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Registration Nos. 33-7647
811-4782
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 70 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 71 [X]
(Check appropriate box or boxes)
HSBC INVESTOR FUNDS
(Exact name of registrant as specified in charter)
3435 Stelzer Road
Columbus, Ohio 43219-3035
(Address of principal executive offices)
Registrant's Telephone Number, including area code: (617) 470-8000
Walter B. Grimm
3435 Stelzer Road
Columbus, Ohio 43219-3035
(Name and address of agent for service)
Please send copies of all communications to:
Allan S. Mostoff
Dechert
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b)
_____ on [date] pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
_____ on [date] pursuant to paragraph (a) of Rule 485
X 75 days after filing pursuant to paragraph (a)
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HSBC INVESTOR CALIFORNIA TAX-FREE MONEY MARKET FUND
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PROSPECTUS
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[ ] ____, 2000
HSBC INVESTOR CALIFORNIA TAX-FREE MONEY MARKET FUND
THESE SECURITIES HAVE BEEN NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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HSBC INVESTOR CALIFORNIA TAX-FREE MONEY MARKET FUND
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RISK/RETURN SUMMARY
The following is a summary of certain key information about the Fund. You will
find additional information about the Fund, including a detailed description of
the risks of an investment in the Fund, after this summary.
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES The investment objective of the HSBC
Investor California Tax-Free Money
Market Fund (the "Fund") is to
provide shareholders of the Fund with
liquidity and as high a level of
current income that is exempt from
federal and California personal
income taxes as is consistent with
the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES The Fund seeks to achieve this
investment objective by investing the
assets of the Fund primarily in a
non-diversified portfolio of short-
term, high quality, tax-exempt money
market instruments.
The Fund invests primarily in
high-quality commercial paper,
municipal bonds, and municipal notes
("Municipal Obligations"), including
tax and revenue authorization notes,
tax anticipation notes, bond
anticipation notes and revenue
anticipation notes, that are exempt
from federal and California personal
income tax ("California Municipal
Obligations").
The Fund may invest more than 25% of
the Fund's assets in participation
interests issued by banks in
industrial development bonds and
other Municipal Obligations if such
investments meet the prescribed
quality standards for the Fund (rated
AA or higher by a Nationally
Recognized Statistical Ratings
Organization or of comparable
quality).
PRINCIPAL
INVESTMENT RISKS AN INVESTMENT IN THE FUND IS NOT A
DEPOSIT OF HSBC AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING
IN THE FUND.
Market Risk: The Fund's performance
per share will change daily based on
many factors, including the quality
of the instruments in the Fund's
investment portfolio, national and
</TABLE>
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<TABLE>
<S> <C>
international economic conditions and
general market conditions.
Interest Rate Risk: Changes in
interest rates will affect the yield
or value of the Fund's investments in
debt securities. If interest rates
rise, the value of the Fund's
investments may fall. Conversely, if
interest rates fall, the value of the
Fund's investments may rise.
Concentration Risk: Because the Fund
will concentrate its investments in
California obligations and may invest
a significant portion of its assets
in the securities of a single issuer
or sector, the Fund's assets could
lose significant value due to the
poor performance of a single issuer
or sector.
Credit Risk: The Fund could lose
money if the issuer of a fixed income
security owned by the Fund defaults
on its financial obligation.
Historically, California and other
issuers of California Municipal
Obligations have experienced periods
of severe recession and financial
difficulty. Because a significant
share of California's economy depends
on business and financial services,
any change in market conditions that
adversely affect these industries
could affect the ability of
California and its localities to meet
their financial obligations. If such
difficulties arise in the future, you
could lose money on your investment.
Tax Risk: The Fund may invest up to
20% of its total assets in
obligations the interest income on
which is subject to federal and
California personal income tax. In
addition, dividends attributable to
interest on certain Municipal
Obligations may be included in a
shareholder's alternative minimum
taxable income.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
Are seeking tax-free income
Are seeking preservation of capital
Have a low risk tolerance
Are willing to accept lower potential
returns in exchange for a high degree of safety
Are investing for a short-term
Live in California
This Fund will not be appropriate for anyone:
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<TABLE>
<S> <C>
Seeking high total returns
Pursuing a long-term goal or investing for
retirement
Investing through a tax-advantaged retirement plan
The investment objective and
strategies of the Fund are not
fundamental and may be changed
without approval of Fund
shareholders. If there is a change in
the investment objective and
strategies of the Fund, shareholders
should consider whether the Fund
remains an appropriate investment in
light of their then current financial
position and needs.
</TABLE>
Performance bar chart and table for the Fund are not shown because shares of the
Fund were not offered prior to October ___, 2000.
FEES AND EXPENSES
As an investor in the Fund, you may pay the following fees and expenses if you
buy and hold shares of the Fund. Shareholder fees are paid from your account.
Annual Fund operating expenses are paid out of Fund assets, and are reflected in
the share price.
<TABLE>
<CAPTION>
SHAREHOLDER
FEES
(FEES PAID
DIRECTLY FROM YOUR A B C D Y
INVESTMENT) SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C>
Maximum sales
charge (load)
on purchase NONE NONE NONE NONE NONE
Maximum deferred sales charge
(load) on redemptions NONE 4.00% 1.00% NONE NONE
<CAPTION>
ANNUAL FUND
OPERATING
EXPENSES
(EXPENSES THAT
ARE DEDUCTED A B C D Y
FROM FUND ASSETS SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C>
Management fee 0.20% 0.20% 0.20% 0.20% 0.20%
Distribution (12b-1) fee 0.00%* 0.75% 0.75% 0.00%* NONE
Shareholder servicing fees 0.60% 0.25% 0.25% 0.25% NONE
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Other operating expenses** 0.29% 0.29% 0.29% 0.29% 0.29%
Total other expenses 0.89% 0.54% 0.54% 0.54% 0.29%
Total Fund operating expenses 1.09% 1.49% 1.49% 0.74% 0.49%
Fee Waivers and Expense Reimbursement 0.44% 0.09% 0.09% 0.24% 0.24%
Net Operating Expenses 0.65% 1.40% 1.40% 0.50% 0.25%
</TABLE>
* There is a 12b-1 plan for Class A and Class D Shares, which authorizes
payments up to .25% of the Fund's assets. To date, no payments under the 12b-1
Plan have been made.
** Other operating expenses are based upon estimated amount for the current
fiscal year.
The Fund offers five different types of shares:
CLASS A SHARES (or "Investor Shares") are offered to the public, customers of
Shareholder Servicing Agents and certain securities brokers on a continuous
basis with no sales charge on purchases.
CLASS B AND CLASS C SHARES are not offered for sale but are only offered as an
exchange option. See "Exchanging your Shares."
CLASS D SHARES (or "Private Investor Shares") are identical to Class A Shares,
except that Class D Shares are offered only to domestic private banking clients
and are subject to lower operating expenses.
ADVISER (CLASS Y) SHARES ("Class Y Shares") are continuously offered for sale
only to customers of Shareholder Servicing Agents. At present, the only
Shareholder Servicing Agents for Adviser (Class Y) Shares are the Investment
Adviser ("Adviser") and its affiliates.
The Fund's Statement of Additional Information contains more detailed discussion
of the different classes of shares.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It illustrates the amount of
fees and expenses you would pay, assuming the following:
$10,000 investment
5% annual return
redemption at the end of each period (unless otherwise indicated)
no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
may be higher or lower.
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<TABLE>
<CAPTION>
HSBC INVESTOR CALIFORNIA TAX-FREE 1 3
MONEY MARKET FUND YEAR YEAR
<S> <C> <C>
CLASS A SHARES $ 66 $303
CLASS B SHARES
Assuming Redemption $543 $662
Assuming no Redemption $143 $462
CLASS C SHARES
Assuming Redemption $243 $462
Assuming no Redemption $143 $462
CLASS D SHARES $ 51 $212
CLASS Y SHARES $ 26 $133
</TABLE>
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The investment objective of the Fund is to provide shareholders of the Fund with
liquidity and as high a level of current income that is exempt from federal and
California personal income taxes as is consistent with the preservation of
capital.
The Fund seeks to achieve this investment objective by investing the assets of
the Fund primarily in a non-diversified portfolio of short-term, high quality,
tax-exempt money market instruments with maturities of 397 days or less and a
dollar-weighted average portfolio maturity of 90 days or less.
The Fund will primarily invest in municipal bonds, notes and commercial paper
issued by or on behalf of the State of California and its authorities, agencies,
instrumentalities and political subdivisions, and in participation interests
issued by banks, insurance companies or other financial institutions with
respect to these types of obligations.
Consistent with the Fund's investment objectives, the Fund:
will invest at least 80% of its assets in tax-exempt
obligations, and at least 65% of the Fund's assets in
California Municipal Obligations (however, market conditions
may from time to time limit the availability of these
obligations).
may invest up to 20% of its total assets in obligations the
interest income on which is subject to federal and California
personal income tax.
may invest in taxable securities (such as U.S. Government
obligations or certificates of deposit of domestic banks), but
only if such securities are of comparable quality and credit
risk as the Municipal Obligations described above.
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may invest more than 25% of its assets in participation
interests issued by banks in industrial development bonds and
other Municipal Obligations if such investments meet the
prescribed quality standards for the Fund.
may acquire stand-by commitments from banks with respect to
Municipal Obligations purchased on behalf of the Fund. The
Fund intends to acquire the stand-by commitments to facilitate
portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes.
GENERAL RISK FACTORS
The Fund expects to maintain a net asset value of $1.00 per share, but there is
no assurance that the Fund will be able to do so on a continuous basis. The
Fund's performance per share will change daily based on many factors, including
fluctuation in interest rates, the quality of the instruments in the Fund's
investment portfolio, national and international economic conditions and general
market conditions.
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. Shares of the Fund are not deposits or obligations of, or guaranteed
or endorsed by, HSBC Bank USA or any other bank, and the Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency.
There can be no assurance that the investment objectives of the Fund will be
achieved. In addition, the Fund's investment policies, as well as the relatively
short maturity of obligations purchased by the Fund, may result in frequent
changes in the Fund's portfolio, which may give rise to taxable gains and reduce
investment returns.
The Fund may also be subject to credit risks. The Fund could lose money if the
issuer of a security owned by the Fund is unable to meet its financial
obligations.
SPECIFIC RISK FACTORS FOR CALIFORNIA
Because the Fund will concentrate its investments in California and may
concentrate a significant portion of its assets in the securities of a single
issuer or sector, investment in the Fund may pose investment risks greater than
those posed by a more broadly diversified portfolio. Consequently, unlike a more
diversified portfolio, the value of the Fund's assets could lose significant
value due to the poor performance of a single issuer or sector. In particular,
due to the Fund's concentration in California Municipal Obligations, the Fund
will be vulnerable to any development in California's economy that may weaken or
jeopardize the ability of California Municipal Obligations issuers to pay
interest and principal on their obligations.
THE INVESTMENT ADVISER
HSBC Asset Management (Americas), Inc. (the "Adviser"), 452 Fifth Avenue, New
York, New York 10018, is the investment adviser for the Fund, pursuant to an
Investment Advisory Contract with the HSBC Investor Funds (the "Trust"). The
Adviser is a wholly owned subsidiary of HSBC Bank USA ("HSBC"), which is a
wholly owned subsidiary of HSBC USA, Inc., a registered bank
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holding company. HSBC currently provides investment advisory services for
individuals, trusts, estates and institutions. HSBC manages more than $80
billion in assets, including $6.1 billion in the HSBC Investor Family of Funds.
Through its portfolio management team, the Adviser makes the day-to-day
investment decisions and continuously reviews, supervises and administers the
Fund's investment programs.
For these advisory services, the Fund pays a management fee of .15% of its
average net assets.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS"), whose address is 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as the Fund's administrator (the
"Administrator"). Management and administrative services of BISYS include
providing office space, equipment and clerical personnel to the Fund and
supervising custodial, auditing, valuation, bookkeeping, legal and dividend
dispersing services.
BISYS also serves as the distributor (the "Distributor") of the Fund's
shares. BISYS may provide financial assistance to the Fund 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 Fund's Statement of Additional Information has more detailed
information about the Adviser, Distributor and Administrator, and other service
providers.
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
Total Assets - Liabilities
NAV = --------------------------
Number of Shares
Outstanding
The net asset value per share (NAV) of the Fund is determined daily at the close
of regular trading on the New York Stock Exchange, normally at 4 p.m. Eastern
time on days the Exchange is open. The New York Stock Exchange is open every
weekday except for the days on which national holidays are observed.
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The Fund values its securities at their amortized cost. This method involves
valuing an instrument at its cost and thereafter applying a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the investment.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is received by the Fund (whether by mail, overnight
service, or telephone). This is what is known as the offering price. If you sell
Class B Shares or Class C Shares, a contingent deferred sales load may apply,
which would reduce the amount of money paid to you by the Fund, as noted in the
section on "Distribution Arrangements/Sales Charges."
PURCHASING AND ADDING TO YOUR SHARES
You may purchase the Fund through the HSBC Investor Funds 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
ACCOUNT TYPE INITIAL INVESTMENT MINIMUM SUBSEQUENT
<S> <C> <C>
CLASS A AND
CLASS D SHARES
Regular $1,000 $100
(non-retirement)
Retirement (IRA) $250 $100
Automatic Investment Plan $250 $ 25
CLASS Y SHARES* $1,000,000 N/A
</TABLE>
* HSBC clients that maintain an investment management account are not subject to
the minimum initial investment requirements.
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.
The Fund may waive its minimum purchase requirement, and the Distributor may
reject a purchase order if the Distributor considers it in the best interest of
the Fund and its shareholders.
Class B Shares and Class C Shares of the Fund are not offered for sale but are
only offered as an exchange option for Class B and Class C Shareholders of the
Trust's other investment portfolios.
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, or if you have been notified by the IRS that
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you are subject to backup withholding. Backup withholding is not an additional
tax; rather, it is a way in which the IRS ensures it will collect taxes
otherwise due. Any amounts withheld may be credited against your U.S. federal
income tax liability. To avoid tax withholding, make sure you provide your
correct Tax Identification Number (Social Security Number for most investors) on
your account application.
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
BY REGULAR MAIL OR BY OVERNIGHT SERVICE
Initial Investment:
If purchasing through your financial advisor or brokerage account, simply tell
your advisor or broker that you wish to purchase shares of the Fund and he or
she will take care of the necessary documentation. For all other purchases,
follow the instructions below.
1. Carefully read, complete, and sign the account 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 Investor Funds" and
include the name of the Fund on the check.
Mail to: HSBC Investor Funds, PO Box 182845, Columbus, Ohio 43218-2845.
Subsequent:
1. Use the investment slip attached to your account statement. Or, if
unavailable,
2. Include the following information in writing:
Fund name
Share class
Amount invested
Account name
Account number
Include your account number on your check.
3. Mail investment slip and check to: HSBC Investor Funds, PO Box 182845,
Columbus, Ohio 43218-2845.
ELECTRONIC VS. WIRE TRANSFER
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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.
ELECTRONIC PURCHASES
Your bank must participate in the Automated Clearing House (ACH) and must be a
United States Bank. Your bank or broker may charge for this service.
Establish electronic purchase option on your account application or call
1-800-782-8183. Your account can generally be set up for electronic purchases
within 15 days.
Call 1-800-782-8183 to arrange a transfer from your bank account.
BY WIRE TRANSFER
For information on how to request a wire transfer, call 1-800-782-8183.
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Fund from your bank account, through
payroll deduction or from your federal employment, Social Security or other
regular government checks. Automatic investments can be as little as $25, once
you've invested the $250 minimum required to open the account.
To invest regularly from your bank account:
Complete the Automatic Investment Plan portion on your Account Application.
Make sure you note:
Your bank name, address and account number
The amount you wish to invest automatically (minimum $25)
How often you want to invest (every month, 4 times a year, twice
a year or once a year)
Attach a voided personal check.
To invest regularly from your paycheck or government check:
Call 1-800-782-8183 for an enrollment form.
DIRECTED DIVIDEND OPTION
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By selecting the appropriate box in the Account Application, you can elect to
receive your distributions in cash (check) or have distributions (capital gains
and dividends) reinvested in another HSBC Investor Fund without a sales charge.
You must maintain the minimum balance in each Fund into which you plan to
reinvest dividends or the reinvestment will be suspended and your dividends paid
to you. The Fund may modify or terminate this reinvestment option without
notice. You can change or terminate your participation in the reinvestment
option at any time.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise. There are no sales charges for reinvested distributions.
Dividends are higher for Class A Shares than for Class B and C Shares, because
Class A Shares have lower operating expenses. Class D Shares receive a higher
dividend than Class A Shares because Class D Shares have lower operating
expenses. Class Y Shares receive the highest dividends, because they have the
lowest operating expenses. Capital gains are distributed at least annually.
Distributions are made on a per share basis regardless of how long you've owned
your shares. Therefore, if you invest shortly before the distribution date, some
of your investment will be returned to you in the form of a distribution, which
may be taxable.
SELLING YOUR SHARES
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is accepted by the Fund, its transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received. See section on "General Policies on Selling
Shares" below.
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
CONTINGENT DEFERRED SALES CHARGE
When you sell Class B or C shares, you will be charged a fee for any shares that
have not been held for a sufficient length of time. These fees will be deducted
from the money paid to you. See the sections on "Distribution Arrangements/Sales
Charges" and "Exchanging your Shares" below 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
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(unless you have declined telephone sales privileges)
1. Call 1-800-782-8183 with instructions as to how you wish to receive
your funds (mail, wire, electronic transfer). (See "General Policies
on Selling Shares--Verifying Telephone Redemptions")
BY MAIL OR OVERNIGHT SERVICE
(See "General Policies on Selling Shares--Redemptions in Writing Required")
1. Call 1-800-782-8183 to request redemption forms or write a letter of
instruction indicating:
your Fund and account number
amount you wish to redeem
address where your check should be sent
account owner signature
2. Mail to: HSBC Investor Funds, PO Box 182845, Columbus, Ohio
43218-2845.
WIRE TRANSFER
You must indicate this option on your account application.
Call 1-800-782-8183 to request a wire transfer.
If you call by 12:00 p.m. Eastern time, your payment will normally be wired to
your bank on the same business day. If you call by 4 p.m. Eastern time, your
payment will normally be wired to your bank on the next business day. Otherwise,
it will normally be wired on the second business day after your call.
The Fund may charge a wire transfer fee.
NOTE: Your financial institution may also charge a separate fee.
ELECTRONIC REDEMPTIONS
Call 1-800-782-8183 to request an electronic redemption.
Your bank must participate in the Automated Clearing House (ACH) and must be a
U.S. bank.
If you call by 12:00 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds credited within 7 days.
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Your bank may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly, quarterly,
semi-annual or annual basis. The minimum withdrawal is $50. To activate this
feature:
Make sure you've checked the appropriate box on the Account
Application, or call 1-800-782-8183.
Include a voided personal check.
Your account must have a value of $10,000 or more to start
withdrawals.
If the value of your account falls below $1,000, you may be asked to
add sufficient funds to bring the account back to $1,000, or the
Fund may close your account and mail the proceeds to you.
CHECK REDEMPTION SERVICE
You may write checks in amounts of $250 or more on your account in the Fund. To
obtain checks, complete the signature card 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. The check
writing feature may be modified or terminated upon 30-days written notice. You
may not close your Fund account by writing a check.
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee, which include
each of the following:
Redemptions over $10,000
Your account registration or the name(s) in your account has changed
within the last 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.
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You must obtain a signature guarantee from members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange 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.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has cleared
(which may require up to 15 business days). 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.
CLOSING OF SMALL ACCOUNTS
If your account falls below $50 due to redemptions, the Fund may ask you to
increase your balance. If it is still below $50 after 30 days, the Fund may
close your account and send you the proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash, if
distribution checks (1) are returned and marked as "undeliverable" or (2) remain
uncashed for six months, your account will be changed automatically so that all
future distributions are reinvested in your account. Checks that remain uncashed
for six months will be canceled and the money reinvested in the Fund.
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 Fund.
CLASS A SHARES CLASS D SHARES CLASS Y SHARES
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Charge (Load) No front-end sales No front-end sales No front-end sales
charge. charge. charge.
Distribution (12b-1) Subject to Subject to No distribution or
and Service Fees aggregate annual aggregate annual service fees.
distribution and distribution and
shareholder servicing shareholder
fees of up to .60% servicing fees of
of the Fund's total up to .25% of the
assets. Fund's total assets.
Fund Expenses Lower annual Lower annual Lower annual
expenses than expenses than expenses than
Class B or C shares. Class A, B or C Class A, B, C
shares. or D shares.
</TABLE>
CLASS B SHARES AND CLASS C SHARES
Class B Shares and Class C Shares are 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 Investor Family of Funds who wish to exchange some or all of those
shares for Class B Shares or Class C Shares, respectively, of the 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 HSBC Investor
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 and shareholder servicing
fees of up to 1.00% of the Fund's assets. Shareholders of Class B Shares and
Class C Shares pay higher annual expenses than shareholders of Class A Shares,
Class D Shares and Class Y Shares.
DISTRIBUTION (12b-1) AND SHAREHOLDER SERVICE FEES
The Fund has adopted 12b-1 plans for Class A, Class B, Class C and Class D
Shares. 12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Fund's shares and/or for providing shareholder services. 12b-1 fees are
paid from Fund assets on an ongoing basis, and will decrease the return on your
investment.
The 12b-1 fees vary by share class as follows:
Class A Shares may pay a 12b-1 fee of up to .25% of the average
daily net assets of the applicable Fund.
Class B and Class C Shares pay a 12b-1 fee of up to .75% of the
average daily net assets of the applicable Fund. This will cause
expenses for Class B and Class C Shares to be higher and
dividends to be lower than for Class A Shares, Class D Shares,
and Class Y Shares.
15
<PAGE>
Class D Shares may pay a 12b-1 fee of up to .25% of the average
daily net assets of the applicable Fund.
Class Y Shares do not pay a 12b-1 fee.
The higher 12b-1 fees on Class B and Class C Shares, together with
the CDSC, help the Distributor sell Class B and Class C Shares
without an "up-front" sales charge. In particular, these fees help
to defray the Distributor's costs of advancing brokerage commissions
to investment representatives.
In addition to the 12b-1 fees, Class A Shares are subject to a
shareholder servicing fee of up to .60%. Class B, Class C and Class
D Shares are subject to a shareholder servicing fee of up to .25%.
The aggregate of the 12b-1 fees and shareholder servicing fees will
not exceed .60% for the Class A Shares, 1.00% for the Class B and
Class C Shares, and .25% for Class D Shares.
Long-term Class B and Class C shareholders may pay indirectly more than the
equivalent of the maximum permitted front-end sales charge due to the recurring
nature of 12b-1 distribution and service fees.
CLASS B SHARES
Investors purchasing shares of the Fund will ordinarily purchase either Class A
Shares, Class D Shares or Class Y Shares. Investors will only receive Class B
Shares or Class C Shares by exchanging from the Class B Shares or Class C Shares
of other HSBC Investor Funds. If you exchange shares of other HSBC Investor
Funds for shares of the Fund and wish to sell your shares, Class B Shares may be
subject to a contingent deferred sales charge ("CDSC").
Specifically, Class B Shares of the Fund will be subject to a declining CDSC if
Class B Shares of any of the HSBC Investor Income Funds (currently, the HSBC
Investor Bond Fund, HSBC Investor New York Tax-Free Bond Fund and HSBC Investor
Limited Maturity Bond Fund) or any of the HSBC Investor Equity Funds (currently,
the HSBC Investor Equity Fund, HSBC Investor Overseas Equity Fund, HSBC Investor
Opportunity Fund and HSBC Investor Mid-Cap Fund) are exchanged for Class B
Shares of the Fund and redeemed within 4 years. Generally*, the CDSC will be:
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
-------------------- ------------------------
0-1 4.00%
1-2 3.00%
2-3 2.00%
3-4 1.00%
more than 4 None
* Class B shares of the HSBC Investor Income Funds purchased prior to June 19,
2000 are subject to a CDSC in effect at the time of purchase.
16
<PAGE>
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.
If you sell some but not all of your Class B 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).
Conversion Feature--Class B Shares
Class B Shares of the Fund will convert automatically to Class A of
the same Fund (or Class D Shares, depending on your eligibility),
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 (or Class D Shares) which will increase your investment
return compared to the Class B Shares.
You will not pay any sales charge or fees when your shares convert,
nor will the transaction be subject to any tax.
If you purchased Class B Shares of one Fund which you exchanged for
Class B Shares of another Fund, your holding period will be
calculated from the time of your original purchase of Class B
Shares. The dollar value of Class A Shares (or Class D Shares) you
receive will equal the dollar value of the B shares converted.
CLASS C SHARES
Similarly, if you exchange Class C Shares of other HSBC Investor Funds for Class
C Shares of the Fund 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 CDSC will be assessed the lesser of
the current NAV or the NAV at the time of purchase.
Unlike Class B Shares, Class C Shares have no conversion feature.
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 a
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.
17
<PAGE>
EXCHANGING YOUR SHARES
You can exchange your shares in one Fund for shares of the same class of another
HSBC Investor Fund, usually without paying additional sales charges (see "Notes
on Exchanges" below). No transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
Exchanges may be made by sending a written request to HSBC Investor Funds, PO
Box 182845, Columbus, Ohio 43218-2845 or by calling 1-800-782-8183. Please
provide the following information:
Your name and telephone number
The exact name on your account and account number
Taxpayer identification number (usually your Social Security number)
Dollar value or number of shares to be exchanged
The name of the Fund from which the exchange is to be made
The name of the Fund into which the exchange is being made.
See "Selling your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Fund, due to market timing
strategies, exchange activity may be limited.
NOTES ON EXCHANGES
When exchanging from a fund that has no sales charge or a lower sales charge to
a fund with a higher sales charge, you will pay the difference.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege (including automatic exchanges) may be changed or
eliminated at any time upon a 60-day notice to shareholders.
Be sure to read the Prospectus carefully of any fund into which you wish to
exchange shares.
Class B Shares of the HSBC Investor Income Funds (currently, the HSBC Investor
Bond Fund and HSBC Investor Fixed-Income Fund) or HSBC Investor Equity Funds
(currently, the HSBC Investor Equity Fund, HSBC Investor Overseas Equity Fund
and HSBC Investor Opportunity Fund) may be exchanged for Class D Shares of the
Fund only if you are otherwise eligible to
18
<PAGE>
receive them. In all other cases, you will receive Class A Shares of the Fund in
exchange for your Class B Shares of the HSBC Investor Income or HSBC Investor
Equity Funds.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information is meant as a general summary for U.S.
taxpayers. Please see the Fund's Statement of Additional Information
for more information. Because everyone's tax situation is unique,
you should rely on your own tax advisor for advice about the
particular federal, state and local tax consequences to you of
investing in the Fund.
The Fund generally will not have to pay income tax on amounts it
distributes to shareholders, although shareholders will be taxed on
distributions they receive.
Any income the Fund receives in the form of interest and dividends
is paid out, less expenses, to its shareholders. Shares begin
accruing interest and dividends on the day they are purchased.
Dividends on the Fund are paid monthly. Capital gains for the Fund
are distributed at least annually. Unless a shareholder elects to
receive dividends in cash, dividends will be automatically invested
in additional shares of the Fund.
Dividends and distributions are treated in the same manner for
federal income tax purposes whether you receive them in cash or in
additional shares.
Dividends are generally taxable as ordinary income; however,
distributions of tax-exempt interest income earned by the Fund are
expected to be exempt from the regular federal income tax.
If the Fund designates a dividend as a capital gain distribution
(e.g., when the Fund has a gain from the sale of an asset the Fund
held for more than 12 months), you will pay tax on that dividend at
the long-term capital gains tax rate, no matter how long you have
held your Fund shares.
Dividends are taxable in the year in which they are paid or deemed
paid, even if they appear on your account statement the following
year. If the Fund declares a dividend in October, November, or
December of a year and distributes the dividend in January of the
next year, you may be taxed as if you received it in the year
declared rather than the year received.
There may be tax consequences to you if you dispose of your shares
in the Fund, for example, through redemption, exchange or sale. The
amount of any gain or loss and the rate of tax will depend mainly
upon how much you pay for the shares, how much you sell them for,
and how long you held them.
You will be notified before February 1 of each year about the
federal tax status of distributions made by the Fund. The notice
will tell you which dividends and
19
<PAGE>
redemptions must be treated as taxable ordinary income and which (if
any) are short-term or long-term capital gain. Depending on your
residence for tax purposes, distributions also may be subject to
state and local taxes, including withholding taxes.
As with all mutual funds, the Fund may be required to withhold U.S.
federal income tax at the rate of 31% of all taxable distributions
payable to you if you fail to provide the Fund with your correct
taxpayer identification number or to make required certifications,
or if you have been notified by the IRS that you are subject to
backup withholding. Backup withholding is not an additional tax, but
is a method in which the IRS ensures that it will collect taxes
otherwise due. Any amounts withheld may be credited against your
U.S. federal income tax liability.
Foreign shareholders may be subject to special withholding
requirements.
If you invest through a tax-deferred retirement account, such as an
IRA, you generally will not have to pay tax on dividends or capital
gains until they are distributed from the account. These accounts
are subject to complex tax rules, and you should consult your tax
adviser about investment through a tax-deferred account.
There is a penalty on certain pre-retirement distributions from
retirement accounts.
FINANCIAL HIGHLIGHTS
Financial information for the Fund is not shown because shares of the Fund were
not offered prior to October ___, 2000.
20
<PAGE>
For more information about the Fund, the following documents are available free
upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. The SAI is incorporated by reference and
legally considered a part of this prospectus.
YOU CAN GET FREE COPIES OF REPORTS AND THE SAIs, PROSPECTUSES OF OTHER MEMBERS
OF THE HSBC INVESTOR FAMILY OF FUNDS, OR REQUEST OTHER INFORMATION AND DISCUSS
YOUR QUESTIONS ABOUT THE FUNDS, BY CONTACTING A BROKER OR HSBC FINANCIAL
SERVICES AT 1-888-525-5757. OR CONTACT THE FUND AT:
HSBC INVESTOR FUNDS
P.O. BOX 182845
COLUMBUS, OHIO 43218-2845
TELEPHONE: 1-800-782-8183
You can review the Fund's SAI at the Public Reference Room of the Securities and
Exchange Commission. You can get text-only copies:
For a fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102, or by electronic request at
[email protected]. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at
1-202-942-8090.
Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-4782.
21
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HSBC INVESTOR CALIFORNIA TAX-FREE MONEY MARKET FUND
P.O. Box 182845
Columbus, Ohio 43218-2845
General Account Information: (800) 782-8183 (Toll Free)
-------------------------------------------------------------------------------
HSBC Asset Management (Americas), Inc. - Investment Adviser
(the "Adviser")
BISYS Fund Services -
Administrator, Distributor and Sponsor
("BISYS," "Sponsor" or "Distributor")
HSBC Investor California Tax-Free Money Market Fund (the
"Fund") is a separate series of HSBC Investor Funds (the "Trust"), an open-end
management investment company which currently consists of ten separate
portfolios, each of which has different and distinct investment objectives and
policies. The Fund is described in this Statement of Additional Information.
Shares of the Fund is divided into five separate classes, Class A (the "Class A
Shares"), Class B (the "Class B Shares"), Class C (the "Class C Shares") Class D
(the "Class D Shares"), and Class Y (the "Class Y Shares").
Class A Shares, Class D Shares and Adviser (Class Y) Shares
("Class Y Shares") Class Y Shares of the Fund are continuously offered for
sale by the Distributor at net asset value (normally $1.00 per share) with no
sales charge (i) directly to the public, (ii) to customers of a financial
institution, such as a federal or state-chartered bank, trust company or savings
and loan association that has entered into a shareholder servicing agreement
with the Trust (collectively, "Shareholder Servicing Agents"), and (iii) to
customers of a securities broker that has entered into a dealer agreement with
the Distributor. Class B Shares and Class C Shares may be acquired only through
an exchange of shares from the corresponding class of other funds of the Trust.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS
AND IS ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY A
PROSPECTUS FOR THE FUND DATED [ ] __, 2000 (THE "PROSPECTUS"). This Statement
of Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Trust at the address and
telephone number printed above.
[ ] __, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.............................................3
Variable Rate Interests and Participation Interests................................5
Interest Rates.....................................................................7
"When Issued" Municipal Obligations................................................7
Stand-By Commitments...............................................................8
Taxable Securities.................................................................9
Repurchase Agreements.............................................................10
General...........................................................................10
Portfolio Transactions............................................................11
INVESTMENT RESTRICTIONS....................................................................12
Percentage and Rating Restrictions................................................15
PERFORMANCE INFORMATION....................................................................16
MANAGEMENT OF THE TRUST....................................................................18
Trustees and Officers.............................................................18
Investment Adviser................................................................21
Distribution Plans --Class A, Class B, Class C, and Class D Shares Only...........22
The Distributor and Sponsor.......................................................23
Administrative Services Plan......................................................24
Administrator.....................................................................24
Transfer Agent....................................................................25
Custodian.........................................................................25
Shareholder Servicing Agents......................................................25
Federal Banking Law...............................................................26
Expenses..........................................................................26
DETERMINATION OF NET ASSET VALUE...........................................................27
PURCHASE OF SHARES.........................................................................28
Exchange Privilege................................................................29
Automatic Investment Plan.........................................................30
Purchases Through a Shareholder Servicing Agent or a Securities Broker............30
REDEMPTION OF SHARES.......................................................................31
Systematic Withdrawal Plan........................................................31
Redemption of Shares Purchased Directly Through the Distributor...................31
Check Redemption Service..........................................................32
Contingent Deferred Sales Charge ("CDSC") Class B Shares and Class C Shares.......33
Conversion Feature................................................................34
DIVIDENDS AND DISTRIBUTIONS................................................................35
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES.......................................36
TAXATION...................................................................................37
Federal Income Tax................................................................37
Alternative Minimum Tax...........................................................41
Special Tax Considerations........................................................41
OTHER INFORMATION..........................................................................41
Capitalization....................................................................41
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Independent Auditors..............................................................42
Counsel...........................................................................42
Code of Ethics....................................................................42
Registration Statement............................................................42
Financial Statements..............................................................42
Shareholder Inquiries.............................................................42
</TABLE>
DESCRIPTION OF MUNICIPAL OBLIGATIONS
ADDITIONAL INFORMATION CONCERNING CALIFORNIA MUNICIPAL OBLIGATIONS
ii
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Fund discussed under the caption "Investment
Objective and Strategies" in the Prospectus.
The investment objective of the Fund is to provide shareholders of the
Fund with liquidity and as high a level of current income exempt from Federal
and California State personal income taxes as is consistent with the
preservation of capital.
The Fund seeks to achieve its investment objective by investing its
assets primarily in short-term, high quality, fixed rate and variable rate
obligations issued by or on behalf of the State of New York, other states,
territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which is
exempt from federal income taxes, including participation interests issued by
banks, insurance companies or other financial institutions with respect to such
obligations. (Such obligations, whether or not the interest thereon is subject
to the federal alternative minimum tax, are referred to herein as "Municipal
Obligations.") The Fund invests in certain Municipal Obligations of the State of
California and its authorities, agencies, instrumentalities and political
subdivisions, and of Puerto Rico, other U.S. territories and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which is
exempt from federal and California State personal income taxes, including
participation interests issued by banks, insurance companies or other financial
institutions with respect to such obligations ("California Municipal
Obligations"). In determining the tax status of interest on Municipal
Obligations and California Municipal Obligations, the Adviser relies on opinions
of bond counsel who may be counsel to the issuer.
Although under normal circumstances, the Fund attempts to invest 100%,
and does invest at least 65%, of its assets in California Municipal Obligations,
market conditions may from time to time limit the availability of such
obligations. To the extent that acceptable California Municipal Obligations are
not available for investment, the Fund may purchase Municipal Obligations issued
by other states, their authorities, agencies, instrumentalities and political
subdivisions, the interest income on which is exempt from federal income tax but
is subject to California State personal income taxes. As a fundamental policy,
the Fund will invest at least 80% of its net assets in tax exempt obligations.
The Fund may invest up to 20% of its total assets in obligations the interest
income on which is subject to federal and California State personal income taxes
or the federal alternative minimum tax. Uninvested cash reserves may be held
temporarily for the Fund pending investment.
The Fund may invest more than 25% of its assets in participation
interests issued by banks in industrial development bonds and other Municipal
Obligations. In view of this possible "concentration" in bank participation
interests, an investment in the Fund should be made with an understanding of the
characteristics of the banking industry and the risks which such an investment
may entail. See "Variable Rate Instruments and Participation Interests" below.
3
<PAGE>
All investments on behalf of the Fund (i.e., 100% of the Fund's
investments) mature or are deemed to mature within 397 days from the date of
acquisition and the average maturity of the investments in the Fund's portfolio
(on a dollar-weighted basis) is 90 days or less. The maturities of variable rate
instruments held in the Fund's portfolio are deemed to be the longer of the
period remaining until the next interest rate adjustment or the period until the
Fund would be entitled to payment pursuant to demand rights, although the stated
maturities may be in excess of 397 days. See "Variable Rate Instruments and
Participation Interests" below. As a fundamental policy, the investments of the
Fund are made primarily (i.e., at least 80% of its assets under normal
circumstances) in:
(1) Municipal bonds with remaining maturities of 397 days or less that at
the date of purchase are rated Aaa or Aa by Moody's Investors Service, Inc.
("Moody's"), AAA or AA by Standard & Poor's Corporation ("Standard & Poor's") or
AAA or AA by Fitch Investors Service, Inc. ("Fitch") or, if not rated by any of
these rating agencies, are of comparable quality as determined by or on behalf
of the Board of Trustees of the Trust on the basis of a credit evaluation of the
obligor on the bonds or of the bank issuing a participation interest or
guarantee or of any insurance policy issued in support of the bonds or the
participation interest;
(2) Municipal notes with remaining maturities of 397 days or less that at
the date of purchase are rated MIG 1/VMIG 1 or MIG 2/VMIG 2 by Moody's, SP-1+,
SP-1 or SP-2 by Standard & Poor's or F-1+, F-1 or F-2 by Fitch or, if not rated
by any or these rating agencies, are of comparable quality as determined by or
on behalf of the Board of Trustees of the Trust (The principal kinds of
municipal notes are tax and revenue authorization notes, tax anticipation notes,
bond anticipation notes and revenue anticipation notes. Notes sold in
anticipation of collection of taxes, a bond sale or receipt of other revenues
are usually general obligations of the issuing municipality or agency. The
Fund's investments may be concentrated in municipal notes of California
issuers.); and
(3) Municipal commercial paper that at the date of purchase is rated
Prime-1 or Prime-2 by Moody's, A-1 +, A-1 or A-2 by Standard & Poor's or F-1+,
F-1 or F-2 by Fitch or, if not rated by any of these rating agencies, is of
comparable quality as determined by or on behalf of the Board of Trustees of the
Trust. Issues of municipal commercial paper typically represent very short-term,
unsecured, negotiable promissory notes. These obligations are often issued to
meet seasonal working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities or
are refinanced with long-term debt. In most cases municipal commercial paper is
backed by letters of credit, lending agreements, note repurchase agreements or
other credit facility agreements offered by banks or other institutions which
may be called upon in the event of default by the issuer of the commercial
paper.
As a non-diversified investment company, the Fund is not subject to any
statutory restrictions under the Investment Company Act of 1940 (the "1940 Act")
with respect to limiting the investment of the Fund's assets in one or
relatively few issuers. Since the Fund may invest a relatively high percentage
of the Fund's assets in the obligations of a limited number of issuers, the
value of shares of the Fund may be more susceptible to any single economic,
political or
4
<PAGE>
regulatory occurrence than the value of shares of a diversified investment
company would be. The Fund may also invest 25% or more of its assets in
obligations that are related in such a way that an economic, business or
political development or change affecting one of the obligations would also
affect the other obligations including, for example, obligations the interest on
which is paid from revenues of similar type projects, or obligations the issuers
of which are located in the same state.
The Trust intends to qualify the Fund as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). In order to qualify under current law, at the close of each
quarter of the Fund's taxable year, at least 50% of the Fund's total assets must
be represented by cash, U.S. Government securities, investment company
securities and other securities limited in respect of any one issuer to not more
than 5% in value of the total assets of the Fund and not more than 10% of the
outstanding voting securities of such issuer. In addition, and again under
current law, at the close of each quarter of its taxable year, not more than 25%
of the Fund's total assets may be invested in securities of one issuer (or two
or more issuers which are controlled by the Fund and which are determined to be
engaged in the same or similar trades or businesses or related businesses) other
than U.S. Government securities or the securities of other regulated investment
companies.
Variable Rate Interests and Participation Interests
The Fund may invest in variable rate instruments, which provide for a
periodic adjustment in the interest rate paid on the instrument and permit the
holder to receive payment upon a specified number of days' notice of the unpaid
principal balance plus accrued interest either from the issuer or by drawing on
a bank letter of credit, a guarantee or an insurance policy issued with respect
to such instrument or by tendering or "putting" such instrument to a third
party.
Variable rate instruments in which the Fund's assets may be invested
include participation interests in Municipal Obligations owned by a bank,
insurance company or other financial institution or affiliated organization. A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation bears to the total
principal amount of the Municipal Obligation and provides the demand or put
feature described below. Each participation interest is backed by an insurance
policy of an insurance company or by an irrevocable letter of credit or
guarantee of, or a right to put to, a bank that has been determined by or on
behalf of the Board of Trustees of the Trust to meet the prescribed quality
standards for the Fund. There is usually the right to sell the participation
interest back to the institution or draw on the letter of credit, guarantee or
insurance policy after notice (usually seven days), for all or any part of the
full principal amount of the Fund's participation in the Municipal Obligation,
plus accrued interest. If the notice period is more than seven days, the
Municipal Obligation is treated as an obligation that is not readily marketable.
In some cases, these rights may not be exercisable in the event of a default on
the underlying Municipal Obligations; in these cases the underlying Municipal
Obligations must meet the Fund's high credit standards at the time of purchase
of the participation interest. Although
5
<PAGE>
participation interests may be sold, the Fund intends to hold them until
maturity, except under certain specified circumstances. Purchase of a
participation interest may involve the risk that the Fund will not be deemed to
be the owner of the underlying Municipal Obligation for purposes of the ability
to claim tax exemption of interest paid thereon.
The variable rate instruments in which the Fund's assets may be
invested are payable upon a specified period of notice which may range from one
day up to one year. The terms of the instruments provide that interest rates are
adjustable at intervals ranging from daily to up to one year and the adjustments
are based upon an appropriate interest rate adjustment index as provided in the
respective instruments. The Fund decides which variable rate instruments it will
purchase in accordance with procedures prescribed by its Board of Trustees to
minimize credit risks. An unrated variable rate instrument may be determined to
meet the Fund's high quality criteria if it is backed by a letter of credit or
guarantee or a right to tender or put the instrument to a third party or is
insured by an insurer that meets the high quality criteria for the Fund
discussed above or on the basis of a credit evaluation of the underlying
obligor. If the credit of the obligor is of "high quality", no credit support
from a bank or other financial institution is necessary. Each unrated variable
rate instrument is evaluated on a quarterly basis to determine that it continues
to meet the Fund's high quality criteria. If an instrument is ever deemed to be
of less than high quality, the Fund either will sell it in the market or
exercise the liquidity feature described below.
Although the rate of the underlying Municipal Obligations may be fixed,
the terms of the participation interest may result in the Fund receiving a
variable rate on its investment. The bank to which a participation interest may
be "put" for the Fund, as well as the bank which issues an irrevocable letter of
credit or guarantee, may be the bank issuing the participation interest, a bank
issuing a confirming letter of credit to that of the issuing bank, or a bank
serving as agent of the issuing bank with respect to the possible repurchase of
the participation interest. The Trust intends to exercise the liquidity feature
on behalf of the Fund only (1) upon a default under terms of the bond documents,
(2) as needed to provide liquidity to the Fund in order to make redemptions of
Fund shares, or (3) to maintain a high quality investment portfolio. Issuers of
participation interests retain a service and letter of credit fee and a fee for
providing the liquidity feature, in an amount equal to the excess of the
interest paid on the instruments over the negotiated yield at which the
participations were purchased on behalf of the Fund. The total fees generally
range from 5% to 15% of the applicable prime rate or other interest rate index.
With respect to insurance, the Trust attempts to have the issuer of the
participation interest bear the cost of the insurance, although the Trust
retains the option to purchase insurance if necessary, in which case the cost of
insurance will be an expense of the Fund. The Adviser has been instructed by the
Trust's Board of Trustees to monitor continually the pricing, quality and
liquidity of the variable rate instruments held for the Fund, including the
participation interests, on the basis of published financial information and
reports of the rating agencies and other bank analytical services to which the
Adviser may subscribe.
In view of the possible "concentration" of the Fund in participation
interests in Municipal Obligations secured by bank letters of credit or
guarantees, an investment in the Fund
6
<PAGE>
should be made with an understanding of the characteristics of the banking
industry and the risks which such an investment may entail. Banks are subject to
extensive governmental regulations which may limit both the amounts and types of
loans and other financial commitments which may be made and interest rates and
fees which may be charged. The profitability of this industry is largely
dependent upon the availability and cost of capital funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of this
industry and exposure to credit losses arising from possible financial
difficulties of borrowers might affect a bank's ability to meet its obligations
under a letter of credit or guarantee.
Because of the variable rate nature of the instruments, during periods
when prevailing interest rates decline, the Fund's yield will decline. On the
other hand, during periods when prevailing interest rates increase, the Fund's
yield will increase. While the value of the underlying variable rate instruments
may change with changes in interest rates generally, the variable rate nature of
the underlying variable rate instruments should minimize changes in value of the
instruments. Accordingly, as interest rates decrease or increase, the potential
for capital appreciation and the risk of potential capital depreciation is less
than would be the case with a portfolio of fixed income securities. The
portfolio may contain variable rate instruments on which stated minimum or
maximum rates, or maximum rates set by state law, limit the degree to which
interest on such variable rate instruments may fluctuate; to the extent it does,
increases or decreases in value may be somewhat greater than would be the case
without such limits. Because the adjustment of interest rates on the variable
rate instruments is made in relation to movements of various interest rate
adjustment indices, the variable rate instruments are not comparable to
long-term fixed rate securities. Accordingly, interest rates on the variable
rate instruments may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar maturities.
Interest Rates
The value of the securities in the Fund's portfolio can be expected to
vary inversely with changes in prevailing interest rates. Although the Fund's
investment policies are designed to minimize these changes and to maintain a net
asset value of $1.00 per share, there is no assurance that these policies will
be successful. Withdrawals by shareholders could require the sale of portfolio
investments at a time when such a sale might not otherwise be desirable.
"When Issued" Municipal Obligations
The Fund may invest in municipal obligations that are offered on a
"when-issued" or "forward delivery" basis. The payment obligation and the
interest rate that will be received on the municipal obligations offered on this
basis are each fixed at the time the Fund commits to the purchase, although
settlement, i.e., delivery of and payment for the municipal obligations, takes
place beyond customary settlement time (but normally within 45 days of the
commitment). Between the time the Fund commits to purchase the "when-issued" or
"forward delivery" municipal obligation for the Fund and the time delivery and
payment are made, the "when-issued" or "forward delivery" municipal obligation
is treated as an asset of the Fund and the
7
<PAGE>
amount which the Fund is committed to pay for that municipal obligation is
treated as a liability of the Fund. No interest on a "when-issued" or "forward
delivery" municipal obligation is accrued for the Fund until delivery occurs.
Although the Fund only makes commitments to purchase "when-issued" or "forward
delivery" municipal obligations with the intention of actually acquiring them,
the Fund may sell these obligations before the settlement date if deemed
advisable by the Adviser.
Purchasing municipal obligations on a "when-issued" or "forward
delivery" basis can involve a risk that the yields available in the market on
the settlement date may actually be higher (or lower) than those obtained in the
transaction itself and, as a result, the "when-issued" or "forward delivery"
Municipal Obligation may have a lesser (or greater) value at the time of
settlement than the Fund's payment obligation with respect to that municipal
obligation. Furthermore, if the Fund sells the "when-issued" or "forward
delivery" Municipal obligation before the settlement date or if the Trust sells
other obligations from the Fund's portfolio in order to meet the payment
obligations, the Fund may realize a capital gain, which is not exempt from
federal and California State income taxation.
Municipal Obligations purchased on a "when-issued" or "forward
delivery" basis and the securities held in the Fund's portfolio are subject to
changes in value (both generally changing in the same way, that is, both
experiencing appreciation when interest rates decline and depreciation when
interest rates rise) based upon the public's perception of the creditworthiness
of the issuer and changes, real or anticipated, in the level of interest rates.
A separate account of the Fund consisting of cash, cash equivalents or high
quality debt securities equal to the amount of the "when-issued" or "forward
delivery" commitments is established at the Fund's custodian bank. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities are valued at market value. If the market value of such
securities declines, additional cash or high quality debt securities are placed
in the account daily so that the value of the account equals the amount of the
Fund's commitments. On the settlement date of the "when-issued" or "forward
delivery" securities, the Fund's obligations are met from then-available cash
flow, sale of securities held in the separate account, sale of other securities
or, although not normally expected, from sale of the "when-issued" or "forward
delivery" securities themselves (which may have a value greater or lesser than
the Fund's payment obligations).
Stand-By Commitments
When the Fund purchases municipal obligations it may also acquire
stand-by commitments from banks with respect to such municipal obligations. The
Fund also reserves the right, and may in the future, subject to receipt of an
exemptive order pursuant to the 1940 Act, acquire stand-by commitments from
broker-dealers. There can be no assurance that such an order will be granted.
Under a stand-by commitment, a bank or broker-dealer agrees to purchase at the
Fund's option a specified municipal obligation at a specified price. A stand-by
commitment is the equivalent of a "put" option acquired for the Fund with
respect to a particular municipal obligation held for it.
8
<PAGE>
The Fund intends to acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The purpose of this practice is to permit the Fund to be fully
invested in municipal obligations, and to the extent possible California
municipal obligations, while preserving the necessary liquidity to purchase
municipal obligations on a "when-issued" basis, to meet unusually large
redemptions and to purchase at a later date municipal obligations other than
those subject to the stand-by commitment.
The amount payable to the Fund upon the exercise of a stand-by
commitment normally is (1) the acquisition cost of the municipal obligation
(excluding any accrued interest paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the security, plus (2) all interest accrued on the
security since the last interest payment date during the period the security was
owned by the Fund. Absent unusual circumstances relating to a change in market
value, the underlying municipal obligation is valued at amortized cost.
Accordingly, the amount payable by a bank or dealer during the time a stand-by
commitment is exercisable would be substantially the same as the market value of
the underlying municipal obligation. Stand-by commitments are valued at zero for
purposes of computing the net asset value per share of the Fund.
The stand-by commitments that the Fund may enter into are subject to
certain risks, which include the ability of the issuer of the commitment to pay
for the municipal obligations at the time the commitment is exercised, the fact
that the commitment is not marketable by the Fund, and the fact that the
maturity of the underlying Municipal Obligation will generally be different from
that of the commitment.
Taxable Securities
Although the Fund attempts to invest 100% of its net assets in
municipal obligations, the Fund may invest up to 20% of its net assets in
securities of the kind described below, the interest income on which is subject
to federal income tax, under any one or more of the following circumstances: (a)
pending investment of proceeds of sales of Fund shares or of portfolio
securities; (b) pending settlement of purchases of portfolio securities; and (c)
to maintain liquidity for the purpose of meeting anticipated redemptions.
In addition, the Fund may temporarily invest more than 20% of its
assets in such taxable securities when, in the opinion of the Adviser, it is
advisable to do so because of adverse market conditions affecting the market for
municipal obligations. The kinds of taxable securities in which the Fund's
assets may be invested are limited to the following short-term, fixed income
securities (maturing in 397 days or less from the time of purchase): (1)
obligations of the U.S. Government or its agencies, instrumentalities or
authorities; (2) commercial paper rated Prime-1 or Prime-2 by Moody's Investors
Service, Inc. ("Moody's"), A-1+, A-1 or A-2 by Standard & Poor's Corporation
("Standard & Poor's") or F-1+, F-1 or F-2 by Fitch Investors Service, Inc.
("Fitch"); (3) certificates of deposit of domestic banks with assets of $1
billion or more; and (4) repurchase agreements with respect to municipal
obligations or other securities which the Fund
9
<PAGE>
is permitted to own. The Fund's assets may also be invested in municipal
obligations which are subject to an alternative minimum tax.
Repurchase Agreements
The Fund may invest in repurchase agreements. A repurchase agreement
arises when a buyer purchases an obligation and simultaneously agrees with the
vendor to resell the obligation to the vendor at an agreed-upon price and time,
which is usually not more than seven days from the date of purchase. The resale
price of a repurchase agreement is greater than the purchase price, reflecting
an agreed-upon market rate which is effective for the period of time the buyer's
funds are invested in the obligation and which is not related to the coupon rate
on the purchased obligation. Obligations serving as collateral for each
repurchase agreement are delivered to the Fund's custodian bank either
physically or in book entry form and the collateral is marked to the market
daily to ensure that each repurchase agreement is fully collateralized at all
times. A buyer of a repurchase agreement runs a risk of loss if, at the time of
default by the issuer, the value of the collateral securing the agreement is
less than the price paid for the repurchase agreement. If the vendor of a
repurchase agreement becomes bankrupt, the Fund might be delayed, or may incur
costs or possible losses of principal and income, in selling the collateral. The
Fund may enter into repurchase agreements only with a vendor which is a member
bank of the Federal Reserve System or which is a "primary dealer" (as designated
by the Federal Reserve Bank of New York) in U.S. Government obligations. The
restrictions and procedures described above which govern the investment of the
Fund's assets in repurchase obligations are designed to minimize the Fund's risk
of losses from those investments. Repurchase agreements are considered
collateralized loans under the 1940 Act.
All repurchase agreements entered into by the Fund is fully
collateralized at all times during the period of the agreement in that the value
of the underlying security is at least equal to the amount of the loan,
including the accrued interest thereon, and the Fund or its custodian bank has
possession of the collateral, which the Trust's Board of Trustees believes gives
the Fund a valid, perfected security interest in the collateral. The Trust's
Board of Trustees believes that the collateral underlying repurchase agreements
may be more susceptible to claims of the seller's creditors than would be the
case with securities owned by the Fund. Repurchase agreements give rise to
income which does not qualify as tax-exempt income when distributed to Fund
shareholders. The Fund will not invest in a repurchase agreement maturing in
more than seven days if any such investment together with illiquid securities
held for the Fund exceed 10% of the Fund's net assets.
General
The Fund may, in the future, seek to achieve its investment objective
by investing all of its assets in a no-load, open-end management investment
company having the same investment objective and policies and substantially the
same investment restrictions as those applicable to the Fund. In such event, the
Fund's Investment Advisory Contract would be terminated and the administrative
services fees paid by the Fund would be reduced. Such investment would be made
only if the Trustees of the Trust believe that the aggregate per share
10
<PAGE>
expenses of the Fund and such other investment company will be less than or
approximately equal to the expenses which the Fund would incur if the Trust were
to continue to retain the services of an investment adviser for the Fund and the
assets of the Fund were to continue to be invested directly in portfolio
securities.
Portfolio Transactions
Purchases and sales of securities will usually be principal
transactions. Municipal obligations and other debt securities are traded
principally in the over-the-counter market on a net basis through dealers acting
for their own account and not as brokers. Portfolio securities normally will be
purchased or sold from or to issuers directly or from or to dealers serving as
market makers for the securities at a net price. Generally, money market
securities are traded on a net basis and do not involve brokerage commissions.
The cost of executing portfolio securities transactions for the Fund primarily
consists of dealer spreads and underwriting commissions. Under the Investment
Company Act of 1940 (the "1940 Act"), persons affiliated with the Fund or the
Sponsor are prohibited from dealing with the Fund 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 Trust has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities for the Fund, except
that portfolio transactions for the Fund will not be executed through the
Sponsor and the Fund will not deal with the Sponsor as agent or principal.
Subject to policies established by the Trust's Board of Trustees, the Adviser is
primarily responsible for portfolio decisions and the placing of portfolio
transactions. Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner deemed
to be in the best interest of Fund shareholders rather than by any formula. In
placing orders for the Fund, the primary consideration is prompt execution of
orders in an effective manner at the most favorable price, although the Fund
does not necessarily pay the lowest spread or commission available. Other
factors taken into consideration are 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. The policy of the Fund of
investing in securities with short maturities will result in high portfolio
turnover, generally exceeding 100% per year.
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. These services,
which in some cases may also be purchased for cash, include such matters as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to the Adviser in advising
various of its clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The management fee
paid by the Fund is not reduced because the Adviser and its affiliates receive
such services.
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<PAGE>
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Adviser may cause the Fund to pay a broker-dealer which provides "brokerage
and research services" (as defined in the Act) to the Adviser an amount of
commission for effecting a securities transaction for the Fund in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
Consistent with the rules of the National Association of Securities
Dealers, Inc. and such other policies as the Trustees may determine, and subject
to seeking the most favorable price and execution available, the Adviser may
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
Investment decisions for the Fund and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought for certain clients even though it could have
been sold for other clients at the same time, and a particular security may be
sold for certain clients even though it could have been bought for other clients
at the same time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling that same security. In some
instances, one client may sell a particular security to another client. Two or
more clients may simultaneously purchase or sell the same security, in which
event each day's transactions in that security are, insofar as practicable,
averaged as to price and allocated between such clients in a manner which in the
Adviser's opinion is equitable to each and in accordance with the amount being
purchased or sold by each. In addition, when purchases or sales of the same
security for the Fund and for other clients of the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantage available to large denomination purchases or sales.
There may be circumstances when purchases or sales of portfolio securities for
one or more clients will have an adverse effect on other clients in terms of the
price paid or received or of the size of the position obtainable.
INVESTMENT RESTRICTIONS
The Trust has adopted the following investment restrictions with
respect to the Fund which may not be changed without approval by holders of a
"majority of the outstanding shares" of the Fund, which as used in this
Statement of Additional Information means the vote of the lesser of (i) 67% or
more of the outstanding "voting securities" of the Fund present at a meeting, if
the holders of more than 50% of the outstanding "voting securities" of the Fund
are present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities" of the Fund. The term "voting securities" as used in this
paragraph has the same meaning as in the 1940 Act.
The Trust, on behalf of the Fund, may not:
(1) borrow money or pledge, mortgage or hypothecate assets of the Fund,
except that as a temporary measure for extraordinary or emergency purposes it
may borrow in an amount not to exceed 1/3 of the value of the net assets of the
Fund, including the amount borrowed, and may
12
<PAGE>
pledge, mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks and only
to accommodate requests for the redemption of shares of the Fund while effecting
an orderly liquidation of portfolio securities); for additional related
restrictions, see clause (i) under the caption "State and Federal Restrictions"
below;
(2) purchase any security or evidence of interest therein on margin, except
that the Trust may obtain such short-term credit for the Fund as may be
necessary for the clearance of purchases and sales of securities;
(3) underwrite securities issued by other persons, except insofar as the
Trust may technically be deemed an underwriter under the Securities Act of 1933,
as amended (the "1933 Act"), in selling a portfolio security for the Fund;
(4) make loans to other persons except (a) through the lending of securities
held by the Fund, but not in excess of 1/3 of the Fund's net assets taken at
market value, (b) through the use of fixed time deposits or repurchase
agreements or the purchase of short-term obligations, or (c) by purchasing all
or a portion of an issue of debt securities of types commonly distributed
privately to financial institutions; for purposes of this Investment Restriction
(4) the purchase of short-term commercial paper or a portion of an issue of debt
securities which are part of an issue to the public shall not be considered the
making of a loan;
(5) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein), interests
in oil, gas or mineral leases, commodities or commodity contracts in the
ordinary course of business (the Trust reserves the freedom of action to hold
and to sell for the Fund real estate acquired as a result of its ownership of
securities);
(6) concentrate its investments in any particular industry, but if it is
deemed appropriate for the achievement of the Fund's investment objective, up to
25% of the assets of the Fund (taken at market value at the time of each
investment) may be invested in any one industry, except that the Trust may
invest all or substantially all of the Fund's assets in another registered
investment company having the same investment objective and policies and
substantially the same investment restrictions as those with respect to the
Fund;
(7) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, except as appropriate to evidence a debt
incurred without violating Investment Restriction (1) above;
(8) write, purchase or sell any put or call option or any combination
thereof;
(9) invest in securities which are subject to legal or contractual
restrictions on resale (other than fixed time deposits and repurchase agreements
maturing in not more than seven days) if, as a result thereof, more than 10% of
the net assets of the Fund would be so invested (including
13
<PAGE>
fixed time deposits and repurchase agreements maturing in more than seven days);
provided, however, that this Investment Restriction shall not apply to (a) any
security if the holder thereof is permitted to receive payment upon a specified
number of days' notice of the unpaid principal balance plus accrued interest
either from the issuer or by drawing on a bank letter of credit, a guarantee or
an insurance policy issued with respect to such security or by tendering or
"putting" such security to a third party, or (b) the investment by the Trust of
all or substantially all of the Fund's assets in another registered investment
company having the same investment objective and policies and substantially the
same investment restrictions as those with respect to the Fund; and
(10) make short sales of securities or maintain a short position, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short, and unless not more than 10% of the net
assets of the Fund (taken at market value) is held as collateral for such sales
at any one time (it is the present intention of management to make such sales
only for the purpose of deferring realization of gain or loss for federal income
tax purposes).
For purposes of the investment restrictions described above and the
state and federal restrictions described below, the issuer of a tax-exempt
security is deemed to be the entity (public or private) ultimately responsible
for the payment of the principal of and interest on the security. If, however,
the creating government or some other entity, such as an insurance company or
other corporate obligor, guarantees a security or a bank issues a letter of
credit, such a guarantee or letter of credit may, in accordance with applicable
rules of the Securities and Exchange Commission, be considered a separate
security and treated as an issue of such government, other entity or bank.
Non-Fundamental Restrictions. The Trust on behalf of the Fund does not,
as a matter of operating policy:
(1) borrow money for any purpose in excess of 10% of the Fund's total
assets (taken at cost) (moreover, the Trust will not purchase any securities for
the Fund's portfolio at any time at which borrowings exceed 5% of the Fund's
total assets (taken at market value));
(2) pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Fund's net assets (taken at market value);
(3) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon the same conditions;
(4) invest for the purpose of exercising control or management;
(5) purchase securities issued by any registered investment company
except by purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open market, is
part of a plan of merger or consolidation; provided, however, that the Trust
will not purchase the securities of any registered investment company for the
Fund if such purchase at the time thereof would cause more than 10% of the
Fund's total assets (taken at the greater of cost or market value) to be
invested in the securities of such issuers or would cause more than 3% of the
outstanding voting
14
<PAGE>
securities of any such issuer to be held for the Fund; and provided, further,
that the Trust shall not purchase securities issued by any open-end investment
company;
(6) invest more than 10% of the Fund's net assets in securities that
are not readily marketable, including fixed time deposits and repurchase
agreements maturing in more than seven days;
(7) purchase securities of any issuer if such purchase at the time
thereof would cause the Fund to hold more than 10% of any class of securities
of such issuer, for which purposes all indebtedness of an issuer shall be deemed
a single class and all preferred stock of an issuer shall be deemed a single
class;
(8) invest more than 5% of the Fund's assets in companies which,
including predecessors, have a record of less than three years' continuous
operation; or
(9) purchase or retain in the Fund's portfolio any securities issued
by an issuer any of whose officers, directors, trustees or security holders is
an officer or Trustee of the Trust, or is an officer or director of the Adviser,
if after the purchase of the securities of such issuer for the Fund one or
more of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value. These policies are not fundamental and may be changed by the Trust
on behalf of the Fund without shareholder approval.
For purposes of the investment restrictions described above, the issuer
of a tax-exempt security is deemed to be the entity (public or private)
ultimately responsible for the payment of principal of and interest on the
security. If, however, the creating government or some other entity, such as an
insurance company or other corporate obligor, guarantees a security or a bank
issues a letter of credit, such a guarantee or letter of credit may, in
accordance with applicable rules of the Securities and Exchange Commission, be
considered a separate security and treated as an issue of such government, other
entity or bank.
Percentage and Rating Restrictions
If a percentage restriction or a rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the securities held
by the Fund or a later change in the rating of a security held by the Fund is
not considered a violation of policy. However, the Adviser will consider such
change in its determination of whether to hold the security. Additionally, if
such later change results in the Fund holding more than 10% of its net assets in
illiquid securities, the Fund will take such action as is necessary to reduce
the percentage of the Fund's net assets invested in illiquid securities to 10%
or less. To the extent the ratings given by Moody's Investors Service, Inc. or
Standard & Poor's Corporation may change as a result of changes in such
organizations or their rating systems, the Adviser will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies set forth in the Prospectus.
Subsequent to its purchase by the Trust on behalf of the Fund, a rated
Municipal Obligation may cease to be rated or its rating may be reduced below
the minimum required for purchase for the Fund. Neither event requires sale of
such Municipal Obligation by the Trust
15
<PAGE>
(other than variable rate instruments which must be sold if they are not "high
quality"), but the Adviser considers such event in determining whether the Trust
should continue to hold the Municipal Obligation on behalf of the Fund. To the
extent that the ratings given to the Municipal Obligations or other securities
held by the Fund are altered due to changes in either the Moody's, Standard &
Poor's or Fitch's ratings systems (see "Description of Ratings" in Appendix A to
the Prospectus for an explanation of Standard & Poor's, Moody's and Fitch
ratings), the Adviser will adopt such changed ratings as standards for its
future investments in accordance with the investment policies contained in the
Prospectus. Certain Municipal Obligations issued by instrumentalities of the
U.S. Government are not backed by the full faith and credit of the U.S. Treasury
but only by the creditworthiness of the instrumentality. The Trust's Board of
Trustees has determined that any Municipal Obligation that depends directly, or
indirectly through a government insurance program or other guarantee, on the
full faith and credit of the U.S. Government is considered to have a rating in
the highest category. Where necessary to ensure that the Municipal Obligations
are of "high quality" (i.e., within the two highest ratings assigned by any
major rating service), or where the obligations are not freely transferable, the
Trust requires that the obligation to pay the principal and accrued interest be
backed by an unconditional irrevocable bank letter of credit, a guarantee,
insurance or other comparable undertaking of an approved financial institution.
PERFORMANCE INFORMATION
From time to time the Trust may provide annualized "yield," "effective
yield" and "tax equivalent yield" quotations for the Fund in advertisements,
shareholder reports or other communications to shareholders and prospective
investors. The methods used to calculate a Fund's yield, effective yield and tax
equivalent yield are mandated by the Securities and Exchange Commission. The
"yield" of a Fund refers to the income generated by an investment in the Fund
over a seven day period (which period will be stated in any such advertisement
or communication). This income is then "annualized". That is, the amount of
income generated by the investment during that seven day period is assumed to be
generated each week over a 365 day period and is shown as a percentage of the
investment. Specifically, the yield is calculated by dividing the net change in
the value of an account having a balance of one share at the beginning of the
period by the value of the account at the beginning of the period and
multiplying the quotient by 365/7. The "effective yield" is calculated
similarly, but when annualized the income earned by the investment during that
seven day period is assumed to be reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. Specifically, the "effective yield" quotation of the Fund is
calculated by compounding the current yield quotation for such period by
multiplying such quotation by 7/365, adding 1 to the product, raising the sum to
a power equal to 365/7, and subtracting 1 from the result.
Information on the yield of the Fund is not provided because the shares
of the Fund were not offered prior to [ ] ___, 2000.
16
<PAGE>
Any "tax equivalent yield" quotation for the Fund is calculated as
follows: if the entire current yield quotation for such period is tax-exempt,
the tax equivalent yield will be the current yield quotation divided by 1 minus
a stated income tax rate or rates. If a portion of the current yield quotation
is not tax-exempt, the tax equivalent yield will be the sum of (a) that portion
of the yield which is tax-exempt divided by 1 minus a stated income tax rate or
rates, and (b) the portion of the yield which is not tax-exempt.
A "total rate of return" quotation for the Fund is calculated for any
period by (a) dividing (i) the sum of the net asset value per share on the last
day of the period and the net asset value per share on the last day of the
period of shares purchasable with dividends and capital gains distributions
declared during such period with respect to a share held at the beginning of
such period and with respect to shares purchased with such dividends and capital
gains distributions, by (ii) the net asset value of the first day of such
period, and (b) subtracting 1 from the results. Any annualized total rate of
return quotation is calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result.
Information on the total return of the shares of the Fund is not
provided because the shares of the Fund were not offered prior to [ ] ___,
2000.
Any "tax equivalent total rate of return" quotation for the Fund is
calculated as follows: if the entire current total rate of return quotation for
such period is tax-exempt, the tax equivalent total rate of return will be the
current total rate of return quotation divided by 1 minus a stated income tax
rate or rates. If a portion of the current total rate of return quotation is not
tax-exempt, the tax equivalent total rate of return will be the sum of (a) that
portion of the total rate of return which is tax-exempt divided by 1 minus a
stated income tax rate or rates, and (b) the portion of the total rate of return
which is not tax-exempt. Assuming a 39.6% tax rate, the tax equivalent total
rate of return and the tax equivalent average annual total rate of return shares
of the Fund was as follows:
Information on the Tax Equivalent Total Rate of Return and Tax
Equivalent Average Annual Total Rate of Return for the Fund is not provided
because the shares of the Fund were not offered prior to [ ] ___, 2000.
Since these yield and effective yield quotations are based on
historical earnings and reflect only the performance of a hypothetical
investment in the Fund during the particular time period on which the
calculations are based, and since the Fund's yield and effective yield fluctuate
from day to day, these quotations should not be considered as an indication or
representation of the Fund's yield or effective yield, if applicable, in the
future. Any performance information should be considered in light of the Fund's
investment objective and policies, characteristics and quality of the Fund's
portfolio and the market quotations during the time period indicated, and should
not be considered to be representative of what may be achieved in the future.
17
<PAGE>
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) unmanaged indices so that investors may compare
the Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the securities markets in general, (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies
(including IBC/Donoghue's Money Fund Reports), publications, or persons who rank
mutual funds on overall performance or other criteria; and (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of return from an
investment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Unlike some bank deposits or other investments which pay a fixed yield
for a stated period of time, the yield of the Fund varies based on the type,
quality and maturities of the obligations held for the Fund, fluctuations in
short-term interest rates, and changes in the expenses of the Fund. These
factors and possible differences in the methods used to calculate yields should
be considered when comparing the yield of the Fund to yields published for other
investment companies or other investment vehicles.
A Shareholder Servicing Agent or a securities broker, if applicable,
may charge its customers direct fees in connection with an investment in the
Fund, which will have the effect of reducing the net return on the investment of
customers of that Shareholder Servicing Agent or that securities broker.
Specifically, investors who purchase and redeem shares of the Fund through a
Shareholder Servicing Agent may be charged one or more of the following types of
fees as agreed upon by the Shareholder Servicing Agent and the investor, with
respect to the customer services provided by the Shareholder Servicing Agent:
account fees (a fixed amount per transaction processed); compensating balance
requirements (a minimum dollar amount a customer must maintain in order to
obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividends paid on
those assets). Such fees will have the effect of reducing the yield and
effective yield of the Fund for those investors.
Conversely, the Trust has been advised that certain Shareholder
Servicing Agents may credit to the accounts of their customers from whom they
are already receiving other fees amounts not exceeding such other fees or the
fees received by the Shareholder Servicing Agent from the Fund, which will have
the effect of increasing the net return on the investment of such customers of
those Shareholder Servicing Agents. Such customers may be able to obtain through
their Shareholder Servicing Agent or securities broker quotations reflecting
such decreased or increased return.
MANAGEMENT OF THE TRUST
Trustees and Officers
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are
18
<PAGE>
"interested persons" (as defined in the 1940 Act) of the Trust. The address of
each, unless otherwise indicated, is 3435 Stelzer Road, Columbus, Ohio
43219-3035.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH TRUST PRINCIPAL OCCUPATION
---------------- ------------------- --------------------
<S> <C> <C>
FREDERICK C. CHEN, Trustee Management Consultant
126 Butternut Hollow Road,
Greenwich, Connecticut
06830
ALAN S. PARSOW Trustee General Partner of Parsow
2222 Skyline Drive, Elkhorn, Partnership, Ltd.
Nebraska 68022 (investments)
LARRY M. ROBBINS Trustee Director for the Center of
Wharton Communication Teaching and Learning,
Program, University of University of Pennsylvania.
Pennsylvania, 336 Steinberg
Hall-Dietrich Hall,
Philadelphia, Pennsylvania
19104-
MICHAEL SEELY Trustee President of Investor
405 Lexington Avenue, Suite Access Corporation (investor
909, New York, New York relations consulting firm)
10174
LESLIE E. BAINS** Trustee Senior Executive Vice President, HSBC
Bank USA, 1990-present; Senior Vice
President. The Chase Manhattan Bank,
N.A., 1980-1990
WALTER B. GRIMM* President and Secretary Employee of BISYS Fund
Services, Inc., June, 1992 to
present; prior to June, 1992
President of Leigh
Investments Consulting
(investment firm)
MARK L. SUTER Vice President Employee of BISYS Fund
Services, Inc., January 2000 to
present; VP Seligman Data Corp.,
June 1997 to January 2000;
Capital Link Consulting, February 1997
to June 1997; US Trust NY, June 1986
to February 1991.
SUE A. WALTERS* Vice President Employee of BISYS Fund
Services, Inc., July 1990
to present
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH TRUST PRINCIPAL OCCUPATION
---------------- ------------------- --------------------
<S> <C> <C>
NADEEM YOUSAF Treasurer Employee of BISYS Fund Services, Inc.,
August 1999 to present; Director. IBT,
Canadian Operations, May 1995 to
March 1977; Assistant Manager
Price Waterhouse.
LISA M. HURLEY* Secretary Senior Vice President and General Counsel
of BISYS Fund Services, May 1998 to
present; General Counsel of Moore
Capital Management Inc., October 1993
to May 1996, Senior Vice President and
General Counsel of Northstar Investment
Management Corporation.
ALAINA METZ* Assistant Secretary Chief Administrator, Administrative
and Regulatory Services, BISYS Fund
Services, Inc., June 1995 to
present; Supervisor, Mutual Fund
Legal Department, Alliance Capital
Management, May 1989 to June 1995
</TABLE>
*Messrs. Grimm and Yousaf and Mss. Walters, Hurley, and Metz, also are
officers of certain other investment companies of which BISYS or an affiliate is
the administrator.
**Ms. Bains is an "interested person" as that term is defined in the
1940 Act.
***The Fund Complex includes the Trust, HSBC Advisor Funds Trust, and
HSBC Investor Portfolios.
Information on the compensation and fees received by the Trustees is
not provided because the shares of the Fund was not offered prior to [ ]
___, 2000.
As of ____ __, 2000, the Trustees and officers of the Trust, as a
group, owned less than 1% of the outstanding shares of the Fund.
20
<PAGE>
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their positions as
officers with the Trust, unless, as to liability to the Trust or its
shareholders, it is finally adjudicated that they engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in their offices, or unless with respect to any other matter it is
finally adjudicated that they did not act in good faith in the reasonable belief
that their actions were in the best interests of the Trust. In the case of
settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
Investment Adviser
Pursuant to an Investment Advisory Contract, HSBC Asset Management
(Americas), Inc. serves as investment adviser to the Fund. The Adviser manages
the investment and reinvestment of the assets of the Fund and continuously
reviews, supervises and administers the investments of the Fund pursuant to an
Investment Advisory Contract (the "Investment Advisory Contract"). The Adviser
also furnishes to the Board of Trustees, which has overall responsibility for
the business and affairs of the Trust, periodic reports on the investment
performance of the Fund. Subject to such policies as the Board of Trustees may
determine, the Adviser places orders for the purchase and sale of the Fund's
investments directly with brokers or dealers selected by it in its discretion.
See "Portfolio Transactions" above. The Adviser does not place orders with the
Distributor. For its services under the Investment Advisory Contract, the
Adviser receives fees, payable monthly, from the Fund at the annual rate of
0.20% of the Fund's average daily net assets.
The Adviser is a wholly owned subsidiary of HSBC Bank USA ("HSBC"),
which is a wholly owned subsidiary of HSBC USA, Inc., a registered bank holding
company, and currently provides investment advisory services for individuals,
trusts, estates and institutions.
HSBC and its affiliates may have deposit, loan and other commercial
banking relationships with issuers of obligations purchased for the Fund,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of obligations so purchased. HSBC and its affiliates
deal, trade and invest for their own accounts in U.S. Government and Municipal
obligations and are dealers of various types of U.S. Government and Municipal
obligations. HSBC and its affiliates may sell U.S. Government and Municipal
obligations to, and purchase them from, other investment companies sponsored by
BISYS Fund Services. There is no restriction on the amount or type of U.S.
Government or Municipal obligations available to be purchased for the Fund. The
Adviser has informed the Trust that, in making its investment decisions, it does
not obtain or use material inside information in the possession of any division
or department of HSBC or in the possession of any affiliate of HSBC.
21
<PAGE>
HSBC complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary shall not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees or other persons with substantial connections
with the bank. The regulations further provide that fiduciary assets shall not
be sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above. HSBC, in accordance with federal banking laws,
may not purchase for its own account securities of any investment company the
investment adviser of which it controls, extend credit to any such investment
company, or accept the securities of any such investment company as collateral
for a loan to purchase such securities. Moreover, HSBC, its officers and
employees do not express any opinion with respect to the advisability of any
purchase of such securities.
The investment advisory services of HSBC to the Fund are not exclusive
under the terms of the Investment Advisory Contract. HSBC is free to and does
render investment advisory services to others.
The Investment Advisory Contract will continue in effect with respect
to the Fund, provided such continuance is approved annually (i) by the holders
of a majority of the outstanding voting securities of the Fund or by the Board
of Trustees, and (ii) by a majority of the Trustees who are not parties to such
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Contract may be terminated with respect to the Fund without penalty by
either party on 60 days' written notice and will terminate automatically if
assigned. The Contract provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Fund, except for willful misfeasance, bad faith or gross
negligence or of reckless disregard of its or their obligations and duties under
the Contract.
Information on the investment advisory fees for the Fund is not
provided because the shares of the Fund was not offered prior to [ ] __, 2000.
Distribution Plans --Class A, Class B, Class C, and Class D Shares Only
Four Distribution Plans have been adopted by the Trust (the
"Distribution Plans") with respect to the Class A Shares (the "Class A Plan"),
the Class B Shares (the "Class B Plan"), Class C Shares (the "Class C Plan"),
and Class D (the "Class D Plan"). The Distribution Plans provide that they may
not be amended to increase materially the costs which either the Class A Shares,
Class B Shares, Class C Shares and Class D Shares may bear pursuant to the Class
A Plan, Class B Plan, Class C Plan and Class D Plan without approval by
shareholders of the Class A Shares, Class B Shares, Class C Shares and Class D
Shares, respectively, and that any material amendments of the Distribution Plans
must be approved by the Board of Trustees, and by the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust and have no
direct or indirect financial interest in the operation of the Distribution Plans
or in any related agreement ("Qualified Trustees"), by vote cast in person at a
meeting called for the purpose of
22
<PAGE>
considering such amendments. The selection and nomination of the Trustees who
are not "interested persons" of the Trust (the "Independent Trustees") has been
committed to the discretion of the Independent Trustees. The Distribution Plans
have been approved, and are subject to annual approval, by the Board of Trustees
and by the Qualified Trustees, by vote cast in person at a meeting called for
the purpose of voting on the Distribution Plans. In adopting the Class A Plan,
Class B Plan, Class C Plan and Class D Plan, the Trustees considered alternative
methods to distribute the Class A Shares, Class B Shares, Class C Shares and
Class D Shares and to reduce each class's expense ratio and concluded that there
was a reasonable likelihood that each Distribution Plan will benefit their
respective class and that class's shareholders. The Distribution Plans are
terminable with respect to the Class A Shares, Class B Shares, Class C Shares or
Class D Shares at any time by a vote of a majority of the Qualified Trustees or
by vote of the holders of a majority of that class.
Information on the distribution expenses for the Fund is not provided
because the shares of the Fund was not offered prior to [ ] ___, 2000.
The Distributor and Sponsor
BISYS Fund Services ("BISYS"), whose address is 3435 Stelzer Road,
Columbus, Ohio 43219-3035, acts as sponsor and distributor to the Fund under a
Distribution Contract with the Trust. The Distributor may, out of its own
resources, make payments to broker-dealers for their services in distributing
Shares. BISYS and its affiliates also serve as administrator or distributor to
other investment companies. BISYS is a wholly owned subsidiary of BISYS Group,
Inc.
Pursuant to the Distribution Plans adopted by the Trust, the
Distributor is reimbursed from the Fund monthly for costs and expenses incurred
by the Distributor in connection with the distribution of Class A Shares, Class
B Shares, Class C Shares and Class D Shares of the Fund and for the provision of
certain shareholder services with respect to these Shares. Payments to the
Distributor are for various types of activities, including: (1) payments to
broker-dealers which advise shareholders regarding the purchase, sale or
retention of Class A Shares, Class B Shares, Class C Shares and Class D Shares
of the Fund and which provide shareholders with personal services and account
maintenance services ("service fees"), (2) payments to employees of the
Distributor, and (3) printing and advertising expenses. Pursuant to the Class A
and Class D Plan, the amount of their reimbursement from the Fund may not exceed
on an annual basis 0.25% of the average daily net assets of the Fund represented
by Class A Shares outstanding during the period for which payment is being made.
Pursuant to the Class B Plan and Class C Plan, respectively, such payments by
the Distributor to broker-dealers may be in amounts on an annual basis of up to
0.75% of the Fund's average daily net assets as presented by Class B Shares and
Class C Shares, respectively, outstanding
23
<PAGE>
during the period for which payment is being made. The aggregate fees paid to
the Distributor pursuant to the Class B Plan and Class C Plan, respectively, and
to Shareholder Servicing Agents pursuant to the Administrative Services Plan
will not exceed on an annual basis 1.00% of the Fund's average daily net assets
represented by Class B Shares and Class C Shares, respectively, outstanding
during the period for which payment is being made. Pursuant to the Class D Plan,
the amount of their reimbursement from the Fund may not exceed on an annual
basis 0.25% of the average daily net assets of the Fund represented by Class D
Shares outstanding during the period for which payment is being made. Salary
expense of BISYS personnel who are responsible for marketing shares of the
various series of the Trust may be allocated to such series on the basis of
average net assets; travel expense is allocated to, or divided among, the
particular series for which it is incurred.
Any payment by the Distributor or reimbursement of the Distributor from
the Fund made pursuant to the Distribution Plans is contingent upon the Board of
Trustees' approval. The Fund is not liable for distribution and shareholder
servicing expenditures made by the Distributor in any given year in excess of
the maximum amount payable under the Distribution Plans in that year.
Administrative Services Plan
The Trust has adopted an Administrative Services Plan which provides
that the Trust may obtain the services of an administrator, transfer agent,
custodian, and one or more Shareholder Servicing Agents, and may enter into
agreements providing for the payment of fees for such services. The
Administrative Services Plan continues in effect indefinitely if such
continuance is specifically approved at least annually by a vote of both a
majority of the Trustees and a majority of the Trustees who are not "interested
persons" of the Trust and who have no direct or indirect financial interest in
the operation of the Administrative Services Plan or in any agreement related to
such Plan ("Qualified Trustees"). The Administrative Services Plan may be
terminated at any time by a vote of a majority of the Qualified Trustees or with
respect to the Class A, Class B Shares, Class C Shares, Class D Shares or Class
Y Shares by a majority vote of shareholders of that class. The Administrative
Services Plan may not be amended to increase materially the amount of permitted
expenses thereunder with respect to the Class A Shares, Class B Shares, Class C
Shares, Class D Shares or Class Y Shares without the approval of a majority of
shareholders of that class, and may not be materially amended in any case
without a vote of the majority of both the Trustees and the Qualified Trustees.
Administrator
Pursuant to an Administration Agreement, BISYS provides the Trust with
general office facilities and supervises the overall administration of the Trust
and the Fund. BISYS provides persons satisfactory to the Board of Trustees of
the Trust to serve as officers of the Trust. Such officers, as well as certain
other employees and Trustees of the Trust, may be directors, officers or
employees of BISYS or its affiliates. For these services and facilities, BISYS
receives from the Fund fees payable monthly at an annual rate equal to 0.10% of
the first $1 billion of the Fund's average daily net assets, 0.08% of the next
$1 billion of such assets; and 0.07% of such assets in excess of $2 billion.
The Administration Agreement will remain in effect until March 31,
2001, and automatically will continue in effect thereafter from year to year
unless terminated upon 60 days'
24
<PAGE>
written notice to BISYS. The Administration Agreement will terminate
automatically in the event of its assignment. The Administration Agreement also
provides that neither BISYS nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration or
management of the Trust, except for willful misfeasance, bad faith or gross
negligence in the performance of its or their duties or by reason of reckless
disregard of its or their obligations and duties under the Administration
Agreement.
Information on the administration fees for the Fund is not provided
because the shares of the Fund was not offered prior to [ ] ___, 2000.
Transfer Agent
The Trust has entered into Transfer Agency Agreements with BISYS,
pursuant to which BISYS acts as transfer agent (the "Transfer Agent"). The
Transfer Agent maintains an account for each shareholder of the Fund (unless
such account is maintained by the shareholder's securities-broker, if
applicable, or Shareholder Servicing Agent), performs other transfer agency
functions, and act as dividend disbursing agent for the Fund. The principal
business address of BYSIS is 3435 Stelzer Road, Columbus, OH 43219.
Custodian
Pursuant to a Custodian Agreement, HSBC also acts as the custodian of
the Fund's assets (the "Custodian"). The Custodian's responsibilities include
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities, determining income and collecting interest
on the Fund's investments, maintaining books of original entry for portfolio and
fund accounting and other required books and accounts in order to calculate the
daily net asset value of Shares of the Fund. Securities held for the Fund may be
deposited into the Federal Reserve-Treasury Department Book Entry System or the
Depository Trust Company. The Custodian does not determine the investment
policies of the Fund or decide which securities will be purchased or sold for
the Fund. For its services, HSBC receives such compensation as may from time to
time be agreed upon by it and the Trust.
Shareholder Servicing Agents
The Trust has entered into a shareholder servicing agreement (a
"Servicing Agreement") with each Shareholder Servicing Agent, including HSBC,
pursuant to which a Shareholder Servicing Agent, as agent for its customers,
among other things: answers customer inquiries regarding account status and
history, the manner in which purchases, exchanges and redemptions of Class A
Shares, Class B Shares, Class C Shares, Class D and Class Y Shares of the Fund
may be effected and certain other matters pertaining to the Fund; assists
shareholders in designating and changing dividend options, account designations
and addresses; provides necessary personnel and facilities to establish and
maintain shareholder accounts and records; assists in processing purchase and
redemption transactions; arranges for the wiring of funds; transmits and
receives funds in connection with customer orders to purchase or redeem Shares;
verifies and guarantees shareholder signatures in connection with redemption
orders and
25
<PAGE>
transfers and changes in shareholder-designated accounts; furnishes (either
separately or on an integrated basis with other reports sent to a shareholder by
a Shareholder Servicing Agent) monthly and year-end statements and confirmations
of purchases and redemptions; transmits, on behalf of the Trust, proxy
statements, annual reports, updated prospectuses and other communications from
the Trust to the Fund's shareholders; receives, tabulates and transmits to the
Trust proxies executed by shareholders with respect to meetings of shareholders
of the Fund or the Trust; and provides such other related services as the Trust
or a shareholder may request. With respect to Class A, Class B Shares, Class C,
and Class D Shares, each Shareholder Servicing Agent receives a fee from the
Fund for these services, which may be paid periodically, determined by a formula
based upon the number of accounts serviced by such Shareholder Servicing Agent
during the period for which payment is being made, the level of activity in
accounts serviced by such Shareholder Servicing Agent during such period, and
the expenses incurred by such Shareholder Servicing Agent.
The Trust understands that some Shareholder Servicing Agents also may
impose certain conditions on their customers, subject to the terms of this
Prospectus, in addition to or different from those imposed by the Trust, such as
requiring a different minimum initial or subsequent investment, account fees (a
fixed amount per transaction processed), compensating balance requirements (a
minimum dollar amount a customer must maintain in order to obtain the services
offered), or account maintenance fees (a periodic charge based on a percentage
of the assets in the account or of the dividends paid on those assets). Each
Shareholder Servicing Agent has agreed to transmit to its customers who are
holders of Shares appropriate prior written disclosure of any fees that it may
charge them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees. Conversely, the Trust understands that
certain Shareholder Servicing Agents may credit to the accounts of their
customers from whom they are already receiving other fees amounts not exceeding
such other fees or the fees received by the Shareholder Servicing Agent from the
Fund with respect to those accounts.
Federal Banking Law
The Gramm-Leach-Bliley Act of 1999 repealed certain provisions of the
Glass-Steagall Act that had previously restricted the ability of banks and their
affiliates to engage in certain mutual fund activities. Nevertheless, HSBC's
activities remain subject to, and may be limited by, applicable federal banking
law and regulations. HSBC believes that it possesses the legal authority to
perform the services for the Fund contemplated by the Prospectus, this SAI, and
the Investment Advisory Agreement without violation of applicable statutes and
regulations. If future changes in these laws and regulations were to limit the
ability of HSBC to perform these services, the Board of Trustees would review
the Trust's relationship with HSBC and consider taking all action necessary in
the circumstances, which could include recommending to shareholders the
selection of another qualified advisor or, if that course of action appeared
impractical, that the Fund be liquidated.
Expenses
26
<PAGE>
Except for the expenses paid by the Adviser and the Distributor, the
Fund bears all costs of its operations. Expenses attributable to a class ("Class
Expenses") shall be allocated to that class only. Class Expenses with respect to
the Class A Shares, Class B Shares, Class C Shares and Class D Shares must
include payments made pursuant to their respective Distribution Plan and the
Administrative Services Plan. In the event a particular expense is not
reasonably allocable by class or to a particular class, it shall be treated as
the Fund expense or the Trust expense. Trust expenses directly related to the
Fund are charged to the Fund; other expenses are allocated proportionally among
all the portfolios of the Trust in relation to the net asset value of the Fund.
Information on the operating expenses for the Fund is not provided
because the shares of the Fund was not offered prior to [ ] ___, 2000.
DETERMINATION OF NET ASSET VALUE
The net asset value of each share of each class of the Fund is
determined on each day on which the New York Stock Exchange is open for trading.
As of the date of this Statement of Additional Information, the New York Stock
Exchange is open every weekday except for the days on which the following
holidays are observed: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
The Trust uses the amortized cost method to determine the value of the
Fund's portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing an obligation 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. 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 a lower value of the Fund's portfolio on a
particular day, a prospective investor in the 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, the Fund's dollar-weighted average portfolio maturity of
90 days or less must be maintained, and only securities having remaining
maturities of 397 days or less which are determined by the Trust's Board of
Trustees to be of high quality with minimal credit risks may be purchased.
Pursuant to Rule 2a-7, the Board has established procedures designed to
stabilize, to the extent reasonably possible, the price per share of the Fund,
as computed for the purpose of sales and redemptions, at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Board of Trustees, at
such intervals as it may deem appropriate, to determine whether the net asset
value of the Fund calculated by using available market quotations deviates from
the $1.00 per share valuation based on amortized cost. The extent of any
deviation is
27
<PAGE>
examined by the Board of Trustees. If such deviation exceeds $0.003, the Board
promptly considers 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, which
may include selling 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. It is anticipated that the net asset value of each class of shares
will remain constant at $1.00, although no assurance can be given that the net
asset value will remain constant on a continuing basis.
PURCHASE OF SHARES
Class A Shares, Class D Shares and Class Y Shares of the Fund are
continuously offered for sale by the Distributor at net asset value (normally
$1.00 per share) with no front-end sales charge to customers of a financial
institution, such as a federal or state-chartered bank, trust company or savings
and loan association that has entered into a Shareholder servicing agreement
with the Trust (collectively, "Shareholder Servicing Agents"). Class A Shares,
Class D Shares and Class Y Shares may be purchased through Shareholder Servicing
Agents or, in the case of Investor Shares only through securities brokers that
have entered into a dealer agreement with the Distributor ("Securities
Brokers"). At present, the only Shareholder Servicing Agents for Class Y Shares
of the Fund are HSBC and its affiliates.
Class B Shares and Class C Shares of the Fund are not offered for sale
but are only offered as an exchange option for Class B shareholders and Class C
shareholders of the Trust's other investment portfolios who wish to exchange
some or all of those Class B shares or Class C shares for Class B Shares or
Class C Shares, respectively, of the Fund. Although Class B Shares and Class C
Shares of the Fund are not subject to a sales charge when a shareholder
exchanges Class B shares or Class C shares of another Trust portfolio for Class
B Shares or Class C Shares of the Fund, they may be subject to a contingent
deferred sales charge when they are redeemed. See "Contingent Deferred Sales
Charge ("CDSC") -- Class B Shares and Class C Shares" below.
Purchases of Class A Shares, Class D Shares and Class Y Shares are
effected on the same day the purchase order is received by the Distributor
provided such order is received prior to 12:00 noon, New York time, on any Fund
Business Day. Shares purchased earn dividends from and including the day the
purchase is effected. The Trust intends the Fund to be as fully invested at all
times as is reasonably practicable in order to enhance the yield on their
assets. Each Shareholder Servicing Agent or Securities Broker is responsible for
and required to promptly forward orders for Shares to the Distributor.
While there is no sales load on purchases of Class A Shares and Class D
Shares, the Distributor may receive fees from the Fund. See "Management of the
Trust -- The Distributor and Sponsor" above. Other funds which have investment
objectives similar to those of the Fund but which do not pay some or all of such
fees from their assets may offer a higher yield.
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All purchase payments are invested in full and fractional Shares. The
Trust reserves the right to cease offering Shares for sale at any time or to
reject any order for the purchase of Shares.
An investor may purchase Class A Shares and Class D Shares through the
Distributor directly or by authorizing his Shareholder Servicing Agent or his
securities broker to purchase such shares on his behalf through the Distributor.
An investor may purchase Class Y Shares by authorizing his Shareholder Servicing
Agent to purchase such Shares on his behalf through the Distributor.
Exchange Privilege
By contacting the Transfer Agent or his Shareholder Servicing Agent or
his securities broker, a shareholder may exchange some or all of his Shares for
shares of an identical class of one or more of the following investment
companies: HSBC Investor U.S. Government Fund, HSBC Investor Bond Fund, HSBC
Investor Overseas Equity Fund, HSBC Investor Opportunity Fund, HSBC Investor
California Tax-Free Bond Fund, HSBC Investor California Tax-Free Fund, HSBC
Investor Equity Fund, and such other HSBC Investor Funds or other registered
investment companies for which HSBC serves as investment adviser as HSBC may
determine (the "HSBC Investor Funds"). An investor will receive Class A Shares
of the Fund in exchange for Class A shares of the HSBC Investor Funds, unless
the investor is eligible to receive Class D Shares of the Fund, in which case
the investor will receive Class D Shares of the Fund in exchange for Class A
shares of a HSBC Investor Fund. Class B Shares, Class C Shares and
Class Y Shares may be exchanged for shares of the same class of one
or more of the HSBC Investor Funds at net asset value without a front-end sales
charge provided that the amount to be exchanged meets the applicable minimum
investment requirements and the exchange is made in states where it is legally
authorized. Holders of the Fund's Class B Shares may not exchange their Shares
for shares of any other class. Exchanges of Fund Investor Shares for Investor
shares of one or more HSBC Investor Funds may be made upon payment of the
applicable sales charge, unless otherwise exempt. Shareholders of Class A and
Class D Shares of the Fund who are shareholders as of December 31, 1997 will be
grandfathered with respect to the HSBC Investor Funds and will be exempt from
having to pay a sales charge on any new purchases of Class A or Class D Shares
of the Fund. An exchange of Class B Shares or Class C Shares will not affect the
holding period of the Class B Shares or Class C Shares for purposes of
determining the CDSC, if any, upon redemption. An exchange may result in a
change in the number of Shares held, but not in the value of such Shares
immediately after the exchange. Each exchange involves the redemption of the
Shares to be exchanged and the purchase of the shares of the other HSBC Investor
Funds.
The exchange privilege (or any aspect of it) may be changed or
discontinued upon 60 days' written notice to shareholders and is available only
to shareholders in states in which such exchanges may be legally made. A
shareholder considering an exchange should obtain and read the prospectus of the
other HSBC Investor Funds and consider the differences in investment objectives
and policies before making any exchange.
An exchange is considered a sale of shares and may result in a capital
gain or loss for federal income tax purposes. A Shareholder wishing to exchange
his or her Shares may do so
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by contacting the Trust at 888-525-5757, by contacting his or her broker-dialer
or by providing written instruction to the Distributor.
Automatic Investment Plan
The Trust offers a plan for regularly investing specified dollar
amounts ($25.00 minimum in monthly, quarterly, semi-annual or annual intervals)
in the Fund. If an Automatic Investment Plan is selected, subsequent investments
will be automatic and will continue until such time as the Trust and the
investor's bank are notified to discontinue further investments. Due to the
varying procedures to prepare, process and to forward bank withdrawal
information to the Trust, there may be a delay between the time of the bank
withdrawal and the time the money reaches the Fund. The investment in the Fund
will be made at the net asset value per share determined on the day that both
the check and the bank withdrawal data are received in required form by the
Distributor. Further information about the plan may be obtained from BISYS at
the telephone number listed on the back cover.
For further information on how to purchase Investor Shares from the
Distributor, an investor should contact the Distributor directly (see back cover
for address and phone number).
Purchases Through a Shareholder Servicing Agent or a Securities Broker
Class A Shares and Class D Shares of the Fund are being offered to the
public, to customers of a Shareholder Servicing Agent and to customers of a
securities broker that has entered into a dealer agreement with the Distributor.
Class Y Shares of the Fund are only being offered to customers of Shareholder
Servicing Agents. Shareholder Servicing Agents and securities brokers, if
applicable, may offer services to their customers, including specialized
procedures for the purchase and redemption of Shares, such as pre-authorized or
automatic purchase and redemption programs and "sweep" checking programs. Each
Shareholder Servicing Agent and securities broker may establish its own terms,
conditions and charges, including limitations on the amounts of transactions,
with respect to such services. Charges for these services may include fixed
annual fees, account maintenance fees and minimum account balance requirements.
Shareholder Servicing Agents and securities brokers may transmit
purchase payments on behalf of their customers by wire directly to the Fund's
custodian bank by following the procedures described above.
For further information on how to direct a securities broker, if
applicable, or a Shareholder Servicing Agent to purchase Shares, an investor
should contact his securities broker or his Shareholder Servicing Agent.
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REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the Shares in his
account at any time at the net asset value (normally $1.00 per share) next
determined after a redemption order in proper form is furnished by the
shareholder to the Transfer Agent, with respect to Shares purchased directly
through the Distributor, or to his securities broker or his Shareholder
Servicing Agent, and is transmitted to and received by the Transfer Agent. Class
A Shares, Class D Shares and Class Y Shares may be redeemed without charge while
Class B Shares and Class C Shares may be subject to a contingent deferred sales
charge (CDSC). See "Contingent Deferred Sales Charge ("CDSC") -- Class B Shares
and Class C Shares" above. Redemptions are effected on the same day the
redemption order is received by the Transfer Agent provided such order is
received prior to 12:00 noon, New York time, on any Fund Business Day. Shares
redeemed earn dividends up to and including the day prior to the day the
redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the next Fund Business Day following the date on which the redemption
is effected, but in any event within seven days. The right of any shareholder to
receive payment with respect to any redemption may be suspended or the payment
of the redemption proceeds postponed during any period in which the New York
Stock Exchange is closed (other than weekends or holidays) or trading on such
Exchange is restricted or, to the extent otherwise permitted by the 1940 Act, if
an emergency exists. To be in a position to eliminate excessive expenses, the
Trust reserves the right to redeem upon not less than 30 days' notice all Shares
in an account which has a value below $50, provided that such involuntary
redemptions will not result from fluctuations in the value of Fund Shares. A
shareholder will be allowed to make additional investments prior to the date
fixed for redemption to avoid liquidation of the account.
Unless Shares have been purchased directly from the Distributor, a
shareholder may redeem Shares only by authorizing his securities broker, if
applicable, or his Shareholder Servicing Agent to redeem such Shares on his
behalf (since the account and records of such a shareholder are established and
maintained by his securities broker or his Shareholder Servicing Agent). For
further information as to how to direct a securities broker or a Shareholder
Servicing Agent to redeem Shares, a shareholder should contact his securities
broker or his Shareholder Servicing Agent.
Systematic Withdrawal Plan
Any shareholder who owns Shares with an aggregate value of $10,000 or
more may establish a Systematic Withdrawal Plan under which he redeems at net
asset value the number of full and fractional shares which will produce the
monthly, quarterly, semi-annual or annual payments specified (minimum $50.00 per
payment). Depending on the amounts withdrawn, systematic withdrawals may deplete
the investor's principal. Investors contemplating participation in this Plan
should consult their tax advisers. No additional charge to the shareholder is
made for this service.
Redemption of Shares Purchased Directly Through the Distributor
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Redemption by Letter. Redemptions may be made by letter to the Transfer
Agent specifying the dollar amount or number of Investor Shares to be redeemed,
account number and the Fund. The letter must be signed in exactly the same way
the account is registered (if there is more than one owner of the Shares, all
must sign). In connection with a written redemption request, all signatures of
all registered owners or authorized parties must be guaranteed by an Eligible
Guarantor Institution, which includes a domestic bank, broker, dealer, credit
union, national securities exchange, registered securities association, clearing
agency or savings association. The Fund's transfer agent, however, may reject
redemption instructions if the guarantor is neither a member or not a
participant in a signature guarantee program (currently known as "STAMP",
"SEMP", or "NYSE MPS"). Corporations, partnerships, trusts or other legal
entities may be required to submit additional documentation.
Redemption by wire or telephone. An investor may redeem Class A or
Class D Shares by wire or by telephone if he has checked the appropriate box on
the Purchase Application or has filed a Telephone Authorization Form with the
Trust. These redemptions may be paid from the applicable Fund by wire or by
check. The Trust reserves the right to refuse telephone wire redemptions and may
limit the amount involved or the number of telephone redemptions. The telephone
redemption procedure may be modified or discontinued at any time by the Trust.
Instructions for wire redemptions are set forth in the Purchase Application. The
Trust employs reasonable procedures to confirm that instructions communicated by
telephone are genuine. For instance, the following information must be verified
by the shareholder or securities broker at the time a request for a telephone
redemption is effected: (1) shareholder's account number; (2) shareholder's
social security number; and (3) name and account number of shareholder's
designated securities broker or bank. If the Trust fails to follow these or
other established procedures, it may be liable for any losses due to
unauthorized or fraudulent instructions.
Check Redemption Service
Shareholders may redeem Class A or Class D Shares by means of a Check
Redemption Service. If Class A or Class D Shares are held in book credit form
and the Check Redemption Service has been elected on the Purchase Application on
file with the Trust, redemptions of shares may be made by using redemption
checks provided by the Trust. There is no charge for this service. Checks must
be written for amounts of $250 or more, may be payable to anyone and negotiated
in the normal way. If more than one shareholder owns the Class A or Class D
Shares, all must sign the check unless an election has been made to require only
one signature on checks and that election has been filed with the Trust.
Class A Shares and Class D Shares represented by a redemption check
continue to earn daily dividends until the check clears the banking system. When
honoring a redemption check, the Trust causes the redemption of exactly enough
full and fractional Class A Shares and Class D Shares of the Fund from an
account to cover the amount of the check. The Check Redemption Services may be
terminated at any time by the Trust.
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If the Check Redemption Service is requested for an account in
the name of a corporation or other institution, additional documents must be
submitted with the application, i.e., corporations (Certification of Corporate
Resolution), partnerships (Certification of Partnership) and trusts
(Certification of Trustees). In addition, since the share balance of the Fund
account is changing on a daily basis, the total value of the Fund account cannot
be determined in advance and the Fund account cannot be closed or entirely
redeemed by check.
Contingent Deferred Sales Charge ("CDSC") - Class B Shares and Class C Shares
Class B Shares
There is no sales charge imposed upon an exchange for Class B Shares of
the Fund, but investors may be subject to a CDSC when Class B Shares are
redeemed.
The CDSC will be based on the lesser of the net asset value at the time
of original purchase of the Class B shares of the Income Fund(s) and/or the
Equity Fund(s) which were exchanged for the Fund Class B Shares now being
redeemed or the net asset value of such Fund Class B Shares at the time of
redemption. Accordingly, a CDSC will not be imposed on amounts representing
increases in net asset value above the net asset value at the time of purchase.
In addition, a CDSC will not be assessed on Class B Shares purchased through
reinvestment of dividends or capital gains distributions, or that are purchased
by "Institutional Investors" such as corporations, pension plans, foundations,
charitable institutions, insurance companies, banks and other banking
institutions, and non-bank fiduciaries.
Solely for purposes of determining the amount of time which has elapsed
from the time of purchase of any Income Fund or Equity Fund Class B shares, all
purchases during a month will be aggregated and deemed to have been made on the
last day of the month. In determining whether a CDSC is applicable to a
redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of Class B Shares held for more than three years that
were exchanged from Income Fund Class B shares, Class B Shares held more than
four years for Class B Shares that were exchanged from Equity Fund Class B
shares or Class B Shares acquired pursuant to reinvestment of dividends or
distributions.
For example, assume an investor purchased 100 Class B Shares of an
Equity Fund with a net asset value of $8 per share (i.e., at an aggregate net
asset value of $800) and in the eleventh month after purchase, the net asset
value per share is $10 and, during such time, the investor has acquired five
additional Class B shares of the Equity Fund through dividend reinvestment. If
at such time the investor exchanges all of his Equity Fund Class B shares for
Class B Shares of one of the Fund, the investor will have 1,050 Class B Shares
(assuming a net asset value of $1.00 per share for the Fund). Assume twelve
months later the investor acquires 50 additional Class B Shares of the Fund
through dividend reinvestments. If at such time the investor makes his first
redemption of 500 Fund Class B Shares (producing proceeds of $500), 100 of such
Shares would not be subject to the charge because they were acquired through
dividend reinvestment. With respect to the remaining 400 Class B Shares being
redeemed, the
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CDSC would be applied only to 320 Class B Shares (representing the original cost
of $8 per share for the Equity Fund) and not to the remaining 80 Class B Shares
(representing the increase in net asset value of $2 per share for the Equity
Fund).
The CDSC is waived on redemptions of Class B Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a Shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an IRA or a Custodial Account
under Code Section 403(b)(7) to a Shareholder who has reached age 70 1/2, and
(iii) to the extent the redemption represents the minimum distribution from
retirement plans under Code Section 401(a) where such redemptions are necessary
to make distributions to plan participants.
Class C Shares
There is no sales charge imposed upon an exchange for Class C Shares of
the Fund, but investors may be subject to a CDSC when Class C Shares are
redeemed. When Class C shares of one of the other investment portfolios of the
HSBC Funds are exchanged for Class C Shares of the Fund and those shares are
redeemed less than one year after the original purchase of the Class B shares of
the other HSBC Funds (calculated from the last day of the month in which the
shares were purchased), those Class C Shares of the Fund will be subject to a
1.0% CDSC in most cases. The CDSC will be assessed on an amount equal to the
lesser of the current market value or the cost of the shares being redeemed. The
CDSC will not be imposed in the circumstances set forth above in the section
"Class B Shares." Class C Shares are subject to an annual 12b-1 fee of up to
1.0% of the average daily net assets of the Class. Unlike Class B shares, Class
C Shares have no conversion feature and, accordingly, an investor that purchases
Class C Shares will be subject to 12b-1 fees applicable to Class C Shares for an
indefinite period subject to annual approval by the Fund's Board of Trustees and
regulatory limitations. The higher fees mean a higher expense ratio, so Class C
Shares pay correspondingly lower dividends and may have a lower net asset value
than Investor Shares. Broker-dealers and other financial intermediaries whose
clients have purchased Class C Shares may receive a trailing commission equal to
[%] of the average daily net asset value of such shares on an annual basis held
by their clients more than one year from the date of purchase. Trailing
commissions will commence immediately with respect to shares eligible for
exemption from the CDSC normally applicable to Class C Shares.
Conversion Feature
Five years after the original purchase of Income Fund Class B shares
which have been exchanged for Class B Shares of the Fund and six years after the
original purchase of Equity Fund Class B shares which have been exchanged for
Class B Shares of the Fund, Class B Shares of the Fund will convert
automatically to Class A or Class D Shares, depending upon whether the investor
is eligible for Class D Shares. The purpose of the conversion is to relieve a
holder of Class B Shares of the higher ongoing expenses charged to those Shares,
after enough time has passed to allow the Distributor to recover approximately
the amount it would have received if a front-end sales charge had been charged.
The conversion from Class B Shares to
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Class A or Class D Shares takes place at net asset value, as a result of which
an investor receives dollar-for-dollar the same value of Class A or Class D
Shares as he or she had of Class B Shares. For Class B Shares that were
exchanged from Income Fund Class B shares, the conversion occurs five years
after the beginning of the calendar month in which the Income Fund Class B
shares were purchased. For Class B shares that were exchanged from Equity Fund
Class B shares, the conversion occurs six years after the beginning of the
calendar month in which the Equity Fund Class B shares were purchased. As a
result of the conversion, the converted Shares are relieved of the Rule 12b-1
fees borne by Class B Shares, although they are subject to the Rule 12b-1 fees
borne by Investor Shares.
DIVIDENDS AND DISTRIBUTIONS
The net income of the Fund, as defined below, is determined the Fund
Business Day (and on such other days as the Trustees deem necessary in order to
comply with Rule 22c-1 under the 1940 Act). This determination is made once
during each such day as of 12:00 noon, New York time. All the net income of the
Fund so determined is declared in shares of the Fund as a dividend to
shareholders of record at the time of such determination. Shares begin accruing
dividends on the day they are purchased. Dividends are distributed monthly.
Unless a shareholder elects to receive dividends in cash (subject to the
policies of the shareholder's Shareholder Servicing Agent or securities broker),
dividends are distributed in the form of additional shares of the Fund at the
rate of one share (and fraction thereof) of the Fund for each one dollar (and
fraction thereof) of dividend income.
For this purpose, the net income of the Fund (from the time of the
immediately preceding determination thereof) consists of (i) all income accrued,
less the amortization of any premium, on the assets of the Fund, less (ii) all
actual and accrued expenses determined in accordance with generally accepted
accounting principles. Interest income includes discount earned (including both
original issue and market discount) on discount paper accrued ratably to the
date of maturity and any net realized gains or losses on the assets of the Fund.
Obligations held in the Fund's portfolio are valued at amortized cost, which the
Trustees of the Trust have determined in good faith constitutes fair value for
the purposes of complying with the 1940 Act. This method provides certainty in
valuation, but may result in periods during which the stated value of an
obligation held for the Fund is higher or lower than the price the Fund would
receive if the obligation were sold. This valuation method will continue to be
used until such time as the Trustees of the Trust determine that it does not
constitute fair value for such purposes.
Since the net income of the Fund is declared as a dividend each time
the net income of the Fund is determined, the net asset value per share of the
Fund is expected to remain at $1.00 per share immediately after each such
determination and dividend declaration. Any increase in the value of a
shareholder's investment in the Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of Shares in his account.
It is expected that the Fund will have a positive net income at the
time of each determination thereof. If, for any reason, the net income of the
Fund determined at any time is a negative amount, which could occur, for
instance, upon default by an issuer of an obligation held
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in the Fund's portfolio, the negative amount with respect to each shareholder
account would first be offset from the dividends declared during the month with
respect to each such account. If and to the extent that such negative amount
exceeds such declared dividends at the end of the month, the number of
outstanding Fund Shares would be reduced by treating each shareholder as having
contributed to the capital of the Fund that number of full and fractional Shares
in the account of such shareholder which represents his proportion of the amount
of such excess. Each shareholder will be deemed to have agreed to such
contribution in these circumstances by his investment in the Fund. Thus, the net
asset value per Share is expected to be maintained at a constant $1.00.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional Class A Shares, Class B Shares, Class C
Shares, Class D and Class Y Shares of Beneficial Interest (par value $0.001 per
share) and to divide or combine the shares into a greater or lesser number of
shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series of the Trust participate equally in the
earnings, dividends and assets of the particular series. Currently, the Trust
has eight series of shares, each of which constitutes a separately managed fund.
The Trust reserves the right to create additional series of shares. The Trust
may authorize the creation of multiple classes of shares of separate series of
the Trust. Currently, the Fund is divided into five classes of shares.
Each share of each class of the Fund represents an equal proportionate
interest in the Fund with each other share of that class. Shares have no
preference, pre-emptive, conversion or similar rights. Shares when issued are
fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held on matters on which they are entitled
to vote.
Each Shareholder Servicing Agent has agreed to transmit all proxies and
voting materials from the Trust to their customers who are beneficial owners of
the Fund and such Shareholder Servicing Agents have agreed to vote as instructed
by such customers. Under the Declaration of Trust, the Trust is not required to
hold annual meetings of Fund shareholders to elect Trustees or for other
purposes. It is not anticipated that the Trust will hold shareholders' meetings
unless required by law or the Declaration of Trust. In this regard, the Trust
will be required to hold a meeting to elect Trustees to fill any existing
vacancies on the Board if, at any time, fewer than a majority of the Trustees
have been elected by the shareholders of the Trust. In addition, the Declaration
of Trust provides that the holders of not less than two-thirds of the
outstanding shares of the Trust may remove persons serving as Trustee either by
declaration in writing or at a meeting called for such purpose. The Trustees are
required to call a meeting for the purpose of considering the removal of persons
serving as Trustee if requested in writing to do so by the holders of not less
than 10% of the outstanding shares of the Trust. Trust will hold special
meetings of Fund shareholders when in the judgment of the Trustees of the Trust
it is necessary or desirable to submit matters for a shareholder vote.
Shareholders of each series generally vote separately, for example, to
approve investment advisory agreements or changes in fundamental investment
policies or restrictions,
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but shareholders of all series may vote together to the extent required under
the 1940 Act, such as in the election or selection of Trustees, principal
underwriters and accountants for the Trust. Shares of each class of a series
represent an equal pro rata interest in such series and, generally, have
identical voting, dividend, liquidation, and other rights, preferences, powers,
terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any class expenses; and (c)
each class shall have exclusive voting rights on any matter submitted to
shareholders that relate solely to its distribution arrangement, and each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing subscribed to by a specified
number of shareholders. Upon liquidation or dissolution of the Fund,
shareholders of the Fund would be entitled to share pro rata in the net assets
of the Fund available for distribution to shareholders.
The Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Fund or the Trust, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for
purposes of quorum requirements.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
TAXATION
Federal Income Tax
The following is a summary of certain U.S. federal income tax issues
concerning the Fund and its shareholders. The Fund may also be subject to state,
local, foreign or other taxes
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not discussed below. This discussion does not purport to be complete or to
address all tax issues relevant to each shareholder. Prospective investors
should consult their own tax advisors with regard to the federal, state, foreign
and other tax consequences to them of the purchase, ownership or disposition of
Fund shares. This discussion is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, and judicial and administrative authorities, all of which are
subject to change, which change may be retroactive.
The Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Code. To so qualify, the Fund must distribute
to shareholders at least 90% of its investment company taxable income (which
includes, among other items, interest, dividends and the excess of net
short-term capital gains over net long-term capital losses) and must meet
certain diversification of assets, source of income, and other requirements of
the Code. By so doing, the Fund will not be subject to federal income tax on
that portion of its net investment income and net realized capital gains (the
excess of any net long-term capital gains over net short-term capital losses),
if any, distributed to shareholders. If the Fund do not meet all of these Code
requirements, it will be taxed as an ordinary corporation.
It is intended that the Fund's assets will be sufficiently invested in
municipal securities to qualify to pay "exempt-interest dividends" (as defined
in the Code) to shareholders. The Fund's dividends payable from net tax-exempt
interest earned from municipal securities will qualify as exempt-interest
dividends if, at the close of each quarter of its taxable year, at least 50% of
the value of its total assets consists of securities the interest on which is
exempt from the regular federal income tax under Code section 103.
Exempt-interest dividends distributed to shareholders are not included in
shareholders' gross income for regular federal income tax purposes.
The Fund will determine periodically which distributions will be
designated as exempt-interest dividends. If the Fund earns income which is not
eligible to be so designated, the Fund, nonetheless, intends to distribute such
income. Such distributions will be subject to federal, state, and local state
taxes, as applicable, in the hands of shareholders.
Distributions of net investment income received by the Fund from
investment in taxable debt securities, or ordinary income realized upon the
disposition of market discount bonds (including tax-exempt market discount
bonds), will be taxable to shareholders as ordinary income. Because the Fund's
investment income is derived from interest rather than dividends, no portion of
such distributions is expected to be eligible for the dividends-received
deduction available to corporations.
Distributions of investment company taxable income generally are
taxable to shareholders as ordinary income. It is not expected that such
distributions will be eligible for the dividends-received deduction for
corporations. Distributions of net capital gains, whether received in cash or
reinvested in Fund shares, will generally be taxable to shareholders as either
"20% Gain" or "28% Gain," depending upon the Fund's holding period for the
assets sold. "20% Gains" arise from sales of assets held by the Fund for more
than 18 months and are subject to a
38
<PAGE>
maximum tax rate of 20%, "28% Gains" arise from sales of assets held by the Fund
for more than one year but not more than 18 months and are subject to a maximum
tax rate of 28%. Net capital gains from assets held for one year or less will be
taxed as ordinary income. Distributions will be subject to these capital gains
rates regardless of how long a shareholder has held Fund shares. Shareholders
receiving distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share received equal to the net asset
value of a share of the Fund on the reinvestment date. Shareholders will be
notified annually as to the federal tax status of distributions.
Distributions by the Fund other than exempt-interest dividends and
redemption proceeds may be subject to backup withholding at the rate of 31%.
Backup withholding generally applies to shareholders who have failed to properly
certify their taxpayer identification numbers, who fail to provide other
required tax-related certifications, and with respect to whom the Fund has
received certain notifications from the Internal Revenue Service requiring or
permitting the Fund to apply backup withholding is not an additional tax and
amounts so withheld generally may be applied by affected shareholders as a
credit against their federal income tax liability.
Interest on certain types of private activity bonds is not exempt from
federal income tax when received by "substantial users" or persons related to
substantial users as defined in the Code. The term "substantial user" includes
any "nonexempt person" who regularly uses in trade or business part of a
facility financed from the proceeds of private activity bonds. The Fund may
invest periodically in private activity bonds and, therefore, may not be
appropriate investments for entities that are substantial users of facilities
financed by private activity bonds or "related persons" of substantial users.
Generally, an individual will not be a related person of a substantial user
under the Code unless he/she or his/her immediate family (spouse, brothers,
sisters, and lineal descendants) owns indirectly in aggregate more than 50% in
the equity value of the substantial user.
Opinions relating to the tax status of interest derived from individual
municipal securities are rendered by bond counsel to the issuer. Although the
Fund's advisor attempts to determine that any security it contemplates
purchasing on behalf of the Fund is issued with an opinion indicating that
interest payments will be federal and (as applicable) state tax-exempt, neither
the advisor nor the Fund's counsel makes any review of proceedings relating to
the issuance of municipal securities or the bases of such opinions.
From time to time, proposals have been introduced in Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities, and similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund could be adversely affected. Under these
circumstances, Fund management would re-evaluate the Fund's investment
objectives and policies and would consider either changes in the structure of
the Fund and the Trust or their dissolution.
39
<PAGE>
Upon disposition (by redemption, repurchase, sale or exchange) of Fund
shares, a shareholder may realize a taxable gain or loss depending upon his
basis in his shares. Realization of such a gain or loss is considered unlikely
because of the Fund's policy to attempt to maintain a $1.00 per share net asset
value. Such gain or loss will be treated as a capital gain or loss if the shares
are capital assets in the shareholder's hands. Gain will generally be subject to
a maximum tax rate of 20% if the shareholder's holding period for the shares is
more than 18 months, and a maximum tax rate of 28% if the shareholder's holding
period for the shares is more than one year but not more than 18 months. Gain
from the disposition of shares held not ore than one year will be taxed as
short-term capital gain. A loss realized by a shareholder on the disposition of
Fund shares with respect to which long-term capital gain dividends have been
received will, to the extent of such long-term capital gain dividends, be
treated as long-term capital loss if such shares have been held by the
shareholder for six months or less. Any loss realized from a disposition of Fund
shares that were held for six months or less will be disallowed to the extent
that dividends received from the Fund are designated as exempt-interest
dividends. Any loss realized on a sale or exchange of Fund shares also will be
disallowed to the extent that the shares disposed of are replaced (including
replacement through reinvesting of dividends and capital gain distributions in
the Fund) (whether by reinvestment of distributions or otherwise) within a
period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss, to the extent not
disallowed, realized on a disposition of shares of the Fund with respect to
which long-term capital gain distributions have been paid will, to the extent of
those dividends, be treated as a long-term capital loss if the shares have been
held for six months or less at the time of their disposition.
The Trust will be required to report to the Internal Revenue Service
(the "IRS") all distributions by the Fund except in the case of certain exempt
shareholders. All such distributions generally will be subject to withholding of
federal income tax at a rate of 31% ("backup withholding") in the case of
nonexempt shareholders if (1) the shareholder fails to furnish the Fund with and
to certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he is not subject to backup withholding. If
the withholding provisions are applicable, any such distributions whether
reinvested in additional shares or taken in cash, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against the
shareholder's federal income tax liability. Investors may wish to consult their
tax advisors about the applicability of the backup withholding provisions.
The Trust is organized as a Massachusetts business trust and, under
current law, is not liable for any income or franchise tax in the Commonwealth
of Massachusetts as long as each series of the Trust (including the Fund)
qualifies as a regulated investment company for purposes of Massachusetts law.
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The foregoing discussion relates only to federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by the Fund also
may be subject to state and local taxes, and their treatment under state and
local income tax laws may differ from the federal income tax treatment.
Shareholders should consult their tax advisors with respect to particular
questions of federal, state and local taxation. Shareholders who are not U.S.
persons should consult their tax advisors regarding U.S. and foreign tax
consequences of ownership of shares of the Fund including the likelihood that
distributions to them would be subject to withholding of U.S. tax at a rate of
30% (or at a lower rate under a tax treaty).
Alternative Minimum Tax
While the interest on bonds issued to finance essential state and local
government operations is generally tax-exempt, interest on certain nonessential
or private activity securities issued after August 7, 1986, while exempt from
the regular federal income tax, constitutes a tax-preference item for taxpayers
in determining alternative minimum tax liability under the Code and income tax
provisions of several states. The interest on private activity securities could
subject a shareholder to, or increase liability under, the federal alternative
minimum tax, depending on the shareholder's tax situation.
All distributions derived from interest exempt from regular federal
income tax may subject corporate shareholders to or increase their liability
under, the alternative minimum tax and environmental tax because these
distributions are included in the corporation's adjusted current earnings. The
Fund will inform shareholders annually as to the dollar amount of distributions
derived from interest payments on private activity securities.
Special Tax Considerations
Exempt-interest dividends, whether received by shareholders in cash or
in additional shares, derived by California residents from interest on
qualifying California bonds generally are exempt from California State personal
income taxes, but not corporate franchise taxes. Dividends and distributions
derived from taxable income and capital gains are not exempt from California
State taxes. Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of the Fund is not deductible for California State
personal income tax purposes. Gain on the sale of redemption of Fund shares
generally is subject to California State personal income tax.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, Fundtrust Tax-Free Trust
(organized on July 30, 1986) and Fundvest
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(organized on July 17, 1984, and since renamed Fundsource). Prior to October 3,
1994 the name of the Trust was "Fundtrust".
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) and classes of shares within each series at any time
in the future. Establishment and offering of additional classes or series will
not alter the rights of the Fund's shareholders. When issued, shares are fully
paid, nonassessable, redeemable and freely transferable. Shares do not have
preemptive rights or subscription rights. In liquidation of the Fund, each
shareholder is entitled to receive his pro rata share of the net assets of the
Fund.
Independent Auditors
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent auditors of the Trust. KPMG Peat Marwick LLP will audit the Trust's
annual financial statements, prepare the Trust's income tax returns, and assist
in the filings with the Securities and Exchange Commission. KPMG Peat Marwick
LLP's address is 99 High Street, Boston, Massachusetts 02110.
Counsel
Dechert, 1775 Eye Street, N.W., Washington, D.C. 20006, passes upon
certain legal matters in connection with the shares of the Fund offered by the
Trust, and also acts as counsel to the Trust.
Code of Ethics
HSBC Investor Funds, the Adviser and BISYS each have adopted a code of
ethics, as required by applicable law, which is designed to prevent affiliated
persons of the Fund, the Adviser and BISYS from engaging in deceptive,
manipulative, or fraudelent activities in connection with securities held or to
be acquired by the Fund (which may also be held by persons subject to a code).
There can be no assurance that the codes will be effective in preventing such
activities.
Registration Statement
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
Financial Statements
Financial statements for the Fund are not provided because shares of
the Fund were not offered prior to [ ] ___, 2000.
Shareholder Inquiries
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<PAGE>
All shareholder inquiries should be directed to the Trust, P.O. Box
182845, Columbus, Ohio 43218-2845.
GENERAL AND ACCOUNT INFORMATION: (800) 782-8183 (TOLL FREE).
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APPENDIX A
DESCRIPTION OF MUNICIPAL OBLIGATIONS
Municipal Obligations include bonds, notes and commercial paper issued
by or on behalf of states, territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from regular federal income
taxes (without regard to whether the interest thereon is also exempt from the
personal income taxes of any state). Municipal Obligation bonds are issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligation bonds may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses, and
obtaining funds to loan to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide privately-operated
housing facilities, industrial facilities, sports facilities, convention or
trade show facilities, airport, mass transit, port or parking facilities, air or
water pollution control facilities, hazardous waste treatment or disposal
facilities, and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Such obligations are included within the term
Municipal Obligations if the interest paid thereon qualifies as exempt from
regular federal income tax. Other types of industrial development bonds, the
proceeds of which are used for the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities, may
constitute Municipal Obligations, although the current federal tax laws place
substantial limitations on the size of such issues.
The two principal classifications of Municipal Obligation bonds are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its good faith, credit and taxing, power for the
payment of principal and interest. The payment of the principal of and interest
on such bonds may be dependent upon an appropriation by the issuer's legislative
body. The characteristics and enforcement of general obligation bonds vary
according to the law applicable to the particular issuer. Revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Industrial development bonds which are Municipal
Obligations are in most cases revenue bonds and do not generally constitute the
pledge of the credit of the issuer of such bonds. There are, of course,
variations in the security of Municipal Obligations, both within a particular
classification and between classifications, depending" on numerous factors.
Municipal Obligation notes generally are used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal
Obligation notes include:
1. Tax Anticipation Notes. Tax Anticipation Notes are issued to
finance operational needs of municipalities. Generally, they are
issued in anticipation of the receipt of various tax revenues,
such as property, income, sales, use and business taxes.
2. Revenue Anticipation Notes. Revenue Anticipation Notes are issued
in expectation of receipt of dedicated revenues, such as state aid
or federal revenues available under federal revenue sharing
programs.
3. Tax And Revenue Anticipation Notes. Tax and Revenue Anticipation
Notes are issued by the State to fund its day-to-day operations
and certain local assistance payments to its
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<PAGE>
municipalities and school districts. Such Notes are issued
in anticipation of the receipt of various taxes and revenues, such
as personal income taxes, business taxes and user taxes and fees.
4. Bond Anticipation Notes. Bond Anticipation Notes are issued to
provide interim financing until long-term bond financing can be
arranged. Long-term bonds or renewal Bond Anticipation Notes
provide the money for the repayment of the Notes.
Issues of commercial paper typically represent short-term, unsecured,
negotiable promissory notes. These obligations are issued by agencies of state
and local governments to finance seasonal working capital needs of
municipalities or to provide interim construction financing and are paid from
general revenues of municipalities or are refinanced with long-term debt. In
most cases, Municipal Obligation commercial paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.
The yields on Municipal Obligations are dependent on a variety of
factors, including general market conditions, supply and demand and general
conditions of the Municipal Obligation market, size of a particular offering,
the maturity of the obligation and rating (if any) of the issue. The ratings of
Moody's Investors Service, Inc., Standard & Poor's Corporation and Fitch
Investors Service, Inc. represent their opinions as to the quality of various
Municipal Obligations. It should be emphasized, however, that ratings are not
absolute standards of quality. Consequently, Municipal Obligations with the same
maturity, coupon and rating may have different yields while Municipal
Obligations of the same maturity and coupon with different ratings may have the
same yield.
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<PAGE>
APPENDIX B
ADDITIONAL INFORMATION CONCERNING
CALIFORNIA MUNICIPAL OBLIGATIONS
The information set forth below is a general summary intended to give a
recent historical description. It is not a discussion of any specific factors
that may affect any particular issuer of California Municipal Obligations. The
information is not intended to indicate continuing or future trends in the
condition, financial or otherwise, of California. Such information is derived
from official statements utilized in connection with securities offerings of the
State of California that have come to the attention of the Trust and were
available prior to the date of this Statement of Additional Information. Such
information has not been independently verified by the Fund.
Because the Fund expects to invest substantially all of their assets in
California Municipal Obligations, it will be susceptible to a number of complex
factors affecting the issuers of California Municipal Obligations, including
national and local political, economic, social, environmental and regulatory
policies and conditions. The Fund cannot predict whether or to what extent such
factors or other factors may affect the issuers of California Municipal
Obligations, the market value or marketability of such securities or the ability
of the respective issuers of such securities acquired by the Fund to pay
interest on, or principal of, such securities. The creditworthiness of
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and there is
no responsibility on the part of the State of California to make payments on
such local obligations. There may be specific factors that are applicable in
connection with investment in the obligations of particular issuers located
within California, and it is possible the Fund will invest in obligations of
particular issuers as to which such specific factors are applicable.
From mid-1990 to late 1993, California suffered the most severe
recession in the State since the 1930s. Construction, manufacturing (especially
aerospace), exports and financial services, among other industries, were
severely affected. Since 1994, however, California's economy has been performing
strongly. The unemployment rate, while still higher than the national average,
fell to an average of 5.9% in 1998, compared to over 10 percent at the worst of
the recession. The State added nearly 450,000 non-farm jobs in 1998, the largest
employment gain for the State during any year this decade. About half of these
job gains occurred in the services sector. Construction, retail and government
also showed strong gains. The unsettled financial situation occurring in certain
Asian economies and its spillover effects elsewhere have affected the State's
export-related industries and, therefore, may affect the State's future rate of
economic growth.
The recession severely affected State revenues while the State's health
and welfare costs were increasing. Consequently, the State had a lengthy period
of budget imbalance; the State's accumulated budget deficit approached $2.8
billion at its peak at June 30, 1993. The large budget deficits depleted the
State's available cash resources and it had to use a
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series of external borrowings to meet its cash needs. With the end of the
recession, the State's financial condition improved in the 1995-96 through
1998-99 fiscal years, with a combination of better than expected revenues,
slowdown in growth of social welfare programs, and continued spending restraint.
The accumulated budget deficit from the recession years was eliminated. No
deficit borrowing has occurred at the end of the last four fiscal years and the
State's cash flow borrowing was limited to $1.7 billion in 1998-99.
The Governor signed the 1999-00 Budget Act on June 29, 1999. The
1999-00 Budget Act is based on projected General Fund revenues and transfers of
$62.9 billion. The Budget Act provides authority for expenditures of $63.7
billion from the General Fund, $16.0 billion from Special Funds, and $1.5
billion from bond funds. Spending in the budget focuses on education, public
works projects, natural resources protection, and public safety. The budget also
provides greater revenues for local governments and tax cuts. The Budget Act
projects a budget reserve (SFEU) at June 30, 2000 of $881 million.
In October 1997 the Governor issued Executive Order W-163-97 stating
that Year 2000 solutions would be a State priority and requiring each agency of
the State, no later than December 31, 1998, to address Year 2000 problems in
their essential systems and protect those systems from corruption by
non-compliant systems, in accordance with the Department of Information
Technology's California 2000 Program. The State reports that, although
substantial progress has been made toward the goal of Y2K compliance, the task
is still very large and will likely encounter unexpected difficulties. The State
cannot predict whether all mission critical systems will be ready and tested by
late 1999 or what impact the failure of any particular information technology
systems or of outside interfaces with technology information systems might have.
The State Treasurer's Office reports that as of December 31, 1998, its systems
for bond payments were fully Y2K compliant. There can be no assurance that steps
being taken by state or local government agencies with respect to the Year 2000
problem will be sufficient to avoid any adverse impact upon the budgets or
operations upon the California Trust.
After the State's budget and cash situation deteriorated as a result of
the recession, all three major nationally recognized statistical rating
organizations lowered their ratings for the State's general obligation bonds.
However, in 1996, citing California's improving economy and budget situation,
both Fitch and S&P raised their ratings from A to A+. In October 1997, Fitch
raised its rating from A+ to AA- referring to California's fundamental
strengths, the extent of economic recovery and the return of financial
stability. In October 1998, Moody's raised its rating from Al to Aa3 citing the
State's continuing economic recovery and a number of actions taken to improve
the State's credit condition, including the rebuilding of cash and budget
reserves. In August 1999, S&P raised its rating from A+ to AA- citing the
State's strong economic performance and its return to structural fiscal balance.
It is not presently possible to determine whether, or the extent to which,
Moody',s, S&P or Fitch will change such ratings in the future. It should be
noted that the creditworthiness of obligations issued by local California
issuers may be unrelated to the creditworthiness of obligations issued by the
State, and there is no obligation on the part of the State to make payment on
such local obligations in the event of default.
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Constitutional and Statutory Limitations. Article XIII A of the
California Constitution (which resulted from the voter approved Proposition 13
in 1978) limits the taxing powers of California public agencies. With certain
exceptions, the maximum ad valorem tax on real property cannot exceed one
percent of the "full cash value" of the property; Article XIII A also
effectively prohibits the levying of any other ad valorem property tax for
general purposes. One exception to Article XIII A permits an increase in ad
valorem taxes on real property in excess of one percent for certain bonded
indebtedness approved by two-thirds of the voters voting on the proposed
indebtedness. The "full cash value" of property may be adjusted annually to
reflect increases (not to exceed two percent) or decreases, in the consumer
price index or comparable local data, or to reflect reductions in property value
caused by substantial damage, destruction or other factors, or when there is a
"change in ownership" or "new construction".
Constitutional challenges to Article XIII A to date have been
unsuccessful. In 1992, the United States Supreme Court ruled that
notwithstanding the disparate property tax burdens that Proposition 13 might
place on otherwise comparable properties, those provisions of Proposition 13 do
not violate the Equal Protection Clause of the United States Constitution.
In response to the significant reduction in local property tax revenue
caused by the passage of Proposition 13, the State enacted legislation to
provide local governments with increased expenditures from the General Fund.
This fiscal relief has ended, however.
Article XIII B of the California Constitution generally limits the
amount of appropriations of the State and of local governments to the amount of
appropriations of the entity for such prior year, adjusted for changes in the
cost of living, population and the services that the government entity has
financial responsibility for providing. To the extent the "proceeds of taxes" of
the State and/or local government exceed its appropriations limit, the excess
revenues must be rebated. Certain expenditures, including debt service on
certain bonds and appropriations for qualified capital outlay projects, are not
included in the appropriations limit.
In 1986, California voters approved an initiative statute known as
Proposition 62. This initiative further restricts the ability of local
governments to raise taxes and allocate approved tax receipts. While some
decisions of the California Courts of Appeal have held that portions of
Proposition 62 are unconstitutional, the California Supreme Court recently
upheld Proposition 62's requirement that special taxes be approved by a
two-thirds vote of the voters voting in an election on the issue. This recent
decision may invalidate other taxes that have been imposed by local governments
in California and make it more difficult for local governments to raise taxes.
In 1988 and 1990, California voters approved initiatives known as
Proposition 98 and Proposition 111, respectively. These initiatives changed the
State's appropriations limit under Article XIII B to (i) require that the State
set aside a prudent reserve fund for public education, and (ii) guarantee a
minimum level of State funding for public elementary and secondary schools and
community colleges.
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In November 1996, California voters approved Proposition 218. The
initiative applied the provisions of Proposition 62 to all entities, including
charter cities. It requires that all taxes for general purposes obtain a simple
majority popular vote and that taxes for special purposes obtain a two-thirds
majority vote. Prior to the effectiveness of Proposition 218, charter cities
could levy certain taxes such as transient occupancy taxes and utility user's
taxes without a popular vote. Proposition 218 will also limit the authority of
local governments to impose property-related assessments, fees and charges,
requiring that such assessments be limited to the special benefit conferred and
prohibiting their use for general governmental services. Proposition 218 also
allows voters to use their initiative power to reduce or repeal
previously-authorized taxes, assessments, fees and charges.
The effect of constitutional and statutory changes and of budget
developments on the ability of California issuers to pay interest and principal
on their obligations remains unclear, and may depend on whether a particular
bond is a general obligation or limited obligation bond (limited obligation
bonds being generally less affected). There is no assurance that any California
issuer will make full or timely payments of principal or interest or remain
solvent. For example, in December 1994, Orange County filed for bankruptcy.
Certain tax-exempt securities in which a Fund may invest may be
obligations payable solely from the revenues of specific institutions, or may be
secured by specific properties, which are subject to provisions of California
law that could adversely affect the holders of such obligations. For example,
the revenues of California health care institutions may be subject to state
laws, and California law limits the remedies of a creditor secured by a mortgage
or deed of trust on real property.
In addition, it is impossible to predict the time, magnitude, or
location of a major earthquake or its effect on the California economy. In
January 1994, a major earthquake struck the Los Angeles area, causing
significant damage in a four-county area. The possibility exists that another
such earthquake could create a major dislocation of the California economy.
The Fund's concentration in California Municipal Obligations provides a
greater level of risk than a fund that is diversified across numerous states and
municipal entities.
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PART C
ITEM 23. EXHIBITS
<TABLE>
<S> <C>
(a)(1) Amended and Restated Declaration of Trust, with establishments
and designations of series and further amendments. (1)
(a)(2) Establishment and designation of series for Republic Taxable
Fund, Republic Overseas Equity Fund and Republic Opportunity
Fund. (7)
(a)(3) Establishment and designation of series for Republic Money Market
Fund (16)
(a)(4) Establishment and designation of series for HSBC Mid-Cap Fund. (16)
(a)(5) Establishment and designation of series for HSBC Investor Limited
Maturity Bond Fund and HSBC Investor California Tax-free Money
Market Fund (to be filed by amendment).
(b) By-Laws. (1)
(c) Specimen certificate of shares of beneficial interest of Republic
Funds. (1)
(d)(1) Master Investment Advisory Contract, with supplements regarding
Republic New York Tax-Free Fund, Republic New York Tax-Free Money
Market Fund and Republic Equity Fund. (1)
(d)(2) Amended and Restated Second Master Investment Advisory Contract,
with supplement regarding Republic U.S. Government Money Market
Fund. (1)
(d)(3) Amended and restated Second Master Investment Advisory Contract,
with supplement regarding Republic Money Market Fund. HSBC Mid-Cap
Fund and HSBC Investor California Tax-Free Money Market Fund (to
be filed by amendment).
(d)(4) Subadvisory Agreement between Alliance Capital Management L.P.
and Republic National Bank of New York regarding Republic Equity
Fund. (9)
(d)(5) Subadvisory Agreement between Brinson Partners, Inc. and Republic
National Bank of New York regarding Republic Equity Fund. (9)
(d)(6) Subadvisory Agreement between Miller Anderson & Sherrard and Republic
National Bank of New York regarding Republic Bond Fund (to be
filed by amendment).
(d)(7) Subadvisory Agreement between Capital Guardian Trust Company and
Republic National Bank of New York regarding Republic Overseas
Equity Fund (to be filed by amendment).
(d)(8) Subadvisory Agreement between MFS Institutional Advisers and Republic
National Bank of New York regarding Republic Opportunity Fund
(to be filed by amendment).
(e) Amended and Restated Distribution Agreement regarding Republic U.S.
Government Money Market Fund, Republic New York Tax Free Money
Market Fund, Republic New York Tax Free Fund, Republic Equity Fund,
Republic Taxable Fund, Republic Overseas Equity Fund, Republic
Opportunity Fund, Republic Money Market Fund, HSBC Mid-Cap Fund
and HSBC Investor, California Tax-Free Money Market Fund
(to be filed by amendment).
(f) Not applicable.
(g)(1) Form of Custodian Agreement - Republic. (13)
</TABLE>
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<TABLE>
<S> <C>
(h)(1) Form of Service Agreement. (1)
(h)(2) Administrative Agreement regarding Republic U.S. Government Money
Market Fund, Republic New York Tax-Free Money Market Fund,
Republic New York Tax-Free Fund, Republic Equity Fund, Republic
Fund, Republic Overseas Equity Fund and Republic Opportunity
Fund. (9)
(h)(3) Amended and Restated Administrative Services Plan. (6)
(h)(4) Administration Agreement between Republic Funds and BISYS. (13)
(h)(5) Fund Accounting Agreement--BISYS. (13)
(h)(6) Form of Transfer Agency and Service Agreement - BISYS. (13)
(i)(1) Opinion and Consent of Counsel. (to be filed by amendment)
(j) Consent of Independent Auditors. (15)
(k) Not applicable.
(1)(1) Initial Investor Representation letter regarding Republic
International Equity Fund and Republic Fixed Income Fund. (3)
(1)(2) Initial Investor Representation letter regarding Republic Equity
Fund. (2)
(m) Amended and Restated Master Distribution Plan, with supplements
regarding Republic U.S. Government Money Market Fund, Republic
New York Tax-Free Money Market Fund, Republic New York Tax-Free
Fund, Republic Equity Fund, Republic Fund, Republic Money Market
Fund, HSBC Mid-Cap Fund and HSBC Investor California Tax-Free
Money Market Fund, Republic Overseas Equity Fund, Republic
Opportunity Fund. (to be filed by amendment).
(n) Multiple Class Plan. (5)
(p)(1) Code of Ethics for Republic Funds, Republic Advisor Funds Trust,
and Republic Portfolios. (16)
(p)(2) Code of Ethics for HSBC Asset Management (Americas), Inc. (16)
(p)(3) Code of Ethics for Miller Anderson & Sherrard (to be filed by
amendment).
(p)(4) Code of Ethics for Alliance Capital Management L.P. (16)
(p)(5) Code of Ethics for Brinson Partners, Inc. (16)
(p)(6) Code of Ethics for Capital Guardian Trust Company (to be filed by
amendment).
</TABLE>
51
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<TABLE>
<S> <C>
(p)(7) Code of Ethics for MFS Institutional Advisers, Inc. (16)
(p)(8) Code of Ethics for BISYS. (15)
(o)(1) Powers of Attorney of Trustees and Officers of Registrant and
Republic Portfolios. (8)
(o)(2) Power of Attorney for Nadeem Yousaf. (16)
(o)(3) Power of Attorney for Walter B. Grimm. (16)
(o)(4) Power of Attorney for Leslie E. Bains. (16)
---------------
(1) Incorporated herein by reference from post-effective amendment
No. 35 to the registration statement on Form N-1A of the
Registrant (File no. 33-7647) (the "Registration Statement") as
filed with the Securities and Exchange Commission (the "SEC") on
January 23, 1996.
(2) Incorporated herein by reference from post-effective amendment
No. 33 to the Registration Statement as filed with the SEC on
June 27, 1995.
(3) Incorporated herein by reference from post-effective amendment
No. 29 to the Registration Statement as filed with the SEC on
December 20, 1994.
(4) Incorporated herein by reference from post-effective amendment
No. 36 to the Registration Statement as filed with the SEC on
March 1, 1996.
(5) Incorporated herein by reference from post-effective amendment
No. 37 to the Registration Statement as filed with the SEC on
April 4, 1996.
(6) Incorporated herein by reference from post-effective amendment
No. 39 to the Registration Statement as filed with the SEC on
June 17, 1996.
(7) Incorporated herein by reference from post-effective amendment
No. 40 to the Registration Statement as filed with the SEC on
November 27, 1996.
(8) Incorporated herein by reference from post-effective amendment
No. 42 to the Registration Statement filed with the SEC on
January 31, 1997.
(9) Incorporated herein by reference from post-effective amendment
No. 46 to the Registration Statement as filed with the SEC on
February 28, 1997.
(10) Incorporated herein by reference from post-effective amendment
No. 50 to the Registration Statement as filed with the SEC on
January 2, 1998.
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
(11) Incorporated herein by reference from post-effective amendment
No. 52 to the Registration Statement as filed with the SEC on
March 12, 1998.
(12) Incorporated herein by reference from post-effective amendment
No. 54 to the Registration Statement as filed with the SEC on
August 24, 1998.
(13) Incorporated herein by reference from post-effective amendment
No. 63 to the Registration Statement as filed with the SEC on
March 1, 1999.
(14) Incorporated herein by reference from post-effective amendment
No. 65 to the Registration Statement as filed with the SEC on
March 25, 1999.
(15) Incorporated herein by reference from post-effective amendment
No. 67 to the Registration Statement filed with the SEC on
February 29, 2000.
(16) Incorporated herein by reference from post-effective amendment
No. 69 to the Registration Statement filed with the SEC on June
30, 2000.
</TABLE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Reference is hereby made to Article IV of the Registrant's Declaration
of Trust. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees or officers of the
Registrant by the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Investment Company Act of 1940 and, therefore, is unenforceable.
If a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees or officers
of the Registrant in connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees or officers in connection with the
shares being registered, the Registrant will, unless in the opinion of its
Counsel, the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issues.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISERS
HSBC Bank USA ("HSBC Bank") acts as investment adviser to HSBC Investor
Funds and HSBC Advisor Funds Trust, and is a subsidiary of HSBC USA, Inc. ("HSBC
USA"), 452 Fifth Avenue. New York, New York 10018, a registered bank holding
company.
HSBC Asset Management (Americas) Inc. (HSBC Asset) also serves as an
investment adviser to HSBC Investor Funds and HSBC Advisor Funds Trust. HSBC's
and HSBC Asset's directors and principal executive officers, and their business
and other connections for at least the past two
53
<PAGE>
years, are as follows (unless otherwise noted, the address of all directors and
officers is 452 Fifth Avenue. New York, New York 10018):
NAME -- BUSINESS AND OTHER CONNECTIONS
Directors - HSBC Bank USA
Mr. Sal H. Alfiero
Chairman of the Board
Mark IV Industries, Inc.
501 John James Audubon Parkway
Amherst, New York 14228
Mr. John R.H.
Bond Chairman
HSBC Holdings plc
10 Lower Thames Street - Floor 10
London EC3R 6AE U.K.
Mr. James H. Cleave
9108 Chickadee Way
Blaine, Washington 98230
Dr. Frances D. Fergusson
President
Vassar College
Office of the President
Box 43
Poughkeepsie, New York 12604-0043
Mr. Douglas J. Flint
Group Finance
Director
HSBC Holdings plc
10 Lower Thames Street - Floor 10
London EC3R 6AE U.K.
Mr. Martin J.G. Glynn
President and Chief Executive Officer
HSBC Bank Canada
885 West Georgia Street - Suite 300
Vancouver, BC V6C 3E9
Canada
54
<PAGE>
Mr. Stephen K. Green
Executive Director
Investment Banking and Markets
HSBC Holdings plc
Thames Exchange
10 Queen Street Place
London EC4R 1BL U.K.
Ambassador Ulric Haynes, Jr.
Executive Dean for International Relations
Office of Admissions
Bernon Hall
Hofstra University
Hempstead, New York 11550
Mr. Richard A. Jalkut
President & Chief Executive Officer
PathNet
1015 31st Street, N.W.
Washington, D.C. 20007
Mr. Bernard J. Kennedy
Chairman of the Board
Chief Executive Officer
National Fuel Gas Company
10 Lafayette Square - Floor 18
Buffalo, New York 14203
Mr. Peter Kimmelman
President
Peter Kimmelman Asset Management Co.
800 Third Avenue -- Suite 3103
New York, New York 10022
Mr. Charles G. Meyer, Jr. President
Cord Meyer Development Company
111-15 Queens Boulevard
Forest Hills, New York 11375
Mr. James L. Morice
30 E. 37th Street -- Apt. 4G
New York, New York 10016
55
<PAGE>
Mr. Youssef A. Nasr
President & Chief Executive Officer
HSBC Bank USA
452 Fifth Avenue -- Floor 10
New York, New York 10018
Mr. Jonathan Newcomb
Chairman and Chief Executive Officer
Simon & Schuster, Inc.
1230 Avenue of the Americas -- Floor 17
New York, New York 10020
Mr. Henry J. Nowak
2312 Cypress Bend Road South
Apt. C-106
Pompano Beach, FL 33069
Senior Officers - HSBC Bank USA:
Youssef A. Nasr
President and Chief Executive Officer
Leslie Bains
Senior Executive Vice President
Robert M. Butcher
Senior Executive Vice President
A.A. Flockhart
Senior Executive Vice President
Paul L. Lee
Senior Executive Vice President
Vincent J. Mancuso
Senior Executive Vice President
Robert H. Muth
Senior Executive Vice President
Vito S. Portera
Senior Executive Vice President
Elias Saal
Senior Executive Vice President
56
<PAGE>
lain A. Stewart
Senior Executive Vice President
Philip S. Toohey
Senior Executive Vice President
George T. Wendler
Senior Executive Vice President
ITEM 27. PRINCIPAL UNDERWRITER
(a) BISYS Fund Services (the "Sponsor") and its affiliates serve as
distributor and administrator for other registered investment
companies.
(b) The information required by this Item 29 with respect to each
director or officer of BISYS is hereby incorporated herein by reference
from Form BD as filed by the Sponsor pursuant to the Securities
Exchange Act of 1934 (File No. 8-32480).
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The account books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of: HSBC Asset Management
(Americas), 452 Fifth Avenue, New York, New York 10018; BISYS Fund
Services, 3435 Stelzer Road, Columbus, Ohio 43219-3035; Investors Bank &
Trust Company, N.A., 89 South Street, Boston, Massachusetts 02110; and Miller
Anderson & Sherrard, One Tower Bridge, West Conshohocken, Pennsylvania, 19428;
Alliance Capital Management L.P., 1345 Avenue of the Americas, New York,
New York, 10105; Brinson Partners, Inc., 209 South LaSalle Street,
Chicago, IL 60604; Capital Guardian Trust Company, 333 South Hope Street,
Los Angeles, California; and MFS Institutional Advisers, 500 Boylston Street,
Boston, MA 02116.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
None.
57
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940. HSBC Investor Funds has duly caused this
registration statement on Form N-lA (File No. 33-7647) (the "Registration
Statement") to be signed on its behalf by the undersigned, thereto duly
authorized on the 1st day of August, 2000.
HSBC INVESTOR FUNDS
Walter B. Grimm**
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on August 1, 2000.
Walter B. Grimm**
-----------------------
Walter B. Grimm
President
Nadeem Yousaf**
-----------------------
Treasurer
Alan S. Parsow*
-----------------------
Alan S. Parsow
Trustee
Larry M. Robbins*
-----------------------
Larry M. Robbins
Trustee
Michael Seely*
-----------------------
Michael Seely
Trustee
Frederick C. Chen*
------------------------
Frederick C. Chen
Trustee
Leslie E. Bains*
------------------------
Leslie E. Bains
Trustee
/s/ David J. Harris
------------------------
* David J. Harris, as attorney-in-fact pursuant to a power of attorney filed as
Exhibit 19 to post-effective amendment No. 40.
/s/ Jill Miller
-----------------------
** Jill Mizer, as attorney-in-fact pursuant to powers of attorney filed as
Exhibit [ ] to post-effective amendment No. [ ].
58
