<PAGE>
Registration Nos. 33-7647
811-4782
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 28, 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. 74 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 75 [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:
___X___ 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
_______ 75 days after filing pursuant to paragraph (a)
<PAGE>
HSBC INVESTOR BALANCED FUND
Prospectus dated December 28, 2000
a Series of
HSBC INVESTOR FUNDS
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C>
HSBC INVESTOR TABLE OF CONTENTS
BALANCED FUND
Carefully review this important RISK/RETURN SUMMARY AND FUND EXPENSES
section, which summarizes the
Fund's investments, risks, and
fees.
Review this section for INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
information on investment
strategies and risks.
Review this section for details on FUND MANAGEMENT
the people and organizations who The Investment Adviser
provide services to the Fund. Portfolio Manager
The Distributor and Administrator
Review this section for details on SHAREHOLDER INFORMATION
how shares are valued, and how Pricing of Fund Shares
to purchase, sell and exchange Purchasing and Adding to Your Shares
shares. This section also Selling Your Shares
describes related charges, and Distribution Arrangements/Sales Charges
payments of dividends and Exchanging Your Shares
distributions. Dividends, Distributions and Taxes
</TABLE>
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RISK/RETURN SUMMARY AND FUND EXPENSES
The following is a summary of certain key information about the HSBC Investor
Balanced Fund (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.
HSBC INVESTOR BALANCED FUND
INVESTMENT OBJECTIVE The Fund's investment objective is current
income and long-term growth of capital
consistent with reasonable risk.
PRINCIPAL The Fund normally invests approximately
INVESTMENT STRATEGIES 60% of assets in stocks and other equity
securities (e.g., common stock, preferred
stock and convertible securities) and
approximately 40% in bonds and other debt
securities that are rated at least Baa by
Moody's Investor Services ("Moody's") or
BBB by Standard & Poors Corporation
("S&P") or securities of comparable
quality. While the allocation between
equity and debt securities may vary, the
Fund will always invest at least 25% of
its total assets in debt securities.
The equity securities in which the Fund
ordinarily will invest include common
stocks, preferred stocks and convertible
securities of large companies. For this
Fund, a company having a market
capitalization of $2 billion or more is
considered a large company.
HSBC Asset Management (Americas), Inc.
(the "Adviser") selects equity securities
for the Fund that have attractive
valuations or the potential for future
earnings growth. In selecting equity
securities, the Adviser uses quantitative
research (e.g., analyzing analyst reports,
sales growth, earnings acceleration, debt
levels, and market capitalization) and
fundamental research (e.g., analyzing
factors such as whether a company is a
leader in its market, the sector outlook,
and the quality of the management) to
identify stocks meetings its criteria.
Fixed income securities in which the Fund
may invest include U.S. Government and
agency securities, corporate bonds,
asset-backed securities (including
mortgage-backed securities), obligations
of savings and loans and U.S. and
foreign banks, commercial paper and
related repurchase agreements. The
Adviser selects fixed income securities
based on various factors, including
the credit quality of the issuer, the
outlook for the economy and anticipated
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changes in interest rates and inflation.
RISK/RETURN SUMMARY AND FUND EXPENSES
PRINCIPAL INVESTMENT RISKS Market Risk: Risk that the value of a
Fund's investments will fluctuate as the
stock market fluctuates and that stock
prices overall may decline over short or
longer-term periods.
Security-Specific Risk: Risk that the
issuer will be unable to achieve its
earnings or growth expectations.
Interest Rate Risk: Risk that changes in
interest rates will affect the value of
a Fund's investments in income-producing
or fixed-income or debt securities. Fixed
income securities with longer maturities
can be more sensitive to interest rate
changes. Increases in interest rates may
cause the value of the Fund's investments
to decline, while a fall in interest rates
may cause the value of the Fund's
investments to increase.
Credit Risk: Risk that the issuer of a
debt security will be unable or unwilling
to make timely payments of interest or
principal, or to otherwise honor its
obligations.
Prepayment Risk: With respect to
mortgage-backed securities, the risk that
the principal amount of the underlying
mortgages will be repaid prior to the
bond's maturity date. When such repayment
occurs, no additional interest will be
paid on the investment.
Other important things for you to note:
You may lose money by
investing in the Fund.
Because the value of the
Fund's investments will
fluctuate with market
conditions, so will the
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value of your investment in
the Fund.
AN INVESTMENT IN THE FUND IS
NOT A DEPOSIT OF HSBC BANK USA
("HSBC") AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT
AGENCY.
RISK/RETURN SUMMARY AND FUND EXPENSES
WHO MAY WANT TO INVEST? Consider investing in the Fund if you are:
seeking a long-term goal such
as retirement
looking to add income and
growth components to your
portfolio
willing to accept higher risks
of investing in the stock
market
This Fund will not be appropriate for
anyone:
seeking monthly income
pursuing a short-term goal or
investing emergency reserves
seeking safety of principal
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.
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PERFORMANCE BAR CHART AND TABLE
Performance bar chart and table for the Fund are not shown because the Fund does
not have performance information for the full calendar year.
5
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RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
As an investor in the Fund, you will pay the following fees and expenses.
Shareholder transactions fees are paid from your account. Annual operating
expenses are paid out of Fund assets, and are reflected in the share price.
Some share classes impose a back end sales charge (load) if you sell your shares
before a certain period of time has elapsed. This is called a Contingent
Deferred Sales Charge ("CDSC").
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES C SHARES Y SHARES
(FEES PAID BY YOU DIRECTLY)
Maximum sales charge (load) on purchases 5.00% None None None
Maximum deferred sales charge (load) None 4.00% 1.00% None
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS)
A SHARES B SHARES C SHARES Y SHARES
Management fee 0.55% 0.55% 0.55% 0.55%
Distribution (12b-1) fee 0.00%* 0.75% 0.75% None
Shareholder servicing fee 0.25% 0.25% 0.25% None
Other operating expenses 0.31% 0.31% 0.31% 0.31%
Total other expenses: 0.56% 0.56% 0.56% 0.31%
Total Fund operating expenses 1.11% 1.86% 1.86% 0.86%
</TABLE>
*There is a 12b-1 plan for Class A shares, which authorizes payments up to 0.25%
of the Fund's assets. To date, no payments under the 12b-1 plan have been made.
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RISK/RETURN SUMMARY AND FUND EXPENSES
EXPENSE 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.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumed that your investment has a 5% return each year the Fund's
operating expenses remain the same and the reinvestment of any dividends and
distributions. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<S> <C> <C>
1 3
YEAR YEAR
Class A Shares $608 $835
Class B Shares
Assuming redemption $589 $785
Assuming no redemption $189 $585
Class C Shares
Assuming redemption $289 $585
Assuming no redemption $189 $585
Class Y Shares $ 88 $274
</TABLE>
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INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
This section of the Prospectus provides a more complete description of the
principal investment objective and policies of the Fund. Of course, there can be
no assurance that the Fund will achieve its investment objective. Additional
descriptions of the Fund's risks, strategies, and investments, as well as other
strategies and investments not described below, may be found in the Fund's
Statement of Additional Information ("SAI").
INVESTMENT OBJECTIVE, POLICIES AND STRATEGY
The Fund's investment objective is current income and long-term growth of
capital consistent with reasonable risk. The Fund seeks to achieve its
investment objective by investing approximately 60% of the fund's assets in
stocks and other equity securities and approximately 40% in bonds and other debt
securities rated at least Baa by Moody's or BBB by S&P or of comparable quality.
The Fund may vary this target allocation between equity and income securities if
stocks or bonds offer more favorable opportunities, but will always invest at
least 25% of the Fund's total assets in fixed income securities.
The Fund will ordinarily invest in common stocks, preferred stocks and
convertible securities of large companies. For this purpose, a company having a
market capitalization of $2 billion or more is considered a large company. The
Fund also may invest to a limited extent in companies that have a smaller market
capitalization, and may invest in foreign securities. The Adviser selects equity
securities for the Fund that have attractive valuations or the potential for
future earnings growth. In selecting equity securities, the Adviser uses
quantitative research (e.g., analyzing analyst reports, sales growth, earnings
acceleration, debt levels, and market capitalization) and fundamental research
(e.g., analyzing factors such as whether a company is a leader in its market,
the sector outlook, and the quality of the management) to identify stocks
meetings its criteria. The Fund's criteria for selecting equity securities
include the issuer's managerial strength, competitive position, price to
earnings ratio, profitability, prospects for growth, underlying asset value
and relative market value. The Fund may invest in securities that appear to be
undervalued because the value or potential for growth has been overlooked by
many investors or because recent changes in the economy, industry or the
company have not yet been reflected in the price of the securities.
The Fund's fixed income securities may include U.S. Government and agency
securities, corporate bonds, asset-backed securities (including mortgage-backed
securities), obligations of savings and loans and U.S. and foreign banks,
commercial paper and related repurchase agreements. The Fund expects to maintain
an average quality rating of the fixed income portion of its portfolio of Aa by
Moody's or AA by S&P or equivalent quality. The Fund currently has no policy
with respect to the average maturity of the fixed income portion of the Fund's
portfolio. The Fund bases its selection of fixed income securities upon analysis
of various factors, including the credit quality of the issuer, the outlook for
the economy and anticipated changes in interest rates and inflation. If a
security held by the Fund has its rating reduced below the Fund's quality
standards or revoked, the Fund may continue to hold the security. The Adviser
will, however, consider whether the Fund should continue to hold the security.
These securities may be subject to greater credit risk and have greater
price volatility than securities in the higher rating categories.
In response to market, economic, political, or other conditions, the Adviser may
temporarily use
8
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a different investment strategy for defensive purposes. If the Adviser does so,
different factors could affect the fund's performance and the fund may not
achieve its investment objective.
9
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INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
RISKS AND OTHER CONSIDERATIONS
Many factors will affect the Fund's performance. The Fund's share price changes
daily based on changes in market conditions and interest rates and in response
to other economic, political, or financial developments. The Fund's reaction to
these developments will be affected by the types and maturities of securities in
which the Fund invests, the financial condition, industry and economic sector,
and geographic location of an issuer, and the Fund's level of investment in the
securities of that issuer. When you sell your shares of the Fund, they could be
worth more or less than what you paid for them.
The following factors among others may affect the Fund's performance:
Market Risk. The value of equity securities fluctuates in response to issuer,
political, market, and economic developments. In the short term, equity prices
can fluctuate dramatically in response to these developments. Different parts of
the market and different types of equity securities can react differently to
these developments. For example, large cap stocks can react differently from
small cap or mid-cap stocks, and "growth" stocks can react differently from
"value" stocks. Issuer, political, or economic developments can affect a single
issuer, issuers within an industry or economic sector or geographic region, or
the market as a whole.
Interest Rate Risk. Debt securities have varying levels of sensitivity to
changes in interest rates. In general, the price of a debt security can fall
when interest rates rise and can rise when interest rates fall. Securities with
longer maturities and mortgage securities can be more sensitive to interest rate
changes.
Credit Risk. Risk that the issuer of a debt security will be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations.
Prepayment Risk. Many types of debt securities, including mortgage securities,
are subject to prepayment risk. Prepayment occurs when the issuer of a security
can repay principal prior to the security's maturity. Securities subject to
prepayment can offer less potential for gains during a declining interest rate
environment and similar or greater potential for loss in a rising interest rate
environment. In addition, the potential impact of prepayment features on the
price of a debt security can be difficult to predict and result in greater
volatility.
Security-Specific Risk. Changes in the financial condition of an issuer, changes
in specific economic or political conditions that affect a particular type of
security or issuer, and changes in general economic or political conditions can
affect the credit quality or value of an issuer's securities. The value of
securities of smaller, less well-known issuers can be more volatile than that of
larger issuers. Lower-quality debt securities (those of less than
investment-grade quality) and certain types of other securities tend to be
particularly sensitive to these changes. Lower-quality debt securities and
certain types of other securities involve greater risk of default or price
changes due to changes in the credit quality of the issuer. The value of
lower-quality debt securities and certain types of other securities often
fluctuates in response to company, political, or economic developments and can
decline significantly over short periods of time or during
10
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periods of general or regional economic difficulty.
Foreign Exposure. Foreign securities, foreign currencies, and securities issued
by U.S. entities with substantial foreign operations can involve additional
risks relating to political, economic, or regulatory conditions in foreign
countries. These risks include fluctuations in foreign currencies; withholding
or other taxes; trading, settlement, custodial, and other operational risks; and
the less stringent investor protection and disclosure standards of some foreign
markets. All of these factors can make foreign investments, especially those in
emerging markets, more volatile and potentially less liquid than U.S.
investments. In addition, foreign markets can perform differently from the U.S.
market.
Portfolio Turnover. The Fund is actively managed and, in some cases the Fund's
portfolio turnover, may exceed 100%. A higher rate of portfolio turnover
increases brokerage and other expenses, which must be borne by the Fund and its
shareholders and may result in a lower net asset value. High portfolio turnover
(over 100%) also may result in the realization of substantial net short-term
capital gains, which when distributed are taxable to shareholders. The trading
costs and tax affects associated with turnover may adversely affect the Fund's
performance.
Temporary Defensive Positions. In order to meet liquidity needs or for temporary
defensive purposes, the Fund may invest up to 100% of its assets in fixed income
securities, money market securities, certificates of deposit, bankers'
acceptances, commercial paper or in equity securities which, in the Adviser's
opinion, are more conservative than the types of securities that the Fund
typically invests in. To the extent the Fund is engaged in temporary or
defensive investments, the Fund will not be pursuing its investment objective.
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FUND MANAGEMENT
THE INVESTMENT ADVISER
HSBC Asset Management (Americas), Inc., 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, which is a wholly owned subsidiary of HSBC USA,
Inc., a registered bank holding company. HSBC currently provides investment
advisory services for individuals, trusts, estates and institutions. HSBC
manages more than $80 billion in assets. 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 will pay the Adviser 0.55% based on the Funds average net
assets.
PORTFOLIO MANAGER
Mr. Fredric Lutcher III, Managing Director, U.S. Equities, is responsible for
the day-to-day management of the equity portion of the Fund. Prior to joining
the Adviser in late 1997, Mr. Lutcher worked as Vice President and Senior Mutual
Fund Portfolio Manager at Merrill Lynch Asset Management for nine years, where
he managed equity portfolios.
Mr. Edward Merkle is responsible for the day-to-day management of the fixed
income portion of the Fund. Mr. Merkle jointed the Adviser in 1984 and is
responsible for managing institutional and retail fixed income portfolios.
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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 Funds and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend disbursing services.
BISYS also serves as the distributor (the "Distributor") of the Fund's shares.
BISYS may provide financial assistance in connection with pre-approved seminars,
conferences and advertising to the extent permitted by applicable state or
self-regulatory agencies, such as the National Association of Securities
Dealers.
The Fund's Statement of Additional Information has more detailed information
about the Adviser, Distributor and Administrator, and other service providers.
CODE OF ETHICS
The Fund, the Adviser and the Distributor have adopted Codes of Ethics under
the Rule 17j-1 of the Investment Company Act of 1940. Personnel subject to
the Codes of Ethics may invest in securities, including securities that may
be purchased or held by the Fund. The Codes of Ethics are on public file
and are available from the Securities Exchange Commission ("SEC").
13
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SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The net asset value per share ("NAV") for each class of shares is calculated by
dividing the total value of a Fund's investments and other assets attributable
to a class, less any liabilities, by the total number of outstanding shares of
that class:
Total Assets - Liabilities
--------------------------
NAV = Number of Shares
Outstanding
The NAV is determined once each day 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. Your order for purchase, sale or exchange
of shares is priced at the next NAV calculated after your order is accepted by
the Fund plus any applicable sales charge. 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. For more information about sales
charges, see the section on "Distribution Arrangements/Sales Charges."
14
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You may purchase shares of the Fund through the Distributor or through banks,
brokers and other investment representatives, which may charge additional fees
and may require higher minimum investments or impose other limitations on buying
and selling shares. If you purchase shares through an investment representative,
that party is responsible for transmitting orders by close of business and may
have an earlier cut-off time for purchase and sale requests. Consult your
investment representative or institution for specific information.
<TABLE>
<CAPTION>
ACCOUNT TYPE MINIMUM MINIMUM
INITIAL SUBSEQUENT
INVESTMENT
<S> <C> <C>
CLASS A, CLASS B, CLASS C
Regular $ 1,000 $ 100
(non-retirement)
Retirement (IRA) $ 250 $ 100
Automatic $ 250 $ 25
Investment Plan
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.
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 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.
15
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
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 appropriate Fund(s) on the check.
3. 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
3. Mail to: HSBC Investor Funds, PO Box 182845, Columbus, Ohio 43218-2845.
16
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, the transaction is made
through the Automated Clearing House ("ACH") and may take up to eight days to
clear. There is generally no fee for ACH transactions.
ELECTRONIC PURCHASES
Your bank must participate in the 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.
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SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES CONTINUED
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 have 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
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 by calling 1-800-782-8183.
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 Class C Shares,
because Class A 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 have
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.
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SHAREHOLDER INFORMATION
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."
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."
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 that will affect your redemption. For all
other sales transactions, follow the instructions below.
BY TELEPHONE
(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.
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SHAREHOLDER INFORMATION
SELLING YOUR SHARES CONTINUED
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 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.
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 have 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.
20
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES CONTINUED
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 any of
the following:
Redemptions over $10,000;
Your account registration or the name(s) on 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; or
The redemption proceeds are being transferred to another Fund account
with a different registration.
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 that must be considered when requesting their guarantee. The
Transfer Agent may reject any signature guarantee if it believes the transaction
would otherwise be improper.
21
<PAGE>
SHAREHOLDER INFORMATION
SELLING YOUR SHARES CONTINUED
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 he 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.
22
<PAGE>
SHAREHOLDER INFORMATION
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.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Class A Class B Class C Class Y
Sales Charge (Load) Front-end sales charge: No front-end No front-end No front-end
reduced sales charges sales charge. A sales sales charge.
available Sales Sales CDSC may be charge. A
Charge As Charge As imposed on shares CDSC may be
A % Of A % Of redeemed within imposed on
Offering Your four years after shares
Price Investment purchase; shares redeemed
----------- ---------- automatically within one
Your Investment 5.00% 5.26% convert to Class year after
Up to $49,999 4.50% 4.71% A shares for 6 purchase.
$50,000 up to $99,999 3.75% 3.90% years
$100,000 up to $249,999 3.75% 2.56%
$250,000 up to $499,999 2.00% 2.04%
$1,000,000 and above 1.00% 1.01% Subject to
combined
Distribution Subject to combined annual annual No
(12b-1) Fee and distribution and shareholder Subject to distribution distribution
Service Fees servicing fees of up to .25% combined annual and or services
annually of the Fund's total distribution shareholder fees.
average total net assets. and shareholder servicing
servicing fees fees of up
of up to 1.00% to 1.00%
annually of the annually of
Fund's average the Fund's
daily net assets. average
daily net
assets.
Fund Expenses Lower annual expenses than Higher annual Higher Lower annual
Class B and Class C Shares expenses than annual expenses
Class A or Class expenses than Class
Y Shares. than Class A A, B, or C
shares, or shares
Class Y
Shares.
</TABLE>
23
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES CONTINUED
CLASS B SHARES AND CLASS C SHARES
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 Trust
portfolio, they may be subject to a contingent deferred sales charge when
redeemed. See "Exchanging Your Shares." 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 and Class
Y Shares.
24
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES CONTINUED
DISTRIBUTION (12b-1) AND SHAREHOLDER SERVICE FEES
The Fund has adopted Distribution ("12b-1") plans for Class A, Class B, and
Class C 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 Funds' 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 0.25% of the average
daily net assets of the Fund.
Class B and Class C Shares pay a 12b-1 fee of up to 0.75% of the
average daily net assets of the 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 and Class Y Shares.
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, Class B and Class C Shares are subject
to a shareholder servicing fee of up to 0.25%. The aggregate of the 12b-1 fees
and shareholder servicing fees will not exceed 0.25% for the Class A Shares, and
1.00% for the Class B and Class C 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.
25
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES CONTINUED
CLASS A SHARES
WAIVER OF SALES CHARGES FOR CLASS A SHARES
The following qualify for waivers of sales charges:
Shares purchased by investment representatives through fee-based
investment products or accounts.
Proceeds from redemptions from another mutual fund complex within 60
days after redemption, if you paid a front-end sales charge for those
shares.
Reinvestment of distributions from a deferred compensation plan,
agency, trust, or custody account that was maintained by the investment
advisers or their affiliates or invested in any of the Funds.
Shares purchased for trust or other advisory accounts established with
the investment advisers or their affiliates.
Shares purchased by directors, trustees, employees, and family members
of the investment advisers and their affiliates and any organization
that provides services to the Funds; retired Fund trustees; dealers who
have an agreement with the Distributor; and any trade organization to
which the investment advisers or the Administrator belongs.
SALES CHARGE REDUCTIONS
Reduced sales charges for Class A shares are available to shareholders with
investments of $50,000 or more. In addition, you may qualify for reduced sales
charges under the following circumstances.
Letter of Intent. You inform the Fund in writing that you intend to
purchase enough shares over a 13-month period to qualify for a reduced
sales charge. You must include a minimum of 5% of the total amount you
intend to purchase with your letter of intent.
Rights of Accumulation. When the value of shares you already own plus
the amount you intend to invest reaches the amount needed to qualify
for reduced sales charges, your added investment will qualify for the
reduced sales charge.
Combination Privilege. You can combine accounts of multiple Funds
(excluding the Money Market Funds) or accounts of immediate family
household members (spouse and children under 21) to achieve reduced
sales charges.
26
<PAGE>
CLASS B SHARES
Class B Shares of the Fund may be purchased for individual accounts only in
amounts of less than $500,000. There is no sales charge imposed upon purchases
of Class B Shares, but investors will be subject to a CDSC if Class B Shares
are redeemed within 4 years. In such cases, the CDSC will be:
<TABLE>
<CAPTION>
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
<S> <C>
0-1 4.00%
1-2 3.00%
2-3 2.00%
3-4 1.00%
more than 4 None
</TABLE>
The CDSC will be based upon the lower of the NAV at the time of purchase or the
NAV at the time of redemption. There is no CDSC on reinvested dividends or
distributions.
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).
27
<PAGE>
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES CONTINUED
CONVERSION FEATURE - CLASS B SHARES
Class B Shares will convert automatically to Class A Shares of the same Fund 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 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 you
receive will equal the dollar value of the Class B shares converted.
CLASS C SHARES
Class C Shares of the Fund may be purchased for individual accounts normally in
amounts of less than $500,000. There is no sales charge imposed upon purchases
of Class C Shares, but investors may be subject to a CDSC. Specifically, if you
redeem Class C Shares of the Fund, 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 on an amount equal to the
lesser of the current market value or the cost of the shares being redeemed.
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.
28
<PAGE>
SHAREHOLDER INFORMATION
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"). Class A Shares of the Fund may be exchanged for Class D Shares
of the HSBC Investor Money Market Funds only if you are otherwise eligible to
receive them. 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, P.O.
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 Funds, due to market timing
strategies, exchange activity may be limited.
29
<PAGE>
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
CONTINUED
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 carefully the Prospectus of any Fund into which you wish to
exchange shares.
30
<PAGE>
SHAREHOLDER INFORMATION
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 a 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 are usually paid semi-annually. Capital gains 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.
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
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.
31
<PAGE>
SHAREHOLDER INFORMATION
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.
32
<PAGE>
For more information about the Fund. the following documents are available free
upon request:
STATEMENT OF ADDITIONAL INFORMATION:
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference and is
legally considered a part of this prospectus.
YOU CAN GET FREE COPIES OF FUNDS OF REPORTS AND THE SAI, PROSPECTUSES OF OTHER
FUNDS IN THE HSBC INVESTOR FAMILY OF FUNDS, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE FUNDS BY CONTACTING A BROKER OR BANK THAT SELLS
THE FUNDS OR CONTACT THE FUNDS AT:
HSBC Investor Funds
PO Box 182845, Columbus, Ohio 43218-2845
Telephone: 1-800-782-8183
You can review and copy the Fund's reports and SAIs at the Public Reference Room
of the Securities and Exchange Commission. You can get text-only copies:
For a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-0102 or by electronic request at
[email protected]. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at
202-942-8090.
Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-4782.
33
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
HSBC INVESTOR BALANCED FUND
P.O. Box 182845
Columbus, Ohio 43218-2845
General and Account Information (800) 782-8183 (Toll Free)
--------------------------------------------------------------------------------
HSBC Asset Management (Americas) Inc. BISYS Fund Services
Investment Adviser Administrator, Distributor and Sponsor
("Adviser") ("BISYS," "Administrator," "Distributor," or
"Sponsor")
The HSBC Balanced Fund (the "Fund") is a series of the HSBC Investor
Funds (the "Trust"), an open-end, management investment company that currently
consists of thirteen series, each of which has different and distinct investment
objectives and policies. The Fund is described in this Statement of Additional
Information.
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 DECEMBER 28, 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.
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated December 28, 2000 of the Trust by
which shares of the Fund are offered. Unless the context otherwise requires,
terms defined in the Prospectus have the same meaning in this Statement of
Additional Information as in the Prospectus.
December 28, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS.......................................1
Short-Term Trading............................................................1
Depository Receipts...........................................................2
Foreign Securities............................................................2
Writing Covered Calls.........................................................3
Stock Index Options...........................................................3
Stock Index Futures Contracts.................................................4
Options on Stock Index Futures................................................5
Option Premiums...............................................................7
U.S. Government Securities....................................................7
Mortgage-Related Securities...................................................7
Asset-Backed Securities.......................................................9
Zero Coupon Securities.......................................................10
Variable and Floating Rate Demand and Master Demand Notes....................10
Loans of Portfolio Securities................................................11
Repurchase Agreements........................................................11
Illiquid Securities..........................................................12
Investment Company Securities................................................13
Long-term and Short-term Corporate Debt Obligations..........................14
Convertible Securities.......................................................14
When-Issued and Delayed-Delivery Securities..................................15
Portfolio Transactions.......................................................15
INVESTMENT RESTRICTIONS...............................................................17
PERFORMANCE INFORMATION...............................................................18
MANAGEMENT OF THE TRUST...............................................................20
Trustees and Officers........................................................20
Compensation Table...........................................................22
Investment Adviser...........................................................22
Distribution Plans - Class A, Class B, and Class C Shares Only...............23
The Distributor and Sponsor..................................................23
Administrative Services Plan.................................................24
Administrator................................................................25
Fees ....................................................................25
Transfer Agent...............................................................26
Custodian and Fund Accounting Agent..........................................26
Shareholder Servicing Agents.................................................26
Federal Banking Law..........................................................27
Expenses.....................................................................27
DETERMINATION OF NET ASSET VALUE......................................................28
PURCHASE OF SHARES....................................................................28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Exchange Privilege...........................................................30
Automatic Investment Plan....................................................31
Purchases Through a Shareholder Servicing Agent or a Securities Broker.......31
SALES CHARGES.........................................................................32
Class A Shares...............................................................32
Sales Charge Waivers.........................................................32
Concurrent Purchases.........................................................33
Letter of Intent.............................................................33
Right of Accumulation........................................................34
Contingent Deferred Sales Charge ("CDSC") - Class B Shares...................34
Level Load Alternative -- Class C Shares.....................................35
REDEMPTION OF SHARES..................................................................36
Systematic Withdrawal Plan...................................................37
Redemption of Shares Purchased Directly Through the Distributor..............37
Retirement Plans.............................................................37
Individual Retirement Accounts...............................................38
Defined Contribution Plans...................................................38
Section 457 Plan, 401(k) Plan, 403(b) Plan...................................38
DIVIDENDS AND DISTRIBUTIONS...........................................................38
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES..................................39
TAXATION..............................................................................40
Tax Status of the Fund.......................................................40
Distributions................................................................41
Dispositions.................................................................42
Backup Withholding...........................................................42
Other Taxation...............................................................42
Fund Investments Market Discount.............................................43
Original Issue Discount......................................................43
CMO Residuals................................................................43
Options Futures and Forward Contracts........................................43
Constructive Sales...........................................................44
Section 988 Gains or Losses..................................................44
Passive Foreign Investment Companies.........................................44
Alternative Minimum Tax......................................................45
OTHER INFORMATION CAPITALIZATION......................................................45
Shares of Beneficial Interest................................................45
Independent Auditors.........................................................46
Counsel......................................................................46
Code of Ethics...............................................................46
Registration Statement.......................................................46
FINANCIAL STATEMENTS..................................................................46
Shareholder Inquiries........................................................47
</TABLE>
ii
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
The investment objective of the Fund is to provide investors with
current income and long-term growth of capital consistent with reasonable risk.
The Fund seeks to achieve its objective by investing, under ordinary
market conditions, approximately 60% of assets in stocks and other equity
securities e.g., common stock, preferred stock and convertible securities
("equity securities") and approximately 40% in bonds and other debt
securities that are rated at least Baa by Moody's Investor Services ("Moody's")
or BBB by Standard & Poors Corporation ("S&P") or securities of comparable
quality. While the allocation between equity and debt securities may vary, the
Fund will always invest at least 25% of its total assets in debt securities.
Equity securities in which the Fund ordinarily will invest include common
stocks, preferred stocks and convertible securities of large companies. For
this Fund, a company having a market capitalization of $2 billion or more is
considered a large company. HSBC Asset Management (Americas), Inc. (the
"Adviser") selects equity securities for the Fund that have attractive
valuations or the potential for future earnings growth. In selecting equity
securities, the Adviser uses quantitative research (e.g. analyzing analyst
reports, sales growth, earnings acceleration, debt levels, and market
capitalization) and fundamental research (e.g., analyzing factors such as
whether a company is a leader in its market, the sector outlook, and the
quality of the management) to identify stocks meeting its criteria. Most of
the Fund's investments will be securities listed on the New York or American
Stock Exchanges or on NASDAQ and may also consist of American Depository
Receipts ("ADRs") and investment company securities (see the discussion below
for further information on these investments. Fixed income securities in which
the Fund may invest include U.S. Government and agency securities, corporate
bonds, asset-backed securities (including mortgage-backed securities),
obligations of savings and loans and U.S. and foreign banks, commercial paper
and related repurchase agreements. The Adviser selects fixed income securities
based on various factors, including the credit quality of the issuer, the
outlook for the economy and anticipated changes in interest rates and
inflation. The Fund's investments in fixed income securities will primarily
consist of securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities, and investment grade debt obligations issued or
guaranteed by domestic corporations or commercial banks. From time to time,
the Fund may also invest up to 5% of its total assets in the debt obligations
of foreign issuers. The types of debt obligations in which the Fund will
invest include, among others, bonds, notes, debentures, commercial paper,
variable and floating rate demand and master demand notes, zero coupon
securities and asset-backed and mortgage-related securities.
In addition, the Fund may, within certain limitations as set forth
below, lend portfolio securities, enter into repurchase agreements, investment
in when-issued and delayed delivery securities and write covered call options.
The Fund may use stock index futures, related options and options on stock
indices for the sole purpose of hedging the portfolio.
The Fund intends to stay invested in the equity securities described
above to the extent practicable in light of its investment objective and
long-term investment perspective. Under ordinary market conditions, therefore,
the Fund's investment in fixed income securities and money market instruments
for purposes of meeting the Fund's investment objective of current income will
be limited to approximately 40% of the Fund's total assets. However, for
temporary defensive purposes, e.g., during periods in which adverse market
changes or other adverse economic conditions warrant as determined by the
Adviser, the Fund may invest up to 100% of its total assets in money market
instruments as described below.
SHORT-TERM TRADING. Although the Fund will not make a practice of
short- term trading, purchases and sales of securities will be made whenever
necessary or desirable in the management's view to achieve the investment
objective of the Fund. Management does not expect that in pursuing the Fund's
investment objective unusual portfolio turnover will be required and intends to
keep turnover to a minimum consistent with such investment objective. The
management believes unsettled market economic conditions during certain periods
require greater portfolio turnover in pursuing the Fund's investment objectives
than would otherwise be
1
<PAGE>
the case. A higher incidence of portfolio turnover will result in greater
transaction costs to the Fund.
DEPOSITORY RECEIPTS. The Fund may invest in ADRs. These securities may
not necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically issued by a United States
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs, which are sometimes referred to as Continental
Depositary Receipts ("CDRs"), are receipts issued in Europe typically by
non-United States banks and trust companies that evidence ownership of either
foreign or domestic securities. GDRs are issued globally and evidence a similar
ownership arrangements. Generally, ADRs in registered form are designed for use
in the United States securities markets and EDRs and CDRs in bearer form are
designed for use in Europe and GDRs are designed for trading in non-U.S.
securities markets. The International Equity Fund may invest in ADRs, EDRs, CDRs
and GDRs through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the underlying security and a
depositary, whereas a depositary may establish an unsponsored facility without
participation by the issuer of the deposited security. Holders of unsponsored
depositary receipts generally bear all the costs of such facilities and the
depositary of an unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the issuer of the deposited
security or to pass through voting rights to holders of such receipts in respect
of the deposited securities. The Fund intends to invest less than 20% of the
Fund's total net assets in ADRs.
There are certain risks associated with investments in unsponsored
depositary programs. Because the non-U.S. company does not actively participate
in the creation of the depositary program, the underlying agreement for service
and payment will be between the depositary and the shareholder. The company
issuing the stock underlying the depositary receipts pays nothing to establish
the unsponsored facility, as fees for depositary receipt issuance and
cancellation are paid by brokers. Investors directly bear the expenses
associated with certificate transfer, custody and dividend payment. In an
unsponsored depositary program, there also may be several depositaries with no
defined legal obligations to the non-U.S. company. The duplicate depositaries
may lead to marketplace confusion because there would be no central source of
information to buyers, sellers and intermediaries. The efficiency of
centralization gained in a sponsored program can greatly reduce the delays in
delivery of dividends and annual reports.
In addition, with respect to all depositary receipts, there is always
the risk of loss due to currency fluctuations.
FOREIGN SECURITIES. Investment in securities of foreign issuers may
subject the Fund to risks of foreign political, economic and legal conditions
and developments that an investor would not encounter investing in equity
securities issued by U.S. domestic companies. Such conditions or developments
might include favorable or unfavorable changes in currency exchange rates,
exchange control regulations (including currency blockage), expropriation of
assets of companies in which the Fund invests, nationalization of such
companies, imposition of withholding taxes on dividend or interest payments, and
possible difficulty in obtaining and enforcing judgments against a foreign
issuer. Also, foreign securities may not be as liquid as, and may be more
volatile than, comparable domestic common stocks. In addition, foreign
securities markets are generally not as developed or efficient as those in the
United States. There is generally less government supervision and regulation of
foreign securities exchanges, brokers
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and companies than in the United States. Furthermore, issuers of foreign
securities are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The Fund, in
connection with its purchases and sales of foreign securities, other than
securities denominated in United States Dollars, is influenced by the returns on
the currencies in which the securities are denominated. Currency risk is the
risk that changes in foreign exchange rates will affect, favorably or
unfavorably, the value of foreign securities held by the Fund. In a period when
the U.S. Dollar generally rises against foreign currencies, the value of foreign
stocks for a U.S. investor will be diminished. By contrast, in a period when the
U.S. Dollar generally declines, the value of foreign securities will be
enhanced. Further, brokerage costs in purchasing and selling securities in
foreign securities markets generally are higher than such costs in comparable
transactions in domestic securities markets, and foreign custodial costs
relating to the Fund's portfolio securities are higher than domestic custodial
costs.
Investment in emerging market countries presents risks in greater
degree than, and in addition to, those presented by investment in foreign
issuers in general. A number of emerging market countries restrict, to varying
degrees, foreign investment in stocks. Repatriation of investment income,
capital, and the proceeds of sales of foreign investors may require governmental
registration and/or approval in some emerging market countries. A number of the
currencies of developing countries have experienced significant declines against
the U.S. dollar in recent years, and devaluation may occur subsequent to
investments in these currencies by the Fund. Inflation and rapid fluctuations in
inflation rates have had and may continue to have a negative effect on the
economies and securities markets of certain emerging market countries.
WRITING COVERED CALLS. The Fund may seek to earn premiums by writing
covered call options against some of the securities in its portfolio provided
the options are listed on a national securities exchange. A call option is
"covered" if the Fund owns the underlying securities covered by the call. The
purchaser of the call option obtains the right to acquire these securities at a
fixed price (which may be less than, the same as, or greater than the current
market price of such securities) during a specified period of time. The Fund, as
the writer of the option, forgoes the opportunity to profit from an increase in
the market price of the underlying security above the exercise price except
insofar as the premium represents such a profit.
The Fund retains the risk of loss should the price of the underlying
security decline below the purchase price of the underlying security minus the
premium. The aggregate value of the securities subject to options written by the
Fund may not exceed 25% of the value of the Fund's net assets.
To the extent permitted below, the Fund may engage in transactions for
the purchase and sale of stock index options, stock index futures contracts and
options on stock index futures.
STOCK INDEX OPTIONS. The Fund may purchase and write put and call
options on stock indexes listed on national securities exchanges for the purpose
of hedging their portfolio. A stock index fluctuates with changes in the market
values of the stocks included in the index. Some stock index options are based
on a broad market index such as the New York Stock Exchange Composite Index, or
a narrower market index such as the Standard & Poor's 100. Indexes are also
based on an industry or market segment such as the American Stock Exchange Oil &
Gas Index or the Computer and Business Equipment Index.
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Options on stock indexes are similar to options on stock, except that
(a) the expiration cycles of stock index options are monthly, while those of
stock options are currently quarterly, and (b) the delivery requirements are
different. Instead of giving the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive a cash "exercise settlement amount" equal to (i) the amount, if any, by
which the fixed exercise price of the option exceeds (in the case of a put) or
is less than (in the case of a call) the closing value of the underlying index
on the date of exercise, multiplied by (ii) a fixed "index multiplier." Receipt
of this cash amount will depend upon the difference between the closing level of
the stock index upon which the option is based and the exercise price of the
option. The amount of cash received will be equal to such difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. The writer may
offset its position in stock index options prior to expiration by entering into
a closing transaction on an exchange or it may let the option expire
unexercised.
STOCK INDEX FUTURES CONTRACTS. The Fund may enter into stock index
futures contracts in order to protect the value of their common stock
investments. A stock index futures contract is an agreement in which one party
agrees to deliver to the other an amount of cash equal to a specific dollar
amount times the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. As the aggregate market value of the stocks in the index
changes, the value of the index also will change. In the event that the index
level rises above the level at which the stock index futures contract was sold,
the seller of the stock index futures contract will realize a loss determined by
the difference between the two index levels at the time of expiration of the
stock index futures contract, and the purchaser will realize a gain in that
amount. In the event the index level falls below the level at which the stock
index futures contract was sold, the seller will recognize a gain determined by
the difference between the two index levels at the expiration of the stock index
futures contract, and the purchaser will realize a loss in that amount. Stock
index futures contracts expire on a fixed date, currently one to seven months
from the date of the contract, and are settled upon expiration of the contract.
The Fund will sell stock index futures only if the amount resulting from the
multiplication of the then current level of the indices upon which such futures
contracts are based, and the number of futures contracts which would be
outstanding, do not exceed one-third of the value of the Fund's net assets.
When a futures contract is executed, each party deposits with a broker
or in a segregated custodial account up to 5% of the contract amount, called the
"initial margin," and during the term of the contract, the amount of the deposit
is adjusted based on the current value of the futures contract by payments of
variation margin to or from the broker or segregated account.
The Fund intends to utilize stock index futures contracts only for the
purpose of attempting to protect the value of its common stock portfolio in the
event of a decline in stock prices and, therefore, usually will be the seller of
stock index futures contracts. This risk management strategy is an alternative
to selling securities in a portfolio and investing in money market instruments.
Also, stock index futures contracts may be purchased to protect the Fund against
an increase in prices of stocks which the Fund intends to purchase. If the Fund
is unable to invest its cash (or cash equivalents) in stock in an orderly
fashion, the Fund could purchase a stock index futures contract which may be
used to offset any increase in the price of the stock. However, it is possible
that the market may decline instead, resulting in a loss on the stock index
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futures contract. If the Fund then concludes not to invest in stock at that
time, or if the price of the securities to be purchased remains constant or
increases, the Fund will realize a loss on the stock index futures contract that
is not offset by a reduction in the price of securities purchases. The Fund also
may buy or sell stock index futures contracts to close out existing futures
positions.
OPTIONS ON STOCK INDEX FUTURES. The Fund may purchase and write call
and put options on stock index futures contracts which are traded on a United
States or foreign exchange or board of trade. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the option period. Upon exercise of the option, the writer of the option is
obligated to convey the appropriate futures position to the holder of the
option. If an option is exercised on the last trading day before the expiration
date of the option, a cash settlement will be made in an amount equal to the
difference between the closing price of the futures contract and the exercise
price of the option.
The Fund may use options on stock index futures contracts solely for
bona fide hedging or other appropriate risk management purposes. If the Fund
purchases a call (put) option on a futures contract, it benefits from any
increase (decrease) in the value of the futures contract, but is subject to the
risk of decrease (increase) in value of the futures contract. The benefits
received are reduced by the amount of the premium and transaction costs paid by
the Fund for the option. If market conditions do not favor the exercise of the
option, the Fund's loss is limited to the amount of such premium and transaction
costs paid by the Fund for the option.
If the Fund writes a call (put) option on a stock index futures
contract, the Fund receives a premium but assumes the risk of a rise (decline)
in value in the underlying futures contract. If the option is not exercised, the
Fund gains the amount of the premium, which may partially offset unfavorable
changes due to interest rate or currency exchange rate fluctuations in the value
of the securities held or to be acquired for the Fund's portfolio. If the option
is exercised, the Fund will incur a loss, which will be reduced by the amount of
the premium it receives. However, depending on the degree of correlation between
changes in the value of its portfolio securities (or the currency in which they
are denominated) and changes in the value of futures positions, the Fund's
losses from writing options on futures may be partially offset by favorable
changes in the value of portfolio securities or in the cost of securities to be
acquired.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option of the same series.
There is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market. The Fund will sell options
on futures and on stock indices only to close out existing hedge positions.
Writing of options involves the risk that there will be no market in
which to effect a closing transaction. An exchange-traded option may be closed
out only on an exchange that provides a secondary market for an option of the
same series. Over-the- counter ("OTC") options are not generally terminable at
the option of the writer and may be closed out only by negotiation with the
holder. There is also no assurance that a liquid secondary market on an exchange
will exist. In addition, because OTC options are issued in privately negotiated
transactions exempt from registration under the Securities Act of 1933, there is
no assurance that the Fund will
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succeed in negotiating a closing out of a particular OTC option at any
particular time. If the Fund, as covered call option writer, is unable to effect
a closing purchase transaction in the secondary market or otherwise, it will not
be able to sell the underlying security until the option expires or it delivers
the underlying security upon exercise.
The staff of the United States Securities and Exchange Commission (the
"SEC") has taken the position that purchased options not traded on registered
domestic securities exchanges and the assets used as cover for written options
not traded on such exchanges are generally illiquid securities. However, the
staff has also opined that, to the extent a mutual fund sells an OTC option to a
primary dealer that it considers creditworthy and contracts with such primary
dealer to establish a formula price at which the fund would have the absolute
right to repurchase the option, the fund would only be required to treat as
illiquid the portion of the assets used to cover such option equal to the
formula price minus the amount by which the option is in- the-money. Pending
resolution of the issue, the Fund will treat such options and, except to the
extent permitted through the procedure described in the preceding sentence,
assets as subject to the Fund's limitation on investments in securities that are
not readily marketable.
The Fund's successful use of stock index futures contracts, options on
such contracts and options on indices depends upon the Adviser's ability to
predict the direction of the market and is subject to various additional risks.
The correlation between movements in the price of the futures contract and the
price of the securities being hedged is imperfect and the risk from imperfect
correlation increases in the case of stock index futures as the composition of
the Fund's portfolio diverges from the composition of the relevant index. Such
imperfect correlation may prevent the Fund from achieving the intended hedge or
may expose the Fund to risk of loss. In addition, if the Fund purchases futures
to hedge against market advances before it can invest in common stock in an
advantageous manner and the market declines, the Fund might create a loss on the
futures contract. Particularly in the case of options on stock index futures and
on stock indices, the Fund's ability to establish and maintain positions will
depend on market liquidity. The successful utilization of hedging and risk
management transactions requires skills different form those needed in the
selection of the Fund's portfolio securities. The Fund believes that the Adviser
possesses the skills necessary for the successful utilization of hedging and
risk management transactions.
Positions in options, futures and options on futures may be closed out
only on an exchange which provides a secondary market for such purposes. There
can be no assurance that a liquid secondary market will exist for any particular
option, futures contract or related option at any specific time. Thus, it may
not be possible to close such an option or futures position which could have an
adverse impact on the Fund's ability to effectively hedge its securities. The
Fund will enter into an option or futures position only if there appears to be a
liquid secondary market for such options or futures.
Pursuant to undertakings with the Commodity Futures Trading Commission
("CFTC"), (i) the Fund has agreed to restrict the use of futures and related
options only for the purpose of hedging, as such term is defined in the CFTC's
rules and regulations; (ii) the Fund will not enter into futures and related
transactions if, immediately thereafter, the sum of the margin deposits on the
Fund's existing futures and related options positions and the premiums paid for
related options would exceed 5% of the market value of such Fund's total assets
after taking into account unrealized profits and unrealized losses on any such
contract; (iii) the Fund will not
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market, and are not marketing, themselves as commodity pools or otherwise as
vehicles for trading in commodity futures and related options; and (iv) the Fund
will segregate assets to cover the futures and options.
OPTION PREMIUMS. In order to comply with certain state securities
regulations, the Fund has agreed to limit maximum premiums paid on put and call
options on other than futures contracts to less than 2% of the Fund's net assets
at any one time.
U.S. GOVERNMENT SECURITIES. The Fund may invest in all types of
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities or instrumentalities, including U.S.
Treasury obligations with varying interest rates, maturities and dates of
issuance, such as U.S. Treasury bills (maturities of one year or less) U.S.
Treasury notes (generally maturities of one to ten years) and U.S. Treasury
bonds (generally maturities of greater than ten years) and obligations issued or
guaranteed by U.S. Government agencies or which are supported by the full faith
and credit pledge of the U.S. Government. In the case of U.S. Government
obligations which are not backed by the full faith and credit pledge of the
United States, the Fund must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States in the event the agency or instrumentality is
unable to meet its commitments. Such securities may also include securities for
which the payment of principal and interest is backed by an irrevocable letter
of credit issued by the U.S. Government, its agencies, authorities or
instrumentalities and participations in loans made to foreign governments or
their agencies that are substantially guaranteed by the U.S. Government (such as
Government Trust Certificates). See "Mortgage-Related Securities" and
"Asset-Backed Securities" below.
MORTGAGE-RELATED SECURITIES. The Fund may, consistent with its
investment objective and policies, invest in mortgage-related securities.
Mortgage-related securities, for purposes of the Fund's Prospectus and
this SAI, represent pools of mortgage loans assembled for sale to investors by
various governmental agencies such as the Government National Mortgage
Association and government-related organizations such as the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation, as well as
by non-governmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers, and private mortgage insurance companies.
Although certain mortgage-related securities are guaranteed by a third party or
otherwise similarly secured, the market value of the security, which may
fluctuate, is not so secured. If the Fund purchases a mortgage-related security
at a premium, that portion may be lost if there is a decline in the market value
of the security whether resulting from changes in interest rates or prepayments
in the underlying mortgage collateral. As with other interest-bearing
securities, the prices of such securities are inversely affected by changes in
interest rates. However, though the value of a mortgage-related security may
decline when interest rates rise, the converse is not necessarily true since in
periods of declining interest rates the mortgages underlying the securities are
prone to prepayment. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
security's return to the Fund. Similarly, because the average life of mortgage
related securities may lengthen with increases in interest rates, the portfolio
weighted average life of the mortgage-related securities in which the Fund
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invests may at times lengthen due to this effect. Under these circumstances, the
Adviser may, but is not required to, sell securities in order to maintain an
appropriate portfolio average life.
Regular payments received in respect of mortgage-related securities
include both interest and principal. No assurance can be given as to the yield
and total return the Fund will receive when these amounts are reinvested.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities,
and among the securities that they issue. Mortgage-related securities created by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes"), which are guaranteed as
to the timely payment of principal and interest and such guarantee is backed by
the full faith and credit of the United States. GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA certificates also are supported by the authority of GNMA to borrow funds
from the U.S. Government to make payments under its guarantee. Mortgage-related
securities issued by the Federal National Mortgage Association ("FNMA") include
FNMA Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA and are not backed by or entitled
to the full faith and credit of the United States. The FNMA is a government-
sponsored organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). The FHLMC is a corporate instrumentality of the United
States, created pursuant to an Act of Congress, which is owned entirely by
Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. The FHLMC
currently guarantees timely payment of interest and either timely payment of
principal or eventual payment of principal depending upon the date of issue.
When the FHLMC does not guarantee timely payment of principal, FHLMC may remit
the amount due based on its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.
In addition to GNMA, FNMA or FHLMC certificates, through which the
holder receives a share of all interest and principal payments from the
mortgages underlying the certificate, the Fund also may invest in mortgage
pass-through securities, where all interest payments go to one class of holders
("Interest Only Securities" or "IOs") and all principal payments go to a second
class of holders ("Principal Only Securities" or "POs"). These securities are
commonly referred to as mortgage-backed security strips or MBS strips. The
yields to maturity on IOs and POs are particularly sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage
assets, and principal payments may have a material effect on yield to maturity.
If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund may not fully recoup its initial investment
in IOs. Conversely, if the underlying mortgage assets experience less than
anticipated prepayments of principal, the return on POs could be adversely
affected. The Fund will treat IOs and POs as illiquid securities except for IOs
and POs issued by U.S. Government agencies and instrumentalities backed by
fixed-rate
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mortgages, whose liquidity is monitored by the Adviser subject to the
supervision of the Board of Trustees.
The Fund may also invest in certain Collateralized Mortgage Obligations
("CMOs") and Real Estate Mortgage Investment Conduits ("REMICs") which are
hybrid instruments with characteristics of both mortgage-backed bonds and
mortgage pass-through securities. Interest and prepaid principal on a CMO or
REMIC are paid monthly or semi-annually. CMOs and REMICs may be collateralized
by whole mortgage loans but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs and
REMICs are structured into multiple classes, with each class bearing a different
expected maturity. Payments of principal, including prepayments, are first
returned to investors holding the shortest maturity class; investors holding the
longer maturity classes generally receive principal only after the earlier
classes have been retired. To the extent a particular CMO or REMIC is issued by
an investment company, the Fund's ability to invest in such CMOs or REMICs will
be limited. The Fund will not invest in the residual interests of REMICs.
The Adviser expects that new types of mortgage-related securities may
be developed and offered to investors. The Adviser will, consistent with the
Fund's investment objectives, policies and quality standards, consider making
investments in such new types of mortgage-related securities.
The yield characteristics of mortgage-related securities differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if the Fund purchases a
security at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Alternatively, if
Fund purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity.
Like other bond investments, the value of mortgage-backed securities
will tend to rise when interest rates fall and to fall when interest rates rise.
Their value may also be affected by changes in the market's perception of the
creditworthiness of the entity issuing or guaranteeing them or by changes in
government regulations and tax policies. The magnitude of these fluctuations
generally will be greater when the average maturity of the Fund's portfolio
securities is longer.
Assumptions generally accepted by the industry concerning the
probability of early payment may be used in the calculation of maturities for
debt securities that contain put or call provisions, sometimes resulting in a
calculated maturity different than the stated maturity of the security.
ASSET-BACKED SECURITIES. Through the use of trusts and special purpose
subsidiaries, various types of assets, primarily home equity loans and
automobile and credit card receivables, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above or in
a pay-through structure similar to the collateralized mortgage structure.
Consistent with the Fund's investment objectives, policies and quality
standards, the Fund may invest in these and other types of asset-backed
securities which may be developed in the future.
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Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and Federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities. The risks associated with
asset-backed securities are often reduced by the addition of credit enhancements
as a letter of credit from a bank, excess collateral or a third-party guarantee.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon securities.
A zero coupon security pays no interest to its holder during its life and is
sold at a discount to its face value at maturity. The market prices of zero
coupon securities generally are more volatile than the market prices of
securities that pay interest periodically and are more sensitive to changes in
interest rates than non-zero coupon securities having similar maturities and
credit qualities.
The Fund may invest in separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently. Under the STRIPS (Separate Trading of
Registered Interest and Principal of Securities) program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.
Current Federal income tax law requires that a holder of a zero coupon
security report as income each year the portion of the original issue discount
on such security that accrues that year, even though the holder receives no cash
payments of interest during the year.
VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES. The Fund
may, from time to time, buy variable or floating rate demand notes issued by
corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity over one year
but carry with them the right of the holder to put the securities to a
remarketing agent or other entity at designated time intervals and on specified
notice. The obligation of the issuer of the put to repurchase the securities may
be backed by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Generally, the remarketing agent will adjust the interest rate every
seven days (or at other specified intervals) in order to maintain the interest
rate at the prevailing rate for securities with a seven-day or other designated
maturity. The Fund's investment in demand instruments which provide that the
Fund will not receive the principal note amount within seven days' notice, in
combination with the Fund's other investments which are not readily marketable,
will be limited to an aggregate total of 15% of the Fund's net assets.
The Fund may also buy variable rate master demand notes. The terms of
the obligations permit the Fund to invest fluctuating amounts at varying rates
of interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note
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agreement, or to decrease the amount and the borrower may repay up to the full
amount of the note without penalty. The notes may or may not be backed by bank
letters of credit.
Because the notes are direct lending arrangements between the Fund and
the borrower, it is not generally contemplated that they will be traded, and
there is no secondary market for them, although they are redeemable (and, thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. In connection with any such purchase and on an ongoing
basis, the Adviser will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes make demand
simultaneously. While master demand notes, as such, are not typically rated by
credit rating agencies, the Fund may, under its minimum rating standards, invest
in them only if, at the time of an investment, the issuer meets the criteria set
forth in this Prospectus for investment in money market instruments.
LOANS OF PORTFOLIO SECURITIES. The Fund may, subject to the
restrictions set forth under "Investment Restrictions," make loans of portfolio
securities to brokers, dealers and financial institutions if cash or cash
equivalent collateral, including letters of credit, equal to at least 102% of
the current market value of the securities loaned (including accrued dividends
and interest thereon) plus the interest payable with respect to the loan is
maintained by the borrower with the lending Fund in a segregated account. There
may be risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially. In determining whether to lend a security to
a particular broker, dealer or financial institution, the Adviser will consider
all relevant facts and circumstances, including the creditworthiness of the
broker, dealer or financial institution and whether the income to be earned from
the loan justifies the attendant risks. The Fund will not enter into any
portfolio security lending arrangement having a duration of longer than one
year. Any securities which the Fund may receive as collateral will not become
part of the Fund's portfolio at the time of the loan and, in the event of a
default by the borrower, the Fund will, if permitted by law, dispose of such
collateral except for such part thereof which is a security in which the Fund is
permitted to invest. During the time securities are on loan, the borrower will
pay the Fund an amount equal to any accrued income on those securities, and the
Fund may invest the cash collateral and earn additional income or receive an
agreed upon fee from a borrower which has delivered cash equivalent collateral.
The Fund will not loan securities having an aggregate value which
exceeds 33-1/3% of the current value of the Fund's total assets. Loans of
securities will be subject to termination at the lender's or the borrower's
option. The Fund may pay reasonable administrative and custodial fees in
connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Fund, its investment adviser or subadviser.
REPURCHASE AGREEMENTS. The Fund may invest in securities pursuant to
repurchase agreements, whereby the seller agrees to repurchase such securities
at the Fund's cost plus interest within a specified time (generally one day).
While repurchase agreements involve certain risks not associated with direct
investments in the underlying securities, the Fund will follow procedures
designed to minimize such risks. These procedures include effecting repurchase
transactions only with large, well-capitalized banks and registered
broker-dealers having
11
<PAGE>
creditworthiness determined by the Adviser to be substantially equivalent to
that of issuers of debt securities rated investment grade. In addition, the
Fund's repurchase agreements will provide that the value of the collateral
underlying the repurchase agreement will always be at least equal to the
repurchase price, including any accrued interest earned on the repurchase
agreement, and that the Fund's custodian will take possession of such
collateral. In the event of a default or bankruptcy by the seller, the Fund will
seek to liquidate such collateral. The Adviser will continually monitor the
value of the underlying securities to ensure that their value always equals or
exceeds the repurchase price plus accrued interest. However, the exercise of the
Fund's right to liquidate such collateral could involve certain costs or delays
and, to the extent that proceeds from any sale upon a default of the obligation
to repurchase were less than the repurchase price, the Fund could suffer a loss.
Repurchase agreements are considered to be loans by an investment company under
the 1940 Act. It is the current policy of the Fund not to enter into repurchase
agreements exceeding in the aggregate 10% of the market value of the Fund's
total assets.
Repurchase agreements may involve certain risks. If the seller in the
transaction becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code, recent amendments to the Bankruptcy Code permit the Fund to
exercise a contractual right to liquidate the underlying securities. However, if
the seller is a stockbroker or other entity not afforded protection under the
Bankruptcy Code, an agency having jurisdiction over the insolvent entity may
determine that the Fund does not have the immediate right to liquidate the
underlying securities. If the seller defaults, the Fund might incur a loss if
the value of the underlying securities declines. The Fund may also incur
disposition costs in connection with the liquidation of the securities. While
the Fund's management acknowledges these risks, it is expected that they can be
controlled through selection criteria established by the Board of Trustees and
monitoring procedures.
ILLIQUID SECURITIES. The Fund will not invest in illiquid securities if
immediately after such investment more than 15% of such Fund's net assets (taken
at market value) would be invested in such securities. Historically, illiquid
securities have included securities subject to contractual or legal restrictions
on resale because they have not been registered under the Securities Act of
1933, as amended ("Securities Act"), securities that are otherwise not readily
marketable and repurchase agreements having a maturity of longer than seven
days. Securities that have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven days. A
mutual fund might also have to register such restricted securities in order to
dispose of them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be
12
<PAGE>
readily resold or on an issuer's ability to honor a demand for repayment. The
fact that there are contractual or legal restrictions on resale to the general
public or to certain institutions may not be indicative of the liquidity of such
investments.
The Fund may also invest in restricted securities issued under Section
4(2) of the Securities Act, which exempts from registration "transactions by an
issuer not involving any public offering." Section 4(2) instruments are
restricted in the sense that they can only be resold through the issuing dealer
and only to institutional investors; they cannot be resold to the general public
without registration. Restricted securities issued under Section 4(2) of the
Securities Act will be treated as illiquid and subject to the Fund's investment
restriction on illiquid securities.
The Commission has adopted Rule 144A, which allows a broader
institutional trading market for securities otherwise subject to restrictions on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the Securities Act applicable to resales of certain
securities to qualified institutional buyers. The Adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
will expand further as a result of this regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the National Association of Securities Dealers, Inc. (the "NASD").
Consequently, it is the intent of the Fund to invest, pursuant to procedures
established by the Board of Trustees and subject to applicable investment
restrictions, in securities eligible for resale under Rule 144A which are
determined to be liquid based upon the trading markets for the securities.
The Adviser will monitor the liquidity of restricted securities in the
Fund's portfolio under the supervision of the Trustees. In reaching liquidity
decisions, the Adviser will consider, among other things, the following factors:
(1) the frequency of trades and quotes for the security over the course of six
months or as determined in the discretion of the Adviser; (2) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers over the course of six months or as determined in the
discretion of the Adviser; (3) dealer undertakings to make a market in the
security; (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and (5) other factors, if
any, which the Adviser deems relevant. The Adviser will also monitor the
purchase of Rule 144A securities to assure that the total of all Rule 144A
securities held by the Fund does not exceed 15% of the respective Fund's average
daily net assets. Rule 144A securities which are determined to be liquid based
upon their trading markets will not, however, be required to be included among
the securities considered to be illiquid for purposes of Investment Restriction
No. 8.
INVESTMENT COMPANY SECURITIES. The Fund may invest up to 10% of its
total assets in securities issued by other investment companies. Such securities
will be acquired by the Fund within the limits prescribed by the Investment
Company Act of 1940, as amended (the "1940 Act"), which include a prohibition
against the Fund investing more than 10% of the value of its total assets in
such securities. Investors should recognize that the purchase of securities of
other investment companies results in duplication of expenses such that
investors indirectly bear a proportionate share of the expenses of such
companies including operating costs, and investment advisory and administrative
services fees. The Fund may not invest more than 5% of its total assets in the
securities of any one investment company.
13
<PAGE>
LONG-TERM AND SHORT-TERM CORPORATE DEBT OBLIGATIONS. The Fund may
invest in U.S. dollar-denominated debt obligations issued or guaranteed by U.S.
corporations or U.S. commercial banks, U.S. dollar-denominated obligations of
foreign issuers and debt obligations of foreign issuers denominated in foreign
currencies. Such debt obligations include, among others, bonds, notes,
debentures, commercial paper and variable rate demand notes. The bank
obligations in which the Fund may invest are certificates of deposit, bankers'
acceptances, and fixed time deposits. The Adviser, in choosing corporate debt
securities on behalf of the Fund will evaluate each issuer based on (i) general
economic and financial conditions; (ii) the specific issuer's (a) business and
management, (b) cash flow, (c) earnings coverage of interest and dividends, (d)
ability to operate under adverse economic conditions, (e) fair market value of
assets, and (f) in the case of foreign issuers, unique political, economic or
social conditions applicable to such issuer's country; and (iii) other
considerations the Adviser deems appropriate. Except for temporary defensive
purposes, the International Fund is limited to 20% of its total assets in these
types of securities and the Fund is limited to 5% of its total assets.
The Fund will not purchase corporate debt securities rated below Baa by
Moody's or BBB by S&P or to the extent certain U.S. or foreign debt obligations
are unrated or rated by other rating agencies, result in comparable quality.
While "Baa"/"BBB" and comparable unrated securities may produce a higher return
than higher rated securities, they are subject to a greater degree of market
fluctuation and credit risk than the higher quality securities in which the Fund
may invest and may be regarded as having speculative characteristics as well.
After purchase by the Fund, a security may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Fund.
Neither event will require a sale of such security by the Fund. However, the
Adviser will consider such event in its determination of whether the Fund should
continue to hold the security. A security which has had its rating downgraded or
revoked may be subject to greater risk of principal and income, and often
involve greater volatility of price, than securities in the higher rating
categories. Such securities are also subject to greater credit risks (including,
without limitation, the possibility of default by or bankruptcy of the issuers
of such securities) than securities in higher rating categories. To the extent
the ratings given by a rating agency may change as a result of changes in such
organization or its rating systems, the Fixed Income Fund will attempt to
conform its ratings systems to such changes as standards for investments in
accordance with the investment policies contained in the Prospectus and in this
SAI.
Investment in obligations of foreign issuers may present a greater
degree of risk than investment in domestic securities because of less publicly
available financial and other information, less securities regulation, potential
imposition of foreign withholding and other taxes, war, expropriation or other
adverse governmental actions.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities
which have characteristics similar to both fixed income and equity securities.
Convertible securities pay a stated rate of interest and generally are
convertible into the issuer's common stock at a stated conversion price prior to
call or redemption. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying stock. As a result, the Fund's selection of convertible securities is
based, to a great extent, on the potential for capital appreciation that may
exist in t he underlying stock. The value of convertible
14
<PAGE>
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provisions.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. The Fund may purchase
securities on a when-issued or delayed-delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the transaction. The when-issued securities are subject to market fluctuation
and no interest accrues to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing on a
when-issued basis is a form of leveraging and can involve a risk that the yields
available in the market when the delivery takes place may actually be higher
than those obtained in the transaction itself in which case there could be an
unrealized loss at the time of delivery.
The Fund will maintain liquid assets in segregated accounts with its
custodian in an amount at least equal in value to the Fund's commitments to
purchase when-issued securities. If the value of these assets declines, the Fund
will place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
It is the current policy of the International Equity Fund not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
The Fund's investments in money market instruments will consist of (i)
short-term obligations of the U.S. Government, its agencies and
instrumentalities; (ii) other short-term debt securities rated A or higher by
Moody's or S&P or, if unrated, of comparable quality in the opinion of the
Adviser; (iii) commercial paper, including master demand notes; (iv) bank
obligations, including certificates of deposit, bankers' acceptances and time
deposits; and (v) repurchase agreements. At the time the Fund invests for
temporary defensive purposes in any commercial paper, bank obligation or
repurchase agreement, the issuer must have outstanding debt rated A or higher by
Moody's or S&P, or the issuer's parent corporation must have outstanding
commercial paper rated Prime-1 by Moody's or A-1 by S&P or, if no such ratings
are available, the investment must be of comparable quality in the opinion the
Adviser. During times when the Fund is maintaining a temporary defensive
posture, it may be unable to achieve fully its investment objective.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to policy
established by the Trustees, the Adviser is primarily responsible for portfolio
decisions and the placing of portfolio transactions. In placing orders, it is
the policy of the Fund to obtain the best results taking into account the
dealer's general execution and operational facilities, the type of transaction
involved and other factors such as the dealer's risk in positioning the
securities involved. Brokerage may be allocated to the Distributor to the extent
and in the manner permitted by applicable law, provided that in the judgment of
the investment adviser the use of the Distributor is likely to result in an
execution at least as favorable as that of other qualified brokers. While the
Adviser generally seeks reasonably competitive spreads or commissions, the Fund
will not necessarily be paying the lowest spread or commission available.
15
<PAGE>
Investment decisions for the Fund concerning specific portfolio
securities are made independently from those for other clients advised by its
Adviser. Such other investment clients may invest in the same securities as the
Fund. When purchases or sales of the same security are made at substantially the
same time on behalf of such other clients, transactions are averaged as to price
and available investments allocated as to amount, in a manner which the Adviser
believes to be equitable to each client, including the Fund. In some instances,
this investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or sold for the Fund. To the extent
permitted by law, the Adviser may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for such other
investment clients in order to obtain best execution.
Generally, money market securities are traded on a net basis and do not
involve brokerage commissions. Under the 1940 Act, persons affiliated with HSBC
Bank, the Adviser, the Fund or BISYS Fund Services are prohibited from dealing
with the Fund as a principal in the purchase and sale of securities except in
accordance with regulations adopted by the Securities and Exchange Commission.
The Fund may purchase Municipal Obligations from underwriting syndicates of
which the Distributor or other affiliate is a member under certain conditions in
accordance with the provisions of a rule adopted under the 1940 Act. Under the
1940 Act, persons affiliated with the Adviser, the Fund or BISYS Fund Services
may act as a broker for the Fund. In order for such persons to effect any
portfolio transactions for the Fund, the commissions, fees or other remuneration
received by such persons must be reasonable and fair compared to the
commissions, fees or other remunerations paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow the affiliate to receive no more than the remuneration which would be
expected to be received by an unaffiliated broker in a commensurate arms-length
transaction. The Trustees of the Trust regularly review the commissions paid by
the Fund to affiliated brokers. The Fund will not do business with nor pay
commissions to affiliates of the Adviser in any portfolio transactions where
they act as principal.
As permitted by Section 28(e) of the "Securities Exchange Act of 1934
(the "1934 Act") the Adviser may cause the Fund to pay a broker-dealer which
provides "brokerage and research services" (as defined in the 1934 Act) to the
Adviser an amount of disclosed 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.
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 view and information of securities firms.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking the most favorable price and
execution available and such other policies as the Trustees may determine, 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. The Adviser may
cause the Fund to pay commissions higher than another broker-dealer would have
charged if the Adviser believes the commission paid is reasonable in relation to
the value of the research services incurred by the Adviser.
16
<PAGE>
INVESTMENT RESTRICTIONS
The Fund observes the following fundamental investment restrictions
which can be changed only when permitted by law and approved by a majority of
the Fund's outstanding voting securities. A "majority of the Fund's outstanding
voting securities" means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented in
person or by proxies or (ii) more than 50% of the outstanding shares.
Except as otherwise noted, the Fund may not:
(1) purchase securities on margin or purchase real estate or interest
therein, commodities or commodity contracts, but may purchase and
make margin payments in connection with financial futures
contracts and related options);
(2) with respect to 75% of its total assets (taken at market value),
purchase a security if as a result (1) more than 5% of its total
assets (taken at market value) would be invested in the
securities (including securities subject to repurchase
agreements), of any one issuer, other than obligations which are
issued or guaranteed by the United States Government, its
agencies or instrumentalities or (2) the Fund would own more than
10% of the outstanding voting securities of such issuer;
(3) engage in the underwriting of securities of other issuers, except
to the extent that the Fund may be deemed to be an underwriter in
selling, as part of an offering registered under the Securities
Act of 1933, as amended, securities which it has acquired;
(4) effect a short sale of any security (other than index options or
hedging strategies to the extent otherwise permitted), or issue
senior securities except as permitted in paragraph (5). For
purposes of this restriction, the purchase and sale of financial
futures contracts and related options does not constitute the
issuance of a senior security;
(5) borrow money, except that the Fund may borrow from banks where
such borrowings would not exceed 33-1/3% of its total assets
(including the amount borrowed) taken at market value; or pledge,
mortgage or hypothecate its assets, except to secure indebtedness
permitted by this paragraph and then only if such pledging,
mortgaging or hypothecating does not exceed 33-1/3% of the Fund's
total assets taken at market value;
(6) invest for the purpose of exercising control over management of
any company;
(7) invest more than 10% of its total assets in the securities of
other investment companies;
(8) invest in any security, including repurchase agreements maturing
in over seven days or other illiquid investments which are
subject to legal or contractual delays on resale or which are not
readily marketable, if as a result more than 15% of the market
value or respective Fund's total assets would be so invested;
17
<PAGE>
(9) purchase interests in oil, gas, or other mineral exploration
programs of real estate and real estate mortgage loans except as
provided in the Prospectus of the Fund; however, this policy will
not prohibit the acquisition of securities of companies engaged
in the production or transmission of oil, gas, other minerals or
companies which purchase or sell real estate or real estate
mortgage loans;
(10) have dealings on behalf of the Fund with Officers and Trustees of
the Fund, except for the purchase or sale of securities on an
agency or commission basis, or make loans to any officers,
directors or employees of the Fund;
(11) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of the Fund's
investments in that industry would exceed 25% of the current
value of the Fund's total assets, provided that (a) there is no
limitation with respect to investments in obligations of the
United States Government, its agencies or; (b) wholly-owned
finance companies will be considered to be in the industries of
their parents; and (c) utilities will be divided according to
their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate
industry; and
(12) make loans, except that the Fund may make loans or lend its
portfolio securities if, as a result, the aggregate of such loans
does not exceed 33-1/3% of the value of the Fund's total assets.
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 the Fund's yield, effective yield and
tax equivalent yield are mandated by the Securities and Exchange Commission.
Quotations of yield for the Fund will be based on all investment income
per share (as defined by the SEC during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b 6
YIELD 2[(-- + 1) - 1]
cd
where
a - dividends and interest earned during the period,
b - expenses accrued for the period (net of reimbursements),
c - the average daily number of shares outstanding during the
period that were entitled to receive dividends, and
d - the maximum offering price per share on the last day of the
period.
18
<PAGE>
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (or up to
the life of the Fund), calculated pursuant to the following formula: P H + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. The Fund also may, with respect to certain periods of less than one
year, provide total return information for that period that is unannualized. Any
such information would be accompanied by standardized total return information.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) unmanaged indices, including, but not limited to
the S&P 500 Stock Index. 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 an
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
19
<PAGE>
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 "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 THE TRUST PRINCIPAL OCCUPATIONS
<S> <C> <C>
FREDERICK C. CHEN Trustee Management Consultant
126 Butternut Hollow Road,
Greenwich, Connecticut 06830
LARRY M. ROBBINS Trustee Director for the Center of
University of Pennsylvania Teaching and Learning,
College of Arts & Sciences University of Pennsylvania
120 Logan Hall
Philadelphia, PA 19104
ALAN S. PARSOW Trustee General Partner of Parsow
2222 Skyline Drive Partnership, Ltd. (investments)
Elkhorn, NE 68022
MICHAEL SEELY Trustee President of Investor Access
475 Lexington Avenue Corporation (investor relations
New York, New York 10017 consulting firm)
LESLIE E. BAINS** Trustee Senior Executive Vice
HSBC Bank USA President,
452 Fifth Avenue present;
New York, New York 10018 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)
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
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
RICHARD F. FROIO* Vice President Employee of BISYS Fund
Services, Inc.
NADEEM YOUSAF* Treasurer Employee of BISYS Fund
Services, Inc., August 1999 to
present; Director. IBT,
Canadian Operations, May
1995 to March 1997; Assistant
Manager, PriceWaterhouse.
1994 to May 1995
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, Froio and Yousaf and Mss. 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.
21
<PAGE>
COMPENSATION TABLE
AGGREGATE COMPENSATION FROM:
<TABLE>
<CAPTION>
Trustee Total Compensation from Fund Complex*
<S> <C>
Frederick C. Chen $ 9,600
Larry M. Robbin $11,600
Michael Seely $ 9,600
</TABLE>
* The compensation table above reflects the fees received by the Trustees from
the Fund Complex for the year ended October 31, 1999. For the fiscal year ended
October 31, 1999, the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust received from the Fund Complex an annual retainer of
$3,600 and a fee of $1,500 for each meeting of the Board of Trustees or
committee thereof attended, except that Mr. Robbins received an annual retainer
of $4,600 and a fee of $1,725 for each meeting attended. Effective January 1,
2000, the Lead Trustee, Mr. Larry M. Robbin, receives an annual retainer of
$11,000, and a per meeting fee of $2,500, and the other Trustees that are not
affiliated with the Adviser receive an annual retainer of $10,000, and a per
meeting fee of $2,000. The Fund Complex includes the Trust, HSBC Advisor Funds
Trust, HSBC Investor Portfolios Trust, offshore feeders into the Portfolio
Trust, and three stand-alone offshore funds. The fees paid by the Fund Complex
are allocated pro rata among the Funds based upon the net assets of the Fund.
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
The Fund retains HSBC Asset Management (Americas) Inc. ("Adviser") to
act as the adviser for the Fund. 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 is located at 452 Fifth Avenue, New York,
New York 10005.
The Advisory Contract for the Fund provides that the Adviser will
manage the portfolio of the Fund and will furnish to the Fund investment
guidance and policy direction in connection therewith. The Adviser has agreed to
provide to the Trust, among other things, information relating to composition,
credit conditions and average maturity of the portfolio of the Fund. Pursuant to
the Advisory Contract, the Adviser also furnishes to the Trust's Board of
Trustees periodic reports on the investment performance of the Fund. The Adviser
has also agreed in the Advisory Contract to provide administrative assistance in
connection with the operation of the
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Fund. Administrative services provided by the Adviser include, among other
things, (i) data processing, clerical and bookkeeping services required in
connection with maintaining the financial accounts and records for the Fund,
(ii) compiling statistical and research data required for the preparation of
reports and statements which are periodically distributed to the Fund's officers
and Trustees, (iii) handling general shareholder relations with Fund investors,
such as advice as to the status of their accounts, the current yield and
dividends declared to date and assistance with other questions related to their
accounts, and (iv) compiling information required in connection with the Fund's
filings with the Securities and Exchange Commission.
If the Adviser were prohibited from performing any of its services for
the Trust, it is expected that the Board of Trustees would recommend to the
Fund's shareholders that they approve new agreements with another entity or
entities qualified to perform such services and selected by the Board.
DISTRIBUTION PLANS - CLASS A, CLASS B, AND CLASS C SHARES ONLY
Three 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"), and Class C Shares (the "Class C
Plan"), Fund, as applicable. The Distribution Plans provide that they may not be
amended to increase materially the costs which either the Class A Shares, Class
B Shares, and Class C Shares may bear pursuant to the Class A Plan, Class B Plan
and Class C Plan and Class D Plan without approval by shareholders of the Class
A Shares, Class B Shares, and Class C 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
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, and Class C Plan, the Trustees considered alternative methods to
distribute the Class A Shares, Class B Shares, and Class C 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, and Class C 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.
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.
The Distributor may, out of its own resources, make payments to
broker-dealers for their services in distributing Shares. Such compensation may
include financial assistance to dealers in
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connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding the Fund, and/or other
dealer-sponsored special events. In some instances, this compensation will be
made available only to certain dealers whose representatives have sold a
significant amount of such Shares. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their registered representatives and
members of their families to locations within or outside of the United States
for meetings or seminars of a business nature. None of the aforementioned
compensation is paid by the Fund or its Shareholders.
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, and Class C 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, and Class C 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 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 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. 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
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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, or Adviser (Class Y)
Shares ("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 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, including, among other responsibilities, assisting in the
preparation and filing of all documents required for compliance by the Fund with
applicable laws and regulations and arranging for the maintenance of books and
records of 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.
FEES
As compensation for its advisory and management services, the Adviser
is paid a monthly fee by the Fund at the annual rate of 0.55% of the average
daily value of the net assets of the Fund.
Except for the expenses paid by the Adviser under the Advisory Contract
and by BISYS Fund Services, Inc. under the Management and Administration
Agreement, the Fund bears all costs of its operations. Expenses attributable to
the Fund are charged against the assets of the Fund.
The Advisory Contract, Distribution Contract and Management and
Administration Agreement upon expiration of its initial term on December ___,
2002 will continue in effect with respect to the Fund from year to year provided
such continuance is approved annually by the holders of a majority of the
outstanding voting securities of such Fund or by the Trust's Trustees and (ii)
by a majority of the Trustees who are not parties to such contracts or
"interested persons" (as defined in the Investment Company Act of 1940) of any
such party ("non-interested Trustees"). Each contract may be terminated with
respect to the Fund at any time, without payment of any penalty, by a vote of a
majority of the outstanding voting securities of the Fund
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(as defined in the Investment Company Act of 1940) or by a vote of a majority of
the Trustees on 60 days' written notice, except in the case of the Management
and Administration Agreement which requires written notice of non-renewal given
at least 90 days prior to expiration of the then current term. The Advisory
Contract, Administrative Services Contract and the Distribution Contract shall
terminate automatically in the event of their assignment (as defined in the
Investment Company Act of 1940).
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 BISYS is 3435 Stelzer Road, Columbus, OH 43219.
CUSTODIAN AND FUND ACCOUNTING AGENT
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 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. BISYS serves as the fund accounting agent
for the Portfolio.
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 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
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
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other related services as the Trust or a shareholder may request. With respect
to Class A, Class B Shares, and Class C 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
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, and Class C 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 a
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.
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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 value of each security for which readily available market
quotations exists is based on a decision as to the broadest and most
representative market for such security. The value of such security is based
either on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on such
exchanges, or at the quoted bid price in the over-the-counter market. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market. Debt
securities are valued by a pricing service which determines valuations based
upon market transactions for normal, institutional-size trading units of similar
securities. Securities or other assets for which market quotations are not
readily available are valued at fair value in accordance with procedures
established by the Trust. Such procedures include the use of independent pricing
services, which use prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. All portfolio securities with a
remaining maturity of less than 60 days are valued at amortized cost, which
approximates market value.
PURCHASE OF SHARES
The following information supplements and should be read in conjunction
with the sections in the Fund's Prospectus entitled "Purchasing and Adding to
Your Shares." The Prospectus contains a general description of how investors may
buy shares of the Fund and states whether the Fund offer more than one class of
shares. Class A shares are generally sold with a sales charge payable at the
time of purchase. The prospectus contains a table of applicable sales charges.
Certain purchases of Class A shares may be exempt from a sales charge. Class B
and C shares may be subject to a contingent deferred sales charge ("CDSC")
payable upon redemption within a specified period after purchase. The prospectus
contains a table of applicable CDSCs. After being held for six years, Class B
shares will automatically convert into Class A shares which are not subject to
sales charges or a CDSC. Class B and C shares are offered without an initial
sales charge. The Fund may sell shares without a sales charge or CDSC pursuant
to special purchase plans the Trust signs.
When purchasing Fund shares, you must specify which Class is being
purchased. The decision as to which Class of shares is most beneficial to you
depends on the amount and the intended length of your investment. You should
consider whether, during the anticipated life of your investment in the Fund,
the accumulated distribution fee, service fee and CDSC, if any, on Class B
shares or Class C shares would be less than the accumulated distribution fee and
initial sales charge on Class A shares purchased at the same time, and to what
extent, if any, such differential would be offset by the return on Class A
shares respectively. Additionally, investors qualifying for reduced initial
sales charges who expect to maintain their investment for an
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<PAGE>
extended period of time might consider purchasing Class A shares because the
accumulated continuing distribution and service fees on Class B or Class C
shares exceed the accumulated distribution fee and initial sales charge on Class
A shares during the life of the investment. Finally, you should consider the
effect of the CDSC period and any conversion rights of the Classes in the
context of your own investment time frame. For example, while Class C shares
have a shorter CDSC period than Class B shares, Class C shares do not have a
conversion feature and, therefore, are subject to ongoing distribution and
service fees. Thus, Class B shares may be more attractive than Class C shares to
investors with longer term investment outlooks. Generally, Class A shares will
be most appropriate for investors who invest $1,000,000 or more in Fund shares,
and Class A shares will not be appropriate for investors who invest less than
$50,000 in Fund shares.
A broker-dealer may receive different levels of compensation depending
on which class of shares is sold. The Distributor may also provide different
additional compensation to dealers in connection with selling shares of the Fund
or for their own company-sponsored sales programs. Additional compensation or
assistance may be provided to dealers and includes, but is not limited to,
payment or reimbursement for educational, training and sales conferences or
programs for their employees. In some cases, this compensation may only be
available to dealers whose representatives have sold or are expected to sell
significant amounts of shares. The Distributor will make these payments from its
own resources and none of the aforementioned additional compensation is paid for
by the applicable Fund or its shareholders.
Shares of the Fund are offered on a continuous basis at net asset
value, plus any applicable sales charge, by the Distributor as an investment
vehicle for institutions, corporations, fiduciaries and individuals.
The sales charge applicable to the purchase of Fund shares will be
waived on the following purchases: (1) by Trustees and officers of the Trust and
of HSBC Investor Funds Trust. and members of their immediate families (parents.
spouses, children, brothers and sisters), (2) by directors, employees and
retirees of Marine Midland Bank and its affiliates, and members of their
immediate families, (3) by financial institutions or corporations on behalf of
their customers or employees, or on behalf of any trust, pension, profit-sharing
or other benefit plan for such customers or employees, (4) by directors and
employees of the Distributor, selected broker-dealers and affiliates and members
of their immediate families, (5) by charitable organizations as defined in
Section 501(c)(3) of the Internal Revenue Code ("Charitable Organizations") or
for charitable remainder trusts or life income pools established for the benefit
of Charitable Organizations, (6) by registered representatives of selling
brokers and members of their immediate families, (7) by individuals who have
terminated their Employee Benefit Trust ("EBT") Plan or have retired and are
purchasing shares in the Fund with the proceeds of their benefits checks (the
EBT Plan must currently own shares of the Fund at the time of the individual's
purchase), (8) by corporations, their officers or directors, partnerships, and
their partners which are customers or prospective customers of Marine Midland
Bank when authorized by an officer of Marine Midland Bank, and (9) by
individuals who, as determined by an officer of the Fund in accordance with
guidelines established by the Fund's Trustees, have purchased shares under
special circumstances not involving sales expenses to dealers or the
Distributor. Eligible investors should contact the Adviser for details.
The sales load does not apply in any instance to reinvested dividends.
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From time to time dealers who receive dealer discounts and broker
commissions from the Distributor may reallow all or a portion of such dealer
discounts and broker commissions to other dealers or brokers. The Distributor,
at its expense, may also provide additional compensation to dealers in
connection with sales of shares of the Fund. Such compensation may include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more Funds of the Trust, and/or other
dealer-sponsored special events. In some instances, this compensation may be
made available only to certain dealers whose representatives have sold a
significant number of such shares. Compensation will include payment for travel
expenses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their registered representatives and
members of their families to locations within or outside of the United States
for meetings or seminars of a business nature. Compensation may also include the
following types of non-cash compensation offered through sales contests: (1)
vacation trips, including the provision of travel arrangements and lodging at
luxury resorts at an exotic location, (2) tickets for entertainment events (such
as concerts, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Fund's Shares to
qualify for the compensation to the extent such may be prohibited by the laws of
any state or any self- regulatory agency, such as the National Association of
Securities Dealers, Inc. None of the aforementioned compensation is paid for by
the Fund or its shareholders.
Stock certificates will not be issued with respect to the shares. The
Transfer Agent shall keep accounts upon the book of the Trust for recordholders
of such shares.
EXCHANGE PRIVILEGE
By contacting the Transfer Agent or his Shareholder Servicing Agent or
his securities broker, a shareholder of the Money Market Funds 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 Money Market Fund,
HSBC Investor Bond Fund, HSBC Investor Overseas Equity Fund, HSBC Investor
Opportunity Fund, HSBC Investor New York Tax-Free Bond Fund, HSBC Investor New
York Tax-Free Money Market 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"). By
contacting the Transfer Agent or his Shareholder Servicing Agent or his
securities broker, a shareholder of the Retail Funds may exchange some or all of
his Shares at net asset value without a sales charge for Shares of the same
class offered with the same or lower sales charge by any of the Trust's other
Funds. Exchanges for Shares with a higher sales charge may be made upon payment
of the sales charge differential.
An investor will receive Class A Shares of the Fund in exchange for
Class A shares of other HSBC Investor Funds. 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
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otherwise exempt. Shareholders of Class A 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 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, which may produce a gain or loss for tax purposes.
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 by contacting the Trust at 800-782-8183, 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
The Fund's shares 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 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. The effect of any such fees will be to reduce the
net
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return on the investment of customers of that Shareholder Servicing Agent or
securities broker. Conversely, certain Shareholder Servicing Agents may
(although they are not required by the Trust to do so) 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.
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.
SALES CHARGES
CLASS A SHARES
The public offering price of the Class A Shares of the Bond and New York
Tax-Free Bond Fund equals net asset value plus the applicable sales charge.
BISYS receives this sales charge as distributor and may reallow it as dealer
discounts and brokerage commissions as follows:
SALES CHARGE AS:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Size of Transaction at Offering Price % of Offering % of Net
Price Amount
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Up to $49,999 5.00% 5.26%
$50,000 up to $100,000 4.60% 4.71%
$100,000 up to $250,000 3.75% 3.90%
$250,000 up to $500,000 2.50% 2.56%
$500,000 up to $1,000,000 2.00% 2.04%
$1,000,000 and up 1.00% 1.01%
</TABLE>
SALES CHARGE WAIVERS
The Distributor may waive sales charges for the purchase of Class A
Shares of the Fund by or on behalf of (1) purchasers for whom HSBC or one of its
affiliates acts in a fiduciary, advisory, custodial or similar capacity, (2)
employees and retired employees (including spouses, children and parents of
employees and retired employees) of HSBC, BISYS and any affiliates thereof, (3)
Trustees of the Trust, (4) directors and retired directors (including spouses
and children of directors and retired directors) of HSBC and any affiliates
thereof, (5) purchasers who use proceeds from an account for which HSBC or one
of its affiliates acts in a fiduciary, advisory, custodial or similar capacity,
to purchase Class A Shares of the Fund, (6) brokers, dealers and agents who have
a sales agreement with the Distributor, and their employees (and the immediate
family members of such individuals), (7) investment advisers or financial
planners that have entered into an agreement with the Distributor and that place
trades for their own
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accounts or the accounts of eligible clients and that charge a fee for their
services, and clients of such investment advisers or financial planners who
place trades for their own accounts if such accounts are linked to the master
account of the investment adviser or financial planner on the books and records
of a broker or agent that has entered into an agreement with the Distributor,
and (8) orders placed on behalf of other investment companies distributed by
BISYS, The BISYS Group, Inc., or their affiliated companies. In addition, the
Distributor may waive sales charges for the purchase of the Fund's Class A
Shares with the proceeds from the recent redemption of shares of a non-money
market mutual fund (except one of the other funds of the Trust) sold with a
sales charge. The purchase must be made within 60 days of the redemption, and
the Distributor must be notified in writing by the investor, or by his or her
financial institution, at the time the purchase is made. A copy of the
investor's account statement showing such redemption must accompany such notice.
To receive a sales charge waiver in conjunction with any of the above
categories, Shareholders must, at the time of purchase, give the Transfer Agent
or the Distributor sufficient information to permit confirmation of
qualification.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining "concurrent purchases" of Class A Shares of any fund in
the HSBC family of funds. For example, if a Shareholder concurrently purchases
Class A Shares in one of the funds of the Trust sold with a sales charge at the
total public offering price of $25,000 and Class A Shares in another fund sold
with a sales charge at the total public offering price of $75,000, the sales
charge would be that applicable to a $100,000 purchase as shown in the
appropriate table above. The investor's "concurrent purchases" described above
shall include the combined purchases of the investor, the investor's spouse and
children under the age of 21 and the purchaser's retirement plan accounts. To
receive the applicable public offering price pursuant to this privilege,
Shareholders must, at the time of purchase, give the Transfer Agent or the
Distributor sufficient information to permit confirmation of qualification. This
privilege, however, may be modified or eliminated at any time or from time to
time by the Trust without notice.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written
Letter of Intent which expresses the intention of such investor to purchase
Class A Shares of the Fund at a designated total public offering price within a
designated 13-month period. Each purchase of Class A Shares under a Letter of
Intent will be made at the net asset value plus the sales charge applicable at
the time of such purchase to a single transaction of the total dollar amount
indicated in the Letter of Intent (the "Applicable Sales Charge"). A Letter of
Intent may include purchases of Class A Shares made not more than 90 days prior
to the date such investor signs a Letter of Intent; however, the 13-month period
during which the Letter of Intent is in effect will begin on the date of the
earliest purchase to be included. An investor will receive as a credit against
his/her purchase(s) of Class A Shares during this 90-day period at the end of
the 13-month period, the difference, if any, between the sales load paid on
previous purchases qualifying under the Letter of Intent and the Applicable
Sales Charge.
A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Class A Shares purchased with the first
5% of such amount will be held in escrow
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<PAGE>
(while remaining registered in the name of the investor) to secure payment of
the higher sales charge applicable to the Class A Shares actually purchased if
the full amount indicated is not purchased, and such escrowed Class A Shares
will be involuntarily redeemed to pay the additional sales charge, if necessary.
Dividends on escrowed Class A Shares, whether paid in cash or reinvested in
additional Class A Shares, are not subject to escrow. The escrowed Class A
Shares will not be available for disposal by the investor until all purchases
pursuant to the Letter of Intent have been made or the higher sales charge has
been paid. When the full amount indicated has been purchased, the escrow will be
released. To the extent that an investor purchases more than the dollar amount
indicated in the Letter of Intent and qualifies for a further reduced sales
charge, the sales charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in sales charge will be used to
purchase additional Class A Shares of the Fund at the then current public
offering price subject to the rate of sales charge applicable to the actual
amount of the aggregate purchases. For further information about Letters of
Intent, interested investors should contact the Trust at 1-800-782-8183. This
program, however, may be modified or eliminated at any time or from time to time
by the Trust without notice.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to
purchase Class A Shares of the Fund at the public offering price applicable to
the total of (a) the total public offering price of the Class A Shares of the
Fund then being purchased plus (b) an amount equal to the then current net asset
value of the "purchaser's combined holdings" of the Class A Shares of the Fund.
Class A Shares sold to purchasers for whom HSBC or one of its affiliates acts in
a fiduciary, advisory, custodial (other than retirement accounts), agency, or
similar capacity are not presently subject to a sales charge. The "purchaser's
combined holdings" described above shall include the combined holdings of the
purchaser, the purchaser's spouse and children under the age of 21 and the
purchaser's retirement plan accounts. To receive the applicable public offering
price pursuant to the right of accumulation, shareholders must, at the time of
purchase, give the Transfer Agent or the Distributor sufficient information to
permit confirmation of qualification. This right of accumulation. however, may
be modified or eliminated at any time or from time to time by the Trust without
notice.
CONTINGENT DEFERRED SALES CHARGE ("CDSC") - CLASS B SHARES
Class B Shares of the Fund, which are redeemed less than three years
after purchase will be subject to a declining CDSC. The CDSC will be based on
the lesser of the net asset value at the time of purchase of the Class B Shares
being redeemed or the net asset value of such 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 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
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<PAGE>
a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed.
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.
LEVEL LOAD ALTERNATIVE -- CLASS C SHARES
Class C Shares of the Fund are sold at net asset value without an
initial sales charge but are subject to a CDSC of 1.00% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). 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 "Contingent Deferred Sales Charge ("CDSC") -- Class B Shares" except
that the references to three years and four years in the first paragraph of that
section shall mean one year in the case of Class C Shares. Class C Shares are
subject to an annual 121b-1 fee of up to 1.00% 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
121b-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 Class
A Shares. The Fund will not normally accept any purchase of Class C Shares in
the amount of $500,000 or more. Broker-dealers and other financial
intermediaries whose clients have purchased Class C Shares may receive a
trailing commission equal to 1.00% 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.
A shareholder may redeem all or any portion of the Shares in his
account at any time at the net asset value 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 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 4:00 p.m., New York Time for the Fund, 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
35
<PAGE>
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.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the Shares in his
accountant at any time at the net asset value next determined after a redemption
order in proper form 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 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 4:00 p.m., New York Time for the Fund,
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
36
<PAGE>
Agent). For further information as to how to direct a securities broker or a
Shareholder Servicing Agent redeem Shares, a shareholder should contact his
securities broker or his Shareholder Serving 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
Redemption by Letter. Redemptions may be made by letter to the Transfer
Agent specifying the dollar amount or number of Class A 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, Class
B and Class C Shares of the Fund 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.
RETIREMENT PLANS
Shares of the Fund are offered in connection with tax-deferred
retirement plans. Application forms and further information about these plans,
including applicable fees, are available from the Trust or the Sponsor upon
request. The tax law governing tax-deferred
37
<PAGE>
retirement plans is complex and changes frequently. Before investing in the Fund
through one or more of these plans, an investor should consult his or her tax
adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
The shares may be used as the Funding medium for an IRA. An Internal
Revenue Service-approved IRA plan may be available from an investor's
Shareholder Servicing Agent. In any event, such a plan is available from the
Sponsor naming-BISYS as custodian. The minimum initial investment for an IRA is
$250; the minimum subsequent investment is $100. IRAs are available to
individuals who receive compensation or earned income and their spouses whether
or not they are active participants in a tax-qualified or Government-approved
retirement plan. An IRA contribution by an individual who participates. or whose
spouse participates, in a tax-qualified or Government-approved retirement plan
may not be deductible, in whole or in part, depending upon the individual's
income. Individuals also may establish an IRA to receive a "rollover"
contribution of distributions from another IRA or a qualified plan. Tax advice
should be obtained before planning a rollover.
DEFINED CONTRIBUTION PLANS
Investors who are self-employed may purchase shares of the Fund for
retirement plans for self-employed persons which are known as Defined
Contribution Plans (formerly Keogh or H.R. 10 Plans). HSBC offers a prototype
plan for Money Purchase and Profit Sharing Plans.
SECTION 457 PLAN, 401(k) PLAN, 403(b) PLAN
The Fund may be used as a vehicle for certain deferred compensation
plans provided for by Section 457 of the Internal Revenue Code of 1986, as
amended, (the "Code") with respect to service for state governments, local
governments, rural electric cooperatives and political subdivisions, agencies,
instrumentalities and certain affiliates of such entities. The Fund may also be
used as a vehicle for both 401(k) plans and 403(b) plans.
DIVIDENDS AND DISTRIBUTIONS
The Trust declares all of the Fund's net investment income daily as a
dividend to the Fund shareholders. Dividends substantially equal to the Fund's
net investment income earned during the month are distributed in that month to
the Fund's shareholders of record. Generally, the Fund's net investment income
consists of the interest and dividend income it earns, less expenses. In
computing interest income, premiums are not amortized nor are discounts accrued
on long-term debt securities in the Fund, except as required for federal income
tax purposes.
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.
The Fund's net realized capital gains, if any, are distributed to
shareholders annually. Additional distributions are also made to the Fund's
shareholders to the extent necessary to avoid application of the 4%
nondeductible federal excise tax on certain undistributed income and net
38
<PAGE>
capital gains of regulated investment companies. Unless a shareholder elects to
receive dividends in cash, dividends are distributed in the form of additional
shares of the Fund (purchased at their net asset value without a sales charge).
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 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 participate equally in the earnings.
dividends and assets of the particular series. Currently, the Trust has nine
series of shares, each of which constitutes a separately managed fund. The Trust
reserves the right to create additional series of shares. Currently, the Fund is
divided into three classes of shares.
Each share of each class of the Fund, if applicable. represents an
equal proportionate interest in the Fund with each other share. Shares have no
preference, preemptive, 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. The Trust is not required and has no current intention to hold annual
meetings of shareholders, although the 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, 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. Under certain circumstances the
shareholders of one or more series could control the outcome of these votes.
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 relates 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.
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.
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.
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<PAGE>
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
Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Fund and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances. 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 ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisers with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state or foreign country or other taxing jurisdiction.
TAX STATUS OF THE FUND
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities, or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the
40
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value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally is not subject to
U.S. federal income tax on income and gains that it distributes to shareholders,
if at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, the Fund intends to make distributions in accordance with the
calendar year distribution requirement.
A distribution will be treated as paid on December 31 of a calendar
year if it is declared by a the Fund in October, November or December of that
year with a record date in such a month and paid by the Fund during January of
the following year. Such a distribution will be taxable to shareholders in the
calendar year in which the distribution is declared, rather than the calendar
year in which it is received.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares (see below
for information concerning exempt-interest dividends and capital gain
dividends). Dividends paid by the Fund to a corporate shareholder, to the extent
such dividends are attributable to dividends received by the Fund from U.S.
corporations, may, subject to limitation, be eligible for the dividends received
deduction. However, the alternative minimum tax applicable to corporations may
reduce the value of the dividends received deduction.
The excess of net long-term capital gains over net short-term capital
losses realized, distributed and properly designated by the Fund, whether paid
in cash or reinvested in Fund shares. will generally be taxable to shareholders
as long-term capital gain, regardless of how long a shareholder has held Fund
shares. Such capital gain distributions are subject to a maximum federal income
tax rate of 20% under current law. Net capital gains from assets held for one
year or less will be taxed as ordinary income.
Shareholders will be notified annually as to the U.S. federal tax
status of distributions, and shareholders receiving distributions in the form of
newly issued shares will receive a report as to the net asset value of the
shares received.
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If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.
DISPOSITIONS
Upon a redemption, sale or exchange of shares of the Fund, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares. A gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands, and the rate of tax will
depend upon the shareholder's holding period for the shares. If the shareholder
has held the shares as a capital asset for more than 12 months, the maximum
current federal income tax rate is 20%. Any loss realized on a redemption, sale
or exchange will be disallowed to the extent the shares disposed of are replaced
(including through reinvestment of dividends) within a period of 61 days,
beginning 30 days before and ending 30 days after the shares are disposed of. In
such a case the basis of the shares acquired will be adjusted to reflect the
disallowed loss. If a shareholder holds Fund shares for six months or less and
during that period receives a distribution taxable to the shareholder as
long-term capital gain, any loss realized on the sale of such shares during such
six-month period would be a long-term loss to the extent of such distribution.
If, within 90 after purchasing Fund shares with a sales charge, a
shareholder exchanges the shares and acquires new shares at a reduced (or
without any) sales charge pursuant to a right acquired with the original shares,
then the shareholder may not take the original sales charge into account in
determining the shareholder's gain or loss on the disposition of the shares.
Gain or loss will generally be determined by excluding all or a portion of the
sales charge from the shareholder's tax basis in the exchanged shares, and the
amount excluded will be treated as an amount paid for the new shares.
BACKUP WITHHOLDING
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid (other than
exempt-interest dividends), capital gain distributions, and redemption proceeds
to shareholders if (1) the shareholder fails to furnish the Fund with the
shareholder's correct taxpayer identification number or social security number.
(2) the IRS notifies the shareholder or 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 or she is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
OTHER TAXATION
Distributions may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above, including the likelihood that ordinary
42
<PAGE>
income dividends to them would be subject to withholding of U.S. tax at a rate
of 30% (or a lower treaty rate, if applicable).
FUND INVESTMENTS MARKET DISCOUNT
If the Fund purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption
price over the purchase price is "market discount". If the amount of market
discount is more than a the minimis amount, a portion of such market discount
must be included as ordinary income (not capital gain) by the Fund in each
taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally. market discount accrues on a daily basis for
each day the debt security is held by the Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."
ORIGINAL ISSUE DISCOUNT
Certain debt securities acquired by the Fund may be treated as debt
securities that were originally issued at a discount. Very generally, original
issue discount is defined as the difference between the price at which a
security was issued and its stated redemption price at maturity. Although no
cash income on account of such discount is actually received by such the Fund,
original issue discount that accrues on a debt security in a given year
generally is treated for federal income tax purposes as interest and, therefore,
such income would be subject to the distribution requirements applicable to
regulated investment companies. Some debt securities may be purchased by the
Fund at a discount that exceeds the original issue discount on such debt
securities, if any. This additional discount represents market discount for
federal income tax purposes (see above).
CMO RESIDUALS. Under certain circumstances, the Fund may be taxed on income
deemed to be earned from certain CMO residuals.
OPTIONS FUTURES AND FORWARD CONTRACTS. Any regulated futures contracts and
certain options (namely, nonequity options and dealer equity options) in which
the Fund may invest may be "section 1256 contracts." Gains (or losses) on these
contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also, section 1256 contracts held by the Fund at the
end of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market" with the result that unrealized gains or losses are treated
as though they were realized.
Transactions in options, futures and forward contracts undertaken by
the Fund may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Fund, and
losses realized by the Fund on positions that are part
43
<PAGE>
of a straddle may be deferred under the straddle rules. rather than being taken
into account in calculating the taxable income for the taxable year in which the
losses are realized. In addition, certain carrying charges (including interest
expense) associated with positions in a straddle may be required to be
capitalized rather than deducted currently. Certain elections that the Fund may
make with respect to its straddle positions may also affect the amount,
character and timing of the recognition of gains or losses from the affected
positions.
Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to the Fund are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to the Fund that did not engage
in such transactions.
CONSTRUCTIVE SALES. Under certain circumstances, the Fund may recognize gain
from a constructive sale of an "appreciated financial position" it holds if it
enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event; the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.
SECTION 988 GAINS OR LOSSES. Gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of some investments, including debt securities and
certain forward contracts denominated in a foreign currency, gains or losses
attributable to fluctuations in the value of the foreign currency between the
acquisition an disposition of the position also are treated as ordinary gain or
loss. These gains and losses, referred to under the Code as "section 988" gains
or losses, increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income. If section 988 losses exceed other investment company taxable income
during a taxable year, the Fund would not be able to make any ordinary dividend
distributions, or distributions made before the losses were realized would be
recharacterized as a return of capital to shareholders, rather than as an
ordinary dividend, reducing each shareholder's basis in his or her Fund shares.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in shares of foreign
corporations that may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
44
<PAGE>
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Fund held the PFIC shares. The Fund
will itself be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in some
circumstances, the Fund would be required to include in its gross income its
share of the earnings of a PFIC on a current basis, regardless of whether
distributions were received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, another election would involve
marking to market the Fund's PFIC shares at the end of each taxable year, with
the result that unrealized gains would be treated as though they were realized
and reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years.
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.
OTHER INFORMATION CAPITALIZATION
SHARES OF BENEFICIAL INTEREST
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, Fund Trust Tax-Free Trust
(organized on July 30, 1986) and FundVest (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
45
<PAGE>
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 LLP as independent auditors of
the Trust. KPMG 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 LLP's address is 2 Nationwide Plaza, Columbus,
Ohio 43215.
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 Rule 17j-1 under the Investment Company Act of 1940.
The codes of ethics are designed to prevent affiliated persons of HSBC Investor
Funds, the Adviser and BISYS from engaging in deceptive, manipulative, or
fraudulent activities in connection with securities held or to be acquired by
the Fund. There can be no assurance that the codes will be effective in
preventing such activities. Personnel subject to the codes may invest in
securities, including securities that may be purchased or held by the Fund.
The codes of ethics are on public file and are available from the Securities
Exchange Commission ("SEC").
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
The Fund is expected to commence operations December 28, 2000.
Therefore, the performance information (including annual and average annual
total returns) for a full calendar year is not yet available.
46
<PAGE>
SHAREHOLDER INQUIRIES
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)
47
<PAGE>
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 Fund, and HSBC Investor California Tax-Free Money
Market Fund.*
(a)(6) Establishment and designation of series for HSBC Investor U.S.
Treasury Money Market Fund, HSBC Investor Growth and Income Fund, and
HSBC Investor Balanced Fund.*
(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.*
(d)(4) Investment Advisory Contract between Republic Funds and HSBC
Asset Management (Americas) Inc.*
(d)(5) Investment Advisory Contract Supplement regarding HSBC Investor
Growth and Income Fund.*
(d)(6) Investment Advisory Contract Supplement regarding HSBC Investor
U.S. Treasury Money Market Fund.*
(d)(7) Investment Advisory Contract Supplement regarding HSBC Investor
Balanced Fund.*
(d)(8) Subadvisory Agreement between Alliance Capital Management L.P.
and Republic National Bank of New York regarding Republic Equity
Fund. 9
(d)(9) Subadvisory Agreement between Brinson Partners, Inc. and Republic
National Bank of New York regarding Republic Equity Fund. 9
(d)(10) Subadvisory Agreement between Miller Anderson & Sherrard and
Republic National Bank of New York regarding Republic Bond Fund
(to be filed by amendment).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(d)(11) 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)(12) 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, HSBC Investor California Tax-Free Money Market
Fund, HSBC Investor Growth and Income Fund, HSBC Investor U.S.
Treasury Money Market Fund and HSBC Investor Balanced Fund (to be
filed by amendment).
(f) Not applicable.
(g)(1) Form of Custodian Agreement - Republic. 13
(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 of Counsel.
(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, Republic
Money Market Fund, HSBC Mid-Cap Fund,
</TABLE>
<PAGE>
<TABLE>
<S> <C>
HSBC Investor California Tax-Free Money Market Fund, Overseas
Equity Fund, Republic Opportunity Fund, HSBC Investor Growth and
Income Fund, HSBC Investor Limited Maturity Bond Fund, HSBC
Investor U.S. Treasury Money Market Fund and HSBC Investor
Balanced Fund (to be filed by an 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).
(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.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(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.
(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.
* Filed herewith.
</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
<PAGE>
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 Asset Management (Americas) Inc. acts as investment adviser to
HSBC Investor Funds and HSBC Advisor Funds Trust, and is a subsidiary of HSBC
Bank USA ("HSBC"), which is a subsidiary of HSBC USA, Inc. ("HSBC USA"), 452
Fifth Avenue, New York, New York 10018, a registered bank holding company.
The Adviser's directors and principal executive officers, and their business
and other connections for at least the past two 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
<PAGE>
885 West Georgia Street - Suite 300
Vancouver, BC V6C 3E9
Canada
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
Mr. Youssef A. Nasr
President & Chief Executive Officer
HSBC Bank USA
<PAGE>
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
lain A. Stewart
Senior Executive Vice President
Philip S. Toohey
Senior Executive Vice President
George T. Wendler
Senior Executive Vice President
<PAGE>
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 Conshokocken, 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.
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 28th day of December, 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 December 28, 2000.
Walter B. Grimm**
-----------------
Walter B. Grimm
President
<PAGE>
Nadeem Yousaf**
-----------------
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 M. Mizer
--------------------
**Jill M. Mizer, as attorney-in-fact pursuant to powers of attorney.
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Exhibit List
(a)(5) Establishment and designation of series for HSBC Investor Limited
Maturity Fund and HSBC Investor California Tax-Free Money Market Fund
(a)(6) Establishment and designation of Series for HSBC Investor U.S. Treasury
Money Market Fund, HSBC Growth and Income Fund, and HSBC Balanced Fund.
(d)(3) Amended and Restated Second Master Investment Advisory Contract with
Supplement regarding Republic Money Market Fund.
(d)(4) Investment Advisory Contract between Republic Funds and HSBC Asset
Management (Americas) Inc.
(d)(5) Investment Advisory Contract Supplement regarding HSBC Investor
Growth and Income Fund.
(d)(6) Investment Advisory Contract Supplement regarding HSBC Investor U.S.
Treasury Money Market Fund.
(d)(7) Investment Advisory Contract Supplement regarding HSBC Investor
Balanced Fund.
