Stock Index Options........................................................3
Stock Index Futures Contracts..............................................4
Options on Stock Index Futures.............................................5
Risks Involving Futures Transactions.......................................7
Option Premiums............................................................7
U.S. Government Securities.................................................7
Mortgage-Related Securities................................................8
Asset-Backed Securities...................................................10
Zero Coupon Securities....................................................11
Variable and Floating Rate Demand and Master Demand Notes.................11
Loans of Portfolio Securities.............................................12
Repurchase Agreements.....................................................12
Illiquid Securities.......................................................13
Investment Company Securities.............................................14
Long-Term and Short-Term Corporate Debt Obligations.......................15
Convertible Securities....................................................15
When-Issued and Delayed-Delivery Securities...............................16
Money Market Securities...................................................16
Portfolio Turnover........................................................16
Portfolio Transactions....................................................17
INVESTMENT RESTRICTIONS............................................................18
PERFORMANCE INFORMATION............................................................20
MANAGEMENT OF THE TRUST............................................................22
Trustees and Officers.....................................................22
Compensation Table........................................................24
Investment Adviser........................................................25
Distribution Plans - Class A, Class B, and Class C........................26
The Distributor and Sponsor...............................................26
Administrative Services Plan..............................................28
Administrator.............................................................28
Fees .....................................................................28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Transfer Agent............................................................29
Custodian and Fund Accounting Agent.......................................29
Expenses .................................................................30
DETERMINATION OF NET ASSET VALUE...................................................30
PURCHASE OF SHARES.................................................................30
Exchange Privilege........................................................33
Automatic Investment Plan.................................................34
Purchases Through a Shareholder Servicing Agent or a Securities Broker....34
SALES CHARGES......................................................................35
Class A Shares............................................................35
Sales Charge Waivers......................................................35
Concurrent Purchases......................................................36
Letter of Intent..........................................................36
Right of Accumulation.....................................................37
Contingent Deferred Sales Charge ("CDSC") - Class B Shares................37
Level Load Alternative -- Class C Shares..................................38
REDEMPTION OF SHARES...............................................................39
Systematic Withdrawal Plan................................................39
Redemption of Shares Purchased Directly Through the Distributor...........39
DIVIDENDS AND DISTRIBUTIONS........................................................40
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES...............................40
TAXATION ..........................................................................42
Tax Status of the Fund....................................................42
Distributions.............................................................43
Dispositions..............................................................44
Backup Withholding........................................................44
Other Taxation............................................................45
Fund Investments..........................................................45
Alternative Minimum Tax...................................................47
OTHER INFORMATION..................................................................48
Shares of Beneficial Interest.............................................48
Independent Auditors......................................................48
Counsel ..................................................................48
FINANCIAL STATEMENTS...............................................................49
</TABLE>
ii
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of the Fund is to achieve a higher rate of
return from than that generated by the S&P 400. The Fund seeks to achieve its
objective by investing in common and preferred stock and convertible securities.
The Fund normally invests at least 65% of its total assets in equity securities
of mid-sized companies (those with market capitalizations falling within the S&P
400 Index at the time of purchase). Investments are primarily in common stocks,
preferred stocks and convertible securities.
The balance of the Fund's assets may be invested in various types of
fixed income securities and in money market instruments. Most of the Fund's
investments will be securities listed on the New York or American Stock
Exchanges or on NASDAQ and may also consist of American Depository Receipts
("ADRs") and investment company securities. In addition, the Fund may, within
certain limitations as set forth below, lend portfolio securities, enter into
repurchase agreements, invest in when-issued and delayed delivery securities and
write covered call options. The Fund may use stock index futures, related
options and options on stock indices for the sole purpose of hedging the
portfolio. The Fund's investments in fixed income securities will primarily
consist of securities issued or guaranteed by domestic corporations or
commercial banks. From time to time, the Fund may also invest up to 5% of its
total assets in the debt obligations of foreign issuers. The types of debt
obligations in which the Fund will invest include, among others, bonds, notes,
debentures, commercial paper, variable and floating rate demand and master
demand notes, zero coupon securities and asset-backed and mortgage related
securities.
The Fund intends to stay invested in the equity securities described
above to the extent practicable in light of its investment objective and
long-term investment perspective. Under ordinary market conditions, therefore,
no more than 35% of the Fund's total assets will be invested in fixed income
securities and money market instruments for purposes of meeting the Fund's
investment objective. However, for temporary defensive purposes, e.g., during
periods in which adverse market changes or other adverse economic conditions
warrant as determined by the Adviser, the Fund may invest up to 100% of its
total assets in money market instruments as described below.
Short-Term Trading. Although the Fund will not make a practice of
short- term trading, purchases and sales of securities will be made whenever
necessary or desirable in the management's view to achieve the investment
objective of the Fund. Management does not expect that in pursuing the Fund's
investment objective unusual portfolio turnover will be required and intends to
keep turnover to a minimum consistent with such investment objective. The
management believes unsettled market economic conditions during certain periods
require greater portfolio turnover in pursuing the Fund's investment objectives
than would otherwise be the case. A higher incidence of portfolio turnover will
result in greater transaction costs to the Fund.
Depositary Receipts. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued
1
<PAGE>
by a United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs, which are sometimes referred
to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe
typically by non- United States banks and trust companies that evidence
ownership of either foreign or domestic securities. GDRs are issued globally and
evidence a similar ownership arrangements. Generally, ADRs in registered form
are designed for use in the United States securities markets and EDRs and CDRs
in bearer form are designed for use in Europe and GDRs are designed for trading
in non-U.S. securities markets. A sponsored facility is established jointly by
the issuer of the underlying security and a depositary, whereas a depositary may
establish an unsponsored facility without participation by the issuer of the
deposited security. Holders of unsponsored depositary receipts generally bear
all the costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to holders of such receipts in respect of the deposited securities.
There are certain risks associated with investments in unsponsored
depositary programs. Because the non-U.S. company does not actively participate
in the creation of the depositary program, the underlying agreement for service
and payment will be between the depositary and the shareholder. The company
issuing the stock underlying the depositary receipts pays nothing to establish
the unsponsored facility, as fees for depositary receipt issuance and
cancellation are paid by brokers. Investors directly bear the expenses
associated with certificate transfer, custody and dividend payment.
In an unsponsored depositary program, there also may be several
depositaries with no defined legal obligations to the non-U.S. company. The
duplicate depositaries may lead to marketplace confusion because there would be
no central source of information to buyers, sellers and intermediaries. The
efficiency of centralization gained in a sponsored program can greatly reduce
the delays in delivery of dividends and annual reports.
In addition, with respect to all depositary receipts, there is always
the risk of loss due to currency fluctuations.
Foreign Securities. Investment in securities of foreign issuers may
subject the Fund to risks of foreign political, economic and legal conditions
and developments that an investor would not encounter investing in equity
securities issued by U.S. domestic companies. Such conditions or developments
might include favorable or unfavorable changes in currency exchange rates,
exchange control regulations (including currency blockage), expropriation of
assets of companies in which the Fund invests, nationalization of such
companies, imposition of withholding taxes on dividend or interest payments, and
possible difficulty in obtaining and enforcing judgments against a foreign
issuer. Also, foreign securities may not be as liquid as, and may be more
volatile than, comparable domestic common stocks. In addition, foreign
securities markets are generally not as developed or efficient as those in the
United States. There is generally less government supervision and regulation of
foreign securities exchanges, brokers and companies than in the United States.
Furthermore, issuers of foreign securities are subject to
2
<PAGE>
different, often less comprehensive, accounting, reporting and disclosure
requirements than domestic issuers. The Fund, in connection with its purchases
and sales of foreign securities, other than securities denominated in United
States Dollars, is influenced by the returns on the currencies in which the
securities are denominated. Currency risk is the risk that changes in foreign
exchange rates will affect, favorably or unfavorably, the value of foreign
securities held by the Fund. In a period when the U.S. Dollar generally rises
against foreign currencies, the value of foreign stocks for a U.S. investor will
be diminished. By contrast, in a period when the U.S. Dollar generally declines,
the value of foreign securities will be enhanced. Further, brokerage costs in
purchasing and selling securities in foreign securities markets generally are
higher than such costs in comparable transactions in domestic securities
markets, and foreign custodial costs relating to the Fund's portfolio securities
are higher than domestic custodial costs.
Investment in emerging market countries presents risks in greater
degree than, and in addition to, those presented by investment in foreign
issuers in general. A number of emerging market countries restrict, to varying
degrees, foreign investment in stocks. Repatriation of investment income,
capital, and the proceeds of sales of 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 Fund. Inflation and rapid fluctuations in
inflation rates have had and may continue to have a negative effect on the
economies and securities markets of certain emerging market countries.
Writing Covered Calls. The Fund may seek to earn premiums by writing
covered call options against some of the securities in its portfolio provided
the options are listed on a national securities exchange. A call option is
"covered" if the Fund owns the underlying securities covered by the call. The
purchaser of the call option obtains the right to acquire these securities at a
fixed price (which may be less than, the same as, or greater than the current
market price of such securities) during a specified period of time. The Fund, as
the writer of the option, forgoes the opportunity to profit from an increase in
the market price of the underlying security above the exercise price except
insofar as the premium represents such a profit.
The Fund retains the risk of loss should the price of the underlying
security decline below the purchase price of the underlying security minus the
premium. The aggregate value of the securities subject to options written by the
Fund may not exceed 25% of the value of the Fund's net assets.
To the extent permitted below, the Fund may engage in transactions for
the purchase and sale of stock index options, stock index futures contracts and
options on stock index futures.
Stock Index Options. The Fund may purchase and write put and call
options on stock indexes listed on national securities exchanges for the purpose
of hedging its portfolio. A stock index fluctuates with changes in the market
values of the stocks included in the index. Some stock index options are based
on a broad market index such as the New York Stock Exchange Composite Index, or
a narrower market index such as the Standard & Poor's 100. Indexes are also
based on an industry or market segment such as the American Stock Exchange Oil &
Gas
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Index or the Computer and Business Equipment Index.
Options on stock indexes are similar to options on stock, except that
(a) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (b) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (i) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (ii) a fixed "index multiplier." Receipt
of this cash amount will depend upon the difference between the closing level of
the stock index upon which the option is based and the exercise price of the
option. The amount of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. The writer may
offset its position in stock index options prior to expiration by entering into
a closing transaction on an exchange or it may let the option expire
unexercised.
Stock Index Futures Contracts. The Fund may enter into stock index
futures contracts in order to protect the value of its common stock investments.
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
As the aggregate market value of the stocks in the index changes, the value of
the index also will change. In the event that the index level rises above the
level at which the stock index futures contract was sold, the seller of the
stock index futures contract will realize a loss determined by the difference
between the two index levels at the time of expiration of the stock index
futures contract, and the purchaser will realize a gain in that amount. In the
event the index level falls below the level at which the stock index futures
contract was sold, the seller will recognize a gain determined by the difference
between the two index levels at the expiration of the stock index futures
contract, and the purchaser will realize a loss in that amount. Stock index
futures contracts expire on a fixed date, currently one to seven months from the
date of the contract, and are settled upon expiration of the contract. The Fund
will sell stock index futures only if the amount resulting from the
multiplication of the then current level of the indices upon which such futures
contracts are based, and the number of futures contracts which would be
outstanding, do not exceed one-third of the value of the Fund's net assets.
When a futures contract is executed, each party deposits with a broker
or in a segregated custodial account up to 5% of the contract amount, called the
"initial margin," and during the term of the contract, the amount of the deposit
is adjusted based on the current value of the futures contract by payments of
variation margin to or from the broker or segregated account.
The Fund intends to utilize stock index futures contracts only for the
purpose of attempting to protect the value of its common stock portfolio in the
event of a decline in stock prices and, therefore, usually will be the seller of
stock index futures contracts. This risk
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management strategy is an alternative to selling securities in a portfolio and
investing in money market instruments. Also, stock index futures contracts may
be purchased to protect the Fund against an increase in prices of stocks which
the Fund intends to purchase. If the Fund is unable to invest its cash (or cash
equivalents) in stock in an orderly fashion, the Fund could purchase a stock
index futures contract which may be used to offset any increase in the price of
the stock. However, it is possible that the market may decline instead,
resulting in a loss on the stock index futures contract. If the Fund then
concludes not to invest in stock at that time, or if the price of the securities
to be purchased remains constant or increases, the Fund will realize a loss on
the stock index futures contract that is not offset by a reduction in the price
of securities purchases. The Fund also may buy or sell stock index futures
contracts to close out existing futures positions.
Options on Stock Index Futures. The Fund may purchase and write call
and put options on stock index futures contracts which are traded on a United
States or foreign exchange or board of trade. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the option period. Upon exercise of the option, the writer of the option is
obligated to convey the appropriate futures position to the holder of the
option. If an option is exercised on the last trading day before the expiration
date of the option, a cash settlement will be made in an amount equal to the
difference between the closing price of the futures contract and the exercise
price of the option.
The Fund may use options on stock index futures contracts solely for
bona fide hedging or other appropriate risk management purposes. If the Fund
purchases a call (put) option on a futures contract, it benefits from any
increase (decrease) in the value of the futures contract, but is subject to the
risk of decrease (increase) in value of the futures contract. The benefits
received are reduced by the amount of the premium and transaction costs paid by
the Fund for the option. If market conditions do not favor the exercise of the
option, the Fund's loss is limited to the amount of such premium and transaction
costs paid by the Fund for the option.
If the Fund writes a call (put) option on a stock index futures
contract, the Fund receives a premium but assumes the risk of a rise (decline)
in value in the underlying futures contract. If the option is not exercised, the
Fund gains the amount of the premium, which may partially offset unfavorable
changes due to interest rate or currency exchange rate fluctuations in the value
of the securities held or to be acquired for the Fund's portfolio. If the option
is exercised, the Fund will incur a loss, which will be reduced by the amount of
the premium it receives. However, depending on the degree of correlation between
changes in the value of its portfolio securities (or the currency in which they
are denominated) and changes in the value of futures positions, the Fund's
losses from writing options on futures may be partially offset by favorable
changes in the value of portfolio securities or in the cost of securities to be
acquired.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on
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such options will be subject to the development and maintenance of a liquid
market. The Fund will sell options on futures and on stock indices only to close
out existing hedge positions.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series. Over-the-counter ("OTC") options are not generally terminable at
the option of the writer and may be closed out only by negotiation with the
holder. There is also no assurance that a liquid secondary market on an exchange
will exist. In addition, because OTC options are issued in privately negotiated
transactions exempt from registration under the Securities Act of 1933, there is
no assurance that the Fund will succeed in negotiating a closing out of a
particular OTC option at any particular time. If the Fund, as covered call
option writer, is unable to effect a closing purchase transaction in the
secondary market or otherwise, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise.
The staff of the United States Securities and Exchange Commission (the
"SEC") has taken the position that purchased options not traded on registered
domestic securities exchanges and the assets used as cover for written options
not traded on such exchanges are generally illiquid securities. However, the
staff has also opined that, to the extent a mutual fund sells an OTC option to a
primary dealer that it considers creditworthy and contracts with such primary
dealer to establish a formula price at which the fund would have the absolute
right to repurchase the option, the fund would only be required to treat as
illiquid the portion of the assets used to cover such option equal to the
formula price minus the amount by which the option is in-the-money. Pending
resolution of the issue, the Fund will treat such options and, except to the
extent permitted through the procedure described in the preceding sentence,
assets as subject to the Fund's limitation on investments in securities that are
not readily marketable.
The Fund's successful use of stock index futures contracts, options on
such contracts and options on indices depends upon the Adviser's ability to
predict the direction of the market and is subject to various additional risks.
The correlation between movements in the price of the futures contract and the
price of the securities being hedged is imperfect and the risk from imperfect
correlation increases in the case of stock index futures as the composition of
the Fund's portfolio diverges from the composition of the relevant index. Such
imperfect correlation may prevent the Fund from achieving the intended hedge or
may expose the Fund to risk of loss. In addition, if the Fund purchases futures
to hedge against market advances before it can invest in common stock in an
advantageous manner and the market declines, the Fund might create a loss on the
futures contract. Particularly in the case of options on stock index futures and
on stock indices, the Fund's ability to establish and maintain positions will
depend on market liquidity. The successful utilization of hedging and risk
management transactions requires skills different form those needed in the
selection of the Fund's portfolio securities. The Fund believes that the Adviser
possesses the skills necessary for the successful utilization of hedging and
risk management transactions.
Positions in options, futures and options on futures may be closed out
only on an
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exchange which provides a secondary market for such purposes. There can be no
assurance that a liquid secondary market will exist for any particular option,
futures contract or related option at any specific time. Thus, it may not be
possible to close such an option or futures position which could have an adverse
impact on the Fund's ability to effectively hedge its securities. The Fund will
enter into an option or futures position only if there appears to be a liquid
secondary market for such options or futures.
Pursuant to undertakings with the Commodity Futures Trading Commission
("CFTC"), (i) the Fund has agreed to restrict the use of futures and related
options only for the purpose of hedging, as such term is defined in the CFTC's
rules and regulations;(ii) the Fund will not enter into futures and related
transactions if, immediately thereafter, the sum of the margin deposits on the
Fund's existing futures and related options positions and the premiums paid for
related options would exceed 5% of the market value of the Fund's total assets
after taking into account unrealized profits and unrealized losses on any such
contract; (iii) the Fund will not market, and is not marketing, itself as a
commodity pool or otherwise as a vehicle for trading in commodity futures and
related options; and (iv) the Fund will segregate assets to cover the futures
and options.
Risks Involving Futures Transactions. Transactions by the Fund in
futures contracts and options thereon involve certain risks. One risk in
employing futures contracts and options thereon to protect against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in the Fund's
portfolio (the portfolio securities will not be identical to the securities
underlying the futures contracts). In addition, commodity exchanges generally
limit the amount of fluctuation permitted in futures contract and option prices
during a single trading day, and the existence of such limits may prevent the
prompt liquidation of futures and option positions in certain cases. Inability
to liquidate positions in a timely manner could result in the Fund incurring
larger losses than would otherwise be the case.
Option Premiums. In order to comply with certain state securities
regulations, the Fund has agreed to limit maximum premiums paid on put and call
options on other than futures contracts to less than 2% of the Fund's net assets
at any one time.
U.S. Government Securities. The Fund may invest in all types of
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities or instrumentalities, including U.S.
Treasury obligations with varying interest rates, maturities and dates of
issuance, such as U.S. Treasury bills (maturities of one year or less) U.S.
Treasury notes (generally maturities of one to ten years) and U.S. Treasury
bonds (generally maturities of greater than ten years) and obligations issued or
guaranteed by U.S. Government agencies or which are supported by the full faith
and credit pledge of the U.S. Government. In the case of U.S. Government
obligations which are not backed by the full faith and credit pledge of the
United States, the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States in the event the agency or instrumentality is
unable to meet its commitments. Such securities
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may also include securities for which the payment of principal and interest is
backed by an irrevocable letter of credit issued by the U.S. Government, its
agencies, authorities or instrumentalities and participations in loans made to
foreign governments or their agencies that are substantially guaranteed by the
U.S. Government (such as Government Trust Certificates). See "Mortgage-Related
Securities" and "Asset-Backed Securities" below.
Mortgage-Related Securities. The Fund may, consistent with its
investment objective and policies, invest in mortgage-related securities.
Mortgage-related securities, for purposes of the Fund's Prospectus and
this SAI, represent pools of mortgage loans assembled for sale to investors by
various governmental agencies such as the Government National Mortgage
Association and government-related organizations such as the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation, as well as
by nongovernmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If the Fund purchases a mortgage-related security
at a premium, that portion may be lost if there is a decline in the market value
of the security whether resulting from changes in interest rates or prepayments
in the underlying mortgage collateral. As with other interest- bearing
securities, the prices of such securities are inversely affected by changes in
interest rates. However, though the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true since in
periods of declining interest rates the mortgages underlying the securities are
prone to prepayment. For this and other reasons, a mortgage- related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
security's return to the Fund. Similarly, because the average life of mortgage
related securities may lengthen with increases in interest rates, the portfolio
weighted average life of the mortgage-related securities in which the Fund
invests may at times lengthen due to this effect. Under these circumstances, the
Adviser may, but is not required to, sell securities in order to maintain an
appropriate portfolio average life.
Regular payments received in respect of mortgage-related securities
include both interest and principal. No assurance can be given as to the yield
and total return the Fund will receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities,
and among the securities that they issue. Mortgage-related securities created by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes"), which are guaranteed as
to the timely payment of principal and interest and such guarantee is backed by
the full faith and credit of the United States. GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA certificates also are supported by the authority of GNMA to borrow funds
from the U.S. Government to make payments under its guarantee. Mortgage-related
securities issued by the
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Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States. The FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage- related securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC
Mortgage Participation Certificates (also known as "Freddie Macs" or "PCs"). The
FHLMC is a corporate instrumentality of the United States, created pursuant to
an Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie
Macs are not guaranteed by the United States or by any Federal Home Loan Banks
and do not constitute a debt or obligation of the United States or of any
Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of
interest, which is guaranteed by the FHLMC. The FHLMC currently guarantees
timely payment of interest and either timely payment of principal or eventual
payment of principal depending upon the date of issue. When the FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due based on
its guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
In addition to GNMA, FNMA or FHLMC certificates, through which the
holder receives a share of all interest and principal payments from the
mortgages underlying the certificate, the Fund also may invest in mortgage
pass-through securities, where all interest payments go to one class of holders
("Interest Only Securities" or "IOs") and all principal payments go to a second
class of holders ("Principal Only Securities" or "POs"). These securities are
commonly referred to as mortgage-backed security strips or MBS strips. The
yields to maturity on IOs and POs are particularly sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets, and principal payments may have a material effect on yield to maturity.
If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund may not fully recoup its initial investment
in IOs. Conversely, if the underlying mortgage assets experience less than
anticipated prepayments of principal, the return on POs could be adversely
affected. The Fund will treat IOs and POs as illiquid securities except for IOs
and POs issued by U.S. Government agencies and instrumentalities backed by
fixed-rate mortgages, whose liquidity is monitored by the Adviser subject to the
supervision of the Board of Trustees.
The Fund may also invest in certain Collateralized Mortgage Obligations
("CMOs") and Real Estate Mortgage Investment Conduits ("REMICs") which are
hybrid instruments with characteristics of both mortgage-backed bonds and
mortgage pass-through securities. Interest and prepaid principal on a CMO or
REMIC are paid monthly or semi-annually. CMOs and REMICs 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. CMOs and
REMICs are structured into multiple classes, with each class bearing a different
expected maturity. Payments of principal, including prepayments, are first
returned to investors holding the shortest maturity class; investors holding the
longer maturity classes generally receive principal only after the earlier
classes have been retired. To the extent a particular CMO or
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REMIC is issued by an investment company, the Fund's ability to invest in such
CMOs or REMICs will be limited. The Fund will not invest in the residual
interests of REMICs.
The Adviser expects that new types of mortgage-related securities may
be developed and offered to investors. The Adviser will, consistent with the
Fund's investment objectives, policies and quality standards, consider making
investments in such new types of mortgage-related securities.
The yield characteristics of mortgage-related securities differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if the Fund purchases a
security at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Alternatively, if
the Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity.
Like other bond investments, the value of mortgage-backed securities
will tend to rise when interest rates fall and to fall when interest rates rise.
Their value may also be affected by changes in the market's perception of the
creditworthiness of the entity issuing or guaranteeing them or by changes in
government regulations and tax policies. The magnitude of these fluctuations
generally will be greater when the average maturity of the Fund's portfolio
securities is longer.
Assumptions generally accepted by the industry concerning the
probability of early payment may be used in the calculation of maturities for
debt securities that contain put or call provisions, sometimes resulting in a
calculated maturity different than the stated maturity of the security.
Asset-Backed Securities. Through the use of trusts and special purpose
subsidiaries, various types of assets, primarily home equity loans and
automobile and credit card receivables, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above or in
a pay-through structure similar to the collateralized mortgage structure.
Consistent with the Fund's investment objectives, policies and quality
standards, the Fund may invest in these and other types of asset-backed
securities which may be developed in the future.
Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these
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securities. The risks associated with asset-backed securities are often reduced
by the addition of credit enhancements as a letter of credit from a bank, excess
collateral or a third-party guarantee.
Zero Coupon Securities. The Fund may invest in zero coupon securities.
A zero coupon security pays no interest to its holder during its life and is
sold at a discount to its face value at maturity. The market prices of zero
coupon securities generally are more volatile than the market prices of
securities that pay interest periodically and are more sensitive to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
The Fund may invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently. Under the STRIPS (Separate Trading of
Registered Interest and Principal of Securities) program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.
Current Federal income tax law requires that a holder of a zero coupon
security report as income each year the portion of the original issue discount
on such security that accrues that year, even though the holder receives no cash
payments of interest during the year.
Variable and Floating Rate Demand and Master Demand Notes. The Fund
may, from time to time, buy variable or floating rate demand notes issued by
corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity over one year
but carry with them the right of the holder to put the securities to a
remarketing agent or other entity at designated time intervals and on specified
notice. The obligation of the issuer of the put to repurchase the securities may
be backed by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Generally, the remarketing agent will adjust the interest rate every
seven days (or at other specified intervals) in order to maintain the interest
rate at the prevailing rate for securities with a seven-day or other designated
maturity. The Fund's investment in demand instruments which provide that the
Fund will not receive the principal note amount within seven days' notice, in
combination with the Fund's other investments which are not readily marketable,
will be limited to an aggregate total of 15% of the Fund's net assets.
The Fund may also buy variable rate master demand notes. The terms of
the obligations permit the Fund to invest fluctuating amounts at varying rates
of interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount and the borrower may repay up to the full amount of the note
without penalty. The notes may or may not be backed by bank letters of credit.
Because the notes are direct lending arrangements between the Fund and the
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them, although they are redeemable (and, thus,
immediately repayable by the borrower) at principal amount, plus
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accrued interest, at any time. In connection with any such purchase and on an
ongoing basis, the Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes make demand
simultaneously. While master demand notes, as such, are not typically rated by
credit rating agencies, the Fund may, under its minimum rating standards, invest
in them only if, at the time of an investment, the issuer meets the criteria set
forth in this Prospectus for investment in money market instruments.
Loans of Portfolio Securities. The Fund may, subject to the
restrictions set forth under "Investment Restrictions," make loans of portfolio
securities to brokers, dealers and financial institutions if cash or cash
equivalent collateral, including letters of credit, equal to at least 102% of
the current market value of the securities loaned (including accrued dividends
and interest thereon) plus the interest payable with respect to the loan is
maintained by the borrower with the lending Fund in a segregated account. There
may be risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially. In determining whether to lend a security to
a particular broker, dealer or financial institution, the Adviser will consider
all relevant facts and circumstances, including the creditworthiness of the
broker, dealer or financial institution and whether the income to be earned from
the loan justifies the attendant risks. The Fund will not enter into any
portfolio security lending arrangement having a duration of longer than one
year. Any securities which the Fund may receive as collateral will not become
part of the Fund's portfolio at the time of the loan and, in the event of a
default by the borrower, the Fund will, if permitted by law, dispose of such
collateral except for such part thereof which is a security in which the Fund is
permitted to invest. During the time securities are on loan, the borrower will
pay the Fund an amount equal to any accrued income on those securities, and the
Fund may invest the cash collateral and earn additional income or receive an
agreed upon fee from a borrower which has delivered cash equivalent collateral.
The Fund will not loan securities having an aggregate value which
exceeds 33 1/3% of the current value of the Fund's total assets. Loans of
securities will be subject to termination at the lender's or the borrower's
option. The Fund may pay reasonable administrative and custodial fees in
connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Fund, its investment adviser or subadviser.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements, whereby the seller agrees to repurchase such securities
at the Fund's cost plus interest within a specified time (generally one day).
While repurchase agreements involve certain risks not associated with direct
investments in the underlying securities, the Fund will follow procedures
designed to minimize such risks. These procedures include effecting repurchase
transactions only with large, well-capitalized banks and registered
broker-dealers having creditworthiness determined by the Adviser to be
substantially equivalent to that of issuers of debt securities rated investment
grade. In addition, the Fund's repurchase agreements
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will provide that the value of the collateral underlying the repurchase
agreement will always be at least equal to the repurchase price, including any
accrued interest earned on the repurchase agreement, and that the Fund's
custodian will take possession of such collateral. In the event of a default or
bankruptcy by the seller, the Fund will seek to liquidate such collateral. The
Adviser will continually monitor the value of the underlying securities to
ensure that their value always equals or exceeds the repurchase price plus
accrued interest. However, the exercise of the Fund's right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the Fund could suffer a loss. Repurchase agreements
are considered to be loans by an investment company under the 1940 Act. It is
the current policy of the Fund not to enter into repurchase agreements exceeding
in the aggregate 10% of the market value of the Fund's total assets.
Repurchase agreements may involve certain risks. If the seller in the
transaction becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code, recent amendments to the Bankruptcy Code permit the Fund to
exercise a contractual right to liquidate the underlying securities. However, if
the seller is a stockbroker or other entity not afforded protection under the
Bankruptcy Code, an agency having jurisdiction over the insolvent entity may
determine that the Fund does not have the immediate right to liquidate the
underlying securities. If the seller defaults, the Fund might incur a loss if
the value of the underlying securities declines. The Fund may also incur
disposition costs in connection with the liquidation of the securities. While
the Fund's management acknowledges these risks, it is expected that they can be
controlled through selection criteria established by the Board of Trustees and
monitoring procedures.
Illiquid Securities. The Fund will not invest in illiquid securities if
immediately after such investment more than 15% of the Fund's net assets (taken
at market value) would be invested in such securities. Historically, illiquid
securities have included securities subject to contractual or legal restrictions
on resale because they have not been registered under the Securities Act of
1933, as amended ("Securities Act"), securities that are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities that have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted securities in order to
dispose of them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial
13
<PAGE>
paper, foreign securities, municipal securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on an issuer's ability to honor a
demand for repayment. The fact that there are contractual or legal restrictions
on resale to the general public or to certain institutions may not be indicative
of the liquidity of such investments.
The Fund may also invest in restricted securities issued under Section
4(2) of the Securities Act, which exempts from registration "transactions by an
issuer not involving any public offering." Section 4(2) instruments are
restricted in the sense that they can only be resold through the issuing dealer
and only to institutional investors; they cannot be resold to the general public
without registration. Restricted securities issued under Section 4(2) of the
Securities Act will be treated as illiquid and subject to the Fund's investment
restriction on illiquid securities.
The Commission has adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restrictions on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act applicable to resales of certain
securities to qualified institutional buyers. The Adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
will expand further as a result of this regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the National Association of Securities Dealers, Inc. (the "NASD").
Consequently, it is the intent of the Fund to invest, pursuant to procedures
established by the Board of Trustees and subject to applicable investment
restrictions, in securities eligible for resale under Rule 144A which are
determined to be liquid based upon the trading markets for the securities.
The Adviser will monitor the liquidity of restricted securities in the
Fund's portfolio under the supervision of the Trustees. In reaching liquidity
decisions, the Adviser will consider, among other things, the following factors:
(1) the frequency of trades and quotes for the security over the course of six
months or as determined in the discretion of the Adviser; (2) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers over the course of six months or as determined in the
discretion of the Adviser; (3) dealer undertakings to make a market in the
security; (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and (5) other factors, if
any, which the Adviser deems relevant. The Adviser will also monitor the
purchase of Rule 144A securities to assure that the total of all Rule 144A
securities held by the Fund does not exceed 15% of the respective Fund's average
daily net assets. Rule 144A securities which are determined to be liquid based
upon their trading markets will not, however, be required to be included among
the securities considered to be illiquid for purposes of Investment Restriction
No. 9.
Investment Company Securities. The Fund may invest up to 10% of its
total assets in securities issued by other investment companies. Such securities
will be acquired by the Fund within the limits prescribed by the Investment
Company Act of 1940, as amended (the "1940
14
<PAGE>
Act"), which include a prohibition against a Fund investing more than 10% of the
value of its total assets in such securities. Investors should recognize that
the purchase of securities of other investment companies results in duplication
of expenses such that investors indirectly bear a proportionate share of the
expenses of such companies including operating costs, and investment advisory
and administrative services fees. The Fund may not invest more than 5% of its
total assets in the securities of any one investment company.
Long-Term and Short-Term Corporate Debt Obligations. The Fund may
invest in U.S. dollar-denominated debt obligations issued or guaranteed by U.S.
corporations or U.S. commercial banks, U.S. dollar-denominated obligations of
foreign issuers and debt obligations of foreign issuers denominated in foreign
currencies. Such debt obligations include, among others, bonds, notes,
debentures, commercial paper and variable rate demand notes. The bank
obligations in which the Fund may invest are certificates of deposit, bankers'
acceptances, and fixed time deposits. The Adviser, in choosing corporate debt
securities on behalf of the Fund will evaluate each issuer based on (i) general
economic and financial conditions; (ii) the specific issuer's (a) business and
management, (b) cash flow, (c) earnings coverage of interest and dividends, (d)
ability to operate under adverse economic conditions, (e) fair market value of
assets, and (f) in the case of foreign issuers, unique political, economic or
social conditions applicable to such issuer's country; and, (iii) other
considerations the Adviser deems appropriate.
The Fund will not purchase corporate debt securities rated below Baa by
Moody's Investors Service ("Moody's") or BBB by Standard & Poor's Corporation
("S&P") or to the extent certain U.S. or foreign debt obligations are unrated or
rated by other rating agencies, result in comparable quality. While "Baa"/"BBB"
and comparable unrated securities may produce a higher return than higher rated
securities, they are subject to a greater degree of market fluctuation and
credit risk than the higher quality securities in which the Fund may invest and
may be regarded as having speculative characteristics as well.
After purchase by the Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require a sale of such security by the Fund. However, the
Adviser will consider such event in its determination of whether the Fund should
continue to hold the security. A security which has had its rating downgraded or
revoked may be subject to greater risk of principal and income, and often
involve greater volatility of price, than securities in the higher rating
categories. Such securities are also subject to greater credit risks (including,
without limitation, the possibility of default by or bankruptcy of the issuers
of such securities) than securities in higher rating categories.
Investment in obligations of foreign issuers may present a greater
degree of risk than investment in domestic securities because of less publicly
available financial and other information, less securities regulation, potential
imposition of foreign withholding and other taxes, war, expropriation or other
adverse governmental actions.
Convertible Securities. The Fund may invest in convertible securities
which have characteristics similar to both fixed income and equity securities.
Convertible securities pay a stated rate of interest and generally are
convertible into the issuer's common stock at a stated
15
<PAGE>
conversion price prior to call or redemption. Because of the conversion feature,
the market value of convertible securities tends to move together with the
market value of the underlying stock. As a result, the Fund's selection of
convertible securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provisions.
When-Issued and Delayed-Delivery Securities. The Fund may purchase
securities on a when-issued or delayed-delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the transaction. The when-issued securities are subject to market fluctuation
and no interest accrues to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing on a
when-issued basis is a form of leveraging and can involve a risk that the yields
available in the market when the delivery takes place may actually be higher
than those obtained in the transaction itself in which case there could be an
unrealized loss at the time of delivery.
The Fund will maintain liquid assets in segregated accounts with its
custodian in an amount at least equal in value to the Fund's commitments to
purchase when-issued securities. If the value of these assets declines, the Fund
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
Money Market Securities. The Fund's investments in money market
instruments will consist of (i) short-term obligations of the U.S. Government,
its agencies and instrumentalities; (ii) other short-term debt securities rated
A or higher by Moody's or S&P or, if unrated, of comparable quality in the
opinion of the Adviser; (iii) commercial paper, including master demand notes;
(iv) bank obligations, including certificates of deposit, bankers' acceptances
and time deposits; and (v) repurchase agreements.
PORTFOLIO TURNOVER
The Adviser manages the Fund 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 Fund will not trade for
short-term profits, but when circumstances warrant, investments may be sold
without regard to the length of time held. The primary consideration in placing
portfolio security transactions with broker-dealers for execution is to obtain,
and maintain the availability of, execution at the most favorable prices and in
the most effective manner possible. The Adviser engages in portfolio trading for
the Fund if it believes a transaction net of costs (including custodian charges)
will help achieve the investment objective of the Fund. In managing the Fund's
portfolio, the Adviser seeks to take advantage of market developments, yield
disparities and variations in the creditworthiness of issuers. Expenses to the
Fund, including brokerage commissions, and the realization of capital gains
which are taxable to the Fund's shareholders tend to increase as the portfolio
turnover increases.
16
<PAGE>
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policy
established by the Trustees, the Adviser is primarily responsible for portfolio
decisions and the placing of portfolio transactions. In placing orders, it is
the policy of the Fund to obtain the best results taking into account 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 involved. Brokerage may be allocated to the Distributor to the extent
and in the manner permitted by applicable law, provided that in the judgment of
the investment adviser the use of the Distributor is likely to result in an
execution at least as favorable as that of other qualified brokers. While the
Adviser generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available.
Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by its
Adviser. Such other investment clients may invest in the same securities as the
Fund. When purchases or sales of the same security are made at substantially the
same time on behalf of such other clients, transactions are averaged as to price
and available investments allocated as to amount, in a manner which the Adviser
believes to be equitable to each client, including the Fund. In some instances,
this investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or sold for the Fund. To the extent
permitted by law, the Adviser may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for such other
investment clients in order to obtain best execution.
Generally, money market securities are traded on a net basis and do not
involve brokerage commissions. Under the 1940 Act, persons affiliated with HSBC
Bank, the Adviser, the Fund or BISYS Fund Services are prohibited from dealing
with the Fund as a principal in the purchase and sale of securities except in
accordance with regulations adopted by the Securities and Exchange Commission.
The Fund may purchase Municipal Obligations from underwriting syndicates of
which the Distributor or other affiliate is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act. Under the
1940 Act, persons affiliated with the Adviser, the Fund or BISYS Fund Services
may act as a broker for the Fund. In order for such persons to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by such persons must be reasonable and fair compared to the
commissions, fees or other remunerations paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow the affiliate to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arms-length
transaction. The Trustees of the Trust regularly review the commissions paid by
the Fund to affiliated brokers. The Fund will not do business with nor pay
commissions to affiliates of the Adviser in any portfolio transactions where
they act as principal.
17
<PAGE>
As permitted by Section 28(e) of the "Securities Exchange Act of 1934
(the "1934 Act") the Adviser may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the 1934 Act) to the
Adviser an amount of disclosed 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.
The Adviser may, in circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to the Adviser. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the view and information of securities firms.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, the
Adviser may consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund. The Adviser may
cause the Fund to pay commissions higher than another broker-dealer would have
charged if the Adviser believes the commission paid is reasonable in relation to
the value of the research services incurred by the Adviser.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions with
respect to the Fund which may not be changed without approval by holders of a
"majority of the outstanding shares" of the 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" of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities" of the Fund. The term "voting securities" as used in this
paragraph has the same meaning as in the 1940 Act.
The Trust, on behalf of the Fund, may not:
(1) borrow money, except that as a temporary measure for extraordinary
or emergency purposes, the Fund may borrow from banks in an amount not to exceed
1/3 of the value of the net assets of the Fund including the amount borrowed
(moreover, the Trust (on behalf of the Fund) may not purchase any securities at
any time at which borrowings exceed 5% of the total assets of the Fund) taken in
each case at market value;
(2) purchase any security or evidence of interest therein on margin,
except that the Trust may obtain such short-term credit for the Fund as may be
necessary for the clearance of purchases and sales of securities;
(3) underwrite securities issued by other persons, except insofar as
the Trust may technically be deemed an underwriter under the Act of 1933, as
amended (the "1933 Act"), in selling a portfolio security for the Fund;
18
<PAGE>
(4) make loans to other persons except (a) through the lending of
securities held by the Fund, but not in excess of 1/3 of the Fund's net assets
taken at market value, (b) through the use of fixed time deposits or repurchase
agreements or the purchase of short term obligations, (c) by purchasing all or a
portion of an issue of debt securities of types commonly distributed privately
to financial institutions; for purposes of this Investment Restriction (4) the
purchase of short-term commercial paper or a portion of an issue of debt
securities which are part of an issue to the public shall not be considered the
making of a loan;
(5) purchase or sell real estate (including limited interests but
excluding securities secured by real estate interests therein), interests in
oil, gas or mineral leases, or commodity contracts in the ordinary course of
business the Trust reserves the freedom of action to hold and to sell for the
real estate acquired as a result of its ownership of securities);
(6) concentrate its investments in any particular industry except for
obligations of the U.S. Government and domestic banks), but it is deemed
appropriate for the achievement of the Fund's investment objective, up to 25% of
the assets of the Fund (taken at value at the time of each investment) may be
invested in any one;
(7) 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, except as appropriate to evidence a debt
incurred without violating Investment Restriction (1) above;
(8) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the net assets of the Fund (taken at market value);
(9) 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;
(10) invest for the purpose of exercising control or management;
(11) purchase securities issued by any registered 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 and except when such purchase, though not made in the open market, is
part of a plan of merger or consolidation; provided, however, that the Trust (on
behalf of the Fund) will not purchase the securities of any registered
investment company if such purchase at the time thereof would cause more than
10% of the total assets of the Fund (taken at the greater of cost or market
value) to be invested in the securities of such issuers or would cause more than
3% of the outstanding voting securities of any such issuer to be held by the
Fund; and provided, further, that the Fund shall not purchase securities issued
by any open-end investment company (for purposes of this clause (11), securities
of foreign banks shall be treated as investment company securities except that
debt securities and nonvoting preferred stock of foreign banks are not subject
to the 10% limitation described herein). (The
19
<PAGE>
Trust, on behalf of the Fund, has no current intention of investing in the
obligations of foreign banks.);
(12) taken together with any investments described in clause (15)
below, invest more than 10% of the net assets of the Fund in securities that are
not readily marketable, including debt securities for which there is no
established market and fixed time deposits and repurchase agreements maturing in
more than seven days;
(13) purchase or retain 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 director of the Adviser, if after the purchase of
the securities of such issuer by the Trust, on behalf of the Fund, 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;
(14) write, purchase or sell any put or call option or any combination
thereof;
(15) taken together with any investments described in clause (12)
above, invest in securities which are subject to legal or contractual
restrictions on resale (other than fixed time deposits and repurchase agreements
maturing in not more than seven days) if, as a result thereof, more than 10% of
the net assets of the Fund, (taken at market value) would be so invested
(including fixed time deposits and repurchase agreements maturing in more than
seven days);
(16) purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of such issuer to be
held for the Fund; or
(17) make short sales of securities or maintain a short position,
unless at all times when a short position is open the Fund 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 as, and
equal in amount to, the securities sold short, and unless not more than 10% of
the net assets of the Fund (taken at market value) is held as collateral for
such sales at any one time.
PERFORMANCE INFORMATION
From time to time the Trust may provide annualized "yield," "effective
yield" and "tax equivalent yield" quotations for the Fund in advertisements,
shareholder reports or other communications to shareholders and prospective
investors. The methods used to calculate a Fund's yield, effective yield and tax
equivalent yield are mandated by the Securities and Exchange Commission.
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
20
<PAGE>
by dividing net investment income by the maximum offering price per share on the
last day of the period, according to the following formula:
a-b 6
YIELD = 2[(-- + 1) - 1]
cd
<TABLE>
<S> <C>
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.
</TABLE>
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (or up to
the life of the Fund), calculated pursuant to the following formula: P (1 + T)n
= ERV (where P = a hypothetical initial payment of $1,000, T = the average
annual total return, n = the number of years, and ERV = the ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the period). All
total return figures reflect the deduction of a proportional share of Fund
expenses on an annual basis, and assume that all dividends and distributions are
reinvested when paid. The Fund also may, with respect to certain periods of less
than one year, provide total return information for that period that is
unannualized. Any such information would be accompanied by standardized total
return information.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) unmanaged indices, including, but not limited to
the S&P 500 Stock Index. Investors may compare the Fund's results with those of
a group of unmanaged securities widely regarded by investors as representative
of the securities markets in general, (ii) other groups of mutual funds tracked
by Lipper Analytical Services, a widely used independent research firm which
ranks mutual funds by overall performance, investment objectives, and assets, or
tracked by other services, companies (including IBC/Donoghue's Money Fund
Reports), publications, or persons who rank mutual funds on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess the real rate of return from an investment of dividends but generally do
not reflect deductions for administrative and management costs and expenses.
Unlike some bank deposits or other investments which pay a fixed yield
for a stated period of time, the yield of the Fund varies based on the type,
quality and maturities of the obligations held for the Fund, fluctuations in
short-term interest rates, and changes in the expenses of the Fund. These
factors and possible differences in the methods used to calculate
21
<PAGE>
yields should be considered when comparing the yield of the Fund to yields
published for other investment companies or other investment vehicles.
A Shareholder Servicing Agent or a securities broker, if applicable,
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.
Specifically, investors who purchase and redeem shares of the Fund through a
Shareholder Servicing Agent may be charged one or more of the following types of
fees as agreed upon by the Shareholder Servicing Agent and the investor, with
respect to the customer services provided by the Shareholder Servicing Agent:
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 upon a percentage of the assets in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the yield and
effective yield of the Fund for those investors.
Conversely, the Trust has been advised that certain Shareholder
Servicing Agents may credit to the accounts of their customers from whom they
are already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund, which will have
the effect of increasing the net return on the investment of such customers of
those Shareholder Servicing Agents. Such customers may be able to obtain through
their Shareholder Servicing Agent or securities broker quotations reflecting
such decreased or increased return.
MANAGEMENT OF THE 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. The address of each, unless otherwise indicated, is 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FREDERICK C. CHEN Trustee Management Consultant
126 Butternut Hollow Road,
Greenwich, Connecticut 06830
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
LARRY M. ROBBINS Trustee Director for the Center of
University of Pennsylvania Teaching and Learning, University
College of Arts & Sciences of Pennsylvania.
120 Logan Hall
Philadelphia, PA 19104
ALAN S. PARSOW Trustee General Partner of Parsow
2222 Skyline Drive Partnership, Ltd. (investments).
Elkhorn, NE 68022
MICHAEL SEELY Trustee President of Investor Access
475 Lexington Avenue Corporation (investor relations
New York, New York 10017 - consulting firm).
LESLIE E. BAINS Trustee Senior Executive Vice President,
HSBC Bank USA, 1990-present;
Senior Vice President, The Chase
Manhattan Bank, N.A., 1980-1990.
WALTER B. GRIMM* President and Secretary Employee of BISYS Fund
Services, Inc., June, 1992 to
present; prior to June, 1992
President of Leigh Investments
Consulting (investment firm).
ANTHONY J. FISCHER* Vice President Employee of BISYS Fund
Services, Inc., April, 1998 to
present; Employee of SEI
Investments and Merrill Lynch
prior to April 1998.
SUE A. WALTERS* Vice President Employee of BISYS Fund
Services, Inc., July 1990 to
present.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE TRUST PRINCIPAL OCCUPATIONS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
NADEEM YOUSAF* Treasurer Employee of BISYS Fund
Services, Inc., August 1999 to
present; Director, IBT, Canadian
Operations, May 1995 to March
1997; Assistant Manager,
PriceWaterhouse, 1994 to May
1995.
LISA M. HURLEY* Secretary Senior Vice President and General
Counsel of BISYS Fund Services,
May 1998 to present; General
Counsel of Moore Capital
Management, Inc.; October 1993
to May 1996, Senior Vice
President and General Counsel of
Northstar Investment Management
Corporation.
ALAINA METZ* Assistant Secretary Chief Administrator,
Administrative and Regulatory
Services, BISYS Fund Services,
Inc., June 1995 to present;
Supervisor, Mutual Fund Legal
Department, Alliance Capital
Management, May 1989 to June
1995.
</TABLE>
*Messrs. Grimm, Fischer and Yousaf and Mss. Walters, Hurley, and Metz also are
officers of certain other investment companies of which BISYS or an affiliate is
the administrator.
COMPENSATION TABLE
AGGREGATE COMPENSATION FROM:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Trustee Total Compensation from Fund Complex(1)
- --------------------------------------------------------------------------------
<S> <C>
Frederick C. Chen $ 9,600
Alan S. Parsow 9,600
Larry M. Robbin 11,600
Michael Seely 9,600
</TABLE>
24
<PAGE>
(1) The compensation table above reflects the fees received by the Trustees from
the Fund Complex for the year ended October 31, 1999. For the fiscal year ended
October 31, 1999, the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust received from the Fund Complex an annual retainer of
$3,600 and a fee of $1,500 for each meeting of the Board of Trustees or
committee thereof attended, except that Mr. Robbins received an annual retainer
of $4,600 and a fee of $1,725 for each meeting attended. The Fund Complex
includes the Trust, Republic Advisor Funds Trust, the Portfolio Trust, offshore
feeders into the Portfolio Trust, and three stand-alone offshore funds. The fees
paid by the Fund Complex are allocated pro rata among the Funds based upon the
net assets of each 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 positions as
officers with the Trust, unless, as to liability to the Trust or its
shareholders, it is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in their offices, or unless with respect to any other matter it is
finally adjudicated that they did not act in good faith in the reasonable belief
that their actions were in the best interests of the Trust. In the case of
settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
INVESTMENT ADVISER
The Fund retains HSBC Asset Management (Americas) Inc. ("Adviser") to
act as the adviser for the Fund. The Adviser is the North American investment
affiliate of HSBC Holdings plc (Hong Kong and Shanghai Banking Corporation) and
HSBC Bank USA and is located at 140 Broadway, New York, New York 10005.
The Advisory Contract for the Fund provides that the Adviser will
manage the portfolio of the Fund and will furnish to the Fund investment
guidance and policy direction in connection therewith. The Adviser has agreed to
provide to the Trust, among other things, information relating to composition,
credit conditions and average maturity of the portfolio of the Fund. Pursuant to
the Advisory Contract, the Adviser also furnishes to the Trust's Board of
Trustees periodic reports on the investment performance of the Fund. The Adviser
has also agreed in the Advisory Contract to provide administrative assistance in
connection with the operation of the Fund. Administrative services provided by
the Adviser include, among other things, (i) data processing, clerical and
bookkeeping services required in connection with maintaining the financial
accounts and records for the Fund, (ii) compiling statistical and research data
required
25
<PAGE>
for the preparation of reports and statements which are periodically distributed
to the Fund's officers and Trustees, (iii) handling general shareholder
relations with Fund investors, such as advice as to the status of their
accounts, the current yield and dividends declared to date and assistance with
other questions related to their accounts, and (iv) compiling information
required in connection with the Fund's filings with the Securities and Exchange
Commission.
If the Adviser were prohibited from performing any of its services for
the Trust, it is expected that the Board of Trustees would recommend to the
Fund's shareholders that they approve new agreements with another entity or
entities qualified to perform such services and selected by the Board.
DISTRIBUTION PLANS - CLASS A, CLASS B, AND CLASS C
Three Distribution Plans have been adopted by the Trust (the
"Distribution Plans") with respect to the Class A Shares (the "Class A Plan"),
the Class B Shares (the "Class B Plan"), and Class C Shares (the "Class C
Plan"), Fund, as applicable. The Distribution Plans provide that they may not be
amended to increase materially the costs which either the Class A Shares, Class
B Shares, and Class C Shares may bear pursuant to the Class A Plan, Class B
Plan, and Class C Plan and Class D Plan without approval by shareholders of the
Class A Shares, Class B Shares, and Class C Shares, respectively, and that any
material amendments of the Distribution Plans 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 Plans 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 Plans
have been approved, and are subject to annual approval, by the Board of Trustees
and by the Qualified Trustees, by vote cast in person at a meeting called for
the purpose of voting on the Distribution Plans. In adopting the Class A Plan,
Class B Plan, and Class C Plan, the Trustees considered alternative methods to
distribute the Class A Shares, Class B Shares, and Class C Shares and to reduce
each class's expense ratio and concluded that there was a reasonable likelihood
that each Distribution Plan will benefit their respective class and that class's
shareholders. The Distribution Plans are terminable with respect to the Class A
Shares, Class B Shares, and Class C Shares at any time by a vote of a majority
of the Qualified Trustees or by vote of the holders of a majority of that class.
THE DISTRIBUTOR AND SPONSOR
BISYS Fund Services ("BISYS"), whose address is 3435 Stelzer Road,
Columbus, Ohio 43219-3035, acts as sponsor and distributor to the Fund under 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.
26
<PAGE>
The Distributor may, out of its own resources, make payments to
broker-dealers for their services in distributing Shares. Such compensation may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding the Fund, and/or other dealer-sponsored special events. In
some instances, this compensation will be made available only to certain dealers
whose representatives have sold a significant amount of such Shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their registered representatives and members of their families to
locations within or outside of the United States for meetings or seminars of a
business nature. None of the aforementioned compensation is paid by the Fund or
its Shareholders.
Pursuant to the Distribution Plans adopted by the Trust, the
Distributor is reimbursed from the Fund monthly for costs and expenses incurred
by the Distributor in connection with the distribution of Class A Shares, Class
B Shares, and Class C Shares of the Fund and for the provision of certain
shareholder services with respect to these Shares. Payments to the Distributor
are for various types of activities, including: (1) payments to broker-dealers
which advise shareholders regarding the purchase, sale or retention of Class A
Shares, Class B Shares, and Class C Shares of the Fund and which provide
shareholders with personal services and account maintenance services ("service
fees"), (2) payments to employees of the Distributor, and (3) printing and
advertising expenses. Pursuant to the Class A Plan, the amount of their
reimbursement from the Fund may not exceed on an annual basis 0.25% of the
average daily net assets of the Fund represented by Class A Shares outstanding
during the period for which payment is being made. Pursuant to the Class B Plan
and Class C Plan, respectively, such payments by the Distributor to
broker-dealers may be in amounts on an annual basis of up to 0.75% of the Fund's
average daily net assets as presented by Class B Shares and Class C Shares,
respectively, outstanding during the period for which payment is being made. The
aggregate fees paid to the Distributor pursuant to the Class B Plan and Class C
Plan, respectively, and to Shareholder Servicing Agents pursuant to the
Administrative Services Plan will not exceed on an annual basis 1.00% of the
Fund's average daily net assets represented by Class B Shares and Class C
Shares, respectively, outstanding during the period for which payment is being
made. Salary expense of BISYS personnel who are responsible for marketing shares
of the various series of the Trust may be allocated to such series on the basis
of average net assets; travel expense is allocated to, or divided among, the
particular series for which it is incurred.
Any payment by the Distributor or reimbursement of the Distributor from
the Fund made pursuant to the Distribution Plans 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 payable under the Distribution Plans in that year.
27
<PAGE>
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan 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. The
Administrative Services Plan 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 Class A, Class B Shares, or Class C Shares, by a majority vote of
shareholders of that class. The Administrative Services Plan may not be amended
to increase materially the amount of permitted expenses thereunder with respect
to the Class A Shares, Class B Shares, or Class C Shares, without the approval
of a majority of shareholders of that class, and may not be materially amended
in any case without a vote of the majority of both the Trustees and the
Qualified Trustees.
ADMINISTRATOR
Pursuant to an Administration Agreement, BISYS provides the Trust with
general office facilities and supervises the overall administration of the Trust
and the Fund, including, among other responsibilities, assisting in the
preparation and filing of all documents required for compliance by the Fund with
applicable laws and regulations and arranging for the maintenance of books and
records of the Fund. BISYS provides persons satisfactory to the Board of
Trustees of the Trust to serve as officers of the Trust. Such officers, as well
as certain other employees and Trustees of the Trust, may be directors, officers
or employees of BISYS or its affiliates.
FEES
As compensation for its advisory and management services, the Adviser
is paid a monthly fee by the Fund at the following annual rates:
Portion of Average Daily Value of Net Assets of the Mid Cap Fund
<TABLE>
<S> <C>
Advisory
Not exceeding $400 million................... _____%
In excess of $400 million but
not exceeding $800 million .................. _____
In excess of $800 million but
not exceeding $1.2 billion .................. _____
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
In excess of $1.2 billion but
not exceeding $1.6 billion ................... _____
In excess of $1.6 billion but
not exceeding $2 billion ..................... _____
In excess of $2 billion ........................... _____
</TABLE>
Except for the expenses paid by the Adviser under the Advisory Contract
and by BISYS Fund Services, Inc. under the Management and Administration
Agreement, the Fund bears all costs of its operations. Expenses attributable to
the Fund are charged against the assets of the Fund.
The Advisory Contract, Distribution Contract and Management and
Administration Agreement (upon expiration of its initial term on September 1,
1999) will continue in effect with respect to the Fund from year to year
provided such continuance is approved annually (i) by the holders of a majority
of the outstanding voting securities of such Fund or by the Trust's Trustees and
(ii) by a majority of the Trustees who are not parties to such contracts or
"interested persons" (as defined in the Investment Company Act of 1940) of any
such party ("non-interested Trustees"). Each contract may be terminated with
respect to a Fund at any time, without payment of any penalty, by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
Investment Company Act of 1940) or by a vote of a majority of the Trustees on 60
days' written notice, except in the case of the Management and Administration
Agreement which requires written notice of non-renewal given at least 90 days
prior to expiration of the then current term. The Advisory Contract,
Administrative Services Contract and the Distribution Contract shall terminate
automatically in the event of their assignment (as defined in the Investment
Company Act of 1940).
TRANSFER AGENT
The Trust has entered into Transfer Agency Agreements with BISYS,
pursuant to which BISYS acts as transfer agent (the "Transfer Agent"). The
Transfer Agent maintains an account for each shareholder of the Fund (unless
such account is maintained by the shareholder's securities-broker, if
applicable, or Shareholder Servicing Agent), performs other transfer agency
functions, and act as dividend disbursing agent for the Fund. The principal
business address of BISYS is 3435 Stelzer Road, Columbus, OH 43219.
CUSTODIAN AND FUND ACCOUNTING AGENT
Pursuant to a Custodian Agreement, HSBC also acts as the custodian of
the Fund's assets (the "Custodian"). The Custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Fund's investments, maintaining books of original entry for portfolio and
fund accounting and other required books and accounts in order to calculate the
daily net asset value of Shares of the Fund. Securities held for the Fund may be
deposited into the Federal Reserve-Treasury Department Book Entry System or the
Depository Trust Company. The Custodian does not determine the investment
policies of the or decide which securities will be purchased or sold for the
Fund. For its services, HSBC receives such compensation as may
29
<PAGE>
from time to time be agreed upon by it and the Trust. BISYS serves as the fund
accounting agent for the Portfolio.
EXPENSES
Except for the expenses paid by the Adviser and the Distributor, the
Fund bears all costs of its operations. Expenses attributable to a class ("Class
Expenses") shall be allocated to that class only. Class Expenses with respect to
the Class A Shares, Class B Shares, and Class C Shares must include payments
made pursuant to their respective Distribution Plan and the Administrative
Services Plan. In the event a particular expense is not reasonably allocable by
class or to a particular class, it shall be treated as a Fund expense or a Trust
expense. Trust expenses directly related to the Fund are charged to the Fund;
other expenses are allocated proportionally among all the portfolios of the
Trust in relation to the net asset value of the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of each share of each class of the Fund is
determined on each day on which the New York Stock Exchange is open for trading.
As of the date of this Statement of Additional Information, the New York Stock
Exchange is open every weekday except for the days on which the following
holidays are observed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The value of each security for which readily available market
quotations exists is based on a decision as to the broadest and most
representative market for such security. The value of such security is based
either on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on such
exchanges, or at the quoted bid price in the over-the-counter market. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market. Debt
securities are valued by a pricing service which determines valuations based
upon market transactions for normal, institutional-size trading units of similar
securities. Securities or other assets for which market quotations are not
readily available are valued at fair value in accordance with procedures
established by the Trust. Such procedures include the use of independent pricing
services, which use prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. All portfolio securities with a
remaining maturity of less than 60 days are valued at amortized cost, which
approximates market value.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the sections in the Fund's Prospectus entitled "Purchasing and Adding to
Your Shares." The
30
<PAGE>
Prospectus contains a general description of how investors may buy shares of the
Fund and states whether the Fund offer more than one class of shares. Class A
shares are generally sold with a sales charge payable at the time of purchase.
The prospectus contains a table of applicable sales charges. Certain purchases
of Class A shares may be exempt from a sales charge. Class B and C shares may be
subject to a contingent deferred sales charge ("CDSC") payable upon redemption
within a specified period after purchase. The prospectus contains a table of
applicable CDSCs. After being held for six years, Class B shares will
automatically convert into Class A shares which are not subject to sales charges
or a CDSC. Class B and C shares are offered without an initial sales charge. The
Fund may sell shares without a sales charge or CDSC pursuant to special purchase
plans the Trust signs.
When purchasing Fund shares, you must specify which Class is being
purchased. The decision as to which Class of shares is most beneficial to you
depends on the amount and the intended length of your investment. You should
consider whether, during the anticipated life of your investment in the Fund,
the accumulated distribution fee, service fee and CDSC, if any, on Class B
shares or Class C shares would be less than the accumulated distribution fee and
initial sales charge on Class A shares purchased at the same time, and to what
extent, if any, such differential would be offset by the return on Class A
shares respectively. Additionally, investors qualifying for reduced initial
sales charges who expect to maintain their investment for an extended period of
time might consider purchasing Class A shares because the accumulated continuing
distribution and service fees on Class B or Class C shares exceed the
accumulated distribution fee and initial sales charge on Class A shares during
the life of the investment. Finally, you should consider the effect of the CDSC
period and any conversion rights of the Classes in the context of your own
investment time frame. For example, while Class C shares have a shorter CDSC
period than Class B shares, Class C shares do not have a conversion feature and,
therefore, are subject to ongoing distribution and service fees. Thus, Class B
shares may be more attractive than Class C shares to investors with longer term
investment outlooks. Generally, Class A shares will be most appropriate for
investors who invest $1,000,000 or more in Fund shares, and Class A shares will
not be appropriate for investors who invest less than $50,000 in Fund shares.
A broker-dealer may receive different levels of compensation depending
on which class of shares is sold. The Distributor may also provide different
additional compensation to dealers in connection with selling shares of the Fund
or for their own company-sponsored sales programs. Additional compensation or
assistance may be provided to dealers and includes, but is not limited to,
payment or reimbursement for educational, training and sales conferences or
programs for their employees. In some cases, this compensation may only be
available to dealers whose representatives have sold or are expected to sell
significant amounts of shares. The Distributor will make these payments from its
own resources and none of the aforementioned additional compensation is paid for
by the applicable Fund or its shareholders.
Shares of the Fund are offered on a continuous basis at net asset
value, plus any applicable sales charge, by the Distributor as an investment
vehicle for institutions, corporations, fiduciaries and individuals.
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<PAGE>
The sales charge applicable to the purchase of Fund shares will be
waived on the following purchases: (1) by Trustees and officers of the Trust and
of Republic Funds Trust, and members of their immediate families (parents,
spouses, children, brothers and sisters), (2) by directors, employees and
retirees of Marine Midland Bank and its affiliates, and members of their
immediate families, (3) by financial institutions or corporations on behalf of
their customers or employees, or on behalf of any trust, pension, profit-sharing
or other benefit plan for such customers or employees, (4) by directors and
employees of the Distributor, selected broker-dealers and affiliates and members
of their immediate families, (5) by charitable organizations as defined in
Section 501(c)(3) of the Internal Revenue Code ("Charitable Organizations") or
for charitable remainder trusts or life income pools established for the benefit
of Charitable Organizations, (6) by registered representatives of selling
brokers and members of their immediate families, (7) by individuals who have
terminated their Employee Benefit Trust ("EBT") Plan or have retired and are
purchasing shares in the Fund with the proceeds of their benefits checks (the
EBT Plan must currently own shares of a Fund at the time of the individual's
purchase), (8) by corporations, their officers or directors, partnerships, and
their partners which are customers or prospective customers of Marine Midland
Bank when authorized by an officer of Marine Midland Bank, and (9) by
individuals who, as determined by an officer of the Fund in accordance with
guidelines established by the Fund's Trustees, have purchased shares under
special circumstances not involving sales expenses to dealers or the
Distributor. Eligible investors should contact the Adviser for details.
The sales load does not apply in any instance to reinvested dividends.
From time to time dealers who receive dealer discounts and broker
commissions from the Distributor may reallow all or a portion of such dealer
discounts and broker commissions to other dealers or brokers. The Distributor,
at its expense, may also provide additional compensation to dealers in
connection with sales of shares of the Fund. Such compensation may include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more Funds of the Trust, and/or other dealer-
sponsored special events. In some instances, this compensation may be made
available only to certain dealers whose representatives have sold a significant
number of such shares. Compensation will include payment for travel expenses,
including lodging, incurred in connection with trips taken by invited registered
representatives and members of their registered representatives and members of
their families to locations within or outside of the United States for meetings
or seminars of a business nature. Compensation may also include the following
types of non-cash compensation offered through sales contests: (1) vacation
trips, including the provision of travel arrangements and lodging at luxury
resorts at an exotic location, (2) tickets for entertainment events (such as
concerts, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of a Fund's Shares to
qualify for the compensation to the extent such may be prohibited by the laws of
any state or any self- regulatory agency, such as the National Association of
Securities Dealers, Inc. None of the aforementioned compensation is paid for by
the Fund or its shareholders.
32
<PAGE>
Stock certificates will not be issued with respect to the shares. The
Transfer Agent shall keep accounts upon the book of the Trust for recordholders
of such shares.
EXCHANGE PRIVILEGE
By contacting the Transfer Agent or his Shareholder Servicing Agent or
his securities broker, a shareholder of the Money Market Funds may exchange some
or all of his Shares for shares of an identical class of one or more of the
following investment companies: Republic U.S. Government Money Market Fund,
Republic Bond Fund, Republic Overseas Equity Fund, Republic Opportunity Fund,
Republic New York Tax-Free Bond Fund, Republic New York Tax-Free Money Market
Fund, Republic Equity Fund, and such other Republic Funds or other registered
investment companies for which Republic serves as investment adviser as Republic
may determine (the "Republic Funds"). By contacting the Transfer Agent or his
Shareholder Servicing Agent or his securities broker, a shareholder of the
Retail Funds may exchange some or all of his Shares at net asset value without a
sales charge for Shares of the same class offered with the same or lower sales
charge by any of the Trust's other Funds. Exchanges for Shares with a higher
sales charge may be made upon payment of the sales charge differential.
An investor will receive Class A Shares of the Money Market Funds in
exchange for Class A shares of the Republic Funds. Class B Shares and Class C
Shares may be exchanged for shares of the same class of one or more of the
Republic Funds at net asset value without a front-end sales charge provided that
the amount to be exchanged meets the applicable minimum investment requirements
and the exchange is made in states where it is legally authorized. Holders of
the Fund's Class B Shares may not exchange their Shares for shares of any other
class. Exchanges of Fund Investor Shares for Investor shares of one or more
Republic Funds may be made upon payment of the applicable sales charge, unless
otherwise exempt. Shareholders of Class A Shares of the Fund who are
shareholders as of December 31, 1997 will be grandfathered with respect to the
Republic Funds and will be exempt from having to pay a sales charge on any new
purchases of Class A or Shares of the Fund. An exchange of Class B Shares or
Class C Shares will not affect the holding period of the Class B Shares or Class
C Shares for purposes of determining the CDSC, if any, upon redemption. 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 Funds, 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 may be legally made. A
shareholder considering an exchange should obtain and read the prospectus of the
other Republic Funds and consider the differences in investment objectives and
policies before making any exchange.
An exchange is considered a sale of shares and may result in a capital
gain or loss for federal income tax purposes. A Shareholder wishing to exchange
his or her Shares may do so by
33
<PAGE>
contacting the Trust at 800-782-8183, by contacting his or her broker-dialer or
by providing written instruction to the Distributor.
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 to discontinue further investments. Due to the
varying procedures to prepare, process and to forward bank withdrawal
information to the Trust, there may be a delay between the time of the 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 day that both
the check and the bank withdrawal data are received in required form by the
Distributor. Further information about the plan may be obtained from BISYS at
the telephone number listed on the back cover.
For further information on how to purchase Investor Shares from the
Distributor, an investor should contact the Distributor directly (see back cover
for address and phone number).
PURCHASES THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
The Fund's 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, if applicable, 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 and
"sweep" checking 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, if
applicable, or a Shareholder Servicing Agent to purchase Shares, an investor
should contact his securities broker or his Shareholder Servicing Agent.
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<PAGE>
SALES CHARGES
CLASS A SHARES
The public offering price of the Class A Shares of the Bond and New
York Tax-Free Bond Fund equals net asset value plus the applicable sales charge.
BISYS receives this sales charge as distributor and may reallow it as dealer
discounts and brokerage commissions as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS:
----------------------------------
Discount to
Size of Transaction at % Of Offering % Of net Selected Dealers
Offering Price Price Amount as a Percentage
Invested of Offering Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 % % %
$50,000 but less than $100,000 % % %
$100,000 but less than $250,000 % % %
$250,000 but less than $500,000 % % %
$500,000 and over % % %
</TABLE>
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Class A
Shares of the Funds by or on behalf of (1) purchasers for whom Republic or one
of its affiliates acts in a fiduciary, advisory, custodial or similar capacity,
(2) employees and retired employees (including spouses, children and parents of
employees and retired employees) of Republic, BISYS and any affiliates thereof,
(3) Trustees of the Trust, (4) directors and retired directors (including
spouses and children of directors and retired directors) of Republic and any
affiliates thereof, (5) purchasers who use proceeds from an account for which
Republic or one of its affiliates acts in a fiduciary, advisory, custodial or
similar capacity, to purchase Class A Shares of the Fund, (6) brokers, dealers
and agents who have a sales agreement with the Distributor, and their employees
(and the immediate family members of such individuals), (7) investment advisers
or financial planners that have entered into an agreement with the Distributor
and that place trades for their own accounts or the accounts of eligible clients
and that charge a fee for their services, and clients of such investment
advisers or financial planners who place trades for their own accounts if such
accounts are linked to the master account of the investment adviser or financial
planner on the books and records of a broker or agent that has entered into an
agreement with the Distributor, and (8) orders placed on behalf of other
investment companies distributed by BISYS, The BISYS Group, Inc., or their
affiliated companies. In addition, the Distributor may waive sales charges for
the purchase of the Fund's Class A Shares with the proceeds from the recent
35
<PAGE>
redemption of shares of a non-money market mutual fund (except one of the other
funds of the Trust) sold with a sales charge. The purchase must be made within
60 days of the redemption, and the Distributor must be notified in writing by
the investor, or by his or her financial institution, at the time the purchase
is made. A copy of the investor's account statement showing such redemption must
accompany such notice. To receive a sales charge waiver in conjunction with any
of the above categories, Shareholders must, at the time of purchase, give the
Transfer Agent or the Distributor sufficient information to permit confirmation
of qualification.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining "concurrent purchases" of Class A Shares of any fund in
the Republic family of funds. For example, if a Shareholder concurrently
purchases Class A Shares in one of the funds of the Trust sold with a sales
charge at the total public offering price of $25,000 and Class A Shares in
another fund sold with a sales charge at the total public offering price of
$75,000, the sales charge would be that applicable to a $100,000 purchase as
shown in the appropriate table above. The investor's "concurrent purchases"
described above shall include the combined purchases of the investor, the
investor's spouse and children under the age of 21 and the purchaser's
retirement plan accounts. To receive the applicable public offering price
pursuant to this privilege, Shareholders must, at the time of purchase, give the
Transfer Agent or the Distributor sufficient information to permit confirmation
of qualification. This privilege, however, may be modified or eliminated at any
time or from time to time by the Trust without notice.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written
Letter of Intent which expresses the intention of such investor to purchase
Class A Shares of the Fund at a designated total public offering price within a
designated 13-month period. Each purchase of Class A Shares under a Letter of
Intent will be made at the net asset value plus the sales charge applicable at
the time of such purchase to a single transaction of the total dollar amount
indicated in the Letter of Intent (the "Applicable Sales Charge"). A Letter of
Intent may include purchases of Class A Shares made not more than 90 days prior
to the date such investor signs a Letter of Intent; however, the 13-month period
during which the Letter of Intent is in effect will begin on the date of the
earliest purchase to be included. An investor will receive as a credit against
his/her purchase(s) of Class A Shares during this 90-day period at the end of
the 13-month period, the difference, if any, between the sales load paid on
previous purchases qualifying under the Letter of Intent and the Applicable
Sales Charge.
A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Class A Shares purchased with the first
5% of such amount will be held in escrow (while remaining registered in the name
of the investor) to secure payment of the higher sales charge applicable to the
Class A Shares actually purchased if the full amount indicated is not purchased,
and such escrowed Class A Shares will be involuntarily redeemed to pay the
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additional sales charge, if necessary. Dividends on escrowed Class A Shares,
whether paid in cash or reinvested in additional Class A Shares, are not subject
to escrow. The escrowed Class A Shares will not be available for disposal by the
investor until all purchases pursuant to the Letter of Intent have been made or
the higher sales charge has been paid. When the full amount indicated has been
purchased, the escrow will be released. To the extent that an investor purchases
more than the dollar amount indicated in the Letter of Intent and qualifies for
a further reduced sales charge, the sales charge will be adjusted for the entire
amount purchased at the end of the 13-month period. The difference in sales
charge will be used to purchase additional Class A Shares of the Fund at the
then current public offering price subject to the rate of sales charge
applicable to the actual amount of the aggregate purchases. For further
information about Letters of Intent, interested investors should contact the
Trust at 1-800-782-8183. This program, however, may be modified or eliminated at
any time or from time to time by the Trust without notice.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to
purchase Class A Shares of the Fund at the public offering price applicable to
the total of (a) the total public offering price of the Class A Shares of the
Fund then being purchased plus (b) an amount equal to the then current net asset
value of the "purchaser's combined holdings" of the Class A Shares of the Fund.
Class A Shares sold to purchasers for whom Republic or one of its affiliates
acts in a fiduciary, advisory, custodial (other than retirement accounts),
agency, or similar capacity are not presently subject to a sales charge. The
"purchaser's combined holdings" described above shall include the combined
holdings of the purchaser, the purchaser's spouse and children under the age of
21 and the purchaser's retirement plan accounts. To receive the applicable
public offering price pursuant to the right of accumulation, shareholders must,
at the time of purchase, give the Transfer Agent or the Distributor sufficient
information to permit confirmation of qualification. This right of accumulation,
however, may be modified or eliminated at any time or from time to time by the
Trust without notice.
CONTINGENT DEFERRED SALES CHARGE ("CDSC") - CLASS B SHARES
Class B Shares of the Fund, which are redeemed less than three years
after purchase will be subject to a declining CDSC. The CDSC will be based on
the lesser of the net asset value at the time of purchase of the Class B Shares
being redeemed or the net asset value of such Shares at the time of redemption.
Accordingly, a CDSC will not be imposed on amounts representing increases in net
asset value above the net asset value at the time of purchase. In addition, a
CDSC will not be assessed on Class B Shares purchased through reinvestment of
dividends or capital gains distributions, or that are purchased by
"Institutional Investors" such as corporations, pension plans, foundations,
charitable institutions, insurance companies, banks and other banking
institutions, and non-bank fiduciaries.
Solely for purposes of determining the amount of time which has elapsed
from the time of purchase of any Class B Shares, all purchases during a month
will be aggregated and deemed to have been made on the last day of the month. In
determining whether a CDSC is applicable to
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a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed.
The CDSC is waived on redemptions of Class B Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a Shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an IRA or a Custodial Account
under Code Section 403(b)(7) to a Shareholder who has reached age 70 1/2, and
(iii) to the extent the redemption represents the minimum distribution from
retirement plans under Code Section 401(a) where such redemptions are necessary
to make distributions to plan participants.
LEVEL LOAD ALTERNATIVE -- CLASS C SHARES
Class C Shares of the Fund are sold at net asset value without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section Contingent Deferred Sales Charge ("CDSC") -- Class B Shares" except
that the references to three years and four years in the first paragraph of that
section shall mean one year in the case of Class C Shares. Class C Shares are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class. Unlike Class B Shares, Class C Shares have no conversion feature and,
accordingly, an investor that purchases Class C Shares will be subject to 12b-1
fees applicable to Class C Shares for an indefinite period subject to annual
approval by each Fund's Board of Trustees and regulatory limitations.
The higher fees mean a higher expense ratio, so Class C Shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A Shares. The Fund will not normally accept any purchase of Class C Shares in
the amount of $500,000 or more. Broker-dealers and other financial
intermediaries whose clients have purchased Class C Shares may receive a
trailing commission equal to 1.00% of the average daily net asset value of such
shares on an annual basis held by their clients more than one year from the date
of purchase. Trailing commissions will commence immediately with respect to
shares eligible for exemption from the CDSC normally applicable to Class C
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. Class A Shares may be redeemed without charge
while Class B Shares and Class C Shares may be subject to a contingent deferred
sales charge (CDSC). See "Contingent Deferred Sales Charge ("CDSC") -- Class B
Shares and Class C Shares" above. 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 for the Fund,
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on any Fund Business Day. Shares redeemed earn dividends up to and including the
day prior to the day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the next Fund Business Day following the date on which the redemption
is effected, but in any event within seven days. The right of any shareholder to
receive payment with respect to any redemption may be suspended or the payment
of the redemption proceeds postponed during any period in which the New York
Stock Exchange is closed (other than weekends or holidays) or trading on such
Exchange is restricted or, to the extent otherwise permitted by the 1940 Act, if
an emergency exists. To be in a position to eliminate excessive expenses, the
Trust reserves the right to redeem upon not less than 30 days' notice all Shares
in an account which has a value below $50, provided that such involuntary
redemptions will not result from fluctuations in the value of Fund Shares. A
shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.
Unless Shares have been purchased directly from the Distributor, a
shareholder may redeem Shares only by authorizing his securities broker, if
applicable, 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.
REDEMPTION OF SHARES
SYSTEMATIC WITHDRAWAL PLAN
Any shareholder who owns Shares with an aggregate value of $10,000 or
more may establish a Systematic Withdrawal Plan under which he redeems at net
asset value the number of full and fractional shares which will produce the
monthly, quarterly, semi-annual or annual payments specified (minimum $50.00 per
payment). Depending on the amounts withdrawn, systematic withdrawals may deplete
the investor's principal. Investors contemplating participation in this Plan
should consult their tax advisers. No additional charge to the shareholder is
made for this service.
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 Class A 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
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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.
Redemption by wire or telephone. An investor may redeem Class A, Class
B and Class C Shares of the Fund 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
applicable Fund by wire or by check. The Trust reserves the right to refuse
telephone 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 broker 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 the Fund shareholders. Dividends substantially equal to the Fund's
net investment income earned during the month are distributed in that month to
the Fund's shareholders of record. Generally, the Fund's net investment income
consists of the interest and dividend income it earns, less expenses. In
computing interest income, premiums are not amortized nor are discounts accrued
on long-term debt securities in the Fund, except as required for federal income
tax purposes.
Shares begin accruing dividends on the day they are purchased.
Dividends are distributed monthly. Unless a shareholder elects to receive
dividends in cash (subject to the policies of the shareholder's Shareholder
Servicing Agent or securities broker), dividends are distributed in the form of
additional shares of the Fund at the rate of one share (and fraction thereof) of
the Fund for each one dollar (and fraction thereof) of dividend income.
The Fund's net realized capital gains, if any, are distributed to
shareholders annually. Additional distributions are also made to a Fund's
shareholders to the extent necessary to avoid application of the 4% non-
deductible federal excise tax on certain undistributed income and net capital
gains of regulated investment companies. Unless a shareholder elects to receive
dividends in cash, dividends are distributed in the form of additional shares of
the Fund (purchased at their net asset value without a sales charge).
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest (par value
$0.001 per share) and to divide or combine
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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 nine series of shares, each of which
constitutes a separately managed fund. The Trust reserves the right to create
additional series of shares. Currently, the Fund is divided into three classes
of shares.
Each share of each class of a Fund, if applicable, 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.
Shares of each class of a series represent an equal pro rata interest in such
series and, generally, have identical voting, dividend, liquidation, and other
rights, preferences, powers, terms and conditions, except that: (a) each class
shall have a different designation; (b) each class of shares shall bear any
class expenses; and (c) each class shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its distribution
arrangement, and each class shall have separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class.
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.
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
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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's Declaration of Trust provides that, at any meeting of
shareholders of the Funds or the Trust, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for
purposes of quorum requirements.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
TAXATION
Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Fund and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisers with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
TAX STATUS OF THE FUND
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, the securities
of other regulated investment companies and other securities, with such
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other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies).
As a regulated investment company, the Fund generally is not subject to
U.S. federal income tax on income and gains that it distributes to shareholders,
if at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement.
A distribution will be treated as paid on December 31 of a calendar
year if it is declared by a the Fund in October, November or December of that
year with a record date in such a month and paid by the Fund during January of
the following year. Such a distribution will be taxable to shareholders in the
calendar year in which the distribution is declared, rather than the calendar
year in which it is received.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares (see below
for information concerning exempt-interest dividends and capital gain
dividends). Dividends paid by the Fund to a corporate shareholder, to the extent
such dividends are attributable to dividends received by the Fund from U.S.
corporations, may, subject to limitation, be eligible for the dividends received
deduction. However, the alternative minimum tax applicable to corporations may
reduce the value of the dividends received deduction.
The excess of net long-term capital gains over net short-term capital
losses realized, distributed and properly designated by the Fund, whether paid
in cash or reinvested in Fund shares, will generally be taxable to shareholders
as long-term capital gain, regardless of how long a shareholder has held Fund
shares. Such capital gain distributions are subject to a maximum federal income
tax rate of 20% under current law. Net capital gains from assets held for one
year or less will be taxed as ordinary income.
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Shareholders will be notified annually as to the U.S. federal tax
status of distributions, and shareholders receiving distributions in the form of
newly issued shares will receive a report as to the net asset value of the
shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
DISPOSITIONS
Upon a redemption, sale or exchange of shares of the Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares. A gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and the rate of tax will
depend upon the shareholder's holding period for the shares. If the shareholder
has held the shares as a capital asset for more than 12 months, the maximum
current federal income tax rate is 20%. Any loss realized on a redemption, sale
or exchange will be disallowed to the extent the shares disposed of are replaced
(including through reinvestment of dividends) within a period of 61 days,
beginning 30 days before and ending 30 days after the shares are disposed of. In
such a case the basis of the shares acquired will be adjusted to reflect the
disallowed loss. If a shareholder holds Fund shares for six months or less and
during that period receives a distribution taxable to the shareholder as
long-term capital gain, any loss realized on the sale of such shares during such
six-month period would be a long-term loss to the extent of such distribution.
If, within 90 after purchasing Fund shares with a sales charge, a
shareholder exchanges the shares and acquires new shares at a reduced (or
without any) sales charge pursuant to a right acquired with the original shares,
then the shareholder may not take the original sales charge into account in
determining the shareholder's gain or loss on the disposition of the shares.
Gain or loss will generally be determined by excluding all or a portion of the
sales charge from the shareholder's tax basis in the exchanged shares, and the
amount excluded will be treated as an amount paid for the new shares.
BACKUP WITHHOLDING
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid (other than
exempt-interest dividends), 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 or social security number,
(2) the IRS notifies the shareholder or the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
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withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
OTHER TAXATION
Distributions may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above, including the likelihood that ordinary income dividends
to them would be subject to withholding of U.S. tax at a rate of 30% (or a lower
treaty rate, if applicable).
FUND INVESTMENTS
MARKET DISCOUNT. If the Fund purchases a debt security at a price lower
than the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by the Fund may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by such the Fund, original issue discount that accrues on a debt
security 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 applicable to regulated investment companies. Some debt securities
may be purchased by the Fund at a discount that exceeds the original issue
discount on such debt securities, if any. This additional discount represents
market discount for federal income tax purposes (see above).
CMO RESIDUALS. Under certain circumstances, the Fund may be taxed on
income deemed to be earned from certain CMO residuals.
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OPTIONS, FUTURES AND FORWARD CONTRACTS. Any regulated futures contracts
and certain options (namely, nonequity options and dealer equity options) in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by
the Fund may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Fund, and
losses realized by the Fund 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 the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that the Fund may make with respect
to its straddle positions may also affect the amount, character and timing of
the recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to the Fund are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. 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 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 transactions.
CONSTRUCTIVE SALES. Under certain circumstances, the Fund may recognize
gain from a constructive sale of an "appreciated financial position" it holds if
it enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.
SECTION 988 GAINS OR LOSSES. Gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund accrues
income or other receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
and
46
<PAGE>
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition and disposition of the position also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as "section 988" gains
or losses, increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in shares of
foreign corporations that 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 Fund
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 Fund held the PFIC shares. The
Fund will itself 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. Under an election that currently is available in some
circumstances, the Fund 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 were 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 would involve
marking to market the Fund's PFIC shares at the end of each taxable year, with
the result that unrealized gains would be treated as though they were realized
and reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
ALTERNATIVE MINIMUM TAX
While the interest on bonds issued to finance essential state and local
government operations is generally tax-exempt, interest on certain nonessential
or private activity securities issued after August 7, 1986, while exempt from
the regular federal income tax, constitutes a tax-preference item for taxpayers
in determining alternative minimum tax liability under the Code and income tax
provisions of several states. The interest on private activity securities could
47
<PAGE>
subject a shareholder to, or increase liability under, the federal alternative
minimum tax, depending on the shareholder's tax situation.
All distributions derived from interest exempt from regular federal
income tax may subject corporate shareholders to or increase their liability
under, the alternative minimum tax and environmental tax because these
distributions are included in the corporation's adjusted current earnings. The
Funds will inform shareholders annually as to the dollar amount of distributions
derived from interest payments on private activity securities.
OTHER INFORMATION
SHARES OF BENEFICIAL INTEREST
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, Fund Trust Tax-Free Trust
(organized on July 30, 1986) and Fund Vest (organized on July 17, 1984, and
since renamed Fund Source). 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) and classes of shares within each series at any time
in the future. Establishment and offering of additional classes or series will
not alter the rights of the Fund's shareholders. When issued, shares are fully
paid, nonassessable, redeemable and freely transferable. Shares do not have
preemptive rights or subscription rights. In liquidation of the Fund, each
shareholder is entitled to receive his pro rata share of the net assets of the
Fund.
INDEPENDENT AUDITORS
The Board of Trustees has appointed KPMG LLP as independent auditors of
the Trust. KPMG LLP will audit the Trust's annual financial statements, prepare
the Trust's income tax returns, and assist in the filings with the Securities
and Exchange Commission. KPMG LLP's address is 2 Nationwide Plaza, Columbus,
Ohio 43215.
COUNSEL
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
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.
48
<PAGE>
FINANCIAL STATEMENTS
The Fund is expected to commence operations [_______], 2000. Therefore,
the performance information (including annual and average annual total returns)
for a full calendar year is not yet available.
49
<PAGE>
PART C
------
ITEM 23. EXHIBITS
<TABLE>
<S> <C>
(a)(1) Amended and Restated Declaration of Trust, with establishments and designations of
series and further amendments. 1
(a)(2) Establishment and designation of series for Republic Taxable Bond Fund, Republic
Overseas Equity Fund and Republic Opportunity Fund. 7
(b) By-Laws. 1
(c) Specimen certificate of shares of beneficial interest of Republic Funds. 1
(d)(1) 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
(d)(2) Amended and Restated Second Master Investment Advisory Contract, with supplement
regarding Republic U.S. Government Money Market Fund. 1
(d)(3) Subadvisory Agreement between Alliance Capital Management L.P. and Republic
National Bank of New York regarding Republic Equity Fund. 9
(d)(4) Subadvisory Agreement between Brinson Partners, Inc. and Republic National Bank of New
York regarding Republic Equity Fund. 9
(e) Distribution Agreement 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. 9
(f) Not applicable.
(g)(1) Form of Custodian Agreement - Republic. 13
(g)(2) Form of Transfer Agency and Service Agreement - BISYS. 13
(h)(1) Form of Service Agreement. 1
(h)(2) Administrative Agreement 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 Bond Fund, Republic Overseas Equity Fund and Republic
Opportunity Fund. 9
(h)(3) Amended and Restated Administrative Services Plan. 6
(h)(4) Administration Agreement between Republic Funds and BISYS. 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(h)(5) Fund Accounting Agreement--BISYS. 13
(i)(1) Opinion of Counsel. 2
(i)(2) Consent of Counsel. 15
(j) Consent of Independent Auditors. 15
(k) Not applicable.
(l)(1) Initial Investor Representation letter regarding Republic International Equity Fund
and Republic Fixed Income Fund. 3
(l)(2) Initial Investor Representation letter regarding Republic Equity Fund. 2
(m) 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 Bond Fund,
Republic Overseas Equity Fund and Republic Opportunity Fund. 6
(n) Multiple Class Plan. 5
(p)(1) Code of Ethics for Republic Funds (to be filed by amendment).
(p)(2) Code of Ethics for HSBC USA (to be filed by amendment).
(p)(3) Code of Ethics for Miller Anderson & Sherrard (to be filed by amendment).
(p)(4) Code of Ethics for Alliance Capital Management L.P. (to be filed by amendment).
(p)(5) Code of Ethics for Brinson Partners, Inc. (to be filed by amendment).
(p)(6) Code of Ethics for Capital Guardian Trust Company (to be filed by amendment).
(p)(7) Code of Ethics for MFS Institutional Advisers, Inc. (to be filed by amendment).
(p)(8) Code of Ethics for BISYS. 15
(p)(9) Code of Ethics for Republic Portfolios (to be filed by amendment).
(o)(1) Powers of Attorney of Trustees and Officers of Registrant and Republic Portfolios. 8
(o)(2) Power of Attorney for Adrian Waters. 10
(o)(3) Power of Attorney for Walter B. Grimm. 13
</TABLE>
- ------------------------------------
<PAGE>
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 post-effective amendment No. 36 to
the Registration Statement as filed with the SEC on March 1, 1996.
5. Incorporated herein by reference from post-effective amendment No. 37 to
the Registration Statement as filed with the SEC on April 4, 1996.
6. Incorporated herein by reference from post-effective amendment No. 39 to
the Registration Statement as filed with the SEC on June 17, 1996.
7. Incorporated herein by reference from post-effective amendment No. 40 to
the Registration Statement as filed with the SEC on November 27, 1996.
8. Incorporated herein by reference from post-effective amendment No. 42 to
the Registration Statement filed with the SEC on January 31, 1997.
9. Incorporated herein by reference from post-effective amendment No. 46 to
the Registration Statement as filed with the SEC on February 28, 1997.
10. Incorporated herein by reference from post-effective amendment No. 50
to the Registration Statement as filed with the SEC on January 2, 1998.
11. Incorporated herein by reference from post-effective amendment No. 52 to
the Registration Statement as filed with the SEC on March 12, 1998.
12. Incorporated herein by reference from post-effective amendment No. 54 to
the Registration Statement as filed with the SEC on August 24, 1998.
13. Incorporated herein by reference from post-effective amendment No. 63 to
the Registration Statement as filed with the SEC on March 1, 1999.
14. Incorporated herein by reference from post-effective amendment No. 65 to
the Registration Statement as filed with the SEC on March 25, 1999.
15. Incorporated herein by reference from post-effective amendment No. 67 to
the Registration Statement filed with the SEC on February 29, 2000.
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Reference is hereby made to Article IV of the Registrant's Declaration of
Trust. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees or officers of the Registrant by the
Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is
aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Investment Company
Act of 1940 and, therefore, is unenforceable.
If a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees or officers
of the Registrant in connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees or officers in connection with the
shares being registered, the Registrant will, unless in the opinion of its
Counsel, the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issues.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
HSBC Bank USA ("HSBC") acts as investment adviser to Republic Funds and
Republic Advisor Funds Trust, and is a subsidiary of HSBC USA, Inc. ("HSBC
USA"), 452 Fifth Avenue, New York, New York 10018, a registered bank holding
company. HSBC'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, the address of all directors and officers is 452 Fifth Avenue,
New York, New York 10018):
NAME -- BUSINESS AND OTHER CONNECTIONS
Directors - HSBC Bank USA
- -------------------------
Mr. Sal H. Alfiero
Chairman of the Board
Mark IV Industries, Inc.
501 John James Audubon Parkway
Amherst, New York 14228
Mr. John R.H. Bond
Chairman
HSBC Holdings plc
10 Lower Thames Street - Floor 10
London EC3R 6AE U.K.
<PAGE>
Mr. James H. Cleave
9108 Chickadee Way
Blaine, Washington 98230
Dr. Frances D. Fergusson
President
Vassar College
Office of the President
Box 43
Poughkeepsie, New York 12604-0043
Mr. Douglas J. Flint
Group Finance Director
HSBC Holdings plc
10 Lower Thames Street - Floor 10
London EC3R 6AE U.K.
Mr. Martin J.G. Glynn
President and Chief Executive Officer
HSBC Bank Canada
885 West Georgia Street - Suite 300
Vancouver, BC V6C 3E9
Canada
Mr. Stephen K. Green
Executive Director
Investment Banking and Markets
HSBC Holdings plc
Thames Exchange
10 Queen Street Place
London EC4R 1BL U.K.
Ambassador Ulric Haynes, Jr.
Executive Dean for International Relations
Office of Admissions
Bernon Hall
Hofstra University
Hempstead, New York 11550
Mr. Richard A. Jalkut
President & Chief Executive Officer
PathNet
1015 31st Street, N.W.
Washington, D.C. 20007
Mr. Bernard J. Kennedy
Chairman of the Board
Chief Executive Officer
National Fuel Gas Company
<PAGE>
10 Lafayette Square - Floor 18
Buffalo, New York 14203
Mr. Peter Kimmelman
President
Peter Kimmelman Asset Management Co.
800 Third Avenue -- Suite 3103
New York, New York 10022
Mr. Charles G. Meyer, Jr. President
Cord Meyer Development Company
111-15 Queens Boulevard
Forest Hills, New York 11375
Mr. James L. Morice
30 E. 37th Street -- Apt. 4G
New York, New York 10016
Mr. Youssef A. Nasr
President & Chief Executive Officer
HSBC Bank USA
452 Fifth Avenue -- Floor 10
New York, New York 10018
Mr. Jonathan Newcomb
Chairman and Chief Executive Officer
Simon & Schuster, Inc.
1230 Avenue of the Americas -- Floor 17
New York, New York 10020
Mr. Henry J. Nowak
2312 Cypress Bend Road South -- Apt. C-106
Pompano Beach, FL 33069
Senior Officers - HSBC Bank USA:
- --------------------------------
Youssef A. Nasr
President and Chief Executive Officer
Leslie Bains
Senior Executive Vice President
Robert M. Butcher
Senior Executive Vice President
A.A. Flockhart
Senior Executive Vice President
<PAGE>
Paul L. Lee
Senior Executive Vice President
Vincent J. Mancuso
Senior Executive Vice President
Robert H. Muth
Senior Executive Vice President
Vito S. Portera
Senior Executive Vice President
Elias Saal
Senior Executive Vice President
Iain A. Stewart
Senior Executive Vice President
Philip S. Toohey
Senior Executive Vice President
George T. Wendler
Senior Executive Vice President
ITEM 27. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services (the "Sponsor") and its affiliates serve as
distributor and administrator for other registered investment companies.
(b) The information required by this Item 29 with respect to each
director or officer of BISYS is hereby incorporated herein by reference from
Form BD as filed by the Sponsor pursuant to the Securities Exchange Act of 1934
(File No. 8-32480).
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The account books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of: Republic National
Bank of New York, 452 Fifth Avenue, New York, New York 10018; BISYS Fund
Services, 3435 Stelzer Road, Columbus, Ohio 43219-3035; and Investors Bank &
Trust Company, N.A., 89 South Street, Boston, Massachusetts 02110.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
<PAGE>
ITEM 30. UNDERTAKINGS
(a) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940
Act as though such provisions of the Act were applicable to the Registrant
except that the request referred to in the third full paragraph thereof may only
be made by shareholders who hold in the aggregate at least 10% of the
outstanding shares of the Registrant, regardless of the net asset value or
values of shares held by such requesting shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Republic Funds 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 on the 13th day
of April, 2000.
REPUBLIC FUNDS
- -----------------------
Walter B. Grimm**
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 13, 2000.
- -----------------------
Walter B. Grimm**
President
- -----------------------
Adrian Waters**
Treasurer and Principal Accounting
and Financial Officer
- -----------------------
Alan S. Parsow*
Trustee
- -----------------------
Larry M. Robbins*
Trustee
- -----------------------
Michael Seely*
Trustee
<PAGE>
- -----------------------
Frederick C. Chen*
Trustee
*
- ------------------------
David J. Harris, as attorney-in-fact pursuant to a power of attorney filed as
Exhibit 19 to post-effective amendment No. 40.
**
- -----------------------
Brecke Sweeting, as attorney-in-fact pursuant to powers of attorney filed as
Exhibit (p)(3) to post-effective amendment No. 65.
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 on the 13th day of April,
2000.
REPUBLIC PORTFOLIOS
- -----------------------
Walter B. Grimm**
President
Pursuant to the requirements of the Securities Act of 1933, the
post-effective amendment to the Trust's Registration Statement has been signed
below by the following persons in the capacities indicated on April 13, 2000.
- -----------------------
Walter B. Grimm**
President
- -----------------------
Adrian Waters**
Treasurer and Principal Accounting and Financial Officer of the Portfolio Trust
- -----------------------
Alan S. Parsow*
Trustee of the Portfolio Trust
- -----------------------
Larry M. Robbins*
Trustee of the Portfolio Trust
- -----------------------
Michael Seely*
Trustee of the Portfolio Trust
<PAGE>
- -----------------------
Frederick C. Chen*
Trustee of the Portfolio Trust
* /s/ David J. Harris
- -----------------------
David J. Harris, as attorney-in-fact pursuant to a power of attorney filed as
Exhibit 19 to post-effective amendment No. 40.
** /s/ Brecke Sweeting
- -----------------------
Brecke Sweeting, as attorney-in-fact pursuant to powers of attorney filed as
Exhibit (p)(3) to post-effective amendment No. 65.
