<PAGE>
As Filed with the Securities and Exchange Commission on April 29, 1997
========
Registration Nos. 33-1312 and 811-4453
================================================================================
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. 18 [X]
--==
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 20 [X]
==
HSBC FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 634-2536
Steven R. Howard, Secretary
Baker & McKenzie, 805 Third Avenue, 30th Floor
New York, New York 10022
(Name and Address of Agent for Service)
--------------------------
It is proposed that this filing will become effective (check
appropriate box):
X immediately upon filing pursuant to paragraph (b)
---
on (date) pursuant to paragraph (b)
---
75 days after filing pursuant to paragraph (a)
---
on (date) pursuant to paragraph (a) of Rule 485
--------------------------
The Registrant has registered an indefinite number of shares of
beneficial interest, par value $0.001 per share, by filing a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940. A Rule 24f-2
Notice for the fiscal year ended December 31, 1996 was filed with the Commission
on or about March 3, 1997.
================================================================================
Total Pages: ___
Exhibit Index: ___
<PAGE>
Calculation of Registration Fee
<TABLE>
<CAPTION>
Titles of Securities Being Amount Being Proposed Maximum Proposed Maximum Amount of
Registered Registered* Offering Price Per Aggregate Offering Registration Fee
Unit Price **
<S> <C> <C> <C> <C>
Shares of Beneficial Interest;
$.001 par value of each
Portfolio Indefinite
Government Money Market Fund 0 $1.00 $ 0.00 $ 0.00
U.S. Treasury Money Market Fund 3,537,938 $1.00 $ 0.00 $ 0.00
Cash Management Fund 0 $1.00 $ 0.00 $ 0.00
New York Tax-Free Money Market Fund 0 $1.00 $ 0.00 $ 0.00
--------- -------- -------
3,537,938 $ 0.00 $ 0.00
</TABLE>
* Registrant continues its election to register an indefinite number of shares
of beneficial interest pursuant to rule 24f-2 under the Investment Company
Act of 1940
** The calculation of the maximum aggregate offering price is made pursuant to
rule 24e-2(a) under the Investment Company Act of 1940 and is based on the
following: (i) the total amount of securities redeemed or repurchased of the
Registrant's series indicated above during the fiscal year ended December
31, 1996 was 1,118,988,159 securities of the Cash Management Fund;
222,682,793 securities of the Government Money Market Fund; 148,436,061
securities of the U.S. Treasury Money Market Fund; and 93,871,590 securities
of the New York Tax-Free Money Market Fund; (ii) 1,118,988,159 securities of
the Cash Management Fund; 222,682,793 securities of the Government Money
Market Fund; 144,898,123 securities of the U.S. Treasury Money Market Fund;
and 93,871,590 securities of the Tax-Free Money Market Fund, were previously
used for reduction pursuant to Rule 24f-2 (iii) and 3,537,938 (representing
0 shares of the Cash Management Fund, 0 shares of the Government Money
Market Fund; 3,537,938 of the U.S. Treasury Money Market Fund; and 0 shares
of the New York Tax-Free Money Market Fund), is being registered in this
Amendment.
<PAGE>
HSBC FUNDS TRUST
----------------
CASH MANAGEMENT FUND
GOVERNMENT MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
NEW YORK TAX-FREE MONEY MARKET FUND
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
<TABLE>
<CAPTION>
N-1A Item No. Location
- ------------- --------
Part A Prospectus Caption
- ------ ------------------
<S> <C> <C>
Item 1. Cover Page................... Cover Page
Item 2. Synopsis..................... Summary of Annual Fund
Operating Expenses
Item 3. Condensed Financial
Information.................. Yield Information; Financial
Highlights
Item 4. General Description of
Registrant................... Investment Objective and
Policies;
Investment Restrictions
Item 5. Management of the Fund....... Management of the Funds;
Transactions with Affiliates;
Purchase of Shares;
Transfer and Dividend
Disbursing Agent and
Custodian
Item 5A. Management's Discussion
of Fund Performance.......... N/A
Item 6. Capital Stock and Other
Securities................... Dividends and Distributions;
Federal Income Taxes;
Account Services; Shares
of Beneficial Interest;
New York Taxes (New York
Tax-Free Money Market Fund
only)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Item 7. Purchase of Securities
Being Offered............... Determination of Net Asset
Value; Purchase of Shares;
Exchange Privilege
Item 8. Redemption or Repurchase.... Redemption of Shares;
Redemptions (Part B)
Item 9. Legal Proceedings........... Not Applicable
Part B Statement of Additional
- ------ Information Caption
--------------------------
Item 10. Cover Page.................. Cover Page
Item 11. Table of Contents........... Table of Contents
Item 12. General Information
and History................. Not Applicable
Item 13. Investment Objective and
Policies.................... Investment Policies;
Investment Restrictions
Item 14. Management of the
Registrant.................. Management
Item 15. Control Persons and
Principal Holders of
Securities.................. Management; Shares of
Beneficial Interest
Item 16. Investment Advisory and
Other Services.............. Management; Custodian,
Transfer Agent and
Dividend Disbursing
Agent; Independent
Auditors
Item 17. Brokerage Allocation........ Portfolio Transactions
Item 18. Capital Stock and Other
Securities.................. Shares of Beneficial
Interest
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............... Purchase of Shares
(Part A); Redemptions,
Redemption of Shares
(Part A); Determination
of Net Asset Value;
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Exchange Privilege
Item 20. Tax Status.................. Federal Income Taxes
(Parts A and B); New
York Taxes (Part A -New
York Tax-Free Money
Market Fund only)
Item 21. Underwriters................ Management
Item 22. Calculation of Performance
Data........................ Calculation of Yields
and Performance
Information
Item 23. Financial Statements........ Financial Statements
</TABLE>
Part C
- ------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of this Registration Statement.
<PAGE>
- --------------------------------------------------------------------------------
HSBC Funds Trust
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash Management Fund 3435 Stelzer Road, Columbus, Ohio 43219
Government Money Market Fund
U.S. Treasury Money Market Fund Information: (800) 634-2536
New York Tax-Free Money Market Fund
HSBC ASSET MANAGEMENT AMERICAS INC.
--Investment Adviser and Co-Administrator
BISYS FUND SERVICES--Distributor
- --------------------------------------------------------------------------------
HSBC Funds Trust, (the "Trust") was organized in Massachusetts on October 31,
1985 as a Massachusetts business trust and is a no-load, open-end, diversified
management investment company with multiple investment portfolios, including the
Cash Management Fund, the Government Money Market Fund, the U.S. Treasury Money
Market Fund (collectively, the "Money Market Funds") and the New York Tax-Free
Money Market Fund (the "New York Tax-Free Fund") described below. (The Money
Market Funds and the New York Tax-Free Fund are collectively referred to herein
as the "Funds".) The investment objective of each Money Market Fund is to
achieve as high a level of current income as is consistent with preservation of
capital and liquidity. The investment objective of the New York Tax-Free Fund is
to provide its shareholders with as high a level of current income exempt from
regular Federal, New York State and New York City income taxes as is consistent
with preservation of capital and liquidity. Each Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less.
Cash Management Fund (the "Cash Management Fund") invests in a variety of high
quality, short-term money market instruments, with remaining maturities of
thirteen months or less, including obligations in which the Government Money
Market Fund invests.
Government Money Market Fund (the "Government Fund") invests exclusively in
short-term obligations issued or guaranteed by the United States Government or
its agencies or instrumentalities with remaining maturities of thirteen months
or less, and repurchase agreements.
U.S. Treasury Money Market Fund (the "U.S. Treasury Fund") invests exclusively
in short-term, direct obligations of the United States Treasury with remaining
maturities of thirteen months or less, and repurchase agreements.
(continued on next page)
--------------------------------
This Prospectus should be read and retained for ready reference to information
about the Funds.
--------------------------------
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
April 29, 1997
<PAGE>
(continued from previous page)
New York Tax-Free Money Market Fund invests primarily in high quality
obligations issued by or on behalf of New York, its cities, municipalities or
other public authorities that are exempt from regular Federal, New York State
and New York City income tax in the opinion of bond counsel to the issuer ("New
York Municipal Obligations") with remaining maturities of thirteen months or
less.
Shares of the Funds are offered for sale through its Distributor as an
investment vehicle for institutions, corporations, fiduciaries and individuals.
Certain broker-dealers, banks, financial institutions and corporations (the
"Participating Organizations") have agreed to act as shareholder servicing
agents for investors who maintain accounts at these Participating Organizations
and to perform certain services for the Funds.
The Funds' investment adviser is HSBC Asset Management Americas Inc. (the
"Adviser"), the North American affiliate of HSBC Holdings plc (Hongkong and
Shanghai Banking Corporation). See "Management of the Funds" in this
Prospectus.
Prospective investors should be aware that shares of the Funds are not an
obligation of or guaranteed or endorsed by HSBC Holdings plc or its affiliates.
In addition, such shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency and may involve
investment risks, including the possible loss of principal.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. A Statement of Additional Information
(the "SAI"), dated April 29, 1997 containing additional detailed information
about the Funds including audited financial statements, has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference into
this Prospectus. A copy is available without charge and can be obtained by
writing the Trust at the address on the cover page, or calling the telephone
number listed above.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Summary of Annual Fund Operating Expenses.. 3
Financial Highlights....................... 5
Investment Objectives, Policies
and Risk Factors......................... 9
Investment Restrictions.................... 17
Management of the Funds.................... 18
Transactions with Affiliates............... 21
Determination of Net Asset Value........... 21
Purchase of Shares......................... 22
Redemption of Shares....................... 24
Exchange Privilege......................... 26
Dividends and Distributions................ 26
Federal Income Taxes....................... 27
New York Taxes............................. 28
Account Services........................... 28
Transfer Agency and
Fund Accounting Services................. 29
Custodian.................................. 29
Yield Information.......................... 29
Shares of Beneficial Interest.............. 30
</TABLE>
----------------------
SUMMARY OF ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
The purpose of the following information is to assist an investor in
understanding the costs and expenses that an investor in the Funds will bear
directly or indirectly. The information is based on expenses for each Fund for
the fiscal year ended December 31, 1996, as adjusted for estimated other
operating expenses and voluntary reductions of investment advisory,
administration, co-administration and 12b-1 fees.
<TABLE>
<CAPTION>
U.S. New York
Government Treasury Tax-Free
Cash Money Money Money
Management Market Market Market
---------- ------ ------ ------
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses:
Management Fees (net of fees
not imposed)*................. 0.35% 0.35% 0.35% 0.20%
12b-1 Fees (net of fees not
imposed)**.................... 0.04% 0.04% 0.04% 0.04%
Other Expenses (net of fees
and expenses not imposed)
Administrative Services Fee+.. 0.10% 0.10% 0.10% 0.10%
Co-Administrative Services
Fee++........................ 0.00% 0.00% 0.00% 0.00%
Other Operating Expenses...... 0.20% 0.23% 0.35% 0.26%
---- ---- ---- ----
Total Fund Operating Expenses
(net of fees and
expenses not imposed)***...... 0.69% 0.72% 0.84% 0.60%
==== ==== ==== ====
Total Fund Operating Expenses
Before Non-
Imposition of Fees and
Expenses+++.................. 0.97% 1.00% 1.12% 1.03%
==== ==== ==== ====
</TABLE>
3
<PAGE>
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual shareholder's
own investment in the Funds. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
The following example should not be considered a representation of past or
future expenses. The expenses set forth above and example set forth below
reflect the non-imposition of certain fees and expenses. The actual expenses may
be greater or less than those shown. The following example assumes a 5% annual
return; however, the Funds' actual return will vary and may be greater or less
than 5%.
Example:
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return:
<TABLE>
<CAPTION>
U.S. New York
Government Treasury Tax-Free
Cash Money Money Money
Management Market Market Market
---------- ------ ------ ------
<S> <C> <C> <C> <C>
1 year...................... $ 7 $ 7 $ 9 $ 6
3 years..................... $22 $23 $ 27 $19
5 years..................... $38 $40 $ 47 $33
10 years..................... $86 $89 $104 $75
</TABLE>
- ------------
* Reflects advisory fees not imposed as a result of a voluntary waiver by the
Adviser. If these fees had been imposed, the New York Tax-Free Money Market
Fund would have paid 0.35% for its first $500 million of average daily net
assets for advisory fees. See "Management of the Funds--Investment
Adviser".
** The fee under the Funds' Distribution Plan and Agreement is calculated on
the basis of the average daily net assets of each Fund at an annual rate
not to exceed 0.20% with respect to each Fund. See "Management of the
Funds--Distribution Plan and Agreement."
*** Investors who purchase and redeem shares of a Fund through a customer
account maintained at a Participating Organization may be charged
additional fees by the Participating Organization. The Fund may also pay
fees to Participating Organization for handling record keeping and certain
administrative services for its customers who invest in the Funds through
accounts maintained at the Participating Organization. The payments will
not exceed 0.35% of the average daily net assets maintained by such
Participating Organization. See "Management of the Funds--Service
Agreements."
+ Reflects administrative fees not imposed as a voluntary waiver by BISYS
Fund Services of 0.05% for each Fund.
++ Reflects co-administrative fees of 0.03% and shareholder servicer
assistance fees of 0.04% voluntarily waived by the Adviser for each Fund.
See "Management of the Funds--Administrator, and Shareholder Servicer
Assistant."
+++ Includes, among other things, Rule 12b-1 fees at the maximum rate of
0.20%.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following supplementary financial information for each of the five years
in the period ended December 31, 1996 has been audited by Ernst & Young LLP
whose report thereon appears in the Funds' 1996 Annual Report to Shareholders.
The supplementary financial information for each of the three years in the
period ended December 31, 1991 also has been audited by Ernst & Young LLP whose
report thereon was unqualified. The supplementary financial information for the
periods ended December 31, 1988 and prior has been audited by other auditors
whose report thereon was unqualified. This information should be read in
conjunction with the financial statements and notes thereto.
Selected data for a share outstanding throughout each period:
Cash Management Fund
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year................ $1.000 $1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- -------- -------- --------
Income from Investment Operations:
- ---------------------------------
Net investment income....................... 0.049 0.053 0.039 0.027 0.037
Net realized and unrealized gain............ -- -- -- 0.002 --
------- ------- -------- -------- --------
Total from investment operations......... 0.049 0.053 0.039 0.029 0.037
------- ------- -------- -------- --------
Less Distributions:
- ------------------
Dividends from net investment income........ (0.049) (0.053) (0.039) (0.027) (0.037)
Dividends from realized gain................ -- -- -- (0.002) --
------- ------- -------- -------- --------
Total distributions...................... (0.049) (0.053) (0.039) (0.029) (0.037)
------- ------- -------- -------- --------
Net asset value, end of year...................... $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======== ======== ========
Total Return...................................... 5.00% 5.41% 3.95% 3.11% 3.77%
Ratios/Supplemental Data:
- ------------------------
Net Assets (000), end of year............... $220,960 $170,869 $200,492 $172,518 $246,543
Ratio of expenses (without fee waivers)
to average net assets*................... 0.80% 0.80% 0.64% 0.58% 0.62%
Ratio of expenses (with fee waivers)
to average net assets..................... 0.68% 0.79% 0.63% 0.58% 0.62%
Ratio of net investment income (without
fee waivers) to average net assets*....... 4.76% 5.28% 3.83% 2.88% 3.75%
Ratio of net investment income (with fee
waivers) to average net assets............ 4.88% 5.29% 3.84% 2.88% 3.75%
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1991 1990 1989 1988 1987
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.00
------- ------- ------- ------- -------
Income from Investment Operations:
- ---------------------------------
Net investment income....................... 0.058 0.077 0.087 0.071 0.063
Net realized and unrealized gain............ -- -- -- -- --
------- ------- ------- ------- -------
Total from investment operations......... 0.058 0.077 0.087 0.071 0.063
------- ------- ------- ------- -------
Less Distributions:
- ------------------
Dividends from net investment income........ (0.058) (0.077) (0.087) (0.071) (0.063)
Dividends from realized gain................ -- -- -- -- --
------- ------- ------- ------- -------
Total distributions...................... (0.058) (0.077) (0.087) (0.071) (0.063)
------- ------- ------- ------- -------
Net asset value, end of year...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return...................................... 5.92% 8.01% 9.09% 7.36% 6.47%
Ratios/Supplemental Data:
- ------------------------
Net Assets (000), end of year............... $373,694 $429,096 $901,134 $644,481 $557,000
Ratio of expenses (without fee waivers)
to average net assets*................... 0.66% 0.59% 0.55% 0.60% 0.62%
Ratio of expenses (with fee waivers)
to average net assets..................... 0.66% 0.59% 0.50% 0.55% 0.62%
Ratio of net investment income (without
fee waivers) to average net assets*....... 5.80% 7.75% 8.65% 7.07% 6.29%
Ratio of net investment income (with fee
waivers) to average net assets............ 5.80% 7.75% 8.70% 7.12% 6.29%
</TABLE>
- ---------------
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
5
<PAGE>
Government Money Market Fund
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Income from Investment Operations:
- ----------------------------------
Net investment income....................... 0.048 0.052 0.038 0.028 0.037
Net realized and unrealized gain............ -- -- -- 0.001 --
------- ------- ------- ------- -------
Total from investment operations......... 0.048 0.052 0.038 0.029 0.037
------- ------- ------- ------- -------
Less Distributions:
- -------------------
Dividends from net investment income........ (0.048) (0.052) (0.038) (0.028) (0.037)
Dividends from realized gain................ -- -- -- (0.001) --
------- ------- ------- ------- -------
Total distributions...................... (0.048) (0.052) (0.038) (0.029) (0.037)
------- ------- ------- ------- -------
Net asset value, end of year...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return...................................... 4.87% 5.32% 3.83% 2.99% 3.80%
Ratios/Supplemental Data:
- -------------------------
Net Assets (000), end of year............... $87,392 $86,850 $166,796 $138,085 $246,327
Ratio of expenses (without fee
waivers) to average net assets*.......... 0.84% 0.78% 0.64% 0.61% 0.62%
Ratio of expenses (with fee waivers)
to average net assets.................... 0.72% 0.76% 0.63% 0.61% 0.62%
Ratio of net investment income (without
fee waivers) to average net assets*...... 4.63% 5.19% 3.75% 2.89% 3.72%
Ratio of net investment income (with fee
waivers) to average net assets........... 4.75% 5.21% 3.76% 2.89% 3.72%
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1991 1990 1989 1988 1987
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Income from Investment Operations:
- ----------------------------------
Net investment income....................... 0.056 0.076 0.086 0.070 0.061
Net realized and unrealized gain............ -- -- -- -- --
------- ------- ------- ------- -------
Total from investment operations......... 0.056 0.076 0.086 0.070 0.061
------- ------- ------- ------- -------
Less Distributions:
- -------------------
Dividends from net investment income........ (0.056) (0.076) (0.086) (0.070) (0.061)
Dividends from realized gain................ -- -- -- -- --
------- ------- ------- ------- -------
Total distributions...................... (0.056) (0.076) (0.086) (0.070) (0.061)
------- ------- ------- ------- -------
Net asset value, end of year...................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return...................................... 5.79% 7.92% 8.92% 7.22% 6.28%
Ratios/Supplemental Data:
- -------------------------
Net Assets (000), end of year............... $201,232 $237,381 $191,766 $196,094 $168,246
Ratio of expenses (without fee
waivers) to average net assets*.......... 0.63% 0.58% 0.60% 0.64% 0.58%
Ratio of expenses (with fee waivers)
to average net assets.................... 0.63% 0.58% 0.60% 0.58% 0.58%
Ratio of net investment income (without
fee waivers) to average net assets*...... 5.70% 7.63% 8.60% 6.93% 6.11%
Ratio of net investment income (with fee
waivers) to average net assets........... 5.70% 7.63% 8.60% 6.99% 6.11%
</TABLE>
- --------------
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
6
<PAGE>
U.S. Treasury Money Market Fund
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of year................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- -------- -------- --------
Income from Investment
- ----------------------
Operations:
----------
Net investment income.... 0.046 0.049 0.036 0.026 0.032
------- ------- -------- -------- --------
Less Distributions:
- ------------------
Dividends from net
investment income....... (0.046) (0.049) (0.036) (0.026) (0.032)
------- ------- -------- -------- --------
Net asset value, end of
year.................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======== ======== ========
Total Return............... 4.68% 5.04% 3.60% 2.65% 3.27%
Ratios/Supplemental Data:
Net Assets (000), end of
year.................... $28,962 $32,500 $105,720 $133,070 $257,898
Ratio of expenses
(without fee
waivers) to average
net assets*........... 0.95% 0.84% 0.69% 0.59% 0.67%
Ratio of expenses (with
fee waivers)
to average net assets.. 0.78% 0.82% 0.68% 0.59% 0.67%
Ratio of net investment
income (without
fee waivers) to
average net assets*... 4.40% 4.92% 3.47% 2.62% 3.22%
Ratio of net investment
income (with fee
waivers) to average
net assets............ 4.57% 4.94% 3.48% 2.62% 3.22%
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1991 1990 1989 1988 1987
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of year................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Income from Investment
- ----------------------
Operations:
----------
Net investment income.... 0.055 0.077 0.086 0.069 0.060
-------- -------- -------- -------- --------
Less Distributions:
- ------------------
Dividends from net
investment income....... (0.055) (0.077) (0.086) (0.069) (0.060)
-------- -------- -------- -------- --------
Net asset value, end of
year.................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total Return............... 5.60% 7.94% 8.97% 7.18% 6.14%
Ratios/Supplemental Data:
Net Assets (000), end of
year.................... $220,371 $236,223 $144,982 $112,479 $105,600
Ratio of expenses
(without fee
waivers) to average
net assets*........... 0.68% 0.52% 0.49% 0.51% 0.47%
Ratio of expenses (with
fee waivers)
to average net assets.. 0.68% 0.43% 0.30% 0.31% 0.47%
Ratio of net investment
income (without
fee waivers) to
average net assets*... 5.45% 7.50% 8.46% 6.75% 5.97%
Ratio of net investment
income (with fee
waivers) to average
net assets............ 5.45% 7.59% 8.65% 6.95% 5.97%
</TABLE>
- ------------
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have been as
indicated.
7
<PAGE>
New York Tax-Free Money Market Fund
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year.............................. $ 1.000 $ 1,000 $ 1.000 $ 1.000 $ 1.000
------- -------- -------- -------- -------
Income from Investment Operations:
- ---------------------------------
Net investment income......................................... 0.029 0.031 0.022 0.018 0.024
Less Distributions:
- ------------------
Dividends from net investment income.......................... (0.029) (0.031) (0.022) (0.018) (0.024)
------- -------- -------- -------- -------
Net asset value, end of year.................................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======== ======== ======== =======
Total Return.................................................... 2.92% 3.17% 2.23% 1.86% 2.44%
Ratios/Supplemental Data:
- ------------------------
Net Assets (000), end of year................................. $70,339 $ 64,884 $ 53,538 $ 59,394 $56,386
Ratio of expenses (without
fee waivers) to average
net assets*................................................. 0.87% 0.85% 0.73% 0.72% 0.73%
Ratios of expenses
(with fee waivers)
to average net assets....................................... 0.59% 0.69% 0.57% 0.55% 0.56%
Ratio of net investment
income (without fee waivers)
to average net assets*...................................... 2.60% 2.97% 2.04% 1.68% 2.24%
Ratio of net investment income
(with fee waivers)
to average net assets....................................... 2.88% 3.13% 2.20% 1.85% 2.41%
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1991 1990 1989 1988 1987
-------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year.............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- -------- -------- -------- -------
Income from Investment Operations:
- ---------------------------------
Net investment income......................................... 0.038 0.051 0.054 0.045 0.038
Less Distributions:
- ------------------
Dividends from net investment income.......................... (0.038) (0.051) (0.054) (0.045) (0.038)
------- -------- -------- -------- -------
Net asset value, end of year.................................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======== ======== ======== =======
Total Return.................................................... 3.85% 5.25% 5.58% 4.59% 3.88%
Ratios/Supplemental Data:
- ------------------------
Net Assets (000), end of year................................. $75,850 $121,433 $159,847 $127,771 $81,420
Ratio of expenses (without
fee waivers) to average
net assets*................................................. 0.68% 0.40% 0.41% 0.39% 0.31%
Ratios of expenses
(with fee waivers)
to average net assets....................................... 0.51% 0.22% 0.22% 0.10% 0.31%
Ratio of net investment
income (without fee waivers)
to average net assets*...................................... 3.61% 4.94% 5.24% 4.21% 3.81%
Ratio of net investment income
(with fee waivers)
to average net assets....................................... 3.78% 5.12% 5.43% 4.50% 3.81%
</TABLE>
- -------------
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions had not occurred, the ratios would have
been as indicated.
8
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of each Money Market Fund is to achieve as high a
level of current income as is consistent with preservation of capital and
liquidity. The investment objective of the New York Tax-Free Fund is to provide
investors with as high a level of current income exempt from regular Federal,
New York State and New York City income taxes as is consistent with preservation
of capital and liquidity. To attempt to achieve their objectives, the Funds
invest in certain eligible short-term, high quality securities, as described
below, which are determined to present minimal credit risks. Generally, the
short-term, high quality securities in which the Funds invest may not yield as
high a level of current income as longer term or lower grade securities.
However, the shorter maturities and higher grades of the securities held by the
Funds can be expected to result in higher liquidity and less fluctuation in
market value as a result of changes in interest rates. There is no assurance
that a Fund's objectives will be attained.
Cash Management Fund
The Cash Management Fund invests in a broad range of short-term money market
instruments which have remaining maturities not exceeding thirteen months or 397
days, variable rate demand notes, variable rate master demand notes and certain
repurchase agreements. The average weighted maturities of the securities
purchased by the Fund cannot exceed 90 days. These money market instruments may
include obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities and the following other kinds of investments:
Variable Rate Demand Notes and Master Demand Notes. Variable rate demand notes
may be issued by corporations, financial institutions and government agencies
and instrumentalities. Typically, these securities will have a maturity in the
range of 5 to 20 years but carry with them the right of the holder to put the
securities to a remarketing agent or other entity on 30 days' notice. The
obligation of the issuer of the put to repurchase the securities is usually
backed by a letter of credit or other obligations issued by a bank or other
financial institution. The purchase price is ordinarily par plus accrued and
unpaid interest.
The Cash Management Fund may also buy variable rate master demand notes. The
terms of these obligations permit the investment of fluctuating amounts at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the borrower. They 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 prepay 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 lender and
borrower, it is not generally contemplated that they will be traded. There is no
secondary market for them, although they are redeemable (and thus immediately
repayable by the borrower) at principal amount, plus accrued interest, at any
time. In connection with such purchases and on an ongoing basis, the investment
adviser will review publicly available information in connection with the
earning power, cash flow and other liquidity ratios of the issuer.
Bank Obligations. These obligations include negotiable certificates of
deposit, bankers' acceptances, fixed time deposits and other obligations issued
or supported by banks. The Cash Management Fund may not invest less than 25% of
the current value of its total assets in bank obligations (including bank
obligations subject to repurchase agreements), except that if at some future
date adverse economic conditions prevail in the banking industry, the Cash
Management Fund may, for defensive purposes, temporarily invest less than 25% of
its assets
9
<PAGE>
in bank obligations. The Cash Management Fund will not invest in any obligations
of HSBC Holdings plc or its affiliates (as defined under the Investment Company
Act of 1940). The Cash Management Fund is permitted to invest in obligations of
correspondent banks of HSBC Holdings plc which are not affiliates of the Trust,
but the Fund will not give preference in its investment selections to those
obligations.
The Cash Management Fund limits its investments in United States bank
obligations to obligations of United States banks (including foreign branches)
which have more than $1 billion in total assets at the time of investment and
are members of the Federal Reserve System or are examined by the Comptroller of
the Currency or whose deposits are insured by the Federal Deposit Insurance
Corporation. The Cash Management Fund limits its investments in foreign bank
obligations to United States dollar denominated obligations of foreign banks
(including United States branches) which at the time of investment (i) have more
than $10 billion, or the equivalent in other currencies, in total assets; (ii)
have branches or agencies in the United States; and (iii) in the opinion of the
Fund's investment adviser, are of an investment quality comparable to
obligations of United States banks which may be purchased by the Fund and
present minimal credit risk.
Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. The Cash Management
Fund may not invest in fixed time deposits subject to withdrawal penalties
maturing in more than seven calendar days; investments in fixed time deposits
subject to withdrawal penalties maturing from two business days through seven
calendar days may not exceed 10% of the value of the total assets of the Fund.
Obligations of foreign banks involve somewhat different investment risks than
those affecting obligations of United States banks, including the possibilities
that their liquidity could be impaired because of future political and economic
developments, that the obligations may be less marketable than comparable
obligations of United States banks, that a foreign jurisdiction might impose
withholding taxes on interest income payable on those obligations, that foreign
deposits may be seized or nationalized, that foreign governmental restrictions
like exchange controls may be adopted which might adversely affect the payment
of principal and interest on those obligations and that the selection of those
obligations may be more difficult because there may be less publicly available
information concerning foreign banks or the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign banks may
differ from those applicable to United States banks. In that connection, foreign
banks are not subject to examination by any United States Government agency or
instrumentality. There is no limitation on the amount of Cash Management Fund
assets which may be invested in obligations of foreign banks which meet the
conditions set forth above.
Commercial Paper. Commercial paper includes short-term unsecured promissory
notes, variable rate demand notes and variable rate master demand notes issued
by domestic and foreign bank-holding companies, corporations and financial
institutions and government agencies and instrumentalities (but only in the case
of taxable securities). All commercial paper purchased by the Fund is, at the
time of investment, required to be rated (or issued by an issuer with a similar
security rated) in the highest short-term rating category by two or more
Nationally Recognized Statistical Ratings Organizations ("NRSROs") or the only
NRSRO rating the security, or if unrated, determined to be of comparable credit
quality by the Adviser.
Corporate Debt Securities. Investments by the Cash Management Fund in these
securities are limited to non-convertible corporate debt securities such as
bonds and debentures which have thirteen months or less remaining to maturity
and which are rated "A" or better by Standard & Poor's Corporation ("S&P") and
"A" or better by Moody's Investors Services ("Moody's") and of comparable high
quality ratings by other NRSRO that have rated such securities.
10
<PAGE>
Government Fund
The Government Fund invests exclusively in obligations issued or guaranteed by
the United States Government or its agencies or instrumentalities which have
remaining maturities not exceeding thirteen months and certain repurchase
agreements. United States Government agency and instrumentality obligations are
debt securities issued by United States Government sponsored enterprises and
Federal agencies. Some obligations of agencies and instrumentalities of the
United States Government are supported by the full faith and credit of the
United States or United States Treasury guarantees; others, by the right of the
issuer to borrow from the United States Treasury; others, by discretionary
authority of the United States Government to purchase certain obligations of the
agency or instrumentality; and others, only by the credit of the agency or
instrumentality issuing the obligation. In the case of obligations not backed by
the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. United States Government agency and instrumentality obligations
include master notes issued by Federal agencies or instrumentalities (see the
SAI for further details about master notes).
U.S. Treasury Fund
The U.S. Treasury Fund invests exclusively in direct obligations of the United
States Treasury which have remaining maturities not exceeding thirteen months
and certain repurchase agreements. The U.S. Treasury Fund will not invest in
obligations issued or guaranteed by agencies or instrumentalities of the United
States Government and will not enter into loans of its portfolio securities.
New York Tax-Free Fund
Quality Standards
To attain its objectives, the New York Tax-Free Fund invests primarily in a
broad range of Municipal Obligations which are exempt from regular Federal, New
York State and New York City income tax and which meet the rating standards
described below. (For a description of other securities eligible for purchase,
please see "Taxable Securities"). As a matter of fundamental policy, the New
York Tax-Free Fund will maintain at least 80% of its net assets in tax-exempt
Municipal Obligations.
Municipal Obligations purchased by the New York Tax-Free Fund are debt
obligations issued by or on behalf of states, cities, municipalities and other
public authorities and include:
Municipal Bonds. Municipal bonds generally have a maturity at the time of
issuance of more than a year. Investments in municipal bonds are limited to
bonds with a remaining maturity of thirteen months or 397 days or less and which
are rated at the date of purchase "A" or better by S&P and "A" or better by
Moody's or have comparably high quality ratings by other nationally recognized
statistical rating organizations that have rated such bonds, or which if not
rated, are, in the opinion of the Fund's investment adviser, of comparable
investment quality.
The two highest ratings for municipal bonds under the Moody's classification
are "Aaa" and "Aa". Bonds rated "Aaa" are judged to be of the "best quality" and
carry the smallest amount of investment risk. Bonds rated "Aa" are of "high
quality by all standards", but margins of protection or other elements make
long-term risks appear somewhat greater than "Aaa" rated bonds. Bonds rated A by
Moody's are judged to possess many favorable investment attributes and are to be
considered as "upper medium grade obligations."
11
<PAGE>
The two highest ratings for municipal bonds under the S&P classification are
"AAA" and "AA". Bonds rated "AAA" have the highest rating assigned by S&P with
an extremely strong capacity to pay interest and repay principal. Bonds rated
"AA" differ "from the highest rated issues only in a small degree." Bonds rated
A by S&P are regarded as upper medium grade, having a strong capacity to pay
interest and repay principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories.
Municipal Notes. Municipal notes generally have maturities at the time of
issuance of thirteen months or less. Investments in municipal notes are limited
to notes which are rated at the date of purchase "MIG 1" or "VMIG 1" or "MIG 2"
or "VMIG 2" by Moody's and/or (if only rated by one agency) "SP-1" or "SP-2" by
S&P or "FIN-1" or "FIN-2" by Fitch or of comparable high quality as determined
by IBCA or Duff & Phelps Credit Rating Co., or, if not rated, are, in the
opinion of the Fund's investment adviser, of comparable investment quality.
The ratings set forth above generally are the highest rating categories
established by the respective rating agencies described above. Notes rated "MIG
1" or "VMIG 1" are judged to be of the "best quality" and notes rated "MIG 2" or
"VMIG 2" are of "high quality, with margins of protection ample, although not as
large as in the preceding group". Notes rated "FIN-1" represent the "strongest"
securities available and notes rated "FIN-2" reflect "a lesser margin of safety"
with respect to the "degree of assurance of timely payment than those rated
"FIN-1." Notes rated "SP-1" show a "very strong capacity to pay principal and
interest" and notes rated "SP-2" show a "satisfactory capacity" to do so.
Municipal Commercial Paper. Municipal commercial paper is a debt obligation
with a stated maturity of thirteen months or less which is issued to finance
seasonal working capital needs or as short-term financing in anticipation of
longer-term debt. Investments in municipal commercial paper are limited to
commercial paper which is at the time of purchase rated (or issued by an issuer
with a similar security rated) in the highest short-term rating category by two
or more NRSROs, or the only NRSRO rating the security, or if unrated, determined
to be of comparable credit quality by the Adviser.
The highest rating for both municipal commercial paper and taxable commercial
paper under the Moody's classification is "P-1" (Prime-1). Issuers rated "P-1"
have a "superior capacity for repayment of short-term promissory obligations."
The "A-1" rating for commercial paper under the S&P classification indicates
that the "degree of safety regarding timely payment is either overwhelming or
very strong." Commercial paper with "overwhelming safety characteristics" will
be rated "A-1+."
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, if the security is
downgraded to a level below that permitted for money market funds under Rule 2a-
7 of the 1940 Act, the Fund's Adviser must report such event to the Board of
Trustees as soon as possible to permit the Board to reassess the security
promptly to determine whether it may be retained as an eligible investment for
the Fund. To the extent the ratings given by a NRSRO may change as a result of
changes in such organizations or their rating systems, the Fund will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in this Prospectus and in the SAI.
12
<PAGE>
Although an investment in the New York Tax-Free Fund is not insured, certain
of the Municipal Obligations purchased by the Tax-Free Fund may be insured as to
principal and interest by, among others, the Municipal Bond Insurance
Association. Insured obligations are identified in the New York Tax-Free Fund's
financial statements.
New York Municipal Obligations
The New York Tax-Free Fund's assets will be invested primarily in New York
Municipal Obligations and in participation certificates in such obligations
purchased from banks, insurance companies and other financial institutions. (For
a description of other securities eligible for purchase please see "Taxable
Securities" below). As a matter of fundamental policy, the New York Tax-Free
Fund will not invest less than 80% of its net assets in New York Municipal
Obligations.
Opinions relating to the validity of Municipal Obligations (including New York
Municipal Obligations) and to the exclusion of interest thereon from Federal
gross income are rendered by bond counsel to the respective issuers at the time
of issuance. Neither the Funds, the Trust nor the Adviser will review the
proceedings relating to the issuance of Municipal Obligations or the basis for
such opinions.
The New York Tax-Free Fund is permitted to invest more than 5% (but not more
than 25%) of its total assets in the securities of any one issuer, which
otherwise satisfies that Fund's other investment restrictions. To the extent
that the New York Tax-Free Fund invests up to 25% of its total assets in the
securities of any one issuer, there may be an increased risk of loss to that
Fund.
Risk Considerations for the New York Tax-Free Fund
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the New York Tax-Free Fund), have experienced serious financial difficulties in
recent years. These difficulties have at times jeopardized the credit standing
and impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest rates and lower market prices for their debt
obligations. A recurrence of the financial difficulties previously experienced
by such issuers could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of other issuers of
New York Municipal Obligations.
The ability of the New York Tax-Free Fund to meet its objective is affected by
the ability of issuers to meet their payment obligations. There are additional
risks associated with an investment which concentrates in issues of one state.
Since the New York Tax-Free Fund invests primarily in obligations of New York
issuers, the marketability and market value of these obligations may be affected
by long-term economic problems which face New York City and New York State. In
particular, the ability of the State and the City to finance independently have
been adversely affected in the past by their inability to achieve or maintain
favorable credit ratings. There can also be an effect on the market price of
securities of other New York issues if the City receives less favorable credit
ratings and if certain of its economic problems continue. If these problems are
not resolved, or if new ones develop, they could adversely affect the various
New York issuers' ability to meet their financial obligations. Recently, for
example, a significant slowdown in the financial services sector of New York
City has adversely affected the City's revenues and has created budget gaps.
There can be no assurance that New York City or the local entities, or the
State, will not face budget gaps in future years. In addition, Moody's and S&P
have on several occasions lowered their ratings of New York State and City debt
obligations. As of the date of this Prospectus, New York
13
<PAGE>
State Debt Obligations are rated A by Moody's and A- by S&P. New York City's
General Obligation Bonds are rated BBB+ by S&P and Baa1 by Moody's.
Ratings reflect only the respective views of such organizations, and an
explanation of the significance of such ratings must be obtained from the rating
agency furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the Bonds.
The New York Tax-Free Fund does not intend to concentrate its investments in
any industry. The New York Tax-Free Fund may, however, invest 25% or more of its
assets in municipal obligations that are related in other ways such that an
economic, business or political development or change affecting one such
obligation could also affect the other obligations; for example, municipal
obligations the interest on which is paid from revenues of similar types of
projects.
The liquidity of the New York Tax-Free Fund may not be equal to that of a
money market fund which invests exclusively in short-term taxable money market
instruments. The taxable money market is a broader and more liquid market with a
greater number of investors, issuers and market makers than the market for
short-term Municipal Obligations. The limited marketability of short-term tax-
exempt Municipal Obligations may make it difficult in certain circumstances to
dispose of large investments advantageously. Nonetheless, the Adviser has
determined that there is a sufficient market to invest in short-term tax-exempt
Municipal Obligations.
In general, tax-exempt Municipal Obligations are subject to credit risks such
as the loss of credit ratings or possible default. Recent changes in the Federal
income tax law as a result of the Tax Reform Act of 1986 may affect the value
and availability of Municipal Obligations and New York Municipal Obligations.
See "Federal Income Taxes" in this Prospectus.
Other Investment Activities: New York Tax-Free Fund
Floating Rate Instruments. Certain of the Municipal Obligations which the New
York Tax-Free Fund may purchase have a floating or variable rate of interest.
Such obligations bear interest at rates which are not fixed, but which vary with
changes in specified market rates or indices, such as a Federal Reserve
composite index. Certain of such obligations may carry a demand or "put" feature
which would permit the holder to tender them back to the issuer (or to a third
party) at par value prior to maturity. The New York Tax-Free Fund may invest in
floating and variable rate Municipal Obligations even if they carry stated
maturities in excess of thirteen months, upon certain conditions contained in
Rule 2a-7 of the Investment Company Act of 1940, as amended. It is the present
position of the Securities and Exchange Commission that the maturity of a short
term (the principal amount must unconditionally be paid in 397 days or less)
floating rate security is one day and the maturity of a long term (the principal
amount is scheduled to be paid in more than 397 days) floating rate security
that is subject to a demand feature shall be deemed to have a maturity equal to
the period remaining until the principal amount can be recovered through demand.
The New York Tax-Free Fund will limit their purchases of floating and variable
rate Municipal Obligations to those meeting the quality standards set forth
above. The New York Tax-Free Fund's investment adviser will monitor on an
ongoing basis the earning power, cash flow and other liquidity ratios of the
issuers of such obligations, and will similarly monitor the ability of an issuer
of a demand instrument to pay principal and interest on demand. The New York
Tax-Free Fund's right to obtain payment at par on a demand instrument could
14
<PAGE>
be affected by events occurring between the date the New York Tax-Free Fund
elects to demand payment and the date payment is due, which may affect the
ability of the issuer of the instrument to make payment when due.
Taxable Securities. The New York Tax-Free Fund may invest up to 20% of the
current value of its total assets in securities subject to the Federal
alternative minimum tax. In addition, the New York Tax-Free Fund may invest up
to 100% of its total assets in these and other taxable securities to maintain a
temporary "defensive" posture when, in the opinion of the Adviser, it is
advisable to do so. The conditions for which such a posture would be undertaken
include adverse market conditions or the unavailability of suitable tax-exempt
securities. During these times when the New York Tax-Free Fund is maintaining a
temporary "defensive" posture, it may be unable to achieve fully its investment
objective.
The types of taxable securities (in addition to "alternative minimum tax"
securities) in which the New York Tax-Free Fund may invest are limited to the
following money market instruments which have remaining maturities not exceeding
thirteen months: (i) obligations of the United States Government, its agencies
or instrumentalities; (ii) negotiable certificates of deposit, bankers'
acceptances, time deposits and other obligations issued or supported by United
States banks which have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the Federal Deposit
Insurance Corporation; (iii) domestic and foreign commercial paper rated in
accordance with the standards set forth above under "Cash Management Fund-
Commercial Paper" and (iv) repurchase agreements. The New York Tax-Free Fund
also has the right to hold cash reserves of up to 100% of their total assets
when the Adviser deems it necessary for temporary defensive purposes.
When-Issued Securities. The New York Tax-Free Fund may, without restriction,
purchase Municipal Obligations on a when-issued basis, in which case delivery
and payment normally take place 15 to 45 days after the date of the commitment
to purchase. The New York Tax-Free Fund will make commitments only to purchase
Municipal Obligations on a when-issued basis with the intention of actually
acquiring the securities but may sell them before the settlement date if it is
deemed advisable. 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
Municipal Obligations 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 New York Tax-Free Fund will maintain liquid assets in segregated accounts
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.
Securities with Put Rights. The New York Tax-Free Fund may, without
restriction, enter into put transactions, sometimes referred to as stand-by
commitments, with respect to Municipal Obligations held in their portfolios. The
amount payable to the Fund by the seller upon its exercise of a put will
normally be (i) the Fund's acquisition cost of the securities (excluding any
accrued interest which the Fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during the period the securities
were owned by the Fund. Absent unusual circumstances, the Fund values the
underlying securities at
15
<PAGE>
their amortized cost. Accordingly, the amount payable by a broker-dealer or bank
during the time a put is exercisable will be substantially the same as the value
of the underlying securities.
If necessary and advisable, the Fund may pay for certain puts either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to such a put (thus reducing the yield to maturity
otherwise available for the same securities).
The Fund's ability to exercise a put will depend on the ability of the broker-
dealer or bank to pay for the underlying securities at the time the put is
exercised. In the event that a broker-dealer or bank should default on its
obligation to repurchase an underlying security, the Fund might be unable to
recover all or a portion of any loss sustained from having to sell the security
elsewhere. For a more detailed description of put transactions, see "Investment
Policies -- Securities with Put Rights" in the SAI.
The foregoing investment objectives and related policies and activities (other
than the policy of the Cash Management Fund to invest at least 25% of its assets
in bank obligations) are not fundamental and may be changed by the Board of
Trustees of the Trust without the approval of shareholders.
Other Investment Activities of the Funds
Repurchase Agreements. Securities held by the Funds may be subject to
repurchase agreements. A repurchase agreement is a transaction in which the
seller of a security commits itself at the time of the sale to repurchase that
security from the buyer at a mutually agreed upon time and price. Each Fund will
enter into repurchase agreements only with dealers, domestic banks or recognized
financial institutions which, in the opinion of the Adviser, present minimal
credit risks. Where the securities underlying a repurchase agreement are not
U.S. Government securities, they must be of the highest quality at the time the
repurchase agreement is entered into (e.g., a long-term debt security would be
required to be rated by S&P as "AAA" or its equivalent). While the maturity of
the underlying securities in a repurchase agreement transaction may be more than
one year, the term of the repurchase agreement is always less than thirteen
months. The maturities of the underlying securities will have to be taken into
account in calculating the Fund's dollar-weighted average portfolio maturities
if the seller of the repurchase agreement fails to perform under such agreement.
In these transactions, the securities acquired by each Fund are held by the
Fund's custodian bank until they are repurchased. The Funds' 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.
Repurchase agreements are considered to be loans collateralized by the
underlying securities under the Investment Company Act of 1940, as amended.
In the event of default by the seller under the repurchase agreement, a Fund
may have problems in exercising its rights to the underlying securities and may
incur costs and experience time delays in connection with the disposition of
such securities.
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 Code permit the Funds 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 Code,
an agency having jurisdiction over the insolvent entity may determine that a
Fund does not have the immediate right to liquidate the underlying securities.
If the seller defaults, a Fund might incur a loss if the value of the underlying
securities declines. A Fund may also incur disposition costs
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in connection with the liquidation of the securities. While the Funds'
management acknowledges these risks, it is expected that they can be controlled
through selection criteria established by the Board of Trustees and careful
monitoring procedures. Income from repurchase agreements is taxable.
Lending of Portfolio Securities. The Funds may lend their securities if such
loans are secured continuously by cash or equivalent collateral or by a letter
of credit in favor of the Fund at least equal at all times to 102% of the market
value of the securities loaned plus interest or dividends. While such securities
are on loan, the borrower will pay the Fund the amount of any income accruing
thereon or, in some cases, a separate fee. The Fund will not lend securities
having a value which exceeds 10% of the current value of its total assets. There
may be a risk 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.
Other Mutual Funds. The Funds may invest in shares of other open-end
management investment companies that are money market funds reasonably believed
to comply with Rule 2a-7 under the Investment Company Act of 1940, subject to
the limitations of the Investment Company Act of 1940 and subject to such
investments being consistent with the overall objective and policies of the
Fund, provided that any such purchases will be limited to shares of unaffiliated
investment companies. The purchase of securities of other mutual funds results
in duplication of expenses such that investors indirectly bear a proportionate
share of the expenses of such mutual funds including operating costs and
investment advisory and administrative fees.
INVESTMENT RESTRICTIONS
Neither the U.S. Treasury Fund nor the Government Fund may invest an amount
equal to 10% or more of the value of its net assets in investments which are not
readily marketable (including repurchase agreements having maturities of more
than seven calendar days). The Cash Management Fund may not invest an amount
equal to 10% or more of the value of its net assets in investments which are not
readily marketable (including repurchase agreements and fixed time deposits not
subject to withdrawal penalties having maturities, in either case, of more than
seven calendar days). None of the Funds may (1) issue senior securities, borrow
money or pledge or mortgage its assets, except that each Fund may borrow from
banks up to 10% of the current value of the total net assets of that Fund for
temporary purposes only in order to meet redemptions, and those borrowings may
be secured by the pledge of not more than 10% of the current value of the total
net assets of that Fund (but investments may not be purchased by that Fund while
such borrowings exceed 5% of the Fund's net assets); (2) make loans, except that
the Cash Management, Government and New York Tax-Free Fund may make loans of
portfolio securities, and each Fund may purchase or hold a portion of an issue
of publicly-distributed bonds, debentures or other obligations, make deposits
with banks and enter into repurchase agreements with respect to its portfolio
securities; or (3) invest more than 5% of the current value of its total assets
in the securities of any one issuer, other than obligations of the United States
Government, its agencies or instrumentalities or securities which are backed by
the full faith and credit of the United States, except that up to 25% of the
value of the New York Tax-Free Fund's total assets may be invested without
regard to this limitation consistent with its investment objectives and
policies. In addition, the New York Tax-Free Fund may not (1) invest an amount
equal to 10% or more of the current value of the Fund's net assets in illiquid
securities, including those securities which do not have readily available
market quotations and repurchase
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agreements having maturities of more than seven days; or (2) invest less than
80% of its net assets in New York Municipal Obligations except when, in the
opinion of the Adviser, it is advisable for the Fund to invest temporarily up to
100% of its total assets in taxable securities to maintain a "defensive" posture
because of market conditions.
The Funds' diversification tests are measured at the time of initial purchase,
and calculated as specified in Rule 2a-7 of the Investment Company Act of 1940,
which may allow the Funds to exceed the limits specified in this Prospectus for
certain securities subject to guarantees or demand features. The Funds will be
deemed to satisfy the maturity requirements described in this Prospectus to the
extent that the Funds satisfy Rule 2a-7's maturity requirements.
For each Fund, the foregoing investment restrictions and those described in
the SAI are fundamental policies which may be changed only when permitted by law
and approved by the holders of a majority of the outstanding voting securities
of that Fund, as described under "Shares of Beneficial Interest" in the SAI.
MANAGEMENT OF THE FUNDS
The property, affairs and business of the Funds are managed by the Board of
Trustees. The Trustees elect officers who are charged with the responsibility
for the day-to-day operations of the Funds and the execution of policies
formulated by the Trustees. Information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management -- Trustees and Officers."
Investment Adviser
The Trust retains HSBC Asset Management Americas Inc. (the "Adviser") to act
as the investment adviser for each of the Funds. The Adviser is the North
American investment affiliate of HSBC Holdings plc (Hongkong and Shanghai
Banking Corporation) and Marine Midland Bank and is located at 250 Park Avenue,
New York, New York 10177. At December 31, 1996, the Adviser managed over $3.8
billion of assets of individuals, pension plans, corporations and
institutions.
Pursuant to the Advisory Contract, the Adviser furnishes continuous investment
guidance to the Trust consistent with each Fund's investment objective and
policies and provides administrative assistance in connection with the operation
of each Fund.
Banking Laws
Counsel to the Trust and special counsel to the Adviser, have advised the
Adviser that the Adviser may perform the services for the Trust contemplated by
the Advisory Contract without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Such counsel has pointed out, however,
that this question has not been authoritatively determined and that judicial or
administrative decisions or interpretations of present Federal or state statutes
and regulations relating to the permissible activities of banks or trust
companies and their subsidiaries or affiliates, as well as future changes in
Federal or state statutes and regulations and judicial or administrative
decisions or interpretations thereof, could prevent the Adviser from continuing
to perform such services for the Trust.
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If the Adviser was prohibited from performing any of its services for the
Trust, it is expected that the Board of Trustees would recommend to the Trust's
shareholders that they approve new agreements with another entity or entities
qualified to perform such services and selected by the Board.
Shareholder Servicer Assistant
The Trust retains the Adviser to act as Shareholder Servicer Assistant of
the Fund in accordance with the terms of the Shareholder Servicer Assistance
Agreement. Pursuant to the Shareholder Servicer Assistance Agreement, the
Adviser shall be responsible for performing Shareholder Servicer administrative
support services, which may, but is not specifically required to, include any or
all of the following: (i) assist personnel who (a) hand out prospectuses and
Fund applications, (b) assist customers with filling out Fund applications and
(c) effect purchases and redemptions; (ii) assist with preparation of and review
Fund written communications including marketing material, Semi-annual and Annual
Reports and prospectus updates; (iii) educate, describe the Funds to, and answer
questions from Shareholder Servicers to enhance understanding of the Funds and
their investment objectives; and (iv) generally assist the activities of the
Shareholder Servicers.
The Adviser shall provide all personnel and facilities necessary in order
for it to perform its functions under the Shareholder Servicer Assistance
Agreement.
For its services as Shareholder Servicer Assistant, the Adviser is paid an
annual fee equal to 0.04% of the Trust's average daily net assets.
Administrator
The Trust retains BISYS Fund Services Limited Partnership d/b/a/ BISYS Fund
Services ("BISYS") to act as the Administrator of the Funds in accordance with
the terms of a Management and Administration Agreement. BISYS has its principal
office at 3435 Stelzer Road, Columbus, Ohio 43219. Pursuant to the Management
and Administration Agreement, the Administrator, at its expense, generally
supervises the operation of the Trust and the Funds by reviewing the expenses of
the Funds monthly and by providing personnel, office space and administrative
and fund accounting services reasonably necessary for the operation of the Trust
and the Funds, other than those provided by the Adviser pursuant to the Advisory
contract.
BISYS's annual administration and accounting fee is an asset-based fee of
0.15% of each Fund's first $200 million of average net assets; 0.125% of each
Fund's next $200 million of average net assets; 0.10% of each Fund's next $200
million of average net assets; and 0.08% of each Fund's average net assets in
excess of $600 million. The asset-based administration and accounting fee paid
to BISYS does not include out-of-pocket expenses which shall be borne by the
Trust.
The Trust also retains the Adviser to act as Co-Administrator of the Fund in
accordance with terms of a Co-Administration Services Contract. Pursuant to the
Co-Administration Services Contract, the Adviser (i) manages the Funds'
relationship with service providers, (ii) assists with negotiation of contracts
with service providers and supervises the activities of those service providers,
(iii) serves as a liaison with Board of Trustees, and (iv) assists with general
product management and oversight. For its services as Co-Administrator, the
Adviser is paid an annual fee equal to 0.03% of Trust's average daily net
assets.
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Distributor
BISYS also serves as the Funds' Distributor and has its principal office at
3435 Stelzer Road, Columbus, Ohio 43219. As the Distributor, BISYS will receive
orders for, sell and distribute shares of the Funds.
Servicing Agreements
The Funds may enter into agreements (the "Servicing Agreement") with certain
banks, financial institutions and corporations (the "Participating
Organizations") so that each Participating Organization handles recordkeeping
and provides certain administrative services for its customers who invest in the
Funds through accounts maintained at that Participating Organization. In such
cases, the Participating Organization or one of its nominees will be the
shareholder of record as nominee for its customers and will maintain subaccounts
for its customers. In addition, the Participating Organization will credit cash
distributions to each customer account, process purchase and redemption
requests, mail statements of all transactions with respect to each customer and,
if required by law, distribute the Trust's shareholder reports and proxy
statements. However, any customer of a Participating Organization may become the
shareholder of record upon written request to its Participating Organization or
transfer agent. Each Participating Organization will receive monthly payments
which in some cases may be based upon expenses that the Participating
Organization has incurred in the performance of its services under the Servicing
Agreement. The payments will not exceed, on an annualized basis, an amount equal
to 0.35% of the average daily net asset value during the month of Fund shares in
the subaccount of which the Participating Organization is record owner as
nominee for its customers. Such payments will be separately negotiated with each
Participating Organization and will vary depending upon such factors as the
services provided and the costs incurred by each Participating Organization. The
payments may be more or less than the fees payable to BISYS Fund Services, Inc.
for the services it provides pursuant to the Transfer Agency Agreement for
similar services.
The payments will be made by the Fund to the Participating Organizations
pursuant to the Servicing Agreements. BISYS Fund Services, Inc. will not receive
any compensation as transfer or dividend disbursing agent with respect to the
subaccounts maintained by Participating Organizations. The Board of Trustees
will review, at least quarterly, the amounts paid and the purposes for which
such expenditures were made pursuant to the Servicing Agreements.
Under separate agreements, the Adviser (not the Funds) may make
supplementary payments from its own revenues to a Participating Organization
that agrees to perform services such as advising customers about the status of
their subaccounts, the current yield and dividends declared to date and
providing related services a shareholder may request. Such payments will vary
depending upon such factors as the services provided and the costs incurred by
each Participating Organization.
Investors who purchase and redeem shares of the Funds through a customer
account maintained at a Participating Organization may be charged one or more of
the following types of fees, as agreed upon by the Participating Organization
and the investor, with respect to the customer services provided by the
Participating Organization: account fees (a fixed amount per month or per year);
transaction 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).
Distribution Plan and Agreement
The Board of Trustees of the Trust has adopted a Distribution Plan and
related Shareholder Servicing Agreement (the "Plan") pursuant to Rule 12b-1 of
the Investment Company Act of 1940, as amended, after having
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concluded that there is a reasonable likelihood that the Plan will benefit each
Fund and its shareholders. The Plan provides for a monthly payment by each Fund
to reimburse the Distributor in such amounts that they may request for expenses
such as the printing and distribution of prospectuses sent to prospective
investors, the preparation, printing and distribution of sales literature and
expenses associated with media advertisements and telephone services and other
direct and indirect distribution-related expenses including the payment of a
monthly fee to broker-dealers for providing services with respect to promoting
the sale and maintaining the assets of the Funds. The Funds may also make
payments to other broker-dealers or financial institutions for their assistance
in distributing shares of each Fund and otherwise promoting the sale of each
Fund's shares. The total of each monthly payment is based on each Fund's average
daily net asset value during the preceding month and is calculated at an annual
rate not to exceed 0.20%.
The Plan provides for the Distributor to prepare and submit to the Board of
Trustees on a quarterly basis written reports of all amounts expended pursuant
to the Plan and the purpose for which such expenditures were made. The Plan may
not be amended to increase materially the amount spent for distribution expenses
without approval by a majority of each Fund's outstanding shares and approval of
a majority of the non-interested Trustees. Distribution expenses incurred in one
year will not be carried forward into and reimbursed in the next year for actual
expenses incurred in the previous year.
Fees and Expenses
As compensation for its advisory and management services, the Adviser is
paid a monthly fee with respect to each Fund at an annual rate of 0.350% of
average daily net assets up to $500 million. For each Fund, this fee is reduced
at several breakpoints for average daily net assets in excess of $500 million up
to $1.5 billion, at which point it becomes 0.245% of average daily net assets in
excess of $1.5 billion.
As compensation for its co-administrative and shareholder servicer
assistance services, the Adviser is paid a monthly fee with respect to each Fund
at an annual rate of 0.07% of average daily net assets. The Adviser reserves the
right to waive in advance a portion of its advisory, management, co-
administrative and shareholder service fees at any time.
TRANSACTIONS WITH AFFILIATES
Broker-dealers which are affiliates of the Adviser may act as brokers for
the Funds. At all times, however, their commissions, fees or other charges must
be reasonable and fair in comparison with those that would be paid to
unaffiliated firms for comparable transactions. The Funds will not do business
with nor pay commissions to affiliates of the Adviser in any portfolio
transaction where they act as principal. In placing orders for the purchase and
sale of portfolio securities, the Funds seek the best execution at the most
favorable price, considering all of the circumstances.
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value per share for the purpose of pricing purchase
and redemption orders is determined at 12:00 Noon (Eastern time) on each day the
Funds' transfer agent is open for business. The net asset value will not be
computed on the following holidays: New Year's Day, Martin Luther King, Jr.'s
Day, Presidents' Day, Good
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Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving and Christmas. The net asset value per share of each Fund is
computed by dividing the value of the net assets of that Fund (i.e. the value of
the assets less the liabilities) by the total number of shares outstanding. All
expenses, including the advisory and administrative fees, are accrued daily and
taken into account for the purpose of determining the net asset value.
The Funds use the amortized cost method to value their portfolio securities
and seek to maintain a constant net asset value of $1.00 per share. The
amortized cost method involves valuing a security at its cost and amortizing any
discount or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. There can be no
assurance that at all times the price per share can be maintained. However, the
Board of Trustees has established procedures designed to stabilize, to the
extent reasonably possible, the $1.00 price per share of each Fund. See the SAI
for more details.
PURCHASE OF SHARES
Shares of each Fund are offered at net asset value by the Distributor as an
investment vehicle for institutions, corporations, fiduciaries and individuals.
Prospectuses and accompanying sales material can be obtained from the Transfer
Agent or Distributor.
The minimum initial investment requirement for each Fund is $1,000. The
minimum subsequent investment requirement for each Fund is $50. 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 Participating 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. The
Trust reserves the right to reject any purchase order.
The Funds' shares are sold on a continuous basis without a sales charge at
the net asset value per share next determined after an order has become
effective. Orders will become effective when Federal funds are available to the
Trust's custodian for investment. If payment is transmitted by wire (which may
take two or more hours to complete), the order will become effective upon
receipt of Federal funds. In order for a wire purchase to be effective on the
same day it is received, both the trading instructions and the wire must be
received before 4 p.m. Eastern time. Payments transmitted by a bank wire other
than the Federal Reserve Wire System may take longer to be converted into
Federal funds. Checks must be payable in United States dollars and will be
accepted subject to collection at full face value.
Stock certificates will not be issued with respect to shares of each Fund.
The Transfer Agent shall keep accounts upon the books of the Trust for the
recordholders of such Shares.
The distributor or selected broker-dealers, at its expense, may provide
additional promotional incentives to dealers. In some instances, these
incentives may be limited to certain dealers who have sold or may sell
significant numbers of shares of any of the Funds of the Trust or HSBC Mutual
Funds Trust.
Prospective investors who wish to obtain additional information concerning
investment procedures should contact the Transfer Agent at: (800) 634-2536.
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New Account Purchase by Wire
1. Telephone the Transfer Agent at: (800) 634-2536 for instructions. Please
note your bank will normally charge you a fee for handling this transaction.
New Account Purchase by Mail
1. Complete a Purchase Application.
2. Mail the Purchase Application and a check for $1,000 or more, payable to
the HSBC Family of Funds to the Transfer Agent at:
HSBC Funds Trust, c/o BISYS, P.O. Box 163850, Columbus, Ohio 43216-3850.
Third-party checks will not be accepted. Check payments must be in U.S. dollars.
Please include the Fund name and your account number on all checks.
Additional Purchases by Wire and Mail
Additional purchases of shares may be made by wire by telephoning the
Transfer Agent at 800-634-2536 and then instructing the wiring bank to transmit
the amount ($50 or more) of any additional purchase in Federal funds. Wiring
instructions will be provided by the Transfer Agent. Please note your bank will
normally charge you a fee for handling that transaction. Additional purchases
may also be made by mail by making a check ($50 or more) payable to the HSBC
Family of Funds indicating your fund account number on the check and mailing it
to the Transfer Agent at the address set forth above.
Purchase Through Customer Accounts
Purchases of shares also may be made through customer accounts maintained at
Participating Organizations, including qualified Individual Retirement and Keogh
Plan accounts. Purchases will be made through a customer's account only as
directed by or on behalf of the customer on a direction form executed prior to
the customer's first purchase of shares of any Fund. For example, a customer
with an account at a Participating Organization may instruct the Participating
Organization to invest money in excess of a level agreed upon between the
customer and the Participating Organization in shares of one of the Funds
periodically or give other instructions to the Participating Organization within
limits prescribed by that Participating Organization.
Automatic Investment Plan
Investors may make regular monthly investments of $50 or more in shares
automatically from a checking or savings account if their bank is a member of
automated clearing house (ACH). Upon written authorization, the Transfer Agent
will electronically debit investor's checking or savings account each month and
use the proceeds to purchase shares for the investor's account.
Approval by the investor's bank is required, so that establishment of a
program may require at least 30 days. The authorized amount and/or bank
information may be changed or the program terminated at any time by writing
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to the Transfer Agent. A reasonable period (usually up to 15 days) may be
required after receipt of such instructions to implement them. The purchase
application contains the requirements applicable to this plan. The Trust
reserves the right to amend, suspend or cease offering this program at any time
without prior notice.
REDEMPTION OF SHARES
Upon receipt by the Transfer Agent of a redemption request in proper form
($50 minimum), shares of a Fund will be redeemed at their next determined net
asset value. See "Determination of Net Asset Value" in this Prospectus. For the
shareholder's convenience, the Trust has established several different direct
redemption procedures. Redemptions of shares purchased by check will be effected
immediately upon clearance of the purchase check, which may take up to 15 days
after those shares have been credited to the shareholder's account. A redemption
of shares is a taxable transaction, although gain or loss will not ordinarily be
recognized for tax purposes if the Funds maintain a constant net asset value per
share.
The Funds reserve the right to redeem (on 30 days' notice) accounts whose
values shareholders have reduced to $500 or less.
Redemption by Mail
1. Complete a letter of instruction indicating the Fund, the account number
and either the dollar amount or number of shares to be redeemed.
2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $5,000 or more, the
signature(s) must be guaranteed by a bank, trust company, broker, dealer, credit
union, securities exchange or association, clearing agency or savings
association. Signature guarantees by notaries public are not acceptable. Further
documentation, such as copies of corporate resolutions and instruments of
authority, may be requested from corporations, administrators, executors,
personal representatives, trustees or custodians to evidence the authority of
the person or entity making the redemption request.
4. Mail the letter to the Transfer Agent at the address set forth under
"Purchase of Shares" in this Prospectus.
Checks for redemption proceeds will normally be mailed within seven days to
the shareholder's address of record.
Upon request, the proceeds of a redemption amounting to $1,000 or more will
be sent by wire to the shareholder's predesignated bank account. Please note a
wire transfer fee will normally be charged. When proceeds of a redemption are to
be paid to someone other than the shareholder, either by wire or check, the
signature(s) on the letter of instruction must be guaranteed regardless of the
amount of the redemption.
Redemption By Expedited Redemption Service
If shares are held in book credit form and the Expedited Redemption Service
has been elected on the Purchase Application on file with the Transfer Agent,
redemption of shares may be requested on any day the Transfer Agent is open for
business by telephone or letter. A signature guarantee is not required.
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1. Telephone the request to the Transfer Agent toll free: (800) 634-2536;
or
2. Mail the request to the Transfer Agent at the address set forth under
"Purchase of Shares" in this Prospectus.
Proceeds of Expedited Redemptions of $1,000 or more can be wired to the
shareholder's bank indicated in the Purchase Application. If an Expedited
Redemption request is received by the Transfer Agent by 12:00 Noon (Eastern
time) on a day the transfer agent is open for business, the redemption proceeds
will be transmitted to the shareholder's bank that same day. A check for
proceeds of less than $1,000 will be mailed to the shareholder's address of
record.
The Transfer Agent employs reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Transfer Agent fails
to employ such reasonable procedures, the transfer agent may be liable for any
loss, damage or expense arising out of any telephone transactions purporting to
be on a shareholder's behalf. In order to assure the accuracy of instructions
received by telephone, the transfer agent requires some form of personal
identification prior to acting upon instructions received by telephone, records
telephone instructions and provides written confirmation to investors of such
transactions.
Redemption By Check
If shares are held in book credit form and the Check Redemption Service has
been elected on the Purchase Application on file with the transfer agent,
redemptions of shares may be made by using redemption checks provided by the
Trust. Checks must be written for amounts of $500 or more, may be payable to
anyone and negotiated in the normal way. If more than one shareholder owns the
shares, all must sign the check unless an election has been made to require only
one signature on checks and that election has been filed with the Transfer
Agent.
Shares represented by a redemption check will continue to earn daily income
until the check clears the banking system. When honoring a redemption check, the
transfer agent will cause the Trust to redeem exactly enough full and fractional
shares from an account to cover the amount of the check. The Check Redemption
Service may be terminated at any time by the Transfer Agent or the Trust.
Because of the difficulty of determining in advance the exact value of a Fund
account, a Shareholder may not use a check to close his or her account.
Systematic Withdrawal Plan
An owner of $10,000 or more of shares of a Fund may elect to have periodic
redemptions from his account to be paid on a monthly basis. The minimum periodic
payment is $50. A sufficient number of shares to make the scheduled redemption
will be redeemed on the first or fifteenth day of the month. Redemptions for the
purpose of making such payments may reduce or even exhaust the account if your
monthly checks exceed the dividends, interest and capital appreciation, if any,
on your Shares. A shareholder may request that these payments be sent to a
predesignated bank or other designated party.
Redemption Through Customer Accounts
Investors who purchase shares through customer accounts maintained at
Participating Organizations may redeem those shares only through the
Participating Organization. In some cases, a customer may instruct the
Participating Organization which maintains the account through which the
customer purchases shares to redeem
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shares periodically as required to bring the customer's account balance up to a
level agreed upon between the customer and the Participating Organization. If a
redemption request with respect to such an automatic redemption arrangement is
received by the transfer agent by 12:00 Noon (Eastern time) on a day the
transfer agent is open for business, the redemption proceeds will be transmitted
that same day to the investor's customer account (unless otherwise specified by
the Participating Organization).
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in a Fund for at
least seven days may exchange shares of that Fund for shares of any of the other
investment portfolios of the Trust or any of the portfolios of HSBC Mutual Funds
Trust which are available for sale in their state. The Trust reserves the right
to modify or terminate the exchange privilege upon 60 days written notice to
shareholders. Shareholders exchanging shares of the Funds for shares of the
portfolios of HSBC Mutual Funds Trust will be subject to a sales load. Before
making an exchange, shareholders should review the prospectus of the Fund into
which the exchange is being made. See the SAI for further details. The Trust
reserves the right to change the terms of or terminate the Exchange Privilege at
any time upon at least 60 days prior written notice to Shareholders. Exchanges
may be made by telephonic or written request to the Transfer Agent. An exchange
is considered a sale of shares for federal tax purposes. For a discussion of
risks associated with unauthorized telephone transactions, see "Redemption by
Expedited Redemption Service".
DIVIDENDS AND DISTRIBUTIONS
The Trust intends to declare as a dividend on shares of each Fund
substantially all of the net investment income for such Fund at the close of
each business day to the shareholders of record of such Fund at 12:00 Noon
(Eastern time) on that day. Shares purchased will begin earning dividends on the
day the purchase order is executed and shares redeemed will earn dividends
through the previous day. Net investment income for a Saturday, Sunday or
holiday will be declared as a dividend on the previous business day.
Dividends declared in, and attributable to, the preceding month will be paid
within five business days after the end of each month. Dividends will be
invested automatically in additional shares of the Fund from which they were
paid at net asset value and credited to the shareholder's account on the payment
date or, at the shareholder's election, paid in cash. For all investments
effected through customer accounts maintained at Participating Organizations
(see "Purchase of Shares -- Purchase through Customer Accounts"), dividend
payments in cash will be transmitted to the investor's bank account through
which the shares were purchased or, if a Participating Organization so
specifies, to it for crediting to its customer's account. Dividend checks will
be mailed to all other shareholders who elect to be paid in cash within five
business days after the end of each month. Dividends declared by a Fund in
October, November or December of any calendar year (as of a record date in such
a month) will be treated for Federal income tax purposes as having been received
by Shareholders on December 31 of the year they are declared, if they are paid
during January of the following year.
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FEDERAL INCOME TAXES
Each Fund is treated as a separate entity for Federal income tax purposes.
Each Fund has elected to be treated, and has qualified and intends to continue
to qualify to be treated as a regulated investment company each year by
complying in the future with the provisions of the Internal Revenue Code of 1986
(the "Code") applicable to regulated investment companies so that it will not be
liable for Federal income tax with respect to its net investment income and net
realized capital gains distributed to shareholders in accordance with the timing
requirements of the Code. Each Fund intends to distribute annually substantially
all of its net investment income and net realized capital gains to its
shareholders for each taxable year.
Most of the New York Tax-Free Fund's income is expected to be derived from
tax-exempt interest from Municipal Obligations rather than taxable interest.
Dividends derived from interest on Municipal Obligations will constitute exempt-
interest dividends if the Fund complies with certain requirements of the Code
and, except as discussed below, will not be subject to Federal income tax. Some
portion of the exempt-interest dividends paid by the Fund will be treated as an
item of "tax preference" for purposes of the alternative minimum tax if the Fund
invests in certain types of Municipal Obligations and New York Municipal
Obligations (see discussion below).
Dividends derived from the Fund's taxable net investment income and any
excess of its net short-term capital gain over its net long-term capital loss
will be taxable to shareholders as ordinary income, whether such dividends are
invested in additional shares or received in cash.
Distributions of the excess of net long-term capital gain over net short-
term capital loss designated by a Fund as capital gain dividends will be taxable
to shareholders as long-term capital gains, regardless of how long a shareholder
has held Fund shares, whether invested in additional shares or received in cash.
The Funds do not, however, anticipate realizing a substantial amount of net
long-term capital gains. Dividends and distributions will not qualify for the
dividends-received deduction for corporations.
The Tax Reform Act of 1986 (the "Tax Act") and subsequent restrictive
legislation may significantly affect the supply and yields of Municipal
Obligations and New York Municipal Obligations. The Tax Act imposed new
restrictions on the issuance of Municipal Obligations and New York Municipal
Obligations that limit the purposes for which such Obligations may be issued.
Under the Code, interest on certain types of Municipal Obligations and New York
Municipal Obligations is designated as an item of tax preference for purposes of
the alternative minimum tax on individuals and corporations. Therefore, if the
New York Tax-Free Fund were to invest in such types of obligations, shareholders
would be required to treat as an item of tax preference that part of the
distributions by the Fund that is derived from interest income on such
obligations.
Entities or persons who are "substantial users" (or persons related to
"substantial users"), as defined in the Code, of facilities financed by
Municipal Obligations and New York Municipal Obligations issued for certain
private activities should consult their tax advisers before purchasing shares of
the New York Tax-Free Fund.
Exempt-interest dividends and other distributions paid by the Funds are
includable in the tax base for determining taxability of social security or
railroad retirement benefits. Interest on debt incurred to purchase or carry
shares of the New York Tax-Free Fund is not deductible for Federal income tax
purposes.
Each year the Funds will notify shareholders of the character of
distributions for federal income tax purposes and the percentage of interest
income received by the New York Tax-Free Fund during the preceding year on
27
<PAGE>
Municipal Obligations, indicating on a state-by-state basis the source of that
income. Shareholders are required to report the amount of tax-exempt interest
received each year, including exempt-interest dividends received from a Fund, on
their Federal tax returns. Shareholders should consult their tax advisers as to
the Federal, state, local or foreign tax consequences of ownership of Fund
shares in their particular circumstances. Shareholders who are not U.S. persons
under the Code should also consult their tax advisers as to the possible
application of U.S. taxes, including a 30% U.S. withholding tax (or lower treaty
rate) on taxable dividends.
NEW YORK TAXES
Exempt-interest dividends paid by the New York Tax-Free Fund will be exempt
from New York State and City personal income taxes to the extent they are
derived from interest on New York Municipal Obligations. For New York State and
City personal income tax purposes, whether invested in additional shares of the
New York Tax-Free Fund or received in cash, dividends derived from the interest
on the New York Tax-Free Fund's investments other than New York Municipal
Obligations (including interest on Municipal Obligations), and the excess of net
short-term capital gain over net long-term capital loss will be taxed as
ordinary income, and dividends treated as long-term capital gains for Federal
tax purposes will be taxed as long-term capital gains, regardless of how long a
shareholder has held his shares.
Dividends paid by the New York Tax-Free Fund, including exempt-interest
dividends derived from interest on New York Municipal Obligations, may be
subject to the New York State franchise tax and to the New York City General
Corporation Tax if they are received by a corporation subject to those taxes.
Such dividends may also be subject to state taxes in states other than New York
and to local taxes in cities other than New York City.
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in a statement for
each shareholder, which will be mailed at least once each month. In those cases
where a Participating Organization or its nominee is shareholder of record for
shares purchased for its customer, the Trust has been advised that the statement
may be transmitted to the customer in the discretion of the Participating
Organization. Shareholders can write or call the Transfer Agent at P.O. Box
163850, Columbus, OH 43216-3850, telephone: (800) 634-2536 with any questions
relating to their investments in shares of the Funds.
Participating Organizations or their nominees may be the shareholders of
record as nominees for their customers, and may maintain subaccounts for those
customers. Any such customer may become the shareholder of record upon written
request to the Participating Organization or Transfer Agent.
The Transfer Agent will transmit promptly to each of its customers for whom it
processes purchases and redemptions of shares and to each Participating
Organization copies of all reports to shareholders, proxy statements and other
Trust communications. The Trust's arrangements with the transfer agent and the
subtransfer agent arrangements require Participating Organizations to grant
investors who purchase shares through customer accounts the opportunity to vote
their shares by proxy at all shareholder meetings of the Trust. In certain
cases, a customer of a Participating Organization may have given his
Participating Organization the power to vote shares on his behalf. Customers
with accounts at Participating Organizations should consult their Participating
Organization for information concerning their rights to vote shares.
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<PAGE>
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
Pursuant to an Agency Agreement, BISYS Fund Services, Inc. ("Transfer Agent")
acts as the Funds' transfer and divided disbursing agent and is responsible for
maintaining account records detailing ownership of Fund shares and for crediting
income, capital gains and other changes in share ownership to investors'
accounts. For its services, the Transfer Agent receives from the Funds an annual
base fee of $21 per shareholder account plus additional transaction costs. BISYS
Fund Services, Inc. also provides certain accounting services for the Funds
pursuant to the Fund Accounting Agreement.
CUSTODIAN
The Bank of New York is the Trust's custodian. Pursuant to the Custodian
Agreement, The Bank of New York is responsible for holding each Fund's cash and
portfolio securities. The Bank of New York may enter into sub-custodian
agreements with certain qualified banks.
YIELD INFORMATION
From time to time, the Funds may make available information as to their
"yield" and "effective yield." Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of
each Fund refers to the income generated by an investment in that Fund over a
seven-day period. This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
The New York Tax-Free Fund may make available information as to its "tax
equivalent yield." The "tax equivalent yield" refers to the yield on a taxable
investment necessary to produce an after-tax yield equal to the Fund's tax free
yield, and is calculated by increasing the annualized yield shown for the Fund
to the extent necessary to reflect the payment of specified tax rates. Thus the
tax equivalent yield for the Fund will always exceed such Fund's yield.
The yields of the Cash Management Fund, the Government Fund, the U.S. Treasury
Fund, and the New York Tax-Free Fund for the seven-day period ended December 31,
1996, calculated in the manner described in the SAI, were 5.06%, 5.00%, 4.96%,
and 3.51%, respectively. The effective yields (i.e., on a compounded basis,
assuming the daily reinvestment of dividends) of each of the Funds for the same
period were 5.19%, 5.12%, 5.09% and 3.57%, respectively. The yields for the
Funds may fluctuate daily and do not provide a basis for determining future
yields. The yields on shares of the Funds may be included in advertisements or
mailings to prospective investors. The Funds may occasionally cite statistical
reports which concern the Funds' performances. Investors who purchase and redeem
shares of the Funds through a customer account at a Participating Organization
may be charged additional fees by the Participating Organization which will have
the effect of reducing the yield for those investors. See "Management of the
Funds -- Servicing Agreements" in this Prospectus.
29
<PAGE>
SHARES OF BENEFICIAL INTEREST
The authorized capital stock of the Trust consists of an unlimited number of
shares of beneficial interest having a par value of $0.001 per share. The
Trust's Board of Trustees has authorized the issuance of four classes
representing shares in four investment portfolios of the Trust. All shares of
the Trust have equal voting rights and will be voted in the aggregate, and not
by class, except where voting by class is required by law or where the matter
involved affects only one class. All shares of the Trust issued and outstanding
are fully paid and nonassessable. The Trust is not required by law to hold
annual shareholder meetings and does not intend to hold such meetings. Each Fund
will be treated as a separate entity for Federal income tax purposes. For more
details concerning the voting rights of shareholders see the Statement of
Additional Information.
Vacancies on the Board of Trustees shall be filled by the Board of Trustees if
immediately after filling any such vacancy at least two-thirds of the Trustees
then holding office shall have been elected to such office by shareholders at an
annual or special meeting. In the event that at any time less than a majority of
Trustees holding office were elected by shareholders, the Board of Trustees
shall cause to be held within 60 days a shareholders' meeting for the purpose of
electing Trustees to fill any existing vacancies. Trustees are subject to
removal with cause by two-thirds of the remaining Trustees or by a vote of a
majority of the outstanding shares of the Trust. The Trustees are required to
promptly call a shareholders' meeting for voting on the question of removal of
any Trustee when requested to do so in writing by not less than 10% of the
outstanding shares of the Trust. In connection with the calling of such
shareholders' meetings, shareholders will be provided with communication
assistance.
Under Massachusetts law, it is possible that shareholders of a Massachusetts
business trust might, under certain circumstances, be held personally liable for
acts or obligations of the Trust. The Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Trust. The Declaration of Trust also provides for indemnification out of the
Trust's assets for all loss and expense of any shareholder held personally
liable by reason of being or having been a shareholder of the Trust. Thus, the
risk that a shareholder of the Fund could incur financial loss on account of
shareholder liability is considered remote since it is limited to circumstances
in which the disclaimer is inoperative and the Fund itself would be unable to
meet its obligations.
30
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HSBC Funds Trust
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[LOGO OF HSBC APPEARS HERE]
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HSBC/(SM)/ Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
Information:
(800) 634-2536
Investment Adviser and Co-administrator
HSBC Asset Management Americas Inc.
250 Park Avenue
New York, New York 10177
Distributor, Administrator, Transfer
and Fund Accounting Agent
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
Legal Counsel
Baker & McKenzie
805 Third Avenue
New York, New York 10022
No dealer, salesman, or other person has been authorized to give any information
or to make any representations, other than those contained in the Prospectus, in
connection with the offer contained in this Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Trust, the Distributor or the Investment Adviser. This
Prospectus does not constitute an offering in any state in which such offering
may not lawfully be made.
HSBC1P0497
Prospectus April 29, 1997
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Funds:
Cash Management Fund
Government Money Market Fund
U.S. Treasury Money Market Fund
New York Tax-Free Money Market Fund
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Managed by:
HSBC Asset Management Americas Inc.
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Sponsored and Distributed by:
BISYS Funds Services
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<PAGE>
HSBC FUNDS TRUST
HSBC Money Market Funds
3435 Stelzer Road
Columbus, Ohio 43219
Information: (800) 634-2536
STATEMENT OF ADDITIONAL INFORMATION
HSBC Funds Trust (the "Trust"), is an open-end, diversified management
investment company organized in Massachusetts on October 31, 1985, with multiple
investment portfolios, including the following, each having its own investment
objective and policies: Cash Management Fund, Government Money Market Fund,
U.S. Treasury Money Market Fund, and New York Tax-Free Money Market Fund.
Cash Management Fund, Government Money Market Fund and U.S. Treasury
Money Market Fund are herein referred to collectively, the "Money Market Funds."
New York Tax-Free Money Market Fund is herein the "New York Tax-Free Fund".
Cash Management Fund invests in a variety of high-quality, short-term money
market instruments, with remaining maturities of thirteen months or less,
including obligations in which the Government Money Market Fund invests.
Government Money Market Fund invests exclusively in short-term obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities, with remaining maturities of thirteen months or less, and
repurchase agreements.
U.S. Treasury Money Market Fund invests exclusively in short-term, direct
obligations of the United States Treasury, with remaining maturities of thirteen
months or less, and repurchase agreements.
New York Tax-Free Money Market Fund invests primarily in high quality New
York tax-exempt securities ("New York Obligations") with remaining maturities of
thirteen months or less.
Shares of each Fund are primarily offered for sale by BISYS Fund Services,
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the Sponsor and Distributor, as an investment vehicle for institutions,
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corporations, fiduciaries and individuals. Certain banks, broker-dealers,
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financial institutions and corporations ("Participating Organizations") have
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agreed to act as shareholder servicing agents for investors who maintain
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accounts at the Participating Organizations and to perform certain services for
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the Funds.
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This Statement of Additional Information (the "SAI") is not a prospectus
and is only authorized for distribution when preceded or accompanied by the
Trust's Prospectus for the Funds, dated April 29, 1997 (the "Money Funds
Prospectus"). This SAI contains additional and more detailed information than
that set forth in the Money Funds' Prospectus and should be read in conjunction
with the Money Funds' Prospectus, additional copies of which may be obtained
without charge from the Trust by writing to the address above.
April 29, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
INVESTMENT POLICIES...................................... 2
INVESTMENT RESTRICTIONS.................................. 18
MANAGEMENT............................................... 19
CALCULATION OF YIELDS AND PERFORMANCE INFORMATION........ 24
DETERMINATION OF NET ASSET VALUE......................... 26
PORTFOLIO TRANSACTIONS................................... 27
EXCHANGE PRIVILEGE....................................... 27
REDEMPTIONS.............................................. 28
FEDERAL INCOME TAXES..................................... 28
SHARES OF BENEFICIAL INTEREST............................ 30
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT.. 32
INDEPENDENT AUDITORS..................................... 33
FINANCIAL STATEMENTS..................................... 34
</TABLE>
INVESTMENT POLICIES
The following information supplements the discussion of the investment
objective and policies of the Funds found under "Investment Objective and
Policies" in the Funds' Prospectus.
Cash Management Fund
The Cash Management Fund ("Cash Management Fund") invests in a broad range
of short-term money market instruments which have remaining maturities not
exceeding thirteen months and certain repurchase agreements. These money market
instruments may include obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities and the following other kinds of
investments:
Bank Obligations. These obligations include negotiable certificates of
deposit, bankers' acceptances and fixed time deposits and other obligations
issued or supported by banks. The Cash Management Fund's policy on
concentration in bank obligations and a description of the banks the obligations
of which the Fund may purchase are set forth in the Fund's Prospectus. A
certificate of deposit is a short-term, interest-bearing negotiable certificate
issued by a commercial bank against funds deposited in the bank. A bankers'
acceptance is a short-term draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction. The
borrower is liable for payment as is the bank, which unconditionally guarantees
to pay the draft at its face amount on the maturity date. Fixed time deposits
are obligations of foreign branches of United States banks or foreign banks
which are payable on a stated maturity date and bear a fixed rate of interest.
Although fixed time deposits do not have a market, there are no contractual
restrictions on the right to transfer a beneficial interest in the deposit to a
third party. See "Investment Objective and Policies - Cash Management Fund -
Bank Obligations" in the Fund's Prospectus with respect to certain limitations
on investments by the Cash Management Fund in fixed time deposits.
Commercial Paper. Commercial paper includes short-term unsecured
promissory notes, variable rate demand notes and variable rate master demand
notes issued by domestic and foreign bank holding companies, corporations,
financial institutions and government agencies and instrumentalities (but only
in the case of taxable securities). All commercial paper purchased by the Cash
Management Fund is, at the time of investment, required to be rated (or issued
by an issuer with a similar security rated) in the highest short-term rating
category by two or more Nationally Recognized Statistical Ratings Organizations
("NRSROs"), or the only NRSRO rating the security, or if unrated, determined to
be of comparable credit quality by the Adviser. Because variable rate master
demand notes are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that they will be traded. There is no
secondary market for variable rate master demand notes, although they are
redeemable, and thus immediately repayable by the borrower, at principal amount,
plus accrued interest, at any time. See "Variable Rate Master Demand Notes"
below.
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Corporate Debt Securities. Cash Management Fund's investments in these
securities are limited to non-convertible corporate debt securities such as
bonds and debentures which have thirteen months or less remaining to maturity
and which are rated "A" or better by Standard & Poor's and "A" or better by
Moody's and of comparable high quality ratings by other NRSROs that have rated
such securities.
The rating "P-1" is the highest commercial paper rating assigned by Moody's
and the ratings "A-1" and "A-1+" are the highest commercial paper ratings
assigned by Standard & Poor's. Debt securities rated "Aa" or better by Moody's
or "AA" or better by Standard & Poor's are generally regarded as high-grade
obligations. Those rated "Aaa" by Moody's or "AAA" by Standard & Poor's are
judged to be of the highest quality and exhibit an extremely strong ability to
pay interest and repay principal. Those rated "Aa" by Moody's or "AA" by
Standard & Poor's are judged to be of high quality by all standards and differ
from higher rated issues only in a small degree with respect to their ability to
pay interest and repay principal. Those rated A by Moody's and Standard &
Poor's possess many favorable attributes and are to be considered as upper
medium grade obligations, although they may be more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories.
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 if the security
is downgraded to a level below that permitted for money market funds under Rule
2a-7 of the Investment Company Act of 1940, as amended (the "1940 Act"), the
Fund's adviser must report such event to the Board of Trustees as soon as
possible to permit the Board to reassess the security promptly to determine
whether it may be retained as an eligible investment for the Fund. To the
extent the ratings given by a NRSRO may change as a result of changes in such
organizations or their rating systems, the Cash Management Fund will attempt to
use comparable ratings as standards for investments in accordance with the
investment policies contained in the Money Funds' Prospectus and in this SAI.
Government Money Market Fund
The Government Money Market Fund ("Government Fund") invests exclusively in
obligations issued or guaranteed by the United States Government or its agencies
or instrumentalities which have remaining maturities not exceeding thirteen
months and certain repurchase agreements. Agencies and instrumentalities which
issue or guarantee debt securities and which have been established or sponsored
by the United States Government include the Banks for Cooperatives, the Export-
Import Bank, the Federal Farm Credit System, the Federal Home Loan Banks, the
Federal Home Loan Mortgage Corporation, the Federal Intermediate Credit Banks,
the Federal Land Banks, the Federal National Mortgage Association and the
Student Loan Marketing Association. United States Government agency and
instrumentality obligations include master notes issued by these entities but do
not include obligations of the World Bank, The Inter-American Development Bank
or the Asian Development Bank.
U.S. Treasury Money Market Fund
The U.S. Treasury Money Market Fund ("U.S. Treasury Fund") invests
exclusively in direct obligations of the United States Treasury which have
remaining maturities not exceeding thirteen months and certain repurchase
agreements. The United States Treasury issues various types of marketable
securities consisting of bills, notes, bonds and other debt securities. They
are direct obligations of the United States Government and differ primarily in
the length of their maturity. Treasury bills, the most frequently issued
marketable United States Government security, have a maturity of up to one year
and are issued on a discount basis. The U.S. Treasury Fund may not enter into
loans of its portfolio securities.
New York Tax-Free Money Market Fund
To attain its objective, the New York Tax-Free Money Market Fund ("New York
Tax-Free Fund") invests primarily in a broad range of Municipal Obligations
which meet the rating standards described in the Fund's Prospectus. The tax-
exempt status of a Municipal Obligation is determined by the issuer's bond
counsel at the time of the issuance of the security. Municipal Obligations,
which pay interest that is excludable from gross income for Federal income tax
purposes and which are debt obligations issued by or on behalf of states,
cities, municipalities and other public authorities, include:
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<PAGE>
Municipal Bonds. Municipal bonds are issued to obtain funds for various
public purposes, including the construction of schools, highways and other
public facilities, for general operating expenses and for making loans to other
public institutions. Industrial development and pollution control bonds are
municipal bonds which are issued by or on behalf of public authorities to
provide funding for the construction, equipment, repair and improvement of
various privately-operated facilities.
Municipal bonds may be categorized as "general obligation" or "revenue"
bonds. General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are secured by the net revenue derived from a particular facility
or group of facilities or, in some cases, the proceeds of a special excise or
other specific revenue source, but not by the general taxing power. Industrial
development and pollution control bonds (now generally referred to as "private
activity bonds") are, in most cases, revenue bonds and do not generally carry
the pledge of the credit of the issuing municipality or public authority.
Municipal Notes. Municipal notes include, but are not limited to, tax
anticipation notes, bond anticipation notes, revenue anticipation notes,
construction loan notes and project notes. Notes sold as interim financing in
anticipation of collection of taxes, a bond sale or receipt of other revenues
are usually general obligations of the issuer. Project notes are issued by local
housing authorities to finance urban renewal and public housing projects and are
secured by the full faith and credit of the United States Government.
Municipal Commercial Paper. Municipal commercial paper is issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer-term debt. It is paid from the general revenues of the
issuer or refinanced with additional issuances of commercial paper or long-term
debt.
For purposes of diversification under the 1940 Act, the identification of
the issuer of Municipal Obligations depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from those of the government
creating the subdivision and the obligation is backed only by the assets and
revenues of the subdivision, such subdivision would be regarded as the sole
issuer. Similarly, in the case of an industrial development bond or pollution
control bond, if the bond is backed only by the assets and revenues of the non-
governmental user, the non-governmental user would be deemed to be the sole
issuer. If in either case the creating government or another entity guarantees
an obligation, the guarantee would be considered a separate security and be
treated as an issue of such government or entity.
As described in the Fund's Prospectus, the New York Tax-Free Fund may,
under limited circumstances, elect to invest in certain taxable securities and
repurchase agreements with respect to those securities. The New York Tax-Free
Fund will enter into repurchase agreements only with dealers, domestic banks or
recognized financial institutions which, in the opinion of the New York Tax-Free
Fund's investment adviser, present minimal credit risks. In the event of default
by the seller under a repurchase agreement, the New York Tax-Free Fund may have
problems in exercising their rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities. In such event, the New York Tax-Free Fund will also have to take
into account the maturities of the underlying securities in calculating the
Fund's dollar-weighted average portfolio maturities. The adviser will monitor
the value of the underlying security at the time the transaction is entered into
and at all times during the term of the repurchase agreement to ensure that the
value of the security always equals or exceeds the agreed upon repurchase price.
Repurchase agreements are considered to be loans under the 1940 Act,
collateralized by the underlying securities.
The New York Tax-Free Fund may engage in the following investment
activities:
Securities with Put Rights. When the New York Tax-Free Fund purchases
municipal obligations it may obtain the right to resell them, or "put" them, to
the seller at an agreed upon price within a specific period prior to the
maturity date.
The amount payable to the New York Tax-Free Fund by the seller upon its
exercise of a put will normally be (i) the New York Tax-Free Fund's acquisition
cost of the securities (excluding any accrued interest which the New York Tax-
Free Fund paid on their acquisition), less any amortized market premium or plus
any amortized market or original issue discount during the period the New York
Tax-Free Fund owned the securities, plus (ii) all interest accrued on the
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<PAGE>
securities since the last interest payment date during the period the securities
were owned by the New York Tax-Free Fund. Absent unusual circumstances, the New
York Tax-Free Fund values the underlying securities at their amortized cost.
Accordingly, the amount payable by a broker-dealer or bank during the time a put
is exercisable will be substantially the same as the value of the underlying
securities.
The New York Tax-Free Fund's right to exercise a put is unconditional and
unqualified. A put is not transferable by the New York Tax-Free Fund, although
the New York Tax-Free Fund may sell the underlying securities to a third party
at any time. The New York Tax-Free Fund expects that puts will generally be
available without the payment of any direct or indirect consideration. However,
if necessary and advisable, the New York Tax-Free Fund may pay for certain puts
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to such a put (thus reducing the yield to maturity
otherwise available for the same securities).
The New York Tax-Free Fund may enter into put transactions only with
broker-dealers and banks which, in the opinion of the Adviser, present minimal
credit risks. The New York Tax-Free Fund's ability to exercise a put will
depend on the ability of the broker-dealer or bank to pay for the underlying
securities at the time the put is exercised. In the event that a broker-dealer
or bank should default on its obligation to repurchase an underlying security,
the New York Tax-Free Fund might be unable to recover all or a portion of any
loss sustained from having to sell the security elsewhere.
The New York Tax-Free Fund intends to enter into put transactions solely to
maintain portfolio liquidity and does not intend to exercise their rights
thereunder for trading purposes. The acquisition of a put will not affect the
valuation of the underlying security which will continue to be valued in
accordance with the amortized cost method. The actual put will be valued at zero
in determining net asset value. Where the New York Tax-Free Fund pays directly
or indirectly for a put, its cost will be reflected as an unrealized loss for
the period during which the put is held by the New York Tax-Free Fund and will
be reflected in realized gain or loss when the put is exercised or expires. If
the value of the underlying security increases, the potential for unrealized or
realized gain is reduced by the cost of the put.
The value of municipal securities may be affected by uncertainties in the
municipal market related to legislation or litigation involving the taxation of
municipal securities or the rights of municipal securities holders in the event
of a bankruptcy. Municipal bankruptcies are relatively rare, and certain
provisions of the U.S. Bankruptcy Code governing such bankruptcies are unclear
and remain untested. Further, the application of state law to municipal issuers
could produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the municipal
securities market generally, certain specific segments of the market, or the
relative credit quality of particular securities. Any of these effects could
have a significant impact on the prices of some or all of the municipal
securities held by the Fund, making it more difficult for the Fund to maintain a
stable net asset value per share.
Risk Factors for the New York Tax-Free Fund
The following information as to certain New York risk factors is given to
investors in view of the New York Tax-Free Fund's policy of concentrating its
investments in New York Municipal Obligation issuers. The factors affecting the
financial conditions of the State of New York (the "State") are complex, and the
following description constitutes only a brief summary; it does not purport to
be a complete description and is based on information from official statements
relating to general obligation bonds issued by the State of New York. The
accuracy and completeness of the information contained in such offering
statements has not been independently verified.
New York State. The economy of the State (the "State") is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a comparatively small share of the
nation's farming and mining activity. The State has a declining portion of its
work force engaged in manufacturing, and an increasing portion engaged in
service industries, reflecting the national trend.
New York has a very high state and local tax burden relative to other
states. The State and its localities have used these taxes to develop and
maintain their transportation networks, public schools and colleges, public
health systems, and social services and recreational facilities. Despite these
benefits, the burden of state and local taxation may have contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State.
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The national economy began the current expansion in 1991 and has added over
7 million jobs since early 1992. However, the recession lasted longer in the
State and the State's economic recovery has lagged behind the nation's. Although
the State has added approximately 185,000 jobs since November 1992, employment
growth in the State has been hindered during recent years by significant
cutbacks in the computer and instrument manufacturing, utility, defense, and
banking industries.
The State Budget Process. The requirements of the State budget process are
set forth in Article VII of the State Constitution and the State Finance law.
The process begins with the Governor's submission of the Executive Budget to the
Legislature each January, in preparation for the start of the fiscal year on
April 1. (The submission date is February 1 following a gubernatorial
election.) The budget must contain a complete plan of available receipts and
projected disbursements for the ensuing fiscal year ("State Financial Plan").
That proposed State Financial Plan must be balanced on a cash basis, and must be
accompanied by bills which: (i) set forth all proposed appropriations and
reappropriations, (ii) provide for any new or modified revenue measures, and
(iii) make any other changes to existing law necessary to implement the budget
recommended by the Governor.
In acting on the bills submitted by the Governor, the Legislature has the
power to alter both recommended appropriations and proposed changes to
substantive law. The Legislature may strike out or reduce an item of
appropriation recommended by the Governor. The Legislature may add items of
appropriation provided such additions are stated separately. These additional
items are then subject to line-item veto by the Governor. If the Governor
vetoes an appropriation or a bill related to the budget, these can be
reconsidered in accordance with the rules of each house of the Legislature. If
approved by two-thirds of the members of each house, the measure will become law
notwithstanding the Governor's veto.
Once the appropriation and other bills become law, the State's Division of
the Budget ("DOB") revises the State Financial Plan based on the Legislatures's
action, and begins the process of implementing the budget. Throughout the
fiscal year, DOB monitors actual receipts and disbursements, and may adjust the
estimates in the State Financial Plan. Adjustments may also be made to the State
Financial Plan to reflect changes in the economy, as well as new actions taken
by the Governor or the Legislature.
The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis State Financial Plan, and an
explanation of any changes from the previous State Financial Plan. As required
by the State Finance law, the Governor updates the State Financial Plan within
30 days of the close of each quarter of the fiscal year, generally issuing
reports by July 30, October 30, and as part of the Executive Budget.
Financial Accounting. New York utilizes the fund method of accounting to
report on its financial position and the results of its operations.
Substantially all State non-pension financial operations are accounted for in
the State's governmental funds group ("Governmental Funds"). The Governmental
Funds include the General Fund, which receives all income not required by law to
be deposited in another fund and which for the State's 1996-1997 fiscal year
("Fiscal Year 1996-97") comprises approximately 50% of total projected
Governmental Funds receipts; the Special Revenue Funds, which receive a
preponderance of money received by the State from the federal government and
other income the use of which is legally restricted to certain purposes and
which comprises approximately 41% of total projected Governmental Funds receipts
in the Fiscal Year 1996-97; the Capital Projects Funds, used to finance the
acquisition and construction of major capital facilities by the State and to aid
in certain of such projects conducted by local governments or public
authorities; and the Debt Service Funds, which are used for the accumulation of
monies for the payment of principal of and interest on long term debt and other
contractual commitments. Receipts in the Capital Projects and Debt Service Funds
comprise an aggregate of approximately 9% of total projected Governmental Funds
receipts in the Fiscal Year 1996-97.
Financial information for the governmental funds during each fiscal year is
maintained on a cash basis of accounting ("Cash Basis"). New York also prepares
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements differ in format from the Cash Basis statements
in that, among other things, they are prepared on an accrual basis, include a
combined balance sheet, and report on the activities of all funds. The Cash
Basis financial information is adjusted at fiscal year end by an independent
public accounting firm to reflect financial reporting in conformity with GAAP.
The State maintains a March 31st fiscal year end.
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Revenues and Expenditures. New York's Governmental Funds receive over 50%
of their revenues from taxes levied by the State. Investment income, fees and
assessments, abandoned property collections, and other varied sources supply the
balance of the receipts for these funds. Revenues not required to be deposited
in another fund are deposited in the General Fund. The major tax sources for the
General Fund are the personal income tax (52% of General Fund tax receipts in
Fiscal Year 1995-96, and 52% of the Fiscal Year 1996-97 budgeted figure), the 4%
user taxes and fees (20% in Fiscal Year 1995-96, 25% of the Fiscal Year 1996-97
budget), business taxes (14% of the fiscal 1995 budget and 14% of the Fiscal
1996 budget), and other taxes. The majority of Special Revenue Funds receipts
come from federal grants (75% of receipts in Fiscal Year 1995-96, 76% of the
Fiscal Year 1996-97 budget). Generally, approximately 87% of the federal funds
received by the Special Revenue Funds are on account of Medicaid, income
maintenance and associated social services, education and health programs.
New York's major expenditures are grants to local governments, which are
projected to account for 70% of all Governmental Funds expenditures in Fiscal
Year 1996-97. These grants include disbursements for elementary, secondary and
higher education, social services, drug abuse control, and mass transportation
programs.
Fiscal 1995-96 Financial Results (Cash Basis). The State ended its 1995-96
fiscal year on March 31, 1996 with a General Fund cash surplus. The Division of
the Budget ("DOB") reported that revenues exceeded projections by $270 million,
while spending for social service programs was lower than forecast by $120
million and all other spending was lower by $55 million. From the resulting
benefit of $445 million, a $65 million voluntary deposit was made into the Tax
Stabilization Revenue Fund ("TSRF"), and $380 million was used to reduce 1996-97
Financial Plan liabilities by accelerating 1996-97 payments, deferring 1995-96
revenues, and making a deposit to the tax refund reserve account.
The General Fund closing fund balance was $287 million, an increase of $129
million from 1994-95 levels. The $129 million change in fund balance is
attributable to the $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the Contingency Reserve
Fund ("CRF"), and a $9 million deposit to the Revenue Accumulation Fund. The
closing fund balance includes $237 million on deposit in the TSRF, to be used in
the event of any future General Fund deficit as provided under the State
Constitution and State Finance Law. In addition, $41 million is on deposit in
the CRF. The CRF was established in State fiscal year 1993-94 to assist the
State in financing the costs of extraordinary litigation. The remaining $9
million reflects amounts on deposit in the Revenue Accumulation Fund. This fund
was created to hold certain tax receipts temporarily before their deposit to
other accounts. In addition, $678 million was on deposit in the tax refund
reserve account, of which $521 million was necessary to complete the
restructuring of the State's cash flow under the LGAC program.
General Fund receipts totaled $32.81 billion, a decrease of 1.1 percent
from 1994-95 levels. This decrease reflects the impact of tax reductions enacted
and effective in both 1994 and 1995. General Fund disbursements totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels. Mid-year spending reductions, taken as part of a management review
undertaken in October at the direction of the Governor, yielded savings from
Medicaid utilization controls, office space consolidation, overtime and
contractual expense reductions, and statewide productivity improvements achieved
by State agencies. Together with decreased social services spending, this
management review account for the bulk of the decline in spending.
1996-97 State Financial Plan (Cash Basis). The State's budget for the
1996-97 fiscal year was enacted by the Legislature on July 13, 1996, more than
three months after the start of the fiscal year. Prior to adoption of the
budget, the Legislature enacted appropriations for disbursements considered to
be necessary for State operations and other purposes, including necessary
appropriations for all State-supported debt service. The State Financial Plan
for the 1996-97 fiscal year was formulated on July 25, 1996 and is based on the
State's budget as enacted by the Legislature and signed into law by the
Governor, as well as actual results for the first quarter of the current fiscal
year.
After adjustment for comparability between fiscal years, the adopted 1996-
97 budget projects a year-over-year increase in General Fund disbursements of
0.2 percent. Adjusted State Funds (excluding federal grants) disbursements all
projected to increase by 1.6 percent from the prior fiscal year. All
Governmental Funds projected disbursements increase by 4.1 percent over the
prior fiscal year.
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The 1996-97 State Financial Plan is projected to be balanced on a cash
basis. As compared to the Governor's proposed budget as revised on March 20,
1996, the State's adopted budget for 1996-97 increases General Fund spending by
$842 million, primarily from increases for education, special education and
higher education ($563 million). The balance represents funding increases to a
variety of other programs, including community projects and increased assistance
to fiscally distressed cities. Resources used to fund these additional
expenditures include $540 million in increased revenues projected for 1996-97
based on higher-than projected tax collections during the first half of calendar
1996, $110 million in projected receipts from a new State tax amnesty program,
and other resources including certain non-recurring resources. The total amount
of non-recurring resources included in the 1996-97 State budget is projected by
DOB to be $1.3 billion, or 3.9 percent of total General Fund receipts.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. In addition, the State Financial Plan is
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The DOB believes that its projections
of receipts and disbursements relating to the current State Financial Plan, and
the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from its estimates set forth
herein and those estimates may be changed materially and adversely from time to
time. There are also risks and uncertainties concerning the future-year impact
of actions taken in the 1996-97 budget.
Financial Plan Updates. The State issued its first update to the cash-
basis 1996-97 State Financial Plan (the "Mid-Year Update") on October 25,1996.
Revisions were made to estimates of both receipts and disbursements based on:
(1) updated economic forecasts for both the nation and the State, (2) an
analysis of actual receipts and disbursements through the first six months of
the fiscal year, and (3) an assessment of changing program requirements. The
Mid-Year Update reflected a balanced 1996-97 State Financial Plan, and a
projected reserve in the General Fund of $300 million.
The State economic forecast was changed slightly from the one formulated
with the July 1996-97 State Financial Plan. Moderate growth was projected to
continue through the second half of 1996, with employment, wages and incomes
continuing their modest rise.
Actual receipts through the first two quarters of the 1996-97 State fiscal
year reflected stronger-than-expected growth in most taxes, with actual receipts
exceeding expectations by $250 million. Based on the revised economic outlook
and actual receipts for the first six months of 1996-97, projected General Fund
receipts for the 1996-97 State fiscal year were increased by $420 million. Most
of this projected increase was in the yield of the personal income tax ($241
million), with additional increases expected in business taxes ($124 million)
and other tax receipts ($49 million). Projected collections from user taxes and
fees were revised downward slightly ($5 million). Revisions were also made to
both miscellaneous receipts and in transfers from other funds (an $11 million
combined projected increase).
Disbursements through the first six months of the fiscal year were $415
million less than projected, primarily because of delays in processing payments
following delayed enactment of the State budget. As a result, no savings were
included in the Mid-Year Update from this slower-than-expected spending.
Projections of 1996-97 General Fund disbursements were increased by $ 120
million, since increased General Fund disbursements for education were required
to replace a projected decrease in lottery receipts. This modification was shown
in the form of an increased transfer of General Fund monies to the Lottery Fund
in the Special Revenue fund type.
The projected closing fund balance in the General Fund of $337 million
reflected a balance of $252 million in the TSRF following a payment of $15
million during the current fiscal year, and a deposit of $85 million to the CRF.
The State revised the cash-basis 1996-97 State Financial Plan again on
January 14, 1997, in conjunction with the release of the Executive Budget for
the 1997-98 fiscal year.
The 1996-97 General Fund Financial Plan continues to be balanced. The DOB
projects that, prior to taking the actions described below, the General Fund
Financial Plan would have shown an operating surplus of approximately $1.3
billion. These actions include implementing reduced personal income tax
withholding to reflect the impact of tax
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reduction actions which took effect on January 1, 1997. This has the effect of
raising taxpayer's current take-home pay rather than requiring taxpayers to wait
until the spring of 1998 for larger refunds. The Financial Plan assumes the use
of $250 million for this purpose. In addition, $943 million is projected to be
used to pay tax refunds during the 1996-97 fiscal year or reserved to pay
refunds during the 1997-98 fiscal year, which produces a benefit for the 1997-98
Financial Plan (see below). Finally, $65 million is projected to be deposited
into the TSRF (in addition to the required deposit of $15 million), increasing
the cash balance in that fund to $317 million by the end of 1996-97.
The projected surplus results primarily from growth in the underlying
forecast for projected receipts. As compared to the enacted budget, revenues are
expected to increase by more than $1 billion, while disbursements are expected
to fall by $228 million. These changes from original Financial Plan projections
reflect actual results through December 1996 as well as modified economic and
social services caseload projections for the balance of the fiscal year.
As compared to the Mid-Year Update, underlying estimates of General Fund
receipts have been revised upward $566 million, primarily in personal income
taxes and business taxes. However, two transactions offset these projected
increases, producing a projected decline in available General Fund receipts as
compared to the Mid-Year Update:
. first, in order to make the projected 1996-97 cash surplus available to
help finance 1997-98 spending requirements, $943 million in personal income
tax refund payments (or reserves for such payments) are proposed to be
accelerated into 1996-97. This action has the effect of decreasing reported
personal income tax receipts in 1996-97, while increasing available
personal income tax receipts in 1997-98, as these refunds will no longer be
a charge against current revenues in 1997-98.
. second, January 1997 implementation of personal income tax withholding
table changes to reflect tax reductions effective January 1,1997,
originally scheduled for April of this year, also depresses personal income
tax receipts by an estimated $250 million this year. The change lowers
withholding rather than having these monies paid to taxpayers through
larger refunds in the spring of 1998.
As a result of these transactions, projections of available receipts in 1996-97
have been reduced by $627 million from the time of the Mid-Year Update, despite
the increases in the underlying forecast.
Projected General Fund disbursements are reduced by a total of $348 million
from the Mid-Year Update, with changes made in most categories of the Financial
Plan. Most of this savings is attributable to reductions in local assistance
spending, primarily due to significant reestimates in social services spending
to reflect lower caseload growth, yielding savings of $226 million. General
State Charges are reduced $76 million to reflect lower pension and fringe
benefit costs. The General State Charges estimate includes savings achieved
from the refinancing of certain pension liabilities through the issuance of
long-term debt, as planned, and the repayment of that liability to the State
Retirement System. Transfers to the Capital Projects Fund have been reduced $31
million to reflect slower-than-expected capital disbursements for the balance of
the fiscal year. Reductions in debt service costs of $21 million reflect savings
from refundings undertaken in the current fiscal year, as well as savings from
improved interest rates in the financial markets.
The Mid-Year Update had reserved $300 million in the General Fund for
certain contingencies, including litigation which could have produced an adverse
impact on the State's finances, either by itself or the precedential nature of
the court's decision. Since subsequent events make it unlikely that these risks
will materialize before the end of the 1996-97 fiscal year, the Third Quarter
Update no longer includes this reserve. Other reserves are contained in the
Financial Plan, as discussed below.
The General Fund closing balance is expected to be $358 million at the end
of 1996-97. Of this amount, $317 million would be on deposit in the TSRF, while
another $41 million would remain on deposit in the CRF as a reserve for
litigation or other unbudgeted costs to the Financial Plan. The TSRF had an
opening balance of $237 million, to be supplemented by a required payment of $15
million and an extraordinary deposit of $65 million from surplus 1996-97 monies.
The $9 million on deposit in the Revenue Accumulation Fund will be drawn down as
planned. A planned deposit of $85 million to the CRF, projected to be received
from contractual efforts to maximize federal revenue, is no longer expected to
be deposited this year.
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1997-98 State Financial Plan. The Governor presented his 1997-98 Executive
Budget to the Legislature on January 14, 1997. The Executive Budget also
contains financial projections for the State's 1998-99 and 1999-2000 fiscal
years, detailed estimates of receipts and an updated Capital Plan. It is
expected that the Governor will prepare amendments to his Executive Budget as
permitted under law and that these amendments will be reflected in a revised
Financial Plan. There can be no assurance that the Legislature will enact the
Executive Budget as proposed by the Governor into law, or that the State's
adopted budget projections will not differ materially and adversely from its
estimates set forth herein.
The 1997-98 Financial Plan projects balance on a cash basis in the General
Fund. It reflects a continuing strategy of substantially reduced State spending,
including program restructurings, reductions in social welfare spending, and
efficiency and productivity initiatives. Total General Fund receipts and
transfers from other funds are projected to be $32.88 billion, a decrease of $88
million from total receipts projected in the current fiscal year. Total General
Fund disbursements and transfers to other funds are projected to be $32.84
billion, a decrease of $56 million from spending totals projected for the
current fiscal year. As compared to the 1996-97 State Financial Plan, the
Executive Budget proposes a year-to-year decline in General Fund spending of 0.2
percent. State funds spending (i.e., General Fund plus other dedicated funds,
with the exception of federal aid) is projected to grow by 1.2 percent. Spending
from all Governmental Funds (excluding transfers) is proposed to increase by 2.2
percent from the prior fiscal year.
The Executive Budget proposes $2.3 billion in actions to balance the 1997-
98 Financial Plan. Before reflecting any actions proposed by the Governor to
restrain spending, General Fund disbursements for 1997-98 were projected to grow
by approximately 4 percent. This increase would have resulted from growth in
Medicaid, higher fixed costs such as pensions and debt service, collective
bargaining agreements, inflation, and the loss of non-recurring resources that
offset spending in 1996-97. General Fund receipts were projected to fall by
roughly 3 percent. This reduction would have been attributable to modest growth
in the State's economy and underlying tax base, the loss of non-recurring
revenues available in 1996-97 and implementation of previously enacted tax
reduction programs.
The Executive Budget proposes to close this gap primarily through a series
of spending reductions and Medicaid cost containment measures, the use of a
portion of the 1996-97 projected budget surplus, and other actions. The 1997-98
Financial Plan projects receipts of $32.88 billion and spending of $32.84
billion, allowing for a deposit of $24 million into the CRF and a year-ending
CRF reserve of $65 million, and a required repayment of $15 million to the TCRF.
State Debt. Under the State Constitution, the State may not, with limited
exceptions for emergencies, undertake long term borrowing (i.e., borrowing for
more than one year) unless the borrowing is authorized in a specific amount for
a single work or purpose by the Legislature and approved by the voters. There
is no limitation on the amount of long term debt that may be so authorized and
subsequently incurred by the State. With the exception of housing bonds (which
must be paid in equal annual installments, within 50 years after issuance,
commencing no more than three years after issuance), general obligation bonds
must be paid in equal annual installments, within 40 years after issuance,
beginning not more than one year after issuance of such bonds.
The State may undertake short term borrowings without voter approval (i) in
the anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. Tax and revenue anticipation notes must mature within one
year from their dates of issuance and may not be refunded or refinanced beyond
such period. The State may issue bond anticipation notes only for the purposes
and within the amounts for which bonds may be issued. Such notes must be paid
from the proceeds of the sale of bonds in anticipation of which they were issued
or from other sources within two years of the date of issuance or, in the case
of notes for housing purposes, within five years from the date of issuance.
Pursuant to specific constitutional authorization, the State may also
directly guarantee certain public authority obligations. The State Constitution
provides for the State guarantee of the repayment of certain borrowings for
designated projects of the New York State Thruway Authority, the Job Development
Authority and the Port Authority of New York and New Jersey. The State has never
been called upon to make any direct payments pursuant to such guarantees. The
constitutional provisions allowing a State guarantee of certain Port Authority
of New York and New
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Jersey debt stipulates that no such guaranteed debt may be outstanding after
December 31, 1996. State-guaranteed bonds issued by the Thruway Authority were
fully retired on July 1, 1995.
Payments of debt service on State general obligation and State-guaranteed
bonds and notes are legally enforceable obligations of the State.
In 1990, as part of a State fiscal reform program,, legislation was enacted
creating LGAC,, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments that had been
traditionally funded through the State's annual seasonal borrowing. The
legislation authorized LGAC to issue its bonds and notes in an amount to yield
net proceeds not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of these long-term obligations,
which are to be amortized over no more than 30 years, was expected to eliminate
the need for continued short-term seasonal borrowing. The legislation also
dedicated revenues equal to one-quarter of the four cent State sales and use tax
to pay debt service on these bonds. The legislation also imposed a cap on the
annual seasonal borrowing of the State at $4.7 billion, less net proceeds of
bonds issued by LGAC and bonds issued to provide for capitalized interest,
except in cases where the Governor and the legislative leaders have certified
the need for additional borrowing and provided a schedule for reducing it to the
cap. If borrowing above the cap is thus permitted in any fiscal year, it is
required by law to be reduced to the cap by the fourth fiscal year after the
limit was first exceeded. This provision capping the seasonal borrowing was
included as a covenant with LGAC's bondholders in the resolution authorizing
such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion, completing the program. The impact of LGAC's borrowing is that the
State has been able to meet its cash flow needs throughout the fiscal year
without relying on short-term seasonal borrowings. The 1996-97 State Financial
Plan includes no seasonal borrowing; this reflects the success of the LGAC
program in permitting the State to accelerate local aid payments from the first
quarter of the current fiscal year to the fourth quarter of the previous fiscal
year.
1996-97 Borrowing Plan. The State anticipates that its capital programs
will be financed, in part, through borrowings by the State and public
authorities in the 1996-97 fiscal year. The State expects to issue $411 million
in general obligation bonds (including $153.6 million for purposes of redeeming
outstanding BANs)) and $154 million in general obligation commercial paper. The
Legislature has also authorized the issuance of up to $101 million in COPs
during the State's 1996-97 fiscal year for equipment purchases. The projection
of the State regarding its borrowings for the 1996-97 fiscal year may change if
circumstances require.
Borrowings by other public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total $2.15 billion, including costs of issuances, reserve funds,
and other costs, net of anticipated refundings and other adjustments for 1996-97
capital projects. Included therein are borrowings by (i) DASNY for SUNY, The
City University of New York ("CUNY"), health facilities, and mental health
facilities; (ii) Thruway Authority for the Dedicated Highway and Bridge Trust
Fund and Consolidated Highway Improvement Program; (iii) UDC (doing business as
the Empire State Development Corporation) for prison and youth facilities; (iv)
the Housing Finance Agency ("HFA") for housing programs; and (v) borrowings by
the Environmental Facilities Corporation ("EFC") and other authorities. In
addition, the Legislature has authorized DASNY to refinance a $787 million
pension obligation of the State.
In the 1996 legislative session, the legislature approved the Governor's
proposal to present to the voters in November 1996 a $1.75 billion State general
obligation bond referendum to finance various environmental improvement and
remediation projects. lf the Clean Water, Clean Air Bond Act is approved by the
voters, the amount of general obligation bonds issued during the 1996-97 fiscal
year may increase above the $411 million currently included in the 1996-97
Borrowing Plan to finance a portion of this new program.
Debt Ratings. Due primarily to the deteriorating economy and recurring
deficits, Moody's lowered its ratings on New York State general obligations in
1990 from A1 to A. In January 1992, Moody's lowered the ratings on a substantial
number of the State's appropriation-backed debt from A to Baal, and stated that
it had put the State's general obligations under review for possible downgrade
in the future. S&P lowered its rating on the State's general obligations in
March 1990 from AA- to A, and in January 1992, S&P further lowered the rating to
A-. In January 1992, S&P also downgraded to A- various agency debt, State moral
obligations, contractual obligations, lease purchase obligations,
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guarantees and school district debt. New York State general obligation bonds
currently are rated "A" by Moody's and "A-" by S&P.
Ratings reflect only the respective views of such organizations, and an
explanation of the significance of such ratings must be obtained from the rating
agency furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the Bonds.
Litigation. The legal proceedings noted below involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State in
the 1996-97 fiscal year or thereafter.
Adverse developments in these proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced 1996-97
State Financial Plan. The State believes that the 1996-97 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1996-97 fiscal year. There can be no assurance, however, that an
adverse decision in any of these proceedings would not exceed the amount of the
1996-97 State Financial Plan reserves for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced 1996-97
State Financial Plan. In its General Purpose Financial Statements, the State
reports its estimated liability in subsequent fiscal years for awarded and
anticipated unfavorable judgments.
Although other litigation is pending against the State, except as described
below, no current litigation involves the State's authority, as a matter of law,
to contract indebtedness, issue its obligation, or pay such indebtedness when
its matures, or affects the State's power or ability, as a matter of law, to
impose or collect significant amounts of taxes and revenues.
In addition to the proceedings noted below, the State is party to other
claims and litigation which its legal counsel has advised are not probable of
adverse court decisions. Although the amounts of potential losses, if any, are
not presently determinable, it is the State's opinion that its ultimate
liability in these cases is not expected to have a material adverse effect on
the State's financial position in the 1996-97 fiscal year or thereafter.
Insurance Law. In Trustees of and The Pension, Hospitalization Benefit
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Plan of the Electrical Industry, et al. v. Cuomo, et al., commenced November 25,
1992 in the United States District Court for the Eastern District of New York,
plaintiff employee welfare benefit plans seek a declaratory judgment nullifying
on the ground of Federal preemption provisions of Section 2807-c of the Public
Health Law and implementing regulations which impose a bad debt and charity care
allowance on all hospital bills and a 13 percent surcharge on inpatient bills
paid by employee welfare benefit plans.
Tax Law. Aspects of petroleum business taxes are the subject of
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administrative claims and litigation (e.g., Tug Buster Bouchard, et al. v.
Wetzler, Supreme Court, Albany County, commenced November 13, 1992). In Tug
Buster Bouchard, petitioner corporations, which purchase fuel out of State and
consume such fuel within State, contend that the assessment of the petroleum
business tax pursuant to Tax Law (S)301 to such fuel violates the Commerce
Clause of the United States Constitution. Petitioners contend that the
application of Section 301 to the interstate transaction but not to purchasers
who purchase and consume fuel within the State discriminates against interstate
commerce.
State Programs. Several cases challenge provisions of Chapter 81 of the
--------------
Laws of 1995 which alter the nursing home Medicaid reimbursement methodology on
and after April 1, 1995. Included are New York State Health Facilities
Association, et al. v. DeBuono, et al., St. Luke's Nursing Center, et al. v.
DeBuono, et al., New York Association of Homes and Services for the Aging v.
DeBuono et al. (three cases), Healthcare Association of New York State v.
DeBuono and Bayberry Nursing Home et al. v. Pataki, et al. Plaintiffs allege
that the changes in methodology have been adopted in violation of procedural and
substantive requirements of State and federal law.
In a consolidated action commenced in 1992, Medicaid recipients and home
health care providers and organizations challenge promulgation by the State
Department of Social Services ("DSS") in June 1992 of a home assessment resource
review instrument ("HARRI"), which is to be used by DSS to determine eligibility
for and the
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nature of home care services for Medicaid recipients, and challenge the policy
of DSS of limiting reimbursable hours of service until a patient is assessed
using the HARRI (Dowd, et al. v. Bane, Supreme Court, New York County).
Office of Mental Health Patient-Care Costs. Two actions, Balzi, et al. v.
------------------------------------------
Surles, et al., commenced in November 1985 in the United States District Court
for the Southern District of New York, and Brogan, et al. v. Sullivan, et al.,
commenced in May 1990 in the United States District Court for the Western
District of New York, now consolidated, challenge the practice of using
patients' Social Security benefits for the costs of care of patients of State
Office of Mental Health facilities.
Shelter Allowance. In an action commenced in March 1987 against State and
-----------------
New York City officials (Jiggetts, et al. v. Bane, et al.), plaintiffs allege
that the shelter allowance granted to recipients of public assistance is not
adequate for proper housing.
Education Law. In New York State Association of Counties v. Pataki, et
-------------
al., commenced May 29, 1996 (Supreme Court, Albany County),), plaintiff seeks
reimbursement from the State for certain costs arising out of the provision of
preschool services and programs for children with handicapping conditions,
pursuant to Sections 4410 (10) and (11) of the Education Law.
Racial Segregation. In an action commenced in 1985 (United States, et al,
------------------
v. Yonkers Board of Education, et al.), the United States District Court for the
Southern District of New York found that Yonkers and its public schools were
intentionally segregated. Yonkers enacted an "education improvement plan. which
was adopted in 1986. Plaintiffs allege that defendants have not fulfilled their
responsibility to alleviate the segregation. On January 19, 1989 the State, the
State Education Department and the New York State Urban Development Corporation
were added as defendants.
Real Property Claims. On March 4, 1985 in Oneida Indian Nation of New
--------------------
York, et al. v. County of Oneida, the United States Supreme Court affirmed a
judgment of the United States Court of Appeals for the Second Circuit holding
that the Oneida Indians have a common-law right of action against Madison and
Oneida Counties for wrongful possession of 872 acres of land illegally sold to
the State in 1795. At the same time, however, the Court reversed the Second
Circuit by holding that a third-party claim by the counties against the State
for indemnification was not properly before the federal courts. The case was
remanded to the District Court for an assessment of damages, which action is
still pending. The counties may still seek indemnification in the State courts.
Several other actions involving Indian claims to land in upstate New York
are also pending. Included are Cayuga Indian Nation of New York v. Cuomo, et
al., and Canadian St. Regis Band of Mohawk Indians, et al. v. State of New York,
et al., both in the United States District Court for the Northern District of
New York. The Supreme Court's holding in Oneida Indian Nation of New York may
impair or eliminate certain of the State's defenses to these actions but may
enhance others.
Contract and Tort Claims. In Inter-Power of New York, Inc. v. State of New
------------------------
York, commenced November 16, 1994 in the Court of Claims, plaintiff alleges that
by reason of the failure of the State's Department of Environmental Conservation
to provide in a timely manner accurate and complete data, plaintiff was unable
to complete by the projected completion date a cogeneration facility, and
thereby suffered damages.
New York City. The fiscal health of the State is closely related to the
fiscal health of its localities, particularly the City, which has required and
continues to require significant financial assistance from the State. The City,
with a population of approximately 7.3 million, is an international center of
business and culture. Its non-manufacturing economy is broadly based, with the
banking and securities, life insurance, communications, publishing, fashion
design, retailing and construction industries accounting for a significant
portion of the City's total employment earnings. Additionally, the City is the
nation's leading tourist destination. Manufacturing activity in the City is
conducted primarily in apparel and printing.
The national economic downturn which began in July 1990 adversely affected
the local economy, which had been declining since late 1989. As a result, the
City experienced job losses in 1990 and 1991 and real Gross City Product ("GCP")
fell in those two years. Beginning in calendar year 1992, the improvement in
the national economy helped stabilize conditions in the City. Employment losses
moderated toward year-end and real GCP increased, boosted
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by strong wage gains. However, after noticeable improvements in the City's
economy during calendar year 1994, economic growth slowed in calendar year 1995,
and the City's current four-year financial plan assumes that economic growth
will continue to slow in calendar year 2000.
For each of the 1981 through 1996 fiscal years, the City achieved balanced
operating results as reported in accordance with then applicable generally
accepted accounting principles ("GAAP"). The City was required to close
substantial budget gaps in recent years in order to maintain balanced operating
results. There can be no assurance that the City will continue to maintain a
balanced budget as required by State law without additional tax or other revenue
increases or additional reductions in City services or entitlement programs,
which could adversely affect the City's economic base.
Pursuant to the laws of the State, the City prepares a four-year annual
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City's
current four-year financial plan projects substantial budget gaps for each of
the 1998 through 2000 fiscal years, before implementation of the proposed gap-
closing program contained in the current financial plan. The City is required
to submit its financial plans to review bodies, including the New York State
Financial Control Board ("Control Board").
The City depends on State aid both to enable the City to balance its budget
and to meet its cash requirements. There can be no assurance that there will not
be reductions in State aid to the City from amounts currently projected or that
State budgets in future fiscal years will be adopted by the April 1 statutory
deadline or that any such reductions or delays will not have adverse effects on
the City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants in the City's 1996 fiscal year which could have additional
adverse effects on the City's cash flow or revenues.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1997 through 2000 fiscal
years (the "1997-2000 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies which are uncertain and which may not materialize. Changes in
major assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the condition of the
regional and local economies, the impact on real estate tax revenues of the real
estate market, wage increases for City employees consistent with those assumed
in the Financial Plan, employment growth, the ability to implement proposed
reductions in City personnel and other cost reduction initiatives, which may
require in certain cases the cooperation of the City's municipal unions, the
ability of the New York City Health and Hospitals Corporation ("HHC") and the
Board of Education ("BOE") to take actions to offset reduced revenues, the
ability to complete revenue generating transactions, provision of State and
Federal aid and mandate relief and the impact on City revenues or expenditures
of proposals for Federal and State welfare reform and any future legislation
affecting Medicare or other entitlements.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 1997 through 2000 contemplates the issuance of $9.0 billion of
general obligation bonds and $3.8 billion of bonds to be issued by the proposed
New York City Finance Authority (the "Finance Authority") to finance City
capital projects. The creation of the Finance Authority, which is subject to the
enactment of State legislation, is being proposed as part of the City's effort
to assist in keeping the City's indebtedness within the forecast level of the
constitutional restrictions on the amount of debt the City is authorized to
incur. Indebtedness subject to the constitutional debt limit includes liability
on capital contracts that are expected to be funded with general obligation
bonds, as well as general obligation bonds. The City's projections of total debt
subject to the general debt limit that would be required to be issued to fund
the Updated Ten-Year Capital Strategy published in April 1995 indicates that
projected contracts for capital projects and debt issuance may exceed the
general debt limit by the end of fiscal year 1997 and would exceed the general
debt limit by a substantial amount thereafter, unless legislation is enacted
creating the Finance Authority or other legislative initiatives are identified
and implemented. Depending on a number of factors, including whether the
Legislature is expected to enact legislation creating the Finance Authority or
to take other action that would provide relief under the general debt limit, the
City may find it necessary to curtail its currently defined capital program
before the end of fiscal year 1997 to ensure that there is ongoing capacity to
enter into capital contracts necessary to preserve projects designed to
safeguard health and safety in the City. Without the
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Finance Authority or other legislative relief, the City's general obligation
financed capital program with respect to new projects would be virtually brought
to a halt during the Financial Plan period. General obligation borrowing would
continue to reimburse the City's general fund for ongoing costs of existing
contractual commitments. In addition, the City issues revenue and tax
anticipation notes to finance its seasonal working capital requirements. The
success of projected public sales of City bonds and notes and Finance Authority
bonds will be subject to prevailing market conditions, and no assurance can be
given that such sales will be completed. If the City were unable to sell its
general obligation bonds and notes or the proposed Finance Authority were unable
to sell its bonds, the City would be prevented from meeting its planned capital
and operating expenditures. Future developments concerning the City and public
discussion of such developments, as well as prevailing market conditions, may
affect the market for outstanding City general obligation bonds and notes.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
On November 14, 1996, the City submitted to the Control Board the Financial
Plan for the 1997 through 2000 fiscal years, which relates to the City, BOE and
the City University of New York ("CUNY"). The Financial Plan is a modification
to the financial plan submitted to the Control Board on June 21, 1996 (the "June
Financial Plan").
1997 Fiscal Year. The June Financial Plan identified actions to close a
previously projected gap of approximately $2.6 billion for the 1997 fiscal year.
The proposed actions in the June Financial Plan for the 1997 fiscal year
included (i) agency actions totaling $1.2 billion; (ii) a revised tax reduction
program which would increase projected tax revenues by $369 million due to the
four year extension of the 12.5% personal income tax surcharge and other
actions; (iii) savings resulting from cost containment in entitlement programs
to reduce City expenditures and additional proposed State aid of $75 million;
(iv) the assumed receipt of revenues relating to rent payments for the City's
airports, which are currently the subject of a dispute with the Port Authority
of New York and New Jersey (the "Port Authority"); (v) the sale of the City's
television station for $207 million; and (vi) pension cost savings totaling $134
million resulting from a proposed increase in the earnings assumption for
pension assets from 8.5% to 8.75%.
1997-2000 Fiscal Years. The 1997-2000 Financial Plan published on November
14, 1996 reflects actual receipts and expenditures and changes in forecast
revenues and expenditures since the June Financial Plan. The 1997-2000 Financial
Plan projects revenues and expenditures for 1997 fiscal year balanced in
accordance with GAAP, and projects gaps of $1.2 billion, $2.1 billion and $3.0
billion for the 1998, 1999 and 2000 fiscal years, respectively. Changes since
the June Financial Plan include (i) an increase in projected tax revenues of
$450 million, $120 million, $50 million and $45 million in fiscal years 1997
through 2000, respectively; (ii) a delay in the assumed receipt of $304 million
relating to projected rent payments for the City airports from the 1997 fiscal
year to the 1998 and 1999 fiscal years, and a $34 million reduction in assumed
State and Federal aid for the 1997 fiscal year; (iii) an approximately $200
million increase in projected overtime and other expenditures in each of the
fiscal years 1997 through 2000; (iv) a $70 million increase in expenditures for
BOE in the 1997 fiscal year for school text books; (v) a reduction in projected
pension costs of $34 million, $50 million, $49 million and $47 million in fiscal
years 1997 through 2000, respectively; and (vi) additional agency actions
totaling $179 million, $386 million, $473 million and $589 million in fiscal
years 1997 through 2000, including personnel reductions through attrition and
early retirement.
The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 12.5% personal income tax surcharge, which
expired on December 31, 1996 and is projected to provide revenue of $170
million, $463 million, $492 million, and $521 million, in the 1997 through 2000
fiscal years, respectively; (ii) collection of the projected rent payments for
the City's airports, totaling $270 million and $180 million in the 1998 and 1999
fiscal years, respectively, which may depend on the successful completion of
negotiations with the Port Authority or the enforcement of the City's rights
under the existing leases thereto through pending legal actions; (iii) the
ability of HHC and BOE to identify actions to offset substantial City and State
revenue reductions and the receipt by BOE of additional State aid; (iv) State
approval of the cost containment initiatives and State aid proposed by the City;
and (v) a reduction in City funding for labor settlements for certain public
authorities or corporations. Legislation extending the 12.5% personal income tax
surcharge beyond December 31, 1996, was not enacted in the special legislative
session held in December 1996. Such legislation may be enacted in the 1997 State
legislative session. The Financial Plan does not
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reflect any increased costs which the City might incur as a result of welfare
legislation recently enacted by Congress or legislation proposed by the
Governor, which would, if enacted, implement such Federal welfare legislation.
In addition, the economic and financial condition of the City may be affected by
various financial, social, economic and political factors which could have a
material effect on the City.
The Governor released the 1997-1998 Executive Budget on January 14, 1997,
which will be considered for adoption by the State Legislature. Based on a
preliminary evaluation of currently available information, the City's Office of
Management and Budget ("("OMB")") believes that the reductions in Medicaid
reimbursement rates and other entitlement and welfare initiatives proposed in
the 1997-1998 Executive Budget, if approved by the State Legislature without
change, would provide the City with a portion of the $650 million of additional
aid and reductions in entitlement costs assumed in the City's gap-closing
program for the 1998 fiscal year. The nature and extent of the impact on the
City of the State budget, when adopted, is uncertain, and no assurance can be
given that the State actions included in the State adopted budget may not have a
significant adverse impact on the City's budget and its Financial Plan.
The City's financial plans have been the subject of extensive public
comment and criticism. On February 28, 1996, Fitch Investors Service, L.P.
("Fitch") placed the City's general obligation bonds on FitchAlert with negative
implications. On November 5, 1996, Fitch removed the City's general obligation
bonds from FitchAlert, although Fitch stated that the outlook remains negative.
The projections for the 1997 through 2000 fiscal years reflect the costs of
the settlements with the United Federation of Teachers (''UFT") and a coalition
of unions headed by District Council 37 of the American Federation of State,
County and Municipal Employees ("District Council 37"), which together represent
approximately two-thirds of the City's workforce, and assume that the City will
reach agreement with its remaining municipal unions under terms which are
generally consistent with such settlements. The settlement provides for a wage
freeze in the first two years, followed by a cumulative effective wage increase
of 11 % by the end of the five year period covered by the proposed agreements,
ending in fiscal years 2000 and 2001. Additional benefit increases would raise
the total cumulative effective increase to 13% above present costs. Costs
associated with similar settlements for all City-funded employees would total
$49 million, $459 million and $1.2 billion in the 1997, 1998 and 1999 fiscal
years, respectively, and exceed $2 billion in each fiscal year after the 1999
fiscal year. There can be no assurance that the City will reach an agreement
with the unions that have not yet reached a settlement with the City on the
terms contained in the Financial Plan.
In the event of a collective bargaining impasse, the terms of wage
settlements could be determined through statutory impasse procedures, which can
impose a binding settlement except in the case of collective bargaining with the
UFT, which may be subject to non-binding arbitration. On January 23, 1996, the
City requested the Office of Collective Bargaining to declare an impasse against
the Patrolmen's Benevolent Association ("PBA") and the Uniformed Firefighters
Association ("UFA").
In addition, Moody's and S&P have on several occasions lowered their
ratings of New York State and City debt obligations. On July 10, 1995, S&P
revised its rating of the City's General Obligation Bonds downward softness in
the City's economy, highlighted by weak job growth and a growing dependence on
the historically volatile financial services sector." Other factors identified
by S&P in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancing, to close projected budget gaps, dependence
on unratified labor savings to help balance the Financial Plan, optimistic
projections on additional Federal and State aid or mandate relief, a history of
cash flow difficulties caused by State budget delays and continued high debt
levels. S&P's ratings on the New York City Bonds currently are BBB+. Moody's
ratings on New York City's bonds currently are Baa1.
Ratings reflect only the respective views of such organizations, and an
explanation of the significance of such ratings must be obtained from the rating
agency furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdraw entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the Bonds.
Repurchase Agreements
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Securities held by the Funds may be subject to repurchase agreements. A
repurchase agreement is a transaction in which the seller of a security commits
itself at the time of the sale to repurchase that security from the buyer at a
mutually agreed upon time and price. The repurchase price exceeds the sale
price, reflecting an agreed upon interest rate effective for the period the
buyer owns the security subject to repurchase. The agreed upon rate is
unrelated to the interest rate on that security. The Adviser will monitor the
value of the underlying security at the time the transaction is entered into and
at all times during the term of the repurchase agreement to ensure that the
value of the security always equals or exceeds the repurchase price. In the
event of default by the seller under the repurchase agreement, a Fund may have
problems in exercising its rights to the underlying securities and may incur
costs and experience time delays in connection with the disposition of such
securities. Repurchase agreements are considered to be loans under the 1940
Act, as amended, collateralized by the underlying securities.
Loans of Portfolio Securities
Portfolio securities of the Cash Management, Government and New York Tax-
Free Funds may be lent to brokers, dealers and financial institutions if
collateral, in the form of cash, U.S. Government securities, or other liquid
high grade debt obligations, including letters of credit, equal to at least 100%
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
maintained by a custodian. The U.S. Treasury Fund is not authorized to lend its
portfolio securities. In determining whether to lend a security to a particular
broker, dealer or financial institution, the investment adviser will consider
all relevant facts and circumstances, including the creditworthiness of the
broker, dealer or financial institution. No Fund will enter into any portfolio
security lending arrangement having a duration of longer than one year. Any
securities which the lending 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
lending Fund an amount equal to any accrued income on those securities, and that
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.
No Fund will lend securities having a value which exceeds 10% of the current
value of its total assets. Loans of securities will be subject to termination
at the lender's or the borrower's option. Each 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 Trust, its investment
adviser or distributor.
Variable Rate Demand Notes
The Cash Management Fund may from time to time buy variable rate demand
notes issued by corporations, bank holding companies, financial institutions and
government agencies and instrumentalities (but only in the case of taxable
securities). These securities will typically have a maturity in the 5-20 year
range but carry with them the right of the holder to put the securities to a
remarketing agent or other entity on short notice, typically 30 days or less.
The obligation of the issuer of the put to repurchase the securities is backed
up by a letter of credit or other obligation issued by a bank. The purchase
price is ordinarily par plus accrued and unpaid interest. Ordinarily, the
remarketing agent will adjust the interest rate every seven days (or at other
intervals corresponding to the notice period for the put), in order to maintain
the interest rate at the prevailing market rate for securities with a 7-day
maturity.
Variable Rate Master Demand Notes
The obligations which the Cash Management Fund and Government Fund may buy
include variable rate master demand notes. The terms of these obligations
permit the investment of fluctuating amounts by these Funds at varying rates of
interest pursuant to direct arrangements between the Funds, as lenders, and the
borrower. They permit weekly, and in some instances, daily, changes in the
amounts borrowed. The Funds have 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 prepay 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 lender
and 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 accrued
interest, at any time. The Funds have
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no limitations on the type of issuer from which the notes will be purchased,
except that in the case of the Government Fund the issuer must be a Federal
agency or instrumentality. However, in connection with such purchases and on an
ongoing basis, the investment adviser will continually monitor 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 made demand simultaneously. While master demand notes, as such,
are not typically rated by credit rating agencies, if not so rated, the Funds
may, under their minimum rating standards, invest in them only if at the time of
an investment the issuer meets the criteria set forth in the Funds' Prospectus
for all other debt obligations.
The New York Tax-Free Fund's assets will be invested primarily in Municipal
Obligations that are exempt from regular Federal, New York State and New York
City income tax in the opinion of bond counsel to the issuers.
The investment objective of each of the Funds and related policies and
activities are not fundamental and may be changed by the Board of Trustees of
the Trust without the approval of shareholders. See "Shares of Beneficial
Interest" in this SAI.
INVESTMENT RESTRICTIONS
The following restrictions are in addition to those described under
"Investment Restrictions" in the Funds' Prospectus.
The U.S. Treasury Fund may not purchase securities other than direct
obligations of the United States Treasury or repurchase agreements
pertaining thereto (there being no limit on the amount of the assets of the
U.S. Treasury Fund which may be invested in the securities of any one
issuer of such obligations).
The Government Fund may not purchase securities other than obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or repurchase agreements pertaining thereto (there being
no limit on the amount of the assets of the Government Fund which may be
invested in the securities of any one issuer of such obligations).
The Cash Management Fund may not:
(1) invest less than 25% of the current value of the total assets of
the Cash Management Fund in bank obligations (including bank obligations
subject to repurchase agreements), provided that if at some future date
adverse economic conditions prevail in the banking industry, the Cash
Management Fund may, for defensive purposes, temporarily invest less than
25% of its assets in bank obligations;
(2) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase
and as a result thereof, the value of the investments of the Cash
Management Fund in that industry would exceed 25% of the current value of
the total assets of the Cash Management Fund, except as required in the
immediately preceding investment restriction and except that there is no
limitation with respect to investments in obligations of the United States
Government, its agencies or instrumentalities;
(3) invest more than 5% of the current value of the total assets of
the Cash Management Fund in the securities of any one issuer (including
securities subject to repurchase agreements), other than obligations of the
United States Government or its agencies or instrumentalities; or
(4) write, purchase or sell puts, calls, warrants or options or any
combination thereof.
The New York Tax-Free Fund may not:
(1) purchase equity securities or other securities convertible into
equity securities;
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(2) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase
and as a result thereof, the value of the Fund's investments in that
industry would exceed 25% of the current value of the Fund's total assets,
provided that there is no limitation with respect to investments in
Municipal Obligations (for the purpose of this restriction, industrial
development and pollution control bonds shall not be deemed Municipal
Obligations if the payment of principal and interest on such bonds is the
ultimate responsibility of nongovernmental users), obligations of the
United States Government, its agencies or instrumentalities, negotiable
certificates of deposit or bankers' acceptances;
(3) purchase or sell real estate (other than municipal obligations or
other money market securities secured by real estate or interests therein
or money market securities issued by companies which invest in real estate
or interests therein), commodities or commodity contracts;
(4) invest more than 5% of the current value of the Fund's total
assets in the securities of any one issuer, other than obligations of the
United States Government, its agencies or instrumentalities or securities
which are backed by the full faith and credit of the United States, except
that up to 25% of the value of the New York Tax-Free Fund's total assets
may be invested without regard to this 5% limitation; or
(5) write, purchase or sell puts, calls, warrants or options or any
combination thereof, except that the New York Tax-Free Fund may enter into
stand-by commitments.
None of the Funds may:
(1) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions) or make short sales of
securities (the deposit or payment by the Funds of initial or maintenance
margin in connection with futures contracts or related options transactions
is not considered the purchase of a security on margin);
(2) underwrite securities of other issuers, except with respect to
the New York Tax-Free Fund and to the extent that the purchase of municipal
obligations, or other permitted investments, directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of
such securities in accordance with a Fund's investment program may be
deemed to be an underwriting; or
(3) purchase restricted securities, which are securities that must be
registered under the Securities Act of 1933 before they may be offered or
sold to the public.
For each Fund, the investment restrictions described above and in the
Funds' Prospectus are fundamental policies which may be changed only when
permitted by law and approved by the holders of a majority of the outstanding
voting securities of that Fund, as described under "Shares of Beneficial
Interest" in this SAI. The definition of issuer for purposes of these
investment restrictions is the same as that described under "Investment
Policies" in this SAI for the purpose of diversification under the 1940 Act.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in the market value of an investment, in the net
or total assets of a Fund, in the securities rating of the investment, or any
other later change.
MANAGEMENT
Trustees and Officers
The principal occupations for the past five years of the Trustees and
executive officers of the Trust are listed below. The address of each, unless
otherwise indicated, is 3435 Stelzer Road, Columbus, Ohio 43219. The Trustees
deemed to be "interested persons" of the Trust for purposes of the Investment
Company Act of 1940, as amended, are indicated by an asterisk.
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JOHN P. PFANN, Trustee - 43 Captains Walk, Marina Cove, Palm Coast, Florida
32137. Chairman and President, JPP Equities, Inc.1982 to 1995; Trustee,
HSBC Mutual Funds Trust.
ROBERT A. ROBINSON, Trustee - 251 Laurel Road, New Canaan, Connecticut 06840.
Trustee, Henrietta and E. Frederick H. Bugher Foundation; Trustee, U.S.T.
Master Funds, Inc. and U.S.T. Master Tax-Exempt Funds, Inc. (mutual funds);
Trustee, HSBC Mutual Funds Trust.
WOLFE J. FRANKL, Trustee - 40 Gooseneck Lane, Charlottesville, Virginia 22901.
Trustee, Excelsior Funds, Inc. and Excelsior Tax-Exempt Funds, Inc., and
Excelsior Institutional Funds, Inc. (mutual funds); Director, Deutsche Bank
Financial, Inc.; Director, The Harbus Corporation; Trustee, HSBC Mutual
Funds Trust.
WILLIAM L. KUFTA, Chairman and Trustee - 97 Main Street, Chatham, New Jersey
07928. Chief Investment Officer, Beacon Trust Company. Formerly, Senior
Vice President, Rorer Asset Management; Senior Vice President, Pitcairn
Financial Management Group from 1987 to 1991; Trustee, HSBC Mutual Funds
Trust.
HARALD PAUMGARTEN, Trustee -330 Madison Avenue, New York, NY 10017. Director,
Corporate Finance, Auerbach and Grayson; President, Paumgarten and Company
since 1991; Advisory Managing Director, Lepercq de Neuflize & Co.
Incorporated 1993 to 1995; Director, Price Waterhouse AG 1992 to 1993;
Trustee, HSBC Mutual Funds Trust.
MICHAEL J. KANE - President - Director, New Business Development, BISYS Fund
Services, Inc. 1991 to present. Sales Manager, Business Development at
Fairfield Group 1988 to 1991. Vice President at SEI Corporation from 1980
to 1988.
ERIC ALMQUIST, Senior Vice President - Senior Marketing Strategist, Fund
Services Division of BISYS Fund Services, Inc., August, 1996 to Present;
Director of Process Management, Coopers & Lybrand L.L.P. from 1994 to
1996; Vice President, The Dreyfus Service Corporation, from 1988 to 1994.
KAREN DOYLE, Vice President - Director, Client Services, Fund Services Division
of BISYS Fund Services, Inc., 1994 to present; The Bank of New York, 1979
to 1994.
KEVIN MARTIN, Treasurer -Vice President, Fund Accounting, BISYS Fund Services,
Inc., February 1996 to Present; Senior Audit Manager, Ernst & Young LLP,
1984 to February, 1996.
CURTIS BARNES, Assistant Secretary - Compliance Officer, BISYS Fund Services,
Inc., June 1995 to Present; Senior Legal Analyst for John Hancock Funds
from February, 1984 to June, 1995.
STEVEN R. HOWARD, Secretary - 805 Third Avenue, New York, New York 10022.
Partner, Baker & McKenzie since April, 1991; Partner, Gaston & Snow from
1988 to 1991; Secretary, HSBC Mutual Funds Trust.
ALAINA V. METZ, Assistant Secretary - Chief Administrator, Administration and
Regulatory Services of BISYS Fund Services, Inc., June 1995 to Present;
Supervisor of Mutual Fund Legal Department, Alliance Capital Management,
May 1989 to June 1995.
Trustees of the Funds receive from the Funds an annual fee and a fee for
attending each meeting of the Trustees and each committee meeting and are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.
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<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------
Pension or
Aggregate Retirement Total
Compensation Benefits Accrued Estimated Annual Compensation
from the Money as Part of Fund Benefits Upon from the Fund
Market Funds Expenses Retirement Complex*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wolfe J. Frankl, Trustee $11,671 0.00 N/A $20,000
- ---------------------------------------------------------------------------------------------
William L. Kufta, Trustee $10,503 0.00 N/A $18,000
- ---------------------------------------------------------------------------------------------
Harald Paumgarten, $9,337 0.00 N/A $18,000
Trustee
- ---------------------------------------------------------------------------------------------
John P. Pfann, Trustee $11,671 0.00 N/A $20,000
- ---------------------------------------------------------------------------------------------
Robert A. Robinson, $10,503 0.00 N/A $20,000
Trustee
- ---------------------------------------------------------------------------------------------
* Represents the total compensation paid to such persons during the calendar
year ended December 31, 1996 (and with respect to the Funds estimated to be paid
during a full calendar year).
</TABLE>
As of the date of this SAI, the Trustees and officers of the Trust as a
group owned less than 1% of the outstanding shares of each Fund.
Investment Adviser
The Funds retain HSBC Asset Management Americas Inc. (the "Adviser") to act
as the adviser for the Funds. The Adviser is the North American investment
affiliate of HSBC Holdings plc (HongKong and Shanghai Banking Corporation) and
Marine Midland Bank and is located at 250 Park Avenue, New York, New York
10177.
The Advisory Contract provides that the Adviser shall provide over-all
investment guidance and policy direction in connection with the management of
the Funds. The Adviser has agreed to provide to the Trust, among other things,
information relating to money market portfolio composition, credit conditions
and average maturity of the portfolio of each Fund. Pursuant to the Advisory
Contract, the Adviser also furnishes to the Trust's Board of Trustees periodic
reports on the investment performance of each Fund.
The Adviser has also agreed in the Advisory Contract to provide
administrative assistance in connection with the operation of the Funds.
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 Funds, (ii) compiling
statistical and research data required for the preparation of reports and
statements which are periodically distributed to the Funds' 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 Funds' filings
with the Securities and Exchange Commission ("SEC").
Shareholder Servicing Agent
The Trust retains HBSC Americas to act as Shareholder Servicing Agent of
the Funds in accordance with the terms of the Shareholder Servicing Agreement.
Pursuant to the Shareholder Servicing Agreement, the Adviser (i) assists and
trains third-parties who deliver prospectuses and Fund applications, (ii)
assists and trains third-parties who assist
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<PAGE>
customers with completing Fund applications, (iii) conducts customer education,
reviews Fund written communications and assists third-parties who answer
customer questions, (iv) organizes and conducts investment seminars to enhance
understanding of the Fund and its objectives, (v) assists personnel who effect
customer purchases and redemptions and (vi) assists and supervises the
activities of Participating Organizations. For its services as Shareholder
Servicing Agent, the Adviser is paid an annual fee equal to 0.04% of the Trust's
average Trust assets.
Administrator
Pursuant to the Management and Administration Agreement, BISYS Fund
Services Limited Partnership d/b/a BISYS Fund Services, (i) provides
administrative services reasonably necessary for the operation of the Trust and
the Funds, other than those services which are provided by the Adviser pursuant
to the Advisory Contract, (ii) provides the Trust with office space and office
facilities reasonably necessary for the operation of the Trust and the Funds,
and (iii) employs or associates with itself such persons as it believes
appropriate to assist it in performing its obligations under the Management and
Administration Agreement.
The Trust also retains the Adviser to act as Co-Administrator of the Fund
in accordance with terms of a Co-Administration Services Contract. Pursuant to
the Co-Administration Services Contract, the Adviser (i) manages the Funds'
relationship with service providers, (ii) assists with negotiation of contracts
with service providers and supervises the activities of those service providers,
(iii) serves as a liaison with Board of Trustees, and (iv) assists with general
product management and oversight. For its services as Co-Administrator, the
Adviser is paid an annual fee equal to 0.03% of the Trust's average daily net
assets.
Distributor
Shares of each of the Funds are offered on a continuous basis and without
sales charges through BISYS Fund Services, which serves as the Distributor
pursuant to a Distribution Agreement. The Distributor is not obligated to sell
any specific amount of shares.
Distribution Plan and Expenses
The Funds have adopted a Distribution Plan and related Shareholder
Servicing Agreement (the "Plan") pursuant to Rule 12b-1 of the 1940 Act, as
amended, after having concluded that there is a reasonable likelihood that the
Plan will benefit each Fund and its shareholders. The Plan authorizes payments
through BISYS Fund Services to broker-dealers or financial institutions for
their assistance in distributing Fund shares and otherwise promoting the sale of
Fund shares. In addition, the Plan authorizes payments through BISYS Fund
Services for the printing and distribution of prospectuses sent to prospective
investors, the preparation, printing and distribution of sales literature and
expenses associated with media advertisements and telephone services.
The Plan provides for a monthly payment by each Fund not to exceed an
annual rate of 0.20%.
For the year ended December 31, 1996, the Funds incurred the following
amounts in distribution-related fees under the Rule 12b-1 Distribution
Plan:
<TABLE>
<CAPTION>
Compensation Printing of
to Prospectuses and Retail Postage and
Broker- Shareholder Marketing Miscellaneous
Fund Dealers Advertising Reports Program Expenses Total
---- ------------ ----------- ---------------- --------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Cash $31,070 $ 0 $ 0 $ 0 $ 0 $31,070
Management
Government $14,021 $ 0 $ 0 $ $ 0 $14,021
U.S. Treasury $7,347 $ 0 $ 0 $ 0 $ 0 $7,347
New York $13,233 $ 0 $ 0 $ 0 $ 0 $13,233
</TABLE>
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<PAGE>
The Plan will continue in effect with respect to the Funds from year to
year provided such continuance is approved annually by a vote of the Board of
Trustees of the Trust and of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan ("disinterested" Trustees), cast
in person at a meeting called for the purpose of voting on such Plan. The Board
of Trustees of the Trust and "disinterested" Trustees of the Trust approved the
continuance of the Plan at a meeting of the Board of Trustees on February 4,
1997.
Advisory and Administrative Fees and Expenses
As compensation for its advisory and administrative services, the Adviser
is paid a monthly fee with respect to each Fund at the following annual rates:
<TABLE>
<CAPTION>
Portion of average daily
value of net assets of
each Fund Advisory Co-Administrative Total
------------------------------- -------- ----------------- -----
<S> <C> <C> <C>
Not exceeding $500 million..... 0.350% 0.070% 0.420%
In excess of $500 million but
not exceeding $1 billion...... 0.315% 0.070% 0.385%
In excess of $1 billion but
not exceeding $1.5 billion.... 0.280% 0.070% 0.350%
In excess of $1.5 billion...... 0.245% 0.070% 0.315%
</TABLE>
For the year ended December 31, 1996, HSBC America earned $650,431, from
the Cash Management Fund, $85,538 from the U.S. Treasury Money Market Fund,
$246,525 from the Government Money Fund and $117,819 from the New York Tax Free
Money Market Fund in advisory fees, net of fee waivers of $37,518, $19, $7,113,
813, and $114,950, respectively.
For the year ended December 31, 1996, as Administrator, BISYS Fund Services
earned $172,203 from the Cash Management Fund, $27,410 from the U.S. Treasury
Money Market Fund, $61,443 from the Government Money Market Fund and $57,375
from the New York Tax Free Money Market Fund, net of fee waivers of $92,529,
$12,585, $33,383 and $31,528, respectively in administrative services fees. For
the two months ended February 29, 1996, PFPC Inc., ("PFPC") BISYS' predecessor,
earned $28,418 from the Cash Management Fund, $4,925 from the U.S. Treasury
Money Market Fund, $13,247 from the Government Money Fund and $10,370 from the
New York Tax Free Money Market Fund, net of fee waivers of $1,496, $259, $697
and $546, respectively in administrative services fees.
For the year ended December 31, 1995, the Adviser earned approximately
$744,800, $245,900 and $428,900, in advisory fees for Cash Management, U.S.
Treasury, and Government Funds, respectively. For the same period, the Adviser
earned approximately $125,000, net of fee waivers of approximately $93,800, from
the New York Tax-Free Fund. For the year ended December 31, 1994, the Adviser
earned $790,398, $440,777, $498,475, and $118,154, in advisory fees for Cash
Management, U.S. Treasury, Government, and New York Tax-Free Funds,
respectively.
For the year ended December 31, 1995, PFPC earned $193,100, $64,400,
$112,900, and $57,900 in administrative fees, net of fee waivers of
approximately $16,000, $5,900, $9,400 and $4,700 for Cash Management, U.S.
Treasury, Government, and New York Tax-Free Funds, respectively. For the six
months ended June 30, 1994, the Adviser earned $82,433, $45,568, $48,446, and
$20,757, for Cash Management, U.S. Treasury, Government, and New York Tax-Free
Funds, respectively, in administrative service fees. For the period July 1,
1994 through December 31, 1994, PFPC Inc. earned $96,297, $55,329, $66,170, and
$26,775, net of fee waivers of $10,914, $6,148, $7,397, and $2,975, for Cash
Management, U.S. Treasury, Government and New York Tax-Free Funds, respectively,
in administrative services fees.
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<PAGE>
For the year ended December 31, 1996, the Adviser received, after voluntary
waivers, co-administration and shareholder servicing fees of approximately
$27,803, $3,797, $11,919 and $9,651, for the Cash Management, U.S. Treasury,
Government and New York Tax-Free Funds, respectively. The Adviser waived
approximately $113,133, $17,909, $40,142 and $38,111 for the Cash Management,
U.S. Treasury, Government and New York Tax-Free Funds, respectively.
The Adviser may agree in advance not to impose a portion of its fees in the
future.
Except for the expenses paid by the Adviser and BISYS under their
respective contracts, the Trust bears all costs of its operations. Expenses
directly attributable to each Fund are charged to that Fund. Other expenses of
the Trust are allocated among the Funds by the Board of Trustees in a manner
which may, but need not, be proportionate in relation to the net assets of each
Fund.
The Advisory Contract, the Co-Administration Agreement, the Distribution
Agreement and the Management and Administration Agreement (upon expiration of
its initial term ending September 1, 1999) will continue in effect with respect
to each Fund from year to year provided such continuance is approved annually
(i) by the holders of a majority of the outstanding voting securities of that
Fund or by the Trust's Board of Trustees and (ii) by a majority of the Trustees
of the Trust who are not parties to such contracts or "interested persons" (as
defined in the 1940 Act) ("disinterested" Trustees) of any such party. Each
contract may be terminated with respect to the Trust at any time, without
payment of any penalty, by a vote of a majority of the outstanding voting
securities of the Trust (as defined in the 1940 Act) or by a vote of a majority
of the Trust's entire Board of 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 Contracts shall terminate automatically in the event of their
assignment (as defined in the 1940 Act).
The Board of Trustees of the Trust and the "disinterested" Trustees of the
Trust approved the continuance of each Fund's Advisory Contract, the
Distribution Agreement and the Co-Administration Agreement at a meeting of the
Board of Trustees on February 4, 1997.
CALCULATION OF YIELDS
AND PERFORMANCE INFORMATION
From time to time, the Funds quote current yield based on a specific seven
calendar day period. The yield may be used in advertisements and marketing
material. Each of the Money Market Funds calculates a seven day yield by
determining the "net change in value" (exclusive of capital changes) of a
hypothetical account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by 365/7, with the resulting yield figure
carried to the nearest hundredth of one percent.
The Money Market Funds may also advertise an effective yield based on a
specific seven-day period, carried to the nearest hundredth of one percent,
which is calculated by determining the net change, exclusive of capital changes,
in the value of a hypothetical account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting deductions
from shareholder accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return,
and then compounding the base period return by adding one, raising the sum to a
power equal to 365 divided by seven, and subtracting one from the result.
For calculating yield and effective yield, "net change in value" of an
account will consist of the value of additional shares purchased with dividends
from the original share and dividends declared on both the original share and
any such additional shares (not including realized gains or losses and
unrealized appreciation or depreciation), less applicable expenses.
The New York Tax-Free Fund may from time to time advertise tax equivalent
yields. Tax equivalent yield is the net annualized taxable yield needed to
produce a specified tax-exempt yield at a given tax rate based on a specified
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<PAGE>
seven-day period assuming a reinvestment of all dividends paid during such
period. The equivalent yield is calculated by dividing that portion of the New
York Tax-Free Fund's effective yield (calculated in the manner described above)
which is tax-exempt by one minus a stated income tax rate and adding the product
to that portion, if any, of the yield of the Fund that is not tax-exempt.
Thirty-day yields for the Funds may also be advertised from time to time
and are calculated by using a method known as "semi-annual compounding." Yield
is calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Where: yield = 2[(a-b) +1)/6/ -1]
---
cd
a = dividends and interest earned during the period, including the
amortization of market premium or accretion of market discount.
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.
d = the maximum offering price per share on the last day of the
period.
For the 7-day period ending December 31, 1996 the yield and effective
yields were:
<TABLE>
<CAPTION>
7-Day Yield Effective Yield
<S> <C> <C>
Cash Management Fund 5.06% 5.19%
Government Money Market Fund 5.00% 5.12%
U.S. Treasury Money Market Fund 4.96% 5.09%
New York Tax-Free Fund 3.51% 3.57%
</TABLE>
From time to time, in marketing pieces and other Fund literature, each
Fund's or the Funds' total performance may be compared to the performance of
broad groups of comparable funds or unmanaged indices of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Funds. Sources for Fund performance information
may include, but are not limited to, the following:
Barron's, a Dow Jones and Company, Inc. business and financial weekly
that periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing
abroad.
Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the
performance of the nation's money market funds, summarizing money
market fund activity, and including certain averages as performance
benchmarks,
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<PAGE>
specifically "Donoghue's Money Fund Average," and "Donoghue's
Government Money Fund Average."
Financial Times, Europe's business newspaper, which from time to time
features articles on international or country-specific funds.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund
industry.
Fortune, a national business publication that periodically rates the
performance of a variety of mutual funds.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of
fund.
Money, a monthly magazine that from time to time features both
specific funds and the mutual fund industry as a whole.
New York Times, a nationally distributed newspaper which regularly
covers financial news.
Personal Investor, a monthly investment advisory publication that
includes a "Mutual Funds Outlook" section reporting on mutual fund
performance measures, yields, indices and portfolio holdings.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies,
including comparative data on funds' backgrounds, management
policies, salient features, management results, income and dividend
records, and price ranges.
DETERMINATION OF NET ASSET VALUE
As indicated under "Determination of Net Asset Value" in the Funds'
Prospectus, the Funds use the amortized cost method to determine the value of
their portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing a security at its cost and amortizing any
discount or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
which a Fund would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund which utilizes a method of valuation based upon market
prices. Thus, during periods of declining interest rates, if the use of the
amortized cost method resulted in lower value of a Fund's portfolio on a
particular day, a prospective investor in that Fund would be able to obtain a
somewhat higher yield than would result from an investment in a fund utilizing
solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, each Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities of
thirteen months or less and invest only in securities determined by the Trust's
Board of Trustees to be "eligible securities" as defined by Rule 2a-7 and to
present minimal credit risks. Pursuant to Rule 2a-7, the Board is required to
establish procedures designed to stabilize, to the extent reasonably possible,
the price per share of each Fund, as computed for the purpose of sales and
redemptions, at $1.00. Such procedures include review of the Funds' portfolio
holdings by the Board of Trustees, at such intervals as it may deem appropriate,
to determine
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<PAGE>
whether the net asset value of each Fund calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. The extent of
any deviation will be examined by the Board of Trustees. If such deviation
exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists which may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations.
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 Trust's Board of Trustees, the Adviser is primarily
responsible for portfolio decisions and the placing of portfolio transactions.
In placing orders, it is the policy of the Trust 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. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Funds will not necessarily be
paying the lowest spread or commission available. The policy of each Fund of
investing in securities with short maturities has resulted in high portfolio
turnover.
Purchases and sales of securities will usually be principal transactions.
Portfolio securities normally will be purchased or sold from or to issuers
directly or to dealers serving as market makers for the securities at a net
price. Generally, money market securities and Municipal Obligations are traded
on a net basis and do not involve brokerage commissions. The cost of executing
portfolio securities transactions for the Funds primarily consists of dealer
spreads and underwriting commissions and, since June 4, 1982 (commencement of
operations), the Trust has paid no brokerage commissions. Under the 1940 Act,
persons affiliated with the Trust or the Adviser are prohibited from dealing
with the Trust as a principal in the purchase and sale of securities unless a
permissive order allowing such transactions is obtained from the Securities and
Exchange Commission. The Funds may purchase Municipal Obligations from
underwriting syndicates of which an affiliate is a member under certain
conditions in accordance with the provisions of a rule adopted under the 1940
Act.
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 views and information of securities firms.
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in a Fund for at
least seven days may exchange those shares for shares of any of the other
portfolios of the Trust and HSBC Mutual Funds Trust which are available for sale
in their state. Shareholders who exchange shares of any Fund for shares of any
HSBC Mutual Fund will be subject to a sales load. For further information about
the sales load, please see a prospectus for any of the HSBC Mutual Funds.
Before effecting an exchange, shareholders should review the Prospectus for
the portfolio in which they intend to invest. Exercise of the exchange
privilege is treated as a redemption for Federal and New York State and City
income tax purposes and, depending on the circumstances, a gain or loss may be
recognized in the case of a Fund that has not maintained a constant net asset
value per share.
The exchange privilege may be modified or terminated upon sixty (60) days'
prior written notice to shareholders. Although initially there will be no limit
on the number of times a shareholder may exercise the exchange privilege, the
Trust reserves the right to impose such a limitation. Call or write the Trust
for further details.
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<PAGE>
REDEMPTIONS
Payment of redemption proceeds may be made in securities, subject to
regulation by some state securities commissions. The Trust may suspend the
right of redemption during any period when (i) trading on the New York Stock
Exchange is restricted or that Exchange is closed, other than customary weekend
and holiday closings, (ii) the Securities and Exchange Commission has by order
permitted such suspension or (iii) an emergency exists making disposal of
portfolio securities or determination of the value of the net assets of the
Trust not reasonably practicable.
If a Fund does not maintain a constant net asset value per share, the
proceeds of redemption may be more or less than the amount invested and,
therefore, a redemption may result in a gain or loss for Federal and New York
State and City income tax purposes.
A shareholder's account with a Fund remains open for at least one year
following complete redemption and all costs during the period will be borne by
the Trust. This permits an investor to resume investments in that Fund during
the period in an amount of $50 or more.
To be in a position to eliminate excessive stockholder expense burdens, the
Trust reserves the right to adopt a policy pursuant to which it may redeem upon
not less than 30 days' notice shares of a Fund in an account which has a value
below a designated amount. However, any shareholder affected by the exercise of
this right will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.
Although it would not normally do so, the Trust has the right to pay the
redemption price in whole or in part in securities of the Funds' portfolio as
prescribed by the Trustees. When a shareholder sells portfolio securities
received in this fashion he would incur a brokerage charge. The Trust has,
however, elected to be governed by Rule 18f-1 under the 1940 Act, as amended.
Under that rule, the Trust must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of a Fund's net asset value at the beginning
of such period.
FEDERAL INCOME TAXES
Each Fund has elected and qualified to be treated as a regulated investment
company during 1996 and intends to continue to so qualify by complying with the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to regulated investment companies so that it will not be subject to
Federal income tax on its net investment income and net realized capital gains
that are distributed to shareholders in accordance with the timing requirements
of the Code.
In order to so qualify, each Fund must, among other things, (a) derive at
least 90% of its annual gross income from dividends, interest, payments with
respect to loans of stock and securities and gains from the sale or other
disposition of stock or securities or foreign currency gains related to
investments in stock or securities or other income (including gains from
options, futures or forward contracts) derived with respect to the business of
investing in stock, securities or currency; (b) derive less than 30% of its
annual gross income from the sale or other disposition of certain investments
held less than three months (excluding some amounts otherwise includable in
income as a result of certain hedging transactions); and (c) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the market value of its assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies
and other stocks and securities limited, in the case of other stocks or
securities for purposes of this calculation, in respect of any one issuer, to an
amount not greater than 5% of its assets or 10% of the voting stocks or
securities of the issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. Government
stocks or securities and securities of other regulated investment companies).
Each portfolio within the Trust will be separate for investment and
accounting purposes and will be treated as a separate taxable entity for Federal
income tax purposes. Provided that each Fund qualifies as a regulated
investment company under the Code, it will not be required to pay Massachusetts
income or excise taxes.
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<PAGE>
Each Fund will be subject to a 4% non-deductible excise tax to the extent
that it fails to distribute to its shareholders during each calendar year an
amount equal to at least the sum of (a) 98% of its taxable ordinary income
(excluding long and short-term capital gain income) for the calendar year; plus
(b) 98% of its capital gain net income for the one year period ending on October
31 of such calendar year; plus (c) any ordinary income or capital gain net
income from the preceding calendar year which was neither distributed to
shareholders nor taxed to the Fund during such year. Each Fund intends to
distribute to its shareholders each year an amount sufficient to avoid the
imposition of such excise tax.
Dividends are not expected to qualify for the dividends-received deduction
available to corporations. As to the tax treatment of redemptions, see
"Redemptions" above.
Each Fund is required to report to the Internal Revenue Service (the "IRS")
all distributions of taxable dividends and of capital gains. Each Fund may be
required to withhold Federal income tax at a rate of 31% ("backup withholding")
from dividends (including capital gain dividends) paid to non-corporate
shareholders who have not furnished the Fund with a correct taxpayer
identification number and made certain required certifications or who have been
notified by the IRS that they are subject to backup withholding. In addition,
the Trust may be required to withhold Federal income tax at a rate of 31% if it
is notified by the IRS or a broker that the taxpayer identification number is
incorrect or that backup withholding applies because of underreporting of
interest or dividend income.
Distributions of taxable net investment income and net realized capital
gains will be taxable as described in the Prospectus whether made in shares or
in cash. In determining amounts of net realized capital gains to be
distributed, any capital loss carryovers from prior years will be applied
against capital gains. Shareholders electing to receive distributions in the
form of additional shares will have a cost basis for Federal income tax purposes
in each share so received equal to the net asset value of a share of a Fund on
the reinvestment date. Fund distributions will also be included in individual
and corporate shareholders' income on which the alternative minimum tax may be
imposed.
Different tax treatment is accorded to accounts maintained as IRAs,
including a penalty on early distributions. Investors should consult their tax
advisers for more information.
Under the laws of certain states, distributions of net investment income
are taxable to shareholders as dividend income even though a substantial portion
of such distributions may be derived from interest on U.S. Government
obligations which, if received directly by the resident of such state, would be
exempt from such state's income tax.
The amount of capital gains, if any, realized in any given year will result
from sales of securities made with a view to the maintenance of a portfolio
believed by each Fund's management to be most likely to attain such Fund's
objective. Such sales, and any resulting gains or losses, may therefore vary
considerably from year to year.
A Fund's use of equalization accounting, if such method of tax accounting
is used for any taxable year, may affect the amount, timing and character of its
distributions to shareholders.
Special Tax Considerations for the New York Tax-Free Fund
The New York Tax-Free Fund also intends to qualify to pay "exempt-interest
dividends" within the meaning of the Code by holding at the end of each quarter
of its taxable year at least 50% of the value of its total assets in the form of
Municipal Obligations. Dividends derived from interest on Municipal Obligations
that constitute exempt-interest dividends will not be includable in gross income
for Federal income tax purposes and exempt interest dividends derived from
interest on New York Municipal Obligations will not be includable in gross
income for Federal income tax purposes or subject to New York State or City
personal income tax.
However, as described in the Fund's Prospectus, if the New York Tax-Free
Fund invested in Municipal Obligations and New York Municipal Obligations that
are private activity bonds, some portion of exempt-interest dividends paid by
the New York Tax-Free Fund would be treated as an item of tax preference for
purposes of the
-29-
<PAGE>
Federal alternative minimum tax on individuals and corporations. In addition, a
portion of original issue discount relating to stripped Municipal Obligations
and their coupons may be treated as taxable income under certain circumstances,
as will income from repurchase agreements and securities loans.
Exempt-interest dividends received by corporations which hold shares of the
New York Tax-Free Fund will be part of the "adjusted current earnings" of such
corporations, and will increase the "alternative minimum taxable income" of such
corporations for purposes of the alternative minimum tax on corporations.
Interest on debt incurred to purchase or carry shares in the New York Tax-
Free Fund may not be deductible for federal income tax purposes. Property and
casualty insurance companies will be required to reduce their deductions for
"losses incurred" by a portion of the exempt-interest dividends they receive
from the New York Tax-Free Fund.
The portion of the income from the New York Tax-Free Fund derived from
bonds with respect to which a holder is a "substantial user" will not be tax-
exempt in the hands of such user.
The New York Tax-Free Fund will determine the portion of any distribution
that will qualify as an exempt-interest dividend based on the proportion of its
gross income derived from interest on Municipal Obligations over the course of
the Fund's taxable year. Therefore, the percentage of any particular
distribution designated as an exempt-interest dividend may be substantially
different from the percentage of the New York Tax-Free Fund's gross income
derived from interest on Municipal Obligations for the period covered by the
distribution.
Opinions relating to the validity of Municipal Obligations (including New
York Municipal Obligations) and to the exclusion of interest thereon from
Federal gross income are rendered by bond counsel for each issue at the time of
issuance. Neither the Trust nor its investment adviser will review the
proceedings relating to the issuance of Municipal Obligations or the basis for
such opinions.
The New York Tax-Free Fund may obtain put rights with respect to certain of
their Municipal Obligations. The IRS has issued published and private rulings
concerning the treatment of such put transactions for Federal income tax
purposes. Since these rulings are ambiguous in certain respects, there can be
no assurance that the Fund will be treated as the owner of the Municipal
Obligations subject to the puts or that the interest on such obligations
received by the Fund will be exempt from Federal income tax (and New York State
and City personal income tax in the case of New York Municipal Obligations). If
the Fund is not treated as the owner of the Municipal Obligations subject to the
puts, distributions of income derived from such obligations will be taxed as
ordinary income. The Fund anticipates that, in any event, it will remain
qualified to pay exempt-interest dividends with respect to interest derived from
other obligations in its portfolio.
Shareholders should consult their own tax advisers with respect to the tax
status of distributions from the New York Tax-Free Fund, and redemptions of Fund
shares, in their own states and localities. Shareholders who are not United
States persons should also consult their tax advisers as to the potential
application of foreign and U.S. taxes, including a 30% U.S. withholding tax (or
lower treaty rate) on dividends representing ordinary income to them.
SHARES OF BENEFICIAL INTEREST
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest having a par value of $0.001 per share. The
Trust's Declaration of Trust authorizes the Board of Trustees to classify or
reclassify any unissued shares of beneficial interest. Pursuant to that
authority, the Board of Trustees has authorized the issuance of four series
representing four portfolios of the Trust.
All shares of the Trust have equal voting rights and will be voted in the
aggregate, and not by class or series, except where voting by class is required
by law or where the matter involved affects only one class. As used in the
Money Funds Prospectus and in this SAI, the term "majority," when referring to
the approvals to be obtained
-30-
<PAGE>
from shareholders in connection with general matters affecting all of the Funds
(e.g., election of trustees and ratification of independent auditors), means the
vote of a majority of each Fund's outstanding shares represented at a meeting.
The term "majority," when referring to the approvals to be obtained from
shareholders in connection with matters affecting a single Fund (e.g., approval
of investment advisory contracts or changing the fundamental policies of a
Fund), means the vote of the lesser of (i) 67% of the shares of a Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of a Fund are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of a Fund. Shareholders are entitled to one vote for each
full share held, and fractional votes for fractional shares held.
Each share of a Fund represents an equal proportionate interest in that
Fund with each other share of the same Fund and is entitled to such dividends
and distributions out of the income earned on the assets belonging to that Fund
as are declared in the discretion of the Trust's Board of Trustees. In the
event of the liquidation or dissolution of the Trust, shares of a Fund are
entitled to receive the assets belonging to that Fund which are available for
distribution, and a proportionate distribution, based upon the relative net
assets of the Funds, of any general assets not belonging to a Fund which are
available for distribution.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Trust.
At April 3, 1997, no person owned of record or, to the knowledge of
management, beneficially owned more than 5% of the outstanding shares of any
Fund, except as set forth below:
SHARES HELD & PERCENT OF CLASS
<TABLE>
<CAPTION>
NAME & ADDRESS OF CASH GOVERNMENT U.S. TREASURY NEW
HOLDER OF RECORD MANAGEMENT FUND FUND TAX-FREE FUND
- --------------------- -------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
BANK OF OKLAHOMA 6,577,046
TULSA, OK 74192 17.90%
MARINE MIDLAND BANK 92,709,108 36,261,585 6,354,618 32,463,055
BUFFALO, NY 14240 45.26% 51.18% 17.30% 39.15%
CHEMICAL BANK 4,715,212
NEW YORK, NY 10017 6.65%
BISYS FUND SERVICES 12,948,756 10,679,478 13,422,610 9,878,228
PITTSBURGH, PA 15222 6.32% 15.07% 36.59% 11.91%
FIRST TENNESSEE BANK 21,034,285
MEMPHIS, TN 38103 10.26%
TOTAL SHARES OUTSTANDING 204,835,682 70,844,397 36,729,615 82,903,284
=========== ========== ========== ==========
</TABLE>
The aforementioned shares were held on behalf of various customer accounts
of the holders of record. Marine Midland, has informed the Trust that it was not
the beneficial owner of any of the shares it held of record. The Trust does not
know the extent to which the other holders of record were beneficial owners of
the shares indicated.
-31-
<PAGE>
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
Bank of New York has been retained to act as custodian for the Money
Market and New York Tax-Free Funds pursuant to a Custodian Agreement. Bank of
New York's address is 90 Washington Street, New York, New York 10286. Under the
Custodian Agreement, the Custodian maintains a custody account or accounts in
the name of each Fund; receives and delivers all assets for each such Fund upon
purchase and upon sale or maturity; collects and receives all income and other
payments and distributions on account of the assets of each such Fund; pays all
expenses of the Funds; receives and pays out cash for purchases and redemptions
of shares of each such Fund and pays out cash if requested for dividends on
shares of each such Fund. Under the Custodian Agreement, the Trust has agreed
to pay the Custodian for furnishing custodian services a fee with respect to
each Fund for certain transaction charges and out-of-pocket expenses.
For the period from January 1, 1995 through September 25, 1995, Marine
Midland earned fees under the Custodian Agreement of approximately $149,000,
$49,200, $85,700, and $7,000, net of fee waivers of approximately $12,500,
$6,900, $8,700 and $0 for Cash Management, U.S. Treasury, Government, and New
York Tax-Free Funds, respectively.
For the year ended December 31, 1994, Marine Midland received fees
under the Custodian Agreement of $44,410, $31,365, $28,952, and $11,242 for Cash
Management, U.S. Treasury, Government, and New York Tax-Free Funds,
respectively.
The Board of Trustees has authorized the Bank of New York in its
capacity as custodian of the Funds to enter into Subcustodian Agreements with
banks that qualify under the 1940 Act to act as subcustodians with respect to
certain variable rate short-term tax-exempt obligations in each Fund's
portfolio.
BISYS Fund Services, Inc. (the "Transfer Agent") has been retained by
the Trust to act as transfer agent and dividend disbursing agent for the Funds.
Under the Agency Agreement, BISYS Fund Services, Inc. maintains an account in
the name of each stockholder of record in each Fund reflecting purchases,
redemptions, daily dividend accruals and monthly dividend disbursements,
processes purchase and redemption requests, issues and redeems shares of each
Fund, addresses and mails all communications by the Trust to its shareholders,
including financial reports, other reports to shareholders, dividend and
distribution notices, tax notices and proxy material for its shareholder
meetings, and maintains records for the foregoing services. Under the Agency
Agreement, each Fund has agreed to pay BISYS Fund Services, Inc. $15.00 per
account and subaccount (whether maintained by BISYS Fund Services, Inc. or a
correspondent bank) per annum. In addition, the Funds have agreed to pay BISYS
Fund Services, Inc. certain transaction charges, wire charges and out-of-pocket
expenses incurred by BISYS Fund Services, Inc.
For the year ended December 31, 1996, BISYS received fees under the
Agency Agreement of $156,481, $57,901, $43,780, and $46,013 from the Cash
Management, Government, U.S. Treasury, and New York Tax-Free Funds, respectively
and PFPC Inc. received fees of $34,252, $9,348, $4,337 and $8,097 from the Cash
Management, Government, U.S. Treasury and New York Tax-Free Funds.
For the years ended December 31, 1995 and 1994 the Funds paid the
following amounts in transfer agent fees to PFPC Inc. and the Adviser, BISYS
Fund Services, Inc.'s predecessor, respectively:
-32-
<PAGE>
<TABLE>
<CAPTION>
1995 1994
---------------- ---------- -----------------
Fund PFPC HSBC PFPC
---------------- ---------- ------- --------
<S> <C> <C> <C>
Cash Management $190,614 $37,705 $23,922
Government 74,111 18,985 21,190
U.S. Treasury 46,129 14,861 20,937
New York 43,050 14,446 12,017
</TABLE>
In addition, BISYS Fund Services, Inc provides certain fund accounting
services to the Funds pursuant to a Fund Accounting Agreement. Under such
Agreement, BISYS Fund Services, Inc. maintains the accounting books and records
for each Fund, maintains a monthly trial balance of all ledger accounts;
performs certain accounting services for the Fund, including calculation of the
net asset value per share, calculation of the dividend and capital gain
distributions, if any, and of yield, reconciliation of cash movements with the
Fund's custodian, affirmation to the Fund's custodian of all portfolio trades
and cash settlements, verification and reconciliation with the Fund's custodian
of all daily trade activity.
INDEPENDENT AUDITORS
The Board of Trustees of the Trust approved the continuation of Ernst
& Young LLP as the Trust's independent auditors on February 4, 1997. Ernst &
Young LLP provides audit services, tax return preparation and assistance and
consultation in connection with review of Securities and Exchange Commission
filings. Ernst & Young LLP's address is 787 Seventh Avenue, New York, New York
10019.
FINANCIAL STATEMENTS
The financial statements appearing in the most current fiscal year
Annual Report to shareholders and the report thereon of the independent auditors
appearing therein, namely Ernst & Young LLP, are incorporated by reference in
this Statement of Additional Information. The Annual Report to shareholders
which contains the referenced statements, are available upon request and without
charge.
-33-
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Financial Statement included in Part A:
--------------------------------------
All Funds
Financial Highlights
Financial Information incorporated by reference in Part B:
---------------------------------------------------------
All Funds
Statements of Net Assets at December 31, 1996
Statements of Operations for the year ended December 31, 1996
Statements of Changes in Net Assets for each of the two years
ended December 31, 1995 and December 31, 1996
Notes to Financial Statements
Financial Highlights
Reports of Independent Auditors, dated February 10, 1997
(b) Exhibits:
Exhibit
Number Description
------ -----------
**1 -- Amended and Restated Declaration of Trust.
2 -- By-Laws of Registrant.
3 -- None.
*4 -- Form of Specimen Certificates of Shares.
*5(a) -- Advisory Contract between Registrant and HSBC
Asset Management Americas, Inc.
<PAGE>
**5(b) -- Administrative Services Contract between
Registrant and BISYS Fund Services.
**5(c) -- Administration and Accounting Services
Agreement between Registrant and BISYS Fund
Services.
**5(d) -- Co-Administration Services Contract between
HSBC Asset Management Americas Inc. and
Registrant, dated November 1, 1994
**6 -- Distribution Agreement between Registrant
and BISYS Fund Services dated January 1,
1996.
7 -- None.
**8 -- Custodian Agreement between Registrant and
The Bank of New York.
**9(a) -- Transfer Agency Agreement between Registrant
and BISYS Fund Services
9(b) -- Shareholder Servicer Assistance Agreement
between the Registrant and HSBC Asset
Management Amerias Inc. dated April 29, 1997.
**9(c) -- Service Organization Agreement between
Registrant and Bank of Oklahoma, dated
October 25, 1994
**9(e) -- Fund Accounting Agreement between Registrant
and BISYS Fund Services
10 -- Consent of Baker & McKenzie, counsel to
Registrant.
11 -- Consent of Ernst & Young LLP, independent
auditors.
12 -- Financial Statements in the Registrant's
Annual Report to Shareholders for the fiscal
year ended December 31, 1996 as filed with
the Commission on March 7, 1997 are
incorporated by reference.
l3 -- None.
14 -- None.
**l5(a) -- Rule l2b-l Distribution Plan
2
<PAGE>
15(b) -- Rule 12b-1 Shareholder Servicing Agreement
between Registrant and BISYS Fund Services,
Inc.
15(c) -- Distributor's Selected Dealer Agreement.
*l6 -- Schedule for Computation of Performance
Quotations.
Other Exhibits
17 -- Financial Data Schedules
a) Cash Management Fund
b) Government Money Market Fund
c) U.S. Treasury Money Market Fund
d) New York Tax-Free Money Market Fund
-- Powers of Attorney for John P. Pfann, Robert
A. Robinson, Wolfe J. Frankl, William L.
Kufta, and Harald Paumgarten.
- ---------------
* Previously filed and incorporated by reference.
** Filed with Post-Effective Amendment No. 17 to the Trust's Registration
Statement on April 18, 1996 and incorporated by reference.
Item 25. Persons Controlled by or under Common Control with Registrant.
-------------------------------------------------------------
None.
Item 26. Number of Holders of Securities at April 3, 1997.
------------------------------------------------
Cash Management Fund 1,553
Government Fund 304
U.S. Treasury Fund 144
New York Tax-Free Money Market Fund 427
Item 27. Indemnification.
---------------
Reference is made to Article IV of Registrants By-Laws and
paragraphs 9 and 10 of the Distribution Contract.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant
understands that in the opinion of the Securities and Exchange
Commission such indemnification is
3
<PAGE>
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the
securities 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 Securities Act and will be governed by
the final adjudication of such issue.
The Registrant has in force a National Union Fire Insurance
Company Directors and Officers Liability Policy which covers all
present and future directors and officers of Registrant against
loss arising from any civil claim or claims by reason of "any
breach of duty, neglect, error, misstatement, misleading
statement, omission or act done or wrongfully attempted" while
acting as trustees or officers of the Registrant. The period of
insurance under the present policy is for the one-year period
ending August 1, 1997. The policy covers 100% of the excess of
$100,000 up to an annual aggregate limit of $10,000,000 of any
losses including legal and other expenses in connection with any
claim.
Item 28. Business and Other Connections
of Investment Adviser
-------------------------------
HSBC Asset Management Americas Inc. also serves as the investment
adviser to HSBC Mutual Funds Trust.
Item 29. Principal Underwriter
---------------------
(a) BISYS Fund Services is Sponsor and Distributor for HSBC
Funds Trust and HSBC Mutual Funds Trust ("HSBC Trusts").
BISYS also acts as Distributor to a number of other
registered investment companies not affiliated with HSBC
Trusts.
4
<PAGE>
(b) Officers and Directors
<TABLE>
<CAPTION>
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Registrant Underwriter
--------------------------------- --------------- ----------------------
<S> <C> <C>
BISYS Fund Service, Inc. None Sole General Partner
3435 Stelzer Road
Columbus, OH 43219
WC Subsidiary Corporation None Sole Limited Partner
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records
--------------------------------
All accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
rules thereunder are maintained at the offices of HSBC Asset
Management Americas Inc., the Registrant's Investment Adviser and
Co-Administrator, and at the offices of BISYS Fund Services, the
Registrant's Administrator, Distributor, Transfer Agent and
Dividend Disbursing Agent, at 3435 Stelzer Road, Columbus, OH
43219.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Registrant undertakes to call a meeting of shareholders
for the purpose of voting upon the removal of a Trustee
if requested to do so by the holders of at least 10% of
the Registrant's outstanding shares.
(b) Registrant undertakes to provide the support to
shareholders specified in Section 16(c) of the 1940 Act
as though that Section applied to the Registrant.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's
latest annual report to Shareholders upon request without
charge.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on April 28, 1997
HSBC FUNDS TRUST
(Registrant)
By: /s/ Michael J. Kane
------------------------------
Michael J. Kane, President
6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
- ------------------------------------ President April 28, 1997
Michael J. Kane
- ------------------------------------ Treasurer (Principal Financial &
Kevin Martin Accounting Officer) April 28, 1997
* WOLFE J. FRANKL Trustee April 28, 1997
- ------------------------------------
Wolfe J. Frankl
* WILLIAM L. KUFTA Trustee and Chairman April 28, 1997
- ------------------------------------
William L. Kufta
* HARALD PAUMGARTEN Trustee April 28, 1997
- ------------------------------------
Harald Paumgarten
* JOHN P. PFANN Trustee April 28, 1997
- ------------------------------------
John P. Pfann
* ROBERT A. ROBINSON Trustee April 28, 1997
- ------------------------------------
Robert A. Robinson
</TABLE>
* Pursuant to Power of Attorney filed with Post-Effective Amendment No. 17 to
Registration Statement Nos. 33-1312 and 811-4453.
7
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2 By-Laws of Registrant
9(b) Shareholder Servicer Assistance Agreement
10 Consent of Baker & McKenzie
11 Consent of Ernst & Young LLP
15(b) 12b-1 Shareholder Servicing Agreement
15(c) Selected Dealer Agreement
17 Financial Data Schedules
a) Cash Management Fund
b) Government Money Market Fund
c) U.S. Treasury Money Market Fund
d) New York Tax-Free Money Market Fund
Other Exhibits
- --------------
Power of Attorney
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
to
POST-EFFECTIVE AMENDMENT NO. 18
to
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AND
THE INVESTMENT COMPANY
ACT OF 1940
------------------------
HSBC FUNDS TRUST
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000781905
<NAME> HSBC FUNDS TRUST
<SERIES>
<NUMBER> 01
<NAME> HSBC CASH MANAGEMENT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 220,385,569
<INVESTMENTS-AT-VALUE> 220,385,569
<RECEIVABLES> 1,555,803
<ASSETS-OTHER> 25,855
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 221,970,227
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,010,431
<TOTAL-LIABILITIES> 1,010,431
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 220,965,542
<SHARES-COMMON-STOCK> 220,965,017
<SHARES-COMMON-PRIOR> 170,871,076
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 5,746
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 220,959,796
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,928,460
<OTHER-INCOME> 0
<EXPENSES-NET> 1,334,532
<NET-INVESTMENT-INCOME> 9,593,928
<REALIZED-GAINS-CURRENT> 2,993
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9,590,935
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,593,928
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,165,750,259
<NUMBER-OF-SHARES-REDEEMED> 1,118,988,159
<SHARES-REINVESTED> 3,331,841
<NET-CHANGE-IN-ASSETS> 50,090,948
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2,228
<GROSS-ADVISORY-FEES> 687,949
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,579,208
<AVERAGE-NET-ASSETS> 196,403,460
<PER-SHARE-NAV-BEGIN> 1,000
<PER-SHARE-NII> .049
<PER-SHARE-GAIN-APPREC> .049
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1,000
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000781905
<NAME> HSBC FUNDS TRUST
<SERIES>
<NUMBER> 02
<NAME> HSBC GOVERNMENT MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 97,283,475
<INVESTMENTS-AT-VALUE> 97,283,475
<RECEIVABLES> 463,080
<ASSETS-OTHER> 8,330
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 97,754,891
<PAYABLE-FOR-SECURITIES> 10,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 363,255
<TOTAL-LIABILITIES> 10,363,255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,393,097
<SHARES-COMMON-STOCK> 87,393,098
<SHARES-COMMON-PRIOR> 86,850,399
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 867
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 594
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 87,391,636
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,965,220
<OTHER-INCOME> 0
<EXPENSES-NET> 525,211
<NET-INVESTMENT-INCOME> 3,440,009
<REALIZED-GAINS-CURRENT> (342)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,439,667
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,440,876
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 222,091,173
<NUMBER-OF-SHARES-REDEEMED> 222,682,793
<SHARES-REINVESTED> 1,134,318
<NET-CHANGE-IN-ASSETS> 541,489
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 252
<GROSS-ADVISORY-FEES> 253,638
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 606,546
<AVERAGE-NET-ASSETS> 72,414,382
<PER-SHARE-NAV-BEGIN> 1,000
<PER-SHARE-NII> .048
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .048
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1,000
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000781905
<NAME> HSBC FUNDS TRUST
<SERIES>
<NUMBER> 03
<NAME> HSBC U.S. TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 29,129,510
<INVESTMENTS-AT-VALUE> 29,129,510
<RECEIVABLES> 19,757
<ASSETS-OTHER> 2,791
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,152,058
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 189,582
<TOTAL-LIABILITIES> 189,582
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,962,476
<SHARES-COMMON-STOCK> 28,962,132
<SHARES-COMMON-PRIOR> 32,500,071
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 28,962,476
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,613,182
<OTHER-INCOME> 0
<EXPENSES-NET> 236,212
<NET-INVESTMENT-INCOME> 1,376,970
<REALIZED-GAINS-CURRENT> 343
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,377,313
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,376,970
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 144,331,089
<NUMBER-OF-SHARES-REDEEMED> 148,436,061
<SHARES-REINVESTED> 567,034
<NET-CHANGE-IN-ASSETS> (3,537,595)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 105,351
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 286,776
<AVERAGE-NET-ASSETS> 30,075,635
<PER-SHARE-NAV-BEGIN> 1,000
<PER-SHARE-NII> .046
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .046
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1,000
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000781905
<NAME> HSBC FUNDS TRUST
<SERIES>
<NUMBER> 04
<NAME> HSBC NEW YORK TAX-FREE MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 70,006,363
<INVESTMENTS-AT-VALUE> 70,006,363
<RECEIVABLES> 505,678
<ASSETS-OTHER> 88,107
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70,600,148
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 261,454
<TOTAL-LIABILITIES> 261,454
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,395,581
<SHARES-COMMON-STOCK> 70,339,070
<SHARES-COMMON-PRIOR> 64,883,665
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 56,887
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 70,338,694
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,306,834
<OTHER-INCOME> 0
<EXPENSES-NET> 395,250
<NET-INVESTMENT-INCOME> 1,911,584
<REALIZED-GAINS-CURRENT> (240)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,911,344
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,911,584
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 98,191,108
<NUMBER-OF-SHARES-REDEEMED> 93,871,590
<SHARES-REINVESTED> 1,135,887
<NET-CHANGE-IN-ASSETS> 5,455,165
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 136
<GROSS-ADVISORY-FEES> 232,769
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 580,385
<AVERAGE-NET-ASSETS> 66,451,428
<PER-SHARE-NAV-BEGIN> 1,000
<PER-SHARE-NII> .029
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .029
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1,000
<EXPENSE-RATIO> 0.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
BY-LAWS
OF
HSBC FUNDS TRUST
ARTICLE I
Definitions
-----------
The terms "Affiliated Person", "Commission", "Declaration",
"Interested Person", "Investment Adviser", "Majority Shareholder Vote", "1940
Act", Principal Underwriter", "Series", "Series Majority Shareholder Vote,
"Shareholder", "Shares", "Trust", "Trust Property" and "Trustees" have the
meanings given them in the Declaration of Trust (the "Declaration") of Mariner
Funds Trust (the "Trust"), dated October 31, 1985, amended from time to time.
ARTICLE II
Offices and Seal
----------------
Section 2.1 Principal Office. The principal office of the Trust
----------------
shall be located in the City of New York, State of New York.
Section 2.2 Registered Office. The Trust shall maintain a
-----------------
registered office in the City of Boston, Commonwealth of Massachusetts.
Section 2.3 Other Offices. The Trust may establish and maintain
-------------
such other offices and places of business within or without the Commonwealth
of Massachusetts as the Trustees may from, time to time determine.
Section 2.4 Seal. The seal of the Trust shall be circular in form
----
and shall bear the name of the Trust, the year of its organization, and the
words "Common Seal" and "A Massachusetts Voluntary Association". The form of the
seal shall be subject to alteration by the Trustees and the seal may be used by
causing it or a facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or Trustee of the Trust shall have authority to affix
<PAGE>
the seal of the Trust to any document requiring the same but, unless otherwise
required by the Trustees, the seal shall not be necessary to be placed on, and
its absence shall not impair the validity, of any document, instrument or other
paper executed and delivered by or on behalf of the Trust.
ARTICLE III
Shareholders
------------
Section 3.1 Meetings. A Shareholders' meeting for the election of
--------
Trustees and the transaction of other proper business shall be held when
authorized under or required by the Declaration.
Section 3.2 Place of Meeting. All Shareholders' meetings shall be
----------------
held at such place within or without the Commonwealth of Massachusetts as the
Trustees shall designate.
Section 3.3 Notice of Meetings. Notice of all Shareholders'
------------------
meetings, stating the time, place and purpose of the meeting, shall be given by
the Secretary or an Assistant Secretary of the Trust by mail to each Shareholder
entitled to notice of and to vote at such meeting at his address as recorded on
the register of the Trust mailed at least 10 days and not more than 60 days
before the meeting. Such notice shall be deemed to be given when deposited in
the United States mail, with postage thereon prepaid. Any adjourned meeting may
be held as adjourned without further notice. No notice need be given (a) to any
Shareholder if a written waiver of notice, executed before or after the meeting
by such Shareholder or his attorney thereunto duly authorized, is filed with the
records of the meeting, or (b) to any Shareholder who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A waiver of notice need not specify the purposes of the meeting.
-2-
<PAGE>
Section 3.4 Shareholders Entitled to Vote. If, pursuant to
-----------------------------
Section 3.9 hereof, a record date has been fixed for the determination of
Shareholders entitled to notice of and to vote at any Shareholders' meeting,
each Shareholder of the Trust shall be entitled to vote, in person or by proxy,
each Share or fraction thereof standing in his name on the register of the Trust
at the time of determining net asset value on such record date. If the
Declaration or the 1940 Act require that Shares be voted by Series, each
Shareholder shall only be entitled to vote, in person or by proxy, each Share or
fraction thereof of such Series standing in his name on the register of the
Trust at the time of determining net asset value on such record date. If no
record date has been fixed for the determination of Shareholders so entitled,
the record date for the determination of Shareholders entitled to notice of and
to vote at a Shareholders' meeting shall be at the close of business on the day
on which notice of the meeting is mailed or, if notice is waived by all
Shareholders, at the close of business on the tenth day next preceding the day
on which the meeting is held.
Section 3.5 Quorum. The presence at any Shareholders' meeting in
------
person or by proxy, of Shareholders entitled to cast a majority of the votes
thereat shall be a quorum for the transaction of business.
Section 3.6 Adjournment. The holders of a majority of the Shares
-----------
entitled to vote at the meeting and present thereat in person or by proxy,
whether or not constituting a quorum, or, if no Shareholder entitled to vote is
present thereat in person or by proxy, any Trustee or officer present thereat
entitled to preside or act as Secretary of such meeting, may adjourn the meeting
sine die or from time to time. Any business that might have been
- ---- ---
transacted at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
-3-
<PAGE>
Section 3.7 Proxies. Shares may be voted in person or by proxy.
-------
When any Share is held jointly by several persons, any one of them may vote at
any meeting in person or by proxy in respect of such Share unless at or prior to
exercise of the vote the trustees receive a specific written notice to the
contrary from any one of them, but if more than one of them shall be present at
such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger.
Section 3.8 Inspection of Records. The records of the Trust shall
---------------------
be open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
Section 3.9 Record Dates. The Trustees may fix in advance a date
------------
as a record date for the purpose of determining the Shareholders who are
entitled to notice of and to vote at any meeting or any adjournment thereof, or
to express consent in writing without a meeting to any action of the Trustees,
or who shall receive payment of any dividend or of any other distribution, or
for the purpose of any other lawful action, provided that such record date shall
be not more than 60 days before the date on which the particular action
requiring such determination of Shareholders is to be taken. In such case,
subject to the provisions of Section 3.4, each eligible Shareholder of record on
such record date shall be entitled to notice of, and to vote at, such meeting or
adjournment, or to express such consent, or to receive payment of such dividend
or distribution or to take such other action, as the case may be,
notwithstanding any transfer of Shares on the register of the Trust after the
record date.
-4-
<PAGE>
ARTICLE IV
Meetings of Trustees
--------------------
Section 4.1 Regular Meetings. The Trustees from time to time shall
----------------
provide by resolution for the holding of regular meetings for the election of
officers and the transaction of other proper business and fix their time and
place within or without the Commonwealth of Massachusetts.
Section 4.2 Special Meetings. Special meetings of the Trustees
----------------
be held whenever called by the Chairman of the Board, the President (or, in the
absence or disability of the President, by any Vice President), the Treasurer,
the Secretary or two or more Trustees, at the time and place within or without
the Commonwealth of Massachusetts specified in the respective notices or waivers
of notice of such meetings.
Section 4.3 Notice. Notice of regular and special meetings,
------
stating the time and place, shall be (a) mailed to each Trustee at his residence
or regular place of business at least five days before the day on which the
meeting is to be held or (b) caused to be delivered to him personally or to be
transmitted to him by telegraph, cable or wireless at least two days before the
day on which the meeting is to be held. Unless otherwise required by law, such
notice need not include a statement of the business to be transacted at, or the
purpose of, the meeting. No notice of adjournment of a meeting of the Trustees
to another time or place need be given if such time and place are announced at
such meeting.
Section 4.4 Waiver of Notice. Notice of a meeting need not be given
----------------
to any Trustee if a written waiver of notice, executed by him before or after
the meeting, is filed with the records of the meeting, or to any Trustee who
attends the meeting without protesting prior
-5-
<PAGE>
thereto or at its commencement the lack of notice to him. A waiver of notice
need not specify the purposes of the meeting.
Section 4.5 Quorum, Adjournment and Voting. At all meetings of the
------------------------------
Trustees, the presence of a majority of the total number of Trustees authorized,
but not less than two, shall constitute a quorum for the transaction of
business. A majority of the Trustees present, whether or not constituting a
quorum, may adjourn the meeting, from time to time. The action of a majority of
the Trustees present at a meeting at which a quorum is present shall be the
action of the Trustees unless the concurrence of a greater proportion is
required for such action by law, by the Declaration or by these By-Laws.
Section 4.6 Compensation. Each Trustee may receive such remuneration
------------
for his services as such as shall be fixed from time to time by resolution of
the Trustees.
ARTICLE V
Executive Committee and Other Committees
----------------------------------------
Section 5.1 How Constituted. The Trustees may, by resolution,
---------------
designate one or more committees, including an Executive Committee, an Audit
Committee, a Nominating Committee and a Committee on Administration, each
consisting of at least two Trustees. The Trustees may, by resolution, designate
one or more alternate members of any committee to serve in the absence of any
member or other alternate member of such committee. Each member and alternate
member of a committee shall be a Trustee and shall hold office at the pleasure
of the Trustees. The Chairman of the Board and the President shall be members of
the Executive Committee.
Section 5.2 Powers of the Executive Committee. Unless otherwise
---------------------------------
provided by resolution of the Trustees, the Executive Committee shall have and
may exercise all of the
-6-
<PAGE>
power and authority of the Trustees, provided that the power and authority of
the Executive Committee shall be subject to the limitations contained in the
Declaration.
Section 5.3 Other Committees of Trustees. To the extent provided by
----------------------------
resolution of the Trustees, other committees shall have and may exercise any of
the power and authority that may lawfully be granted to the Executive Committee.
Section 5.4 Proceedings, Quorum and Manner of Acting. In the absence
----------------------------------------
of appropriate resolution of the Trustees' each committee may adopt such rules
and regulations governing its proceedings, quorum and manner of acting as it
shall deem proper and desirable, provided that the quorum shall not be less than
two Trustees. In the absence of any member or alternate member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a Trustee to act in the place of such absent
member or alternate member. Members and alternate members of a committee may
participate in a meeting of such committee by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5.5 Other Committees. The Trustees may appoint other
----------------
committees, each consisting of one or more persons who need not be Trustees.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Trustees, but shall not exercise any
power which may lawfully be exercised only by the Trustees or a committee
thereof.
-7-
<PAGE>
ARTICLE VI
Officers
--------
Section 6.1 General. The officers of the Trust shall be a
-------
President, a Secretary, and a Treasurer, and may include a Chairman of the
Board, one or more Vice Presidents, one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 6.10 of this Article VI.
Section 6.2 Election, Term of Office and Qualifications. The officers
-------------------------------------------
of the Trust (except those appointed pursuant to Section 6.10) shall be elected
by the Trustees at their first meeting. If any officer or officers are not
elected at any such meeting, such officer or officers may be elected at any
subsequent regular or special meeting of the Trustees. Each officer elected by
the Trustees shall hold office subject to Sections 6.3 and 6.4 of this Article
VI and until his successor shall have been chosen and qualified. No person shall
hold more than one office of the Trust, except that the President may hold the
office of Chairman of the Board and any Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary of the Trust may also hold the office of Vice
President. Neither the Chairman of the Board or the President need be selected
from among the Trustees of the Trust. Any Trustee or officer may be but need not
be a Shareholder of the Trust.
Section 6.3 Resignations and Removals. Any officer may resign his
-------------------------
office at any time by delivering a written resignation to the Trustees, the
President, the Secretary or any Assistant Secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery. Any officer may be
removed from office with or without cause by the vote of a majority of the
Trustees at any regular meeting or any special meeting. Except to the extent
expressly provided in a written agreement with the Trust, no officer resigning
and no officer
-8-
<PAGE>
removed shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account of such removal.
Section 6.4 Vacancies and Newly Created Offices. If any vacancy shall
-----------------------------------
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Trustees at any regular or special meeting
or, in the case of any office created pursuant to Section 6.10 of this Article
VI, by any officer upon whom such power shall have been conferred by the
Trustees.
Section 6.5 Chairman of the Board. The Chairman of the Board shall be
---------------------
the chief executive officer of the Trust. He or his delegate shall preside at
all Shareholders' meetings and at all meetings of the Trustees and shall he be
ex officio a member of all committees of the Trustees, except the Audit
- -- -------
Committee. Subject to the supervision of the Trustees, he shall have general
charge of the business of the Trust, the Trust Property and the officers,
employees and agents of the Trust. He shall have such other powers and perform
such other duties as may be assigned to him from time to time by the
Trustees.
Section 6.6 President. The President shall be the chief operating
---------
officer of the Trust and, at the request of or in the absence or disability of
the Chairman of the Board, he shall act as chief executive officer of the Trust.
He or his delegate preside at all Shareholders' meetings and at all meetings of
the Trustees and he shall in general exercise the powers and perform the duties
of the Chairman of the Board. Subject to the supervision of the Trustees and
such direction and control as the Chairman of the Board may exercise, he shall
have general charge of the operations of the Trust and its officers, employees
and agents. He shall exercise such other powers and perform such other duties as
from time to time may be assigned to him by the Trustees.
-9-
<PAGE>
Section 6.7 Vice President. The Trustees may, from time to time,
--------------
designate and elect one or more Vice Presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the Trustees
or the President. At the request or in the absence or disability of the
President, the Vice President (or, if there are two or more Vice Presidents, the
Vice President designated by the Trustees) may perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 6.8 Treasurer and Assistant Treasurers. The Treasurer shall
----------------------------------
be the principal financial and accounting officer of the Trust and shall have
general charge of the finances and books of account of the Trust. Except as
otherwise provided by the Trustees, he shall have general supervision of the
funds and property of the Trust and of the performance by the Custodian
appointed pursuant to Section 8.1 of the Declaration of its duties with respect
thereto. The Treasurer shall render a statement of condition of the finances of
the Trust to the Trustees as often as they shall require the same and he shall
in general perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Trustees.
Any Assistant Treasurer may perform such duties of the Treasurer as
the Treasurer or the Trustees may assign, and, in the absence of the Treasurer,
he may perform all the duties of the Treasurer.
Section 6.9 Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
attend to the giving and serving of all notices of the Trust and shall record
all proceedings of the meetings of the Shareholders and Trustees in one or more
books to be kept for that purpose. He shall keep in safe custody the seal of the
Trust, and shall have charge of the records of the Trust, including
-10-
<PAGE>
the register of shares and such other books and papers as the Trustees may
direct and such books, reports, certificates and other documents required by law
to be kept, all of which shall at all reasonable times be open to inspection by
any Trustee. He shall perform such other duties as appertain to his office or as
may be required by the Trustee.
Any Assistant Secretary may perform such duties of the Secretary as
the Secretary or the Trustees may assign, and, in the absence of the Secretary,
he may perform all the duties of the Secretary.
Section 6.10 Subordinate Officers. The Trustees from time to time
--------------------
may appoint such other subordinate officers or agents as they may deem
advisable, each of whom shall have such title, hold office for such period, have
such authority and perform such duties as the Trustees may determine. The
Trustees from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 6.11 Remuneration. The salaries or other compensation of the
------------
officers of the Trust shall be fixed from time to time by resolution of the
Trustees, except that the Trustees may by resolution delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the provisions of
Section 6.10 hereof.
Section 6.12 Surety Bonds. The Trustees may require any officer or
------------
agent of the Trust to execute a bond (including, without limitation, any bond
required by the 1940 Act and the rules and regulations of the Commission) to the
Trustees in such sum and with such surety or sureties as the Trustees may
determine, conditioned, upon the faithful performance of his duties to the
Trust, including responsibility for negligence and for the accounting of any of
-11-
<PAGE>
the Trust Property that may come into his hands. In any such case, a new bond of
like character shall be given at least every six years, so that the date of the
new bond shall not be more than six years subsequent to the date of the bond
immediately preceding.
ARTICLE VII
Execution of Instruments, Voting of Securities
----------------------------------------------
Section 7.1 Execution of Instruments. All deeds, documents,
------------------------
transfers, contracts, agreements, requisitions or orders, promissory notes,
assignments, endorsements, checks and drafts for the payment of money by the
Trust, and other instruments requiring execution either in the name of the Trust
or the names of the Trustees or otherwise may be signed by the Chairman, the
President, a Vice President or the Secretary and by the Treasurer or an
Assistant Treasurer, or as the Trustees may otherwise, from time to time,
authorize, provided that instructions in connection with the execution of
portfolio securities transactions may be signed by one such officer. Any such
authorization may be general or confined to specific instances.
Section 7.2 Voting of Securities. Unless otherwise ordered by the
--------------------
Trustees, the Chairman, the President or any Vice President shall have full
power and authority on behalf of the Trustees to attend and to act and to vote,
or in the name of the Trustees to execute proxies to vote, at any meeting of
stockholders of any company in which the Trust may hold stock. At any such
meeting such officer shall possess and may exercise (in person or by proxy) any
and all rights, powers and privileges incident to the ownership of such stock.
The Trustees may by resolution from time to time confer like powers upon any
other person or persons.
-12-
<PAGE>
ARTICLE VIII
Fiscal Year, Accountants
------------------------
Section 8.1 Fiscal Year. The fiscal year of the Trust shall be
-----------
established by resolution of the Trustees.
Section 8.2 Accountants.
-----------
(a) The Trustees shall employ an independent public accountant
or firm of independent public accountants as their accountant to examine the
accounts of the Trust and to sign and certify at least annually financial
statements filed by the Trust. The accountant's certificates and reports shall
be addressed both to the Trustees and to the Shareholders.
(b) A majority of the Trustees who are not Interested Persons of
the Trust shall select the accountant at any meeting held before the first
Shareholders' meeting, and thereafter shall select the accountant annually by
votes, cast in person, at a meeting held within 30 days before or after the
beginning of the fiscal year of the Trust. Such selection shall be submitted for
ratification or rejection at the next succeeding Shareholders' meeting. If such
meeting shall reject such selection, the accountant shall be selected by a
Majority Shareholder Vote, either at the meeting at which the rejection occurred
or at a subsequent Shareholders' meeting called for the purpose.
(c) Any vacancy occurring due to the death or resignation of the
accountant, may be filled at a meeting called for the purpose by the vote, cast
in person, of a majority of those Trustees who are not Interested Persons of the
Trust.
-13-
<PAGE>
ARTICLE IX
Amendments
----------
Section 9.1 General. These By-Laws may be amended or repealed, in
-------
whole or in part, by a majority of the Trustees then in office at any meeting of
the Trustees, or by one or more writings signed by such a majority.
-14-
<PAGE>
BY-LAWS
OF
HSBC FUNDS TRUST
As adopted on October 31, 1985
and amended on April 29, 1997
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I -- Definitions....................................................1
ARTICLE II -- Offices and Seal..............................................1
Section 2.1 Principal Office........................................1
Section 2.2 Registered Office.......................................1
Section 2.3 Other Offices...........................................1
Section 2.4 Seal....................................................1
ARTICLE III -- Shareholders.................................................2
Section 3.1 Meetings................................................2
Section 3.2 Place of Meeting........................................2
Section 3.3 Notice of Meetings......................................2
Section 3.4 Shareholders Entitled to Vote...........................3
Section 3.5 Quorum..................................................3
Section 3.6 Adjournment.............................................3
Section 3.7 Proxies.................................................4
Section 3.8 Inspection of Records...................................4
Section 3.9 Record Dates............................................4
ARTICLE IV -- Meetings of Trustees..........................................5
Section 4.1 Regular Meetings........................................5
Section 4.2 Special Meetings........................................5
Section 4.3 Notice..................................................5
Section 4.4 Waiver of Notice........................................5
Section 4.5 Quorum, Adjournment and Voting..........................6
Section 4.6 Compensation............................................6
ARTICLE V -- Executive Committee and Other Committees.......................6
Section 5.1 How Constituted.........................................6
Section 5.2 Powers of the Executive Committee.......................6
Section 5.3 Other Committees of Trustees............................7
Section 5.4 Proceedings, Quorum and Manner of Acting................7
Section 5.5 Other Committees........................................7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VI -- Officers..................................................... 8
Section 6.1 General................................................ 8
Section 6.2 Election, Term of Office and Qualifications............ 8
Section 6.3 Resignations and Removals.............................. 8
Section 6.4 Vacancies and Newly Created Offices.................... 9
Section 6.5 Chairman of the Board.................................. 9
Section 6.6 President.............................................. 9
Section 6.7 Vice President.........................................10
Section 6.8 Treasurer and Assistant Treasurers.....................10
Section 6.9 Secretary and Assistant Secretaries....................10
Section 6.10 Subordinate Officers...................................11
Section 6.11 Remuneration...........................................11
Section 6.12 Surety Bonds...........................................11
ARTICLE VII -- Execution of Instruments, Voting of Securities..............12
Section 7.1 Execution of Instruments...............................12
Section 7.2 Voting of Securities...................................12
ARTICLE VIII -- Fiscal Year, Accountants...................................13
Section 8.1 Fiscal Year............................................13
Section 8.2 Accountants............................................13
ARTICLE IX -- Amendments...................................................14
Section 9.1 General................................................14
</TABLE>
ii
<PAGE>
SHAREHOLDER SERVICER ASSISTANCE AGREEMENT
SHAREHOLDER SERVICER ASSISTANCE AGREEMENT (formerly, Shareholder
Servicing Agreement), dated as of November 1, 1994, (as amended as of April 29,
1997) by and between HSBC Funds Trust (the "Trust"), a Massachusetts business
trust, and HSBC Asset Management Americas Inc. (the "Financial Institution"), as
a shareholder servicer assistant hereunder (the "Agent") relating to
transactions in shares of capital stock, $.001 par value (the "Shares"), of any
of the existing investment portfolios offered by the Trust (the "Funds"). In
the event that the Trust establishes one or more portfolios other than the Funds
with respect to which it decides to retain the Financial Institution hereunder,
the Trust shall promptly notify the Financial Institution in writing. If the
Financial Institution is willing to render such services, it shall notify the
Trust in writing whereupon such portfolio shall become a Fund hereunder.
The Trust and the Financial Institution hereby agree as follows:
1. Appointment. The Financial Institution hereby agrees to perform
-----------
certain services to assist third parties including Marine Midland Bank, the
Funds' Distributor, and any Service Organization (as defined in Prospectus) and
other entities whose customers invest in the Funds (collectively, "Shareholder
Servicers") as hereinafter set forth. The Agent's appointment hereunder is non-
exclusive, and the parties recognize and agree that, from time to time, the
Trust may enter into other shareholder servicing agreements, in writing, with
other financial institutions.
2. Services to be Performed. The Agent shall be responsible for
------------------------
performing Shareholder Servicer administrative support services, which may, but
is not specifically required to, include any or all of the following: (i)
assist personnel who (a) hand out prospectuses and Fund applications, (b) assist
customers with filling out Fund applications and (c) effect
<PAGE>
purchases and redemptions; (ii) assist with preparation of and review Fund
written communications, including marketing material, semi-annual and Annual
Reports and prospectus updates; (iii) educate, describe the Funds, and answer
questions from Shareholder Servicers to enhance understanding of the Funds and
their investment objectives; and (iv) generally assist the activities of the
Shareholder Servicers.
The Agent shall provide all personnel and facilities necessary in
order for it to perform the functions described in this paragraph.
3. Fees.
----
3.1. Fees from the Trust. In consideration for the services
-------------------
described in Section 2 hereof and the incurring of expenses in connection
therewith, the Agent shall receive a fee, computed daily and payable monthly, at
the annual rate of 0.04% of 1% of the average daily net asset value of Shares of
each Fund for which the Agent from time to time performs services under this
Agreement. Fees with respect to Shareholder Servicers' customers Shares in any
one Fund will be paid exclusively from the assets of that Fund in which such
Customer's assets are invested. For purposes of determining the fees payable to
the Agent hereunder, the value of the Trust's net assets shall be computed in
the manner specified in the Trust's then-current prospectus and statement of
additional information (the "Prospectus") for computation of the net asset value
of the Trust's Shares.
4. Approval of Materials to be Circulated. Advance copies or proofs
--------------------------------------
of all materials which are to be generally circulated or disseminated by the
Agent to Shareholder Servicers or prospective Shareholder Servicers which
identify or describe the Trust shall be provided to the Trust at least 10 days
prior to such circulation or dissemination (unless the Trust consents in writing
to a shorter period), and such materials shall not be circulated or disseminated
or further circulated or disseminated at any time after the Trust shall have
given written notice to the Agent of any objection thereto.
- 2 -
<PAGE>
Nothing in this Section 4 shall be construed to make the Trust liable
for the use of any information about the Trust which is disseminated by the
Agent.
5. Compliance with Laws, etc. The Agent shall comply with all
--------------------------
applicable federal and state laws and regulations in the performance of its
duties under this Agreement, including securities laws.
6. Limitation of Agent's Liability. In consideration of the Agent's
-------------------------------
undertaking to render the services described in this Agreement, the Trust agrees
that the Agent shall not be liable under this Agreement for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the performance of this Agreement, provided that nothing in this Agreement
shall be deemed to protect or purport to protect the Agent against any liability
to the Trust or its stockholders to which the Agent would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Agent's duties under this Agreement or by reason of the
Agent's reckless disregard of its obligations and duties hereunder.
7. Indemnification. The Trust agrees to indemnify and hold harmless
---------------
the Agent from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, the
Investment Company Act of 1940, as amended, and any state and foreign securities
and blue sky laws, all as or to be amended from time to time) and expenses,
including attorneys' fees and disbursements arising directly or indirectly from
(i) any misstatements or omissions in the Trust's Prospectus, or (ii) any action
or thing which the Agent takes or does or omits to take or do reasonably
believed by the Agent to be at the request or direction or in reliance on the
advice or instructions, whether oral or written, of the Trust provided, that the
Agent shall not be indemnified against any liability to the Trust or to its
shareholders (or any expenses incident to such liability) arising out of the
Agent's own willful misfeasance, bad faith or gross negligence in the
performance of its duties hereunder or by reason of its reckless disregard of
its obligations and duties hereunder. In order that the indemnification
provision contained
- 3 -
<PAGE>
in this paragraph shall apply, it is understood that if in any case the Trust
may be asked to indemnify or save the Agent harmless, the Trust shall be fully
and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Agent will use all reasonable
care to identify and notify the Trust promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Trust. The Trust shall have the option to defend
the Agent against any claim which may be the subject of this indemnification
and, in the event that the Trust so elects, it will so notify the Agent and
thereupon the Trust shall take over complete defense for the claim, and the
Agent shall in such situation incur no further legal or other expenses for which
it shall seek indemnification under this paragraph. The Agent shall in no case
confess any claim or make any compromise or settlement in any case in which the
Trust will be asked to indemnify the Agent, except with the Trust's prior
written consent.
8. Limitation of Shareholder Liability, etc. The Agent hereby agrees
-----------------------------------------
that obligations assumed by the Trust pursuant to this Agreement shall be
limited in all cases to the Trust and its assets and that the Agent shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Trust. It is further agreed that the Agent shall not seek
satisfaction of any such obligations from the Board of Trustees or any
individual Trustee of the Trust.
9. Notices. All notices or other communications hereunder to either
-------
party shall be in writing or by confirming telegram, cable, telex or facsimile
sending device. Notices shall be addressed (a) if to the Trust, at the address
of the Trust, or (b) if to the Agent, at 250 Park Avenue, New York, New York
10017, Attention: Angela DeRosa.
10. Further Assurances. Each party agrees to perform such further
------------------
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
11. Termination. This Agreement will continue in effect until two
-----------
years from the date hereof and thereafter for successive annual periods,
provided that such continuance is specifically approved at least annually (a) by
the Trust's Board
- 4 -
<PAGE>
of Trustees and (b) by the vote, cast in person at a meeting called for the
purpose, of a majority of the Trust's trustees who are not parties to this
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party. This Agreement may be terminated at any time, without the payment of any
penalty, by a vote of a majority of the Trust's outstanding voting securities
(as defined in the 1940 Act) or by a vote of a majority of the Trust's entire
Board of Trustees on 60 days' written notice to the Agent or by the Agent on
(60) days' written notice to the Trust. Notice of termination of the
Shareholder Servicing Plan by the Board of Trustees, pursuant to which this
Agreement has been entered, shall constitute a notice of termination of this
Agreement.
12. Changes; Amendments. This Agreement may be changed or amended
-------------------
only by written instrument signed by both parties.
13. Reports. The Agent will provide the Trust or its designees such
-------
information as the Trust or its designees may reasonably request (including,
without limitation, periodic certifications confirming the provision to
Shareholder Servicers of the services described herein), and will otherwise
cooperate with the Trust and its designees (including, without limitation, any
auditors designated by the Trust), in connection with the preparation of reports
to its Board of Trustees concerning this Agreement and the monies paid or
payable under this Agreement, as well as any other reports or filings that may
be required by law.
14. Subcontracting by Agent. The Agent may subcontract for the
-----------------------
performance of the Agent's obligations hereunder with any one or more persons,
including but not limited to any one or more persons which is an affiliate of
the Agent; provided, however, that the Agent shall be as fully responsible to
-------- -------
the Trust for the acts and omissions of any subcontractor as it would be for its
own acts or omissions. The Agent shall notify the Trust of any such arrangements
no later than the next meeting of the Trust's Board of Trustees following the
entry by the Agent into such arrangements. Notwithstanding this paragraph or
paragraph 11 of this Agreement, the Trust reserves the right to terminate this
Agreement immediately or upon such notice as the Trust, in its sole discretion,
determines to give, and without payment of any penalty, if the Trust notifies
the Agent
- 5 -
<PAGE>
that any subcontractor of the Agent is unacceptable to the Trust for any reason
and the Agent does not terminate its arrangements with such subcontractor as
promptly as reasonably practicable.
15. Governing Law. This Agreement shall be governed by the laws of
-------------
the State of New York.
16. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement has been executed on behalf of the Trust by the undersigned not
individually, but in the capacity indicated.
HSBC FUNDS TRUST
By:
--------------------------
Title: Secretary
HSBC ASSET MANAGEMENT AMERICAS INC.
By:
-------------------------
Title:
- 6 -
<PAGE>
[LETTERHEAD OF BAKER & McKENZIE APPEARS HERE]
April 25, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: HSBC Funds Trust (Registration No. 33-1312)
-------------------------------------------
Dear Sir/Madam:
As counsel to HSBC Funds Trust (the "Trust"), we have reviewed Post-
Effective Amendment No. 18 to the Trust's Registration Statement on Form N-1A
(the "Amendment"). The Amendment is being filed pursuant to Rule 485 of the 1933
Act and it is proposed that it will become effective immediately upon filing
pursuant to paragraph (b).
Based on our review, it is our view that the Amendment does not
include disclosure which we believe would render it ineligible to become
effective under paragraph (b) of Rule 485.
In addition, it is our opinion that the securities being registered
hereunder will, when sold, be legally issued, fully paid and non-assessable, and
we hereby consent to the reference to our firm as Counsel in this Amendment.
If you have any questions or comments concerning the enclosed, please
telephone Scott R. MacLeod at (212) 891-3947.
Sincerely,
BAKER & McKENZIE
SRM/ear
Enclosures
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Independent Auditors" and "Financial Statements" and to the
incorporation by reference of our report dated February 10, 1997, in this
Registration Statement (Form N-1A 33-1312) of HSBC Funds Trust.
/s/ Ernst & Young LLP
-------------------------
ERNST & YOUNG LLP
New York, New York
April 25, 1997
<PAGE>
Exhibit 15(b)
BISYS FUND SERVICES LIMITED PARTNERSHIP, DISTRIBUTOR
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
SHAREHOLDER SERVICES AGREEMENT
Ladies and Gentlemen:
As the principal underwriter of the shares ("Shares") of each investment company
portfolio ("Fund") of HSBC Funds Trust and HSBC Mutual Funds Trust (each a
-----------------------------------------------
"Trust"), BISYS Fund Services Limited Partnership ("BISYS") hereby agrees that
you, the undersigned broker-dealer, shall provide the shareholder services that
are more fully described below.
1. We represent and warrant to you that the shareholder services described
herein have been authorized pursuant to a Rule 12b-1 Distribution Plan (the
"Plan") adopted by the shareholders ("Shareholders") of each Fund. The
Plan has been adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act"). It is intended that you shall provide such
shareholder services to your customers ("Customers") who may, from time to
time, beneficially own a Fund's Shares.
2. You represent and warrant to us that (i) you are and will be at all times
relevant to this Agreement a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"), and (ii) you are and
will be at all times relevant to this Agreement a broker-dealer properly
registered and qualified under all applicable federal, state and local laws
to engage in the business and transactions described in this Agreement.
You agree to comply with all applicable laws, including federal and state
securities laws, the Rules and Regulations of the Securities and Exchange
Commission and the Rules of Fair Practice of the NASD. We have furnished
you with a list of the states or other jurisdictions in which Shares of the
Funds have been registered for sale under, or are otherwise qualified for
sale pursuant to, the respective securities laws of such states and
jurisdictions. You agree that you will not offer a Fund's Shares to
persons in any jurisdiction in which such Shares are not registered or
otherwise qualified for sale. You further agree that you will maintain all
records required by applicable law or otherwise reasonably requested by us
relating to Fund transactions that you have executed.
3. You agree to provide various types of distribution assistance and
Shareholder support services with respect to a Fund's Shares. Such
distribution assistance and Shareholder support services may include those
items that are enumerated in Schedule A attached hereto and such other
similar services that we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules and regulations.
4. For all purposes of this Agreement, you shall be deemed to be an
independent contractor, and shall have no authority to act as agent for us
or for the Trust in any matter or in any respect. No person is authorized
to make any representations concerning us, the Trust, or a Fund's Shares
except those representations contained in the Fund's then-current
Prospectus and the Trust's Statement of Additional Information and in such
printed information as we or the Trust may subsequently prepare. You are
specifically authorized to distribute to Customers a Fund's Prospectus
(including any supplements to such Prospectus), the Trust's Statement of
Additional Information and sales material received from us. No person is
authorized to distribute any other sales material relating to the Trust
without our prior written approval. You further agree to deliver to
Customers, upon our request, copies of amended Prospectuses and Statements
of Additional Information.
5. You and your employees will, upon request, be available during normal
business hours to consult with us concerning the performance of your
responsibilities under this Agreement. You will provide
<PAGE>
to us and the Trust's Board of Trustees a written report of all
expenditures under this Agreement, including a discussion of the purposes
for which such expenditures were made. In addition, you will furnish to us
or to the Trust such information as we or the Trust may reasonably request
(including, without limitation, periodic certifications confirming the
rendering of distribution assistance and support services with respect to
Shares described herein), and will otherwise cooperate with us and the
Trust in the preparation of reports to the Trust's Board of Trustees
concerning this Agreement and the monies paid or payable by us under this
Agreement, as well as any other reports or filings that may be required by
law.
6. The minimum dollar purchase of a Fund's Shares (including Shares being
acquired by Customers pursuant to the exchange privileges described in the
Fund's Prospectus) shall be the applicable minimum amount set forth in the
Prospectus of such Fund, and no order for less than such amount shall be
accepted by you. The procedures relating to the handling of orders shall
be subject to instructions which we shall forward to you from time to time.
All orders for a Fund's Shares are subject to acceptance or rejection by
the Trust in its sole discretion, and the Trust may, in its discretion and
without notice, suspend or withdraw the sale of a Fund's Shares, including
the sale of such Shares to you for the account of any Customer or
Customers. You acknowledge that it is your responsibility to date and time
stamp all orders received by you and to transmit such orders promptly to
us. You further acknowledge that any failure to promptly transmit such
orders to us that causes a purchaser of Shares to be disadvantaged, based
upon the pricing requirements of Rule 22c-1 under the 1940 Act, shall be
your sole responsibility. We reserve the right to cancel this Agreement at
any time without notice if any Shares shall be offered for sale by you at
less than the then-current offering price determined by or for the
applicable Fund.
7. For the services provided under this Agreement, you shall receive a fee
calculated at the applicable annual rate set forth on Schedule B hereto
with respect to the average daily net asset value of each Fund's Shares
which are owned of record by you as nominee for Customers or which are
owned by Customers whose records, as maintained by such Fund or its agent,
designate you as the Customer's dealer of record, which fee will be
computed daily and paid monthly. The fee will not be paid with respect to
(i) Shares of a Fund sold by you and redeemed or repurchased by the Trust
or by us within seven business days of receipt of confirmation of such
sale, or (ii) a Customer if the amount of such fee on an annual basis with
respect to such Customer shall be less than $1.00. The fee rate stated on
Schedule B hereto may be prospectively increased or decreased by us in our
sole discretion, at any time upon notice to you. Such fee shall be subject
to the limitations on the payment of asset-based sales charges that are set
forth in Rule 2830 of the NASD Conduct Rules.
8. Neither of us shall be liable to the other except for (1) acts or failures
to act which constitute a lack of good faith or negligence and (2)
obligations expressly assumed under this Agreement. In addition, you agree
to indemnify us and hold us harmless from any claims or assertions relating
to the lawfulness of your participation in this Agreement and the
transactions contemplated hereby or relating to any activities of any
persons or entities affiliated with your organization which are performed
in connection with the discharge of your responsibilities under this
Agreement. If such claims are asserted, you shall have the right to manage
your own defense, including the selection and engagement of legal counsel,
and all costs of such defense shall be borne by you.
2
<PAGE>
9. This Agreement will automatically terminate in the event of its assignment.
This Agreement may be terminated by either of us, without penalty, upon ten
days' prior written notice to the other party. This Agreement may also be
terminated at any time without penalty by the vote of a majority of the
Disinterested Trustees of a Fund or by a vote of a majority of the
outstanding voting securities of a Fund on ten days' written notice.
10. All communications to us shall be sent to the address set forth on page 1
hereof or at such other address as we may designate in writing. Any notice
to you shall be duly given if mailed or telecopied to you at the address
set forth below or at such other address as you may provide in writing.
______________________________
______________________________
______________________________
11. You represent and warrant that all requisite corporate proceedings have
been undertaken to authorize you to enter into this Agreement and to
perform the services contemplated herein. You further represent and
warrant that the individual that has signed this Agreement below is a duly
elected officer that has been empowered to act for and on behalf of your
organization with respect to the execution of this Agreement.
12. This Agreement supersedes any other agreement between us with respect to
the offer and sale of Shares and relating to any other matters discussed
herein. All covenants, agreements, representations and warranties made
herein shall be deemed to have been material and relied on by each party.
The invalidity or unenforceability of any term or provision hereof shall
not affect the validity or enforceability of any other term or provision
thereof. This Agreement may be executed in any number of counterparts,
which together shall constitute one instrument, and shall be governed by
and construed in accordance with the laws (other than the conflict of laws
rules) of the State of Ohio and shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns.
If the foregoing corresponds with your understanding of our agreement, please
sign this document and the accompanying copies thereof in the appropriate space
below and return the same to us, whereupon this Agreement shall be binding upon
each of us, effective as of the date of execution.
BISYS FUND SERVICES LIMITED PARTNERSHIP The foregoing Agreement is hereby
/BY/: BISYS FUND SERVICES, INC., accepted:
GENERAL PARTNER
---------------------------------
Company Name
By ___________________________________ By_______________________________
Authorized Officer Date Date
3
<PAGE>
Dated: As of ________________________________
Schedule A
to the
Shareholder Services Agreement
Shareholder Services
----------------------------------------------
In accordance with Section 3 of the Shareholder Services Agreement, you agree to
provide various types of distribution assistance and shareholder support
services that we may reasonably request with respect to Fund Shares that are
beneficially owned by your Customers. Such distribution assistance and
shareholder support services may include the following.
Distribution Assistance
- -----------------------
(i) placing orders with the Trust for the purchase or exchange of a Fund's
Shares and tendering a Fund's Shares to the Trust for redemption; (ii)
promoting the purchase of Shares by Customers; (iii) responding to inquiries
from Customers concerning their investments in Fund Shares; (iv) engaging in
advertising with respect to a Fund's Shares; and (v) distributing Fund
prospectuses, reports and sales literature.
Shareholder Support Services
- ----------------------------
(i) providing Customers with a service that invests the assets of their accounts
in a Fund's Shares pursuant to specific or pre-authorized instructions; (ii)
processing dividend payments from the Trust on behalf of Customers; (iii)
providing information periodically to Customers showing their positions in a
Fund's Shares; (iv) arranging for bank wire transfers of funds to or from a
Customer's account; (v) responding to inquiries from Customers relating to the
services performed by the Participating Organization under this Agreement; (vi)
providing subaccounting, in the case of omnibus accounts, with respect to a
Fund's Shares beneficially owned by Customers or the information to the Trust
necessary for subaccounting; (vii) if required by law, forwarding Shareholder
communications from the Trust (such as proxies, Shareholder reports, annual and
semi-annual financial statements, and dividend, distribution, and tax notices)
to Customers; (viii) forwarding to Customers proxy statements and proxies
containing any proposals regarding this Agreement or a Fund's Plan; and (ix)
rendering ongoing advice respecting the suitability of particular investment
opportunities offered by the Trust in light of the Customer's need.
4
<PAGE>
Dated: As of ________________________________
Schedule B
to the
Shareholder Services Agreement
Compensation
--------------------------------------
HSBC Fund Trust
---------------
Annual rate of up to 20 one-hundredths of one percent ( .20 %) of the
----- ------
average daily net asset value of each Fund's Shares held of record by you
from time to time on behalf of Customers.*
HSBC Mutual Funds Trust
-----------------------
Small Cap Fund
International Equity Fund - Service Class
Short-Term U.S. Government Fund
Fixed Income Fund
New York Tax Free Bond Fund
Annual rate of up to .35 one-hundredths of one percent (.35 %) of the
--- ---
average daily net asset value of each Fund's Shares held of record by you
from time to time on behalf of Customers.*
Growth and Income Fund
Annual rate of up to .50 one-hundredths of one percent (.50 %) of the
average daily net asset value of the Fund's Shares held of record by you
from time to time on behalf of Customers.*
- -------------------------
* All fees are computed daily and paid monthly.
January 17, 1997
5
<PAGE>
Exhibit 15(c)
BISYS FUND SERVICES LIMITED PARTNERSHIP, DISTRIBUTOR
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
DEALER AGREEMENT
Ladies and Gentlemen:
As the principal underwriter of the shares ("Shares") of each investment company
portfolio ("Fund") listed in Exhibit A attached hereto, which may be amended
from time to time, BISYS Fund Services Limited Partnership ("BISYS") hereby
agrees with you as follows:
1. You hereby represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and that you are a broker-
dealer properly registered and qualified under all applicable federal,
state and local laws to engage in the business and transactions described
in this Agreement. You also represent that you are a member in good
standing of the Securities Investor Protection Corporation ("SIPC"). We
both agree to abide by the Rules of Fair Practice of the NASD and all
applicable laws, rules and regulations, including applicable federal and
state securities laws, rules and regulations that are now or may become
applicable to transactions hereunder. You agree that it is your
responsibility to determine the suitability of any Fund Shares as
investments for your customers, and that BISYS has no responsibility for
such determination. You further agree to maintain all records required by
applicable law or otherwise reasonably requested by BISYS relating to Fund
transactions that you have executed. In addition, you agree to notify us
immediately in the event your status as a SIPC member changes.
2. We have furnished you with a list of the states or other jurisdictions in
which Fund Shares have been registered for sale or are otherwise qualified
for sale. Such list appears in Exhibit B attached hereto. Shares of the
Funds may from time to time be registered or otherwise qualified for sale
in states or jurisdictions other than those listed in Exhibit B. Those
states or jurisdictions are incorporated into Exhibit B by reference. You
agree to indemnify us and/or the Funds for any claim, liability, expense or
loss in any way arising out of a sale of Shares in any state or
jurisdiction in which such Shares are not so registered or qualified for
sale.
3. In all sales of Fund Shares, you shall act as agent for your customers or
as principal for your own bona fide investment. In no transaction shall
you act as our agent or as agent for any Fund or the Funds' Transfer Agent.
As agent for your customers, you are hereby authorized to: (i) place orders
directly with the investment company (the "Company") for the purchase of
Shares and (ii) tender Shares to the Company for redemption, in each case
subject to the terms and conditions set forth in the applicable prospectus
("Prospectus") and the operating procedures and policies established by us.
The minimum dollar purchase of Shares shall be the applicable minimum
amount set forth in the applicable Prospectus, and no order for less than
such amount shall be accepted by you. The procedures relating to the
handling of orders shall be subject to instructions which we shall forward
to you from time to time. All orders are subject to acceptance or
rejection by BISYS in its sole discretion. No person is authorized to make
any representations concerning Shares of any Fund except such
representations
1
<PAGE>
contained in the relevant then-current Prospectus and statement of
additional information ("Statement of Additional Information") and in such
supplemental information that may be supplied to you by us for a Fund. If
you should make such an unauthorized representation, you agree to indemnify
the Funds and us from and against any and all claims, liability, expense or
loss in any way arising out of or in any way connected with such
representation. You are specifically authorized to distribute the
Prospectus and Statement of Additional Information and sales material
received from us. No person is authorized to distribute any other sales
material relating to a Fund without our prior written approval. You further
agree to deliver, upon our request, copies of any relevant amended
Prospectus and Statement of Additional Information to shareholders of the
Fund to whom you have sold Shares. As agent for your customers, you shall
not withhold placing customers' orders for any Shares so as to profit
yourself as a result of such withholding and shall not purchase any Shares
from us except for the purpose of covering purchase orders already
received.
If any Shares purchased by you are repurchased by a Fund or by us for the
account of a Fund, or are tendered for redemption within seven business
days after confirmation by us of the original purchase order for such
Shares, (i) you agree forthwith to refund to us the full concession allowed
to you on the original sale and (ii) we shall forthwith pay to such Fund
that part of the discount retained by us on the original sale. Notice will
be given to you of any such repurchase or redemption within ten days of the
date on which the tender of Shares for redemption is delivered to us or to
the Fund. Neither party to this Agreement shall purchase any Shares from a
record holder at a price lower than the net asset value next computed by or
for the issuer thereof. Nothing in this subparagraph shall prevent you
from selling Shares for the account of a record holder to us or the issuer
and charging the investor a fair commission for handling the transaction.
Any order placed by you for the repurchase of Shares of a Fund is subject
to the timely receipt by the Company of all required documents in good
order. If such documents are not received within a reasonable time after
the order is placed, the order is subject to cancellation, in which case
you agree to be responsible for any loss resulting to the Fund or to us
from such cancellation.
4. We will furnish you, upon request, with offering prices for the Shares in
accordance with the then-current Prospectuses for the Funds, and you agree
to quote such prices subject to confirmation by us on any Shares offered to
you for sale. The public offering price shall equal the net asset value
per Share of a Fund plus a front-end sales load, if applicable. For Funds
with a front-end sales load, you will receive a discount from the public
offering price as outlined in the current Prospectus. For Funds with a
contingent deferred sales load, you will receive from us, or a paying agent
appointed by us, a commission in the amount shown in Exhibit C. We reserve
the right to waive sales charges. Each price is always subject to
confirmation, and will be based upon the net asset value next computed
after receipt by us of an order that is in good form. You acknowledge that
it is your responsibility to date and time stamp all orders received by you
and to transmit such orders promptly to us. You further acknowledge that
any failure to promptly transmit such orders to us that causes a purchaser
of Shares to be disadvantaged, based upon the pricing requirements of Rule
22c-1 under the 1940 Act, shall be your sole responsibility. We reserve
the right to cancel this Agreement at any time without notice if any Shares
shall be offered for sale by you at less than the then-current offering
price determined by or for the applicable Fund.
5. Your customer will be entitled to a front-end sales load reduction with
respect to purchases made under a letter of intent ("Letter of Intent") or
right of accumulation ("Right of Accumulation") described in the
Prospectuses. In such case, your dealer's concession will be based upon
such reduced sales load; however, in the case of a Letter of Intent signed
by your customer, an adjustment to a higher dealer's concession will
thereafter be made to reflect
2
<PAGE>
actual purchases by your customer if he or she should fail to fulfill the
Letter of Intent. Your customer will be entitled to an additional front-end
sales load reduction in those instances in which the customer makes
purchases that exceed the dollar amount indicated in the Letter of Intent
and qualifies for an additional front-end sales load reduction pursuant to
the appropriate Prospectus. In such case, your dealer's concession will be
reduced to reflect such additional sales load reduction. When placing wire
trades, you agree to advise us of any Letter of Intent signed by your
customer or of any Right of Accumulation available to such customer of
which he or she has made you aware. If you fail to so advise us, you will
be liable for the return of any commissions plus interest thereon.
6. With respect to orders that are placed for the purchase of Fund Shares,
unless otherwise agreed, settlement shall be made with the Company within
three (3) business days after our acceptance of the order. If payment is
not so received or made, we reserve the right to cancel the sale, or, at
our option, to sell the Shares to the Funds at the then prevailing net
asset value. In this event or in the event that you cancel the trade for
any reason, you agree to be responsible for any loss resulting to the Funds
or to us from your failure to make payments as aforesaid. You shall not be
entitled to any gains generated thereby.
7. You shall be responsible for the accuracy, timeliness and completeness of
any orders transmitted by you on behalf of your customers by wire or
telephone for purchases, exchanges or redemptions, and shall indemnify us
against any claims by your customers as a result of your failure to
properly transmit their instructions. In addition, you agree to guarantee
the signatures of your customers when such guarantee is required by the
Prospectus of a Fund. In that connection, you agree to indemnify and hold
harmless all persons, including us and the Funds' Transfer Agent, against
any and all loss, cost, damage or expense suffered or incurred in reliance
upon such signature guarantee.
8. No advertisement or sales literature with respect to a Fund (as such terms
are defined in the NASD's Rules of Fair Practice) shall be used by you
without first having obtained our approval.
9. Neither of us shall be liable to the other except for (1) acts or failures
to act which constitute a lack of good faith or negligence and (2)
obligations expressly assumed under this Agreement. In addition, you agree
to indemnify us and hold us harmless from any claims or assertions relating
to the lawfulness of your participation in this Agreement and the
transactions contemplated hereby or relating to any activities of any
persons or entities affiliated with your organization which are performed
in connection with the discharge of your responsibilities under this
Agreement. If such claims are asserted, we shall have the right to manage
our own defense, including the selection and engagement of legal counsel,
and all costs of such defense shall be borne by you.
10. This Agreement will automatically terminate in the event of its assignment.
This Agreement may be terminated by either of us, without penalty, upon ten
days' prior written notice to the other party. This Agreement may also be
terminated at any time without penalty by the vote of a majority of the
members of a Fund's Board of Trustees who are not "interested persons" (as
such term is defined in the 1940 Act), or (with respect to a Fund) by a
vote of a majority of the outstanding voting securities of that Fund on ten
days' written notice.
11. All communications to us shall be sent to the address set forth on page 1
hereof or at such other address as we may designate in writing. Any notice
to you shall be duly given if mailed or telecopied to you at the address
set forth below or at such other address as you may provide in writing.
3
<PAGE>
__________________________________________
__________________________________________
__________________________________________
12. You hereby represent that all requisite corporate proceedings have been
undertaken to authorize you to enter into this Agreement and to perform the
services contemplated herein. You further represent that the individual
that has signed this Agreement below is a duly elected officer that has
been empowered to act for and on behalf of your organization with respect
to the execution of this Agreement.
13. This Agreement supersedes any other agreement between us with respect to
the offer and sale of Shares and relating to any other matters discussed
herein. All covenants, agreements, representations and warranties made
herein shall be deemed to have been material and relied on by each party.
The invalidity or unenforceability of any term or provision hereof shall
not affect the validity or enforceability of any other term or provision
thereof. This Agreement may be executed in any number of counterparts,
which together shall constitute one instrument, and shall be governed by
and construed in accordance with the laws (other than the conflict of laws
rules) of the State of Ohio and shall bind and insure to the benefit of the
parties hereto and their respective successors and assigns.
If the foregoing corresponds with your understanding of our agreement, please
sign this document and the accompanying copies thereof in the appropriate space
below and return the same to us, whereupon this Agreement shall be binding upon
each of us, effective as of the date of execution.
BISYS FUND SERVICES LIMITED PARTNERSHIP The foregoing Agreement is hereby
/BY/: BISYS FUND SERVICES, INC., accepted:
GENERAL PARTNER
-------------------------------------
Company Name
By _____________________________________ By__________________________________
Stephen G. Mintos Date Date
Executive Vice President
Title: _____________________________
4
<PAGE>
BISYS FUND SERVICES LIMITED PARTNERSHIP
3435 Stelzer Road
Columbus, Ohio 43219-3035
EXHIBIT A
TO THE DEALER AGREEMENT BETWEEN
BISYS FUND SERVICES LIMITED PARTNERSHIP
AND
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIOS OF
- --------------------------------------------------------------------------------
FUND NAME TYPE CUSIP QUOTRON
- --------- ---- ----- -------
A-1
<PAGE>
BISYS FUND SERVICES LIMITED PARTNERSHIP
3435 Stelzer Road
Columbus, Ohio 43219-3035
EXHIBIT B
TO THE DEALER AGREEMENT BETWEEN
BISYS FUND SERVICES LIMITED PARTNERSHIP
AND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BLUE SKY INFORMATION
FUND NAME STATES/JURISDICTIONS REGISTERED IN
- --------------------------------------------------------------------------------
B-1
<PAGE>
BISYS FUND SERVICES LIMITED PARTNERSHIP
3435 Stelzer Road
Columbus, Ohio 43219-3035
EXHIBIT C
TO THE DEALER AGREEMENT BETWEEN
BISYS FUND SERVICES LIMITED PARTNERSHIP
AND
- --------------------------------------------------------------------------------
COMMISSION AMOUNT PAYABLE FOR FUNDS
CHARGING A CONTINGENT DEFERRED SALES LOAD
_____ 1. ______ percent of the public offering price
_____ 2. Not Applicable
(Place a check next to the appropriate category)
C-1
<PAGE>
POWER OF ATTORNEY
We, the undersigned Trustees of HSBC Funds Trust, a business trust
organized under the laws of the Commonwealth of Massachusetts (the "Trust"), do
hereby constitute and appoint William B. Blundin, Ann E. Bergin, William J.
Tomko, Mark E. Nagle, Steven R. Howard, Martin R. Dean, Robert L. Tuch, and
Alaina V. Metz, and each of them individually, our true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable:
(i) to enable the Trust to comply with the Securities Act of
1933, as amended, and any rules, regulations, orders or other
requirements of the Securities and Exchange Commission thereunder, in
connection with the registration under such Securities Act of 1933 of
shares of beneficial interest of the Trust to be offered by the Trust,
(ii) to enable the Trust to comply with the Investment Company
Act of 1940, as amended, and any rules, regulations, orders or other
requirements of the Securities and Exchange Commission thereunder, in
connection with the registration of the Trust under the Investment
Company Act of 1940, as amended, and
(iii) to enable the Trust to comply with state securities laws
and any rules, regulations, orders or other requirements of state
securities commissions, in connection with the registration under state
securities laws of the Trust and with the registration under state
securities laws of the shares of beneficial interest of the Trust to be
offered by the Trust,
including specifically, but without limitation of the foregoing, power and
authority to sign the name of the Trust in its behalf and to affix its seal, and
to sign the name of such Trustee in his behalf as such Trustee as indicated
below, to any amendment or supplement (including post-effective amendments) to
the registration statement or statements filed with the Securities and Exchange
Commission under such Securities Act of 1933 and such Investment Company Act of
1940, and to execute any instruments or documents filed or to be filed as part
of or in connection with such registration statement or statements; and to
execute any instruments or documents filed or to be filed as part of or in
connection with compliance with state securities laws, including, but not
limited to, all state filings for any purpose, state filings in connection with
corporate or trust organization or amending corporate or trust documentation,
filings for purposes of state tax laws and filings in connection with blue sky
regulations; and the undersigned hereby ratifies and confirms all that said
attorneys and agents shall do or cause to be done by virtue hereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned place their hands this 7th day
March, 1996.
/s/ William B. Blundin
---------------------------------------
William B. Blundin
---------------------------------------
Wolfe J. Frankl
---------------------------------------
William L. Kufta
---------------------------------------
Harald Paumgarten
---------------------------------------
John P. Pfann
--------------------------------------
Robert A. Robinson
-2-
