<PAGE>
H&Q IPO & EMERGING COMPANY FUND
Statement of Additional Information
Adviser Classes
Common Class
June 26, 2000
This statement of additional information (SAI) is not a prospectus.
It should be read in conjunction with the H&Q IPO & Emerging Company Fund (Fund)
prospectuses for the Adviser Classes and the Common Class, each dated September
15, 1999 (as amended from time to time). The Fund is currently the only series
of the Hambrecht & Quist Fund Trust (Trust).
To obtain a copy of the Adviser Classes prospectus, please call your
financial intermediary. To obtain a copy of the Common Class prospectus, please
call your mutual fund supermarket representative or call the Fund's transfer
agent, PFPC Inc., at 877-613-7975, 24 hours a day, or write to PFPC Inc.,
attention: H&Q IPO & Emerging Company Fund, at 400 Bellevue Parkway, Wilmington,
Delaware 19809. For TDD service, call 877-613-7973, 24 hours a day. The
prospectuses also are available on the Internet at funds.chasehq.com.
TABLE OF CONTENTS
Page
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OTHER STRATEGIES, RISKS AND LIMITATIONS........................................2
MANAGEMENT OF THE FUND.........................................................9
INVESTMENT ADVISORY AND OTHER SERVICES........................................13
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................16
DESCRIPTION OF THE TRUST......................................................17
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................19
TAXATION......................................................................25
CALCULATION AND USE OF PERFORMANCE DATA.......................................27
FINANCIAL STATEMENTS..........................................................28
<PAGE>
OTHER STRATEGIES, RISKS AND LIMITATIONS
OTHER STRATEGIES AND RISKS
The following discussion supplements and should be read in
conjunction with the sections in the prospectus entitled "Main Strategy" and
"Main Risks." In addition to the Fund's principal investment strategies
discussed in the prospectus, the Fund may invest in other securities and engage
in other investment techniques, at all times in accordance with the limitations
set forth below under "Investment Limitations." Investment policies and
limitations that state a maximum percentage of assets that may be invested in a
security or other asset, or that set forth a quality standard, are measured
immediately after and as a result of the Fund's acquisition of the security or
asset unless otherwise noted. Any subsequent change in values, net assets or
other circumstances will not be considered when determining whether the
investment complies with the Fund's policies and limitations. Unless otherwise
indicated, policies and limitations may be changed by the Trustees without
shareholder approval. The Fund's investment objective may be changed only by
vote of a majority of its shareholders.
EQUITY SECURITIES. The Fund's investment in equity securities,
including IPOs, emerging company shares and securities of issuers which have
capitalizations under $1 billion (small capitalization issuers), represent
ownership interests in corporations, and are commonly called "stocks." Equity
securities historically have outperformed most other securities, although their
prices can fluctuate based on changes in a company's financial condition, market
conditions and political, economic or even company-specific news. When a stock's
price declines, its market value is lowered even though the intrinsic value of
the company may not have changed. Sometimes factors, such as economic conditions
or political events, affect the value of stocks of companies of the same or
similar industry or group of industries, and may affect the entire stock market.
In many instances, the risk factors described in the prospectus relating to IPOs
and emerging company shares are also applicable to stocks of small
capitalization issuers.
Types of equity securities include common stocks, preferred stocks,
convertible securities and warrants. Common stocks, which are probably the most
recognized type of equity security, usually entitle the owner to voting rights
in the election of the corporation's directors and any other matters submitted
to the corporation's shareholders for voting. Preferred stocks do not ordinarily
carry voting rights or may carry limited voting rights, but normally have
preference over the corporation's assets and earnings. For example, preferred
stocks have preference over common stock in the payment of dividends. Preferred
stocks also may pay specified dividends.
Convertible securities are typically preferred stock or bonds that
are exchangeable for a specific number of another form of security (usually the
issuer's common stock) at a specified price or ratio. A corporation may issue a
convertible security that is subject to redemption after a specified date and
usually under certain circumstances. Convertible bonds typically pay a lower
interest rate than nonconvertible bonds of the same quality and maturity,
because of the conversion feature. Due to their fixed income features,
convertible securities provide higher income potential than the issuer's common
stock, but typically are more sensitive to interest rate changes than the
underlying common stock.
2
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Warrants are a type of security usually issued with bonds and
preferred stock that entitle the holder to purchase a proportionate amount of
common stock at a specified price for a specific period of time. The prices of
warrants do not necessarily move parallel to the prices of the underlying common
stock. Warrants have no voting rights, receive no dividends and have no rights
with respect to the assets of the issuer. If a warrant is not exercised within
the specified time period, it becomes worthless.
ILLIQUID SECURITIES. The Fund may purchase and hold securities
considered to be illiquid. Illiquid securities generally are any securities that
cannot be disposed of within seven days and in the ordinary course of business
at approximately the amount at which the Fund has valued the securities. The
liquidity of the Fund's investments is monitored under the supervision and
direction of the Trustees. Investments currently not considered liquid include
repurchase agreements not maturing within seven days, certain restricted
securities and securities subject to contractual restrictions on disposition
greater than seven days. From time to time, the Fund may agree to such
contractual restrictions, for periods typically of between 30 and 180 days, in
connection with its purchase of securities in initial public offerings. The
IPOs, emerging company shares and small capitalization stocks held by the Fund
will tend to be less liquid than those issued by more established companies.
RESTRICTED SECURITIES. The Fund may purchase and hold restricted
securities. Restricted securities are securities that are subject to legal
restrictions on their sale. Restricted securities may be considered to be liquid
if an institutional or other market exists for these securities. In making this
determination, the Fund, under the direction and supervision of the Trustees,
will take into account the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers willing to purchase or sell
the security and the number of potential purchasers; (3) dealer undertakings to
make a market in the security; and (4) the nature of the security and
marketplace trades (E.G., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). To the extent the Fund
invests in restricted securities that are deemed liquid, the general level of
illiquidity in the Fund's portfolio may be increased if qualified institutional
buyers become uninterested in purchasing these securities.
FUTURES CONTRACTS. The Fund intends to purchase and sell futures
contracts based on equity securities indices as a substitute for purchasing and
selling the individual equity securities represented by the indices. Such
transactions allow the Fund's cash balances to produce returns similar to those
of the indices on which the futures contracts are based. All futures contracts
to which the Fund is a party will be covered by segregating liquid assets equal
to the Fund's obligations under the contracts.
A futures contract on an equity index is an agreement between two
parties that obligates one party to buy and the other party to sell the specific
securities underlying the index at an agreed-upon price on a stipulated future
date. Although futures contracts, by their terms, call for the actual delivery
or acquisition of an asset, in the case of futures contracts relating to an
index, the parties usually agree to deliver the final cash settlement price of
the contract at the close of the transaction. In addition, the contractual
obligation underlying a futures contract is often fulfilled (or "offset") before
the expiration date of the futures contract without having to make or take
delivery of the underlying asset. Offset of a futures contract is accomplished
by
3
<PAGE>
buying (or selling, as the case may be) on a commodities exchange an identical
futures contract calling for delivery in the same month. Such a transaction,
which is effected through a member of an exchange, cancels the obligation to
make or take delivery of the underlying asset.
When buying or selling futures contracts, the Fund must place a
deposit with its broker equal to a fraction of the contract amount. This amount
is known as "initial margin" and must be in the form of liquid instruments,
including cash, cash-equivalents and U.S. government securities. Subsequent
payments to and from the broker, known as "variation margin" may be made daily,
if necessary, as the value of the futures contracts fluctuate. This process is
known as "marking-to-market." Any margin amount remaining after all contractual
obligations are satisfied will be returned to the Fund upon termination of the
futures contracts. The Fund's aggregate initial and variation margin payments
may not exceed 5% of its net assets.
The ordinary spreads between prices in the cash and futures markets,
due to differences in the natures of those markets, are subject to distortions
that may prevent the Fund from successfully using futures contracts. First, all
participants in the futures markets are subject to initial and variation margin
requirements. Rather than meeting variation margin requirements, investors may
close futures contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures markets depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
make or take delivery, liquidity in the futures markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, margin
requirements in the futures markets are less onerous than margin requirements in
the cash market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct prediction of market conditions by the Fund may not result
in a successful transaction.
The Fund's ability to engage in transactions involving futures
contracts will depend on the degree to which liquid secondary markets in such
instruments exist. Reasons for the absence of a liquid market include the
following: (i) there may be insufficient trading interest in a particular
instrument; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of futures contracts; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; or (v) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of a particular instrument (or a particular class or
series of such instrument). There can be no assurance that a liquid secondary
market will exist for any particular investment at any specific time. Thus it
may not be possible for the Fund to close certain of its positions.
Adverse market movements could cause the Fund to experience
substantial losses when buying and selling futures contracts. Of course, barring
significant market distortions, similar results would have been expected if the
Fund had instead transacted in the underlying securities directly. In such
situations, if the Fund had insufficient cash and were unable to effect a
closing transaction, it might have to sell securities from its portfolio to meet
daily variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices that reflect the rising market. The Fund may
also have to sell securities at a time when it
4
<PAGE>
may be disadvantageous to do so. There also is the risk of losing any margin
payments held by a broker in the event of its bankruptcy. To reduce the risk of
such a loss, the sub-adviser will only deposit margin amounts with brokers
approved by the Trustees. The Fund incurs transaction costs, including brokerage
fees, when engaging in futures trading.
Under regulations of the Commodity Futures Trading Commission,
investment companies registered under the 1940 Act are excluded from regulation
as commodity pools or commodity pool operators if their use of futures is
limited in certain specified ways. The Fund will use futures in a manner
consistent with the terms of this exclusion.
SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
participations in equity indices (index participations), including Standard &
Poor's Depositary Receipts (SPDRs). Index participations are shares of publicly
traded unit investment trusts which own the stocks included in the relevant
index. Index participations, including SPDRs, are subject to the risk of an
investment in a broadly based portfolio of common stocks, including the risk of
declines in the general level of stock prices. They are also subject to trading
halts due to market conditions or other reasons that make trading index
participations inadvisable.
The Fund may also invest its cash reserves in securities issued by
other investment companies, including money market mutual funds managed by the
Fund's custodian. Because other investment companies employ investment advisers
and other service providers, investments by the Fund in other investment
companies may cause shareholders to pay duplicative fees.
U.S. GOVERNMENT SECURITIES, HIGH QUALITY COMMERCIAL PAPER AND
REPURCHASE AGREEMENTS. The Fund may also invest its cash reserves in interest
bearing instruments, including U.S. government securities, high quality
commercial paper and repurchase agreements.
U.S. government securities are debt securities issued by the U.S.
Treasury or issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities. U.S. Treasury securities, include bills, notes and bonds,
and are backed by the full faith and credit of the United States. Not all U.S.
government securities are backed by the full faith and credit of the United
States. Some U.S. government securities are supported by a line of credit the
issuing entity has with the U.S. Treasury. Others are supported solely by the
credit of the issuing agency or instrumentality. There is no assurance that the
U.S. government will provide financial support to U.S. government securities of
its agencies and instrumentalities if it is not obligated to do so. Like other
fixed income securities, U.S. government securities are sensitive to interest
rate changes, which will cause their prices to fluctuate.
Commercial paper is a short-term debt instrument issued by
corporations, financial institutions, governmental entities and other entities,
and may include funding agreements and other short-term debt obligations. The
principal risk associated with commercial paper is the potential insolvency of
the issuer. The Fund will only invest in commercial paper rated Prime 1 by
Moody's Investors Service, Inc. (Moody's) or A-1 by Standard and Poor's Rating
Service (S&P), or if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
5
<PAGE>
Repurchase agreements are instruments under which the Fund acquires
ownership of certain securities (usually U.S. government securities) from a bank
or broker-dealer who agrees to repurchase the securities at a mutually
agreed-upon time and price, thereby determining the yield during the buyer's
holding period. The period of repurchase agreements is usually short--from
overnight to one week--although the securities underlying repurchase agreements
may have longer maturity dates. In the event of a bankruptcy or other default of
a repurchase agreement's seller, the Fund might incur expenses in enforcing its
rights, and could experience losses, including a decline in the value of the
underlying securities and loss of income. To reduce the risk of such a loss the
Fund only enters into repurchase agreement with banks or broker-dealers approved
by the Trustees.
BORROWING. The Fund may borrow at times to meet redemption requests
rather than sell portfolio securities to raise the necessary cash. Borrowing may
subject the Fund to interest costs, which may exceed the interest received on
the securities purchased with the borrowed funds.
LENDING. The Fund may engage in security lending arrangements with
the primary objective of increasing its income through investment of the cash
collateral in short-term, interest-bearing obligations, but will do so only to
the extent that it will not lose the tax treatment available to regulated
investment companies. Lending portfolio securities involves the risk that the
borrower may fail to return the securities or provide additional collateral. The
Fund may loan portfolio securities to qualified broker-dealers or other
institutional investors provided: (1) the loan is secured continuously by
collateral consisting of U.S. government securities, letters of credit, cash or
cash equivalents maintained on a daily marked-to-market basis in an amount at
least equal to the current market value of the securities loaned; (2) the Fund
may at any time call the loan and obtain the return of the securities loaned;
(3) the Fund will receive any interest or dividends paid on the loaned
securities, and (4) the aggregate market value of securities loaned will not at
any time exceed one-third of the total assets of the Fund.
INVESTMENT LIMITATIONS
THE FOLLOWING FUNDAMENTAL INVESTMENT LIMITATIONS MAY BE CHANGED ONLY
BY VOTE OF A MAJORITY OF THE FUND'S SHAREHOLDERS.
THE FUND MAY NOT:
1) As to 75% of its assets, purchase securities of any issuer (other than
obligations of, or guaranteed by, the U.S. government, its agencies or
instrumentalities or investments in other registered investment companies)
if, as a result, more than 5% of the value of its total assets would be
invested in the securities of such issuer.
2) Purchase more than 10% of any class of securities of any issuer if, as a
result of such purchase, it would own more than 10% of such issuer's
outstanding voting securities. The definition of "securities" does not
include cash and cash items (including receivables), government securities
and the securities of other investment companies, including private
investment companies and qualified purchaser funds.
6
<PAGE>
3) Purchase securities (other than securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities) if, as a result of such
purchase, 25% or more of the value of its total assets would be invested in
any industry.
4) Purchase or sell commodities, commodity contracts or real estate, including
interests in real estate limited partnerships, provided that the Fund may
(1) purchase securities of companies that deal in commodities, real estate
or interests therein and (2) purchase or sell futures contracts, options on
future contracts, equity index participations and index participation
contracts.
5) Lend money to any person, except that the Fund may (1) purchase a portion
of an issue of short-term debt securities or similar obligations (including
repurchase agreements) that are distributed publicly or customarily
purchased by institutional investors, and (2) lend its portfolio
securities.
6) Borrow money or issue senior securities, except that the Fund may borrow
from banks as a temporary measure to satisfy redemption requests or for
extraordinary or emergency purposes and then only in an amount not to
exceed one-third of the value of its total assets (including the amount
borrowed), provided that the Fund will not purchase securities while
borrowings represent more than 5% of its total assets.
7) Pledge, mortgage or hypothecate any of its assets, except that, to secure
allowable borrowings, the Fund may do so with respect to no more than
one-third of the value of its total assets.
8) Underwrite securities issued by others, except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
THE FOLLOWING NON-FUNDAMENTAL INVESTMENT LIMITATIONS MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
THE FUND MAY NOT:
1) Purchase or sell puts, calls, straddles, spreads or any combination
thereof.
2) Make short sales.
3) Purchase or sell interests in oil, gas or other mineral development
programs or leases, although it may invest in companies that own or invest
in such interests or leases.
4) Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities.
5) Invest more than 15% of its net assets in illiquid securities, including
repurchase agreements with maturities in excess of seven days and
securities subject to contractual restrictions on resale in excess of seven
days.
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6) Invest for the purpose of exercising control or management of another
issuer.
7) Purchase securities of other investment companies, except as permitted by
the 1940 Act, including any exemptive relief granted by the Securities and
Exchange Commission (SEC).
With respect to the Fund's policy not to invest more than 25% of the
value of its total assets in any one industry, the Fund deems the following to
be separate industries:
Advertising Wire & Cable Products
Aerospace/Defense Electronics*
Agriculture Capacitors
Airlines Circuit Boards
Apparel Circuits
Auto Manufacturers Electronic Components-Miscellaneous
Auto Parts & Equipment Electronic Connectors
Banks Electronic Measurement Instruments
Beverages Electronic Parts Distribution
Biotechnology Electronic Security Devices
Building Materials Identification Systems/Development
Chemicals Instruments-Controls
Coal Instruments-Scientific
Commercial Services Lasers-Systems/Components
Computers * Engineering & Construction
Computer Data Security Entertainment
Computer Services Environmental Control
Computers-Integrated Systems Food
Computers-Memory Devices Food Service
Computers-Micro Forest Products & Paper
Computers-Mini Gas
Computers-Peripheral Equipment Hand/Machine Tools
Computers-Voice Recognition Health Care
Networking Products Holding Companies-Diversified
Printers & Related Products Home Builders
Cosmetic/Personal Care Home Furnishings
Distribution/Wholesale Household Products/Wares
Diversified Financial Services Housewares
Electric Insurance
Electrical Components & Equipment* Investment Companies
Batteries/Battery Systems Iron/Steel
Electric Products-Miscellaneous Leisure Time
Lighting Products & Systems Lodging
Power Conv/Supply Equipment Machinery-Construction & Mining
Superconductor Products & Systems Machinery-Diversified
------------------------
* Each sub-category is considered to be a separate industry.
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Media Educational Software
Metals-Diversified Electronic Forms
Metal Fabrication/Hardware Enterprise Software/Services
Mining Entertainment Software
Miscellaneous Manufacturing Internet Content
Packaging & Containers Internet Software
Pharmaceuticals Medical Information Systems
Pipelines Network Software
Office/Business Equipment Software Tools
Office Furnishings Transactional Software
Oil & Gas Producers Telecommunication Equipment*
Oil & Gas Services Fiber Optics
Real Estate Telecommunications Equipment
REITS Wireless Equipment
Retail Telecommunications *
Savings & Loans Cellular Telecommunications
Semiconductors Satellite Telecommunications
Shipbuilding Telecommunication Services
Software* Telephone
Applications Software Textiles
Communications Software Tobacco
Computer Aided Design Toys/Games/Hobbies
Computer Graphics Transportation
Data Processing/Mgmt Trucking & Leasing
Decision Support Software Water
MANAGEMENT OF THE FUND
The officers and Trustees of the Fund, their principal occupations
during the past five years and their affiliations, if any, with Hambrecht &
Quist Fund Management, LLC (HQFM), Symphony Asset Management LLC (Symphony) or
Chase Securities Inc. (CSI) are as follows:
------------------------
* Each sub-category is considered to be a separate industry.
9
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<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Name and Age Position With Principal Occupations During Past Five Years
the Trust
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark S. Brandin,* 49 Trustee Managing Director of Brandin & Associates
(financial management/consulting) since June
1996; Executive Vice President of Marketing
and Advertising of Quick and Reilly, Inc.
(broker-dealer) from 1994 to June 1996.
-----------------------------------------------------------------------------------------------------
John A. Campbell,* 61 Trustee Audit Partner of PricewaterhouseCoopers
LLP and its predecessor from 1974 to June
1999.** Board Member of San Francisco
Food Bank.
-----------------------------------------------------------------------------------------------------
Fergus Reid, III,* 67 Trustee Chairman and Chief Executive
Officer of Lumelite Corporation (plastics
manufacturing) since September 1985.
Chairman and Trustee of the Chase Vista
Funds, Trustee of the other Chase mutual
funds *** and Trustee of the Morgan Stanley
Funds.
-----------------------------------------------------------------------------------------------------
Tom D. Seip,* 50 Trustee General Partner of Seip Investments LP
(private investment firm) since June 1998;
Enterprise President of The Charles Schwab
Corporation (Schwab) from September 1997
to May 1998 and Executive Vice
President-Retail Brokerage from prior to 1995
to September 1997; various other executive
positions at Schwab since joining Schwab in
1983. Director of Offroad Capital, Inc.
(broker-dealer holding company).
-----------------------------------------------------------------------------------------------------
Sarah E. Jones,* 49 President President of Chase Mutual Funds Corp. since
February 1997; Managing Director of Private
Investor Advisory Services of Global Asset
Management and Private Banking Division of
The Chase Manhattan Bank from January
1996 to February 1997; Chief of Staff of
Relationship Banking for Chemical Bank
Corporation (predecessor to The Chase
Manhattan Bank) from January 1992 to
January 1996.
-----------------------------------------------------------------------------------------------------
Mary D. Squires,* 45 Chief Financial Vice President-Financial Accounting Global
Officer Mutual Funds of the Chase Manhattan Bank
since 1993.
-----------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Name and Age Position With Principal Occupations During Past Five Years
the Trust
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Steven N. Machtinger, 50 Secretary Associate General Counsel and Managing
Director of CSI since February 2000;
Secretary of HQFM since July 1999; General
Counsel and Secretary of Hambrecht & Quist
Group and General Counsel, Secretary and
Managing Director of Hambrecht & Quist
LLC from prior to 1995 to February 2000.
-----------------------------------------------------------------------------------------------------
</TABLE>
* Mr. Brandin's address is 275 Willowbrook Drive, Portola Valley, CA
94028. Mr. Campbell's address is 726 Crossbrook Drive, Moraga, CA
94556. Mr. Reid's address is 202 June Road, Stamford, CT 06903. Mr.
Seip's address is 30 Ridge Lane, Orinda, CA 94563. Ms. Jones's address
is 1211 Avenue of the Americas, 41st Floor, New York, NY 10036. Ms.
Squires's address is 1 Chase Square, 7th Floor, Rochester, NY 14643.
** PricewaterhouseCoopers LLP is the Fund's independent accountant. Mr.
Campbell's responsibilities at PricewaterhouseCoopers LLP included
auditing investment partnerships of which the sub-adviser or an
affiliate of the sub-adviser was the general partner.
*** The Chase mutual funds other than the Chase Vista Funds consist of:
Mutual Fund Trust, Mutual Fund Variable Annuity Trust, Mutual Fund
Select Group, Mutual Fund Select Trust, Capital Growth Portfolio, Growth
and Income Portfolio and International Equity Portfolio.
Unless otherwise indicated, the address of each of the above listed individuals
is: One Bush Street, San Francisco, California 94104.
The business of the Trust is managed under the direction of the
Trustees. The following table provides information as to the annual compensation
of the Trustees:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Aggregate Pension or Retirement
Compensation from Benefits Accrued by Total Compensation
Name of Trustee Trust(1) the Fund Complex(2) from Fund Complex
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mark S. Brandin $6,000 $0 $6,000
-------------------------------------------------------------------------------------------------
John A. Campbell $6,000 $0 $6,000
-------------------------------------------------------------------------------------------------
Fergus Reid, III $3,000 $108,490(3) $163,000(4)
-------------------------------------------------------------------------------------------------
Tom D. Seip $6,000 $0 $6,000
-------------------------------------------------------------------------------------------------
</TABLE>
(1) Reflects expected fees from the Trust for the fiscal year ending
September 30, 2000. Trustees who are not "interested persons" (as defined in
the Investment Company Act of 1940, as amended) of the Trust receive a
quarterly fee of $1,000, plus $500 for each Trust meeting attended. Trustees
are also reimbursed for expenses incurred on behalf of the Trust. The Trust
does not pay any pension or retirement benefits to the Trustees.
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<PAGE>
(2) A fund complex consists of investment companies that hold themselves out to
investors as related companies for purposes of investment and investor services,
have a common investment adviser or have an investment adviser that is an
affiliated person of the investment adviser of any other investment companies.
Affiliated persons of HQFM and Symphony act as investment advisers to investment
companies other than the Trust. None of the Trustees receives any compensation
from these other investment companies, other than Mr. Reid.
(3) Reflects total benefits accrued by the Chase Vista Funds, Mutual Fund Select
Group, Capital Growth Portfolio, Growth and Income Portfolio and International
Equity Portfolio for the fiscal year ended October 31, 1999, and by Mutual Fund
Trust, Mutual Fund Select Trust and Mutual Fund Variable Annuity Trust for the
fiscal year ended August 31, 1999. Under a "Retirement Plan for Eligible
Trustees" (the "Plan"), each trustee of the Chase Vista Funds and the other
Chase mutual funds (who is not an employee of any of the funds or their
advisers, administrator or distributor or any of their affiliates) may be
entitled to certain benefits upon retirement as a trustee. Pursuant to the Plan,
the normal retirement date is the date on which the eligible trustee has
attained age 65 and has completed at least five years of continuous service with
one or more of the investment companies advised by the advisers (collectively,
the "Covered Funds"). Each eligible trustee is entitled to receive from the
Covered Funds an annual benefit commencing on the first day of the calendar
quarter coincident with or following his date of retirement equal to the sum of
(i) 8% of the highest annual compensation received from the Covered Funds
multiplied by the number of such trustee's years of service (not in excess of 10
years) completed with respect to any of the Covered Funds and (ii) 4% of the
highest annual compensation received from the Covered Funds for each year of
service in excess of 10 years, provided that no trustee's annual benefit will
exceed the highest annual compensation received by that trustee from the Covered
Funds. Such benefit is payable to each eligible trustee in monthly installments
for the life of the trustee. Set forth below in the table are the estimated
annual benefits payable to an eligible trustee upon retirement assuming various
compensation and years of service classifications. As of October 31, 1998, the
estimated credited years of service for Mr. Reid were 15.
<TABLE>
<CAPTION>
Highest Annual Compensation Paid by all Covered Funds
-----------------------------------------------------
$80,000 $100,000 $120,000 $140,000 $160,000
-----------------------------------------------------------------------------
Years of
Service Estimated Annual Benefits Upon Retirement
------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
16 $80,000 $100,000 $120,000 $140,000 $160,000
14 76,800 96,000 115,200 134,400 153,600
12 70,400 88,000 105,600 123,200 140,800
10 64,000 80,000 96,000 112,000 128,000
8 51,200 64,000 76,800 89,600 102,400
6 38,000 48,000 57,600 67,200 76,800
4 25,600 32,000 38,400 44,800 51,200
</TABLE>
(4) Includes compensation earned during 1999 for service as a trustee to the
Chase Vista Funds and the other Chase mutual funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of May 1, 2000, the officers and Trustees, as a group, owned of
record or beneficially less than 1% of the outstanding voting securities of each
class of the Fund.
12
<PAGE>
As of May 1, 2000, the following persons owned of record 5% or more
of a class of the outstanding voting securities of the Fund:
<TABLE>
<CAPTION>
Number Percentage
Name and Address Class Owned of Shares of Class
---------------- ----------- --------- ----------
<S> <C> <C> <C>
Lewco Securities Corp A 984,087 35.0%
FBO AC # 50-651236-7-01
34 Exchange Place, 4th Floor
Jersey City, NJ 07311
Lewco Securities Corp A 195,160 6.9%
FBO AC # 50-651237-5-01
34 Exchange Place, 4th Floor
Jersey City, NJ 07311
Charles Schwab & Co., Inc. Common 40,582,747 96.9%
FBO Schwab Customers
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The investment adviser for the Fund is HQFM, which is an indirect,
wholly-owned subsidiary of The Chase Manhattan Corporation (Chase) and an
affiliate of CSI, the Fund's distributor. HQFM oversees the asset management and
administration of the Fund. Services performed for the Fund include maintaining
office facilities; furnishing statistical and research data, clerical services
and stationery and office supplies; and generally assisting in the operations of
the Fund.
As compensation for these services, HQFM receives an advisory fee,
accrued daily and payable monthly in arrears, from the Fund of 0.65% of each
class's average daily net assets, a portion of which is used to pay the Fund's
sub-adviser. From time to time, HQFM may agree to waive or reduce some or all of
the compensation to which it is entitled. HQFM has guaranteed that, through at
least December 31, 2000, the total annual operating expenses of the Class A
shares will not exceed 1.60%, the total annual operating expenses of the Class B
shares will not exceed 2.30%, and the total annual operating expenses of the
Common Class shares will not exceed 1.60%, of such class's average daily net
assets.
The Fund pays all expenses not assumed by HQFM, including, but not
limited to, Trustees' expenses, audit fees, legal fees, interest expenses,
brokerage commissions, fees for registration and notification of shares for sale
with the SEC and various state securities commissions, taxes, insurance
premiums, fees of the Fund's administrator, transfer agent, fund accounting
agent or other service providers, and the cost of obtaining quotations for
portfolio securities and the pricing of Fund shares.
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<PAGE>
SUB-ADVISER
HQFM has entered into an investment sub-advisory agreement with
Symphony pursuant to which Symphony acts as the Fund's sub-adviser. Symphony
furnishes an investment program for the Fund, determines what securities and
other investments to purchase, retain or sell and places orders for the purchase
and sale of these investments. Symphony makes all investment decisions for the
Fund. Services performed by Symphony also include furnishing statistical and
research data, helping to prepare filings and reports for the Fund and generally
assisting HQFM and the Fund's other service providers in all aspects of the
administration of the Fund.
Symphony utilizes quantitative techniques, proprietary software
models and real-time databases in the performance of its services to the Fund.
Symphony bases its quantitative techniques on data provided by Quote.com, a
leading provider of IPO information, under an agreement granting Symphony
exclusive advance access to certain of Quote.com's IPO databases. In addition to
quantitative techniques, Symphony will apply qualitative considerations when
making investment decisions. Among other considerations, Symphony may review
issuers' prospectuses and attend "roadshows" when determining whether to invest
in a particular IPO.
For Symphony's services, HQFM pays Symphony an annual investment
sub-advisory fee, payable monthly, of 0.35% of the Fund's average daily net
assets not in excess of $100 million and 0.375% of such assets over $100
million. In the event that HQFM waives its management fee to satisfy the expense
guarantees described above under "Investment Adviser", Symphony has agreed to
waive a pro rata portion of its fee from HQFM, subject to receiving a minimum
sub-advisory fee of 0.20% of the Fund's average daily net assets.
DISTRIBUTOR
Pursuant to a distribution agreement, CSI, whose address is 270 Park
Avenue, New York, New York 10017, is distributor for shares of the Fund and is
the Fund's agent for the purpose of the continuous offering of the Fund's
shares. CSI is an affiliate of HQFM, the Fund's investment adviser. CSI is owned
64% by Chase and 36% by H&Q California, an indirect wholly-owned subsidiary of
Chase. The Fund pays for prospectuses and shareholder reports to be prepared and
delivered to existing shareholders. CSI pays such costs when the described
materials are used in connection with the offering of shares to prospective
investors and for supplementary sales literature and advertising. For its
services under the agreement, CSI receives the sales charges collected from
sales of Class A shares and redemptions of Class A and Class B shares and the
12b-1 fees collected on each class of shares of the Fund.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan (distribution plan) to
permit the Fund to pay distribution fees and defray expenses associated with the
distribution of its shares in accordance with Rule 12b-1 under the 1940 Act. The
distribution plan was adopted because of its anticipated benefits to the Fund.
These benefits include increased sales of the Fund's shares,
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<PAGE>
enhancement of the Fund's ability to retain assets, potential economies of
scale, increased stability in the Fund's portfolio positions and greater
flexibility in achieving investment objectives.
Pursuant to the distribution plan, the Fund pays CSI at an annual
rate of .30% of the value of the average daily net assets of Class A shares,
1.00% of the value of the average daily net assets of Class B shares and 0.25%
of the value of the average daily net assets of Common Class shares.
Distribution fees are accrued daily and paid quarterly on Class A and Class B
shares and monthly on Common Class shares. Distribution fees are charged as
expenses of the Fund as accrued.
The fees payable under the distribution plan are used to compensate
CSI for any expenses intended primarily to result in the sale of the Fund's
shares, including, but not limited to, payments CSI makes to financial
intermediaries, including broker-dealers and other third parties, payments made
for the preparation, printing and distributing of advertising and sales
literature, and payments made for printing and distributing prospectuses and
shareholder reports to other than existing shareholders of the Fund. A portion
of these fees, not to exceed .25% of the aggregate daily net assets attributable
to each of the Class A, Class B and Common Class shares may constitute a service
fee used to compensate CSI for expenses CSI incurs for personal services and/or
the maintenance of shareholder accounts. The full amount of distribution fees
are payable to CSI whether the actual expenses of CSI are in excess or less than
such fees.
HQFM and/or CSI may from time to time and from its own funds or such
other resources as are permitted make payments for distribution and shareholder
services. CSI provides the Trustees with a quarterly report of the amounts
expended under the distribution plan and the purposes for which such
expenditures were incurred.
The distribution plan may not be amended to increase materially the
costs which holders of Class A, Class B or Common Class shares may bear pursuant
to the distribution plan without the approval of the holders of such shares.
Other material amendments of the distribution plan must be approved by the
Trustees, and by a majority of the Trustees who are not "interested persons" of
the Fund and have no direct or indirect financial interest in the operation of
the distribution plan or in any related agreements, by vote cast in person at a
meeting called for the purpose of considering such amendments. The distribution
plan is subject to annual approval by such vote of the Trustees cast in person
at a meeting called for the purpose of voting on the distribution plan. The
distribution plan may be terminated with respect to any class of shares at any
time by vote of a majority of the Trustees who are not "interested persons" and
have no direct or indirect financial interest in the operation of the
distribution plan or in any related agreements or by vote of the holders of a
majority of such class of shares.
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<PAGE>
ADMINISTRATOR, FUND ACCOUNTANT, TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
PFPC Inc. (PFPC), whose principal offices are located at 400
Bellevue Parkway, Wilmington, Delaware 19899, serves as the administrator, fund
accountant, dividend disbursing and transfer agent for the Fund. The services
provided by PFPC include day to day maintenance of certain books and records,
calculation of the offering price of the shares, preparation of reports and
liaison with the Fund's custodian. From time to time, the Fund may employ other
entities, including the sponsors of mutual fund supermarkets, as sub-transfer
agents.
CUSTODIAN
PFPC Trust Company, whose principal offices are located at the
Airport Business Center, 200 Stevens Drive, Suite 440, Lester, Pennsylvania
19113, serves as custodian for the Fund. The custodian is responsible for the
daily safekeeping of securities and cash held by the Fund.
INDEPENDENT ACCOUNTANT
The Fund's independent accountant, PricewaterhouseCoopers LLP,
audits and reports on the annual financial statements of the Fund and reviews
certain regulatory reports and the Fund's federal income tax returns. It also
performs other professional accounting, auditing, tax and advisory services when
the Fund engages it to do so. Its address is 333 Market Street, San Francisco,
CA 94105.
LEGAL COUNSEL
Howard Rice Nemerovski Canady Falk & Rabkin, A Professional
Corporation, Three Embarcadero Center, Seventh Floor, San Francisco, California
94111-4065 serves as legal counsel for the Trust, HQFM and CSI.
BROKERAGE ALLOCATION AND OTHER PRACTICES
PORTFOLIO TURNOVER
For reporting purposes, the Fund's portfolio turnover rate is
calculated by dividing the value of purchases or sales of portfolio securities
for the year, whichever is less, by the monthly average value of portfolio
securities the Fund owned during the year. When making the calculation, all
securities whose maturities at the time of acquisition were one year or less
("short-term securities") are excluded. A 100% portfolio turnover rate would
occur, for example, if all portfolio securities (aside from short-term
securities) were sold and either repurchased or replaced once during the year.
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<PAGE>
The turnover rate of the Fund will fluctuate annually and is
expected to exceed 200% in any given year. Funds with high turnover (100% or
more) tend to generate higher taxable income and gains and transaction costs,
including brokerage commissions.
PORTFOLIO TRANSACTIONS
In effecting securities transactions for the Fund, Symphony seeks to
obtain best price and execution. Subject to the supervision of the Fund's
Trustees, Symphony will generally select brokers and dealers for the Fund
primarily on the basis of the quality and reliability of brokerage services,
including execution capability and financial responsibility.
In assessing these criteria, Symphony will, among other things,
monitor the performance of brokers effecting transactions for the Fund to
determine the effect, if any, that the Fund's transactions through those brokers
have on the market prices of the stocks involved. This may be of particular
importance for the Fund's investments in relatively smaller companies whose
stocks are not as actively traded as those of their larger counterparts. The
Fund will seek to buy and sell securities in a manner that causes the least
possible fluctuation in the prices of those stocks in view of the size of the
transactions.
When the execution capability and price offered by two or more
broker-dealers are comparable, Symphony may, in its discretion, in agency
transactions (and not principal transactions) utilize the services of
broker-dealers that provide it with investment information and other research
resources. Commissions charged by such broker-dealers may be higher than
commissions charged by broker-dealers not providing such resources. Such
resources may be used by Symphony when providing advisory services to other
investment advisory clients, including other mutual funds.
In an attempt to obtain best execution for the Fund, Symphony may
place orders directly with market makers or with third market brokers or brokers
on an agency basis. Placing orders with third market brokers may enable the Fund
to trade directly with other institutional holders on a net basis. At times,
this may allow the Fund to trade larger blocks than would be possible trading
through a single market maker.
The Fund expects to purchase IPOs from underwriting syndicates of
which CSI, the Fund's distributor and an affiliate of HQFM, acts as a member or
manager. Such purchases will be effected in accordance with the conditions set
forth in Rule 10f-3 under the 1940 Act and related procedures adopted by the
Fund's Trustees, including a majority of the Trustees who are not "interested
persons" of the Fund. Among the conditions are that the IPO issuer will have
been in operation for at least three years, that not more than 25% of the
underwriting will be purchased by the Fund and any other investment company
having the same investment adviser or sub-adviser, and that no shares will be
purchased from the distributor or any of its affiliates.
DESCRIPTION OF THE TRUST
The Fund is currently the only series of Hambrecht & Quist Fund
Trust, a diversified open-end investment management company organized as a
Delaware business trust on June 7, 1999. The Fund offers three classes of
shares, Class A, Class B and Common Class.
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<PAGE>
The Fund will not hold regular shareholder meetings, but may hold
special meetings. Shareholders are entitled to vote only in limited
circumstances, as set forth in the Trust's Agreement and Declaration of the
Trust (Declaration of Trust). Generally, shareholders are entitled to vote (i)
for the election of Trustees (as provided in the 1940 Act); (ii) for the removal
of Trustees; (iii) on the Fund's entry into investment advisory or management
contracts, except when such vote is not required under the 1940 Act; (iv) on the
termination of the Trust in certain circumstances; (v) on amendments to the
Declaration of Trust affecting certain shareholder voting rights; (vi) when such
vote is otherwise required under applicable law or the Trust's then-current
Registration Statement, Declaration of Trust or By-laws or (vii) when such vote
is submitted to the shareholders in the Trustees' discretion. The Declaration of
Trust specifically authorizes the Trustees to (i) sell or convey substantially
all of the assets of the Trust or any series to another series or other open-end
investment company or (ii) sell and convert into money all or substantially all
of the assets of the Trust or any series, in each case without shareholder
approval if a majority of the Trustees determine that the continuation of the
Trust or any series is not in the best interest of the Trust or such series, or
their respective shareholders. Shareholders are entitled to one vote for each
dollar of net asset value, and a proportional fractional vote for each
fractional dollar of net asset value, represented by the shares owned.
Shareholders may vote by proxy or in person. Proxy materials will be mailed to
shareholders prior to any meetings, and will include a voting card and
information explaining the matters to be voted upon.
Shares representing one-third of the total net asset value of shares
of each affected series or class, or shares representing one-third of the total
net asset value of shares of the Trust, entitled to vote will be a quorum for
the transaction of business at a shareholders' meeting. Any lesser number will
be sufficient for adjournments. Except when a larger vote is required by
applicable law, the Declaration of Trust or the By-laws, shareholders
representing a majority of the total net asset value of shares voting at a
shareholders' meeting will decide any matters to be voted upon with respect to
the entire Trust and shareholders representing a plurality of the total net
asset value of such shares will elect a Trustee. If the Declaration of Trust or
applicable law permits or requires that shares be voted on any matter by
individual series or classes, then shareholders representing a majority of the
total net asset value of shares of that series or class will decide that matter
insofar as that series or class is concerned. Shareholders may act as to the
Trust or any series or class by the written consent of shareholders representing
a majority (or such other amount as may be required by applicable law) of the
total net asset value of shares of the Trust or of such series or class.
Generally, Delaware business trust shareholders are not personally
liable for obligations of the Delaware business trust under Delaware law. The
Delaware Business Trust Act (Delaware Act) provides that shareholders of a
Delaware business trust are entitled to the same limitations on liability
extended to shareholders of private for-profit corporations. The Declaration of
Trust expressly provides that the Trust has been organized under the Delaware
Act and that the Declaration of Trust is to be governed by Delaware law. It is
nevertheless possible that a Delaware business trust, such as the Trust, might
become party to an action in another state whose courts refused to apply
Delaware law, in which case the Trust's shareholders could be subject to
personal liability. To guard against this risk, the Declaration of Trust (i)
contains an express disclaimer of shareholder liability for acts or obligations
of the Trust and provides that notice of such disclaimer may be given in each
agreement, obligation and instrument entered into or executed by the Trust or
its Trustees, (ii) provides for the
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<PAGE>
indemnification out of Trust property (from the applicable series of the Trust)
of a shareholder held personally liable solely by reason of the shareholder's
having been a shareholder and (iii) provides that the Trust will, upon request,
assume the defense of any claim made against such shareholder for any act or
obligation of the applicable series of the Trust and satisfy any judgement
thereon. Thus, the risk of a Trust shareholder incurring financial loss beyond
his or her investment because of shareholder liability is limited to
circumstances in which all of the following factors are present: (1) a court
refuses to apply Delaware law; (2) the liability arose under tort law or, if
not, no contractual limitation of liability was in effect; and (3) the Trust
itself would be unable to meet its obligations. In light of Delaware law, the
nature of the Trust's business and the nature of its assets, the risk of
personal liability to a Fund shareholder is remote.
The Trustees may each year, or more frequently, distribute to the
shareholders of each series accrued income less accrued expenses and any net
realized capital gains less accrued expenses. The income and gains of each
series or class will be distributed pro rata to shareholders in proportion to
the number of shares of each series or class held by each of them. Distributions
will be paid in cash or shares or a combination thereof as determined by the
Trustees. Distributions paid in shares will be paid at the net asset value as
determined in accordance with the Declaration of Trust. Upon liquidation of the
Trust, shares of each series or class will be entitled to a pro rata
distribution of all assets of such series or class remaining after payment or
provision for all known liabilities of such series or class.
Shares of the Trust may be automatically redeemed if held by a
shareholder in an amount less than the minimum required by the Fund or for any
other reason under terms set by the Trustees, including the failure of a
shareholder (i) to supply a taxpayer identification number or other information
or certification required by applicable law, (ii) to invest the required minimum
or (iii) to pay when due shares issued to such shareholder. The Trust may redeem
shares and transfer the proceeds to a government unit, agency, authority or
authorized depository without prior notice to a shareholder and without
liability to such shareholder, if such action is taken (i) in response to a
notice of levy, lien or similar action from the Internal Revenue Service or
state tax authority, (ii) in compliance with state law governing escheat or
abandonment of property, (iii) in satisfaction of withholding tax requirements
(including penalties and interest) applicable to any prior distribution to a
shareholder that were not satisfied at the time of such distribution or (iv) in
compliance with any other applicable legal requirement.
PURCHASE, REDEMPTION AND PRICING OF SHARES
CLASS A SHARES
Class A shares will normally be more beneficial than Class B shares
to investors who qualify for reduced front-end sales charges on Class A shares,
as set forth in the prospectus. As a result, any order for $250,000 or more for
Class B shares may be rejected by your financial intermediary.
Class A shares are subject to a front-end sales charge, as described
in the prospectus. The portion of this sales charge that is re-allowed to
selected dealers is as follows:
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<TABLE>
<CAPTION>
Commission to selected
Investment dealers as % of offering price(1)
-------------------------------------------------------------------------------------
<S> <C>
Less than $50,000 5.00%
$50,000 to $99,999 4.00%
$100,000 to $249,999 3.00%
$250,000 to $499,999 2.25%
$500,000 to $999,999 1.75%
$1,000,000 or more(2) 1.00%
</TABLE>
---------------------
(1) Offering price includes the front-end sales charge.
(2) With respect to purchases of $1,000,000 or more made through authorized
financial intermediaries, the distributor may pay from its own resources a fee
of up to 1% of the amount invested to compensate such financial intermediaries
for their distribution assistance. Proceeds from the CDSC on Class A shares are
used by the distributor to defray these expenses.
No initial sales charge is imposed on Class A shares issued (i)
pursuant to the automatic reinvestment of income and gains distributions, (ii)
upon the automatic conversion of Class B shares to Class A shares or (iii) to an
investor repurchasing shares which the investor sold within the preceding 60
days.
COMBINED PURCHASE PRIVILEGE AND CUMULATIVE QUANTITY DISCOUNT
Certain investors may qualify for a reduced sales charge according
to the Class A sales charge schedule set forth in the prospectus, by combining
purchases of shares of the Fund into a single "purchase" if the resulting
"purchase" equals at least $50,000. For purposes of this Combined Purchase
Privilege, the term "purchase" refers to: (i) a single purchase by an
individual, or concurrent purchases, which in the aggregate are at least equal
to the prescribed amounts, by an individual, his or her spouse and their
children under the age of 21 years; (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single fiduciary account even though more than
one beneficiary is involved; or (iii) a single purchase for the employee benefit
plans of a single employer. The term "purchase" also includes purchases by a
"company" as the term is defined in the 1940 Act, but does not include purchases
by any such company which has not been in existence for at least six months or
which has no other purpose than the purchase of shares of the Fund or shares of
other registered investment companies. The term "purchase" does not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit card holders of a company, policy holders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser.
An investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales charge will be
based on the total of: (i) the investor's current purchase; (ii) the net asset
value (at the close of business on the previous day) of all Class A shares of
the Fund held by the investor; and (iii) the net asset value of all shares
described in (ii) owned by another shareholder eligible to combine his or her
purchase with that of the investor in a single "purchase" as described above.
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To qualify for the Combined Purchase Privilege or to obtain the
Cumulative Quantity Discount on purchases made through a financial intermediary,
the investor or financial intermediary must provide the transfer agent with
sufficient information to verify that each purchase qualifies for the privilege
or discount.
STATEMENT OF INTENTION
Class A investors may also obtain a reduced sales charge, as set
forth in the prospectus, by means of a written Statement of Intention, which
expresses the investor's intention to invest at least $50,000 within a period of
13 months in Class A shares of the Fund. Each purchase under a Statement of
Intention will be made at the public offering price at the time of such purchase
applicable to a single transaction of the dollar amount indicated in the
Statement of Intention. At the investor's option, a Statement of Intention may
include purchases of Fund shares made not more than 90 days prior to the date
the investor signs the Statement of Intention; however, the 13 month period
during which the Statement of Intention is in effect will begin on the date of
the earliest purchase included.
The Statement of Intention is not a binding obligation on the
investor to purchase the full amount indicated. The minimum initial investment
under a Statement of Intention will be 5% of such amount. Shares purchased with
the first 5% 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
shares actually purchased if the full amount indicated in the Statement of
Intention is not purchased, and such escrowed shares will be involuntarily
redeemed to pay the additional sales charge, if necessary. Dividends on escrowed
shares, whether paid in cash or reinvested in additional Fund shares, are not
subject to escrow. When the full amount has been purchased, the escrow will be
released. To the extent the investor purchases more than the dollar amount
indicated in the Statement of Intention 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 the sales charge will be
used to purchase additional Fund shares subject to the rate of the sales charge
applicable to the actual amount of the aggregate purchase.
PRIVILEGE FOR CERTAIN RETIREMENT PLANS
Multiple participant payroll deduction retirement plans, such as
401(k) plans, may also purchase shares of the Fund at a reduced sales charge on
a monthly basis during the 13-month period following the plan's initial
purchase. The sales charge applicable to the initial purchase of shares of the
Fund will be that normally applicable under the sales charge schedule set forth
in the prospectus to an investment 13 times larger than such initial purchase.
The sales charge applicable to each succeeding monthly purchase will be that
normally applicable, under the schedule, to an investment equal to the sum of
(i) the total purchases previously made during the 13-month period and (ii) the
current month's purchase multiplied by the number of months (including the
current month) remaining in the 13-month period. Sales charges previously paid
during such period will not be retroactively adjusted based on later purchases.
21
<PAGE>
PRIVILEGE FOR CERTAIN OTHER INVESTORS
The Fund may sell its Class A shares at net asset value (without
front-end sales charge) and without a CDSC to certain other investors,
including:
(i) Symphony and its affiliates, HQFM and Chase H&Q, a division
of CSI ("Chase H&Q"), and their current officers, partners, directors and
employees, any current or former Trustee or officer of the Trust, any spouse or
sibling, direct ancestor or direct descendent (collectively "relatives") of any
such individual, or any trust, individual retirement account or retirement plan
account for the benefit of any such individual or relative;
(ii) qualified retirement plans of HQFM, CSI, Symphony and their
affiliates;
(iii) any registered representative of any financial intermediary
authorized to sell Class A or Class B shares of the Fund or their respective
spouses, children and parents;
(iv) banks, trust companies and other types of depository
institutions investing for their own accounts or for their customers' accounts;
(v) any state, county or city, or any instrumentality,
department, authority or agent thereof, which is prohibited by applicable
investment laws from paying a sales charge or commission in connection with the
purchase of shares of the Fund;
(vi) pension and profit sharing plans, pension funds and other
company-sponsored benefit plans that (A) buy shares worth $500,000 or more, or
(B) have at the time of purchase, 100 or more eligible participants, or (C)
certify that they project to have annual plan purchases of $200,000 or more;
(vii) "wrap" accounts for the benefit of clients of CSI and its
affiliates and broker-dealers, financial institutions or other financial
intermediaries that have entered into an agreement with CSI; and
(viii) registered investment advisers investing for accounts for
which they receive asset-based fees.
A purchaser's financial intermediary must certify to the transfer
agent that the purchaser is eligible for an exemption from the Class A front-end
sales charge and also notify the transfer agent if a previously eligible
purchaser is no longer eligible for such an exemption. Exemptions will be
granted subject to verification of a purchaser's entitlement. Financial
intermediaries may charge a fee for effecting transactions involving Class A
shares of the Fund sold at net asset value.
The CDSC imposed on certain purchases of Class A shares may be
waived in the same manner as the CDSC on Class B shares may be waived, as
described below under "Class B Shares."
Class A shares are offered at net asset value (without a front-end
sales charge) and without a CDSC to the Trustees and other affiliated persons of
the Fund as an incentive to such
22
<PAGE>
persons to purchase shares of the Fund and thereby to align further the
interests of such persons with the interests of the Fund's shareholders.
CLASS B SHARES
The combination of the CDSC and the distribution fee enables the
Fund to sell the Class B shares without a front-end sales charge being deducted
at the time of purchase. The higher distribution fee incurred by Class B shares
will cause such shares to have a higher expense ratio and to pay lower dividends
than those related to Class A and Common Class shares.
Proceeds from the CDSC are payable to CSI and may be used in whole
or in part to defray CSI's expenses relating to the provision of
distribution-related services to the Fund in connection with the sale of Class B
shares, including payments to selected dealers. CSI pays selected dealers a
commission equal to 4.00% of the price of Class B shares sold.
The CDSC may be waived on Class B shares if the redemption relates
to: (a) retirement distributions or loans to participants or beneficiaries from
pension or profit sharing plans, pension funds and other company-sponsored
benefit plans (each a Plan); (b) the death or disability (as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, as amended (Code)) of a
participant in a Plan; (c) hardship withdrawals by a participant or beneficiary
in a Plan; (d) satisfying the minimum distribution requirements of the Code; (e)
the establishment of "substantially equal periodic payments" as described in
Section 72(m)(7) of the Code; (f) the separation from service by a participant
or beneficiary in a Plan; (g) excess contributions distributed from a Plan; (i)
the death or disability (as defined in Section 72(m)(7) of the Code) of a
shareholder if the redemption is made within one year of the event; and (h)
redemption proceeds which are being reinvested in accounts or non-registered
products over which an advisory affiliate of CSI has investment discretion.
Class B shares convert to Class A shares five years after the end of
the calendar month in which the shareholder's purchase order was accepted. Such
conversion will occur on the basis of the net asset values of the two classes,
without the imposition of any sales load, fee or other charge. The purpose of
the conversion is to reduce the distribution fee paid by Class B shareholders
that have been outstanding long enough for the distributor to have been
compensated for the distribution expenses incurred in the sale of the shares.
For purposes of conversion to Class A shares, Class B shares
acquired through reinvestment of dividends and distributions will convert to
Class A shares based on the date of the initial purchase of the underlying
shares on a pro rata basis.
The conversion of Class B shares to Class A shares is subject to the
availability at the time of conversion of an opinion of counsel or other
assurance to the effect that the conversion of Class B shares to Class A shares
does not constitute a taxable event under federal law. In the event such
assurance is not available, no further conversion of Class B shares would occur
and shares would continue to be subject to a higher distribution fee for an
indefinite period.
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<PAGE>
PURCHASING AND REDEEMING SHARES OF THE FUND
The Fund has authorized one or more brokers to receive on its behalf
purchase and redemption orders for shares of the Fund. Such brokers are
authorized to designate other intermediaries to receive purchase and redemption
orders on the Fund's behalf. The Fund will be deemed to have received a purchase
or redemption order when an authorized broker or designee receives the order. An
order placed through an authorized broker or designee will be priced at the
Fund's net asset value next computed after receipt of the order by such broker
or designee.
As long as the Fund or PFPC follow reasonable procedures to confirm
that your telephone order is genuine, they will not be liable for any losses you
may experience due to unauthorized or fraudulent instructions. These procedures
may include requiring a form of personal identification before acting upon any
telephone order, providing written confirmation of telephone orders and tape
recording telephone orders.
PFPC does not accept third party checks as payment for Fund shares.
The Fund requires signature guarantees for redemptions in excess of $25,000. A
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency or savings association who are participants in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program,
Stock Exchange Medallion Program and the New York Stock Exchange, Inc. Medallion
Signature Program. Signature guarantees that are not part of these programs will
not be accepted.
Share certificates will not be issued in order to avoid additional
administrative costs; however, share ownership records are maintained by the
Fund's transfer agent, PFPC. Twice a year, financial reports will be mailed to
shareholders describing the Fund's performance and investment holdings. In order
to reduce these mailing costs, each household will receive one consolidated
mailing. If you do not want to receive consolidated mailings, you may write to
the Fund and request that your mailings not be consolidated.
The Fund has made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of its net assets at the beginning
of such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of these limits may be paid, in whole or in part,
in investment securities or in cash, as the Trustees may deem advisable. Payment
will be made wholly in cash unless the Trustees believe that economic or market
conditions exist that would make such payment a detriment to the best interests
of the Fund. If redemption proceeds are paid in investment securities, such
securities will be valued as set forth in "Pricing of Shares." A redeeming
shareholder would normally incur brokerage expenses if he or she were to convert
the securities to cash.
PRICING OF SHARES
Securities traded on stock exchanges are valued at the last quoted
sales price that day on the exchange on which such securities are principally
traded, or, lacking any sales, at the
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<PAGE>
mean between the closing bid and asked prices. Securities traded in the
over-the-counter market are valued at the last bid price that day.
Futures contracts are valued using the closing settlement price or,
in the absence of such a price, the most recent quoted bid price. If there are
no quotations available on the valuation date, the last available closing
settlement price is used.
Debt instruments having 60 days or less remaining until maturity
are valued at amortized cost if their original maturity was 60 days or less,
or by amortizing their fair values as of the 61st day prior to maturity if
their original maturity exceeded 60 days (unless in either case the Trustees
determine that this method does not represent fair value).
Debt instruments not maturing within 60 days are valued on the basis
of the price provided by a pricing service when such prices are believed to
reflect the fair value of such securities. The prices provided by a pricing
service take into account many factors, including institutional size trading in
similar groups of securities and developments related to specific securities.
Securities and assets for which market quotations are not readily
available (including restricted securities that are subject to limitations on
their sale and illiquid securities) are valued at fair value as determined in
good faith pursuant to guidelines adopted by the Trustees.
The assets attributable to Class A, Class B and Common Class shares
will be invested together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the liabilities allocated to
that class from the assets belonging to that class in conformance with the
provisions of a plan adopted by the Fund in accordance with Rule 18f-3 under the
1940 Act.
TAXATION
FEDERAL TAX INFORMATION FOR THE FUND
It is the Fund's policy to qualify for taxation as a "regulated
investment company" (RIC) by meeting the requirements of Subchapter M of the
Code. By qualifying as a RIC, the Fund expects to eliminate or reduce to a
nominal amount the federal income tax to which it is subject. If the Fund does
not qualify as a RIC under the Code, it will be subject to federal income tax on
its net investment income and any net realized capital gains.
The Code imposes a non-deductible excise tax on RICs that do not
distribute in a calendar year (regardless of whether they otherwise have a
non-calendar taxable year) an amount equal to 98% of their "net ordinary income"
(as defined in the Code) for the calendar year plus 98% of their capital gain
net income for the one-year period ending on October 31 of such calendar year,
plus any undistributed amounts from prior years. The non-deductible excise tax
is equal to 4% of the deficiency. For the foregoing purposes, the Fund is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
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<PAGE>
The Fund's transactions in futures contracts may be restricted by
the Code and are subject to special tax rules. In a given case, these rules may
accelerate income to the Fund, defer its losses, cause adjustments in the
holding periods of the Fund's assets, convert short-term capital losses into
long-term capital losses or otherwise affect the character of the Fund's income.
These rules could therefore affect the amount, timing and character of
distributions to shareholders. The Fund will endeavor to make any available
elections pertaining to these transactions in a manner believed to be in the
best interest of the Fund and its shareholders.
FEDERAL INCOME TAX INFORMATION FOR SHAREHOLDERS
The discussion of federal income taxation presented below
supplements the discussion in the Fund's prospectus and only summarizes some of
the important federal tax considerations generally affecting shareholders of the
Fund. Accordingly, prospective investors (particularly those not residing or
domiciled in the United States) should consult their own tax advisers regarding
the consequences of investing in the Fund.
Any dividends declared by the Fund in October, November or December
and paid the following January are treated, for tax purposes, as if they were
received by shareholders on December 31 of the year in which they were declared.
Long-term capital gains distributions are taxable as long-term capital gains,
regardless of how long you have held your shares. However, if you receive a
long-term capital gains distribution with respect to Fund shares held for six
months or less, any loss on the sale or exchange of those shares will, to the
extent of the long-term capital gains distribution, be treated as a long-term
capital loss. For corporate investors in the Fund, dividend distributions the
Fund designates to be from dividends received from qualifying domestic
corporations will be eligible for the corporate dividends-received deduction to
the extent they would qualify if the Fund were a regular corporation and if
other applicable requirements are met. Distributions by the Fund also may be
subject to state, local and foreign taxes, and the Fund's treatment under
applicable tax laws may differ from the federal income tax treatment.
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends paid to any shareholder who (1) fails
to provide a correct taxpayer identification number certified under penalty of
perjury; (2) is subject to withholding by the Internal Revenue Service for
failure to properly report all payments of interest or dividends; or (3) fails
to provide a certified statement that he or she is not subject to "backup
withholding." Backup withholding is not an additional tax and any amounts
withheld may be credited against the shareholder's ultimate U.S. tax liability.
Foreign shareholders (i.e., nonresident alien individuals and
foreign corporations, partnerships, trusts and estates) are generally subject to
U.S. withholding tax at the rate of 30% (or a lower tax treaty rate) on
distributions derived from net investment income and short-term capital gains.
Distributions to foreign shareholders of long-term capital gains and any gains
from the sale or other disposition of shares of the Fund generally are not
subject to U.S. taxation, unless the recipient is an individual who meets the
Code's definition of "resident alien" or is present in the United States for
more than 183 days during the year. Different tax consequences may result if the
foreign shareholder is engaged in a trade or business within the United States.
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<PAGE>
In addition, the tax consequences to a foreign shareholder entitled to claim the
benefits of a tax treaty may be different than those described above.
CALCULATION AND USE OF PERFORMANCE DATA
Average annual total return is a standardized measure of performance
calculated using methods prescribed by SEC rules. It is calculated by
determining the ending value of a hypothetical initial investment of $1,000 made
at the beginning of a specified period. The ending value is then divided by the
initial investment, the result of which is annualized and expressed as a
percentage. It is reported for periods of one, five and 10 years or since
commencement of operations for periods not falling on those intervals. In
computing average annual total return, the Fund assumes reinvestment of all
distributions at net asset value on applicable reinvestment dates.
An after-tax total return for the Fund may be calculated by taking
its total return and subtracting applicable federal taxes from the portions of
the Fund's total return attributable to capital gain and ordinary income
distributions. This after-tax total return may be compared to that of other
mutual funds with similar investment objectives as reported by independent
sources.
The Fund also may report the percentage of its total return that
would be paid to taxes annually (at the applicable federal personal income and
capital gains tax rates) before redemption of Fund shares. This proportion may
be compared to that of other mutual funds with similar investment objectives as
reported by independent sources.
The Fund also may advertise its cumulative total return since
inception. This number is calculated using the same formula that is used for
average annual total return except that, rather than calculating the total
return based on a one-year period, cumulative total return is calculated from
commencement of operations to the most recent fiscal year end.
The performance of the Fund may be compared with the performance of
other mutual funds by comparing the ratings of mutual fund rating services,
various indices, U.S. government obligations, bank certificates of deposit, the
consumer price index and other investments for which reliable data is available.
The Fund's performance may also be compared to averages, performance rankings,
or other information prepared by recognized mutual fund statistical services. An
index's performance data assumes the reinvestment of dividends but does not
reflect deductions for administrative, management and trading expenses. The Fund
will be subject to these costs and expenses, while an index does not have these
expenses. In addition, various factors, such as holding a cash balance, may
cause the Fund's performance to be higher or lower than that of an index. The
Fund's annual report may contain additional performance information.
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<PAGE>
FINANCIAL STATEMENTS
REPORT ON STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 22, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Shareholder and Trustees of
Hambrecht & Quist Fund Trust:
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of the H&Q IPO &
Emerging Company Fund (the Fund), at October 22, 1999, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
October 26, 1999
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<PAGE>
H&Q IPO & EMERGING COMPANY FUND OF
HAMBRECHT & QUIST FUND TRUST
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 22, 1999
<TABLE>
<S> <C>
ASSETS
Cash $100,000
Deferred offering costs (Note 2) 41,510
----------
Total assets $141,510
----------
LIABILITIES
Liabilities and accrued expenses 41,510
----------
Total liabilities $41,510
----------
NET ASSETS $100,000
----------
----------
NET ASSETS CONSIST OF:
Class A Shares of Common Stock, $.001 par value, $10
unlimited shares authorized
Paid-in Capital in excess of par 99,990
----------
NET ASSETS $100,000
----------
----------
NET ASSET VALUE:
Class A - Based on net assets of $100,000 and 10,000 $10.00
shares outstanding
</TABLE>
The accompanying notes are an integral part of this financial statement.
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<PAGE>
H&Q IPO & EMERGING COMPANY FUND OF
HAMBRECHT & QUIST FUND TRUST
NOTES TO FINANCIAL STATEMENT
OCTOBER 22, 1999
1. ORGANIZATION:
Hambrecht & Quist Fund Trust (the "Trust") was organized as a Delaware
business trust on June 8, 1999 and is required under the Investment Company
Act of 1940 as an open-end diversified investment company. H&Q IPO &
Emerging Company Fund (the "Fund") is a series of the Trust. To date, the
Fund has not had any transactions other than those relating to
organizational matters and the sale of 10,000 Class A shares to Hambrecht &
Quist California, the parent company of Hambrecht & Quist Fund Management,
LLC (the "Adviser").
2. SIGNIFICANT ACCOUNTING POLICIES
Deferred Offering Costs: The Fund has deferred certain initial offering
costs. These costs will be amortized by the Fund over the period of
benefit, not to exceed 12 months from the date the Fund commences
operations.
Organization Costs: Costs of $100,000 relating to the organization of the
Trust have been borne by the Adviser.
3. INVESTMENT ADVISORY AND OTHER AGREEMENTS:
a. The Trust, on behalf of the Fund, has entered into an investment
advisory agreement with the Adviser. Pursuant to the investment
advisory agreement, the Adviser is responsible for oversight of the
asset management and administration of the Fund. The Fund pays the
Adviser a monthly fee at the annual rate of 0.65% of the Fund's
average daily net assets, a portion of which is used to pay the
Fund's sub-adviser.
b. The Adviser has entered into an investment sub-advisory agreement
with Symphony Asset Management, LLC (Symphony) pursuant to which
Symphony acts as the Fund's sub-adviser. The sub-adviser makes all
investment decisions for the Fund and places all orders for the
purchase and sale of the Fund's securities. For the sub-adviser's
services, the Adviser pays Symphony an annual investment sub-advisory
fee, payable monthly, of 0.35% of the Fund's average daily net assets
not in excess of $100 million and 0.375% of such assets over $100
million.
c. The Adviser has guaranteed that, until January 1, 2001, the total
annual operation expenses of the Class A shares will not exceed 1.60%
of such class's average daily net assets. In the event that the
Adviser waives it management fee to satisfy the expense guarantees,
the sub-adviser has agreed to waive a pro rata portion of its fee
from the Adviser, subject to receiving a minimum sub-advisory fee of
0.20% of the class's average daily net assets.
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<PAGE>
d. The Fund has adopted a plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, that allows the Fund to
pay distribution and service fees for the sale and distribution of
its shares and for the services provided to shareholders. The plan
permits the Fund to pay Hambrecht & Quist LLC, an affiliate of the
Adviser, as principal distributor, a monthly distribution fee of
0.30% per annum of the average daily net assets of the Class A shares
of the Fund.
e. Certain officers of the Trust are officers of the Adviser. Such
persons are not paid directly by the Trust for serving in those
capacities.
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