<PAGE>
As Filed with the Securities and Exchange Commission on April 30,1999
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. 22 [X]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 24 [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, 23rd Floor
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 April 30, 1999 pursuant to paragraph (a) of Rule 485
--------------------------
================================================================================
<PAGE>
HSBC Funds Trust Prospectus
[ARTWORK APPEARS HERE]
Cash Management Fund
Government Money Market Fund
U.S. Treasury Money Market Fund
New York Tax-Free Money Market Fund
Managed by HSBC Asset Management
Americas, Inc.
April 30, 1999
An investment in the Funds is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Securities and Exchange Commission has not approved or disapproved the
shares described in this Prospectus or determined whether this Prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
Question?
Call 1-800-634-2536 or your
Investment Representative.
<PAGE>
HSBC Funds Trust Prospectus Table of Contents
<TABLE>
<CAPTION>
Risk/Return Summary and Fund Expenses
- -------------------------------------------------------------------
[GRAPHIC]
<S> <C> <C>
Carefully review this 3 Objective, Principal Investment
important section, which Strategy and Principal Risks
summarizes each Fund's 5 Cash Management Fund
investments, risks, past 8 Government Money Market Fund
performance and fees. 11 U.S. Treasury Money Market Fund
14 New York Tax-Free Money Market
Fund
Investment Objective, Strategies
and Risks
- -------------------------------------------------------------------
[GRAPHIC]
Review this section for 17 Cash Management Fund
information on investment 18 Government Money Market Fund
strategies and their risks. 18 U.S. Treasury Money Market Fund
19 New York Tax-Free Money Market
Fund
19 Risk Considerations
Fund Management
- -------------------------------------------------------------------
[GRAPHIC]
Review this section for 22 The Investment Adviser
details on the people and 22 The Distributor and
organizations who oversee Administrator
the Funds.
Shareholder Information
- -------------------------------------------------------------------
[GRAPHIC]
Review this section for 23 Pricing of Fund Shares
24 Purchasing and Adding to Your
details on how shares are Shares
valued, how to purchase, 27 Selling Your Shares
31 Distribution Arrangements/Sales
sell and exchange shares, Charge
related charges and 35 Exchanging Your Shares
37 Dividends, Distributions and
payments of dividends and Taxes
distributions.
Financial Highlights
- -------------------------------------------------------------------
[GRAPHIC]
38
Back Cover
- -------------------------------------------------------------------
[GRAPHIC]
Where to learn more about this
Fund
</TABLE>
2
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
The following is a summary of certain key information about the Funds. You will
find additional information about the Funds, including a detailed description
of the risks of an investment in the Funds, after this summary.
Each Fund has three different classes of shares; Class A shares, Class B
shares, and Class C shares. All shares purchased prior to the introduction of
multiple classes in May, 1999 are Class A shares. While all classes of shares
are presented in this prospectus, only the Cash Management Fund currently
offers Class B or Class C shares.
The investment objective of each Fund (except the New
Objective York Tax-Free Money Market Fund) is to provide as high a
level of current income as is consistent with
preservation of capital and liquidity. New York Tax-Free
Money Market Fund seeks to provide as high a level of
current income that is exempt from Federal, New York
State and New York City personal income taxes as is
consistent with preservation of capital and liquidity.
Principal Investment Strategy
The Funds are "money market funds" that seek to maintain
a stable net asset value of $1.00 per share. Each Fund
pursues its objective by investing in short-term, high-
quality money market instruments:
. Cash Management Fund Invests in high quality
obligations of banks, the U.S. Government and
corporations. The Fund may concentrate its
investments in bank obligations.
. Government Money Market Fund Invests exclusively in
obligations of the U.S. Government and its agencies
and related repurchase agreements.
. U.S. Treasury Money Market Fund Invests exclusively
in obligations of the U.S. Government and related
repurchase agreements.
. New York Tax-Free Money Market Fund Invests in high
quality municipal securities that are exempt from
Federal, New York State and New York City income
taxes.
The principal risks of investing in the Funds are:
Principal Risks . Interest Rate Risk Risk that changes in interest
rates will affect the value of a Fund's investments
in income-producing or fixed-
3
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
income or debt securities. Increases in interest
rates may cause the value of a Fund's investments to
decline.
. Credit Risk Risk that the issuer or guarantor of a
security will be unable or unwilling to make timely
interest or principal payments, or to otherwise
honor its obligations. The degree of risk for a
particular security may be reflected in its credit
rating. Credit risk includes the possibility that
any of the Funds' investments will have their credit
ratings downgraded.
. Municipal Market Risk (New York Tax- Free Money
Market Fund) Risk that special factors may adversely
affect the value of municipal securities and have a
significant effect on the value of the Fund's
investments. These factors include political or
legislative changes, uncertainties related to the
tax status of municipal securities, or the rights of
investors in these securities.
Other important things for you to note:
. Although the Funds seek to preserve the value of
your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.
. An investment in the Funds is not a deposit in a
bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other
government agency.
Who may want to invest?
Consider investing in the Funds if you:
. are seeking preservation of capital
. have a low risk tolerance
. are investing short-term reserves
. in the case New York Tax-Free Money Market, are an
individual seeking tax free income
These Funds will not be appropriate if you are:
. seeking high total returns
. pursuing a long-term goal or investing for
retirement
. investing through a tax advantaged retirement plan
or are not an individual (in the case of New York
Tax-Free Money Market only)
4
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
Performance Information
The Risk/Return
Summary of the Cash
Management Fund
includes a bar chart
showing the Fund's
annual returns and a
table showing the
Fund's average annual
returns. The bar
chart and table
provide an indication
of the historical
risk in each Fund by
showing:
. changes in the
Fund's
performance from
year to year for
the past ten
years in the bar
chart; and
. the Fund's
average annual
returns for one,
five and ten year
periods.
If fee waivers or
expense
reimbursements had
not been reflected in
both the chart and
the table, the Fund's
performance would
have been lower.
bar chart
Both the chart and
table assume
reinvestment of
dividends.
You may obtain
current yield
information for any
Fund by calling 1-
800-634-2563. Each
Fund's yield appears
in the Wall Street
Journal each
Thursday.
Cash Management
Fund
Bar Chart
Year-by-Year Total Returns as of 12/31 for Class A
Shares
1989 9.09%
1990 8.01%
1991 5.92%
1992 3.77%
1993 3.11%
1994 3.95%
1995 5.41%
1996 5.00%
1997 5.18%
1998 5.15%
Past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<S> <C> <C>
Best quarter: Q3 1984 2.79%
Worst quarter: Q2 1983 .71%
</TABLE>
Performance Table
Average Annual Total Returns (for the periods ending December 31, 1998)*
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Past 10 Years
--------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Management Fund Class
A** 6/30/82 5.15% 4.94% 5.45%
--------------------------------------------------------
Lipper Money Market Fund N/A 4.86% 4.78% 5.22%
</TABLE>
- --------------------------------------------------------------------------------
* As of December 31, 1998 the 7-day yield was 4.87%. Without expense
limitations, the Fund's yield would have been 4.45% for this time period.
** Returns are for Class A shares only; Class B and C shares had not yet been
offered prior to the date of this prospectus.
5
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
Cash Management
Fund
Fees and Expenses
As an investor in
the Cash Management
Fund, you will pay
the following fees
and expenses.
Shareholder
transaction fees
are paid from your
account. Annual
Fund operating
expenses are paid
out of Fund assets,
and are reflected
in the share price.
Contingent Deferred
Sales Charge
Some Fund share
classes impose a
back end sales
charge (load) if
you sell your
shares before a
certain period of
time has elapsed.
This is called
a Contingent
Deferred Sales
Charge.
<TABLE>
<CAPTION>
Shareholder
Transaction
Expenses
(fees paid
by you directly) A Shares B Shares/1/ C Shares/2/
<S> <C> <C> <C>
Maximum sales charge (load)
on purchases None None None
--------------------------------------------------------
Maximum deferred sales charge
(load) None 4.00%/3/ 1.00%/4/
--------------------------------------------------------
<CAPTION>
Annual Fund Operating
Expenses (fees paid
from Fund assets) A Shares B Shares C Shares
<S> <C> <C> <C>
Management fee .35% .35% .35%
--------------------------------------------------------
Administrative Services fee/5/ .15% .15% .15%
--------------------------------------------------------
Distribution (12b-1) fee .20% .75% .75%
--------------------------------------------------------
Service Organization fee/6/ .35% .50% .50%
--------------------------------------------------------
Other expenses .18% .18% .18%
--------------------------------------------------------
Total Fund Operating expenses 1.23% 1.93% 1.93%
--------------------------------------------------------
Fee Waivers & Expense
Reimbursements/5/,/6/ .30% .30% .30%
--------------------------------------------------------
Net Expense/7/ .93% 1.63% 1.63%
--------------------------------------------------------
</TABLE>
/1/Class B shares are not offered for sale but are only
offered as an exchange option (see "Exchanging Your
Shares").
/2/Class C shares can be purchased by customers of HSBC
Bank USA Commercial Sweep. All other shareholders may
exchange their Class C shares from another HSBC Fund to
Class C shares of the Cash Management Fund.
/3/A CDSC on Class B shares declines over four years
starting with year one and ending in year five from: 4%,
3%, 2%, 1%, and 0%.
/4/A CDSC of 1% applies to redemptions of Class C shares
within the first year. This is being waived for
customers of HSBC Bank USA Commercial Sweep.
/5/The Administrator is contractually limiting its
Administrative Services fee to .10% for each class of
shares.
/6/The Service Organization fee is being contractually
limited to .10% for Class A shares and contractually
limited to .25% for Class B and Class C shares.
/7/The contractual expense limitations are in effect
through December 31, 1999.
6
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
Cash Management
Fund
Expense Example
Use the table to
compare fees and
expenses with those
of other Funds.
It illustrates the
amount of fees and
expenses you would
pay, assuming the
following:
. $10,000
investment
. 5% annual
return
. no changes in
the Fund's
operating
expenses
except the
expiration of
the current
contractual
fee waiver on
December 31,
1999.
Because this
example is
hypothetical and
for comparison
only, your actual
costs will be
different.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A Shares
Assuming redemption $95 $361 $647 $1,462
------------------------------------------------
Class B Shares
Assuming redemption $566 $777 $1,014 $2,230
Assuming no redemption $166 $577 $1,014 $2,230
------------------------------------------------
Class C Shares
Assuming redemption $266 $577 $1,014 $2,230
Assuming no redemption $166 $577 $1,014 $2,230
------------------------------------------------
</TABLE>
7
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
Government Money Market Fund
Performance Information
The Risk/Return
Summary of the
Government Money
Market Fund includes
a bar chart showing
the Fund's annual
returns and a table
showing the Fund's
average annual
returns. The bar
chart and table
provide an indication
of the historical
risk in each Fund by
showing:
. changes in the
Fund's
performance from
year to year for
the past ten
years in the bar
chart; and
. the Fund's
average annual
returns for one,
five and ten year
periods.
If fee waivers or
expense
reimbursements had
not been reflected in
both the chart and
the table, the Fund's
performance would
have been lower.
Both the chart and
table assume
reinvestment of
dividends.
You may obtain
current yield
information for any
Fund by calling 1-
800-634-2563. Each
Fund's yield appears
in the Wall Street
Journal each
Thursday.
Bar Chart
Year-by-Year Total Returns
as of 12/31 for Class A
Shares
1989 8.92%
1990 7.92%
1991 5.79%
1992 3.80%
1993 2.99%
1994 3.83%
1995 5.32%
1996 4.87%
1997 5.05%
1998 5.01%
Past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<S> <C> <C>
Best quarter: Q 3 1984 2.67%
Worst quarter: Q 1 1994 0.69%
</TABLE>
----------------------------------
Performance Table
Average Annual Total Returns (for the periods ending December 31, 1998)*
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Past 10 Years
---------------------------------------------------
<S> <C> <C> <C> <C>
Government Money Market 6/30/82 5.01% 4.81% 5.34%
Fund Class A**
---------------------------------------------------
Lipper Government Money
Market Fund N/A 4.89% 4.72% 5.10%
</TABLE>
- --------------------------------------------------------------------------------
* As of December 31, 1998 the 7-day yield was 4.45%. Without expense
limitations, the Fund's yield would have been 4.00% for this time period.
** Returns are for Class A shares only. As of the date of this prospectus,
Class B and C shares are not currently being offered.
8
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
Government Money
Market Fund
Fees and Expenses
As an investor in
the Government
Money Market Fund,
you will pay the
following fees and
expenses.
Shareholder
transaction fees
are paid from your
account. Annual
Fund operating
expenses are paid
out of Fund assets,
and are reflected
in the share price.
Contingent Deferred
Sales Charge
Some Fund share
classes impose a
back end sales
charge (load) if
you sell your
shares before a
certain period of
time has elapsed.
This is called a
Contingent Deferred
Sales Charge.
<TABLE>
<CAPTION>
Shareholder
Transaction
Expenses
(fees paid
by you directly) A Shares B Shares/1/ C Shares/1/
<S> <C> <C> <C>
Maximum sales charge (load) on
purchases None None None
--------------------------------------------------------
Maximum deferred sales charge
(load) None 4.00%/2/ 1.00%/3/
--------------------------------------------------------
<CAPTION>
Annual Fund Operating
Expenses (fees paid
from Fund assets) A Shares B Shares C Shares
<S> <C> <C> <C>
Management fee/4/ .35% .35% .35%
--------------------------------------------------------
Administrative Services fee/5/ .15% .15% .15%
--------------------------------------------------------
Distribution (12b-1) fee .20% .75% .75%
--------------------------------------------------------
Service Organization fee/6/ .35% .50% .50%
--------------------------------------------------------
Other expenses .15% .15% .15%
--------------------------------------------------------
Total Fund Operating expenses 1.20% 1.90% 1.90%
--------------------------------------------------------
Fee Waivers & Expense
Reimbursements/4/, /5/, /6/ .50% .20% .20%
--------------------------------------------------------
Net Expense/7/ .70% 1.70% 1.70%
--------------------------------------------------------
</TABLE>
/1/ As of the date of this prospectus, Class B and Class C
shares are not being offered.
/2/ A CDSC on Class B shares declines over four years
starting with year one and ending in year five from: 4%,
3%, 2%, 1%, and 0%.
/3/ A CDSC of 1% applies to redemptions of Class C shares
within the first year.
/4/ The Advisor has contractually agreed to waive or
reimburse its Management fee to the extent the Fund's
ordinary operating expenses exceed .70% of the Fund's
average daily net assets.
/5/ The Administrator is contractually limiting its
Administrative Services fee to .10% for each class of
shares.
/6/ The Service Organization fee is contractually limited
to .25% for Class B and Class C shares.
/7/ The contractual expense limitations are in effect
through December 31, 1999.
9
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
Government Money
Market Fund
Expense Example
Use the table to
compare fees and
expenses with those
of other Funds.
It illustrates the
amount of fees and
expenses you would
pay, assuming the
following:
. $10,000
investment
. 5% annual
return
. no changes in
the Fund's
operating
expenses
except the
expiration of
the current
contractual
fee waiver on
December 31,
1999.
Because this
example is
hypothetical and
for comparison
only, your actual
costs will be
different.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A Shares
Assuming Redemption $ 72 $331 $ 611 $1,410
------------------------------------------------
Class B Shares*
Assuming Redemption $573 $778 $1,008 $2,206
Assuming no Redemption $173 $578 $1,008 $2,206
------------------------------------------------
Class C Shares*
Assuming no Redemption $273 $578 $1,008 $2,206
Assuming no Redemption $173 $578 $1,008 $2,206
------------------------------------------------
</TABLE>
*As of date of this prospectus, Class B and Class C
shares are not being offered.
10
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
U.S. Treasury Money Market Fund
Performance Information
The Risk/Return
Summary of the U.S.
Treasury Money Market
Fund includes a bar
chart showing the
Fund's annual returns
and a table showing
the Fund's average
annual returns. The
bar chart and table
provide an indication
of the historical
risk in each Fund by
showing:
. changes in the
Fund's
performance from
year to year for
the past ten
years in the bar
chart; and
. the Fund's
average annual
returns for one,
five and ten year
periods.
If fee waivers or
expense
reimbursements had
not been reflected in
both the chart and
the table, the Fund's
performance would
have been lower.
Both the chart and
table assume
reinvestment of
dividends.
You may obtain
current yield
information for any
Fund by calling 1-
800-634-2563. Each
Fund's yield appears
in the Wall Street
Journal each
Thursday.
Bar Chart
Year-by Year Total Returns
as of 12/31 for Class A
Shares
1989 8.07%
1990 7.94%
1991 5.60%
1992 3.27%
1993 2.65%
1994 3.60%
1995 5.04%
1996 4.68%
1997 4.98%
1998 4.86%
Past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<S> <C> <C>
Best quarter: Q 3 1984 2.61%
Worst quarter: Q 1 1993 0.64%
</TABLE>
------------------------------------
Performance Table
Average Annual Total Returns (for the periods ending December 31, 1998)*
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Past 10 Years
--------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market 5/31/83 4.86% 4.63% 5.14%
Fund Class A**
--------------------------------------------------------
Lipper Treasury Money N/A 4.69% 4.62% 5.07%
Market Fund
</TABLE>
- --------------------------------------------------------------------------------
* As of December 31, 1998 the 7-day yield was 4.24%. Without expense
limitations, the Fund's yield would have been 3.90% for this time period.
** Returns are for Class A shares only. As of the date of this prospectus,
Class B and C shares are not currently being offered.
11
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
U.S. Treasury Money
Market Fund
Fees and Expenses
As an investor in
the U.S. Treasury
Money Market Fund,
you will pay the
following fees and
expenses.
Shareholder
transaction fees
are paid from your
account. Annual
Fund operating
expenses are paid
out of Fund assets,
and are reflected
in the share price.
Contingent Deferred
Sales Charge
Some Fund share
classes impose a
back end sales
charge (load) if
you sell your
shares before a
certain period of
time has elapsed.
This is called a
Contingent Deferred
Sales Charge.
<TABLE>
<CAPTION>
Shareholder Transaction
Expenses (fees paid
by you directly) A Shares B Shares/1/ C Shares/1/
<S> <C> <C> <C>
Maximum sales charge (load) on
purchases None None None
--------------------------------------------------------
Maximum deferred sales charge
(load) None 4.00%/2/ 1.00%/3/
--------------------------------------------------------
<CAPTION>
Annual Fund Operating
Expenses (fees paid
from Fund assets) A Shares B Shares C Shares
<S> <C> <C> <C>
Management fee/4/ .35% .35% .35%
--------------------------------------------------------
Administrative Services fee/5/ .15% .15% .15%
--------------------------------------------------------
Distribution (12b-1) fee .20% .75% .75%
--------------------------------------------------------
Service Organization fee/6/ .35% .50% .50%
--------------------------------------------------------
Other expenses .32% .32% .32%
--------------------------------------------------------
Total Fund Operating expenses 1.37% 2.07% 2.07%
--------------------------------------------------------
Fee Waivers & Expense
Reimbursements/4/, /5/, /6/ .67% .37% .37%
--------------------------------------------------------
Net Expense/7/ .70% 1.70% 1.70%
--------------------------------------------------------
</TABLE>
/1/ As of the date of this prospectus, Class B and Class C
shares are not being offered.
/2/ A CDSC on Class B shares declines over four years
starting with year one and ending in year five from: 4%,
3%, 2%, 1%, and 0%.
/3/ A CDSC of 1% applies to redemptions of Class C shares
within the first year.
/4/ The Advisor has contractually agreed to waive or
reimburse its Management fee to the extent the Fund's
ordinary operating expenses exceed .70% of the Fund's
average daily net assets.
/5/ The Administrator is contractually limiting its
Administrative Services fee to .10% for each class of
shares.
/6/ The Service Organization fee is contractually limited
to .25% for Class B and Class C shares.
/7/ The contractual expense limitations are in effect
through December 31, 1999.
12
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
U.S. Treasury Money
Market Fund
Expense Example
Use the table to
compare fees and
expenses with those
of other Funds.
It illustrates the
amount of fees and
expenses you would
pay, assuming the
following:
. $10,000
investment
. 5% annual
return
. no changes in
the Fund's
operating
expenses except
the expiration
of the current
contractual fee
waiver on
December 31,
1999.
Because this
example is
hypothetical and
for comparison
only, your actual
costs will be
different.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Class A Shares
Assuming redemption $72 $368 $686 $1,588
------------------------------------------------
Class B Shares*
Assuming redemption $573 $813 $1,080 $2,371
Assuming no redemption $173 $613 $1,080 $2,371
------------------------------------------------
Class C Shares*
Assuming no redemption $273 $613 $1,080 $2,371
Assuming no redemption $173 $613 $1,080 $2,371
------------------------------------------------
</TABLE>
* As of the date of this prospectus, Class B and Class C
shares are not being offered.
13
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
New York Tax-Free Money Market
Fund
Performance Information
The Risk/Return
Summary of the New
York Tax-Free Money
Market Fund includes
a bar chart showing
the Fund's annual
returns and a table
showing the Fund's
average annual
returns. The bar
chart and table
provide an indication
of the historical
risk in each Fund by
showing:
. changes in the
Fund's
performance from
year to year for
the past ten
years in the bar
chart; and
. the Fund's
average annual
returns for one,
five and ten year
periods.
If fee waivers or
expense
reimbursements had
not been reflected in
both the chart and
the table, the Fund's
performance would
have been lower.
Both the chart and
table assume
reinvestment of
dividends.
You may obtain
current yield
information for any
Fund by calling 1-
800-634-2563. Each
Fund's yield appears
in the Wall Street
Journal each
Thursday.
Bar Chart
Year-by-Year Total Returns
as
of 12/31 for Class A
Shares
1989 5.58%
1990 5.25%
1991 3.85%
1992 2.44%
1993 1.86%
1994 2.33%
1995 3.17%
1996 2.92%
1997 3.14%
1998 2.83%
-----------------------------------
Past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<S> <C> <C>
Best quarter: Q3 1989 1.43%
Worst quarter: Q1 1994 0.42%
</TABLE>
Performance Table
Average Annual Total Returns (for the periods ending December 31, 1998)*
<TABLE>
<CAPTION>
Inception Date Past Year Past 5 Years Past 10 Years
--------------------------------------------------------
<S> <C> <C> <C> <C>
New York Tax-Free Money
Market Fund Class A** 1/31/86 2.83% 2.86% 3.31%
--------------------------------------------------------
Lipper New York Tax-Exempt
Money Market Fund N/A 2.86% 2.87% 3.30%
</TABLE>
- --------------------------------------------------------------------------------
* As of December 31, 1998 the 7-day yield was 3.00%. Without expense
limitations, the Fund's yield would have been 2.78% for this time period.
** Returns are for Class A shares only. As of the date of this prospectus,
Class B and C shares are not currently being offered.
14
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
New York Tax-Free
Money Market Fund
Fees and Expenses
As an investor in
the New York Tax-
Free Money Market
Fund, you will pay
the following fees
and expenses.
Shareholder
transaction fees
are paid from your
account. Annual
Fund operating
expenses are paid
out of Fund assets,
and are reflected
in the share price.
Contingent Deferred
Sales Charge
Some Fund share
classes impose a
back end sales
charge (load) if
you sell your
shares before a
certain period of
time has elapsed.
This is called
a Contingent
Deferred Sales
Charge.
<TABLE>
<CAPTION>
Shareholder Transaction
Expenses (fees paid
by you directly) A Shares B Shares/1/ C Shares/1/
<S> <C> <C> <C>
Maximum sales charge (load)
on purchases None None None
--------------------------------------------------------
Maximum deferred sales charge
(load) None 4.00%/2/ 1.00%/3/
<CAPTION>
Annual Fund Operating Expenses
(fees paid from Fund assets) A Shares B Shares C Shares
<S> <C> <C> <C>
Management fee/4/ .35% .35% .35%
--------------------------------------------------------
Administrative Services fee/5/ .15% .15% .15%
--------------------------------------------------------
Distribution (12b-1) fee .20% .75% .75%
--------------------------------------------------------
Service Organization fee/6/ .35% .50% .50%
--------------------------------------------------------
Other expenses .17% .17% .17%
--------------------------------------------------------
Total Fund Operating expenses 1.22% 1.92% 1.92%
--------------------------------------------------------
Fee Waivers & Expense
Reimbursements/4/, /5/, /6/ .52% .22% .22%
--------------------------------------------------------
Net Expense/7/ .70% 1.70% 1.70%
--------------------------------------------------------
</TABLE>
/1/ As of the date of this prospectus, Class B and Class C
shares are not being offered.
/2/ A CDSC on Class B shares declines over four years
starting with year one and ending in year five from: 4%,
3%, 2%, 1%, and 0%.
/3/ A CDSC of 1% applies to redemptions of Class C shares
within the first year.
/4/ The Advisor has contractually agreed to waive or
reimburse its Management fee to the extent the Fund's
ordinary operating expenses exceed .70% of the Fund's
average daily net assets.
/5/ The Administrator is contractually limiting its
Administrative Services fee to .10% for each class of
shares.
/6/ The Service Organization fee is contractually limited
to .25% for Class B and Class C shares.
/7/ The contractual expense limitations are in effect
through December 31, 1999.
15
<PAGE>
Risk/Return Summary and Fund Expenses [GRAPHIC]
New York Tax-Free
Money Market Fund
Expense Example
Use the table to
compare fees and
expenses with those
of other Funds. It
illustrates the
amount of fees and
expenses you would
pay, assuming the
following:
. $10,000
investment
. 5% annual return
. no changes in
the Fund's
operating
expenses except
the expiration
of the current
contractual fee
waiver on
December 31,
1999.
Because this
example is
hypothetical and
for comparison
only, your actual
costs will be
different.
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
<S> <C> <C> <C> <C>
Class A Shares
Assuming redemption $72 $336 $620 $1,431
-----------------------------------------
Class B Shares*
Assuming redemption $573 $782 $1,016 $2,225
Assuming no redemption $173 $582 $1,016 $2,225
-----------------------------------------
Class C Shares*
Assuming redemption $273 $582 $1,016 $2,225
Assuming no redemption $173 $582 $1,016 $2,225
-----------------------------------------
</TABLE>
* As of date of this prospectus, Class B and Class C
shares are not being offered.
16
<PAGE>
Investment Objectives, Strategies and Risks [GRAPHIC]
This section of the prospectus provides a more complete description of the
principal investment objectives, policies, and principal risks of the Funds.
Additional descriptions of the Funds' risks, strategies, and investments, as
well as other strategies and investments not described below, may be found in
the Funds' Statement of Additional Information or SAI. Of course, there can be
no assurance that any Fund will achieve its investment objective.
Investment Objective, Policies and Strategies
Investment Objectives
The investment objective of each Fund (except the New York Tax-Free Money
Market Fund) is to provide as high a level of current income as is consistent
with preservation of capital and liquidity. New York Tax-Free Money Market Fund
seeks to provide as high a level of current income that is exempt from Federal,
New York State and New York City income taxes as is consistent with
preservation of capital and liquidity.
Investment Policies and Strategy
As a money market fund, each Fund must meet the requirements of SEC Rule 2a-7.
This Rule imposes strict requirements on the investment quality, maturity, and
diversification of the Fund's investments. Under Rule 2a-7, each Fund's
investments must have a remaining maturity of no more than 397 days and its
investments must maintain an average weighted maturity that does not exceed 90
days.
Each of the Funds will attempt to increase their yields by trading to take
advantage of short-term market variations. The Funds' Adviser evaluates
investments based on credit analysis and the interest rate outlook.
Cash Management Fund
Ticker Symbol: Class A MHMXX Class B N/A Class C N/A
The Cash Management Fund invests in a broad range of short-term money market
instruments including:
. obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
. variable rate demand and master demand notes;
. certain repurchase agreements;
. negotiable certificates of deposit, bankers' acceptances, time deposits,
and other obligations issued or supported by U.S. (including foreign
branches) banks that have more than $1 billion in total assets at the time
of investment;
. U.S. Dollar-denominated obligations of foreign banks (including U.S.
branches) which at the time of investment (i) have more than $10 billion,
or
17
<PAGE>
Investment Objectives, Strategies and Risks [GRAPHIC]
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 U.S. banks which may be purchased by the Fund and present minimal credit
risk;
. domestic and foreign commercial paper rated in the highest category by one
or more nationally recognized statistical rating organizations or rating
agencies, or if unrated, determined to be of comparable quality by the
Adviser; and
. investment grade corporate debt securities.
The Fund may invest more than 25% of the current value of its total assets in
domestic bank obligations (including bank obligations subject to repurchase
agreements).
Government Money Market Fund
Ticker Symbol: MGFXX
The Government Money Market Fund invests exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements with respect to these types of obligations.
The Fund will invest in:
. issues of the U.S. Treasury, such as bills, notes and bonds.
. issues of U.S. Government agencies and instrumentalities established under
the authority of an Act of Congress, including obligations:
* supported by the "full faith and credit" of the United States (e.g.,
obligations guaranteed by the Export-Import Bank of the United States).
* supported by the right of the issuer to borrow from the U.S. Treasury
(e.g., obligations of the Federal National Mortgage Association).
* supported only by the credit of the issuing agency or instrumentality
(e.g., obligations of the Student Loan Marketing Association).
U.S. Treasury Money Market Fund
Ticker Symbol: MUSXX
The U.S. Treasury Money Market Fund invests exclusively in direct obligations
of the U.S. Treasury and certain repurchase agreements. The Fund will not
invest in obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government and will not enter into loans of its portfolio securities.
18
<PAGE>
Investment Objectives, Strategies and Risks [GRAPHIC]
New York Tax-Free Money Market Fund
Ticker Symbol: MNFXX
The New York Tax-Free Money Market Fund invests primarily in a broad range of
high-quality municipal obligations that are exempt from regular Federal, New
York State, and New York City municipal income taxes. The Fund will maintain at
least 80% of its net assets in high-quality, tax-exempt municipal obligations.
Municipal obligations purchased by the Fund are debt obligations issued by or
on behalf of states, cities, municipalities, and other public authorities.
The Fund may invest in:
. upper medium or higher grade municipal bonds and high quality, notes, and
commercial paper;
. debt obligations that have a floating or variable rate of interest, which
varies with changes in specified market rates or indices;
. when-issued securities with delivery and payment normally taking place 15
to 45 days after the date of the commitment to purchase; and
. securities with put rights.
The Fund will invest primarily in New York municipal obligations and
participation certificates in these obligations purchased from banks, insurance
companies and other financial institutions. The Fund will invest at least 80%
of its net assets in New York municipal obligations.
The Fund may invest 25% or more of its assets in municipal obligations that are
related in ways such that an economic, business or political development or
change affecting one 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 Fund may invest up to 20% of the current value of its total assets in money
market instruments subject to the Federal alternative minimum tax. For
temporary defensive purposes, the Fund may invest up to 100% of its assets in
taxable money market instruments or cash reserves. While investing for
temporary defensive purposes, the Fund may not achieve its investment
objectives.
Risk Considerations
General Risk Factors: All Money Market Funds
The Funds' primary risks are interest rate risk and credit risk. Because the
Funds invest in short-term securities, a decline in interest rates will affect
the Funds' yields as these securities mature or are sold and the Funds purchase
new short-term securities with lower yields. Generally, an increase in interest
rates causes the value of a debt instrument to decrease. The change in value
for shorter-term securities is usually smaller than for securities with longer
maturities. Because the
19
<PAGE>
Investment Objectives, Strategies and Risks [GRAPHIC]
Funds invest in securities with short maturities and seek to maintain a stable
net asset value of $1.00 per share, it is possible, that an increase in
interest rates would change the value of your investment.
Credit risk is the possibility that a security's credit rating will be
downgraded or that the issuer of the security will default (fail to make
scheduled interest and principal payments). The Funds invest in highly-rated
securities to minimize credit risk. Under Rule 2a-7, 95% of a money market
fund's holdings, must be rated in the highest credit category (e.g., A-1 or A-
1+) and the remaining 5% must be rated no lower than the second highest credit
category.
Year 2000
Like other funds and business organizations around the world, the Funds could
be adversely affected if the computer systems used by the Adviser and the Funds
other service providers do not properly process and calculate date-related
information for the year 2000 and beyond. In addition, Year 2000 issues may
adversely affect issuers in which the Funds invest where, for example, such
issuers incur substantial costs to address Year 2000 issues or suffer losses
caused by the failure to adequately or timely do so.
The Funds have been assured that the Adviser and the Funds' other service
providers (i.e., Administrator, Transfer Agent, Fund Accounting Agent,
Custodian and Distributor) have developed and are implementing clearly defined
and documented plans intended to minimize risks to services critical to the
Funds operations associated with Year 2000 issues. Internal efforts include a
commitment to dedicate adequate staff and funding to identify and remedy Year
2000 issues, and specific actions such as inventorying software systems,
determining inventory items that may not function properly after December 31,
1999, reprogramming or replacing such systems, and retesting for Year 2000
readiness. The Funds' Adviser and service providers are likewise seeking
assurances from their respective vendors and suppliers that such entities are
addressing any Year 2000 issues, and each provider intends to engage, where
appropriate, in private and industry or "streetwide" interface testing of
systems for Year 2000 readiness.
In the event that any systems upon which the Funds are dependent are not Year
2000 ready by December 31, 1999, administrative errors and account maintenance
failures would likely occur.
While the ultimate costs or consequences of incomplete or untimely resolution
of Year 2000 issues by the Adviser or the Fund's service providers cannot be
accurately assessed at this time, the Funds currently have no reason to believe
that the Year 2000 plans of the Adviser and the Funds' service providers will
not be completed by December 31, 1999, or that the anticipated costs associated
with full implementation of their plans will have a material adverse impact on
either their business operations or financial condition of those of the Funds.
The Funds
20
<PAGE>
Investment Objectives, Strategies and Risks [GRAPHIC]
and the Adviser will continue to closely monitor developments relating to this
issue, including development by the Adviser and the Funds service providers of
contingency plans for providing back-up computer services in the event of a
systems failure or the inability of any provider to achieve Year 2000
readiness. Separately, the Adviser will monitor potential investment risk
related to Year 2000 issues.
Specific Risk Factors: Cash Management Fund
The Cash Management Fund's investments in U.S. Dollar-denominated obligations
(or credit and liquidity enhancements) of foreign banks, foreign branches of
U.S. banks, U.S. branches of foreign banks, and commercial paper of foreign
companies may be subject to foreign risk. Foreign securities issuers are
usually not subject to the same degree of regulation as U.S. issuers.
Reporting, accounting, and auditing standards of foreign countries differ, in
some cases, significantly from U.S. standards. Foreign risk includes
nationalization, expropriation or commandeering taxation, political changes or
diplomatic developments that could adversely affect a Fund's investments.
To the extent that the Fund concentrates in the domestic banking industry, it
may be impacted by economic and other factors affecting that industry unlike
other mutual funds which do not concentrate in bank obligations.
Specific Risk Factors: New York Tax-Free Money Market Fund
The New York Tax-Free Money Market Fund faces municipal market risk. Because
the Fund will concentrate its investments in New York and may invest up to 25%
of its assets in the securities of a single issuer or sector, investment in
this Fund may pose investment risks greater than those posed by a more broadly
diversified portfolio. Consequently, unlike a more diversified portfolio, the
Fund's assets could lose significant value due to the poor performance of a
single issuer or sector.
The Fund may also be subject to credit risks. Historically, New York State and
other issuers of New York Municipal Obligations have experienced periods of
financial difficulties. Factors affecting New York State and its
municipalities, including economic, political, or regulatory occurrences, may
have a significant effect on the Fund's net asset value.
The New York Tax-Free Money Market Fund's investments in certain municipal
securities with principal and interest payments that are made from the revenues
of a specific project or facility, and not general tax revenues, may have
increased risks. Factors affecting the project or facility, such as local
business or economic conditions, could have a significant effect on the
project's ability to make payments of principal and interest on these
securities.
21
<PAGE>
Fund Management [GRAPHIC]
The Investment Adviser
HSBC Asset Management Americas, Inc. (the "Adviser") is the North American
investment affiliate of HSBC Holdings plc (Hong Kong and Shanghai Banking
Corporation) and HSBC Bank USA. As of December 31, 1998, the Adviser managed
more than $3.3 billion in assets. Through its fund management team, the Adviser
makes the day-to-day investment decisions and continuously reviews, supervises
and administers the Funds' investment programs.
For these advisory services, the Funds paid as follows:
<TABLE>
<CAPTION>
Percentage of
average net assets
for the year ended
12/31/98*
- ----------------------------------------------
<S> <C>
Cash Management Fund .25%
- ----------------------------------------------
Government Money Market
Fund .28%
- ----------------------------------------------
U.S. Treasury Money Market
Fund .18%
- ----------------------------------------------
New York Tax-Free Money
Market Fund .29%
- ----------------------------------------------
</TABLE>
* If the adviser had not waived fees, they would have been: Cash Management
Fund .35%, Government Money Market Fund .35%, U.S. Treasury Money Market Fund
.35%, and New York Tax-Free Money Market .35%.
The Distributor and Administrator
BISYS Fund Services Limited Partnership ("BISYS"), whose address is 3435
Stelzer Road, Columbus, Ohio 43219-3035, serves as the Funds' administrator.
BISYS also serves as the distributor of the Funds' shares. BISYS may provide
financial assistance in connection with pre-approved seminars, conferences and
advertising to the extent permitted by applicable state or self-regulatory
agencies, such as the National Association of Securities Dealers.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
22
<PAGE>
Shareholder Information [GRAPHIC]
Pricing of Fund Shares
---------------------
How NAV is Calculated Each of the Funds' net asset
value, or NAV, is expected to be
The NAV is constant at $1.00 per share,
calculated by although this value is not
adding the total guaranteed. The NAV is determined
value of the Fund's at 12 noon, Eastern time on days
investments and the New York Stock Exchange,
other assets, Funds' custodian and transfer
subtracting its agent are open. The Funds value
liabilities and their securities at their
then dividing that amortized cost. This method
figure by the involves valuing an instrument at
number of its cost and thereafter applying a
outstanding shares constant amortization to maturity
of the Fund: of any discount or premium,
NAV = regardless of the impact of
Total Assets- fluctuating interest rates on the
Liabilities market value of the instrument.
----------------
Number of Shares Your order for purchase, sale or
Outstanding exchange of shares is priced at
the next NAV calculated after your
--------------------- order is accepted by the Fund.
Orders will become effective when
Federal funds are available to the
Trust's custodian for investment.
------------------------------------
23
<PAGE>
Shareholder Information [GRAPHIC]
Purchasing and Adding to Your Shares
You may purchase
shares through the
Distributor or
through banks,
brokers and other
investment
representatives,
which may charge
additional fees and
may require higher
minimum investments
or impose other
limitations on
buying and selling
shares. If you
purchase shares
through an
investment
representative,
that party is
responsible for
transmitting orders
by close of
business and may
have an earlier
cut-off time for
purchase and sale
requests. Consult
your investment
representative or
institution for
specific
information.
<TABLE>
<CAPTION>
Minimum Minimum
Initial Subsequent
Account type Investment Investment
----------------------------------------
<S> <C> <C>
Regular $1,000 $50
----------------------------------------
Automatic Investment Plan $ 250 $25
----------------------------------------
</TABLE>
* The New York Tax-Free Money Market Fund is not
recommended as an investment for a retirement plan.
Class B shares and Class C shares of the Cash Management
Fund are offered as an exchange option for Class B and
Class C shareholders of the Trust's other investment
portfolios. Class C shares are also offered to certain
investors who desire enhanced shareholder services which
include cash sweeps. As of the date of this prospectus,
Class B and Class C shares are not currently being
offered in the Government Money Market Fund, the U.S.
Treasury Money Market Fund and the New York Tax-Free
Money Market Fund.
- --------------------------------------------------------------------------------
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 bank wire other than the Federal
Reserve Wire System may take longer to be converted into Federal funds.
All purchases must be in U.S. dollars. A fee will be charged for any checks
that do not clear. Third-party checks are not accepted.
There are no minimum investment requirements with respect to investments
effected through certain automatic purchase and redemption arrangements on
behalf of customer accounts maintained at Service Organizations. The minimum
investment requirements may be waived or lowered for investments effected on a
group basis by certain other institutions and their employees, such as pursuant
to a payroll deduction plan. All funds will be invested in full and fractional
shares. The Fund reserves the right to reject any purchase order.
Avoid 31% Tax Withholding
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
24
<PAGE>
Shareholder Information [GRAPHIC]
Purchasing and Adding To Your Shares
By Regular Mail
If purchasing through your financial advisor or brokerage account, simply tell
your advisor or broker that you wish to purchase shares of the Funds and he or
she will take care of the necessary documentation. For all other purchases,
follow the instructions below.
All investments made by regular mail or express delivery, whether initial or
subsequent, should be sent to:
By Express Mail:
By Regular Mail:
HSBC Family of Funds HSBC Family of Funds
PO Box 163850 3435 Stelzer Road
Columbus, OH 43216-3850 Columbus, OH 43219
Initial Investment:
1. Carefully read and complete the application. Establishing your account
privileges now saves you the inconvenience of having to add them later.
2. Make check, bank draft or money order payable to "HSBC Family of Funds".
3. Mail or deliver application and payment to the address above.
Subsequent Investments:
1. Use the investment slip attached to your account statement. Or, if
unavailable, provide the following information:
. Fund
. Amount invested
. Account name and number
2. Make check, bank draft or money order payable to "HSBC Family of Funds".
3. Mail or deliver investment slip and payment to the address above.
Electronic Purchases
Your bank must participate in the Automated Clearing House (ACH) and must be a
United States Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call 1-800-
634-2536. Your account can generally be set up for electronic purchases within
15 days.
Call 1-800-634-2536 to arrange a transfer from your bank account.
25
<PAGE>
Shareholder Information [GRAPHIC]
Purchasing and Adding To Your Shares
Electronic vs. Wire Transfer
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, the transaction is made
through the Automated Clearing House (ACH) and may take up to eight days to
clear. There is generally no fee for ACH transactions.
By Wire Transfer
Telephone the Transfer Agent at 1-800-634-2536 for instructions. Please note
your bank may charge you a fee for handling this transaction.
You can add to your account by using the convenient options described below.
The Fund reserves the right to change or eliminate these privileges at any time
with 60 days notice.
Automatic Investment Plan
You can make automatic investments in the Funds from your bank account, through
payroll deduction or from your federal employment, Social Security or other
regular government checks. Automatic investments can be as little as $50, once
you've invested the $1000 minimum required to open the account.
To invest regularly from your bank account:
. Complete the Automatic Investment Plan portion on your Account Application.
Make sure you note:
- Your bank name, address and account number
- The amount you wish to invest automatically (minimum $50)
- How often you want to invest (every month, 4 times a year, twice a year
or once a year)
. Attach a voided personal check.
To invest regularly from your paycheck or government check:
Call 1-800-634-2536 for an enrollment form.
Dividends and Distributions
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends for the Cash Management Fund are higher for Class A shares than for
Class B and C shares, because Class A shares have lower distribution expenses.
Capital gains are distributed at least annually.
Questions?
Call 1-800-634-2536 or your investment representative.
26
<PAGE>
Shareholder Information [GRAPHIC]
Selling Your Shares
You may sell your Withdrawing Money from Your Fund Investment
shares at any
time. Your sales As a mutual fund shareholder, you are technically selling
price will be the shares when you request a withdrawal in cash. This is also
next NAV after known as redeeming shares or a redemption of shares.
your sell order is
received by the -----------------------------------------------------------
Fund, its transfer Contingent Deferred Sales Charge
agent, or your
investment When you sell Class B or C shares of the Cash Management
representative. Fund, you will be charged a fee for any shares that have
Normally you will not been held for a sufficient length of time. These fees
receive your will be deducted from the money paid to you. The
proceeds within a Contingent Deferred Sales Charge will be waived for
week after your customers of HSBC Bank USA Commercial Sweep who are
request is redeeming Class C shares. See the section on "Distribution
received. Arrangements/Sales Charges" on page 31 for details.
- --------------------------------------------------------------------------------
Instructions for selling shares
If selling your shares through your financial adviser or
broker, ask him or her for redemption procedures. Your
adviser and/or broker may have transaction minimums and/or
transaction times which will affect your redemption. For
all other sales transactions, follow the instructions
below.
By telephone
(unless you have 1. Call 1-800-634-2536 with instructions as to how you
declined telephone wish to receive your funds (mail, wire, electronic
sales privileges) transfer).
- --------------------------------------------------------------------------------
By mail 1.Call 1-800-634-2536 to request redemption forms or write
a letter of instruction indicating:
(See "Selling Your . your Fund and account number
Shares-- . amount you wish to redeem
Redemptions in . address where your check should be sent
Writing Required") . account owner signature
2.Mail to:
HSBC Family of Funds
P.O. Box 163850
Columbus, Ohio 43216-3850.
- --------------------------------------------------------------------------------
By express See instruction 1 above.
delivery
2. Send to:
(See "Selling Your HSBC Family of Funds
Shares-- Attn: T.A. Operations
Redemptions in 3435 Stelzer Road
Writing Required") Columbus, OH 43219
27
<PAGE>
Shareholder Information [GRAPHIC]
Selling Your Shares
Call 1-800-634-2536 to request a wire transfer.
Wire transfer
You must indicate If you call in your redemption request of $1,000 or more
this option on by 12:00 noon Eastern time, your payment will normally be
your account wired to your bank on the same business day. Otherwise, it
application. will normally be wired on the next business day after your
call.
Your financial
institution may
charge a wire
transfer fee.
- --------------------------------------------------------------------------------
Electronic
Redemptions Call 1-800-634-2536 to request an electronic redemption.
Your bank must
participate in the If you call by 4 p.m. Eastern time, the NAV of your shares
Automated Clearing will normally be determined on the same day and the
House (ACH) and proceeds credited within 7 days.
must be a U.S.
bank.
- --------------------------------------------------------------------------------
Systematic Withdrawal Plan
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $50. To activate this
feature:
. Make sure you've checked the appropriate box on the Account Application. Or
call 1-800-634-2536.
. Include a voided personal check.
. Your account must have a value of $10,000 or more to start withdrawals.
. If the value of your account falls below $500, you may be asked to add
sufficient funds to bring the account back to $500, or the Fund may close
your account and mail the proceeds to you.
Redemption By Check Writing
You may write checks for amounts of $500 or more to make payments to any person
or business from your account. To obtain checks, complete the check writing
section of the Account Application or contact the Fund to obtain a signature
card. Dividends and distributions will continue to be paid up to the day the
check is presented for payment. You must maintain the minimum required account
balance of $500 per Fund and you may not close your account by writing a check.
28
<PAGE>
Shareholder Information [GRAPHIC]
Selling Your Shares
Redemptions In Writing Required
You must request redemption in writing in the following situations:
1. Redemption requests requiring a signature guarantee which include each of
the following.
. Redemptions over $5,000
. Your account registration or the name(s) in your account has changed within
the last 15 days
. The check is not being mailed to the address on your account
. The check is not being made payable to the owner of the account
. The redemption proceeds are being transferred to another Fund account with
a different registration.
A signature guarantee can be obtained from a financial institution, such as a
bank, broker-dealer, or credit union, or from members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are
subject to dollar limitations which must be considered when requesting their
guarantee. The Transfer Agent may reject any signature guarantee if it believes
the transaction would otherwise be improper.
Verifying Telephone Redemptions
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your
protection and you will be asked for information to verify your identity. Given
these precautions, unless you have specifically indicated on your application
that you do not want the telephone redemption feature, you may be responsible
for any fraudulent telephone orders. If appropriate precautions have not been
taken, the Transfer Agent may be liable for losses due to unauthorized
transactions. Telephone redemption privileges will be suspended for a 30-day
period following a telephone address change.
Redemptions Within 15 Days of Investment
When you have made an investment by check, payment on redemption requests will
be delayed until the Transfer Agent is satisfied that the check has cleared
(which may require up to 15 days from purchase date). You can avoid this delay
by purchasing shares with a certified check.
Refusal of Redemption Request
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
29
<PAGE>
Shareholder Information [GRAPHIC]
Selling Your Shares
Redemption in Kind
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund
operations (for example, more than 1% of the Funds' net assets). If the Fund
deems it advisable for the benefit of all shareholders, redemption in kind will
consist of securities equal in market value to your shares. When you convert
these securities to cash, you will pay brokerage charges.
Closing of Small Accounts
If your account falls below $500, the Fund may ask you to increase your
balance. If it is still below $500 after 30 days, the Fund may close your
account and send you the proceeds.
Undeliverable Redemption Checks
For any shareholder who chooses to receive distributions in cash: If
distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that
remain uncashed for six months will be considered void. The check will be
canceled and the money reinvested in the Fund.
30
<PAGE>
Shareholder Information [GRAPHIC]
Distribution Arrangements/ Sales Charges
This section describes the sales charges and fees you will pay as an investor
in different share classes offered by the Funds.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Sales Charge (Load) No front-end No front-end No front-end
sales charge. sales charge. sales charge.
A contingent A contingent
deferred sales deferred sales
charge (CDSC) charge (CDSC)
may be imposed may be imposed
on shares on shares
redeemed redeemed
within four within one
years after year after
purchase; purchase.
shares
automatically
convert to
Class A shares
after 6 years.
- ----------------------------------------------------------------------
Distribution (12b-1) Fee Subject to Subject to Subject to
aggregate annual annual
annual distribution distribution
distribution fee of up to fees of up to
fee of up to .75% of the .75% of the
.20% of the Fund's net Fund's net
Fund's net assets. assets.
assets.
- ----------------------------------------------------------------------
Service Organization Fee Subject to Subject to Subject to
annual service annual service annual service
organization organization organization
fee of up to fee of up to fee of up to
.35% of the .50% of the .50% of the
Fund's net Fund's net Fund's net
assets assets.* assets.*
- ----------------------------------------------------------------------
Fund Expenses Lower annual Higher annual Higher annual
expenses than expenses than expenses than
Class B or C Class A Class A
shares. shares. shares.
- ----------------------------------------------------------------------
</TABLE>
* The service organization fee is being contractually limited to .25% for Class
B and Class C shares of the Cash Management Fund.
Class B Shares and Class C Shares
Class B shares and Class C shares are generally not being sold but are only
offered as an exchange option for Class B shareholders and Class C shareholders
of other funds in the HSBC Family of Funds who wish to exchange some or all of
those shares for Class B shares or Class C shares, respectively, of the Cash
Management Fund. Customers of HSBC Bank USA Commercial Sweep are able to
purchase Class C shares of the Cash Management Fund. As of the date of this
prospectus, Class B and Class C shares are not being offered for the Government
Money Market Fund, the U.S. Treasury Money Market Fund and the New York Tax-
Free Money Market Fund. Although Class B shares and Class C shares are not
subject to a sales charge when a shareholder exchanges Class B shares and Class
C shares of another fund, they may be subject to a contingent deferred sales
charge (CDSC) when redeemed. See "Exchanging Your Shares" below. In addition,
Class B and Class C shares are subject to an aggregate annual distribution fee
of up to .75% and a service organization fee of up to .50% of the Funds' net
assets. Shareholders of Class B shares and Class C shares pay higher annual
expenses than shareholders of Class A shares.
31
<PAGE>
Shareholder Information [GRAPHIC]
Distribution Arrangements/ Sales Charges
Class B Shares
The Cash Management Fund's shares will continue to be subject to a declining
CDSC if Class B shares are exchanged for Class B shares of any other HSBC Fund
and redeemed within 4 years. The CDSC will be as illustrated in the chart on
the right:
<TABLE>
<CAPTION>
CDSC as a % of
Years Since Dollar Amount
Purchase Subject to Charge
- -----------------------------------
<S> <C>
0-1 4.00%
- -----------------------------------
1-2 3.00%
- -----------------------------------
2-3 2.00%
- -----------------------------------
3-4 1.00%
- -----------------------------------
more than 4 None
- -----------------------------------
</TABLE>
The CDSC will be based upon the lower of the NAV at the time of purchase or the
NAV at the time of redemption. There is no CDSC on reinvested dividends or
distributions.
Class C Shares
Similarly, if you exchange Class C shares of the Cash Management Fund for Class
C shares of other HSBC Funds and wish to sell your shares, your redemption may
be subject to a 1.00% CDSC if the shares are redeemed less than one year after
the original purchase of the Class C shares. The 1.00% CDSC will be waived for
customers of HSBC Bank USA Commercial Sweep. The CDSC will be assessed on the
lesser of the current NAV or the NAV at the time of purchase. Unlike Class B
shares; Class C shares do not convert to Class A shares.
Conversion Feature -- Class B Shares
. Class B shares of the Cash Management Fund will convert automatically to
Class A shares of the same Fund after six years from the beginning of the
calendar month in which the Class B shares were originally purchased.
. After conversion, your shares will be subject to the lower distribution and
shareholder servicing fees charged on Class A shares of the Cash Management
Fund which will increase your investment return compared to the Class B
shares.
32
<PAGE>
Shareholder Information [GRAPHIC]
Distribution Arrangements/ Sales Charges
. You will not pay any sales charge or fees when your shares convert, nor
will the transaction be subject to any tax.
. If you purchased Class B shares of another HSBC Fund which you exchanged
for Class B shares of the Cash Management Fund, your holding period will be
calculated from the time of your original purchase of Class B shares. The
dollar value of Class A shares you receive will equal the dollar value of
the Class B shares converted.
Waiver of Sales Charges -- Class B Shares and Class C Shares
The following qualify for waivers of sales charges:
. Distributions following the death or disability of a Shareholder.
. Redemptions representing the minimum distribution from an IRA or Custodial
Account to a Shareholder who has reached age 70 1/2.
. Redemptions representing the minimum distribution from 401(k) retirement
plans where such redemptions are necessary to make distributions to plan
participants.
. Redemptions made by HSBC Bank USA Commercial Sweep customers.
If you sell some but not all of your Class B and Class C shares, shares not
subject to the CDSC (i.e., shares purchased with reinvested dividends) will be
redeemed first, followed by shares subject to the lowest CDSC (typically shares
held for the longest time).
Distribution (12b-1) Fees
The Funds have adopted a plan under SEC Rule 12b-1. The plan allows the Funds
to pay fees for services and expenses relating to the sale and distribution of
the Funds' shares. For Class A shares of the Funds, the amount of the fee is
.20% of the average daily net assets of the Funds. Class B and Class C shares
of the Cash Management Fund pay a distribution fee not to exceed .75% of the
average daily net assets of the Fund. Because these fees are paid from the
Funds' assets on an ongoing basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales fees.
33
<PAGE>
Shareholder Information [GRAPHIC]
Distribution Arrangements/ Sales Charges
Service Organizations
Various banks, trust companies, broker-dealers (other than the Distributor) and
other financial organizations ("Service Organizations") may provide certain
administrative services for its customers who invest in the Funds through
accounts maintained at that Service Organization. The Funds, under servicing
agreements with the Service Organization, will pay a Service Organization fee
an annual rate up to 0.35% for Class A shares and up to .50% for Class B and
Class C shares (with contractual waivers, the fees for the Class B and Class C
shares of the Cash Management Fund are 0.25%) of the average daily net asset
value of shares for which the Service Organization from time to time performs
these services, which include:
.receiving and processing shareholder orders
.performing the accounting for the customers sub-accounts
.maintaining retirement plan accounts
.answering questions and handling correspondence for an individual accounts
.acting as the sole shareholder of record for individual
.issuing shareholder reports and transaction confirmations
.performing daily "sweep" functions
Investors who purchase, sell or exchange shares for the Funds through a
customer account maintained at a Service Organization may be charged extra for
other services which are not specified in the servicing agreement with the
Funds but are covered under separate fee schedules provided by the Service
Organization to their customers. Customers with accounts at Service
Organizations should consult their Service Organization for information
concerning their sub-accounts. The Adviser or Administrator also may pay
Service Organizations for rendering services to shareholders sub-accounts.
Questions?
Call 1-800-634-2536 or your investment representative.
34
<PAGE>
Shareholder Information [GRAPHIC]
Exchanging Your Shares
You can exchange your shares that have been held for at least seven days in the
Fund for shares of the same class of another HSBC Fund, usually without paying
additional sales charges (see "Notes on Exchanges"). No transaction fees are
charged for exchanges.
Instructions for exchanging shares
Exchanges may be made by sending a written request to HSBC Family of Funds, PO
Box 163850, Columbus OH 43216-3850, or by calling 1-800-634-2536. Please
provide the following information:
. Your name and telephone number
. The exact name on your account and account number Taxpayer identification
number (usually your Social Security number)
. Dollar value or number of shares to be exchanged
. The name of the Fund from which the exchange is to be made.
. The name of the Fund into which the exchange is being made.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from the Fund to another are taxable. You should
review the prospectus of the HSBC Fund before making an exchange.
See "Selling your Shares" for important information about telephone
transactions. The Funds reserve the right to modify or terminate the exchange
privilege upon 60 days written notice.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to 4 exchanges within a 12-month
period.
Automatic Exchanges
You can use the Funds' Automatic Exchange feature to purchase shares of other
HSBC Funds at regular intervals through regular, automatic redemptions from
your account. To participate in the Automatic Exchange:
. Complete the appropriate section of the Account Application.
. Keep a minimum of $10,000 in the Fund and $1,000 in the HSBC Fund whose
shares you are buying.
To change the Automatic Exchange instructions or to discontinue the feature,
you must send a written request to HSBC Family of Funds, P.O. Box 163850,
Columbus, Ohio 43216-3850.
35
<PAGE>
Shareholder Information [GRAPHIC]
Exchanging Your Shares
Notes on exchanges
When exchanging from a Fund that has no sales charge or a lower sales charge to
a Fund with a higher sales charge, you will pay the difference.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
Be sure to read the Prospectus carefully of any HSBC Fund into which you wish
to exchange shares.
Investors purchasing shares of the Cash Management Fund will ordinarily
purchase Class A shares, with the exception of HSBC Bank USA Commercial Sweep
customers who may also purchase Class C shares. Other investors will only
receive Class B shares or Class C shares by exchanging from the Class B shares
or Class C of other HSBC Funds. If you exchange shares of other HSBC Funds for
shares of the Funds and wish to sell your shares, Class B and Class C shares
may be subject to a contingent deferred sales charge ("CDSC").
36
<PAGE>
Shareholder Information [GRAPHIC]
Dividends, Distributions and Taxes
Dividends, Distributions and Taxes
Any income a Fund receives in the form of interest is paid out, less expenses,
to its shareholders as dividends. Each Fund declares dividends from net
investment income at 12:00 noon on every business 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. Dividends on the Funds
are generally paid within 5 business days after the end of each month. Capital
gains, if any, for the Funds are distributed at least annually.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
The Funds expect that their dividends will primarily consist of net income or,
if any, short-term capital gains as opposed to long-term capital gains.
Dividends paid by the Cash Management, Government and U.S. Treasury Funds that
are derived from taxable investments are taxable as ordinary income.
During normal market conditions, the New York Tax-Free Money Market Fund
expects that substantially all of its dividends will be excluded from gross
income for federal income tax purposes and from New York state tax purposes.
The Fund may invest in certain securities with interest that may be a
preference item for the purposes of the alternative minimum tax or a factor in
determining whether Social Security benefits are taxable. In such event, a
portion of the Fund's dividends would not be exempt from federal income taxes.
Dividends are taxable as ordinary income. Dividends are taxable in the year in
which they are paid, even if they appear on your account statement the
following year.
You will be notified in January each year about the federal tax status of
distributions made by the Funds. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
Foreign shareholders may be subject to special withholding requirements. There
is a penalty on certain pre-retirement distributions from retirement accounts.
Consult your tax adviser about the federal, state and local tax consequences in
your particular circumstances.
Questions?
Call 1-800-634-2536 or your investment representative.
37
<PAGE>
Financial Highlights [GRAPHIC]
The financial highlights table is intended to help you understand the Funds'
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or lost on an investment
in the Funds (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, whose report, along with the
Fund's financial statements, are included in the annual report and incorporated
by reference in the SAI, which is available upon request
Cash Management Fund
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Investment Activities
Net investment income....... 0.050 0.051 0.049 0.053 0.039
Distributions
From net investment income.. (0.050) (0.051) (0.049) (0.053) (0.039)
-------- -------- -------- -------- --------
Net Asset Value, End of
Year........................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total Return................. 5.15% 5.18% 5.00% 5.41% 3.95%
Ratios/Supplemental Data:
Net assets at end of
period (000)............... $317,552 $184,205 $220,960 $170,869 $200,492
Ratio of expenses to average
net assets................. 0.65% 0.63% 0.68% 0.79% 0.63%
Ratio of net investment
income to average
net assets................. 5.01% 5.06% 4.88% 5.29% 3.84%
Ratio of expenses to average
net assets*................ 0.87% 0.83% 0.80% 0.80% 0.64%
</TABLE>
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
38
<PAGE>
Financial Highlights [GRAPHIC]
Government Money Market Fund
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------
1998 1997 1996 1995 1994
------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- -------- ------- ------- --------
Investment Activities
Net investment income.......... 0.049 0.049 0.048 0.052 0.038
Distributions
From net investment income..... (0.049) (0.049) (0.048) (0.052) (0.038)
------- -------- ------- ------- --------
Net Asset Value, End of Year.... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======== ======= ======= ========
Total Return.................... 5.01% 5.05% 4.87% 5.32% 3.83%
Ratios/Supplemental Data:
Net assets at end of
period (000).................. $77,354 $100,862 $87,392 $86,850 $166,796
Ratio of expenses to average
net assets.................... 0.62% 0.63% 0.72% 0.76% 0.63%
Ratio of net investment income
to average net assets......... 4.86% 4.94% 4.75% 5.21% 3.76%
Ratio of expenses to average
net assets*................... 0.80% 0.79% 0.84% 0.78% 0.64%
</TABLE>
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
39
<PAGE>
Financial Highlights [GRAPHIC]
U.S. Treasury Money Market Fund
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- --------
Investment Activities
Net investment income........... 0.048 0.049 0.046 0.049 0.036
Distributions
From net investment income...... (0.048) (0.049) (0.046) (0.049) (0.036)
------- ------- ------- ------- --------
Net Asset Value, End of Year..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ========
Total Return..................... 4.86% 4.98% 4.68% 5.04% 3.60%
Ratios/Supplemental Data:
Net assets at end of
period (000)................... $25,876 $25,507 $28,962 $32,500 $105,720
Ratio of expenses to average net
assets......................... 0.65% 0.65% 0.78% 0.82% 0.68%
Ratio of net investment income
to average net assets.......... 4.75% 4.86% 4.57% 4.94% 3.48%
Ratio of expenses to average net
assets*........................ 0.94% 0.94% 0.95% 0.84% 0.69%
</TABLE>
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
40
<PAGE>
Financial Highlights [GRAPHIC]
New York Tax-Free Money Market Fund
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Investment Activities
Net investment income............ 0.028 0.031 0.029 0.031 0.022
Distributions
From net investment income....... (0.028) (0.031) (0.029) (0.031) (0.022)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return...................... 2.83% 3.14% 2.92% 3.17% 2.23%
Ratios/Supplemental Data:
Net assets at end of
period (000).................... $94,259 $86,729 $70,339 $64,884 $53,538
Ratio of expenses to average net
assets.......................... 0.64% 0.52% 0.59% 0.69% 0.57%
Ratio of net investment income to
average net assets.............. 2.78% 3.09% 2.88% 3.13% 2.20%
Ratio of expenses to average net
assets*......................... 0.82% 0.80% 0.87% 0.85% 0.73%
</TABLE>
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
41
<PAGE>
For more information about the Funds, the following documents
are available free upon request:
Annual/Semi-annual Reports (Reports):
The Funds' annual and semi-annual reports to shareholders contain
detailed information on the Funds' investments. In the annual
report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Funds'
performance during its last fiscal year.
Statement of Additional Information (SAI):
The SAI provides more detailed information about the Funds,
including their operations and investment policies. It is
incorporated by reference, and is legally considered a part of
this prospectus.
You can get free copies of Reports and the SAI, Prospectuses of
other Funds in the HSBC Family, or request other information and
discuss your questions about the Funds by contacting a broker or
bank that sells the Funds. Or contact the Funds at:
HSBC Family of Funds
PO Box 163850
Columbus, OH 43219
Telephone: 1-800-634-2536
-----------------------------------------------------
You can review and copy the Fund's reports and SAIs at the
Public Reference Room of the Securities and Exchange
Commission. You can get text-only copies:
. For a duplicating fee, by writing the Public Reference
Section of the Commission, Washington, D.C. 20549-6009 or
calling 1-800-SEC-0330.
. Free from the Commission's Website at http://www.sec.gov.
(Investment Company Act file no. 811-04453)
<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, each having its own investment objective and policies
including the following: Cash Management Fund, Government Money Market Fund,
U.S. Treasury Money Market Fund, and The New York Tax-Free Money Market Fund.
Each Fund has three classes of shares: Class A shares, Class B shares and
Class C shares. Currently only the Cash Management Fund offers Class B or
Class C shares. Class A shares of each Fund are subject to shareholder servicing
and Rule 12b-1 fees. Ordinarily, investors purchasing shares of any of the Funds
will purchase Class A shares. Investors will generally only receive Class B or
Class C shares by exchanging Class B shares or Class C shares of other HSBC
Funds, although customers of certain entities affiliated with HSBC Asset
Management Americas, Inc. (the "Adviser") are able to purchase Class C shares of
the Cash Management Fund. If an investor exchanges Class B or Class C shares of
another HSBC Fund for Class B or Class C shares of a Fund, these Class B and
Class C shares may be subject to a contingent deferred sales charge when the
investor sells his or her shares.
The 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 referred to as the "New
York Tax-Free 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.
The 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.
The 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.
The 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, 1999 (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'
<PAGE>
Prospectus, additional copies of which may be obtained without charge from the
Trust by writing to the address above.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVESTMENT POLICIES........................................ 2
INVESTMENT RESTRICTIONS.................................... 25
MANAGEMENT................................................. 28
COMPENSATION TABLE......................................... 29
SERVICES ORGANIZATION...................................... 32
CALCULATION OF YIELDS AND PERFORMANCE
INFORMATION................................................ 34
DETERMINATION OF NET ASSET VALUE........................... 36
PORTFOLIO TRANSACTIONS..................................... 37
PURCHASE OF SHARES......................................... 37
EXCHANGE PRIVILEGE......................................... 37
REDEMPTIONS................................................ 38
FEDERAL INCOME TAXES....................................... 38
SHARES OF BENEFICIAL INTEREST.............................. 41
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTING AGENT........ 42
INDEPENDENT AUDITORS....................................... 44
FUND COUNSEL............................................... 44
FINANCIAL STATEMENTS....................................... 45
</TABLE>
INVESTMENT POLICIES
The following information supplements the discussion of the investment
objective and policies of the Funds found under "Investment Objective and
Policies" in the Funds' Prospectus.
CASH MANAGEMENT FUND
The Cash Management Fund ("Cash Management Fund") invests in a broad range
of short-term money market instruments which have remaining maturities not
exceeding thirteen months and certain repurchase agreements. These money market
instruments may include obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities and the following other kinds of
investments:
BANK OBLIGATIONS. These obligations include negotiable certificates of
deposit, bankers' acceptances and fixed time deposits and other obligations
issued or supported by banks. The Cash Management Fund may invest more than 25%
of the current value of its total assets in domestic bank obligations (including
bank obligations subject to repurchase agreements). The Cash Management Fund
will not invest in any obligations of HSBC Holdings plc or its affiliates (as
defined under the Investment Company Act of 1940). The Cash Management Fund is
permitted to invest in obligations of correspondent banks of HSBC Holdings plc
which are not affiliates of the Trust, but the Fund will not give preference in
its investment selections to those obligations.
2
<PAGE>
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.
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.
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. 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 "Variable Rate Demand Notes" below for further
details about master notes).
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.
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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:
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 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. (See the
Appendix for a description of the ratings.)
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 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"
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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. (See the
Appendix for a description of the ratings.)
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. It is paid from the general revenues of the issuer or
refinanced with additional issuances of commercial paper or long-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.
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.
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 SAI.
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.
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.
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
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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. 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.
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.
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. 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 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.
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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.
CONCENTRATION. 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.
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 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;
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(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.
RISK FACTORS FOR THE NEW YORK TAX-FREE FUND
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.
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 Funds to maintain
a stable net asset value per share.
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,
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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.
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. There can be no assurance that New York City or the local entities,
or the State, will not face budget gaps in future years.
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.
National economic growth during both 1998 and 1999 is expected to be
slower thanit was during 1997. The financial and economic turmoil which started
in Asia and has spread to other parts of the world is expected to continue to
negatively affect U.S. trade balances throughout most of 1999. In addition,
growth in domestic consumption, which has been a major driving force behind the
nation's strong economic performance in recent years, is expected to slow in
1999 as consumer confidence retreats from historic highs and the stock market
ceases to provide large amounts of extra discretionary income. However, the
lower short-term interest rates which are expected to be in force during 1999
should help prevent a recession. The revised forecast projects real GDP growth
of 3.4 percent in 1998, moderately below the 1997 growth rate. In 1999, real GDP
growth is expected to fall further, to 1.6 percent. The growth of nominal GDP is
projected to decline from 5.9 percent in 1997 to 4.6 percent in 1998 and 3.7
percent in 1999. The inflation rate is expected to drop to 1.7 percent in 1998
before rising to 2.7 percent in 1999. The annual rate of job growth is expected
to be 2.5 percent in 1998, almost equaling the strong growth rate experienced in
1997. In 1999, however, employment growth is forecast to slow markedly, to 1.9
percent. Growth in personal income and wages is expected to slow in 1998 and
again in 1999.
Continued growth is projected for New York State in 1998 and 1999 for
employment, wages, and personal income, although, for 1999, a significant
slowdown in the growth rates of personal income and wages are expected. The
growth of personal income is projected to rise from 4.7 percent in 1997 to 5.0
percent in 1998, but then drop to 3.4 percent in 1999, in part because growth in
bonus payments is expected to moderate significantly, a distinct shift from the
unusually high increases of the last few years. Overall employment growth is
expected to be 2.0 percent in 1998, the strongest in a decade, but is expected
to drop to 1.0 percent in 1999, reflecting the slowing growth of the national
economy, continued spending restraint in government, less robust profitability
in the financial sector and continued restructuring in the manufacturing, health
care, and banking sectors.
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
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Financial Plan"). That proposed State Financial Plan must be balanced on a cash
basis, and must be accompanied by bills which: (i) set forth all proposed
appropriations and reappropriations, (ii) provide for any new or modified
revenue measures, and (iii) make any other changes to existing law necessary to
implement the budget recommended by the Governor.
In acting on the bills submitted by the Governor, the Legislature has the
power to alter both recommended appropriations and proposed changes to
substantive law. The Legislature may strike out or reduce an item of
appropriation recommended by the Governor. The Legislature may add items of
appropriation provided such additions are stated separately. These additional
items are then subject to line-item veto by the Governor. If the Governor
vetoes an appropriation or a bill related to the budget, these can be
reconsidered in accordance with the rules of each house of the Legislature. If
approved by two-thirds of the members of each house, the measure will become law
notwithstanding the Governor's veto.
Once the appropriation and other bills become law, the State's Division of
the Budget ("DOB") revises the State Financial Plan based on the Legislatures'
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.
1998-99 Fiscal Year - The Legislature adopted the debt service component of the
State budget for the 1998-99 fiscal year on March 30, 1998 and the remainder of
the budget on April 18, 1998. In the period prior to adoption of the budget for
the current fiscal year, the Legislature also enacted appropriations to permit
the State to continue its operations and provide for other purposes. On April
25, 1998, the Governor vetoed certain items that the Legislature added to the
Executive Budget. The Legislature had not overridden any of the Governor's
vetoes as of the start of the legislative recess on June 19, 1998 (under the
State Constitution, the Legislature can override one or more of the Governor's
vetoes with the approval of two-thirds of the members of each house).
General Fund disbursements in 1998-99 are now projected to grow by $2.43
billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under the School Tax Relief Program (STAR),
expansion of the child care income-tax credit for middle- income families, a
phased-in reduction of the general business tax, and reduction of several other
taxes and fees, including an accelerated phase-out of assessments on medical
providers. The enacted budget also provides for significant increases in
spending for public schools, special education programs, and for the State and
City university systems. It also allocates $50 million for a new Debt Reduction
Reserve Fund (DRRF) that may eventually be used to pay debt service costs on or
to prepay outstanding State- supported bonds.
The 1998-99 State Financial Plan projects a closing balance in the General
Fund of $1.42 billion that is comprised of a reserve of $761 million available
for future needs, a balance of $400 million in the Tax Stabilization Reserve
Fund (TSRF), a balance of $158 million in the Community Projects Fund (CPF), and
a balance of $100 million in the Contingency Reserve Fund (CRF). The TSRF can be
used in the event of an unanticipated General Fund cash operating deficit, as
provided under the State Constitution and State Finance Law. The CPF is used to
finance various legislative and executive initiatives. The CRF provides
resources to help finance any extraordinary litigation costs during the fiscal
year.
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Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State's Financial Plan. These
forces may affect the State unpredictably from fiscal year to fiscal year and
are influenced by governments, institutions, and organizations that are not
subject to the State's control. The State Financial Plan is also necessarily
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 Division of Budget 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 the
projections set forth herein, and those projections may be changed materially
and adversely from time to time. See "Special Considerations" below for a
discussion of risks and uncertainties faced by the State.
Second Update (current fiscal year) - On October 30, 1998, the State
issued the second of its three quarterly updates to the 1998-99 Financial Plan.
In the Mid-Year Update, the State continues to project that the State Financial
Plan for 1998-99 will remain in balance. The State now projects total receipts
in 1998-99 of $37.84 billion, an increase of $29 million over the amount
projected in the First Quarterly Update. The State has made no changes to its
July disbursement projections, with total disbursements of $36.78 billion
expected for the current fiscal year. The additional receipts increase the
State's projected surplus (reserve for future needs) by $29 million over the
July estimate, to $1.04 billion.
The Financial Plan now projects a closing balance in the General Fund of
$1.7 billion. The balance is comprised of the $1.04 billion reserve for future
needs, $400 million in the Tax Stabilization Reserve Fund, $100 million in the
Contingency Reserve Fund (after a planned deposit of $32 million in 1998-99),
and $158 million in the Community Projects Fund.
The State ended the first six months of 1998-99 fiscal year with a General
Fund cash balance of $5.02 billion, roughly $143 million higher than projected
in the cash flow accompanying the July Update to the Financial Plan. Total
receipts, including transfers from other funds, were approximately $52 million
higher than expected, with the increase comprised of additional tax revenues
($22 million) and transfers from other funds ($30 million). Total spending
through the first six months of the fiscal year was $16.28 billion, or $91
million lower than projected in July. This variance resulted primarily from
higher spending in Grants to Local Governments ($27 million), offset by lower
spending in State Operations ($124 million). These variances are timing-related
and should not affect total disbursements for the fiscal year.
Outyear Projections Of Receipts And Disbursements - State law requires
the Governor to propose a balanced budget each year.
In recent years, the State has closed projected budget gaps of $5.0
billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than
$1 billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999- 00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of higher-than-
projected tax receipts and in lower-than-expected entitlement spending. However,
the State's projections in 1999-00 currently assume actions to achieve $600
million in lower disbursements and $250 million in additional receipts from the
settlement of State claims against the tobacco industry. Consistent with past
practice, the projections do not include any costs associated with new
collective bargaining agreements after the expiration of the current round of
contracts at the end of the 1998-99 fiscal year. The State expects that the
1999-00 Financial Plan will achieve savings from initiatives by State agencies
to deliver services more efficiently, workforce management efforts, maximization
of federal and non-General Fund spending offsets, and other actions necessary to
bring projected disbursements and receipts into balance.
The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999- 00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The STAR program, which dedicates a portion of
personal income tax receipts to fund school tax reductions, has a significant
impact on General Fund receipts. STAR is projected to reduce personal income tax
revenues available to the General Fund by an estimated $1.3 billion in 2000-01.
Measured from the 1998-99 base, scheduled reductions to estate and gift, sales
and other taxes, reflecting tax cuts enacted in 1997-98 and 1998-99, will lower
General Fund taxes and fees by an estimated $1.8 billion in 2000-01.
Disbursement projections for the outyears currently assume additional outlays
for school aid, Medicaid, welfare reform, mental health community reinvestment,
and other multi-year spending commitments in law. See "Special Considerations"
below for a description of other risks and uncertainties associated with the
State Financial Plan process.
Special Considerations - The economic and financial condition of the
State may be affected by various financial, social, economic and political
factors. These 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. Because of the
uncertainty and unpredictability of these factors, their impact cannot, as a
practical matter, be included in the assumptions underlying the State's
projections at this time.
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The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, the condition of the financial sector,
federal fiscal and monetary policies, the level of interest rates, and the
condition of the world economy, which could have an adverse effect on the State.
There can be no assurance that the State economy will not experience results in
the current fiscal year that are worse than predicted, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
Projections of total State receipts in the Financial Plan are based on the
State tax structure in effect during the fiscal year and on assumptions relating
to basic economic factors and their historical relationships to State tax
receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages, consumption, profits and employment have
been particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic and other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year collection
estimates for taxes that are based on a computation of annual liability, such as
the business and personal income taxes, are consistent with estimates of total
liability under such taxes.
Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, levels of disbursements for various
services provided by local governments (where the cost is partially reimbursed
by the State), and the results of various administrative and statutory
mechanisms in controlling disbursements for State operations. Factors that may
affect the level of disbursements in the fiscal year include uncertainties
relating to the economy of the nation and the State, the policies of the federal
government, and changes in the demand for and use of State services.
An additional risk to the State Financial Plan arises from the potential
impact of certain litigation and of federal disallowances now pending against
the State, which could adversely affect the State's projections of receipts and
disbursements. The State Financial Plan assumes no significant litigation or
federal disallowance or other federal actions that could affect State finances,
but has significant reserves in the event of such an action.
The Division of the Budget 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 the projections set forth herein. In the past, the
State has taken management actions to address potential Financial Plan
shortfalls, and DOB believes it could take similar actions should variances
occur in its projections for the current fiscal year.
Despite recent budgetary surpluses recorded by the State, actions affecting
the level of receipts and disbursements, the relative strength of the State and
regional economy, and actions by the federal government have helped to create
projected structural budget gaps for the State. These gaps result from a
significant disparity between recurring revenues and the costs of maintaining or
increasing the level of support for State programs. To address a potential
imbalance in any given fiscal year, the State would be required to take actions
to increase receipts and/or or reduce disbursements as it enacts the budget for
that year, and, under the State Constitution, the Governor is required to
propose a balanced budget each year. There can be no assurance, however, that
the Legislature will enact the Governor's proposals or that the State's actions
will be sufficient to preserve budgetary balance in a given fiscal year or to
align recurring receipts and disbursements in future fiscal years. For example,
the fiscal effects of tax reductions adopted in the last several fiscal years
(including 1998-99) are projected to grow more substantially beyond the 1998-99
fiscal year, with the incremental annual cost of all currently enacted tax
reductions estimated at over $4 billion by the time they are fully effective in
State fiscal year 2002-03. These actions will place pressure on future budget
balance in New York State.
1998-99 State Financial Plan - Four governmental fund types comprise the State
Financial Plan: the General Fund, the Special Revenue Funds, the Capital
Projects Funds, and the Debt Service Funds.
General Fund
The General Fund is the principal operating fund of the State and is used
to account for all financial transactions except those required to be accounted
for in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1998-99 fiscal year, the General Fund is expected to account for
approximately 47.6 percent of all Governmental Funds disbursements and 70.1
percent of total State Funds disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service payments in other fund types. Total receipts and transfers from
other funds are projected to be $37.56 billion, an increase of $3.01 billion
from the 1997-98 fiscal year. Total General Fund disbursements and transfers to
other funds are projected to be $36.78 billion, an increase of $2.43 billion
from the 1997-98 fiscal year.
Projected General Fund Receipts
Total General Fund receipts in 1998-99 are projected to be $37.56 billion,
an increase of over $3 billion from the $34.55 billion recorded in 1997-98. This
total includes $34.36 billion in tax receipts, $1.40 billion in miscellaneous
receipts, and $1.80 billion in transfers from other funds.
The transfer of a portion of the surplus recorded in 1997-98 to 1998-99
exaggerates the "real" growth in State receipts from year to year by depressing
reported 1997-98 figures and inflating 1998-99 projections. Conversely, the
incremental cost of tax reductions newly effective in 1998- 99 and the impact of
statutes earmarking certain tax receipts to other funds work to depress apparent
growth below the underlying growth in receipts attributable to expansion of the
State's economy. On an adjusted basis, State tax revenues in the 1998-99 fiscal
year are projected to grow at approximately 7.5 percent, following an adjusted
growth of roughly nine percent in the 1997-98 fiscal year. The discussion below
summarizes the State's projections of General Fund taxes and other revenues for
the 1998-99 Fiscal year.
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The Personal Income Tax is imposed on the income of individuals, estates
and trusts and is based with certain modifications on federal definitions of
income and deductions. This tax continues to account for over half of the
State's General Fund receipts base. Net personal income tax collections are
projected to reach $21.24 billion, nearly $3.5 billion above the reported
1997-98 collection total. Since 1997 represented the completion of the 20
percent income tax reduction program enacted in 1995, growth from 1997 to 1998
will be unaffected by major income tax reductions. Adding to the projected
annual growth is the net impact of the transfer of the surplus from 1997-98 to
the current year which affects reported collections by over $2.4 billion on a
year-over-year basis, as partially offset by the diversion of slightly over $700
million in income tax receipts to the STAR fund to finance the initial year of
the school tax reduction program. The STAR program was enacted in 1997 to
increase the State share of school funding and reduce residential school taxes.
Adjusted for these transactions, the growth in net income tax receipts is
roughly $1.7 billion, an increase of over 9 percent. This growth is largely a
function of over 8 percent growth in income tax liability projected for 1998 as
well as the impact of the 1997 tax year settlement on 1998-99 net collections.
User taxes and fees are comprised of three-quarters of the State four
percent sales and use tax (the balance, one percent, flows to support Local
Government Assistance Corporation (LGAC) debt service requirements), cigarette,
alcoholic beverage, container, and auto rental taxes, and a portion of the motor
fuel excise levies. Also included in this category are receipts from the motor
vehicle registration fees and alcoholic beverage license fees. A portion of the
motor fuel tax and motor vehicle registration fees and all of the highway use
tax are earmarked for dedicated transportation funds.
Receipts from user taxes and fees are projected to total $7.14 billion, an
increase of $107 million from reported collections in the prior year. The sales
tax component of this category accounts for all of the 1998-99 growth, as
receipts from all other sources decline $100 million. The growth in yield of the
sales tax in 1998-99, after adjusting for tax law and other changes, is
projected at 4.7 percent. The yields of most of the excise taxes in this
category show a long-term declining trend, particularly cigarette and alcoholic
beverage taxes. These General Fund declines are exacerbated in 1998-99 by
revenue losses from scheduled and newly enacted tax reductions, and by an
increase in earmarking of motor vehicle registration fees to the Dedicated
Highway and Bridge Trust Fund.
Business taxes include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as gross-receipts-
based taxes on utilities and gallonage-based petroleum business taxes. Beginning
in 1994, a 15 percent surcharge on these levies began to be phased out and, for
most taxpayers, there is no surcharge liability for taxable periods ending in
1997 and thereafter.
Total business tax collections in 1998-99 are now projected to be $4.96
billion, $91 million less than received in the prior fiscal year. The category
includes receipts from the largely income-based levies on general business
corporations, banks and insurance companies, gross receipts taxes on energy and
telecommunication service providers and a per-gallon imposition on petroleum
business. The year-over-year decline in projected receipts in this category is
largely attributable to statutory changes between the two years. These include
the first year of utility-tax rate cuts and the Power for Jobs tax reduction
program for energy providers, and the scheduled additional diversion of General
Fund petroleum business and utility tax receipts to other funds. In addition,
profit growth is also expected to slow in 1998.
Other taxes include estate, gift and real estate transfer taxes, a tax on
gains from the sale or transfer of certain real estate (this tax was repealed in
1996), a pari-mutuel tax and other minor levies. They are now projected to total
$1.02 billion -- $75 million below last year's amount. Two factors account for a
significant part of the expected decline in collections from this category.
First, the effects of the elimination of the real property gains tax
collections; second, a decline in estate tax receipts, following the explosive
growth recorded in 1997-98, when receipts expanded by over 16 percent.
Miscellaneous receipts include investment income, abandoned property
receipts, medical provider assessments, minor federal grants, receipts from
public authorities, and certain other license and fee revenues. Total
miscellaneous receipts are projected to reach $1.40 billion, down almost $200
million from the prior year, reflecting the loss of non-recurring receipts in
1997-98 and the growing effects of the phase-out of the medical provider
assessments.
Transfers from other funds to the General Fund consist primarily of tax
revenues in excess of debt service requirements, particularly the one percent
sales tax used to support payments to LGAC. Transfers from other funds are
expected to total $1.8 billion, or $222 million less than total receipts from
this category during 1997-98. Total transfers of sales taxes in excess of LGAC
debt service requirements are expected to increase by approximately $51 million,
while transfers from all other funds are expected to fall by $273 million,
primarily reflecting the absence, in 1998-99, of a one-time transfer of nearly
$200 million for retroactive reimbursement of certain social services claims
from the federal government. Projected General Fund Disbursements
General Fund disbursements in 1998-99, including transfers to support
capital projects, debt service and other funds are estimated at $36.78 billion.
This represents an increase of $2.43 billion or 7.1 percent from 1997-98. Nearly
one-half of the growth is for educational purposes, reflecting increased support
for public schools, special education programs and the State and City university
systems. The remaining increase is primarily for Medicaid, mental hygiene, and
other health and social welfare programs, including children and family
services. The 1998-99 Financial Plan also includes funds for the current
negotiated salary increases for State employees, as well as increased transfers
for debt service.
Grants to Local Governments is the largest category of General Fund
disbursements and includes financial assistance to local governments and
not-for-profit corporations, as well as entitlement benefits to individuals. The
1998-99 Financial Plan projects spending of $25.14 billion in this category, an
increase of $1.88 billion or 8.1 percent over the prior year. The largest annual
increases are for educational programs, Medicaid, other health and social
welfare programs, and community projects grants.
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The 1998-99 budget provides $9.65 billion in support of public schools. The
year-to-year increase of $769 million is comprised of partial funding for a
1998-99 school year increase of $847 million as well as the remainder of the
1997-98 school year increase that occurs in State fiscal year 1998- 99. Spending
for all other educational programs, which includes the State and City university
systems, the Tuition Assistance Programs, and handicapped programs, is estimated
at $3.00 billion, an increase of $270 million over 1997-98 levels.
Medicaid costs are estimated at $5.60 billion, an increase of $144 million
from the prior year. After adjusting 1997-98 for the $116 million prepayment of
an additional Medicaid cycle, Medicaid spending is projected to increase $260
million or 4.9 percent. Disbursements for all other health and social welfare
programs are projected to total $3.63 billion, an increase of $131 million from
1997-98. This includes an increase in support for children and families and
local public health programs, offset by a decline in welfare spending of $75
million that reflects continuing State and local efforts to reduce welfare
fraud, declining caseloads, and the impact of State and federal welfare reform
legislation.
Remaining disbursements primarily support community-based mental hygiene
programs, community and public health programs, local transportation programs,
and revenue sharing payments to local governments. Revenue sharing and other
general purpose aid to local governments are projected at $837 million, an
increase of approximately $37 million from 1997-98.
State operations spending reflects the administrative costs of operating
the State's agencies, including the prison system, mental hygiene institutions,
the State University system (SUNY), the Legislature, and the court system.
Personal service costs account for approximately 73 percent of spending in this
category. Since January 1995, the State's workforce has been reduced by about 10
percent and is projected to remain at its current level of approximately 191,000
persons in 1998-99.
State operations spending is projected at $6.70 billion, an increase of
$511 million of 8.3 percent from the prior year. This increase is primarily due
to an additional payroll cycle in 1998-99, a 3.5 percent general salary increase
on October 1, 1998 for most State employees, the loss of federal receipts that
would otherwise lower General Fund spending in mental hygiene programs, and a
projected 15.6 percent increase in the Judiciary's budget.
General State charges account primarily for the costs of providing
fringe benefits for State employees, including contributions to pension systems,
the employer's share of social security contributions, employer contributions
toward the cost of health insurance, and the costs of providing worker's
compensation and unemployment insurance benefits. This category also reflects
certain fixed costs such as payments in lieu of taxes, and payments of judgments
against the State or its public officers.
Disbursements in this category are estimated at $2.22 billion, a
decrease of $50 million from the prior year. This annual decline reflects
projected decreases in pension costs and Court of Claims payments, offset by
modest projected increases for health insurance contributions, social security
costs, and the loss of reimbursements due to a reduction in the fringe benefit
rate charged to positions financed by non-General Fundsources.
Debt service paid from the General Fund reflects debt service on short-term
obligations of the State, and includes only interest costs on the State's
commercial paper program. The 1998-99 debt service estimate is $11 million,
reflecting relative stability in short-term interest rates. The State's
short-term TRAN borrowing program was eliminated in 1995.
Transfers to other funds from the General Fund are made primarily to
finance certain portions of State capital projects spending and debt service on
long-term bonds where these costs are not funded from other sources.
Transfers in support of debt service are projected at $2.13 billion in
1998-99, an increase of $110 million from 1997-98. The increase reflects the
impact of certain prior year bond sales (net of refunding savings), and certain
bond sales planned to occur during the 1998-99 fiscal year. The State Financial
Plan also establishes a transfer of $50 million to the new Debt Reduction
Reserve Fund. The Fund may be used, subject to enactment of new appropriations,
to pay the debt service costs on or to prepay State- supported bonds.
Transfers in support of capital projects provide General Fund support for
projects not otherwise financed through bond proceeds, dedicated taxes and other
revenues, or federal grants. These transfers are projected at $200 million for
1998-99, comparable to last year.
Remaining transfers from the General Fund to other funds are estimated to
decline $59 million in 1998-99 to $327 million. This decline is primarily the
net impact of one-time transfers in 1997-98 to the State University Tuition
Stabilization Fund and to the Lottery Fund to support school aid, offset by a
1998-99 increase in the State subsidy to the Roswell Park Cancer Research
Institute.
Non-recurring Resources
The Division of the Budget estimates that the 1998-99 State Financial Plan
contains actions that provide non-recurring resources or savings totaling
approximately $64 million, the largest of which is a retroactive reimbursement
of federal welfare claims.
The 1998-99 Financial Plan projects a closing fund balance in the General
Fund of $1.42 billion. This fund balance is composed of a reserve of $761
million available for future needs, a $400 million balance in the TSRF, a $158
million balance in the CPF, and a balance of $100 million in the CRF, after a
projected deposit of $32 million in 1998-99.
Other Governmental Funds
In addition to the General Fund, the State Financial Plan includes Special
Revenue Funds, Capital Projects Funds and Debt Service Funds which are discussed
below. Amounts below do not include other sources and uses of funds transferred
to or from other fund types.
Special Revenue Funds
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes.
Although activity in this fund type is expected to comprise approximately 41
percent of total governmental funds receipts in the 1998-99 fiscal year,
three-quarters of that activity relates to federally-funded programs.
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Total disbursements for programs supported by Special Revenue Funds are
projected at $29.97 billion, an increase of $2.32 billion or 8.4 percent from
1997-98. Federal grants account for approximately three-quarters of all spending
in the Special Revenue fund type. Disbursements from federal funds are estimated
at $21.78 billion, an increase of $1.12 billion or 5.4 percent. The single
largest program in this fund group is Medicaid, which is projected at $13.65
billion, an increase of $465 million or 3.5 percent above last year. Federal
support for welfare programs is projected at $2.53 billion, similar to 1997-98.
The remaining growth in federal funds is primarily due to the new Child Health
Plus program, estimated at $197 million in 1998-99. This program will expand
health insurance coverage to children of indigent families.
State special revenue spending is projected to be $8.19 billion, an
increase of $1.20 billion or 17.2 percent from last year's levels. Most of this
projected increase in spending is due to the $704 million cost of the first
phase of the STAR program, as well as $231 million in additional operating
assistance for mass transportation, and $113 million for the State share of the
new Child Health Plus program.
Capital Projects Funds
Capital Projects Funds account for the financial resources used in the
acquisition, construction, or rehabilitation of major State capital facilities,
and for capital assistance grants to certain local governments or public
authorities. This fund type consists of the Capital Projects Fund, which is
supported by tax receipts transferred from the General Fund, and various other
capital funds established to distinguish specific capital construction purposes
supported by other revenues. In the 1998-99 fiscal year, activity in these funds
is expected to comprise 5.5 percent of total governmental receipts.
Capital Projects Funds spending in fiscal year 1998-99 is projected at
$4.14 billion, an increase of $575 million or 16.1 percent from last year. The
major components of this expected growth are transportation and environmental
programs, including continued increased spending for 1996 Clean Water/Clean Air
Bond Act projects and higher projected disbursements from the Environmental
Protection Fund (EPF). Another significant component of this projected increase
is in the area of public protection, primarily for facility rehabilitation and
construction of additional prison capacity.
Debt Service Funds
Debt Service Funds are used to account for the payment of principal and
interest on long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements. This
fund type is expected to comprise 3.8 percent of total governmental fund
receipts in the 1998-99 fiscal year. Receipts in these funds in excess of debt
service requirements may be transferred to the General Fund, Capital Projects
Funds and Special Revenue Funds, pursuant to law.
Total disbursements form the Debt Service Fund type are estimated at $3.36
billion in 1998-99, an increase of $275 million or 8.9 percent from 1997-98
levels. Of the increase, $102 million is for transportation purposes, including
debt service on bonds issued for State and local highway and bridge programs
financed through the New York State Thruway Authority and supported by the
Dedicated Highway and Bridge Trust Fund. Another $45 million is for education
purposes, including State and City University programs financed through the
Dormitory Authority of the State of New York (DASNY). The remainder is for a
variety of programs in such areas as mental health and corrections, and for
general obligation financings. Year 2000 Compliance
New York State is currently addressing "Year 2000" data processing
compliance issues. The Year 2000 compliance issue ("Y2K") arises because most
computer software programs allocate two digits to the data field for "year" on
the assumption that the first two digits will be "19." Such programs will thus
interpret the year 2000 as the year 1900 absent reprogramming. Y2K could impact
both the ability to enter data into computer programs and the ability of such
programs to correctly processdata.
In 1996, the State created the Office for Technology (OFT) to help
address statewide technology issues, including the Year 2000 issue. OFT has
estimated that investments of at least $140 million will be required to bring
approximately 350 State mission-critical and high-priority computer systems not
otherwise scheduled for replacement into Year 2000 compliance, and the State is
planning to spend $100 million in the 1998-99 fiscal year for this purpose.
Mission-critical computer applications are those which impact the health, safety
and welfare of the State and its citizens, and for which failure to be in Y2K
compliance could have a material and adverse impact upon State operations.
High-priority computer applications are those that are critical for a State
agency to fulfill its mission and deliver services, but for which they are
manual alternatives. Work has been completed on roughly 20 percent of these
systems. All remaining unfinished mission-critical and high-priority systems
have at least 40 percent or more of the work completed. Contingency planning is
underway for those systems which may be non-compliant prior to failure dates.
The enacted budget also continues funding for major systems scheduled for
replacement, including the State payroll, civil service, tax and finance and
welfare management systems, for which Year 2000 compliance is included as a part
of theproject.
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OFT is monitoring compliance on a quarterly basis and is providing
assistance and assigning resources to accelerate compliance for mission-
critical systems, with most compliance testing expected to be completed by
mid-1999. There can be no guarantee, however, that all of the State's mission-
critical and high-priority computer systems will be Year 2000 compliant and that
there will not be an adverse impact upon State operations or State finances as a
result.
Cash-Basis Results for Prior Fiscal Years
The State reports its financial results on two bases of accounting: the
cash basis, showing receipts and disbursements; and the modified accrual basis,
prescribed by Generally Accepted Accounting Principles ("GAAP"), showing
revenues and expenditures.
General Fund 1995-96 through 1997-98
The General Fund is the principal operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives most
State taxes and other resources not dedicated to particular purposes. General
Fund moneys are also transferred to other funds, primarily to support certain
capital projects and debt service payments in other fund types. A narrative
description of cash-basis results in the General Fund is presented below.
New York State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of tax
and revenue anticipation notes ("TRANs"). A national recession, followed by the
lingering economic slowdown in New York and the regional economy, resulted in
repeated shortfalls in receipts and three budget deficits during those years.
During its last six fiscal years, however, the State has recorded balanced
budgets on a cash basis, with positive fund balances as described below.
1997-98 Fiscal Year
The State ended its 1997-98 fiscal year in balance on a cash basis, with a
General Fund cash surplus as reported by DOB of approximately $2.04 billion. The
cash surplus was derived primarily from higher-than- anticipated receipts and
lower spending on welfare, Medicaid, and other entitlement programs.
The General Fund had a closing balance of $638 million, an increase of $205
million from the prior fiscal year. The balance is held in three accounts within
the General Fund: the Tax Stabilization Reserve Fund (TSRF), the Contingency
Reserve Fund (CRF) and the Community Projects Fund (CPF). The TSRF closing
balance was $400 million, following a required deposit of $15 million (repaying
a transfer made in 1991-92) and an extraordinary deposit of $68 million made
from the 1997-98 surplus. The CRF closing balance was $68 million, following a
$27 million deposit from the surplus. The CPF, which finances legislative
initiatives, closed the fiscal year with a balance of $170 million, an increase
of $95 million. The General Fund closing balance did not include $2.39 billion
in the tax refund reserve account, of which $521 million was made available as a
result of the Local Government Assistance Corporation (LGAC) financing program
and was required to be on deposit on March 31, 1998.
General Fund receipts and transfers from other funds for the 1997-98 fiscal
year (including net tax refund reserve account activity) totaled $34.55 billion,
an annual increase of $1.51 billion, or 4.57 percent over 1996-97. General Fund
disbursements and transfers to other funds were $34.35 billion, an annual
increase of $1.45 billion or 4.41 percent. 1996-97 Fiscal Year
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
$1.42 billion. The cash surplus was derived primarily from higher-than-expected
receipts and lower-than-expected spending for social services programs.
The General Fund closing balance was $433 million, an increase of $146
million from the 1995-96 fiscal year. The balance included $317 million in the
TSRF, after a required deposit of $15 million and an additional deposit of $65
million in 1996-97. In addition, $41 million remained on deposit in the CRF. The
remaining $75 million reflected amounts then on deposit in the Community
Projects Fund. The General Fund closing balance did not include $1.86 billion in
the tax refund reserve account, of which $521 million was made available as a
result of the LGAC financing program and was required to be on deposit as of
March 31, 1997.
General Fund receipts and transfers from other funds for the 1996-97 fiscal
year totaled $33.04 billion, an increase of 0.7 percent from the previous fiscal
year (including net tax refund reserve account activity). General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7 percent from the 1995-96 fiscal year.
Activity in the three other governmental funds has remained relatively
stable over the last three fiscal years, with federally-funded programs
comprising approximately two-thirds of these funds. The most significant change
in the structure of these funds has been the redirection of a portion of
transportation-related revenues from the General Fund to two new dedicated funds
in the Special Revenue and Capital Projects fund types. These revenues are used
to support the capital programs of the Department of Transportation and the
Metropolitan Transportation Authority (MTA).
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In the Special Revenue Funds, disbursements increased from $26.26 billion
to $27.65 billion over the last three years, primarily as a result of increased
costs for the federal share of Medicaid. Other activity reflected dedication of
taxes to a new fund for mass transportation, new lottery games, and new fees for
criminal justice programs.
Disbursements in the Capital Projects Funds declined over the three year
period from $3.97 billion to $3.56 billion as spending for miscellaneous capital
programs decreased, partially offset by increases for mental hygiene, health and
environmental programs. The composition of this fund type's receipts also
changed as the dedicated transportation taxes began to be deposited, general
obligation bond proceeds declined substantially, federal grants remained stable,
and reimbursements from public authority bonds (primarily transportation
related) increased.
LitigationState Finance Policies
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 fiscal years 1986-87 through
1996-97 (New York State Health Maintenance Organization Conference, Inc., et al.
v. Muhl, et al. ["HMO"], and New York State 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. The petitioners did not cross appeal. In Blue
Cross II, by amended judgment dated April 2, 1998, the Supreme Court annulled
the regulation setting the 1996-97 premium rate and directed that all 1996-97
excess malpractice premiums be returned to the payors. The State will not be
obligated in either case to pay moneys to any petitioner. Adverse determinations
would result in refunds from the affected insurers.
Tax Law
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 consumers 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 onto Indian reservations
other than for Indian consumption or, alternately, 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. The case was argued before the Court of Appeals on March 24, 1998.
Clean Water/Clean Air Bond Act of 1996
In Robert L. Schulz, et al. v. The New York State Executive, et al.
(Supreme Court, Albany County, commenced October 16, 1996), plaintiffs challenge
the enactment of the Clean Water/Clean Air Bond Act of 1996 and its implementing
legislation (1996 Laws of New York, Chapters 412 and 413). Plaintiffs claim,
inter alia, that the Bond Act and its implementing legislation violate
provisions of the State Constitution requiring that such debt be authorized by
law for some single work or purpose distinctly specified therein and forbidding
incorporation of other statutes byreference.
In an opinion dated June 9, 1998, the Court of Appeals affirmed the
July 17, 1997 order of the Appellate Division, Third Department, affirming the
lower court dismissal of this case.
Line Item Veto
In an action commenced in June 1998 by the Speaker of the Assembly of the
State of New York against the Governor of the State of New York (Silver v.
Pataki, Supreme Court, New York County), the Speaker challenges the Governor's
application of his constitutional line item veto authority to certain portions
of budget bills adopted by the State Legislature contained in Chapters 56, 57
and 58 of the Laws of 1998.
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
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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.
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.
Public Authorities
The fiscal stability of the State is related in part to the fiscal
stability of its public authorities. For the purposes of this summary, public
authorities refer to public benefit corporations created pursuant to State law,
other than local authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts and restrictions set
forth in legislative authorization. The State's access to the public credit
markets could be impaired and the market price of its outstanding debt may be
materially and adversely affected if any of its public authorities were to
default on their respective obligations. As of December 31, 1997, there were 17
public authorities that had outstanding debt of $100 million or more, and the
aggregate outstanding debt, including refunding bonds, of all State authorities
was $84 billion, only a portion of which constitutes State-supported or State-
related debt.
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The State has numerous public authorities with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authorities generally pay their operating expenses and debt
service costs from revenues generated by the projects they finance or operate,
such as tolls charged for the use of highways, bridges or tunnels, charges for
public power, electric and gas utility services, rentals charged for housing
units, and charges for occupancy at medical care facilities. Also, there are
statutory arrangements providing for State local assistance payments otherwise
payable to localities to be made under certain circumstances to public
authorities. Although the State has no obligation to provide additional
assistance to localities whose local assistance payments have been paid to
public authorities under these arrangements, the affected localities may seek
additional State assistance if local assistance payments are diverted. Some
authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs. As described below, the MTA
receives the bulk of this money in order to provide transit and commuter
services.
Beginning in 1998, the Long Island Power Authority (LIPA) assumed
responsibility for the provision of electric utility services previously
provided by Long Island Lighting Company for Nassau, Suffolk and a portion of
Queen Counties, as part of an estimated $7 billion financing plan. As of the
date of this AIS, LIPA has issued over $5 billion in bonds secured solely by
ratepayer charges. LIPA's debt is not considered either State- supported or
State-related debt.
Metropolitan Transportation Authority - The MTA oversees the operation of subway
and bus lines in New York City by its affiliates, the New York City Transit
Authority and the Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). The MTA operates certain commuter rail and bus
services in the New York Metropolitan area through MTA's subsidiaries, the Long
Island Rail Road Company, the Metro-North Commuter Railroad Company, and the
Metropolitan Suburban Bus Authority. In addition, the Staten Island Rapid
Transit Operating Authority, an MTA subsidiary, operates a rapid transit line on
Staten Island. Through its affiliated agency, the Triborough Bridge and Tunnel
Authority (the "TBTA"), the MTA operates certain intrastate toll bridges and
tunnels. Because fare revenues are not sufficient to finance the mass transit
portion of these operations, the MTA has depended on, and will continue to
depend on, operating support from the State, local governments and TBTA,
including loans, grants and subsidies. If current revenue projections are not
realized and/or operating expenses exceed current projections, the TA or
commuter railroads may be required to seek additional State assistance, raise
fares or take other actions.
Since 1980, the State has enacted several taxes-including a surcharge on
the profits of banks, insurance corporations and general business corporations
doing business in the 12-county Metropolitan Transportation Region served by the
MTA and a special one-quarter of 1 percent regional sales and use tax--that
provide revenues for mass transit purposes, including assistance to the MTA.
Since 1987, State law also has required that the proceeds of a one-quarter of 1
percent mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. In 1993, the State dedicated a portion of certain additional
State petroleum business tax receipts to fund operating or capital assistance to
the MTA. For the 1998- 99 fiscal year, State assistance to the MTA is projected
to total approximately $1.3 billion, an increase of $133 million over the 1997-
98 fiscal year.
State legislation accompanying the 1996-97 adopted State budget authorized
the MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds to finance a
portion of the $12.17 billion MTA capital plan for the 1995 through 1999
calendar years (the "1995-99 Capital Program"). In July 1997, the Capital
Program Review Board ("CPRB") approved the 1995-99 Capital Program (subsequently
amended in August 1997), which supersedes the overlapping portion of the MTA's
1992-96 Capital Program. The 1995-99 Capital Program is the fourth capital plan
since the Legislature authorized procedures for the adoption, approval and
amendment of MTA capital programs and is designed to upgrade the performance of
the MTA's transportation systems by investing in new rolling stock, maintaining
replacement schedules for existing assets and bringing the MTA system into a
state of good repair. The 1995-99 Capital Program assumes the issuance of an
estimated $5.2 billion in bonds under this $6.5 billion aggregate bonding
authority. The remainder of the plan is projected to be financed through
assistance from the State, the federal government, and the City of New York, and
from various other revenues generated from actions taken by the MTA.
There can be no assurance that all the necessary governmental actions for
future capital programs will be taken, that funding sources currently identified
will not be decreased or eliminated, or that the 1995-99 Capital Program, or
parts thereof, will not be delayed or reduced. Should funding levels fall below
current projections, the MTA would have to revise its 1995- 99 Capital Program
accordingly. If the 1995-99 Capital Program is delayed or reduced, ridership and
fare revenues may decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional assistance.
The City of New York
The fiscal health of the State may also be affected by the fiscal health of
New York City (the "City"), which continues to receive significant financial
assistance from the State. State aid contributes to the City's ability to
balance its budget and to meet its cash requirements. The State may also be
affected by the ability of the City and certain entities issuing debt for the
benefit of the City to market their securities successfully in the public credit
markets.
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The City has achieved balanced operating results for each of its fiscal
years since 1981 as measured by the GAAP standards in force at that time. The
City prepares a four-year financial plan ("Financial Plan") annually and updates
it periodically, and prepares a comprehensive annual financial report describing
its most recent fiscal year each October.
The City of New YorkFiscal Oversight
In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among those actions, the State
established the Municipal Assistance Corporation for the City of New York to
provide financing assistance to the City; the New York State Financial Control
Board (the "Control Board") to oversee the City's financial affairs; and the
Office of the State Deputy Comptroller for the City of New York ("OSDC") to
assist the Control Board in exercising its powers and responsibilities. A
"control period" existed from 1975 to 1986 during which the City was subject to
certain statutorily-prescribed fiscal controls. The Control Board terminated the
Control Period in 1986 when certain statutory conditions were met. State law
requires the Control Board to reimpose a control period upon the occurrence, or
"substantial likelihood and imminence" of the occurrence, of certain events,
including (but not limited to) a City operating budget deficit of more than $100
million of impaired access to the public credit markets.
Currently, the City and its Covered Organizations (i.e., those which
received or may receive moneys from the City directly, indirectly or
contingently) operate under the Financial Plan. The City's Financial Plan
summarizes its capital, revenue and expense projections and outlines proposed
gap-closing programs for years with projected budget gaps. The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies, some of which are uncertain and may not materialize. Unforeseen
developments and 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.
To successfully implement its Financial Plan, the City and certain entities
issuing debt for the benefit of the city must market their securities
successfully. The City issues securities to finance, refinance and rehabilitate
infrastructure and other capital needs, as well as for seasonal financing needs.
In 1997, the State created the New York City Transitional Finance Authority
("TFA") to finance a portion of the City's capital program because the City was
approaching its State Constitutional general debt limit. Without the additional
financing capacity of the TFA, projected contracts for City capital projects
would have exceeded the City's debt limit during City fiscal year 1997-98.
Despite this additional financing mechanism, the City currently projects that,
if no further action is taken, it will reach its debt limit in City fiscal year
1999-2000. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the TFA to be unconstitutional.
On November 25, 1997 the State Supreme Court found the legislation establishing
the TFA to be constitutional and granted the defendants' motion for summary
judgment. The plaintiffs have appealed the decision. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.
Monitoring Agencies
The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans. The reports analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service
requirements, as well as evaluate compliance by the City and its Covered
Organizations with the Financial Plan. According to recent staff reports, while
economic growth in New York City has been slower than in other regions of the
country, a surge in Wall Street profitability resulted in increased tax revenues
and generated a substantial surplus for the City in City fiscal year 1996-97.
Recent staff reports also indicate that the City projects a substantial surplus
for City fiscal year 1997-98. Although several sectors of the City's economy
have expanded recently, especially tourism and business and professional
services, City tax revenues remain heavily dependent on the continued
profitability of the securities industries and the course of the national
economy. These reports have also indicated that recent City budgets have been
balanced in part through the use of non-recurring resources and that the City's
Financial Plan tends to rely on actions outside its direct control. These
reports have indicated that the City has not yet brought its long-term
expenditure growth in line with recurring revenue growth and that the City is
likely to continue to face substantial gaps between forecast revenues and
expenditures in future years that must be closed with reduced expenditures
and/or increased revenues. In addition to these monitoring agencies, the
Independent Budget Office ("IBO") has been established pursuant to the City
Charter to provide analysis to elected officials and the public on relevant
fiscal and budgetary issues affecting the City.
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Other Localities
Certain localities outside New York City have experienced financial
problems and have requested and received additional State assistance during the
last several State fiscal years. The cities of Yonkers and Troy continue to
operate under State-ordered control agencies. The potential impact on the State
of any future requests by localities for additional oversight or financial
assistance is not included in the projections of the State's receipts and
disbursements for the State's 1998-99 fiscal year.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and twenty-eight municipalities received more than $32
million in targeted unrestricted aid in the 1997-98 budget. Both of these
emergency aid packages were largely continued through the 1998- 99 budget. The
State also dispersed an additional $21 million among all cities, towns and
villages after enacting a 3.9 percent increase in General Purpose State Aid in
1997-98 and continued this increase in 1998-99.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
The appropriation and allocation of general purpose local government aid
among localities, including New York City, is currently the subject of
investigation by a State commission. While the distribution of general purpose
local government aid was originally based on a statutory formula, in recent
years both the total amount appropriated and the amounts appropriated to
localities have been determined by the Legislature. A State commission was
established to study the distribution and amounts of general purpose local
government aid and recommend a new formula by June 30, 1999, which may change
the way aid is allocated.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1996, the total indebtedness of all localities in
the State other than New York City was approximately $20.0 billion. A small
portion (approximately $77.2 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to State enabling
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City that are authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.
Like the State, local governments must respond to changing political,
economic and financial influences over which they have little or no control.
Such changes may adversely affect the financial condition of certain local
governments. For example, the federal government may reduce (or in some cases
eliminate) federal funding of some local programs which, in turn, may require
local governments to fund these expenditures from their own resources. It is
also possible that the State, New York City, or any of their respective public
authorities may suffer serious financial difficulties that could jeopardize
local access to the public credit markets, which may adversely affect the
marketability of notes and bonds issued by localities within the State.
Localities may also face unanticipated problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Other large-scale
potential problems, such as declining urban populations, increasing
expenditures, and the loss of skilled manufacturing jobs, may also adversely
affect localities and necessitate State assistance.
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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. 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 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.
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 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.
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
23
<PAGE>
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. 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.
The Fund will not lend securities having a value which exceeds 33 1/3 % 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.
Loans of securities will be subject to termination at the lender's or the
borrower's option. Each Fund may pay reasonable administrative and custodial
fees in connection with a securities loan and may pay a negotiated portion of
the interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Trust, its investment adviser or distributor.
VARIABLE RATE DEMAND NOTES
The Cash Management Fund may from time to time buy variable rate demand
notes issued by corporations, bank holding companies, financial institutions and
government agencies and instrumentalities (but only in the case of taxable
securities). These securities will typically have a maturity in the 5-20 year
range but carry with them the right of the holder to put the securities to a
remarketing agent or other entity on short notice, typically 30 days or less.
The obligation of the issuer of the put to repurchase the securities is backed
up by a letter of credit or other obligation issued by a bank. The purchase
price is ordinarily par plus accrued and unpaid interest. Ordinarily, the
remarketing agent will adjust the interest rate every seven days (or at other
intervals corresponding to the notice period for the put), in order to maintain
the interest rate at the prevailing market rate for securities with a 7-day
maturity.
VARIABLE RATE MASTER DEMAND NOTES
The obligations which the Cash Management Fund and Government Fund may buy
include variable rate master demand notes. The terms of these obligations
permit the investment of fluctuating amounts by these Funds at varying rates of
interest pursuant to direct arrangements between the Funds, as lenders, and the
borrower. They permit weekly, and in some instances, daily, changes in the
amounts borrowed. The Funds have the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may prepay up to the full amount of the
note without penalty. The notes may or may not be backed by bank letters of
credit. Because the notes are direct lending arrangements between the lender
and borrower, it is not generally contemplated that they will be traded, and
there is no secondary market for them, although they are redeemable (and thus
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. The Funds have 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
24
<PAGE>
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.
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.
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
For each Fund, the following investment restrictions 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.
None of the Funds may:
(1) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions) or make
short sales of securities (the deposit or payment by the Funds of
initial or maintenance margin in connection with futures
contracts or related options transactions is not considered the
purchase of a security on margin);
(2) underwrite securities of other issuers, except with
respect to the New York Tax-Free Fund and to the extent that the
purchase of municipal obligations, or other permitted
investments, directly from the issuer thereof or from an
underwriter for an issuer and the later disposition of such
securities in accordance with a Fund's investment program may be
deemed to be an underwriting; or
(3) 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).
(4) issue senior securities, borrow money or pledge or
mortgage its assets, except that each Fund may borrow from banks
up to 33 1/3% of the current value of the total net assets of
that Fund
25
<PAGE>
; and
(5) make loans, except that the each Fund may make loans or
lend its portfolio securities if, as a result, the aggregate of
such loans does not exceed 33 1/3% of the value of a Fund's total
assets.
The U.S. Treasury Fund may not purchase securities other
than direct obligations of the United States Treasury or
repurchase agreements pertaining thereto (there being no limit on
the amount of the assets of the U.S. Treasury Fund which may be
invested in the securities of any one issuer of such
obligations).
The Government Fund may not purchase securities other than
obligations issued or guaranteed by the United States Government
or its agencies or instrumentalities or repurchase agreements
pertaining thereto (there being no limit on the amount of the
assets of the Government Fund which may be invested in the
securities of any one issuer of such obligations).
The Cash Management Fund may not:
(1) 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 that the Fund may invest more than 25% of
its total assets in bank obligations (including bank obligations
subject to repurchase agreements) and except that there is no
limitation with respect to investments in obligations of the
United States Government, its agencies or instrumentalities;
(2) 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
(3) 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
26
<PAGE>
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.
(6) invest less than 80% of its net assets in New York
Municipal Obligations except when, in the opinion of the Adviser,
it is advisable for the Fund to invest temporarily up to 100% of
its total assets in taxable securities to maintain a "defensive"
posture because of market conditions.
The Funds' diversification tests are measured at the time of initial
purchase, and calculated as specified in Rule 2a-7 of the Investment Company Act
of 1940, which may allow the Funds to exceed the limits specified in this
Prospectus for certain securities subject to guarantees or demand features. The
Funds will be deemed to satisfy the maturity requirements described in this
Prospectus to the extent that the Funds satisfy Rule 2a-7's maturity
requirements. 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.
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.
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.
27
<PAGE>
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 - age 69, 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 - age 73, 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 - 78, 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, Chairman of the Board of Trustees - age 60, 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.
RICHARD J. LOOS*, Vice Chairman Emeritus- age 65, 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.
ANTHONY FISCHER , Vice President - Client Services, Fund Services Division of
BISYS Fund Services, Inc., 1998 to present; SEI, 1997-1998.
PAUL T. KANE, Assistant Treasurer - Vice President, Fund Services Division of
---------
BISYS Fund Services, Inc., December 1997 to present; Director Shareholder
Reporting, Fidelity Accounting and Custody Services, 1985-1997.
28
<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.
* Mr. Loos has been elected Vice Chairman Emeritus, such appointment was
effective May 5, 1998. Mr. Loos is not a voting member of the Board.
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
Compensation Accured Annual Total
from the as Part Benefits from the
Money Market of Fund Upon Fund
Compensation Funds Expenses Retirement Complex
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wolfe J. Frankl, Trustee $15,170 0.00 N/A $28,000
- ------------------------------------------------------------------------------------------------------------------
Harald Paumgarten, Trustee $17,040 0.00 N/A $31,000
- ------------------------------------------------------------------------------------------------------------------
John P. Pfann, Trustee $ 9,501 0.00 N/A $14,000
- ------------------------------------------------------------------------------------------------------------------
Robert A. Robinson, Trustee $16,362 0.00 N/A $30,000
- ------------------------------------------------------------------------------------------------------------------
Richard J. Loos, $12,973 0.00 N/A $24,000
Vice Chairman Emeritus
</TABLE>
29
<PAGE>
___________
* Represents the total compensation paid to such persons during the
calendar year ended December 31, 1998.
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 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").
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
30
<PAGE>
persons as it believes appropriate to assist it in performing its obligations
under the Management and Administration Agreement.
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 (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 of 12b-1 fees not to exceed an
annual rate of 0.20% of the average daily net assets of the Class A shares of
all the Funds. Class B and Class C shares pay a 12b-1 fee not to exceed 0.75%
of the average daily net assets of the respective class.
For the year ended December 31, 1998, the Funds incurred the following
amounts in distribution-related fees under the Rule 12b-1 Distribution Plan:
<TABLE>
<CAPTION>
Printing of
Compensation to Prospectuses and Retail Postage and
Fund Broker- Shareholder Marketing Miscellaneous
Total Dealers Advertising Reports Program Expenses
----- --------------- ----------- ---------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Cash
Management $ 286,571 $ 0 $ 0 $ 0 $ 0
Government $ 74,966 $ 0 $ 0 $ 0 $ 0
U.S. Treasury $ 14,318 $ 0 $ 0 $ 0 $ 0
New York $ 69,919 $ 0 $ 0 $ 0 $ 0
</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
31
<PAGE>
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 26, 1999.
SERVICE ORGANIZATIONS
The Trust also contracts with banks (including HSBC Bank USA), trust
companies, broker-dealers or other financial organizations ("Service
Organizations") on behalf of the Funds to provide certain administrative
services for the Fund at a fee of up to an annual rate of 0.35% for Class A
shares and 0.50% fee Class B and Class C shares. Services provided by Service
Organizations may include among other things; providing necessary personnel and
facilities to establish and maintain certain shareholder accounts and records;
assisting in processing purchase and redemption transactions; arranging for the
wiring of funds; transmitting and receiving of funds in connection with
shareholder orders to purchase or redeem shares; verifying and guaranteeing
client signatures in connection with redemption orders, transfers among and
changes in shareholders designating accounts; providing periodic statements
showing a shareholder's account balance and, to the extent practicable,
integrating such information with other client transactions; furnishing periodic
and annual statements and confirmations of all purchases and redemptions of
shares in a shareholder's account; transmitting proxy statements, annual
reports, and updating prospectuses and other communications from a Fund to its
shareholders; and providing such other services as each Fund or shareholder
reasonably may request, to the extent permitted by applicable statute, rule or
regulation.
Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than the minimum
initial or subsequent investments specified by each Fund or charging a direct
fee for servicing. If imposed, these fees would be in addition to any amounts
which might be paid to the Service Organization by a Fund. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult them regarding any
such fees or conditions.
Any customer of a Participating Organization may become the shareholder of
record upon written request to its Participating Organization or the Fund's
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% (0.50% for Class B and Class C) of the average daily 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 payment 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 Funds 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 cost incurred by each
Participating Organization.
The Glass-Steagall Act and other applicable laws, among other things, prohibit
banks from engaging in the business of underwriting, selling or distributing
securities. There currently is no precedent prohibiting banks from performing
administrative and shareholder servicing functions as Service Organizations.
However, judicial or administrative decisions or interpretations of such laws,
as well as changes in either Federal or state statutes or regulations relating
to the permissible activities of banks and their subsidiaries or affiliates,
could prevent a bank from continuing to perform all or part of its servicing
activities. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
If a bank were prohibited from so acting, its shareholder clients would be
permitted to remain shareholders of the Trust and alternative means for
continuing the servicing of such shareholders would be sought. In that event,
changes in the operation of the Trust might occur and a shareholder serviced by
such a bank might no longer be able to avail itself of any services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these occurrences.
ADVISORY AND ADMINISTRATIVE FEES AND EXPENSES
As compensation for its advisory and administrative services, the Adviser
is paid a monthly fee with respect to each Fund at the following annual rates:
<TABLE>
<CAPTION>
Portion of average daily
value of net assets of
each Fund Advisory Total
--------- -------- -----
<S> <C> <C>
Not exceeding $500 million............ 0.350% 0.420%
In excess of $500 million but
not exceeding $1 billion.............. 0.315% 0.385%
In excess of $1 billion but
not exceeding $1.5 billion............ 0.280% 0.350%
In excess of $1.5 billion............. 0.245% 0.315%
</TABLE>
For the year ended December 31, 1998, HSBC earned $850,781, from the Cash
Management Fund, $103,714 from the U.S. Treasury Money Market Fund, $324,264
from the Government Money Fund and $300,720 from the New York Tax-Free Money
Market Fund in advisory fees, net of fee waivers of $610,119, $52,242, $261,302
and $246,732, respectively.
For the year ended December 31, 1998, as Administrator, BISYS Fund Services
earned $353,424 from the Cash Management Fund, $44,449 from the U.S. Treasury
Money Market Fund, $138,971 from the Government Money Market Fund and $128,881
from the New York Tax-Free Money Market Fund, net of fee waivers of $231,825,
29,625, 92,625 and 85,897, respectively in administrative services fees.
For the year ended December 31, 1997, HBSC 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 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 $180,833
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 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, $19,813 $7,113 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
32
<PAGE>
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.
The Adviser may contractually 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 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, and the
Distribution Agreement at a meeting of the Board of Trustees on January 26,
1999.
33
<PAGE>
CALCULATION OF YIELDS
AND PERFORMANCE INFORMATION
From time to time, the Funds quote current yield based on a specific seven
calendar day period. The yield may be used in advertisements and marketing
material. Each of the Money Market Funds calculates a seven day yield by
determining the "net change in value" (exclusive of capital changes) of a
hypothetical account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by 365/7, with the resulting yield figure
carried to the nearest hundredth of one percent.
The Money Market Funds may also advertise an effective yield based on a
specific seven-day period, carried to the nearest hundredth of one percent,
which is calculated by determining the net change, exclusive of capital changes,
in the value of a hypothetical account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting deductions
from shareholder accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return,
and then compounding the base period return by adding one, raising the sum to a
power equal to 365 divided by seven, and subtracting one from the result.
For calculating yield and effective yield, "net change in value" of an
account will consist of the value of additional shares purchased with dividends
from the original share and dividends declared on both the original share and
any such additional shares (not including realized gains or losses and
unrealized appreciation or depreciation), less applicable expenses.
The New York Tax-Free Fund may from time to time advertise tax equivalent
yields. Tax equivalent yield is the net annualized taxable yield needed to
produce a specified tax-exempt yield at a given tax rate based on a specified
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.
34
<PAGE>
d = the maximum offering price per share on the last day of the
period.
For the 7-day period ending December 31, 1998 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 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
35
<PAGE>
performance of U.S. mutual funds investing internationally.
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis, a weekly publication of industry-wide mutual fund
averages by type of fund.
Money, a monthly magazine that from time to time features both
specific funds and the mutual fund industry as a whole.
New York Times, a nationally distributed newspaper which
regularly covers financial news.
Personal Investor, a monthly investment advisory publication that
includes a "Mutual Funds Outlook" section reporting on mutual
fund performance measures, yields, indices and portfolio
holdings.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper
which regularly covers financial news.
Wiesenberger Investment Companies Services, an annual compendium
of information about mutual funds and other investment companies,
including comparative data on funds' backgrounds, management
policies, salient features, management results, income and
dividend records, and price ranges.
DETERMINATION OF NET ASSET VALUE
As indicated under "Determination of Net Asset Value" in the Funds'
Prospectus, the Funds use the amortized cost method to determine the value of
their portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing a security at its cost and amortizing any
discount or premium over the period until maturity, regardless of the impact of
fluctuating interest rates on the market value of the security. While this
method provides certainty in valuation, it may result in periods during which
the value, as determined by amortized cost, is higher or lower than the price
which a Fund would receive if the security were sold. During these periods the
yield to a shareholder may differ somewhat from that which could be obtained
from a similar fund which utilizes a method of valuation based upon market
prices. Thus, during periods of declining interest rates, if the use of the
amortized cost method resulted in lower value of a Fund's portfolio on a
particular day, a prospective investor in that Fund would be able to obtain a
somewhat higher yield than would result from an investment in a fund utilizing
solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the amortized
cost method, each Fund must maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase securities having remaining maturities of
thirteen months or less and invest only in securities determined by the Trust's
Board of Trustees to be "eligible securities" as defined by Rule 2a-7 and to
present minimal credit risks. Pursuant to Rule 2a-7, the Board is required to
establish procedures designed to stabilize, to the extent reasonably possible,
the price per share of each Fund, as computed for the purpose of sales and
redemptions, at $1.00. Such procedures include review of the Funds' portfolio
holdings by the Board of Trustees, at such intervals as it may deem appropriate,
to determine whether the net asset value of each Fund calculated by using
available market quotations deviates from $1.00 per share based on amortized
36
<PAGE>
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.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the sections in the Funds' Prospectus entitled "Purchasing and Adding to
Your Shares." The Prospectus contains a general description of how investors may
buy shares of the Funds and states whether the Funds offer more than one class
of shares.
Class B and C shares may be subject to a contingent deferred sales charge
("CDSC") payable upon redemption within a specified period after purchase. The
prospectus contains a table of applicable CDSCs. After being held for six
years, Class B shares will automatically convert into Class A shares which are
not subject to sales charges or a CDSC. Class B and C shares are offered
without an initial sales charge. The Funds may sell shares without a sales
charge or CDSC pursuant to special purchase plans the Trust signs.
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in a Fund for at
least seven days may exchange those shares for shares of any of the other
portfolios of the Trust and HSBC Mutual Funds Trust which are available for sale
in their state. Shareholders who exchange shares of any Fund for shares of any
HSBC Mutual Fund will be subject to a sales load. For further information about
the sales load, please see a prospectus for any of the HSBC Mutual Funds.
Before effecting an exchange, shareholders should review the Prospectus for
the portfolio in which they intend to invest. Exercise of the exchange privilege
is treated as a redemption for Federal and New York State and City income tax
purposes and, depending on the circumstances, a gain or loss may be recognized
in the case of a Fund that has not maintained a constant net asset value per
share.
37
<PAGE>
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 1998 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,
38
<PAGE>
at the end of each fiscal quarter of its taxable year, (i) at least 50% of the
market value of its assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies and other stocks
and securities limited, in the case of other stocks or securities for purposes
of this calculation, in respect of any one issuer, to an amount not greater than
5% of its assets or 10% of the voting stocks or securities of the issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government stocks or securities and
securities of other regulated investment companies).
Each portfolio within the Trust will be separate for investment and
accounting purposes and will be treated as a separate taxable entity for Federal
income tax purposes. Provided that each Fund qualifies as a regulated investment
company under the Code, it will not be required to pay Massachusetts income or
excise taxes.
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
39
<PAGE>
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 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
40
<PAGE>
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. Each portfolio is comprised of three
different classes of shares -- Class A shares, Class B shares and Class C
shares.
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 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 _______________________, 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:
41
<PAGE>
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 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.
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<PAGE>
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, 1998, BISYS received fees under the Agency
Agreement of $180,920, $44,186, $43,337 and $52,935 from the Cash Management,
Government, U.S. Treasury and New York Tax-Free Funds, respectively.
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.
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.
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INDEPENDENT AUDITORS
The Board of Trustees of the Trust approved the continuation of Ernst & Young
LLP as the Trust's independent auditors on January 26, 1999. 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.
FUND COUNSEL
Paul, Weiss, Rifkind, Wharton & Garrison serves as counsel to the Funds and
also from time to time provides advice to the Adviser in its capacity as
investment adviser to the Funds.
44
<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 by calling 1-800-634-2536.
45
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
*(a) -- Amended and Restated Declaration of Trust.
**(b) -- By-Laws of Registrant.
(c) -- Not applicable
(d) -- Advisory Contract between Registrant and HSBC
Asset Management Americas, Inc.
*(h)(1) -- Administrative Services Contract between
Registrant and BISYS Fund Services.
*(h)(2) -- Administration and Accounting Services
Agreement between Registrant and BISYS Fund
Services.
(e) -- Distribution Agreement between Registrant and
BISYS Fund Services dated January 1, 1996.
(f) -- None
*(g) -- Custodian Agreement between Registrant and The
Bank of New York.
*(h4) -- Transfer Agency Agreement between Registrant and
BISYS Fund Services
*(h7) -- Fund Accounting Agreement between Registrant and
BISYS Fund Services
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(i) -- Consent of Hale & Dorr
(j) -- Consent of Ernst & Young LLP, independent
auditors.
K -- Not applicable
L -- Not applicable
m1 -- Rule l2b-l Distribution Plan for Class A Shares
m2 -- Rule 12b-1 Distribution Plan for Class B and C
Shares
*m3 -- Rule 12b-1 Shareholder Servicing Agreement
between Registrant and BISYS Fund Services, Inc.
m3 -- Distributor's Selected Dealer Agreement.
(n) -- Financial Data Schedules
(o) -- HSBC Funds Trust Rule 18f-3 Plan
</TABLE>
__________
* Filed with Post-Effective Amendment No. 18 to the Trust's Registration
Statement on April 28, 1997 and incorporated by reference.
Item 24. Persons Controlled by or under Common Control with Registrant.
-------------------------------------------------------------
None.
Item 25. 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
2
<PAGE>
proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The Registrant has in force a National Union Fire Insurance Company
Directors and Officers Liability Policy which covers all present and
future directors and officers of Registrant against loss arising from
any civil claim or claims by reason of "any breach of duty, neglect,
error, misstatement, misleading statement, omission or act done or
wrongfully attempted" while acting as trustees or officers of the
Registrant. The period of insurance under the present policy is for
the one-year period ending August 1, 1999. 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 26. Business and Other Connections
of Investment Adviser
------------------------------
HSBC Asset Management Americas Inc. also serves as the investment
adviser to HSBC Mutual Funds Trust.
Item 27. 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
<TABLE>
<CAPTION>
Name and Positions and Positions and
Principal Business Offices with Offices with
Address Registrant Underwriter
------------------ ------------- -------------
<S> <C> <C>
BISYS Fund Service, Inc. None Sole General Partner
3435 Stelzer Road
Columbus, OH 43219
WC Subsidiary Corporation None Sole Limited Partner
150 Clove Road
Little Falls, New Jersey 07424
</TABLE>
3
<PAGE>
(c) Not applicable.
Item 28. Location of Accounts and Records
--------------------------------
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
thereunder are maintained at the offices of:
(1) Records relating to management and advisory functions:
HSBC Asset Management Americas Inc.
250 Park Avenue
New York, NY 10177
(2) Records relating to administration and distribution functions:
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
(3) Records relating to fund accounting and transfer agency functions:
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
(4) Records relating to custodial functions:
Bank of New York
90 Washington Street
New York, NY 10286
Item 29. Management Services
-------------------
Not applicable.
Item 30. 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.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post
Effective Amendment No. 22 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 30, 1999.
HSBC FUNDS TRUST
(Registrant)
By: /s/
---------------------------
Walter 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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Walter Grimm President April 30, 1999
- ------------------------
Walter Grimm
Vice President
/s/ Anthony Fisher
- ------------------------
Anthony Fisher April 30, 1999
* WOLFE J. FRANKL Trustee April 30, 1999
- ------------------------
Wolfe J. Frankl
* HARALD PAUMGARTEN Trustee April 30, 1999
- ------------------------
Harald Paumgarten
* JOHN P. PFANN Trustee April 30, 1999
- ------------------------
John P. Pfann
* ROBERT A. ROBINSON Trustee April 30, 1999
- ------------------------
Robert A. Robinson
</TABLE>
* Pursuant to Power of Attorney filed with Post-Effective Amendment No. 17 to
Registration Statement Nos. 33-1312 and 811-4453.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
------ -----------
(e) -- Distribution Agreement between Registrant and
BISYS Fund Services dated January 1, 1996.
(i) -- Consent of Hale & Dorr
(j) -- Consent of Ernst & Young LLP, independent
auditors.
m1 -- Rule l2b-l Distribution Plan for Class A Shares
m2 -- Rule 12b-1 Distribution Plan for Class B & C
Shares
m3 -- Distributor's Selected Dealer Agreement.
(n) -- Financial Data Schedules
o -- HSBC Funds Trust Rule 18f-3 Plan
<PAGE>
AMENDED AND RESTATED
ADVISORY CONTRACT
HSBC Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
May 1, 1998
HSBC Asset Management Americas Inc.
140 Broadway
New York, New York 10005
Master Advisory Contract
Dear Sirs:
WHEREAS, the Master Investment Advisory Contract dated May 1, 1990 has been
amended and restated to reflect the name change of the Trust and the Trust's
Adviser, as well as a change in law that no longer limits expenses paid by the
Funds;
WITNESSETH
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between HSBC Funds Trust (the "Trust") and HSBC Asset
Management Americas, Inc. (the "Adviser") as follows:
1. Definitions and Delivery of Documents. The Trust has been
-------------------------------------
organized as a business trust under the laws of the Commonwealth of
Massachusetts and is an open-end management investment company. The Trust's
shares of beneficial interest may be classified into series in which each series
represents the entire undivided interests of a separate portfolio of assets.
For all purposes of this Contract, a "Fund" shall mean a separate portfolio of
assets of the Trust which has entered into an Advisory Contract Supplement, and
a "Series" shall mean the series of shares of beneficial interest representing
undivided interests in a Fund. All references herein to this Contract shall be
deemed to be references to this Contract as it may from time to
<PAGE>
time be supplemented by Advisory Contract Supplements. The Trust engages in the
business of investing and reinvesting the assets of each Fund in the manner and
in accordance with the investment objective and restrictions specified in the
Trust's Declaration of Trust, dated November 1, 1989 (the "Declaration of
Trust"), and the currently effective Prospectus (the "Prospectus") relating to
the Trust and the Funds included in the Trust's Registration Statement, as
amended from time to time (the "Registration Statement"), filed by the Trust
under the Investment Company Act of 1940 (the "1940 Act") and the Securities Act
of 1933 (the "1933 Act"). Copies of the documents referred to in the preceding
sentence have been furnished to the Adviser. Any amendments to those documents
shall be furnished to the Advisor promptly.
2. Administrative Services and Distribution Contracts. Pursuant to
--------------------------------------------------
a Distribution Contract (the "Distribution Contract") and an Administrative
Services Contract (the "Administrative Services Contract") between the Trust and
the Distributor and Administrator (as that term is defined in the Prospectus)
the Trust has employed the Distributor and the Administrator to act as principal
underwriter for each Series and to provide management and other services.
3. Expenses. (a) the Adviser shall, at its expense, (i) employ or
--------
associate with itself such persons as it believes appropriate to assist in
performing its obligations under this Contract and (ii) provide all advisory,
administrative, management services and shareholder services, equipment,
facilities and personnel necessary to perform its obligations under this
Contract. The Trust recognizes that in those cases where the Adviser makes
arrangements with its correspondent banks to maintain subaccounts for certain of
their customers who invest in shares of a Series, such correspondent banks may
also agree to provide services to subaccount holders of the type provided by the
Adviser to shareholders of record.
(b) Except as provided in subparagraph (a) and in the Administrative
Services Contract, the Trust shall be responsible for all of its expenses and
liabilities, including compensation of its directors who are not affiliated with
the Distributor or the Adviser or any of their affiliates; taxes and
governmental fees; interest charges; fees and expenses of the Trust's
independent accountants and legal counsel; trade association membership dues;
fees and expenses of any custodian (including for keeping books and accounts and
calculating the net asset value of shares of each Series), transfer agent,
registrar and dividend disbursing agent of the Trust; expenses of issuing,
selling, redeeming, registering and qualifying for sale the Trust's shares of
beneficial interest; expenses of preparing and printing share certificates,
prospectuses, shareholders' reports, notices, proxy statements and reports to
regulatory agencies; the cost of office supplies; travel expenses of all
officers, directors and employees; insurance premiums; brokerage and other
expenses of executing portfolio transactions; expenses of shareholders'
meetings; organizational expenses; and extraordinary expenses.
4. Investment Advisory and Management Services. (a) The Adviser
-------------------------------------------
shall provide to the Trust investment guidance and policy direction in
connection with the
- 2 -
<PAGE>
management of the portfolio of each Fund, including oral and written money
market research, analysis, advice, statistical and economic data and information
and judgments, of both a macroeconomic and microeconomic character, concerning,
among other things, interest rate trends, money market portfolio composition,
credit conditions of both a general and specific nature and the average maturity
of the portfolio of each Fund.
(b) The Adviser shall also provide to the Trust's officers
administrative assistance in connection with the operation of the Trust and each
of the Funds. Administrative services provided by the Adviser shall include (i)
data processing, clerical bookkeeping services required in connection with
maintaining the financial accounts and records for the Trust and each of the
Funds, (ii) the compilation of statistical and research data required for the
preparation of periodic reports and statements of each of the Funds which are
distributed to the Trust's officers and Board of Trustees, (iii) handling, or
causing to be handled, 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,
(iv) the compilation of information required in connection with the Trust's
filings with the Securities and Exchange Commission and (v) such other services
as the Adviser shall from time to time determine, upon consultation with the
Sponsor, to be necessary or useful to the administration of the Trust and each
of the Funds.
(c) As a manager of the assets of each Fund, the Adviser shall make
investments for the account of each Fund in accordance with the Adviser's best
judgment and within the investment objective and restrictions of each such Fund
set forth in the Trust's Declaration of Trust, the Prospectus of each such Fund,
the 1940 Act and the provisions of the Internal Revenue Code relating to
regulated investment companies, subject to policy decisions adopted by the
Trust's Board of Trustees. The Adviser shall advise the Trust's Officers and
Board of Trustees, at such times as the Board of Trustees may specify, of
investments made for each of the Funds and shall, when requested by the Trust's
Officers or Board of Trustees, supply the reasons for making particular
investments.
(d) The Adviser shall furnish to the Board of Trustees periodic
reports on the investment performance of each Fund and on the performance of its
obligations under this Contract and shall supply such additional reports and
information as the Trust's Officers or Board of Trustees shall reasonably
request.
5. Limitation of Liability of Adviser. The Adviser shall give the
----------------------------------
Trust the benefit of the Adviser's best judgment and efforts in rendering
services under this Contract. As an inducement to the Adviser's undertaking to
render these services, the Trust agrees that the Adviser shall not be liable
under this Contract for any mistake in judgment or in any other event whatsoever
except for lack of good faith, provided that nothing in this Contract shall be
--------
deemed to protect or purport to protect the Adviser against any liability to the
Trust or its shareholders to which the Adviser would otherwise be subject by
reason of willful misfeasance, bad faith or
- 3 -
<PAGE>
gross negligence in the performance of the Adviser's duties under this Contract
or by reason of the Adviser's reckless disregard of its obligations and duties
hereunder.
6. Compensation of the Adviser. In consideration of the services to
---------------------------
be rendered, facilities furnished and expenses paid or assumed by the Adviser
under this Contract, the Trust shall pay the Adviser a fee with respect to each
Fund in accordance with the applicable Advisory Contract Supplement.
If the fees payable to the Adviser pursuant to this paragraph 6 and
the applicable Advisory Contract Supplement begin to accrue before the end of
any month or if this Contract terminates before the end of any month, the fees
for the period from that date to the end of that month or from the beginning of
that month to the date of termination, as the case may be, shall be prorated
according to the proportion which the period bears to the full month in which
the effectiveness or termination occurs. For purposes of calculating the
monthly fees, the value of the net assets of each Fund shall be computed in the
manner specified in the Prospectus for the computation of net asset value. For
purposes of this Contract, a "business day" is any day the New York Stock
Exchange is open for trading.
7. Duration and Termination of this Contract. This Contract shall
-----------------------------------------
become effective upon May 1, 1998 and shall thereafter continue in the effect;
provided, that this Contract shall continue in effect for a period of more than
- --------
one year with respect to a Fund only so long as the continuance is specifically
approved at least annually (a) by the vote of a majority of the outstanding
voting securities of that Fund (as defined in the 1940 Act) or by the Trust's
Board of Trustees and (b) by the vote, cast in person at a meeting called for
the purpose, of a majority of the Trust's Trustees who are not parties to this
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
This Contract may be terminated with respect to a Fund at any time, without the
payment of any penalty, by a vote of a majority of the outstanding voting
securities of that Fund (as defined in the 1940 Act) or by a vote of a majority
of the Trust's Board of Trustees on 60 days' written notice to the Adviser or by
the Adviser on 60 days' written notice to the Trust. If this Contract is
terminated with respect to any Fund, it shall nonetheless remain in effect with
respect to any remaining Funds. This Contract shall terminate automatically in
the event of its assignment (as defined in the 1940 Act).
8. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought and no amendment, transfer, assignment, sale,
hypothecation or pledge of this Contract shall be effective until approved by
(a) the vote, cast in person at a meeting called for the purpose, of a majority
of the Trustees who are not parties to this Contract or "interested persons" (as
defined in the 1940 Act) of any such party, and (b) with respect to any Fund
affected by such change, waiver, discharge or termination, by the vote of a
majority of the outstanding voting securities of the Series relating to such
Fund, provided that no approval shall be required pursuant to this
--------
- 4 -
<PAGE>
clause (b) in respect of an Advisory Contract Supplement entered into to add a
Fund to those covered by this Contract (or any amendment or termination of such
Supplement) by the holders of the outstanding voting securities of any Series
other than that of such Fund.
9. Other Activities of the Adviser. Except to the extent necessary
-------------------------------
to perform the Adviser's obligations under this Contract, nothing herein shall
be deemed to limit or restrict the right of the Adviser, or any affiliate of the
Adviser, or any employee of the Adviser, to engage in any other business or to
devote time and attention to the management of other aspects of any other
business, whether of a similar or dissimilar nature, or to render services of
any kind to any other corporation, firm, individual or association.
10. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Contract may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The Declaration of Trust has been filed with the
Secretary of State of the Commonwealth of Massachusetts. The obligations of the
Trust are not personally binding upon, nor shall resort be had to the private
property of, any of the Trustees, shareholders, officers, employees or agents of
the Trust, but only the Trust's property shall be bound.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
HSBC FUNDS TRUST
By:
---------------------------------------
Title: President
ACCEPTED:
HSBC Asset Management Americas Inc.
By:
--------------------------------
Title:
- 5 -
<PAGE>
NEW YORK TAX-FREE MONEY MARKET FUND
A Fund of HSBC Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
May 1, 1998
HSBC Asset Management Americas Inc.
140 Broadway
New York, New York 10005
Amended and Restated Advisory Contract Supplement
-------------------------------------------------
Dear Sirs:
This will confirm the agreement between HSBC Funds Trust (the "Trust")
and HSBC Asset Management Americas Inc. (the "Adviser") as follows:
The New York Tax-Free Money Market Fund (the "Fund") is a series
portfolio of the Trust which has been organized as a business trust under the
laws of the Commonwealth of Massachusetts and is an open-end management
investment company. The Trust and the Adviser have entered into an Amended and
Restated Master Advisory Contract, dated May 1, 1998 (as from time to time
amended and supplemented, the "Master Advisory Contract"), pursuant to which the
Adviser has undertaken to provide or make provision for the Trust for the
certain investment advisory and management services identified therein and to
provide certain other services, as more fully set forth therein. Certain
capitalized terms used without definition in this Advisory Contract Supplement
have the meaning specified in the Master Advisory Contract.
The Trust agrees with the Adviser as follows:
1. Adoption of Master Advisory Contract. The Master Advisory
------------------------------------
Contract is hereby adopted for the Fund. The Fund shall be one of the "Funds"
referred to in the Master Advisory Contract; and its shares shall be a "Series"
of shares as referred to therein.
2. Payment of Fees. For all services to be rendered, facilities
---------------
furnished and expenses paid or assumed by the Adviser as provided in the Master
Advisory Contract and
- 6 -
<PAGE>
herein, the Fund shall pay a monthly fee on the first business day of each
month, based upon the average daily value (as determined on each business day at
the time set forth in the Prospectus for determining net asset value per share)
of the net assets of the Fund during the preceding month, at the following
annual rates:
Portion of average daily value
of net assets of the Fund Fee Rate
-------------------------------- --------
Not exceeding $500 million............................. 0.350%
In excess of $500 million but
not exceeding $1 billion........................... 0.315%
In excess of $1 billion but
not exceeding $1.5 billion......................... 0.280%
In excess of $1.5 billion.............................. 0.245%
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
NEW YORK TAX-FREE MONEY MARKET FUND,
A FUND OF HSBC FUNDS TRUST
By:_________________________________
Title:______________________
The foregoing Contract is hereby
agreed to as of the date hereof:
HSBC ASSET MANAGEMENT AMERICAS INC.
By:____________________________
Title:_______________
- 7 -
<PAGE>
CASH MANAGEMENT FUND
A Fund of HSBC Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
May 1, 1998
HSBC Asset Management Americas Inc.
140 Broadway
New York, New York 10005
Amended and Restated Advisory Contract Supplement
-------------------------------------------------
Dear Sirs:
This will confirm the agreement between HSBC Funds Trust (the "Trust")
and HSBC Asset Management Americas Inc. (the "Adviser") as follows:
The Cash Management Fund (the "Fund") is a series portfolio of the
Trust which has been organized as a business trust under the laws of the
Commonwealth of Massachusetts and is an open-end management investment company.
The Trust and the Adviser have entered into an Amended and Restated Master
Advisory Contract, dated May 1, 1998 (as from time to time amended and
supplemented, the "Master Advisory Contract"), pursuant to which the Adviser has
undertaken to provide or make provision for the Trust for the certain investment
advisory and management services identified therein and to provide certain other
services, as more fully set forth therein. Certain capitalized terms used
without definition in this Advisory Contract Supplement have the meaning
specified in the Master Advisory Contract.
The Trust agrees with the Adviser as follows:
1. Adoption of Master Advisory Contract. The Master Advisory
------------------------------------
Contract is hereby adopted for the Fund. The Fund shall be one of the "Funds"
referred to in the Master Advisory Contract; and its shares shall be a "Series"
of shares as referred to therein.
2. Payment of Fees. For all services to be rendered, facilities
---------------
furnished and expenses paid or assumed by the Adviser as provided in the Master
Advisory Contract and herein, the Fund shall pay a monthly fee on the first
business day of each month, based upon the
- 8 -
<PAGE>
average daily value (as determined on each business day at the time set forth in
the Prospectus for determining net asset value per share) of the net assets of
the Fund during the preceding month, at the following annual rates:
Portion of average daily value
of net assets of the Fund Fee Rate
-------------------------------- --------
Not exceeding $500 million............................. 0.350%
In excess of $500 million but
not exceeding $1 billion........................... 0.315%
In excess of $1 billion but
not exceeding $1.5 billion......................... 0.280%
In excess of $1.5 billion.............................. 0.245%
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
CASH MANAGEMENT FUND,
A FUND OF HSBC FUNDS TRUST
By:_________________________________
Title:______________________
The foregoing Contract is hereby
agreed to as of the date hereof:
HSBC ASSET MANAGEMENT AMERICAS INC.
By:____________________________
Title:_______________
- 9 -
<PAGE>
GOVERNMENT MONEY MARKET FUND
A Fund of HSBC Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
May 1, 1998
HSBC Asset Management Americas Inc.
140 Broadway
New York, New York 10005
Amended and Restated Advisory Contract Supplement
-------------------------------------------------
Dear Sirs:
This will confirm the agreement between HSBC Funds Trust (the "Trust")
and HSBC Asset Management Americas Inc. (the "Adviser") as follows:
The Government Money Market Fund (the "Fund") is a series portfolio of
the Trust which has been organized as a business trust under the laws of the
Commonwealth of Massachusetts and is an open-end management investment company.
The Trust and the Adviser have entered into an Amended and Restated Master
Advisory Contract, dated May 1, 1998 (as from time to time amended and
supplemented, the "Master Advisory Contract"), pursuant to which the Adviser has
undertaken to provide or make provision for the Trust for the certain investment
advisory and management services identified therein and to provide certain other
services, as more fully set forth therein. Certain capitalized terms used
without definition in this Advisory Contract Supplement have the meaning
specified in the Master Advisory Contract.
The Trust agrees with the Adviser as follows:
1. Adoption of Master Advisory Contract. The Master Advisory
------------------------------------
Contract is hereby adopted for the Fund. The Fund shall be one of the "Funds"
referred to in the Master Advisory Contract; and its shares shall be a "Series"
of shares as referred to therein.
2. Payment of Fees. For all services to be rendered, facilities
---------------
furnished and expenses paid or assumed by the Adviser as provided in the Master
Advisory Contract and herein, the Fund shall pay a monthly fee on the first
business day of each month, based upon the
- 10 -
<PAGE>
average daily value (as determined on each business day at the time set forth in
the Prospectus for determining net asset value per share) of the net assets of
the Fund during the preceding month, at the following annual rates:
Portion of average daily value
of net assets of the Fund Fee Rate
-------------------------------- --------
Not exceeding $500 million............................. 0.350%
In excess of $500 million but
not exceeding $1 billion........................... 0.315%
In excess of $1 billion but
not exceeding $1.5 billion......................... 0.280%
In excess of $1.5 billion.............................. 0.245%
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
GOVERNMENT MONEY MARKET FUND,
A FUND OF HSBC FUNDS TRUST
By:__________________________________
Title:______________________
The foregoing Contract is hereby
agreed to as of the date hereof:
HSBC ASSET MANAGEMENT AMERICAS INC.
By:____________________________
Title:_______________
- 11 -
<PAGE>
U.S. TREASURY MONEY MARKET FUND
A Fund of HSBC Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
May 1, 1998
HSBC Asset Management Americas Inc.
11140 Broadway
New York, New York 10005
Amended and Restated Advisory Contract Supplement
-------------------------------------------------
Dear Sirs:
This will confirm the agreement between HSBC Funds Trust (the "Trust")
and HSBC Asset Management Americas Inc. (the "Adviser") as follows:
The U.S. Treasury Money Market Fund (the "Fund") is a series portfolio
of the Trust which has been organized as a business trust under the laws of the
Commonwealth of Massachusetts and is an open-end management investment company.
The Trust and the Adviser have entered into an Amended and Restated Master
Advisory Contract, dated May 1, 1998 (as from time to time amended and
supplemented, the "Master Advisory Contract"), pursuant to which the Adviser has
undertaken to provide or make provision for the Trust for the certain investment
advisory and management services identified therein and to provide certain other
services, as more fully set forth therein. Certain capitalized terms used
without definition in this Advisory Contract Supplement have the meaning
specified in the Master Advisory Contract.
The Trust agrees with the Adviser as follows:
1. Adoption of Master Advisory Contract. The Master Advisory
------------------------------------
Contract is hereby adopted for the Fund. The Fund shall be one of the "Funds"
referred to in the Master Advisory Contract; and its shares shall be a "Series"
of shares as referred to therein.
2. Payment of Fees. For all services to be rendered, facilities
---------------
furnished and expenses paid or assumed by the Adviser as provided in the Master
Advisory Contract and herein, the Fund shall pay a monthly fee on the first
business day of each month, based upon the average daily value (as determined on
each business day at the time set forth in the Prospectus
- 12 -
<PAGE>
for determining net asset value per share) of the net assets of the Fund during
the preceding month, at the following annual rates:
Portion of average daily value
of net assets of the Fund Fee Rate
-------------------------------- --------
Not exceeding $500 million............................. 0.350%
In excess of $500 million but
not exceeding $1 billion........................... 0.315%
In excess of $1 billion but
not exceeding $1.5 billion......................... 0.280%
In excess of $1.5 billion.............................. 0.245%
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
U.S. TREASURY MONEY MARKET FUND,
A FUND OF HSBC FUNDS TRUST
By:__________________________________
Title:______________________
The foregoing Contract is hereby
agreed to as of the date hereof:
HSBC ASSET MANAGEMENT AMERICAS INC.
By:____________________________
Title:_______________
- 13 -
<PAGE>
EXHIBIT 99.(e)
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made this _____ day of __________________, 1999, between HSBC
FUNDS TRUST (the "Trust"), a Massachusetts business trust having its
principal place of business at 3435 Stelzer Road, Columbus Ohio 43219
and BISYS FUND SERVICES LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES
("Distributor"), having its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company, organized
as a Massachusetts business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
------------------------
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust then in effect
under the Securities Act of 1933, as amended (the "Securities Act"). As used in
this Agreement, the term "registration statement" shall mean Parts A (the
prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term
"prospectus" shall mean each form of prospectus and Statement of Additional
Information used by the Funds for delivery to shareholders and prospective
shareholders after the effective dates of the above referenced registration
statements, together with any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit orders
for the sale of the Shares and will undertake such advertising and promotion as
it believes reasonable in connection with such solicitation. The Trust
understands that Distributor is now and may in the future be the distributor of
the shares of several investment companies or series (together, "Companies")
including Companies having investment objectives similar to those of the Trust.
The Trust further understands that investors and potential investors in the
Trust may invest in shares of such other Companies. The Trust agrees that
Distributor's duties to such Companies shall not be deemed in conflict with its
duties to the Trust under this paragraph 1.2.
<PAGE>
Distributor shall, at its own expense, finance appropriate
activities which it deems reasonable, which are primarily intended to result in
the sale of the Shares, including, but not limited to, advertising, compensation
of underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for purchase
or redemption of the Shares to the transfer agent and custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor
upon request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) a monthly itemized list of the securities in
the Funds, (c) monthly balance sheets as soon as practicable after the end of
each month, and (d) from time to time such additional information regarding the
financial condition of the Funds as Distributor may reasonably request.
<PAGE>
1.10 The Trust represents to Distributor that, with respect to the
Shares, all registration statements and prospectuses filed by the Trust with the
Commission under the Securities Act have been carefully prepared in conformity
with requirements of said Act and rules and regulations of the Commission
thereunder. The registration statement and prospectus contain all statements
required to be stated therein in conformity with said Act and the rules and
regulations of said Commission and all statements of fact contained in any such
registration statement and prospectus are true and correct. Furthermore,
neither any registration statement nor any prospectus includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading to a
purchaser of the Shares. The Trust may, but shall not be obligated to, propose
from time to time such amendment or amendments to any registration statement and
such supplement or supplements to any prospectus as, in the light of future
developments, may, in the opinion of the Trust's counsel, be necessary or
advisable. If the Trust shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Trust of a
written request from Distributor to do so, Distributor may, at its option,
terminate this Agreement. The Trust shall not file any amendment to any
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust shall indemnify, defend and hold harmless Distributor,
its partners and employees and any person who controls Distributor within the
meaning of the Securities Act, from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred in
connection therewith) which Distributor, its partners and employees or any such
controlling person, may incur under the Securities Act, the 1940 Act, the common
law or otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in the registration statement or any prospectus or
arising out of or based upon any alleged omission by the Trust to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished in writing to the Trust by
or on behalf of Distributor for use in the preparation of the registration
statement or the prospectuses. Notwithstanding the foregoing, this indemnity
agreement, to the extent that it might require indemnity of any person who is a
partner or employee of Distributor and who is also a Trustee of the Trust, shall
not inure to the benefit of such partner or employee unless a court of competent
jurisdiction shall determine, or it shall have been determined by controlling
precedent, that such result would not be against public policy as expressed in
the Securities Act or the 1940 Act. This Agreement shall not be construed to
protect Distributor against any liability to the Trust or its shareholders to
which Distributor would otherwise be subject by reason
<PAGE>
of willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of it obligations and duties under
this Agreement. This indemnity agreement shall not inure to the benefit of
Distributor, its partners or employees or any controlling person as aforesaid if
any untrue statement or omission made in any prospectus delivered to a purchaser
of shares is corrected in any amendment or supplement to such prospectus and
such amended or supplemented prospectus shall not have been delivered or sent to
such purchaser within the time required by the Securities Act and the rules
promulgated thereunder, provided that the Trust has delivered such amended or
supplemented prospectus to Distributor in requisite quantity on a timely basis
to permit such delivery or sending. This indemnity agreement is expressly
conditioned upon the Trust's being notified of any action brought against
Distributor, its partners or employees or any such controlling person, which
notification shall be given by letter or by telegram addressed to the Trust at
its principal office in New York, New York and sent to the Trust by the person
against whom such action is brought within 10 days after the summons or other
first legal process shall have been served. The failure to notify the Trust of
any such action shall not relieve the Trust from any liability which it may have
to the person against whom such action is brought by reason of any such alleged
untrue statement or omission otherwise than on account of the indemnity
agreement contained in this paragraph. The Trust shall be entitled to assume the
defense of any suit brought to enforce any such claims, demand or liability,
but, in such case, the defense shall be conducted by counsel chosen by the Trust
and reasonably approved by Distributor. If the Trust elects to assume the
defense of any such suit and retain counsel approved by Distributor,
Distributor, its partners and employees and controlling persons named as the
defendant, or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them, but in case the Trust does not elect
to assume the defense of any such suit, or in case Distributor does not approve
of counsel chosen by the Trust, the Trust will reimburse such person or persons
named as defendant or defendants in such suit, for the reasonable fees and
expenses of any counsel retained by Distributor or such other persons. In
addition, Distributor shall have the right to employ counsel to represent it,
its partners and employees and any such controlling person who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by Distributor against the Trust hereunder if any such indemnified party shall
have been advised by its counsel that representation of such indemnified party
and the Trust by the same counsel would be inapprpriate under applicable
standards of professional conduct due to actual or potential differing interests
between them, in which event the reasonable fees and expenses of such separate
counsel shall be borne by the Trust. Notwithstanding the preceding two
sentences, the Trust shall, in connection with any such suit and any separate
but substantially similar or related suits, actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all persons
entitled to indemnity under this paragraph. The Trust shall not be liable to
indemnify any person for any settlement of any suit or claim effected without
the Trust's written consent. This indemnity agreement and the Trust's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless
<PAGE>
of any investigation made by or on behalf of Distributor, its partners and
employees or any such controlling person. This indemnity agreement shall inure
exclusively to the benefit of Distributor, its partners and employees and any
such controlling persons and their respective successors and estates. The Trust
shall promptly notify Distributor of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold harmless the Trust,
its officers and Trustees and any person who controls the Trust within the
meaning of the Securities Act, from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred in
connection therewith) which the Trust, its officers or Trustees or any such
controlling person may incur under the Securities Act, the 1940 Act, the common
law or otherwise, but only to the extent that such liability or expense incurred
by the Trust, its officers or Trustees or such controlling person results from
such claims or demands as shall arise out of or be based upon (a) any alleged
untrue statement of a material fact contained in information furnished in
writing by Distributor to the Trust specifically for use in the registration
statement or any prospectus or shall arise out of or be based upon any alleged
omission to state a material fact required to be stated therein or necessary to
make such statement therein not misleading and (b) any alleged act or omission
on Distributor's part as the Trust's agent that has not been expressly
authorized by the Trust in writing. This indemnity agreement is expressly
conditioned upon Distributor's being notified of any action brought against the
Trust, its officers or Trustees or any such controlling person, which
notification shall be given by letter or telegram addressed to Distributor at
its principal office in Columbus, Ohio, and sent to Distributor by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. The failure to notify Distributor of
any such action shall not relieve Distributor from any liability which it may
have to the Trust, its officers or Trustees or such controlling person by reason
of any such alleged misstatement, act or omission on Distributor's part
otherwise than on account of the indemnity agreement contained in this
paragraph. Distributor shall have a right to control the defense of such action
with counsel of its own choosing and reasonably approved by the Trust if such
action is based solely upon such alleged misstatement, act or omission on
Distributor's part, in which event (except as stated below) the Trust, its
officers and Trustees or such controlling person shall each have the right to
participate in the preparation of the defense of such action at their own
expense. If the Trust does not approve of counsel chosen by Distributor, and
therefore Distributor does not control the defense of such action, Distributor
will reimburse the Trust, its officers and Trustees and controlling person named
as defendant or defendants in such action, for the reasonable fees and expenses
of any counsel retained by the Trust or such other persons. In addition, the
Trust shall have the right to employ counsel to represent it, its officers and
Trustees and any such controlling person who may be the subject of liability
arising out of any claim in respect of which indemnity may be sought by the
Trust or any such other person against Distributor hereunder if any such
indemnified party shall have been advised by its counsel that representation of
such indemnified party
<PAGE>
and Distributor by the same counsel would be inappropriate under applicable
standards of professional conduct due to actual or potential differing interests
between them, in which event the reasonable fees and expenses of such separate
counsel shall be borne by Distributor. Notwithstanding the preceding two
sentences, Distributor shall, in connection with any such action and any
separate but substantially similar or related suits, actions or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all persons entitled to indemnity under this paragraph. This indemnity agreement
and Distributor's representations and warranties in this Agreement shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Trust, its officers and Trustees or any such controlling
person. This indemnity agreement shall inure exclusively to the benefit of the
Trust, its officers and Trustees and any such controlling persons and their
respective successors and estates. Distributor shall promptly notify the Trust
of the commencement of any litigation or proceedings against it in connection
with the issue and sale of any shares.
1.13 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act or if and so long as a current prospectus as required by Section
10(b)(2) of said Act is not on file with the Commission; provided, however, that
nothing contained in this paragraph 1.13 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Trust's prospectus,
Agreement and Declaration of Trust, or Bylaws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or for
additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration
statement or prospectus then in effect or the initiation by
service of process on the Trust of any proceeding for that
purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration
statement or prospectus then in effect or which requires the
making of a change in such registration statement or
<PAGE>
prospectus in order to make the statements therein not
misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement or prospectus which
may from time to time be filed with the Commission.
For purposes of this section, informal requests by or acts of the
Staff of the Commission shall not be deemed actions of or requests by the
Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
1.16 This Agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
2. Appointment of Agent.
--------------------
Distributor may enter into a written agreement with another party
qualified to perform distribution services to carry out some or all of its
responsibilities under this Agreement, provided, however, that the Trust agrees
in writing to the retention of the party chosen and the written agreement
related thereto; and provided further, that the party chosen shall be the agent
of Distributor and not the agent of the Trust, and that Distributor shall be
fully responsible for the acts of such party and shall not be relieved of any of
its responsibilities hereunder.
3. Fee.
----
Distributor shall receive from the Funds identified in the
Rule 12b-1 Distribution Plans attached as Schedule A hereto (the "Distribution
Plan Funds") a distribution fee at the rate and upon the terms and conditions
set forth in such Plan. The distribution fee shall be accrued daily and shall be
paid on the first business day of each month, or at such time(s) as the
Distributor shall reasonably request.
<PAGE>
4. Public Offering Price.
----------------------
The public offering price of Shares shall be the net asset value of
such Shares. The net asset value of Shares shall be determined in accordance
with the provisions of the Agreement and Declaration of Trust and Bylaws of the
Trust and the then-current prospectus for each Fund.
5. Issuance of Shares.
-------------------
The Trust reserves the right to issue, transfer or sell Load Shares at
net asset value (a) in connection with the merger or consolidation of the Trust
or the Load Fund(s) with any other investment company or the acquisition by the
Trust or the Load Fund(s) of all or substantially all of the assets or of the
outstanding shares of any other
<PAGE>
investment company; (b) in connection with a pro rata distribution directly to
the holders of Shares in the nature of a stock dividend or split; (c) upon the
exercise of subscription rights granted to the holders of Shares on a pro rata
basis; (d) in connection with the issuance of Load Shares pursuant to any
exchange and reinvestment privileges described in any then-current prospectus of
the Load Fund; and (e) otherwise in accordance with any then-current prospectus
of the Load Fund.
6. Term, Duration and Termination.
-------------------------------
This Agreement shall become effective with respect to each Fund as of
the date first written above and, unless sooner terminated as provided herein,
shall continue with respect to a particular Fund automatically for successive
one-year terms, provided that such continuance is specifically approved at least
annually by (a) by the vote of a majority of those members of the Trust's Board
of Trustees who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting for the purpose of voting on such
approval and (b) by the vote of the Trust's Board of Trustees or the vote of a
majority of the outstanding voting securities of such Fund. This Agreement is
terminable without penalty, on not less than sixty days' prior written notice,
by the Trust's Board of Trustees, by vote of a majority of the outstanding
voting securities of the Trust or by the Distributor. This Agreement will also
terminate automatically in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as ascribed
to such terms in the 1940 Act.)
7. Limitation of Liability of the Trustees and Shareholders.
---------------------------------------------------------
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees, and this Agreement has been signed and delivered by
an authorized officer of the Trust, acting as such, and neither such
authorization by the Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in the Trust's Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first written
above.
HSBC FUNDS TRUST BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
<PAGE>
General Partner
By: ________________________ By:_____________________
Title: _____________________ Title: _______________________
Date: ______________________ Date: _______________________
<PAGE>
Dated: _______________________
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
HSBC FUNDS TRUST
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
<PAGE>
EXHIBIT 99.I
-----------------
HALE AND DORR LLP
-----------------
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 . fax 617-526-5000
April 28, 1999
HSBC Funds Trust
3435 Stelzer Road
Suite 1000
Columbus, Ohio 43219-8001
Ladies and Gentlemen:
The HSBC Funds Trust (formerly, Mariner Funds Trust) (the "Trust"), is
a Massachusetts business trust created under a Declaration of Trust dated
October 31, 1985, as amended and restated on March 1, 1996 and further amended
and restated on May 1, 1988 (as so amended and restated, the "Declaration of
Trust"). The beneficial interests thereunder are represented by transferable
shares of beneficial interest, $0.001 par value per share.
The Trustees have the powers set forth in the Declaration of Trust,
subject to the terms, provisions and conditions therein provided. Pursuant to
Article V, Section 5.1 of the Declaration of Trust, the number of shares of
beneficial interest authorized to be issued under the Declaration of Trust is
unlimited and the Trustees are authorized to divide the shares into one or more
series of shares as they deem necessary or desirable. Pursuant to Article V,
Section 5.4 of the Declaration of Trust, the Trustees are empowered in their
discretion to issue shares of any series without action or approval of the
shareholders. As of the date of this opinion, the Trustees have established four
series of shares designated "Cash Management Fund", "Government Money Market
Fund", "U.S. Treasury Money Market Fund" and "New York Tax-Free Money Market
Fund".
The Trustees have voted to authorize the officers of the Trust to
determine the appropriate number of shares to be registered, to register with
the Securities and Exchange Commission, and to issue and sell to the public,
such shares.
<PAGE>
Page 2
We have examined the Declaration of Trust and By-Laws of the Trust, a
certificate of the Trust's secretary concerning resolutions of the Board of
Trustees relating to the authorization and issuance of shares of beneficial
interest of the Trust, and such other documents as we have deemed necessary or
appropriate for the purposes of this opinion, including, but not limited to,
originals, or copies certified or otherwise identified to our satisfaction, of
such documents, Trust records and other instruments. In our examination of the
above documents, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as certified or photostatic
copies.
For purposes of this opinion letter, we have not made an independent
review of the laws of any state or jurisdiction other than The Commonwealth of
Massachusetts and express no opinion with respect to the laws of any
jurisdiction other than the laws of The Commonwealth of Massachusetts. Further,
we express no opinion as to compliance with any state or federal securities
laws, including the securities laws of The Commonwealth of Massachusetts.
Our opinion below, as it relates to the non-assessability of the shares
of the Trust, is qualified to the extent that under Massachusetts law,
shareholders of a Massachusetts business trust may be held personally liable for
the obligations of the Trust. In this regard, however, please be advised that
the Declaration of Trust disclaims shareholder liability for acts or obligations
of the Trust and requires notice of such disclaimer to be given in each note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or any officers of the Trust. Also, the Declaration of Trust provides
for indemnification out of Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust.
We are of the opinion that all necessary Trust action precedent to the
issuance of the shares of beneficial interest of the Trust has been duly taken,
and that all such shares may legally and validly be issued for among other
things, cash, and when sold will be fully paid and non-assessable by the Trust
upon receipt by the Trust or its agent of consideration therefor in accordance
with terms described in the Declaration of Trust, subject to compliance with the
Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and the applicable state laws regulating the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an exhibit to any amendment to the Trust's registration statement
with the Commission. Except as provided in this paragraph, this opinion may not
be relied upon by, or filed with, any other parties or for any other purpose.
Very truly yours,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
<PAGE>
EXHIBIT 99.(j)
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 12, 1999, in this
Registration Statement (Form N-1A 33-1312) of HSBC Funds Trust.
ERNST & YOUNG LLP
New York, New York
April 28, 1999
<PAGE>
EXHIBIT 99.M1
HSBC MUTUAL FUNDS TRUST
HSBC FUNDS TRUST
(together, the "Trust")
RULE 12b-1 DISTRIBUTION PLAN
CLASS A SHARES
1. Definitions.
------------
(a) The Trust is an open-end management investment company organized
under the laws of the Commonwealth of Massachusetts. The Trust is registered
under the Investment Company Act of 1940, as amended (the "Act"). The Trust's
shares of beneficial interest may be classified into series in which each series
represents the entire undivided interests of a separate portfolio of assets.
For all purposes of this Agreement, a "Fund" shall mean a separate portfolio of
assets of the Trust and a "Series" shall mean the series of shares of beneficial
interest representing undivided interests in a Fund.
(b) As permitted by Rule 12b-1 (the "Rule") under the Act, the Trust
has adopted a Distribution Plan (the "Plan") for each Fund pursuant to which the
Trust may make certain payments to the Distributor for expenses incurred in
connection with the distribution of shares of the Funds. The Trust's Board of
Trustees has determined that there is a reasonable likelihood that the Plan will
benefit each Fund and its shareholders.
2. Adoption of Plan. The Trust hereby adopts this Plan, and the parties
-----------------
hereto enter into this Plan, on the terms and conditions specified herein.
3. Distribution-Related Fee.
-------------------------
(a) The Trust shall pay the Distributor a monthly distribution-related
fee on the first business day of each month in such an amount as the Distributor
may request, provided that each such payment shall be based upon the average
daily value of a Fund's net assets (as determined on each business day at the
time set forth in the Trust's currently effective prospectus for determining net
asset value per share) during the preceding month and shall be calculated at an
annual rate not in excess of 0.35% (0.50% for Growth and Income Fund and 0.20%
for the Money Market Funds).
(b) For purposes of calculating each such monthly fee, the value of a
Fund's net assets shall be computed in the manner specified in the Trust's
currently effective Prospectus and Restated and Amended Declaration of Trust.
All expenses incurred by the Trust hereunder shall be charged against such
Fund's assets. For purposes of this Plan, a "business day" is any day the Trust
is open for business.
4. Purposes of Payments. The Distributor shall be obligated to use all
---------------------
amounts received under this Plan for (i) payments to broker/dealers and other
financial intermediaries including the Distributor for their assistance in the
distribution of Fund shares, and (ii) payments to broker/dealers and other
financial intermediaries including the Distributor for promoting the sale of
such Fund shares, such as by paying for the printing and distribution of
prospectuses sent to prospective investors, the preparation, printing and
distribution of sales literature and the expenses associated with media
advertisements and telephone correspondents. The services rendered by the
Distributor hereunder are in addition to the administrative services reasonably
necessary for the operation of the Trust and the Funds pursuant to the
Administrative Services Contract between the Trust and BISYS Fund Services
Limited
<PAGE>
Partnership, dated as of March 9, 1996.
5. Related Agreements. All other agreements relating to the
-------------------
implementation of this Plan (the "related agreements") shall be in writing, and
such related agreements shall be subject to termination, without penalty, on not
more than sixty days' written notice to any other party to the agreement, in
accordance with the provisions of clauses (a) and (b) of paragraph 9 hereof.
6. Approvals by Trustees and Shareholders. This Plan shall become
---------------------------------------
effective upon approval by (a) a majority of the Board of Trustees of the Trust
for each Fund, including a majority of the Trustees who are not "interested
persons" (as defined in the Act) of the Trust and who have not direct or
indirect financial interest in the operation of the plan or in any related
agreements (the "Plan Trustees"), pursuant to a vote cast in person at a meeting
called for the purpose of voting on the Plan, and (b) the holders of a majority
of the outstanding securities of a Fund (as defined in the Act). Related
agreements shall be subject to approval by the Trustees in the manner provided
in clause (a) of the preceding sentence.
7. Duration and Annual Approval by Trustees. This Plan and any related
-----------------------------------------
agreements shall continue in effect for a period of more than one year from the
date of their adoption by a majority of the Board of Trustees, including a
majority of the Plan Trustees, pursuant to a vote cast in person at a meeting
called for the purpose of voting on the continuance of this Plan or any related
agreement.
8. Amendments. This Plan may be amended at any time with the approval
-----------
of a majority of the Board of Trustees, provided that (a) any material amendment
of this Plan must be approved by the Trustees, and (b) any amendment to increase
materially the amount to be expended by the Fund pursuant to this Plan must also
be approved by the vote of the holders of a majority of the outstanding voting
securities of the Fund (as defined in the Act).
9. Termination. This Plan may be terminated at any time, without the
------------
payment of any penalty, by (a) the vote of a majority of the Plan Trustees, or
(b) the vote of the holders of a majority of the outstanding voting securities
of a Fund (as defined in the Act). If this plan is terminated with respect to
any Funds, it shall nonetheless remain in effect with respect to any remaining
Funds.
10. Selection and Nomination of Trustees. While this Plan is in effect,
-------------------------------------
the selection and nomination of the Trustees who are not "interested persons" of
the Trust (as defined in the Act) shall be committed to the discretion of the
Trustees then in office who are not "interested persons" of the Trust.
11. Effects of Assignment. To the extent that this Plan constitutes a
----------------------
plan of distribution adopted pursuant to the Rule, it shall remain in effect as
such so as to authorize the use of the Fund's assets in the amounts and for the
purposes set forth herein, notwithstanding the occurrence of an assignment (as
defined in the Act). To the extent this Plan concurrently constitutes an
agreement relating to implementation of the plan of distribution, it shall
terminate automatically in the event of its assignment, and the Trust may
continue to make payments pursuant to this Plan only (a) upon the approval of
the Board of Trustees, and (b) if the obligations of the Distributor under this
Plan are to be performed by any organization other than the Distributor, upon
such organization's adoption and assumption in writing of all provisions of this
Plan as party hereto.
12. Quarterly Reports to Trustees. The Distributor shall prepare and
------------------------------
furnish to the Board of Trustees, at least quarterly, a written report setting
forth all amounts expended pursuant to this Plan and any related agreements and
the purposes for which such expenditures were made. The written report shall
<PAGE>
include a detailed description of the continuing services provided by
broker/dealers and other financial intermediaries pursuant to paragraph 4 of
this Plan.
13. Preservation of Records. The Trust shall preserve copies of this
------------------------
Plan, any related agreements and any reports made pursuant to this Plan for a
period of not less than six years from the date of this Plan or any such related
agreement or report. For the first two years, copies of such documents shall be
preserved in an easily accessible place.
14. Limitations on Liability of Distributor. The Distributor shall give
----------------------------------------
the Trust the benefit of the Distributor's best judgment and efforts in
rendering services under this Plan. As an inducement to the Distributor's
undertaking to render these services, the Trust agrees that the Distributor
shall not be liable under this Plan for any mistake in judgment or in any other
event whatsoever except for lack of good faith, provided that nothing in this
Plan shall be deemed to protect or purport to protect the Distributor against
any liability to the Trust or its shareholders to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Distributor's duties under this Plan, or by
reason of the Distributor's reckless disregard of its obligations and duties
hereunder.
15. Other Distribution-Related Expenditures. Nothing in this Plan shall
----------------------------------------
operate or be construed to limit the extent to which the Distributor or any
other person other than the Trust may incur costs and pay expenses associated
with the distribution of Fund shares.
16. Miscellaneous. The Trust's Amended and Restated Declaration of Trust
--------------
is on file with the Secretary of State of the Commonwealth of Massachusetts.
The obligations of the Trust are not personally binding upon, nor shall resort
be had to the private property of, any of the Trustees, shareholders, officers,
employees or agents of the Trust, but only the Trust's property shall be bound.
<PAGE>
EXHIBIT 99.M2
HSBC MUTUAL FUNDS TRUST
HSBC FUNDS TRUST
(together, the "Trust")
RULE 12b-1 DISTRIBUTION PLAN
CLASS B AND CLASS C SHARES
1. Definitions.
------------
(a) The Trust is an open-end management investment company organized
under the laws of the Commonwealth of Massachusetts. The Trust is registered
under the Investment Company Act of 1940, as amended (the "Act"). The Trust's
shares of beneficial interest may be classified into series in which each series
represents the entire undivided interests of a separate portfolio of assets.
For all purposes of this Agreement, a "Fund" shall mean a separate portfolio of
assets of the Trust and a "Series" shall mean the series of shares of beneficial
interest representing undivided interests in a Fund.
(b) As permitted by Rule 12b-1 (the "Rule") under the Act, the Trust
has adopted a Distribution Plan (the "Plan") for each Fund pursuant to which the
Trust may make certain payments to the Distributor for expenses incurred in
connection with the distribution of shares of the Funds. The Trust's Board of
Trustees has determined that there is a reasonable likelihood that the Plan will
benefit each Fund and its shareholders.
2. Adoption of Plan. The Trust hereby adopts this Plan, and the parties
-----------------
hereto enter into this Plan, on the terms and conditions specified herein.
3. Distribution-Related Fee.
-------------------------
(a) The Trust shall pay the Distributor a monthly distribution-related
fee on the first business day of each month in such an amount as the Distributor
may request, provided that each such payment shall be based upon the average
daily value of a Fund's net assets (as determined on each business day at the
time set forth in the Trust's currently effective prospectus for determining net
asset value per share) during the preceding month and shall be calculated at an
annual rate not in excess of 0.75%.
(b) For purposes of calculating each such monthly fee, the value of a
Fund's net assets shall be computed in the manner specified in the Trust's
currently effective Prospectus and Restated and Amended Declaration of Trust.
All expenses incurred by the Trust hereunder shall be charged against such
Fund's assets. For purposes of this Plan, a "business day" is any day the Trust
is open for business.
4. Purposes of Payments. The Distributor shall be obligated to use all
---------------------
amounts received under this Plan for (i) payments to broker/dealers and other
financial intermediaries including the Distributor for their assistance in the
distribution of Fund shares, and (ii) payments to broker/dealers and other
financial intermediaries including the Distributor for promoting the sale of
such Fund shares, such as by paying for the printing and distribution of
prospectuses sent to prospective investors, the preparation, printing and
distribution of sales literature and the expenses associated with media
advertisements and telephone correspondents. The services rendered by the
Distributor hereunder are in addition to the administrative services reasonably
necessary for the operation of the Trust and the Funds pursuant to the
Administrative Services Contract between the Trust and BISYS Fund Services
Limited
<PAGE>
Partnership, dated as of March 9, 1996.
5. Related Agreements. All other agreements relating to the
-------------------
implementation of this Plan (the "related agreements") shall be in writing, and
such related agreements shall be subject to termination, without penalty, on not
more than sixty days' written notice to any other party to the agreement, in
accordance with the provisions of clauses (a) and (b) of paragraph 9 hereof.
6. Approvals by Trustees and Shareholders. This Plan shall become
---------------------------------------
effective upon approval by (a) a majority of the Board of Trustees of the Trust
for each Fund, including a majority of the Trustees who are not "interested
persons" (as defined in the Act) of the Trust and who have not direct or
indirect financial interest in the operation of the plan or in any related
agreements (the "Plan Trustees"), pursuant to a vote cast in person at a meeting
called for the purpose of voting on the Plan, and (b) the holders of a majority
of the outstanding securities of a Fund (as defined in the Act). Related
agreements shall be subject to approval by the Trustees in the manner provided
in clause (a) of the preceding sentence.
7. Duration and Annual Approval by Trustees. This Plan and any related
-----------------------------------------
agreements shall continue in effect for a period of more than one year from the
date of their adoption by a majority of the Board of Trustees, including a
majority of the Plan Trustees, pursuant to a vote cast in person at a meeting
called for the purpose of voting on the continuance of this Plan or any related
agreement.
8. Amendments. This Plan may be amended at any time with the approval
-----------
of a majority of the Board of Trustees, provided that (a) any material amendment
of this Plan must be approved by the Trustees, and (b) any amendment to increase
materially the amount to be expended by the Fund pursuant to this Plan must also
be approved by the vote of the holders of a majority of the outstanding voting
securities of the Fund (as defined in the Act).
9. Termination. This Plan may be terminated at any time, without the
------------
payment of any penalty, by (a) the vote of a majority of the Plan Trustees, or
(b) the vote of the holders of a majority of the outstanding voting securities
of a Fund (as defined in the Act). If this plan is terminated with respect to
any Funds, it shall nonetheless remain in effect with respect to any remaining
Funds.
10. Selection and Nomination of Trustees. While this Plan is in effect,
-------------------------------------
the selection and nomination of the Trustees who are not "interested persons" of
the Trust (as defined in the Act) shall be committed to the discretion of the
Trustees then in office who are not "interested persons" of the Trust.
11. Effects of Assignment. To the extent that this Plan constitutes a
----------------------
plan of distribution adopted pursuant to the Rule, it shall remain in effect as
such so as to authorize the use of the Fund's assets in the amounts and for the
purposes set forth herein, notwithstanding the occurrence of an assignment (as
defined in the Act). To the extent this Plan concurrently constitutes an
agreement relating to implementation of the plan of distribution, it shall
terminate automatically in the event of its assignment, and the Trust may
continue to make payments pursuant to this Plan only (a) upon the approval of
the Board of Trustees, and (b) if the obligations of the Distributor under this
Plan are to be performed by any organization other than the Distributor, upon
such organization's adoption and assumption in writing of all provisions of this
Plan as party hereto.
12. Quarterly Reports to Trustees. The Distributor shall prepare and
------------------------------
furnish to the Board of Trustees, at least quarterly, a written report setting
forth all amounts expended pursuant to this Plan and any related agreements and
the purposes for which such expenditures were made. The written report shall
<PAGE>
include a detailed description of the continuing services provided by
broker/dealers and other financial intermediaries pursuant to paragraph 4 of
this Plan.
13. Preservation of Records. The Trust shall preserve copies of this
------------------------
Plan, any related agreements and any reports made pursuant to this Plan for a
period of not less than six years from the date of this Plan or any such related
agreement or report. For the first two years, copies of such documents shall be
preserved in an easily accessible place.
14. Limitations on Liability of Distributor. The Distributor shall give
----------------------------------------
the Trust the benefit of the Distributor's best judgment and efforts in
rendering services under this Plan. As an inducement to the Distributor's
undertaking to render these services, the Trust agrees that the Distributor
shall not be liable under this Plan for any mistake in judgment or in any other
event whatsoever except for lack of good faith, provided that nothing in this
Plan shall be deemed to protect or purport to protect the Distributor against
any liability to the Trust or its shareholders to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Distributor's duties under this Plan, or by
reason of the Distributor's reckless disregard of its obligations and duties
hereunder.
15. Other Distribution-Related Expenditures. Nothing in this Plan shall
----------------------------------------
operate or be construed to limit the extent to which the Distributor or any
other person other than the Trust may incur costs and pay expenses associated
with the distribution of Fund shares.
16. Miscellaneous. The Trust's Amended and Restated Declaration of Trust
--------------
is on file with the Secretary of State of the Commonwealth of Massachusetts.
The obligations of the Trust are not personally binding upon, nor shall resort
be had to the private property of, any of the Trustees, shareholders, officers,
employees or agents of the Trust, but only the Trust's property shall be bound.
<PAGE>
EXHBIT 99.(m)(3)
BISYS FUND SERVICES LIMITED PARTNERSHIP, DISTRIBUTOR
3435 Stelzer Road
Columbus, Ohio 43219-3035
DEALER AGREEMENT
Ladies and Gentlemen:
As the principal underwriter of the shares ("Shares") of each investment company
portfolio ("Fund") listed in Exhibit A attached hereto, which may be amended
from time to time, BISYS Fund Services Limited Partnership ("BISYS") hereby
agrees with you as follows:
1. You hereby represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and that you are a broker-
dealer properly registered and qualified under all applicable federal,
state and local laws to engage in the business and transactions described
in this Agreement. You also represent that you are a member in good
standing of the Securities Investor Protection Corporation ("SIPC"). We
both agree to abide by the Rules of Fair Practice of the NASD and all
applicable laws, rules and regulations, including applicable federal and
state securities laws, rules and regulations that are now or may become
applicable to transactions hereunder. You agree that it is your
responsibility to determine the suitability of any Fund Shares as
investments for your customers, and that BISYS has no responsibility for
such determination. You further agree to maintain all records required by
applicable law or otherwise reasonably requested by BISYS relating to Fund
transactions that you have executed. In addition, you agree to notify us
immediately in the event your status as a SIPC member changes.
2. We have furnished you with a list of the states or other jurisdictions in
which Fund Shares have been registered for sale or are otherwise qualified
for sale. Such list appears in Exhibit B attached hereto. Shares of the
Funds may from time to time be registered or otherwise qualified for sale
in states or jurisdictions other than those listed in Exhibit B. Those
states or jurisdictions are incorporated into Exhibit B by reference. You
agree to indemnify us and/or the Funds for any claim, liability, expense or
loss in any way arising out of a sale of Shares in any state or
jurisdiction in which such Shares are not so registered or qualified for
sale.
<PAGE>
3. In all sales of Fund Shares, you shall act as agent for your customers or
as principal for your own bona fide investment. In no transaction shall
you act as our agent or as agent for any Fund or the Funds' Transfer Agent.
As agent for your customers, you are hereby authorized to: (i) place orders
directly with the investment company (the "Company") for the purchase of
Shares and (ii) tender Shares to the Company for redemption, in each case
subject to the terms and conditions set forth in the applicable prospectus
("Prospectus") and the operating procedures and policies established by us.
The minimum dollar purchase of Shares shall be the applicable minimum
amount set forth in the applicable Prospectus, and no order for less than
such amount shall be accepted by you. The procedures relating to the
handling of orders shall be subject to instructions which we shall forward
to you from time to time. All orders are subject to acceptance or
rejection by BISYS in its sole discretion. No person is authorized to make
any representations concerning Shares of any Fund except such
representations contained in the relevant then-current Prospectus and
statement of additional information ("Statement of Additional Information")
and in such supplemental information that may be supplied to you by us for
a Fund. If you should make such an unauthorized representation, you agree
to indemnify the Funds and us from and against any and all claims,
liability, expense or loss in any way arising out of or in any way
connected with such representation. You are specifically authorized to
distribute the Prospectus and Statement of Additional Information and sales
material received from us. No person is authorized to distribute any other
sales material relating to a Fund without our prior written approval. You
further agree to deliver, upon our request, copies of any relevant amended
Prospectus and Statement of Additional Information to shareholders of the
Fund to whom you have sold Shares. As agent for your customers, you shall
not withhold placing customers' orders for any Shares so as to profit
yourself as a result of such withholding and shall not purchase any Shares
from us except for the purpose of covering purchase orders already
received.
If any Shares purchased by you are repurchased by a Fund or by us for the
account of a Fund, or are tendered for redemption within seven business
days after confirmation by us of the original purchase order for such
Shares, (i) you agree forthwith to refund to us the full concession allowed
to you on the original sale and (ii) we shall forthwith pay to such Fund
that part of the discount retained by us on the original sale. Notice will
be given to you of any such repurchase or redemption within ten days of the
date on which the tender of Shares for redemption is delivered to us or to
the Fund. Neither party to this Agreement shall purchase any Shares from a
record holder at a price lower than the net asset value next computed by or
for the issuer thereof. Nothing in this subparagraph shall prevent you from
selling Shares for the account of a record holder to us or the issuer and
charging the investor a fair commission for handling the transaction. Any
order placed by you for the repurchase of Shares of a Fund is subject to
the timely receipt by the Company of all required documents in good order.
If such documents are not received within a reasonable time after the order
is placed, the order is subject to cancellation, in which case you agree to
be responsible for any loss resulting to the Fund or to us from such
cancellation.
4. We will furnish you, upon request, with offering prices for the Shares in
accordance with the then-current Prospectuses for the Funds, and you agree
to quote such prices subject to confirmation by us on any Shares offered to
you for sale. The public offering price shall equal the net asset value
per Share of a Fund plus a front-end sales load, if applicable. For Funds
with a front-end sales load, you will receive a discount from the public
offering price as outlined in the current Prospectus. For Funds with a
contingent deferred sales load, you will receive from us, or a paying agent
appointed by us, a commission in the amount shown in Exhibit C. We reserve
the right to waive sales charges. Each price is always subject to
confirmation,
<PAGE>
and will be based upon the net asset value next computed after receipt by
us of an order that is in good form. You acknowledge that it is your
responsibility to date and time stamp all orders received by you and to
transmit such orders promptly to us. You further acknowledge that any
failure to promptly transmit such orders to us that causes a purchaser of
Shares to be disadvantaged, based upon the pricing requirements of Rule
22c-1 under the 1940 Act, shall be your sole responsibility. We reserve the
right to cancel this Agreement at any time without notice if any Shares
shall be offered for sale by you at less than the then-current offering
price determined by or for the applicable Fund.
5. Your customer will be entitled to a front-end sales load reduction with
respect to purchases made under a letter of intent ("Letter of Intent") or
right of accumulation ("Right of Accumulation") described in the
Prospectuses. In such case, your dealer's concession will be based upon
such reduced sales load; however, in the case of a Letter of Intent signed
by your customer, an adjustment to a higher dealer's concession will
thereafter be made to reflect actual purchases by your customer if he or
she should fail to fulfill the Letter of Intent. Your customer will be
entitled to an additional front-end sales load reduction in those instances
in which the customer makes purchases that exceed the dollar amount
indicated in the Letter of Intent and qualifies for an additional front-end
sales load reduction pursuant to the appropriate Prospectus. In such case,
your dealer's concession will be reduced to reflect such additional sales
load reduction. When placing wire trades, you agree to advise us of any
Letter of Intent signed by your customer or of any Right of Accumulation
available to such customer of which he or she has made you aware. If you
fail to so advise us, you will be liable for the return of any commissions
plus interest thereon.
6. With respect to orders that are placed for the purchase of Fund Shares,
unless otherwise agreed, settlement shall be made with the Company within
three (3) business days after our acceptance of the order. If payment is
not so received or made, we reserve the right to cancel the sale, or, at
our option, to sell the Shares to the Funds at the then prevailing net
asset value. In this event or in the event that you cancel the trade for
any reason, you agree to be responsible for any loss resulting to the Funds
or to us from your failure to make payments as aforesaid. You shall not be
entitled to any gains generated thereby.
7. You shall be responsible for the accuracy, timeliness and completeness of
any orders transmitted by you on behalf of your customers by wire or
telephone for purchases, exchanges or redemptions, and shall indemnify us
against any claims by your customers as a result of your failure to
properly transmit their instructions. In addition, you agree to guarantee
the signatures of your customers when such guarantee is required by the
Prospectus of a Fund. In that connection, you agree to indemnify and hold
harmless all persons, including us and the Funds' Transfer Agent, against
any and all loss, cost, damage or expense suffered or incurred in reliance
upon such signature guarantee.
8. No advertisement or sales literature with respect to a Fund (as such terms
are defined in the NASD's Rules of Fair Practice) shall be used by you
without first having obtained our approval.
9. Neither of us shall be liable to the other except for (1) acts or failures
to act which constitute a lack of good faith or negligence and (2)
obligations expressly assumed under this Agreement. In addition, you agree
to indemnify us and hold us harmless from any claims or assertions relating
to the lawfulness of your participation in this Agreement and the
transactions contemplated hereby or relating to any activities of any
<PAGE>
persons or entities affiliated with your organization which are performed
in connection with the discharge of your responsibilities under this
Agreement. If such claims are asserted, we shall have the right to manage
our own defense, including the selection and engagement of legal counsel,
and all costs of such defense shall be borne by you.
10. This Agreement will automatically terminate in the event of its assignment.
This Agreement may be terminated by either of us, without penalty, upon ten
days' prior written notice to the other party. This Agreement may also be
terminated at any time without penalty by the vote of a majority of the
members of a Fund's Board of Trustees who are not "interested persons" (as
such term is defined in the 1940 Act), or (with respect to a Fund) by a
vote of a majority of the outstanding voting securities of that Fund on
ten days' written notice.
11. All communications to us shall be sent to the address set forth on page 1
hereof or at such other address as we may designate in writing. Any notice
to you shall be duly given if mailed or telecopied to you at the address
set forth below or at such other address as you may provide in writing.
-------------------------------------------
-------------------------------------------
-------------------------------------------
12. You hereby represent that all requisite corporate proceedings have been
undertaken to authorize you to enter into this Agreement and to perform the
services contemplated herein. You further represent that the individual
that has signed this Agreement below is a duly elected officer that has
been empowered to act for and on behalf of your organization with respect
to the execution of this Agreement.
13. This Agreement supersedes any other agreement between us with respect to
the offer and sale of Shares and relating to any other matters discussed
herein. All covenants, agreements, representations and warranties made
herein shall be deemed to have been material and relied on by each party.
The invalidity or unenforceability of any term or provision hereof shall
not affect the validity or enforceability of any other term or provision
thereof. This Agreement may be executed in any number of counterparts,
which together shall constitute one instrument, and shall be governed by
and construed in accordance with the laws (other than the conflict of laws
rules) of the State of Ohio and shall bind and insure to the benefit of the
parties hereto and their respective successors and assigns.
If the foregoing corresponds with your understanding of our agreement, please
sign this document and the accompanying copies thereof in the appropriate space
below and return the same to us, whereupon this Agreement shall be binding upon
each of us, effective as of the date of execution.
<PAGE>
BISYS FUND SERVICES LIMITED PARTNERSHIP The foregoing Agreement is hereby
/By:/ BISYS FUND SERVICES, INC. accepted:
--------------------------------
By By
----------------------------- ------------------------------
Date Date
Authorized Officer Title:
<PAGE>
BISYS FUND SERVICES LIMITED PARTNERSHIP
3435 Stelzer Road
Columbus, Ohio 43219
EXHIBIT A
INVESTMENT PORTFOLIOS OF
HSBC FUNDS
FUND NAME TYPE CUSIP QUOTRON
- --------- ---- ----- -------
Cash Management Fund Money Market 56845L302 MHMXX
Government Money Market Fund Money Market 56845L401 MGFXX
U.S. Treasury Money Market Fund Money Market 56845L500 MUSXX
New York Tax-Free Money Market Fund Money Market 56845L708 MNFXX
Growth & Income Fund Stock 404282105 MTREX
New York Tax-Free Bond Fund Bond 404282303 MNYBX
Fixed Income Fund Bond 404282402 MFIFX
Small Cap Fund Stock 404282204 MSCFX
International Equity Fund (Retail) Stock 404282600
<PAGE>
EXHIBIT 99.O
HSBC FUNDS TRUST
Rule 18f-3 Plan
Rule 18f-3
- ----------
Pursuant to Rule 18f-3 ("Rule 18f-3") of the Investment Company Act of
1940, as amended (the "Act"), HSBC Funds Trust (the "Trust"), a registered open-
end investment company whose shares are registered on Form N-1A, consisting of
the Cash Management Fund, Government Money Market Fund, U.S. Treasury Money
Market Fund and New York Tax-Free Money Market Fund and any future fund or
series created by the Trust (collectively, the "Funds"), hereby adopts this
plan setting forth the separate arrangements and expense allocations of each
class of shares. This plan is deemed to include other operational details of
the class structure as they appear in the prospectus.
Authorized Classes
- ------------------
Class A Shares
- --------------
Sales of Class A shares of all the Funds are not subject to an initial
sales charge. Class A shares of all of the Funds are subject to a distribution
fee under the Rule 12b-1 Plan payable at a maximum annual rate of up to 0.20% of
the average daily net assets of that Class. Class A Shares are also subject to
fees of up to 0.35% (subject to NASD rules) pursuant to a Servicing Organization
Agreement.
Class B Shares
- --------------
Investors purchasing shares of the Funds will ordinarily purchase Class A
shares. Investors will only receive Class B shares by exchanging Class B shares
of either the other Funds in the Trust or Class B shares of funds in the HSBC
Mutual Funds Trust (collectively "HSBC Funds"). If investors exchange shares of
other HSBC Funds for shares of any of the Funds, these Class B Shares are not
subject to an initial sales charge but the shares are subject to a contingent
deferred sales charge ("CDSC") which will be imposed on redemptions as follows:
4% in year 1
3% in year 2
2% in year 3
1% in year 4
0% in year 5 and thereafter
Class B shares are also subject to a distribution fee pursuant to Rule
12b-1 payable at the annual rate of up to 0.75% of the average daily net assets
of the class. Class B Shares are also subject to fees of up to 0.50% (subject to
NASD rules) pursuant to a Servicing Organization Agreement. Class B Shares
automatically convert to Class A shares on the first business day of the month
following the sixth anniversary of the issuance of such Class B shares.
<PAGE>
Class C Shares
- --------------
Generally, investors will only receive Class C shares of any of the Funds
by exchanging Class C shares of other HSBC Funds. Class C shares are also
offered to certain investors who desire enhanced shareholder services which
include cash sweeps. If you exchange shares of other HSBC Funds for shares of
the Funds, these Class C Shares are not subject to an initial sales charge but
the shares are subject to a CDSC which will be imposed on redemptions. Class C
Shares are subject to a lower CDSC (1.00%) and do not have to be held as long as
Class B Shares (one year) to avoid paying a CDSC. The CDSC will be based upon
the lower of the net asset value at the time of purchase or the net asset value
at the time of redemption. There is no CDSC on reinvested dividends or
distributions.
Class C Shares will not automatically convert to Class A shares. Class C
Shares are also subject to a distribution fee pursuant to Rule 12b-1 payable at
the annual rate of up to 0.75% of the average daily net assets of the class.
Class C Shares are also subject to fees of up to 0.50% (subject to NASD rules)
pursuant to a Servicing Organization Agreement.
Class Voting Rights and Obligations and Class Expenses
- ------------------------------------------------------
The Classes of shares issued by any Fund will be identical in all
respects except for Class designation, allocation of certain expenses directly
related to the distribution or service arrangement, or both, for a Class, and
voting rights--each Class votes separately with respect to issues affecting only
that Class. Shares of all Classes will represent interests in the same
investment fund; therefore each Class is subject to the same investment
objectives, policies and limitations.
Each Class of shares shall bear expenses, not including advisory or
custodial fees or other expenses related to the management of the Fund's assets,
that are directly attributable to the kind or degree of services rendered to
that Class ("Class Expenses"). Class Expenses, including the management fee or
the fee of other service providers, may be waived or reimbursed by the Funds'
investment adviser, underwriter or any other provider of services to the Funds
with respect to each Class of a Fund on a Class by Class basis.
Exchanges and Conversion Privileges
- -----------------------------------
Shareholders who have held all or part of their shares in a Fund for at
least seven days may exchange shares of one Fund for shares of any of the other
portfolios of the Trust or any of the portfolios of the HSBC Mutual Funds Trust
which are available for sale in their state. A shareholder who has paid a sales
load in connection with the purchase of shares of any of the Funds will be
subject only to that portion of the sales load of the Fund into which the
shareholder is exchanging which exceeds the sales load originally paid by the
shareholder. Class B Shares will convert automatically to Class A shares on the
first business day of the month following the sixth anniversary of the issuance
of such Class B Shares. Class B Shares will be converted at the net asset value
of Class A Shares, without the imposition of any sales load, fee or charge.
- 2 -
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