<PAGE>
As Filed with the Securities and Exchange Commission on April 30, 1998
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. 19 [X]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 21 [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
Paul, Weiss, Rifkind,
Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
(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
---
--------------------------
Title of securities being registered: Shares of Beneficial Interest, $.001
par value per share.
================================================================================
Total Pages: ___
Exhibit Index: ___
<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)
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
- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Information Caption
-------------------
<S> <C> <C>
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;
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
Government Money Market Fund
U.S. Treasury Money Market Fund
New York Tax-Free Money Market Fund
3435 Stelzer Road, Columbus, Ohio 43219
Information: (800) 634-2536
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 and the New York Tax-Free Money Market Fund
(collectively referred to herein as the "Funds".) The investment objectives 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 OR THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
April 30, 1998
<PAGE>
(continued from previous page)
New York Tax-Free Money Market Fund (the "New York Tax-Free 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 30, 1998 containing additional detailed
information about the Funds including audited financial statements, has been
filed with the Securities and Exchange Commission (the "SEC") and is
available, along with other maturities on the SEC Internet Web Site
(http:/www.sec.com). The SAI is 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>
<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...... 22
Purchase of Shares.................... 22
Redemption of Shares.................. 25
</TABLE>
<TABLE>
<S> <C>
Exchange Privilege.................... 27
Dividends and Distributions........... 27
Federal Income Taxes.................. 28
New York Taxes........................ 29
Account Services...................... 29
Transfer Agency and Fund Accounting
Services............................. 30
Counsel............................... 30
Custodian............................. 30
Yield Information..................... 30
Shares of Beneficial Interest......... 31
</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, 1997, as adjusted for estimated other
operating expenses and voluntary reductions of investment advisory,
administration, co-administration, shareholder servicer assistance 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*...................... 0.35% 0.35% 0.35% 0.35%
12b-1 Fees (net of fees not
imposed)**........................... 0.03% 0.02% 0.02% 0.07%
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............ 0.15% 0.16% 0.18% 0.13%
----- ----- ----- -----
Total Fund Operating Expenses (net of
fees and
expenses not imposed)***............. 0.63% 0.63% 0.65% 0.65%
===== ===== ===== =====
Total Fund Operating Expenses Before
Non-Imposition of Fees and
Expenses+++.......................... 0.92% 0.93% 0.95% 0.90%
===== ===== ===== =====
</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............................... $ 6 $ 6 $ 7 $ 7
3 years.............................. $20 $20 $21 $21
5 years.............................. $35 $35 $36 $36
10 years............................. $79 $79 $81 $81
</TABLE>
- --------
* The Advisor has voluntarily agreed to reimburse fund expenses to the
extent a Fund's ordinary operating expenses net of other fee waivers
exceed 0.65% of each Fund's average daily net assets.
** 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."
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following supplementary financial information for each of the five years
in the period ended December 31, 1997 has been audited by Ernst & Young LLP
whose report thereon appears in the Funds' 1997 Annual Report to Shareholders.
The supplementary financial information for each of the four years in the
period ended December 31, 1992 also has been audited by Ernst & Young LLP
whose report thereon was unqualified. The supplementary financial information
for the period ended December 31, 1988 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,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, begin-
ning of year........... $ 1.000 $ 1.000 $ 1,000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment
income................ 0.051 0.049 0.053 0.039 0.027 0.037 0.058 0.077 0.087 0.071
Net realized and
unrealized gain....... -- -- -- -- 0.002 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.......... 0.051 0.049 0.053 0.039 0.029 0.037 0.058 0.077 0.087 0.071
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from net
investment income..... (0.051) (0.049) (0.053) (0.039) (0.027) (0.037) (0.058) (0.077) (0.087) (0.071)
Dividends from
realized gain......... -- -- -- -- (0.002) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions.. (0.051) (0.049) (0.053) (0.039) (0.029) (0.037) (0.058) (0.077) (0.087) (0.071)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return............ 5.18% 5.00% 5.41% 3.95% 3.11% 3.77% 5.92% 8.01% 9.09% 7.36%
Ratios/Supplemental
Data:
Net Assets (000), end
of year............... $184,205 $220,960 $170,869 $200,492 $172,518 $246,543 $373,694 $429,096 $901,134 $644,481
Ratio of expenses
(without fee waivers)
to average net
assets*............... 0.83% 0.80% 0.80% 0.64% 0.58% 0.62% 0.66% 0.59% 0.55% 0.60%
Ratio of expenses
(with fee waivers) to
average net assets.... 0.63% 0.68% 0.79% 0.63% 0.58% 0.62% 0.66% 0.59% 0.50% 0.55%
Ratio of net
investment income
(without fee waivers)
to average net
assets*............... 4.86% 4.76% 5.28% 3.83% 2.88% 3.75% 5.80% 7.75% 8.65% 7.07%
Ratio of net
investment income
(with fee waivers) to
average net assets.... 5.06% 4.88% 5.29% 3.84% 2.88% 3.75% 5.80% 7.75% 8.70% 7.12%
</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,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------- ------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of year...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment
income................ 0.049 0.048 0.052 0.038 0.028 0.037 0.056 0.076 0.086 0.070
Net realized and
unrealized gain....... -- -- -- -- 0.001 -- -- -- -- --
-------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.......... 0.049 0.048 0.052 0.038 0.029 0.037 0.056 0.076 0.086 0.070
-------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from net
investment income..... (0.049) (0.048) (0.052) (0.038) (0.028) (0.037) (0.056) (0.076) (0.086) (0.070)
Dividends from
realized gain......... -- -- -- -- (0.001) -- -- -- -- --
-------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Total distributions.. (0.049) (0.048) (0.052) (0.038) (0.029) (0.037) (0.056) (0.076) (0.086) (0.070)
Net asset value, end of
year................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======= ======= ======== ======== ======== ======== ======== ======== ========
Total Return............ 5.05% 4.87% 5.32% 3.83% 2.99% 3.80% 5.79% 7.92% 8.92% 7.22%
Ratios/Supplemental
Data:
Net Assets (000), end
of year............... $100,862 $87,392 $86,850 $166,796 $138,085 $246,327 $201,232 $237,381 $191,766 $196,094
Ratio of expenses
(without fee waivers)
to average net
assets*............... 0.79% 0.84% 0.78% 0.64% 0.61% 0.62% 0.63% 0.58% 0.60% 0.64%
Ratio of expenses
(with fee waivers) to
average net assets.... 0.63% 0.72% 0.76% 0.63% 0.61% 0.62% 0.63% 0.58% 0.60% 0.58%
Ratio of net
investment income
(without fee waivers)
to average net
assets*............... 4.78% 4.63% 5.19% 3.75% 2.89% 3.72% 5.70% 7.63% 8.60% 6.93%
Ratio of net
investment income
(with fee waivers) to
average net assets.... 4.94% 4.75% 5.21% 3.76% 2.89% 3.72% 5.70% 7.63% 8.60% 6.99%
</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,
-----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of year...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income.. 0.049 0.046 0.049 0.036 0.026 0.032 0.055 0.077 0.086 0.069
------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from net
investment income..... (0.049) (0.046) (0.049) (0.036) (0.026) (0.032) (0.055) (0.077) (0.086) (0.069)
------- ------- ------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year.................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======== ======== ======== ======== ======== ======== ========
Total Return............ 4.98% 4.68% 5.04% 3.60% 2.65% 3.27% 5.60% 7.94% 8.97% 7.18%
Ratios/Supplemental
Data:
Net Assets (000), end
of year............... $25,507 $28,962 $32,500 $105,720 $133,070 $257,898 $220,371 $236,223 $144,982 $112,479
Ratio of expenses
(without fee waivers)
to average net
assets*............... 0.94% 0.95% 0.84% 0.69% 0.59% 0.67% 0.68% 0.52% 0.49% 0.51%
Ratio of expenses (with
fee waivers) to
average net assets.... 0.65% 0.78% 0.82% 0.68% 0.59% 0.67% 0.68% 0.43% 0.30% 0.31%
Ratio of net investment
income (without fee
waivers) to average
net assets*........... 4.57% 4.40% 4.92% 3.47% 2.62% 3.22% 5.45% 7.50% 8.46% 6.75%
Ratio of net investment
income (with fee
waivers) to average
net assets............ 4.86% 4.57% 4.94% 3.48% 2.62% 3.22% 5.45% 7.59% 8.65% 6.95%
</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,
-------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of year...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- ------- ------- -------- -------- --------
Income from Investment
Operations:
Net investment income.. 0.031 0.029 0.031 0.022 0.018 0.024 0.038 0.051 0.054 0.045
Less Distributions:
Dividends from net
investment income..... (0.031) (0.029) (0.031) (0.022) (0.018) (0.024) (0.038) (0.051) (0.054) (0.045)
------- ------- ------- ------- ------- ------- ------- -------- -------- --------
Net asset value, end of
year................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= ======= ======= ======== ======== ========
Total Return............ 3.14% 2.92% 3.17% 2.23% 1.86% 2.44% 3.85% 5.25% 5.58% 4.59%
Ratios/Supplemental
Data:
Net Assets (000), end
of year............... $86,729 $70,339 $64,884 $53,538 $59,394 $56,386 $75,850 $121,433 $159,847 $127,771
Ratio of expenses
(without fee waivers)
to average net
assets*............... 0.80% 0.87% 0.85% 0.73% 0.72% 0.73% 0.68% 0.40% 0.41% 0.39%
Ratios of expenses
(with fee waivers) to
average net assets.... 0.52% 0.59% 0.69% 0.57% 0.55% 0.56% 0.51% 0.22% 0.22% 0.10%
Ratio of net investment
income (without fee
waivers) to average
net assets*........... 2.81% 2.60% 2.97% 2.04% 1.68% 2.24% 3.61% 4.94% 5.24% 4.21%
Ratio of net investment
income (with fee
waivers) to average
net assets............ 3.09% 2.88% 3.13% 2.20% 1.85% 2.41% 3.78% 5.12% 5.43% 4.50%
</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
day's 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 in bank obligations. The Cash Management
Fund will not invest in any obligations of HSBC Holdings plc or its
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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.
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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 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."
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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 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.
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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
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this Prospectus, New York State Debt Obligations are rated AA- by S&P and Aa2
by Moody's. New York City's General Obligation Bonds are rated BBB+ by S&P and
A3 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 be affected
by events occurring between the date the New York Tax-Free
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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
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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.
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 in connection with the liquidation of the securities. While
the Funds' management
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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
None of the Funds may invest an amount equal to 10% or more of the value of
its net assets in investments which are illiquid (including repurchase
agreements and fixed time deposits not subject to withdrawal penalties having
maturities 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 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
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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.
It is the intention of the Funds, unless otherwise indicated, that with
respect to the Funds' policies that are the result of the application of law,
the Funds will take advantage of the flexibility provided by rules or
interpretations of the SEC currently in existence or promulgated in the future
or changes to such laws.
If a percentage restriction on investment policies or the investment or use
of assets set forth in this Prospectus is adhered to at the time a transaction
is effected, later changes in percentage resulting from changing values will
not be considered a violation.
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 140 Broadway,
New York, New York 10005. At December 31, 1997, the Adviser managed over $3.9
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.
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.
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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.
DISTRIBUTOR
BISYS also serves as the Fund's Distributor. As the Distributor, BISYS will
receive orders for, sell and distribute shares of the Funds.
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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).
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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 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.
YEAR 2000
Like other mutual funds, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Funds or their service providers and counter
parties do not properly process and calculate date-related information and
data from and after January 1, 2000. The Funds are in the process of assessing
and formulating responses to these potential problems with the Adviser and all
other major service providers and counter parties. There can be no assurance
that the Funds' actions will be sufficient to avoid any adverse impact.
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
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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 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.
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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.
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,
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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 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.
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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. Once shares are redeemed, a Fund will ordinarily
send the proceeds by check to the shareholder at the address of record on the
next business day, although each Fund may take up to seven days to make
payment. Redemption proceeds for shares purchased by check will be made
available 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. Also, if the New York Stock Exchange is closed (or
when trading is restricted) for any reason other than the customary weekend or
holiday closing or if an emergency condition as determined by the SEC merits
such action, the Funds may suspend redemptions or postpone payment dates.
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,
however, this option will be suspended for a period of 30 days following a
telephone address change; 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.
If you elect to receive distributions in cash and checks (1) are returned
and marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Funds at the per share net asset
value determined as of the date of payment of the distribution. In addition,
any undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Funds at the per share net asset value
determined as of the date of cancellation.
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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
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year on 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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TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
Pursuant to an Agency Agreement, BISYS Fund Services, Inc. ("Transfer
Agent") acts as the Funds' transfer and dividend 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.
COUNSEL
Paul, Weiss, Rifkind, Wharton & Garrison serves as counsel for the Trust and
from time to time provides advice to the Adviser.
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, 1997, calculated in the manner described in the SAI, were 5.31%,
5.02%, 4.99%, and 3.76%, 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 5.45%, 5.14%, 5.11% and 3.32%, 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.
30
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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 series
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 series, except where voting by series is required by law or where the
matter involved affects only one series. 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 SAI.
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.
31
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HSBC Funds Trust
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HSBC Asset Management [HSBC LOGO 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.
140 Broadway
New York, New York 10005
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
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
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 Adviser. This Prospectus does
not constitute an offering in any state in which such offering may not lawfully
be made.
Prospectus
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April 30, 1998
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
HSBC1P0498
<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 as, 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
securities exempt from regular Federal, New York State and New York City income
taxes as is consistent with preservation of capital and liquidity.
Shares of each Fund are primarily offered for sale by BISYS Fund Services,
the Sponsor and Distributor, as an investment vehicle for institutions,
corporations, fiduciaries and individuals. Certain banks, broker-dealers,
financial institutions and corporations ("Participating Organizations") have
agreed to act as shareholder servicing agents for investors who maintain
accounts at the Participating Organizations and to perform certain services for
the Funds.
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 30, 1998 (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 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
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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 FUND ACCOUNTING AGENT....................... 32
INDEPENDENT AUDITORS...................................................... 33
FINANCIAL STATEMENTS...................................................... 34
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 activity:
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
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
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<PAGE>
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.
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.
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
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<PAGE>
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 1997-1998 fiscal year
("Fiscal Year 1997-98") comprises approximately 48% 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 42% of total projected Governmental Funds
receipts in the Fiscal Year 1997-98; 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.
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 1996-97, and 54% of the Fiscal Year 1997-98 budgeted figure), the 4%
user taxes and fees (25% in Fiscal Year 1995-96, 20% of the Fiscal Year 1996-97
budget), business taxes (14% of the fiscal 1996 budget and 14% of the Fiscal
1997 budget), and other taxes. The majority of Special Revenue Funds receipts
come from federal grants (75% of receipts in Fiscal Year 1996-97, 75% of the
Fiscal Year 1997-98 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.
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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 1997-98. These grants include disbursements for elementary, secondary and
higher education, social services, drug abuse control, and mass transportation
programs.
Fiscal 1996-97 Financial Results (Cash Basis). The State ended its 1996-97
fiscal year on March 31, 1997 in balance on a cash basis, with a General Fund
cash surplus as reported by DOB of approximately $1.4 billion. The cash surplus
was derived primarily from higher-than-expected revenues and lower-than-expected
spending for social services programs. The Governor in his Executive Budget
applied $1.05 billion of the cash surplus amount to finance the 1997-98
Financial Plan, and the additional $373 million is available for use in
financing the 1997-98 Financial Plan when enacted by the State Legislature.
The General Fund closing fund balance was $433 million, an increase of
$146 million from 1995-96 levels. The TSR can 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 $75 million reflects amounts on
deposit in the Community Projects Fund. In addition, $1.86 billion was on
deposit in the tax refund reserve account, of which $521 million was made
available under the LGAC program.
General Fund receipts totaled $33.04 billion, an increase of 0.7 percent
from 1995-96 levels. General Fund disbursements and transfers from other funds
totaled $32.90 billion for the 1996-97 fiscal year, an increase of 0.7 percent
from 1995-96 levels.
1997-98 State Financial Plan (Cash Basis). The State's budget for the
1997-98 fiscal year was enacted by the Legislature on August 4, 1997 more than
four 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 1997-98 fiscal year was formulated on August 11, 1997 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.
The adopted 1997-98 budget projects an increase in General Fund
disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The average
annual growth rate over the last three fiscal years is approximately 1.2
percent. State Funds disbursements (excluding federal grants) are projected to
increase by 5.4 percent from the 1996-97 fiscal year. All Governmental Funds
projected disbursements increase by 7.0 percent over the 1996-97 fiscal year.
The 1997-98 State Financial Plan is projected to be balanced on a cash
basis. As compared to the Governor's proposed budget as revised in February
1997, the State's adopted budget for 1997-98 increases General Fund spending by
$1.7 billion, primarily from increases for local assistance ($1.3 billion).
Resources used to fund these additional expenditures include increased revenues
projected for 1997-98, increased resources produced in the 1996-97 fiscal year
that will be utilized in 1997-98, reestimates of social service, fringe benefit
and other spending, and other resources including certain non-recurring
resources. The total amount of non-recurring resources included in the 1997-98
State budget is projected by DOB to be $270 million, or 0.7 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 1997-98 budget.
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Financial Plan Updates. The State issued its first update to the cash-
----------------------
basis 1996-97 State Financial Plan (the "Mid-Year Update") on October 30, 1997.
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 made no changes to the fiscal year projections contained in the
Financial Plan released with the Adopted Budget Report. The Mid-Year Update
reflected a balanced 1997-98 State Financial Plan, and a projected reserve in
the General Fund of $530 million.
The State ended the first six months of its 1997-98 fiscal year with an
unaudited General Fund cash balance of $3.2 billion, or $254 million above the
August Financial Plan estimate. Total unaudited receipts, including transfers
from other funds, totaled $18.8 billion, or $340 million higher than expected.
The additional receipts reflected higher-than-anticipated tax revenues of $244
million and miscellaneous receipts of $93 million. Unaudited General Fund
Spending for the same period equaled $16.0 billion, or $86 million above the
cashflow projections published in the August Financial Plan. For fiscal year
1997-98, total General Fund receipts were projected at $35.09 billion, an
increase of $2.05 billion from 1996-97 results. Total disbursements, including
transfers to capital projects, debt service and other funds, were projected at
$34.60 billion, or 5.3 percent higher than disbursements in 1996-97.
The Mid-Year Update projected a closing balance in the General Fund of
$927 million, which was composed of a $530 million reserve for future needs, a
$332 million balance in the Tax Stabilization Reserve Fund (TSRF), and a $65
million balance in the Contingency Reserve Fund (CRF).
The State revised the cash-basis 1997-98 State Financial Plan again on
January 20, 1998, in conjunction with the release of the Executive Budget for
the 1998-99 fiscal year.
The 1997-98 General Fund Financial Plan continues to be balanced, with a
projected cash surplus of $1.83 billion, an increase of $1.3 billion over the
surplus estimate of $530 million in the prior update. The increase in the
surplus results primarily from higher-than-expected tax receipts, with are
forecast to exceed the October estimate by $1.28 billion.
In order to make the surplus available to help finance 1998-99
requirements, the State plans to accelerate $1.18 billion in income tax refund
payments into 1997-98, or provide reserves for such payments. The balance in
the refund reserve on March 31, 1998 is projected to be $1.647 billion,
including $521 million as a result of LGAC. This acceleration decreases
reported personal income receipts by $1.18 billion in 1997-98, while increasing
available personal income receipts in 1998-99, as these refunds will no longer
be a charge against current revenues in 1998-99. As a result, projections of
available receipts in 1997-98 have been increased by only $103 million from the
Mid-Year Update.
Compared to the prior update, personal income tax collections for 1997-98
are now projected at $18.50 billion, or $363 million less than projected in
October after accounting for the refund reserve transaction discussed above.
Business tax receipts are projected at $4.98 billion, an increase of $158
million. User tax collections are estimated at $7.06 billion, or $52 million
higher than the prior update, and reflect a projected loss of $20 million in
sales tax receipts from an additional week of sales tax exemption for clothing
and footwear costing less than $500, which was authorized and implemented in
January 1998. Other tax receipts are projected to increase by $103 million over
the prior update and total $1.09 billion for the fiscal year. Miscellaneous
receipts and transfers from other funds are projected to reach $3.57 billion, or
$153 million higher than the Mid-Year Update.
The State projects that disbursements will increase by $565 million over
the Mid-Year Update, with nearly the entire increase attributable to one-time
disbursements of $561 million that pre-pay expenditures previously scheduled for
1998-99. In the absence of these accelerated payments, projected General Fund
spending in the current year would have remained essentially unchanged from the
Mid-Year Update. The Governor is proposing legislation to use a portion of the
current year surplus to transfer $425 million to pay for capital projects
authorized under the Community Enhancement Facilities Assistance Program (CEFAP)
that were previously planned to be financed with bond proceeds in 1998-99 and
thereafter, and $136 million in costs for an additional Medicaid payment
originally scheduled for 1998-99. Aside from these actions, a number of other
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<PAGE>
changes produced a net increase of $4 million in projected disbursements over
the Mid-Year Update. These included higher spending in General State charges
($80 million), largely as a result of litigation settlements and collective
bargaining costs, an increase in General Fund transfers for education ($70
million) to offset declines in Lottery receipts, and additional costs associated
with a delay of Housing Finance Agency (HFA) receipts into 1998-99 that were
originally planned to offset capital projects spending ($25 million). These
increases were offset in part by projected savings in Medicaid ($85 million),
social services ($75 million), and debt service ($37 million).
The General Fund closing balance is projected to be $465 million at the
end of 1997-98, a decline of $462 million from the Mid-Year Update. The decline
reflects the application of the $530 million undesignated reserve plus
additional surplus monies projected in the January Update to pay for certain
one-time costs in the State's Financial Plan (as described above). The effect of
this action is to help lower the State's projected disbursements in 1998-99.
The remaining General Fund closing balance will be held in two funds, the
TSRF and CRF. The TSRF is projected to have $400 million on deposit at the
close of the fiscal year, following a required deposit of $15 million and an
extraordinary deposit of $68 million made from the 1997-98 surplus. The CRF is
projected to have a closing balance of $65 million, following an earlier planned
deposit of $24 million in 1997-98.
1998-99 State Financial Plan. The Governor presented his 1998-99
Executive Budget to the Legislature on January 20, 1998. The Executive Budget
also contains financial projections for the State's 1997-98 through 2000-01
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 1998-99 Financial Plan projects balance on a cash basis in the General
Fund. Total General Fund receipts and transfers from other funds are projected
to be $36.22 billion, an increase of $1.02 billion from total receipts projected
in the current fiscal year. Total General Fund disbursements and transfers to
other funds are projected to be $36.18 billion, an increase of $1.02 billion
from spending totals projected for the current fiscal year. As compared to the
1997-98 State Financial Plan, the Executive Budget proposes year-to-year growth
in General Fund spending of 2.89 percent. State funds spending (i.e., General
Fund plus other dedicated funds, with the exception of federal aid) is projected
to grow by 8.5 percent. Spending from all Governmental Funds (excluding
transfers) is proposed to increase by 7.6 percent from the prior fiscal year.
Current law and programmatic requirements are primarily responsible for
the year-to-year growth in General Fund spending. These include an increase in
school aid ($607 million), cost and enrollment growth in handicapped education
($91 million) and Medicaid ($212 million), and employee contract increases and
inflation adjustments for State agency operations. The Executive Budget also
includes increases of $84 million for corrections programs to cover new capacity
demands and $152 million for mental health programs to finance current law
increases and the expansion of community beds. Other spending growth reflects a
requested increase of $108 million for the Judiciary and $117 million for long-
term debt service. New spending is partially offset by reductions of $453
million in capital projects transfers due to the financing of CEFAP from
resources available in 1997-98, $37 million in welfare assistance savings, $36
million from lower spending in General State charges, and $68 million in lower
transfers primarily due to the elimination of the Lottery transfer made in 1997-
98.
The 1998-99 Financial Plan projects that the State will end 1998-99 with
a closing balance in the General Fund of $500 million, which reflects $400
million in the TSFR and $100 million in the CRF, following an anticipated
deposit of $35 million in the latter fund during the year.
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
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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.
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 included no seasonal borrowing; this reflected 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.
1997-98 Borrowing Plan. Section 22-c of the State Finance Law, as amended
by Chapter 389 of the Laws of 1997, now requires the Governor to submit the
five-year Capital Program and Financing Plan with the Executive Budget. That
plan also is required to be updated by the later of July 30 or 90 days after
enactment of the State budget.
The Update to the five-year Capital Program and Financing Plan was released
on November 18, 1997. The Update reflected voter disapproval of the School
Facility Health and Safety Bond Act, additional issuances for 1997-98 of
approximately $225 million of CEFAP, $42 million of the Albany County Airport,
and $228 million in Certificates of Participation (COPs) to finance welfare
information systems.
The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
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As a result of these changes, the State's 1997-98 borrowing plan now
reflects: $501 million in general obligation bonds (including $140 million for
purposes of redeeming outstanding BANs) and $140 million in general obligation
commercial paper; the issuance of $83 billion in COPs for equipment purchases;
and approximately $1.8 billion in borrowings by public authorities pursuant to
lease-purchase and contractual-obligation financings for capital programs of the
State , including costs of issuance, reserve funds, and other costs, net of
anticipated refundings and other adjustments for 1997-98 capital projects. The
projection of State borrowings for the 1997-98 fiscal year is subject to change
as market conditions, interest rates and other factors vary through the end of
the fiscal year.
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, guarantees and
school district debt. New York State general obligation bonds currently are
rated "Aal/P-1" by Moody's and "AAA/A1+" 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,
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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 1997-98 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 1997-98
State Financial Plan. The State believes that the 1997-98 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1997-98 fiscal year. There can be no assurance, however, that an
adverse decision in any of these proceedings would not exceed the amount of the
1997-98 State Financial Plan reserves for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced 1997-98
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. Proceedings have been brought by two groups of petitioners
-------------
challenging regulations promulgated by the Superintendent of Insurance that
established excess medical malpractice premium rates for the 1986-87 through
1995-96 and 1996-97 fiscal years, respectively (New York State Health
Maintenance Organization Conference, Inc., et al. v. Muhl, et al. ["HMO"], and
New York Conference of Blue Cross and Blue Shield Plans, et al. v. Muhl, et al.
["Blue Cross 'I' and 'II'"], Supreme Court, Albany County). By Order filed
January 22, 1997, the Court in Blue Cross I permitted the plaintiffs in HMO to
intervene and dismissed the challenges to the rates for the period prior to
1995-96. By decision dated July 24, 1997, the Court in Blue Cross I held that
the determination made by the Superintendent in establishing the 1995-96 rate
was arbitrary and capricious and directed that premiums paid pursuant to that
determination be returned to the payors. The State has appealed this decision.
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Tax Law. In Matter of the Petition of Consolidated Rail Corporation v.
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Tax Appeals Tribunal (Appellate Division, Third Department, commenced December
22, 1995), petitioner, a rail freight corporation that purchases diesel motor
fuel out of State and imports the fuel into the State for use, distribution,
storage or sale in the State, contended that the assessment of the petroleum
business tax imposed pursuant to Tax Law (S)301-a to such fuel purchases
violated the Commerce Clause of the United Stated Constitution. Petitioner
contended that the application of Section 302-a to the interstate transaction,
but not to purchasers who purchase fuel within the State for use, distribution,
storage or sale within the State, discriminates against interstate commerce. In
a decision dated July 17, 1997, the Appellate Division, Third Department,
dismissed the petition. Petitioner appealed to the Court of Appeals. On December
4, 1997, the Court of Appeals dismissed the appeal, sua sponte, upon the ground
that no substantial Constitutional question was directly involved.
In New York Association of Convenience Stores, et al. v. Urbach, et al.,
petitioners, New York Association of Convenience Stores, National Association of
Convenience stores, M.W.S. Enterprises, Inc. and Sugarcreek Stores, Inc. seek to
compel respondents, the Commissioner of Taxation and Finance and the Department
of Taxation and Finance, to enforce sales and excise taxes imposed pursuant to
Tax Law Articles 12-A, 20 and 28 on tobacco products and motor fuel sold to non-
Indian customers on Indian reservations. In orders dated August 13, 1996 and
August 24, 1996, the Supreme Court, Albany County, ordered, inter alia, that
there be equal implementation and enforcement of said taxes for sales to non-
Indian consumers on and off Indian reservations, and further ordered that, if
respondents failed to comply within 120 days, no tobacco products or motor fuel
could be introduced into Indian reservations other than for Indian consumption
or, alternatively, the collection and enforcement of such taxes would be
suspended statewide. Respondents appealed to the Appellate Division, Third
Department, and invoked CPLR 5519(a)(1), which provides that the taking of the
appeal stayed all proceedings to enforce the orders pending the appeal.
Petitioner's motion to vacate the stay was denied. In a decision entered May 8,
1997, the Third Department modified the orders by deleting the portion thereof
that provided for the statewide suspension of the enforcement and collection of
the sales and excise taxes on motor fuel and tobacco products. The Third
Department held, inter alia, that petitioners had not sought such relief in
their petition and that it was an error for the Supreme Court to have awarded
such undemanded relief without adequate notice of its intent to do so. On May
22, 1997, respondents appealed to the Court of Appeals on other grounds, and
again invoked the statutory stay. On October 23, 1997, the Court of Appeals
granted petitioners' motion for leave to cross-appeal from the portion of the
Third Department's decision that deleted the statewide suspension of the
enforcement and collection of the sales and excise taxes on motor fuel and
tobacco.
State Programs
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Medicaid. Several cases, including Port Jefferson Health Care Facility, et
--------
al. v. Wing (Supreme Court, Suffolk County), challenge the constitutionality of
Public Health Law (S)2807-d, which imposes a tax on the gross receipts hospitals
and residential health care facilities receive from all patient care services.
Plaintiffs allege that the tax assessments were not uniformly applied, in
violation of federal regulations. In a decision dated June 30, 1997, the Court
held that the 1.2 percent and 3.8 percent assessments on gross receipts imposed
pursuant to Public Health Law (S)(S)2807-d(2)(b)(ii) and 2807d(2)(b)(iii),
respectively, are unconstitutional. An order entered August 27, 1997 enforced
the terms of the decision. The State has appealed that order.
Shelter Allowance. In an action commenced in March 1987 against State and
-----------------
New York City officials (Jiggetts, et al. v. Bane, et al., Supreme Court, New
York County), plaintiffs allege that the shelter allowance granted to recipients
of public assistance is not adequate for proper housing. In a decision dated
April 16, 1997, the Court held that the shelter allowance promulgated by the
Legislature and enforced through Department of Social Services regulations is
not reasonably related to the cost of rental housing in New York City and
results in homelessness to families in New York City. A judgement was entered
on July 25, 1997, directing, inter alia, that the State (i) submit a proposed
schedule of shelter allowances (for the Aid to Dependent Children program and
any successor program) that bears a reasonable relation to the cost of housing
in New York City; and (ii) compel the New York City Department of Social
Services to pay plaintiffs a monthly shelter allowance in the full amount of
their contract rents, provided they continue to meet the eligibility
requirements for public assistance, until such time as a lawful shelter
allowance is implemented, and provide interim relief to other eligible
recipients of Aid to Dependent Children under the interim relief system
established in this case. The State has sought relief from each and every
provision of this judgement except that portion directing the continued
provision of interim relief.
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Civil Rights Claims. In an action commenced in 1980 (United States, et
--------------------
al. v. Yonkers Board of Education, et al.), the United States District Court for
the Southern District of New York found, in 1985, that Yonkers and its public
schools were intentionally segregated. In 1986, the District Court ordered
Yonkers to develop and comply with a remedial educational improvement plan ("EIP
I"). On January 19, 1989, the District Court granted motions by Yonkers and the
NAACP to add the State Education Department, the Yonkers Board of Education,
and the State Urban Development Corporation as defendants, based on allegations
that they had participated in the perpetuation of the segregated school system.
On August 30, 1993, the District Court found that vestiges of a dual school
system continued to exist in Yonkers. On March 27, 1995, the District Court made
factual findings regarding the role of the State and other State defendants (the
"State") in connection with the creation and maintenance of the dual school
system, but found no legal basis for imposing liability. On September 3, 1996,
the Court of Appeals, based on the District Court's factual findings, held the
State defendants liable under 42 USC (S)1983 and the Equal Educational
Opportunity Act, 20 USC (S)(S)1701, et seq., for the unlawful dual school
system, because the State, inter alia, had taken no action to force the school
district to desegregate despite its actual or constructive knowledge of de jure
segregation. By Order dated October 8, 1997, the District Court held that
vestiges of the prior segregated school system continued to exist and that,
based on the State's conduct in creating and maintaining that system, the State
is liable for eliminating segregation and its vestiges in Yonkers and must fund
a remedy to accomplish that goal. Yonkers presented a proposed educational
improvement plan ("EIP II") to eradicate these vestiges of segregation. The
October 8, 1997 Order of the District Court ordered that EIP II be implemented
and directed that, within 10 days of the entry of the Order, the State made
available to Yonders $450,000 to support planning activities to prepare the EIP
II budget for 1997-98 and the accompanying capital facilities plan. A final
judgment to implement EIP II was entered on October 14, 1997. The State intends
to appeal that judgment. Additionally, the Court adopted a requirement that the
State pay to Yonkers $9 million as its pro rata share of the funding of EIP I
for the 1996-97 school year. The requirement for State funding of EIP I has not
yet been reduced to an order.
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. The parties have agreed to settle this case for $29
million.
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.
After noticeable improvements in the City's economy during calendar year
1994, economic growth slowed in calendar year 1995, and thereafter improved
commencing in calendar year 1996, reflecting improved securities industry
earnings and employment in other sectors. The City's current four-year financial
plan assumes that moderate economic growth will exist through calendar year
2001, with moderating job growth and wage increases.
For each of the 1981 through 1997 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 gaps between forecast revenues and forecast expenditures 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 a surplus in the 1998 fiscal year,
before discretionary transfers and substantial budget gaps for each of the 1999
through
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<PAGE>
2001 fiscal years. 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, the ability
of the New York City Health and Hospitals Corporation ("HHC") to take actions to
offset potential budget shortfalls, the ability to complete revenue generating
transactions, provision of State and Federal aid and mandate relief and the
impact on City revenues and expenditures of 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 1998 through 2001 contemplates the issuance of $4.0 billion of
general obligation bonds and $7.3 billion of bonds to be issued by the proposed
New York City Finance Authority (the "Finance Authority") to finance City
capital projects. The Finance Authority was created 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. 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 25, 1997, the City submitted to the Control Board the Financial
Plan for the 1998 through 2001 fiscal years, which relates to the City, Board of
Education ("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 10, 1997 (the "June Financial Plan").
1998 Fiscal Year. The June Financial Plan identified actions to close a
previously projected budget gap for the 1998 fiscal year. The proposed actions
in the June Financial Plan for the 1998 fiscal year included (i) agency actions
totaling $621 million; (ii) the proposed sale of various assets; (iii)
additional State aid of $294 million including a proposal that the State
accelerate a $142 million revenue sharing payment to the City from March 1999.
The 1998-2001 Financial Plan published on November 25, 1997 reflects actual
receipts and expenditures and changes in forecast revenues and expenditures
since the June Financial Plan. The 1998-2001 Financial Plan projects revenues
and expenditures for the 1998 fiscal year balance in accordance with GAAP, and
projects gaps of $1.2 billion, $2.7 billion and $2.6 billion for the 1999, 2000,
and 2001 fiscal years,
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<PAGE>
respectively. Changes since the June Financial Plan include: (i) an increase in
projected tax revenues of $318 million, $297 million, $210 million and $226
million in the 1998 through 2001 fiscal years; (ii) an increase in sales tax
revenues of $150 million, $272 million, $177 million and $101 million in the
1998 through 2001 fiscal years, respectively, resulting from the State adopting
a smaller sales tax reduction than previously assumed; (iii) a reduction in
assumed State aid of between $134 million and $142 million in each of the 1998
through 2001 fiscal years, reflecting the State adopted budget; (iv) a reduction
in projected debt service expenditures totaling $92 million, $69 million, $49
million and $55 million, and reduced pension costs of $9 million, $39 million,
$36 million and $31 million, in the 1998 through 2001 fiscal years,
respectively; (v) a $70 million increase in expenditures of BOE in the 1998
fiscal year; and (vi) an increase in expenditures of between $192 million and
$216 million in each of the 1998 through 2001 fiscal years, reflecting
additional agency spending and costs for the City's proposed drug initiative.
The 1998-2001 Financial Plan also includes a proposed discretionary transfer in
the 1998 fiscal year of an additional $240 million of debt service due in the
1999 fiscal year for budget stabilization purposes. Subsequently, the City
modified its expense budget for the 1998 fiscal year to reflect the changes made
in the 1998-2001 Financial Plan and an additional $20 million of spending not
included in the 1998-2001 Financial Plan, primarily for the City's proposed drug
initiative. The increased spending was offset by reducing the proposed
discretionary transfer in the 1998 fiscal year of debt service due in the 1999
fiscal year from $240 million to $214 million.
The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1999 and the extension of which is projected
to provide revenue of $166 million and $494 million in the 2000 and 2001 fiscal
years, respectively, and of the extension of the 12.5% personal income tax
surcharge, which is scheduled to expire on December 31, 1998 and the extension
of $188 million, $527 million and $554 million in the 1999 through 2001 fiscal
years, respectively; and (ii) collection of the projected rent payments for the
City's airports, totaling $385 million, $175 million, and $170 million in the
1999, 2000 and 2001 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 through pending legal actions.
The Financial Plan provides no additional wage increases for City employees
after their contracts expire in fiscal years 2000 and 2001. 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 1998-1999 Executive Budget on January 20, 1998,
which will be considered for adoption by the State Legislature. 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 projections for the 1998 through 2002 fiscal years reflect the costs of
the settlements and arbitration awards with the United Federation of Teachers
("UFT"), a coalition of unions headed by District Council 37 of the American
Federation of State, County and Municipal Employees ("District Council 37") and
other bargaining units 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 and arbitration awards. The settlement and arbitration awards
provide 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 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 $459 million and $1.2 billion in the 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. The Financial plan provides no additional
wage increases for City employees after their contracts expire in fiscal years
2000 and 2001.
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 due to
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
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<PAGE>
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. On August 28, 1997, S&P revised
its ratings on the State's general obligation bonds from A- to A. 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
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
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<PAGE>
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 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 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 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.
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).
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<PAGE>
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;
(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
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<PAGE>
(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. No Trustee is
deemed to be an "interested person" of the Trust for purposes of the Investment
Company Act of 1940, as amended.
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.
HARALD PAUMGARTEN, Trustee - 405 Lexington Ave., New York, NY 10174; Managing
Director, Adirondack Capital Group 1997 - to present; President, Paumgarten
and Company 1991-1997; Advisory Managing Director, Lepercq de Neuflize &
Co. Incorporated 1993 to 1995; Director, Price Waterhouse AG 1992 to 1993;
Trustee, HSBC Mutual Funds Trust.
ROBERT LOOS*, Vice Chairman Emeritus and Trustee, 97 Southport Wood Drive,
Southport, CT 06490.
WALLY GRIMM, President - Executive Vice President, Fund Services Division of
BISYS Fund Services, Inc., June, 1992 to Present.
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.
CHARLES BOOTH, Vice President - Chief Compliance Officer and Vice President of
Fund Administration, Fund Services Division of BISYS Fund Services, Inc.,
1988 to Present.
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.
THOMAS LINE, Treasurer - Vice President and Treasurer, Fund Services Division of
BISYS Fund Services, Inc., December 1996 to present; Audit Senior Manager,
KPMG Peat Marwick LLP, September 1989 to December 1996.
* Mr. Loos has been elected Vice Chairman Emeritus, such appointment to be
effective May 5, 1998. Mr. Loos is not a voting member of the Board.
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<PAGE>
STEVEN R. HOWARD, Secretary - 1285 Avenue of the Americas, New York, New York
10019. Partner, Paul, Weiss, Rifkind, Wharton & Garrison since 4/98,
Partner Baker & McKenzie, 1991 to 1998; 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
COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pension
or
Retirement
Aggregate Benefits Estimated Total
Compensation Accrued Annual Compensation
from the as Part Benefits from the
Money Market of Fund Upon Fund
Funds Expenses Retirement Complex*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wolfe J. Frankl, Trustee $10,630 0.00 N/A $20,000
- --------------------------------------------------------------------------------
William L. Kufta, Trustee $ 2,058 0.00 N/A $ 4,000
- --------------------------------------------------------------------------------
Harald Paumgarten, $ 9,601 0.00 N/A $18,000
Trustee
- --------------------------------------------------------------------------------
John P. Pfann, Trustee $10,630 0.00 N/A $20,000
- --------------------------------------------------------------------------------
Robert A. Robinson, $10,631 0.00 N/A $20,000
Trustee
- --------------------------------------------------------------------------------
</TABLE>
* Represents the total compensation paid to such persons during the
calendar year ended December 31, 1997.
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 (Hong Kong and Shanghai Banking
Corporation) and Marine Midland Bank and is located at 140 Broadway, New York,
NY 10005.
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
<PAGE>
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 Servicer Assistant
The Trust retains the Adviser to act as Shareholder Servicer Assistant
of the Funds in accordance with the terms of the Shareholder Servicer Assistance
Agreement. Pursuant to the Shareholder Servicer Assistance Agreement, the
Adviser (i) assists and trains third-parties who deliver prospectuses and Fund
applications, (ii) assists and trains third-parties who assist 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, 1997, the Funds incurred the
following amounts in distribution-related fees under the Rule 12b-1 Distribution
Plan:
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<PAGE>
<TABLE>
<CAPTION>
Printing of
Compensation 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
Management $129,856 $ 0 $ 0 $ 0 $ 0 $129,856
Government $ 55,777 $ 0 $ 0 $ 0 $ 0 $ 55,777
U.S. Treasury $ 19,040 $ 0 $ 0 $ 0 $ 0 $ 19,040
New York $ 65,858 $ 0 $ 0 $ 0 $ 0 $ 65,858
</TABLE>
The Plan will continue to be 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 January 28,
1998.
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:
Portion of average daily Co-Administrative
value of net assets of and Shareholder
each Fund Advisory Servicer Assistance Total
------------------------------- ---------- --------------------- -------
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%
For the year ended December 31, 1997, HSBC America earned $521,010, from
the Cash Management Fund, $47,695 from the U.S. Treasury Money Market Fund,
$220,426 from the Government Money Fund and $150,060 from the New York Tax-Free
Money Market Fund in advisory fees, net of fee waivers of $0, $0, $0 and
$89,496, respectively.
For the year ended December 31, 1997, as Administrator, BISYS Fund Services
earned $184,849 from the Cash Management Fund, $26,260 from the U.S. Treasury
Money Market Fund, $72,055 from the Government Money Market Fund and $80,833
from the New York Tax-Free Money Market Fund, net of fee waivers of $92,701,
13,170, 36,135 and 40,537, respectively in administrative services fees.
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.
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<PAGE>
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, 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.
HSBC Asset Management Americas Inc. earned co-administration/shareholder
servicer assistance fees of 0.07% of each Fund's average net assets totaling
$129,522 from the Cash Management fund, $50,489 from the Government Money Market
Fund, $18,401 from the U.S. Treasury Money Market Fund and $56,639 from the New
York Tax-Free Money Market Fund for the year ended December 31, 1997, all of
which were waived.
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 January 27, 1998.
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,
-23-
<PAGE>
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
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, 1997 the yield and effective
yields were:
<TABLE>
<CAPTION>
7-Day Yield Effective Yield
<S> <C> <C>
Cash Management Fund 5.31 5.45
Government Money Market Fund 5.02 5.14
U.S. Treasury Money Market Fund 4.99 5.11
New York Tax-Free Fund 3.26 3.32
</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
-24-
<PAGE>
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, 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
-25-
<PAGE>
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 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
-26-
<PAGE>
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.
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 1997 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 and; (b) 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).
-27-
<PAGE>
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.
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 Federal alternative minimum tax on individuals and corporations.
In addition, a portion of original issue discount relating to
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<PAGE>
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 Market Funds Prospectus and in this SAI, the term "majority," when
referring to the approvals to be obtained 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
-29-
<PAGE>
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 9, 1998, 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 YORK
HOLDER OF RECORD MANAGEMENT FUND FUND TAX-FREE FUND
- ------------------------- ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
BANK OF OKLAHOMA 4,891,365
TULSA, OK 74192 18.688%
MARINE MIDLAND BANK 36,514,584 45,464,531 10,653,524 20,607.513
BUFFALO, NY 14240 18.577% 64.584% 40.703% 26.358%
CHEMICAL BANK 7,016,252
NEW YORK, NY 10017 9.966%
BISYS FUND SERVICES 62,403,957 1,963,622 20,789,243
COLUMBUS, OH 43219 31.749% 7.502% 26.590%
TOTAL SHARES OUTSTANDING 196,549,361 70,395,253 26,173,454 78,181,736
=========== ========== ========== ==========
</TABLE>
The aforementioned shares were held on behalf of various customer accounts
of the holders of record. Marine Midland and BISYS Fund Services have informed
the Trust that they were not the beneficial owners of any of the shares each
held of record. The Trust does not know the extent to which the other holders
of record were beneficial owners of the shares indicated.
CUSTODIAN, TRANSFER AGENT
AND FUND ACCOUNTING AGENT
The 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. The 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
-30-
<PAGE>
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.
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, 1997, BISYS received fees under the Agency
Agreement of $140,855, $50,378, $37,460 and $60,684 from the Cash Management,
Government, U.S. Treasury and New York Tax-Free Funds, respectively.
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 the Cash Management Fund, Government
Fund, U.S. treasury Fund and New York Tax-Free Fund paid $190,614, $74,111,
$46,129 and $3,050, respectively, in transfer agent fees to PFPC Inc. and the
Adviser, BISYS Fund Services, Inc.'s predecessor.
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 January 27, 1998. 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.
-31-
<PAGE>
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.
-32-
<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, 1997
Statements of Operations for the year ended December 31, 1997
Statements of Changes in Net Assets for each of the two years ended
December 31, 1996 and December 31, 1997
Notes to Financial Statements
Financial Highlights
Reports of Independent Auditors, dated February 13, 1998
(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.
**5(b) -- Administrative Services Contract between Registrant and
BISYS Fund Services.
<PAGE>
**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 Paul, Weiss, Rifkind, Wharton & Garrison
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,
1997 as filed with the Commission on March 6, 1998
are incorporated by reference.
l3 -- None.
14 -- None.
**l5(a) -- Rule l2b-l Distribution Plan
**15(b) -- Rule 12b-1 Shareholder Servicing Agreement between
Registrant and BISYS Fund Services, Inc.
**15(c) -- Distributor's Selected Dealer Agreement.
2
<PAGE>
*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
- -----------------------
* Previously filed and incorporated by reference.
** Filed with Post-Effective Amendment No. 18 to the Trust's Registration
Statement on April 28, 1997 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 2, 1998.
-------------------------------------------------
Cash Management Fund 1702
Government Fund 265
U.S. Treasury Fund 148
New York Tax-Free Money Market Fund 376
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 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
3
<PAGE>
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, 1998. 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.
(b) Officers and Directors
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Registrant Underwriter
-------------------------- ------------- --------------------
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
(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
4
<PAGE>
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 30, 1998.
HSBC FUNDS TRUST
(Registrant)
By: /s/ Wally Grimm
-------------------------------------
Wally Grimm, President
<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.
Signature Title Date
- --------- ----- ----
/s/ Wally Grimm President April 30, 1998
- -------------------------
Wally Grimm
/s/ Thomas Line Treasurer (Principal Financial &
- -------------------------
Thomas Line Accounting Officer) April 30, 1998
* WOLFE J. FRANKL Trustee April 30, 1998
- -------------------------
Wolfe J. Frankl
* HARALD PAUMGARTEN Trustee April 30, 1998
- ------------------------
Harald Paumgarten
* JOHN P. PFANN Trustee April 30, 1998
- ------------------------
John P. Pfann
* ROBERT A. ROBINSON Trustee April 30, 1998
- ------------------------
Robert A. Robinson
* Pursuant to Power of Attorney filed with Post-Effective Amendment No. 18 to
Registration Statement Nos. 33-1312 and 811-4453.
<PAGE>
EXHIBIT INDEX
Exhibit 10 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison.
Exhibit 11 -- Consent of Ernst & Young.
Exhibit 27.1 -- Financial Cash Management Fund.
Exhibit 27.2 -- Financial Government Money Market Fund.
Exhibit 27.3 -- Financial U.S. Treasury Money Market Fund.
Exhibit 27.4 -- Financial New York Tax-Free Money Market Fund.
<PAGE>
EXHIBIT 10
April 29, 1998
HSBC Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
Re: HSBC Funds Trust (Registration No. 33-01312)
--------------------------------------------
Dear Sir/Madam:
It is our opinion that the securities being registered will when sold, be
legally issued, fully paid and non-assessable and we hereby consent to the
reference to our firm as Counsel in Post-Effective Amendment No. 19 to
Registration No. 33-01312.
Sincerely,
PAUL, WEISS, RIFKIND,
WHARTON & GARRISON
Enclosures
<PAGE>
EXHIBIT 11
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 13, 1998, 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 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000781905
<NAME> HSBC FUNDS TRUST
<SERIES>
<NUMBER> 01
<NAME> CASH MANAGEMENT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 183,611,567
<INVESTMENTS-AT-VALUE> 183,611,567
<RECEIVABLES> 1,617,588
<ASSETS-OTHER> 13,465
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 185,242,620
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,037,356
<TOTAL-LIABILITIES> 1,037,356
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 184,211,005
<SHARES-COMMON-STOCK> 187,207,871
<SHARES-COMMON-PRIOR> 220,965,017
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 5,741
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 184,205,264
<DIVIDEND-INCOME> 24,889
<INTEREST-INCOME> 10,500,019
<OTHER-INCOME> 0
<EXPENSES-NET> 1,171,892
<NET-INVESTMENT-INCOME> 9,353,016
<REALIZED-GAINS-CURRENT> 5
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9,353,021
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,353,016
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,156,959,601
<NUMBER-OF-SHARES-REDEEMED> 1,198,286,576
<SHARES-REINVESTED> 4,569,829
<NET-CHANGE-IN-ASSETS> (36,754,532)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 5,746
<GROSS-ADVISORY-FEES> 647,611
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,527,639
<AVERAGE-NET-ASSETS> 185,026,369
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .051
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .051
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .63
<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> GOVERNMENT MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 100,339,366
<INVESTMENTS-AT-VALUE> 100,339,366
<RECEIVABLES> 945,132
<ASSETS-OTHER> 6,099
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 101,290,597
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 428,986
<TOTAL-LIABILITIES> 428,986
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,862,535
<SHARES-COMMON-STOCK> 100,862,535
<SHARES-COMMON-PRIOR> 87,393,098
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 924
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,861,611
<DIVIDEND-INCOME> 12,111
<INTEREST-INCOME> 4,006,787
<OTHER-INCOME> 0
<EXPENSES-NET> 454,231
<NET-INVESTMENT-INCOME> 3,564,667
<REALIZED-GAINS-CURRENT> (329)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,564,338
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,564,667
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 235,133,212
<NUMBER-OF-SHARES-REDEEMED> 222,851,766
<SHARES-REINVESTED> 1,188,858
<NET-CHANGE-IN-ASSETS> (13,469,975)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 867
<OVERDIST-NET-GAINS-PRIOR> 594
<GROSS-ADVISORY-FEES> 252,442
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 573,225
<AVERAGE-NET-ASSETS> 72,125,076
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .049
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .049
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .630
<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> U.S. TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 25,649,313
<INVESTMENTS-AT-VALUE> 25,649,313
<RECEIVABLES> 20,851
<ASSETS-OTHER> 1,807
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,671,971
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 164,704
<TOTAL-LIABILITIES> 164,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,507,083
<SHARES-COMMON-STOCK> 25,506,739
<SHARES-COMMON-PRIOR> 28,962,132
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 184
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 25,507,267
<DIVIDEND-INCOME> 21,031
<INTEREST-INCOME> 1,427,368
<OTHER-INCOME> 0
<EXPENSES-NET> 170,769
<NET-INVESTMENT-INCOME> 1,277,630
<REALIZED-GAINS-CURRENT> 184
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,277,814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,277,630
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 221,502,675
<NUMBER-OF-SHARES-REDEEMED> 225,509,647
<SHARES-REINVESTED> 551,579
<NET-CHANGE-IN-ASSETS> (3,455,209)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 92,003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 246,647
<AVERAGE-NET-ASSETS> 26,287,477
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .049
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .049
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000781905
<NAME> HSBC FUNDS TRUST
<SERIES>
<NUMBER> 05
<NAME> NEW YORK TAX-FREE MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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</TABLE>
