<PAGE>
As Filed with the Securities and Exchange Commission on April 24, 1996
Registration Nos. 33-33734
811-6057
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. 17 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 19 / X /
HSBC MUTUAL FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 634-2536
Steven R. Howard, Secretary
Baker & McKenzie, 805 Third Avenue, 30th Floor
New York, New York 10022
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box):
X immediately upon filing pursuant to paragraph (b)
---
on (date) pursuant to paragraph (b)
---
75 days after filing pursuant to paragraph (a)
---
on (date) pursuant to paragraph (a) of Rule 485
---
The Registrant has registered an indefinite number of shares of beneficial
interest, par value $0.001 per share, by filing a declaration pursuant to Rule
24f-2 under the Investment Company Act of 1940. A Rule 24f-2 Notice for the
fiscal year ended December 31, 1995 was filed with the Commission on February
29, 1996.
Calculation of Registration Fee
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Title of Securities Being Amount Being Proposed Maximum Proposed Maximum Amount of
Registered Registered* Offering Price Per Aggregate Offering Registration Fee
Unit Price**
Shares of Beneficial Interest:
$.001 par value of each
Portfolio Indefinite
Growth and Income Fund 871,300 $15.34 $ 145,535 $48.81
New York Tax-Free Bond
Fund 445,072 $10.80 $ 50,901 $17.55
Small Cap Fund 180,779 $16.23 $ 31,070 $10.71
Short-Term U.S.
Government Fund 462,109 $9.74 $ 47,662 $16.44
International Equity Fund 172,321 $10.32 $ 18,832 $6.49
------------- --------------------------------------
Total 2,131,581 $ 290,000 $100.00
</TABLE>
* Registrant continues its election to register an indefinite number of
shares of beneficial interest pursuant to rule 24f-2 under the
Investment Company Act of 1940.
** The calculation of the maximum aggregate offering price is made pursuant
to rule 24e-2(a) under the Investment Company Act of 1940 and is based
on the following: the total amount of securities redeemed or repurchased
of the Registrant's series indicated above during the fiscal year ended
December 31, 1995 was 17,894,688 securities of the Growth and Income
Fund; 9,413,776 securities of the New York Tax-Free Bond Fund; 5,957,958
securities of the Small Cap Fund; 24,118,178 securities of the Fixed
Income Fund; 7,337,356 of the Short-Term U.S. Government Fund; and
20,372,761 securities of the International Equity Fund, were previously
used for reduction pursuant to Rule 24f-2 and 2,131,580 (representing
871,300 shares of the Growth and Income Fund; 445,072 shares of the New
York Tax-Free Bond Fund; 180,778 shares of the Small Cap Fund; 462,109
shares of the Short-Term U.S. Government Fund; and 172,321 shares of the
International Equity Fund), is being so used for such reduction in this
Amendment.
*** Unless otherwise indicated, amount represents the maximum offering price
per unit as of April 16, 1996.
<PAGE>
HSBC MUTUAL FUNDS TRUST
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
under the Securities Act of 1933
FIXED INCOME FUND
SHORT-TERM U.S. GOVERNMENT FUND
NEW YORK TAX-FREE BOND FUND
SMALL CAP FUND
GROWTH & INCOME FUND
INTERNATIONAL EQUITY FUND
N-1A Item No. Location
Part A Prospectus Caption
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Summary of Annual Fund Operating
Expenses
Item 3. Condensed Financial
Information..................... Yield Information;
Financial Highlights
Item 4. General Description of
Registrant...................... Investment Objective,
Policies and Risk
Factors; Investment
Restrictions
Item 5. Management of the Fund............ Management of the Fund; Transactions
with Affiliates; Purchase of Shares;
Transfer and Dividend Disbursing
Agent and Custodian
Item 5A. Management's Discussion of
Fund Performance................ Not Applicable
Item 6. Capital Stock and Other
Securities...................... Dividends, Distributions and Taxes;
Account Services; Shares of
Beneficial Interest
Item 7. Purchase of Securities
Being Offered................... Determination of Net Asset Value;
Purchase of Shares; Exchange
Privilege
Item 8. Redemption or Repurchase.......... Redemption of Shares; Redemptions
(Part B)
Item 9. Legal Proceedings................. Not Applicable
<PAGE>
Part B Statement of
Additional Information
Caption
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Table of Contents
Item 12. General Information and
History......................... Not Applicable
Item 13. Investment Objective and
Policies......................... Investment Policies and Risk
Factors; Investment Restrictions
Item 14. Management of the Registrant...... Management
Item 15. Control Persons and Principal
Holders of Securities........... Management; Shares of Beneficial
Interest
Item l6. Investment Advisory and
Other Services.................. Management; Custodian, Transfer
Agent and Dividend Disbursing Agent;
Independent Auditors
Item 17. Brokerage Allocation.............. Portfolio Transactions
Item 18. Capital Stock and Other
Securities...................... Shares of Beneficial Interest
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered................... Purchase of Shares (Part A);
Redemptions; Redemption of Shares
(Part A); Determination of Net Asset
Value; Exchange Privilege
Item 20. Tax Status........................ Dividends, Distributions and Taxes
(Part A); Federal Income Taxes (Part
B);
Item 21. Underwriters...................... Management
Item 22. Calculation of Performance
Data............................ Performance Information
Item 23. Financial Statements.............. Financial Statements
<PAGE>
================================================================================
HSBC Mutual Funds Trust
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Short-Term U.S. Government Fund 3435 Stelzer Road, Columbus, Ohio 43219
Fixed Income Fund
New York Tax Free Bond Fund Information: (800) 634-2536
HSBC ASSET MANAGEMENT AMERICAS INC.
--Investment Adviser and Co-Administrator
BISYS FUNDS SERVICES--Distributor
- --------------------------------------------------------------------------------
HSBC Mutual Funds Trust, formerly known as Mariner Mutual Funds Trust (the
"Trust") was organized in Massachusetts on November 1, 1989 as a Massachusetts
business trust and is an open-end, diversified management investment company
with multiple investment portfolios, including the Short-Term U.S. Government
Fund (formerly known as the Short-Term Fixed Income Fund) (the "Short-Term
Fund"), the Fixed Income Fund (the "Fixed Income Fund") and the New York
Tax-Free Bond Fund (the "New York Fund") to which this Prospectus relates
(herein referred to individually as a "Fund" and collectively as the "Funds").
The investment objective of the Short-Term Fund is preservation of capital
and generation of current income by investing in fixed-income securities with a
dollar-weighted average portfolio maturity of between one and three years. The
Short-Term Fund will invest primarily in securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. The investment objective of
the Fixed Income Fund is generation of high current income consistent with
appreciation of capital by investing in a variety of fixed-income securities.
The investment objective of the New York Fund is to provide its investors with
as high a level of current income exempt from Federal, New York State and New
York City income taxes as is consistent with relative stability of capital. See
"Investment Objectives and Policies" in this Prospectus. There can be no
assurances that the Funds will achieve their investment objectives.
The Funds' investment adviser is HSBC Asset Management Americas Inc. ("HSBC
Americas" or the "Adviser"), the North American investment affiliate of HSBC
Holdings plc (Hongkong and Shanghai Banking Corporation) and Marine Midland Bank
(the "HSBC Group"). See "Management of the Funds" in this Prospectus.
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT SHARES OF THE FUNDS ARE NOT AN
OBLIGATION OF OR GUARANTEED OR ENDORSED BY HSBC GROUP OR ITS AFFILIATES. IN
ADDITION, SUCH SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY AND MAY INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
Shares of the Funds are offered for sale primarily through its Distributor
as an investment vehicle for institutions, corporations, fiduciaries and
individuals. Certain broker-dealers, banks, financial institutions and
corporations (the "Participating Organizations") have agreed to act as
shareholder servicing agents for investors who maintain accounts at these
Participating Organizations and to perform certain services for the Funds.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. A Statement of Additional Information
(the "SAI"), dated April 24, 1996, containing additional detailed information
about the Funds, has been filed with the Securities and Exchange Commission and
is hereby incorporated by reference into this Prospectus. A copy is available
without charge and can be obtained by writing the Trust at the above address, or
calling the telephone number listed above.
----------
This Prospectus should be read and retained for ready reference
to information about the Fund.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
April 24, 1996
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
Summary of Annual Fund Operating
Expenses ............................................................. 2
Financial Highlights ...................................................... 4
Investment Objectives, Policies and Risk
Factors .............................................................. 7
Other Investment Policies ................................................. 17
Investment Restrictions ................................................... 21
Management of the Funds ................................................... 22
Transactions with Affiliates .............................................. 25
Determination of Net Asset Value .......................................... 26
Purchase of Shares ........................................................ 26
Redemption of Shares ...................................................... 30
Exchange Privilege ........................................................ 32
Dividends and Distributions ............................................... 32
Federal Income Taxes ...................................................... 33
New York Taxes ............................................................ 35
Account Services .......................................................... 35
Transfer and Dividend Disbursing Agent
and Custodian ........................................................ 35
Performance Information ................................................... 36
Shares of Beneficial Interest ............................................. 36
</TABLE>
----------
SUMMARY OF ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
The purpose of the following information is to assist an investor in
understanding the costs and expenses that an investor in the Funds would bear
directly or indirectly. The information is based on expenses for the Funds for
the fiscal year ended December 31, 1995, as adjusted for estimated other
operating expenses and voluntary reductions of investment advisory,
co-administration and 12b-1 fees.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses:
Short-Term Fixed Income New York
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Maximum sales charge imposed on purchases of Fund's shares
(as a percentage of offering price) .................................................... 2.00% 4.75% 4.75%
---- ---- ----
Certain investors will not be subject to the sales charge. See "Purchase of
Shares" in this Prospectus .............................................................
Annual Fund Operating Expenses:
Management Fees (net of fees not imposed)* .................................................. 0.20% 0.55% 0.25%
12b-1 Fees (net of fees not imposed)** ...................................................... 0.05% 0.08% 0.25%
Other Expenses (net of fees and expenses not imposed)
Administrative Services Fee*** ......................................................... 0.10% 0.10% 0.10%
Co-Administrative Services Fee**** ..................................................... 0.00% 0.00% 0.00%
Other Operating Expenses ............................................................... 0.75% 0.29% 0.40%
---- ---- ----
Total Fund Operating Expenses (net of fees and expenses
not imposed)+ .......................................................................... 1.10% 1.02% 1.00%
==== ==== ====
Total Fund Operating Expenses Before Non-Imposition
of Fees and Expense Reimbursements ..................................................... 1.87% 1.41% 1.42%
==== ==== ====
</TABLE>
Investors should be aware that the above table is not intended to reflect
in precise detail the fees and expenses associated with an individual
shareholder's own investment in the Funds. Rather, the table has been provided
only to assist investors in gaining a more complete understanding of fees,
charges and expenses. For a more detailed discussion of these matters, investors
should refer to the appropriate sections of this Prospectus.
2
<PAGE>
THE FOLLOWING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. THE EXPENSES SET FORTH ABOVE AND EXAMPLE SET FORTH BELOW
REFLECT THE NON-IMPOSITION OF CERTAIN FEES AND EXPENSES. THE ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. THE FOLLOWING EXAMPLE ASSUMES A 5% ANNUAL
RETURN; HOWEVER, THE FUNDS' ACTUAL RETURN WILL VARY AND MAY BE GREATER OR LESS
THAN 5%.
You would pay the following expenses on a $1,000 investment assuming a
5% annual return and the reinvestment of all dividends and distributions:++
<TABLE>
Example:
Short-Term Fixed Income New York
Fund Fund Fund
---------- ------------ --------
<S> <C> <C> <C>
1 year.......................... $ 31 $ 57 $ 57
3 years......................... $ 54 $ 78 $ 78
5 years ........................ $ 79 $101 $100
10 years........................ $151 $166 $164
</TABLE>
- ----------
* Reflects advisory fees not imposed as a result of a voluntary waiver by the
Adviser. If these fees had been imposed, the Short Term Fund and New York
Fund would have paid 0.55%, and 0.45%, respectively, for advisory fees. See
"Management of the Funds--Investment Adviser."
** The fee under each Fund's Distribution Plan and Agreement is calculated on
the basis of the average daily net assets of each Fund at an annual rate
not to exceed 0.35% with respect to each Fund. See "Management of the
Funds--Distribution Plan and Agreement."
*** Reflects administrative fees not imposed as a voluntary waiver by BISYS
Fund Services of 0.05% for each Fund. See "Management of the
Funds--Administration."
**** Reflects co-administrative fees of 0.03% and shareholder servicing fees of
0.04% voluntarily waived by HSBC Americas for each Fund. See "Management of
the Funds--Administrator and Shareholder Servicing Agent."
+ Investors who purchase and redeem shares of a Fund through a customer
account maintained at a Participating Organization may be charged
additional fees by such Participating Organization. (See "Management of the
Funds--Servicing Agreements.")
++ Includes a maximum sales charge from which certain shareholders may be
exempt. See "Purchase of Shares."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following supplementary financial information for each of the three
years in the period ended December 31, 1995 for the Fixed Income and Short-Term
U.S. Government Funds and for each of the five years in the period ended
December 31, 1995 for the New York Tax-Free Bond Fund has been audited by Ernst
& Young LLP whose reports thereon appear in the Statement of Additional
Information ("SAI"). The supplementary financial information for each of the
years ended December 31, 1990 and 1989 also has been audited by Ernst & Young
LLP whose report thereon was unqualified. This information should be read in
conjunction with the financial statements and notes thereto which are included
in the SAI and may be obtained by shareholders.
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
FIXED INCOME FUND
For the Period
January 15, 1993
(Commencement of
Year Ended December 31, Operations) to
----------------------- --------------
1995 1994 December 31, 1993
---- ---- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period................. $ 9.35 $ 10.13 $ 10.00
------ ------- -------
Income From Investment Operations:
- ----------------------------------
Net investment income........................... 0.59 0.59 0.63
Net realized and unrealized gain (loss)
on investments............................... 0.93 (0.78) 0.21
---- ------ ----
Total from investment operations............. $ 1.52 (0.19) 0.84
------ ------ ----
Less Distributions from:
- ------------------------
Net investment income........................... (0.59) (0.59) (0.63)
Net realized gain............................... -- -- (0.07)
Excess of current year net
realized gain on investments................. -- -- (0.01)
------ ------ ------
Total distributions.......................... (0.59) (0.59) (0.71)
------ ------ ------
Net asset value, end of period....................... $ 10.28 $ 9.35 $ 10.13
======= ====== =======
Total Return (a)..................................... (16.73)% (1.89)%(b) 8.57%(b)
Ratios/Supplemental Data:
- -------------------------
Net assets (000), end of period................. $99,942 $84,774 $90,907
Ratio of expenses (without waivers) to average
net assets................................... 0.96% 0.86% 0.87%(c)
Ratio of expenses (with waivers) to average
net assets................................... 0.93% 0.77% 0.22%(c)
Ratio of net investment income (without fee
waivers) to average net assets............... 6.00% 6.01% 5.75%(c)
Ratio of net investment income (with fee waivers)
to average net assets........................ 6.03% 6.10% 6.40%(c)
Portfolio turnover rate......................... 41.58% 63.96% 107.34%(b)
</TABLE>
- ----------
(a) Excludes sales charge.
(b) Not annualized.
(c) Annualized.
4
<PAGE>
<TABLE>
<CAPTION>
SHORT-TERM U.S. GOVERNMENT FUND
For the Period
March 1, 1993
(Commencement of
Year Ended December 31, Operations) to
1995 1994 December 31, 1993
---- ---- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period................. $ 9.49 $ 9.91 $ 10.00
------ ------ -------
Income From Investment Operations:
- ----------------------------------
Net investment income........................... 0.54 0.50 0.41
Net realized and unrealized gain (loss)
on investments............................... 0.48 (0.42) (0.09)
---- ------ ------
Total from investment operations................ 1.02 0.08 0.32
---- ---- ----
Less Distributions from:
- ------------------------
Net investment income........................... (0.54) (0.50) (0.41)
Net asset value, end of period....................... $ 9.97 $ 9.49 $ 9.91
====== ====== ======
Total Return (a)..................................... 10.99% 0.86% 3.24%(b)
Ratios/Supplemental Data:
- -------------------------
Net assets (000), end of period................. $10,908 $14,642 $17,511
Ratio of expenses (without fee waivers) to
average net assets........................... 1.44% 1.21% 1.29%(c)
Ratio of expenses (with fee waivers) to average
net assets................................... 1.04% 0.78% 0.60%(c)
Ratio of net investment income (without fee
waivers) to average net assets............... 5.13% 4.75% 4.22%(c)
Ratio of net investment income (with fee
waivers) to average net assets............... 5.53% 5.18% 4.91%(c)
Portfolio turnover rate......................... 53.28% 68.13% 32.02%(b)
</TABLE>
- ----------
(a) Excludes sales charge.
(b) Not annualized.
(c) Annualized.
5
<PAGE>
<TABLE>
<CAPTION>
NEW YORK TAX-FREE BOND FUND
For the Period
March 21, 1989
Year Ended December 31, (commencement
----------------------- of operations) to
1995 1994 1993 1992 1991 1990 December 31, 1989
---- ---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $10.20 $11.70 $11.01 $10.66 $10.14 $10.20 $10.00
------ ------ ------ ------ ------ ------ ------
Income From Investment Operations:
Net investment income.............. 0.54 0.53 0.59 0.66 0.66 0.64 0.50
Net realized and unrealized gain (loss)
on investments................... 0.97 (1.47) 0.95 0.44 0.57 (0.04) 0.20
---- ------ ---- ---- ---- ------ ----
Total from investment operations... 1.51 (0.94) 1.54 1.10 1.23 0.60 0.70
---- ------ ---- ---- ---- ---- ----
Less Distributions from:
Net investment income.............. (0.54) (0.53) (0.59) (0.66) (0.66) (0.64) (0.50)
Net realized gain.................. (0.03) (0.26) (0.09) (0.05) (0.02)
------ ------ ------ ------ ------ ------ ------
Total distributions.............. (0.54) (0.56) (0.85) (0.75) (0.71) (0.66) (0.50)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period........ $11.17 $10.20 $11.70 $11.01 $10.66 $10.14 $10.20
====== ====== ====== ====== ====== ====== ======
Total Return (a)...................... 15.17% (8.13)% 14.27% 10.66% 12.59% 6.13% 7.13%(b)
Ratios/Supplemental Data
Net assets (000), end of period.... $50,677 $50,711 $61,740 $32,407 $14,929 $7,268 $ 7,150
Ratio of expenses (without fee waivers)
to average net assets............ 1.20% 1.10% 1.06% 1.17% 1.32% 1.53% 1.58%(c)
Ratio of expenses (with fee waivers)
to average net assets............ 0.99% 0.84% 0.63% 0.38% 0.34% 0.50% 0.50%(c)
Ratio of net investment income (without fee
waivers) to average net assets... 4.86% 4.67% 4.55% 5.25% 5.38% 5.35% 5.21%(c)
Ratio of net investment income (with fee
waivers) to average net assets... 5.07% 4.93% 4.98% 6.04% 6.36% 6.38% 6.29%(c)
Portfolio turnover rate............ 24.43% 122.43% 70.36% 66.44% 110.27% 88.48% 78.7%(b)
</TABLE>
- ----------
(a) Excludes sales charge.
(b) Not Annualized.
(c) Annualized.
6
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
Short-Term U.S. Government Fund
The investment objective of the Short-Term U.S. Government Fund (the
"Short-Term Fund") is preservation of capital and generation of current income
by investing in fixed-income securities with a dollar-weighted average portfolio
life of between one and three years. The Short-Term Fund invests primarily in
notes, bonds, debentures and other fixed-income securities including obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities;
U.S. dollar-denominated corporate debt securities of domestic or foreign
issuers; mortgage and other asset-backed securities; variable and floating rate
debt securities; U.S. dollar-denominated obligations of foreign governments and
foreign government agencies described below. Under normal market conditions, at
least 65% of the total assets of the Short-Term Fund will be invested in
fixed-income securities which are rated at least Baa by Moody's Investors
Service ("Moody's") or BBB by Standard & Poor's Corporation ("S&P") or which are
comparably rated by another rating agency or, if unrated, are determined to be
of comparable quality by the Adviser pursuant to guidelines established and
regularly reviewed by the Board of Trustees. The Board of Trustees has adopted a
non-fundamental policy to invest at least 65% of the Short-Term Fund's total
assets in securities guaranteed by the U.S. Government, its agencies or
instrumentalities under normal market conditions. The Short-Term Fund will not
purchase debt securities rated below Baa by Moody's or BBB by S&P and expects to
maintain an average quality rating of its investment portfolio of Aa by Moody's
or AA by S&P or, to the extent certain securities are unrated or rated by other
rating agencies, result in comparable portfolio quality. While "Baa"/"BBB"
securities and comparable unrated securities may produce a higher return, they
are subject to a greater degree of market fluctuation and credit risks than the
higher quality securities in which the Short-Term Fund may invest and may be
regarded as having speculative characteristics as well. The Short-Term Fund will
not invest in any fixed income security with a remaining maturity in excess of
51/4 years (63 months). The Short-Term Fund may invest up to 35% of its total
assets in variable and floating rate debt securities which meet the issuer and
quality standards described above.
Fixed Income Fund
The investment objective of the Fixed Income Fund is generation of high
current income consistent with appreciation of capital. The Fixed Income Fund
invests primarily in notes, bonds, debentures and other fixed-income securities
substantially similar to those eligible for investment by the Short-Term Fund
but which may be of longer maturity. Under normal market conditions, at least
65% of the total assets of the Fixed Income Fund will be invested in
fixed-income securities which are rated at least Baa by Moody's or BBB by S&P or
which are comparably rated by another rating agency or, if unrated, are
determined to be of comparable quality by the Adviser pursuant to guidelines
established and regularly reviewed by the Board of Trustees. The Fixed Income
Fund will not purchase debt securities rated below Baa by Moody's or BBB by S&P
and expects to maintain an average quality rating of its investment portfolio of
Aa by Moody's or AA by S&P or, to the extent certain securities are unrated or
rated by other rating agencies, result in comparable average portfolio quality.
While "Baa"/"BBB" and comparable unrated securities may produce a higher return,
they are subject to a greater degree of market fluctuation and credit risk than
the higher quality securities in which the Fixed Income Fund may invest and may
be regarded as having speculative characteristics as well. The quality
restrictions on the Fixed Income Fund's investments prevent the Fund from
utilizing certain more speculative investments which would otherwise serve to
achieve the Fund's investment objective of providing investors with high current
income. The Fixed
7
<PAGE>
Income Fund may invest up to 35% of its total assets in variable and floating
rate debt securities which meet the issuer and quality standards described
above.
After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by a Fund. However, the Adviser will
consider such event in its determination of whether a 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, such Fund will attempt to conform its
ratings systems to such changes as standards for investments in accordance with
the investment policies contained in this Prospectus and in the SAI.
Each Fund will base its investment selection upon analysis of prevailing
market and economic conditions. Although neither Fund has a present intention of
doing so, each Fund may utilize options on securities, interest rate futures
contracts and options thereon to reduce certain risks to its investments and to
attempt to enhance income, but not for speculation. The investment objective and
the investment policies described above for each Fund are fundamental and may
not be changed by the Board of Trustees without a vote of shareholders of the
applicable Fund. The other investment policies of each Fund are not fundamental,
except as otherwise indicated, including those discussed below under "Investment
Policies," and therefore may be changed by the Board of Trustees without a
shareholder vote. There can be no assurance that either Fund's investment
objective will be attained.
New York Tax-Free Bond Fund
The investment objective of the New York Tax-Free Bond Fund (the "New York
Fund") is to provide investors with as high a level of current income exempt
from regular Federal, New York State and New York City income taxes as is
consistent with relative stability of capital. Generally, long-term municipal
obligations provide higher yield and higher price volatility than short-term and
intermediate-term municipal obligations. There can be no assurance that the New
York Fund's investment objective will be attained.
Municipal Obligations and Quality Standards
To attain its investment objective, the New York Fund invests substantially
all of its assets in municipal obligations that are exempt from Federal, New
York State and New York City income tax in the opinion of bond counsel to the
issuer and in participation certificates in such obligations purchased from
banks, insurance companies and other financial institutions ("New York
Obligations") which meet the rating standards described below. As a matter of
fundamental policy, the New York Fund will maintain at least 80% of its total
assets in tax-exempt municipal obligations that are not subject to Federal
income tax and the alternative minimum tax. Generally, during normal market
conditions at least 65% of the value of the New York Fund's total assets will be
invested in bonds of New York issuers and the remainder may be invested in other
New York Obligations or in securities that are not New York Obligations and
therefore are subject to New York State and New York City income taxes. Although
the New York Fund will have no restrictions on the minimum or maximum maturity
of
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any individual New York Obligations held by it, the New York Fund will have
an average portfolio maturity ranging from three to 30 years. See "Investment
Restrictions" in this Prospectus for additional information.
Municipal Bonds. Municipal bonds may be categorized as "general obligation"
or "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are secured by the revenue derived from a particular facility or group of
facilities or, in some cases, the proceeds of a special excise or other specific
revenue source, but not by the general taxing power. Investments in municipal
bonds are limited to bonds which are rated at the date of purchase "Baa" or
better by Moody's or "BBB"or better by S&P or comparably rated by other NRSROs,
or, in certain instances, unrated municipal bonds if they are deemed by the
Fund's investment adviser to be comparable to "Baa" or "BBB" rated based upon
the investment adviser's assessment of publicly available information.
Bonds rated "Baa" by Moody's are judged to be "medium-grade obligations,
i.e., they are neither highly protected nor poorly secured." In addition,
"interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well." Under the
S&P classification, bonds rated "BBB" have an "adequate capacity to pay interest
and repay principal" and "whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories."
Municipal Notes. Municipal notes consist of tax anticipation notes, bond
anticipation notes, revenue anticipation notes, construction loan notes and
project notes. Notes sold as interim financing in anticipation of collection of
taxes, a bond sale or receipt of other revenues are usually general obligations
of the issuer. Project notes are issued by local housing authorities to finance
urban renewal and public housing projects and are secured by the full faith and
credit of the United States Government.
Investments in municipal notes are limited to notes which are rated at the
date of purchase "MIG-2" or better ("VMIG-2" or better in the case of variable
rate notes) by Moody's or "SP-2" or better by S&P or comparably rated by other
NRSROs, or, if not rated, are in the opinion of the New York Fund's investment
adviser, of comparable investment quality.
Notes rated "MIG-2" by Moody's are judged to be of "high quality, with
margins of protection ample enough although not as large as" in "MIG-1"-rated
issues. Under the S&P classification, notes rated "SP-1" exhibit very strong or
strong capacity to pay principal and interest and notes rated "SP-2" exhibit
satisfactory capacity to pay principal and interest.
Municipal Commercial Paper. Investments in municipal commercial paper are
limited to issues rated "Prime-2" or better by Moody's or "A-2" or better by S&P
or comparably rated by other NRSROs, or, if not rated, are in the opinion of the
Fund's investment adviser of comparable investment quality.
Commercial paper rated "Prime-2" by Moody's is considered to have a "strong
capacity for repayment of short-term promissory obligations". Under the S&P
classification, the "A-2" rating indicates a strong capacity for timely payment
but the relative degree of safety is not as high as for issues designated "A-1".
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If not rated, securities purchased by the New York Fund will be of
comparable quality to the above ratings as determined by the Fund's investment
adviser.
After purchase by the New York 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 New
York Fund's investment adviser will consider such event in its determination of
whether the New York Fund should continue to hold the security. To the extent
the ratings given by a NRSRO may change as a result of changes in such
organizations or their rating systems, the New York Fund will attempt to conform
its rating systems to such changes as standards for investments in accordance
with the investment policies contained in this Prospectus and in the Statement
of Additional Information.
Although an investment in the New York Fund is not insured, certain of the
municipal obligations purchased by the New York Fund may be insured as to
principal and interest by companies that provide insurance for municipal
obligations. These obligations are identified as such in the New York Fund's
financial statements.
New York Obligations
The New York Fund's assets will be invested primarily in municipal
obligations that are exempt from Federal, New York State and New York City
income tax in the opinion of bond counsel to the issuer and in participation
certificates in such obligations purchased from banks, insurance companies and
other financial institutions. Dividends paid by the New York Fund which are
attributable to interest income on tax-exempt obligations of the State of New
York and its political subdivisions, and of Puerto Rico, other U.S. territories
or possessions and their political subdivisions will be exempt from Federal, New
York State and New York City personal and corporate income taxes. The New York
Fund may purchase municipal obligations issued by other states, their agencies
and instrumentalities, the interest income on which will be exempt from Federal
income tax but will be subject to New York State and New York City personal and
corporate income taxes.
Floating Rate Instruments. Certain municipal obligations which the Fund may
purchase have a floating or variable rate of interest. Such obligations bear
interest at rates which are not fixed, but which vary with changes in specified
market rates or indices, such as a Federal Reserve composite index. Such
obligations may carry a demand or "put" feature which would permit the holder to
tender them back to the issuer (or to a third party) at par value prior to
maturity. The Fund's investment adviser will monitor on an ongoing basis the
earning power, cash flow and other liquidity ratios of the issuers of such
obligations, and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand. The Fund's right to obtain
payment at par on a demand instrument could be affected by events occurring
between the date the Fund elects to demand payment and the date payment is due,
which may affect the ability of the issuer of the instrument to make payment
when due.
The New York Fund may elect to invest up to 20% of the current value of its
total assets in securities subject to the Federal alternative minimum tax. In
addition, the Fund may invest up to 100% of its total assets in these and other
taxable securities to maintain a temporary "defensive" posture when, in the
opinion of the Fund's investment adviser, it is advisable to do so. During times
when the Fund is maintaining a temporary defensive posture, it may be unable to
fully achieve its investment objective.
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The types of taxable securities (in addition to "alternative minimum tax"
securities) in which the Fund may invest are limited to the following money
market instruments which have remaining maturities not exceeding one year: (i)
obligations of the United States Government, its agencies or instrumentalities;
(ii) negotiable certificates of deposit and bankers' acceptances of United
States banks which have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the Federal Deposit
Insurance Corporation; (iii) domestic commercial paper rated "P-1" by Moody's or
"A-1" or "A-1+" by S&P or comparably rated by another nationally recognized
statistical rating organization; and (iv) repurchase agreements. The Fund also
has the right to hold cash equivalents of up to 100% of its total assets when
the Fund's investment adviser deems it necessary for temporary defensive
purposes.
Opinions relating to the validity of municipal obligations (including New
York Obligations) and to the exemption of interest thereon from Federal income
tax are rendered by bond counsel to the respective issuers at the time of
issuance. Neither the Trust nor the Adviser will review the proceedings relating
to the issuance of municipal obligations or the basis for such opinions.
Risk Considerations for the New York Fund
Investors should be aware that certain substantial issuers of New York
municipal obligations (including issuers whose obligations may be acquired by
the New York Fund), have experienced serious financial difficulties in recent
years. These difficulties have at times jeopardized the credit standing and
impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest rates and lower market prices for their debt
obligations. A recurrence of the financial difficulties previously experienced
by such issuers could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of other issuers of
New York Municipal Obligations. The ability of the New York Fund to meet its
objective is affected by the ability of issuers to meet their payment
obligations. A default by an issuer of an obligation held by the New York Fund
could result in a substantial loss of principal with respect to that obligation
and a potential decline in the New York Fund's net asset value.
There are additional risks associated with an investment which concentrates
in issues of one state. Since the New York Fund invests primarily in obligations
of New York issuers, the marketability and market value of these obligations may
be affected by long-term economic problems which face New York City and New York
State. In particular, the ability of the State and the City to finance
independently has been adversely affected in the past by their inability to
achieve or maintain favorable credit ratings. There can also be an effect on the
market price of securities of other New York issuers if the City receives less
favorable credit ratings and if certain of its economic problems continue. If
these problems are not resolved, or if new ones develop, they could adversely
affect the various New York issuers' ability to meet their financial
obligations. Recently, for example, a significant slowdown in the financial
services sector of New York City has adversely affected the City's revenues and
has created budget gaps. In addition, the State's budget includes dramatic
reductions in Medicaid and other sources of State aid to the City and local
entities. It is unclear at this time what the affect of these reductions, if
passed, will be on the finances of the City and local entities. There can be no
assurance that New York City or the local entities, or the State, will not face
budget gaps in future years.
In addition, Moody's and S&P have on several occasions lowered their
ratings of New York State and City debt obligations. In January, 1995, S&P
placed New York City on "credit watch" for a possible downgrade. As of
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the date of this Prospectus, New York State General Obligations are rated A by
Moody's and A-by S&P. On July 10, 1995, S&P revised its rating of the City's
General Obligation Bonds downward to BBB+. S&P stated that "structural
budgetary balance remains elusive because of persistent volatile financial
services sector." Other factors identified by S&P in lowering its rating on
City bonds included a trend of using one-time measures, including debt
refinancing, to close projected budget gaps, dependence on unratified labor
savings to help balance the Financial Plan, optimistic projections on
additional Federal and State aid or mandate relief, a history of cash flow
difficulties caused by State budget delays and continued high debt levels.
Moody's rating on New York City's bonds currently are Baa1. On March 1,
1996, Moody's stated that the rating for City general obligation bonds remains
under review pending the outcome of the adoption of the City's budget for the
1997 fiscal year and in light of the status of the debate on public assistance
and Medicaid reform; the enactment of a State budget, upon which major
assumptions regarding State aid are dependent, which may be extensively delayed;
and the seasoning of the City's economy with regard to its strength and
direction in the face of a potential national economic slowdown.
Ratings reflect only the respective views of such organizations, and an
explanation of the significance of such ratings must be obtained from the rating
agency furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the bonds.
The New York Fund is permitted to invest up to 25% of the value of its
total assets in the securities of any one issuer without adhering to the 5%
issuer limitation described under "investment restrictions". To the extent that
the New York Fund invests up to 25% of its total assets in the securities of any
one issuer, there may be an increased risk of loss to the New York Fund.
The New York Fund does not intend to concentrate its investments in any
industry. The New York Fund may, however, invest 25% or more of its total assets
in municipal obligations that are related in other ways such that an economic,
business or political development or change affecting one such obligation could
also affect the other obligations; for example, municipal obligations, the
interest on which is paid from revenues of similar types of projects. In
addition, from time to time, the New York Fund may invest 25% or more of its
assets in industrial development bonds, which, although issued by industrial
development authorities, may be backed only by those assets and revenues of
non-governmental users.
The liquidity of the New York Fund may make it difficult in certain
circumstances to dispose of large investments advantageously. Nonetheless, the
Adviser has determined that there is a sufficient market to invest in New York
Obligations.
In general, tax-exempt municipal obligations are subject to credit risks
such as the loss of credit ratings or possible default. In addition, an issuer
of tax-exempt municipal obligations may lose its tax-exempt status in the event
of a change in the current tax laws. See "Federal Income Taxes" in this
Prospectus.
The net asset value of the New York Fund generally will not be stable and
should fluctuate based upon changes in the value of the New York Fund's
portfolio securities. The prices of such securities are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations.
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Investment Policies
U.S. Government Securities. (Short-Term and Fixed Income Funds only.) Each
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, each 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 with respect to 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.
Securities of Foreign Governments and Supranational Organizations.
(Short-Term and Fixed Income Funds only.) Each Fund may invest in U.S.
dollar-denominated debt securities issued by foreign governments, their
political subdivisions, governmental authorities, agencies and instrumentalities
and supranational organizations. A supranational organization is an entity
designated or supported by the national government of one or more countries to
promote economic reconstruction or development. Examples of supranational
organizations include, among others, the International Bank for Reconstruction
and Development (World Bank), the European Economic Community, the European Coal
and Steel Community, the European Investment Bank, the Inter-American
Development Bank, the Asian Development Bank, and the African Development Bank.
Each Fund may also invest in "quasi-government securities" which are debt
obligations issued by entities owned by either a national, state or equivalent
government or are obligations of such a government jurisdiction which are not
backed by its full faith and credit and general taxing powers.
Investing in foreign government and quasi-government securities involves
considerations and possible risks not typically associated with investing in
obligations issued by the U.S. Government. The values of foreign investments are
affected by changes in governmental administration or economic or monetary
policy (in the U.S. or other countries) or changed circumstances in dealings
between countries. In addition, investments in foreign countries could be
affected by other factors not present in the United States, including
expropriation, confiscatory taxation and lack of uniform accounting and auditing
standards.
Corporate Debt Obligations. (Short-Term and Fixed Income Funds only.) Each
Fund may invest in U.S. dollar-denominated obligations issued or guaranteed by
U.S. corporations or U.S. commercial banks, or U.S. dollar-denominated
obligations of foreign issuers, including but not limited to debt securities
issued by foreign banks, foreign branches of U.S. banks, U.S. branches of
foreign banks and foreign branches of foreign banks. Such debt obligations
include, among others, bonds, notes, debentures, commercial paper and variable
rate demand notes. Bank obligations include, but are not limited to certificates
of deposit, bankers' acceptances, and fixed time deposits. The Adviser, in
choosing corporate debt securities on behalf of each 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)
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fair market value of assets, and (f) in the case of foreign issuers, unique
political, economic or social conditions to such issuer's country; and (iii)
other considerations the Adviser deems appropriate.
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.
Mortgage-Related Securities. (Short-Term and Fixed Income Funds
only.) Each Fund may invest in various mortgage-backed securities or
mortgage-related securities. Mortgage loans made by banks, savings and loan
institutions and other lenders are often assembled into pools, the
interests in which may be issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. Interests in such pools are called
"mortgage-related securities" or "mortgage-backed securities."
Most mortgage securities are pass-through securities, which means that
investors hold an undivided interest or participation in the mortgage pool. Such
securities provide investors with payments consisting of both principal and
interest as mortgages in the underlying mortgage pool are paid off by the
borrower. Investors receive a pro rata share of both regular interest and
principal payments (less issuer fees and applicable loan servicing fees), as
well as unscheduled early prepayments on the underlying mortgage pool. The
dominant issuers or guarantors of mortgage securities today are the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA guarantees mortgage securities composed of pools of Government-guaranteed
or insured (Federal Housing Authority, Veterans Administration or Farmers Home
Administration) mortgages originated by mortgage banks, commercial banks and
savings and loan associations. FNMA and FHLMC guarantee mortgage-backed
securities composed of pools of conventional and Federally insured or guaranteed
residential mortgages obtained from various entities, including savings and loan
associations, savings banks, commercial banks, credit unions and mortgage
bankers.
The principal and interest on GNMA pass-through securities are guaranteed
by GNMA and backed by the full faith and credit of the U.S. Government. FNMA
guarantees full and timely payment of all interest and principal, while FHLMC
currently guarantees timely payment and ultimate repayment of interest and
either timely payment of principal or eventual payment of principal, depending
upon the date of issue. Securities issued by FNMA and FHLMC are not backed by
the full faith and credit of the United States; however, their close
relationship with the U.S. Government makes them high quality securities with
minimal credit risks. The yields provided by these mortgage securities have
historically exceeded the yields on other types of U.S. Government securities.
However, like most mortgage-backed securities, the experienced yield is
sensitive to the rate of principal payments (including prepayments). Prepayments
on underlying mortgages result in a loss of anticipated interest, and all or
part of a premium if any has been paid, and the actual yield (or total return)
to the Fund may be different than the quoted yield on the securities. Mortgage
prepayments generally increase with falling interest rates and decrease with
rising interest rates. Like other fixed income securities, when interest rates
rise, the value of a mortgage pass-through security generally will decline;
however, when interest rates are declining, the value of mortgage pass-through
securities with prepayment features may not increase as much as that of other
fixed-income securities.
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, each 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"). Generally, the Short-
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Term Fund will not invest in 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, a 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. Each 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 mortgages, whose liquidity is
monitored by the Adviser subject to the supervision of the Board of Trustees.
Each 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 principal (including 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 Funds' ability
to invest in such CMOs or REMICs will be limited. Neither Fund will invest in
the residual interests of REMICs. See "Investment Policies and Risk Factors" in
the SAI.
The Adviser expects that new types of mortgage-related securities may be
developed and offered to investors. The Adviser will, consistent with each
Fund's investment objective, 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 often 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. The principal returned may be
invested in instruments having a higher or lower yield than the prepaid
instruments. However, because prepayments generally occur more frequently during
periods of declining interest rates, it is more likely that the returned
principal will be invested in instruments with a lower yield. As a result, if a
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 a 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. Because of these factors, the Funds'
share value and yield are not guaranteed and will fluctuate, and there can be no
assurance that the Funds' investment objective will be achieved. The magnitude
of these fluctuations generally will be greater when the average maturity of the
Funds' portfolio securities is longer.
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<PAGE>
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. (Short-Term and Fixed Income Funds only.) 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 Funds' investment
objectives, policies and quality standards, each Fund may invest in these and
other types of asset-backed securities which may be developed in the future.
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
such as a letter of credit from a bank, excess collateral or a third-party
guarantee.
Municipal Securities. Each Fund may, when deemed appropriate by the Adviser
and consistent with the investment objective of such Fund, invest in obligations
of state and local governmental issuers which carry taxable yields that are
comparable to yields of other fixed-income instruments of comparable quality or,
with respect to the Fixed Income Fund only, which the Adviser believes possess
the possibility of capital appreciation. Municipal obligations may include bonds
which may be categorized as either "general obligation" or "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are secured by the net revenue derived from a particular facility or group of
facilities or, in some cases, the proceeds of a special excise or other specific
revenue source, but not by the general taxing power.
Each Fund may also invest in municipal notes rated at least MIG-1 by
Moody's or SP-1 by S&P. Municipal notes will consist of tax anticipation notes,
bond anticipation notes, revenue anticipation notes and construction loan notes.
Notes sold as interim financing in anticipation of collection of taxes, a bond
sale or receipt of other revenues are usually general obligations of the issuer.
Each Fund may also invest in municipal commercial paper, provided such
commercial paper is rated at least "Prime-1" by Moody's or "A-1" by S&P or, if
unrated, is of comparable investment quality as determined by the Adviser.
Zero Coupon Securities. (Short-Term and Fixed Income Funds only.) The Fixed
Income Fund may invest in zero coupon securities. The Short-Term Fund may invest
in zero coupon securities with less than one year remaining to maturity. 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.
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The Fixed Income 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 during that year even though the holder receives
no cash payments of interest during the year.
Money Market Securities. (Short-Term and Fixed Income Funds only.) Under
normal market conditions, each Fund may invest up to 20% of its total assets in
various money market instruments such as bank obligations, commercial paper,
variable rate master demand notes, shares of money market mutual funds, bills,
notes and other obligations issued by a U.S. company, the U.S. Government, a
foreign company or a foreign government, its agencies or instrumentalities
denominated in U.S. dollars. For temporary defensive purposes, each Fund may
invest 100% of its total assets in such money market instruments subject to
certain restrictions. All money market instruments will be limited to those
which carry a rating of MIG-1 or P-1 by Moody's or SP-1 or A-1 by S&P, or which
are comparably rated by another rating agency or, if unrated, are of comparable
quality as determined by the Adviser pursuant to guidelines established and
regularly reviewed by the Board of Trustees. During times when the Funds are
maintaining a temporary defensive posture, they may be unable to achieve fully
their investment objectives.
OTHER INVESTMENT POLICIES
A number of the investment practices and techniques described below are
subject to certain risks described more fully in the SAI.
Lending of Portfolio Securities. The Funds may lend their securities if
such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Fund at least equal at all times to 102% of the
market value of the securities loaned plus interest or dividends. While such
securities are on loan, the borrower will pay the Fund the amount of any income
accruing thereon or, in some cases, a separate fee. The Fund will not lend
securities having a value which exceeds 10% of the current value of its total
assets. There may be risk of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. In determining whether
to lend a security to a particular broker, dealer or financial institution, the
Investment 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.
Options on Securities. (Short-Term and Fixed Income Funds only.) Each Fund
may write (sell) covered put and call options and purchase put and call options
on securities in its portfolio. The principal reason for writing call options is
to obtain, through the receipt of premiums, a greater current return than would
be realized on the underlying securities alone. However, a Fund may receive a
greater or lesser total return from its optioned positions than it would have
received from its underlying securities if they had not been subject to options
(See "Risks of Options and Futures Contracts" below). Each Fund may write call
options on a covered basis only.
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<PAGE>
Each Fund may purchase call options, but only to effect a "closing
transaction", i.e., to offset an obligation pursuant to a previously written
call option to prevent an underlying security from being called or to permit the
sale of the underlying security or the writing of a new option on the security
prior to the outstanding option's expiration. Each Fund may also purchase
securities with put options, sometimes referred to as stand-by commitments,
which are otherwise eligible for investment in amounts not exceeding 10% of its
total assets, when the Adviser anticipates a decline in the market value of
securities in a Fund's portfolio. The Funds will incur costs, in the form of
premiums, on options they purchase and may incur transaction costs on options
that they exercise. A Fund will ordinarily realize a gain from a put option it
has purchased if the value of the securities subject to the option decreases
sufficiently below the exercise price to cover both the premium and the
transaction costs.
Interest Rate Futures Contracts. (Short-Term and Fixed Income Funds only.)
Each Fund may, to a limited extent, enter into interest rate futures
contracts-i.e., contracts for the future delivery of securities or index-based
futures contracts that are, in the opinion of the Adviser, sufficiently
correlated with the Fund's portfolio. These investments will be made primarily
in an attempt to protect a Fund against the effects of adverse changes in
interest rates (i.e., "hedging"). When interest rates are increasing and
portfolio values are falling, the sale of futures contracts can offset a decline
in the value of a Fund's current portfolio securities. The SAI describes these
investments in greater detail. See "Risks of Options and Futures Contracts"
below for information on certain risks associated with interest rate futures
contracts.
Options on Interest Rate Futures Contracts. (Short-Term and Fixed Income
Funds only.) Each Fund may purchase put and call options on interest rate
futures contracts, which give a Fund the right to sell or purchase the
underlying futures contract for a specified price upon exercise of the option at
any time during the option period. Each Fund may also write (sell) put and call
options on such futures contracts. For options on interest rate futures that a
Fund writes, such Fund will receive a premium in return for granting to the
buyer the right to sell to the Fund or to buy from the Fund the underlying
futures contract for a specified price at any time during the option period.
Risks of Options and Futures Contracts. (Short-Term and Fixed Income Funds
only.) Except as otherwise provided in this Prospectus, the Funds are permitted
to engage in bona fide hedging transactions (as defined in the rules and
regulations of the Commodity Futures Trading Commission) without any
quantitative limitations. Futures and related option transactions which are not
for bona fide hedging purposes may be used provided the total amount of the
initial margin and any option premiums attributable to such positions does not
exceed 5% of each Fund's liquidating value after taking into account unrealized
profits and unrealized losses, and excluding any in-the-money option premiums
paid. The Funds will not market, and are not marketing, themselves as commodity
pools or otherwise as vehicles for trading in futures and related options. The
Funds will segregate assets to cover the futures and options.
Notwithstanding these protective limitations, one risk involved in the
purchase and sale of futures options is that a Fund may not be able to effect
closing transactions at a time when it wishes to do so. Positions in futures
contracts and options on futures contracts may be closed out only on an exchange
or board of trade that provides an active market for them, and there can be no
assurance that a liquid market will exist for the contract or the option at any
particular time. To mitigate this risk, each Fund will ordinarily purchase and
write options only if a secondary market for the options exists on a national
securities exchange or in the over-the-counter market. Another risk is that
during the option period, if a Fund has written a covered call option, it will
have given up the opportunity to profit from a price increase in the underlying
securities above the exercise price in return for the premium on the option
(although, of course, the premium can be used to offset any losses or add to a
Fund's income) but, as long as its obligation as a
18
<PAGE>
writer continues, such Fund will have retained the risk of loss should the
price of the underlying security decline. In addition, a Fund has no control
over the time when it may be required to fulfill its obligation as a writer of
the option; once a Fund has received an exercise notice, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. More information
concerning the risk factors associated with these option and hedging techniques
is contained in the SAI.
Repurchase Agreements. The Funds may enter into repurchase agreements. A
repurchase agreement is a transaction in which a Fund acquires securities and
simultaneously commits to resell the securities to the seller at an agreed upon
price plus an agreed upon market rate of interest. Each Fund will enter into
repurchase agreements only with dealers, domestic banks or recognized financial
institutions which, in the opinion of the Fund's investment adviser, present
minimal credit risk. The seller typically is a Federally insured major bank
which is a member of the Federal Reserve System, or a registered securities
dealer meeting the creditworthiness and other quality standards established by
the investment adviser and approved by the Funds' Board of Trustees. In these
transactions, the securities acquired by the Fund are held by the Fund's
custodian bank until they are repurchased. Each Fund's investment 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. The
Funds may enter into repurchase agreements, if as a result, no more than 15%
(10% in the case of the New York Fund) of the market value of a Fund's net
assets would be invested in repurchase agreements. Repurchase agreements are
considered to be loans collateralized by the underlying securities under the
Investment Company Act of 1940, as amended (the "1940 Act").
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 Funds
to exercise a contractual right to liquidate the underlying securities. However,
if the seller is a stockbroker or other entity not afforded protection under the
Bankruptcy Code, an agency having jurisdiction over the insolvent entity may
determine that a Fund does not have the immediate right to liquidate the
underlying securities. If the seller defaults, a Fund might incur a loss if the
value of the underlying securities declines. A Fund may also incur disposition
costs in connection with the liquidation of the securities. While the 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.
When-Issued and Delayed-Delivery Securities. The Funds 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 New York Fund will only make commitments to purchase
municipal obligations on a when-issued basis with the intention of actually
acquiring the securities but may sell them before the settlement date if it is
deemed advisable. The when-issued securities are subject to market fluctuation
and no interest accrues to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing 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.
Each 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.
19
<PAGE>
Securities with Put Rights. (New York Fund only.) The Fund may enter into
put transactions, sometimes referred to as stand-by commitments, with respect to
municipal obligations held in its portfolio. The amount payable to the Fund by
the buyer upon its exercise of a put will normally be (i) the Fund's acquisition
cost of the securities (excluding any accrued interest which the Fund paid on
their acquisition), less any amortized market premium or plus an amortized
original issue discount during the period the Fund owned the securities, plus
(ii) all interest accrued on the securities since the last interest payment date
during the period the securities were owned by the Fund. Absent unusual
circumstances, the Fund values the underlying securities at their market value.
Accordingly, the amount payable by a broker-dealer or bank during the time a put
is exercisable will be substantially the same as the value of the underlying
securities. If necessary and advisable, the Fund may pay for certain puts either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to such a put (thus reducing the yield to maturity
otherwise available for the same securities).
The Fund's ability to exercise a put will depend on the ability of the
broker-dealer or bank to pay for the underlying securities at the time the put
is exercised. In the event that a broker-dealer or bank should default on its
obligation to repurchase an underlying security, the Fund might be unable to
recover all or a portion of any loss sustained from having to sell the security
elsewhere.
For a more detailed description of put transactions, see "Investment--
Policies-Securities with Put Rights" in the SAI.
Illiquid Securities. Each Fund may invest in illiquid securities if
immediately after such investment no more than 15% (10% in the case of the New
York Fund) of a Fund's net assets (taken at market value) would be invested in
such securities. For this purpose, illiquid securities include (a) securities
that are illiquid by virtue of legal or contractual restrictions on resale or
the absence of a readily available market, (b) participation interests in loans
that are not subject to puts, and (c) repurchase agreements not terminable
within seven days. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. Consequently, investments in restricted securities eligible
for resale pursuant to Rule 144A of the Securities Act of 1933 which have been
determined to be liquid by a Fund's Board of Trustees based upon the trading
markets for such securities, will not be included for purposes of this
limitation.
Portfolio Turnover. The Funds generally will not engage in the trading of
securities for the purpose of realizing short-term profits, but each Fund will
adjust its portfolio as it deems advisable in view of prevailing or anticipated
market conditions or fluctuations in interest rates to accomplish its respective
investment objective. For example, each Fund may sell portfolio securities in
anticipation of an adverse market movement. Other than for tax purposes,
frequency of portfolio turnover will not be a limiting factor if a Fund
considers it advantageous to purchase or sell securities. A high rate of
portfolio turnover involves correspondingly greater transaction expenses than a
lower rate, which expenses must be borne by each Fund and its shareholders.
Investment Company Securities. Each Fund may invest up to 10% of its
respective total assets in the securities of other investment companies subject
to the limitations of Section 12(d)(1) of the 1940 Act. 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 fees.
20
<PAGE>
INVESTMENT RESTRICTIONS
The SAI contains more information on each Fund's investment policies, and
also identifies the restrictions on a Fund's investment activities, which
provide among other things:
The Funds may not:
1. Issue senior securities, borrow money or pledge or mortgage its assets,
except that a Fund may borrow from banks up to 10% of the current value of its
total net assets for temporary purposes only in order to meet redemptions, and
those borrowings may be secured by the pledge of not more than 10% of the
current value of its total net assets (but investments may not be purchased by a
Fund while such borrowings exist).
2. Invest more than 25% of the value of its total assets in securities of
companies engaged principally in any one industry, provided that there is no
limitation with respect to U.S. Government Securities including repurchase
agreements and loans of securities collateralized by U.S. Government Securities.
With respect to the New York Fund, there is no limitation with respect to
investments in municipal obligations (for purposes of this restriction,
industrial development and pollution control bonds shall not be deemed municipal
obligations if the payment of principal and interest on such bonds are the
ultimate responsibility of nongovernmental users).
3. Lend more than 10% of the value of the total assets of such Fund's
portfolio securities to qualified borrowers, except that the Funds may purchase
or hold a portion of an issue of publicly-distributed bonds, debentures or other
obligations, make deposits with banks and enter into repurchase agreements with
respect to its portfolio securities. All such loans shall require the borrower
to deposit and maintain with the Fund cash collateral equal to 102% of the
market value of the securities loaned. As with any extension of credit, loans by
a Fund may be made to large financial institutions such as broker-dealers and
are subject to the risks of delay in recovery and loss of rights in the
collateral should the borrower of the securities fail financially.
4. Invest an amount equal to 15% (10% in the case of the New York Fund) or
more of the current value of the Fund's net assets in illiquid securities,
including those securities which do not have readily available market quotations
and repurchase agreements having maturities of more than seven days.
5. With respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer, other than obligations of the
United States Government, its agencies or instrumentalities or securities which
are backed by the full faith and credit of the United States. The Short-Term and
Fixed Income Funds will not invest more than 10% of their total assets in any
one issuer.
In addition, the New York Fund may not:
6. Invest less than 80% of its net assets in New York Obligations except
when, in the opinion of the Fund's investment adviser, it is advisable for the
Fund to invest temporarily up to 100% of its total assets in taxable securities
to maintain a "defensive" posture because of usual market conditions. For
instance, a "defensive" posture is warranted when the Fund's assets exceed the
available amount of municipal obligations that meet the Fund's investment
objective and policies.
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<PAGE>
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in the market value of an investment, in the net
or total assets of the Funds, in the securities rating of the investment, or any
other later change.
The investment restrictions referred to above are fundamental and may be
changed only when permitted by law and approved by a majority of the outstanding
voting securities of a Fund. As used in this Prospectus, such approval means
approval of the lesser of (i) the holders of 67% or more of the shares
represented in a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy or (ii) the holders of more than 50% of
the outstanding shares.
MANAGEMENT OF THE FUNDS
The property, affairs and business of the Funds are managed by the Board of
Trustees. The Trustees elect officers who are charged with responsibility for
the day-to-day operations of the Funds and the execution of policies formulated
by the Trustees. Information about the Trustees as well as the Trust's executive
officers, may be found in the SAI under the heading "Management--Trustees and
Officers."
Investment Adviser
The Trust retains HSBC Asset Management Americas Inc. ("HSBC Americas") to
act as the investment adviser for each of the Funds (the "Adviser"). HSBC
Americas is the North American investment affiliate of HSBC Holdings plc (Hong
Kong and Shanghai Banking Corporation) and Marine Midland Bank and is located at
250 Park Avenue, New York, New York 10177. At December 31, 1995, HSBC Americas
managed over $3.7 billion of assets of individuals, pension plans, corporations
and institutions.
Mr. David Fox, Managing Director and Senior Fixed Income Manager of HSBC
Americas, is responsible for the day-to-day management of the Short-Term and
Fixed Income Fund's portfolio. Prior to joining HSBC Americas in 1994, Mr.
Fox was Vice President and Senior Portfolio Manager of CDC Investments. From
1987 through 1990, Mr. Fox was a Vice President at Lehman Brothers.
Mr. Jerry Samet, Municipal Bond Portfolio Manager, Fixed Income Group of
HSBC Americas, is responsible for the day-to-day management of the New York
Fund. Before joining HSBC in February 1996, Mr. Samet worked for Bankers Trust
in the Private Clients Group for eight years. He was a portfolio manager/trader
for six years, and before that, he was a trading assistant for two years.
Pursuant to each Advisory Contract, the Adviser furnishes continuous
investment guidance to the Trust consistent with each Fund's investment
objective and policies and provides administrative assistance in connection with
the operation of each Fund. Information regarding the investment performance of
each Fund is contained in each Fund's Annual Report dated December 31, 1995
which may be obtained, without charge, from the Trust.
Banking Laws
Counsel to the Trust and special counsel to the Adviser, have advised the
Adviser that the Adviser may perform the services for the Trust contemplated by
the Advisory Contract without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Such counsel has pointed out, however,
that this question has
22
<PAGE>
not been authoritatively determined and that judicial or administrative
decisions or interpretations of present Federal or state statutes and
regulations relating to the permissible activities of banks or trust companies
and their subsidiaries or affiliates, as well as future changes in Federal or
state statutes and regulations and judicial or administrative decisions or
interpretations thereof, could prevent the Adviser from continuing to perform
such services for the Trust.
If the Adviser were prohibited from performing any of its services for the
Trust, it is expected that the Board of Trustees would recommend to the Trust's
shareholders that they approve new agreements with another entity or entities
qualified to perform such services and selected by the Board.
Distributor
BISYS Fund Services, the Distributor (the "Distributor"), has its principal
office at 3435 Stelzer Road, Columbus, Ohio 43219. The Distributor will receive
orders for, sell and distribute shares of the Funds.
Shareholder Servicing Agent
The Trust retains HSBC Americas to act as Shareholder Servicing Agent of
the Funds in accordance with the terms of the Shareholder Servicing Agreement.
Pursuant to the Shareholder Servicing Agreement, HSBC Americas (i) assists and
trains personnel who deliver prospectuses and Fund applications, (ii) assists
and trains personnel who assist customers with filling out Fund applications,
(iii) performs customer education, reviews Fund written communications and
assists personnel who answer customer questions, (iv) organizes and conducts
investment seminars to enhance understanding of each Fund and its objectives,
(v) assists personnel who effect customer purchases and redemptions and (vi)
assists and supervises the activities of Participating Organizations.
For its services as Shareholder Servicing Agent, HSBC Americas is paid an
annual fee equal to 0.04% of each Fund's average daily net assets.
Administrator
The Trust retains BISYS Fund Services ("BISYS") to act as the Administrator
of the Funds in accordance with the terms of the Management and Administration
Agreements. Pursuant to the Management and Administration Agreements, the
Administrator, at its expense, generally supervises the operation of the Trust
and the Funds by reviewing the expenses of the Funds monthly to ensure timing
and accuracy of each Fund's operating expense budget and by providing
administrative personnel, office space and administrative services reasonably
necessary for the operation of the Trust and the Funds, other than those
services which are provided by HSBC Americas pursuant to the Advisory Contract.
BISYS's annual administration and accounting fee is an asset-based fee of
0.15% of each Fund's first $200 million of average net assets; 0.125% of each
Fund's next $200 million of average net assets; 0.10% of each Fund's next $200
million of average net assets; and 0.08% of each Fund's average net assets in
excess of $600 million. The asset-based administration and accounting fee paid
to BISYS does not include out-of-pocket expenses which shall be borne by the
Trust.
The Trust also retains HSBC Americas to act as Co-Administrator of the
Funds in accordance with the terms of the Co-Administration Services Contract.
Pursuant to the Co-Administration Services Contract, HSBC
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Americas (i) manages each Fund's relationship with service providers, (ii)
assists with negotiation of contracts with service providers and supervises the
activities of those service providers, (iii) serves as a liaison with Fund
trustees, and (iv) assists with general product management and oversight. For
its services as a Co-Administrator, HSBC Americas is paid an annual fee equal
to 0.03% of each Fund's average daily net assets.
Servicing Agreements
The Funds may enter into agreements (the "Servicing Agreement") with
certain banks, financial institutions and corporations (the "Participating
Organizations") so that each Participating Organization handles recordkeeping
and provides certain administrative services for its customers who invest in the
Funds through accounts maintained at that Participating Organization. In such
cases, the Participating Organization or one of its nominees will be the
shareholder of record as nominee for its customers and will maintain subaccounts
for its customers. In addition, the Participating Organization will credit cash
distributions to each customer account, process purchase and redemption
requests, mail statements of all transactions with respect to each customer and,
if required by law, distribute the Trust's shareholder reports and proxy
statements. However, any customer of a Participating Organization may become the
shareholder of record upon written requests to its Participating Organization or
BISYS Fund Services, as transfer agent. Each Participating Organization will
receive monthly payments which in some cases may be based upon expenses that the
Participating Organization has incurred in the performance of its services under
the Servicing Agreement. The payments will not exceed, on an annualized basis,
an amount equal to 0.25% of the average daily net assets of Fund shares in the
subaccount of which the Participating Organization is record owner as nominee
for its customers. Such payments will be separately negotiated with each
Participating Organization and will vary depending upon such factors as the
services provided and the costs incurred by each Participating Organization. The
payments may be more or less than the fees payable to BISYS for the services it
provides pursuant to the Transfer Agency Agreement for similar services.
The payments will be made by the Funds to the Participating Organizations
pursuant to the Servicing Agreements. BISYS Fund Services will not receive any
compensation as transfer or dividend disbursing agent with respect to the
subaccounts maintained by Participating Organizations. The Board of Trustees
will review, at least quarterly, the amounts paid and the purposes for which
such expenditures were made pursuant to the Servicing Agreements.
Under separate agreements, the Adviser (not the Funds) may make
supplementary payments from its own revenues to a Participating Organization
that agrees to perform services such as advising customers about the status of
their subaccounts, the current yield and dividends declared to date and
providing related services a shareholder may request. Such payments will vary
depending upon such factors as the services provided and the costs incurred by
each Participating Organization.
Investors who purchase and redeem shares of the Funds through a customer
account maintained at a Participating Organization may be charged one or more of
the following types of fees by a Participating Organization, as agreed upon by
the Participating Organization and the investor, with respect to the customer
services provided by the Participating Organization: account fees (a fixed
amount per month or per year); transaction fees (a fixed amount per transaction
processed); compensating balance requirements (a minimum dollar amount a
customer must maintain in order to obtain the services offered); or account
maintenance fees (a periodic charge based upon a percentage of the assets in the
account or of the dividends paid on those assets.
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<PAGE>
Distribution Plan and Agreement
The Board of Trustees of the Trust has adopted a Distribution Plan and
Agreement on behalf of each Fund (the "Plan") pursuant to Rule 12b-1 of the 1940
Act, as amended, after having concluded that there is a reasonable likelihood
that the Plan will benefit each Fund and its shareholders. The Plan provides for
a monthly payment by the Funds to reimburse the Distributor in such amounts that
the Distributor may request for expenses such as the printing and distribution
of prospectuses sent to prospective investors, the preparation, printing and
distribution of sales literature and expenses, associated with media
advertisements and telephone services and other direct and indirect
distribution-related expenses including the payment of a monthly fee to
broker-dealers for rendering distribution-related asset introduction and asset
retention services. The Funds may also make payments to other broker-dealers or
financial institutions for their assistance in distributing shares of the Funds
and otherwise promoting the sale of shares of each Fund. The total of each
monthly payment is based on each Fund's average daily net assets during the
preceding month and is calculated at an annual rate not to exceed 0.35% with
respect to each Fund.
The Plan provides for the Distributor to prepare and submit to the Board of
Trustees on a quarterly basis written reports of all amounts expended pursuant
to the Plan and the purpose for which such expenditures were made. The Plan may
not be amended to increase materially the amount spent for distribution expenses
on behalf of a Fund without approval by a majority of such Fund's outstanding
shares and approval of a majority of the non-interested Trustees. Distribution
expenses incurred in one year will not be carried forward into and reimbursed in
the next year for actual expenses incurred in the previous year.
Fees and Expenses
The Short-Term and Fixed Income Funds pay HSBC Americas, as compensation
for its advisory services, a monthly fee equal to an annual rate of 0.550% of
average daily net assets up to $400 million. The fee is reduced at several
breakpoints for average daily net assets in excess of $400 million up to $2
billion, at which point it becomes 0.315% of the average daily net assets in
excess of $2 billion. The New York Fund pays HSBC Americas, as compensation for
its advisory services a monthly fee equal to an annual rate of 0.450% of average
daily net assets up to $300 million. The fee is reduced at several break points
for average daily net assets in excess of $300 million up to $2 billion, at
which point they become 0.280% of the average daily net assets in excess of $2
billion.
Each Fund also pays HSBC Americas, as compensation for its
co-administrative services and shareholder services, a monthly fee equal to an
annual rate of 0.07% of average daily net assets of each Fund. HSBC Americas
reserves the right to waive in advance a portion of its advisory,
co-administrative services, and shareholder's servicing fees at any time.
TRANSACTIONS WITH AFFILIATES
Broker-dealers which are affiliates of HSBC Americas may act as brokers for
the Funds. At all times, however, their commissions, fees or other charges must
be reasonable and fair in comparison with those that would be paid to
unaffiliated firms for comparable transactions. Neither Fund will do business
with nor pay commissions to affiliates of HSBC Americas in any portfolio
transactions where such affiliates act as principal. In placing orders for the
purchase and sale of portfolio securities, the Funds seek the best execution at
the most favorable price, considering all of the circumstances. The Adviser may
consider sales of shares of the Fund and of other HSBC
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<PAGE>
Funds as a factor in selecting a broker. The Adviser may cause a 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.
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value per share for the purpose of pricing purchase
and redemption orders is determined at 4:15 p.m. (Eastern time) on each day the
Fund's transfer agent is open for business. The net asset value of the Funds
will not be determined on the following holidays: New Year's Day, Martin Luther
King, Jr.'s Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas. The net
asset value per share of each Fund is computed by dividing the value of the net
assets of such Fund (i.e., the value of the assets less the liabilities) by the
total number of shares outstanding. All expenses, including the management,
advisory and administrative fees, are accrued daily and taken into account for
the purpose of determining the net asset value.
Portfolio securities are valued at current market value, if available.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in accordance with guidelines which have been adopted by the
Board of Trustees. Such procedures include the use of independent pricing
services which use prices based on yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to value from dealers; and
general market conditions. Short-term obligations of sixty days or less are
valued at amortized cost, which approximates the market value.
PURCHASE OF SHARES
Shares of the Funds 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. Prospectuses and
accompanying sales material can be obtained from the Transfer Agent or
Distributor.
The minimum initial investment requirement for each Fund is $1,000. The
minimum subsequent investment requirement for each Fund is $50. There are no
minimum investment requirements with respect to investments effected through
certain automatic purchase and redemption arrangements on behalf of customer
accounts maintained at Participating Organizations. The minimum investment
requirements may be waived or lowered for investments effected on a group basis
by certain other institutions and their employees, such as pursuant to a payroll
deduction plan. All funds will be invested in full and fractional shares. The
Trust reserves the right to reject any purchase order.
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<PAGE>
Orders for shares of a Fund will be executed at the net asset value per
share next determined after receipt of an order by the dealer, plus a sales
charge varying with the amount invested in accordance with the following
schedules:
<TABLE>
<CAPTION>
Short-Term Fund
Reallowance
to Service
Total Sales Load Organizations
---------------- -------------
As a % of
As a % of Net Asset As a % of
Amount Invested Offering Price Value Per Offering Price
(including sales charge) Per Share Share Per Share
------------------------ --------- ----- ---------
<S> <C> <C> <C>
Less than $100,000.................................... 2.00% 2.04% 1.75%
$100,000 but less than $250,000....................... 1.25% 1.27% 1.00%
$250,000 but less than $500,000....................... 0.75% 0.76% 0.65%
$500,000 but less than $1 million..................... 0.50% 0.50% 0.40%
$1 million and above.................................. 0.25% 0.25% 0.20%
</TABLE>
<TABLE>
<CAPTION>
Fixed Income and New York Funds
Reallowance
to Service
Total Sales Load Organizations
---------------- -------------
As a % of
As a % of Net Asset As a % of
Amount Invested Offering Price Value Per Offering Price
(including sales charge) Per Share Share Per Share
------------------------ --------- ----- ---------
<S> <C> <C> <C>
Less than $50,000..................................... 4.75% 4.99% 4.25%
$50,000 but less than $100,000........................ 4.25% 4.44% 3.75%
$100,000 but less than $250,000....................... 3.50% 3.63% 3.15%
$250,000 but less than $500,000....................... 2.50% 2.56% 2.25%
$500,000 but less than $1 million..................... 2.00% 2.04% 1.75%
$1 million and above.................................. 1.00% 1.01% 0.90%
</TABLE>
The sales load does not apply to shareholders of the New York Fund who were
shareholders on May 1, 1990.
The sales charge will be waived on the following purchases: (1) by Trustees
and officers of the Trust and of HSBC 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 and its 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 a Fund with the proceeds of their benefits checks (the EBT Plan must
currently own shares of a Fund at the time of the
27
<PAGE>
individual's purchase), (8) with respect to the Short Term and New York Funds
only, 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, (9) with respect to the
Fixed Income Fund only, by customers or prospective customers of Marine Midland
Bank when authorized by an officer of Marine Midland Bank, and (10) by
individuals who, as determined by an officer of the Funds in accordance with
guidelines by the Funds' Board of Trustees, have purchased shares under special
circumstances not involving sales expenses to dealers or the Distributor.
Eligible investors should contact HSBC Americas for details.
The sales load does not apply in any instance to reinvested dividends.
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 any of the Funds. 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 will be
made available only to certain dealers whose representatives have sold a
significant number 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 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 a 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 any Fund or its Shareholders.
Stock certificates will not be issued with respect to the shares of each
Fund. The Transfer Agent shall keep accounts upon the books of the Trust for
record holders of such shares.
Right of Accumulation
The Funds offer to all shareholders a right of accumulation under which any
shareholder may purchase shares of a Fund at the offering price applicable to
the total of (a) the dollar amount then being purchased plus (b) an amount equal
to the offering price of the shareholder's combined holdings of the shares of
the Funds. For the right of accumulation to be exercised, the shareholder must
provide at the time of purchase confirmation of the total number of shares of a
Fund owned by such shareholder. Acceptance of the purchase order is subject to
such confirmation. The right of accumulation may be amended or terminated at any
time on sixty days notice to shareholders. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares held in the name of such nominee or custodian
for other plans to qualify for the right of accumulation.
Letter of Intent
By initially investing at least $1,000 and submitting a Letter of Intent to
the transfer agent, a "single purchaser" may purchase shares of a Fund and other
eligible HSBC Funds (other than Money Market Funds)
28
<PAGE>
during a 13-month period at the reduced sales charge rates applying to the
aggregate amount of the intended purchases stated in the Letter of Intent. The
Letter of Intent may apply to purchases made up to 90 days before the date of
submission of the Letter. Dividends and distributions of capital gains paid in
shares of the Funds at net asset value will not apply towards the completion of
the Letter of Intent. The Letter of Intent does not obligate a shareholder to
buy the amount indicated in the Letter of Intent; however, if the intended
purchases are not completed during the Letter of Intent period, the shareholder
will be obligated to pay the Distributor an amount equal to the difference
between the regular sales charge applicable to a single purchase of the number
of shares purchased and the sales charge actually paid. For further details,
including escrow provisions, see the Letter of Intent. The Funds reserve the
right to amend, suspend or cease offering this program at any time.
Prospective investors who wish to obtain additional information
concerning investment procedures should contact the Transfer Agent at:
(800) 634-2536.
New Account Purchase By Wire
1. Telephone the Transfer Agent at (800) 634-2536 for instructions.
Please note your bank will normally charge you a fee for handling this
transaction.
New Account Purchase By Mail
1. Complete a Purchase Application. Indicate the services to be used.
2. Mail the Purchase Application and a check for $1,000 or more,
payable to HSBC Family of Funds to the Transfer Agent at:
HSBC Mutual Funds Trust, c/o BISYS, P.O. Box 163850 Columbus, Ohio 43216-3850.
Third-party checks will not be accepted. Checks must be in U.S.
dollars. Please include the Fund name and your account number on all checks.
Additional Purchases By Wire and Mail
Additional purchases of shares may be made by wire by telephoning the
Transfer Agent at 800-634-2536 and then instructing the wiring bank to transmit
the amount ($50 or more) of any additional purchase in Federal funds. Additional
purchases may also be made by mail by making a check ($50 or more) payable to
the HSBC Family of Funds indicating your fund account number on the check and
mailing it to the Transfer Agent at the address set forth above.
Purchase Through Customer Accounts
Purchases of shares also may be made through customer accounts maintained
at Participating Organizations, including qualified Individual Retirement and
Keogh Plan accounts. Purchases will be made through a customer's account only as
directed by or on behalf of the customer on a direction form executed prior to
the customer's first purchase of shares of a Fund. For example, a customer with
an account at a Participating Organization may instruct the Participating
Organization to invest money in excess of a level agreed upon between the
customer and the Participating Organization in shares of a Fund periodically or
give other instructions to the Participating Organization within limits
prescribed by that Participating Organization.
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<PAGE>
Automatic Investment Plan
Investors may make regular monthly investments of $50 or more in shares
automatically from a checking or savings account if their bank is a member of
automated clearing house (ACH). Upon written authorization, the Transfer Agent
will electronically debit the investor's checking or savings account each month
and use the proceeds to purchase shares for the investor's account.
Approval by the investor's bank is required, so that establishment of a
program may require at least 30 days. The authorized amount and/or bank
information may be changed or the program terminated at any time by writing to
the Transfer Agent. A reasonable period (usually up to 15 days) may be required
after receipt of such instructions to implement them. The purchase application
contains the requirements applicable to this plan. The Trust reserves the right
to amend, suspend or cease offering this program at any time without prior
notice.
REDEMPTION OF SHARES
Upon receipt by the Trust's transfer agent of a redemption request ($50
minimum) in proper form, shares of a Fund will be redeemed at their next
determined net asset value after the order is received by the dealer. See
"Determination of Net Asset Value" in this Prospectus. For the shareholder's
convenience, the Trust has established several different direct redemption
procedures. Redemptions of shares purchased by check will be effected
immediately upon clearance of the purchase check, which may take up to 15 days
after those shares have been credited to the shareholder's account. A redemption
of shares is a taxable transaction on which gain or loss may be recognized for
tax purposes.
The Funds reserve the right to redeem (on 30 days' notice) accounts whose
values shareholders have reduced to $50 or less.
Redemption By Mail
1. Complete a letter of instruction indicating the Fund, the account number
and either the dollar amount or number of shares to be redeemed. Refer to the
shareholder's Fund account number.
2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $5,000 or more, the
signature(s) must be guaranteed by a bank, trust company, broker, dealer, credit
union, securities exchange or association, clearing agency or savings
association. Signature guarantees by notaries public are not acceptable. Further
documentation, such as copies of corporate resolutions and instruments of
authority, may be requested from corporations, administrators, executors,
personal representatives, trustees or custodians to evidence the authority of
the person or entity making the redemption request.
4. Mail the letter to the Transfer Agent at the address set forth under
"Purchase of Shares" in this Prospectus.
Checks for redemption proceeds will normally be mailed within seven days to
the shareholder's address of record.
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<PAGE>
Upon request, the proceeds of a redemption amounting to $1,000 or more can
be sent by wire to the shareholder's predesignated bank account. Please note a
wire transfer fee will normally be charged. When proceeds of a redemption are to
be paid to someone other than the shareholder, either by wire or check, the
signature(s) on the letter of instruction must be guaranteed regardless of the
amount of the redemption.
Redemption By Expedited Redemption Service
If shares are held in book credit form and the Expedited Redemption Service
has been elected on the Purchase Application on file with the Transfer Agent,
redemption of shares may be requested on any day the Transfer Agent is open for
business by telephone or letter. A signature guarantee is not required.
1. Telephone the request to the Transfer Agent at: (800) 634-2536; or
2. Mail the request to the Transfer Agent at the address set forth under
"Purchase of Shares" in this Prospectus.
Proceeds of Expedited Redemptions of $1,000 or more can be wired to the
shareholder's bank indicated in the Purchase Application. If an Expedited
Redemption request is received by the Trust's transfer agent by 4:00 p.m.
(Eastern time) on a day the transfer agent is open for business, the redemption
proceeds will be transmitted to the shareholder's bank on the next business
day. A check for proceeds of less than $1,000 will be mailed to the
shareholder's address of record.
The Transfer Agent employs reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Transfer Agent fails
to employ such reasonable procedures, the transfer agent may be liable for any
loss, damage or expense arising out of any telephone transactions purporting to
be on a shareholder's behalf. In order to assure the accuracy of instructions
received by telephone, the Transfer Agent requires some form of personal
identification prior to acting upon instructions received by telephone, records
telephone instructions and provides written confirmation to investors of such
transactions.
Systematic Withdrawal Plan
An owner of $10,000 or more of shares of a Fund may elect to have periodic
redemptions from his account to be paid on a monthly basis. The minimum periodic
payment is $50. A sufficient number of shares to make the scheduled redemption
will be redeemed on the first or fifteenth day of the month. Redemptions for the
purpose of making such payments may reduce or even exhaust the account if the
monthly checks paid exceed dividends, interest and capital appreciation, if any,
on your shares. A shareholder may request that these payments be sent to a
predesignated bank or other designated party.
Amounts paid to you pursuant to the Systematic Withdrawal Plan are not a
return on your investment. Payments to you pursuant to the Systematic Withdrawal
Plan are derived from the redemption of shares in your account and is a taxable
transaction on which gain or loss may be recognized for Federal, state and city
income tax purposes.
Reinstatement Privilege
A shareholder in a Fund who has redeemed shares may reinvest, without a
sales charge, up to the full amount
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<PAGE>
of such redemption at the net asset value determined at the time of the
reinvestment within 60 days of the original redemption. This privilege must be
effected within 60 days of the redemption. The shareholder must reinvest in the
same Fund and account from which the shares were redeemed. A redemption is a
taxable transaction and gain or loss may be recognized for Federal income tax
purposes even if the reinstatement privilege is exercised. Any loss realized
upon the redemption will not be recognized as to the number of shares acquired
by reinstatement, except through an adjustment in the tax basis of the shares
so acquired.
Redemption through Customer Accounts
Investors who purchase shares through customer accounts maintained at
Participating Organizations may redeem those shares only through the
Participating Organization. In some cases, a customer may instruct the
Participating Organization which maintains the account through which the
customer purchases shares to redeem shares periodically as required to bring the
customer's account balance up to a level agreed upon between the customer and
the Participating Organization. If a redemption request with respect to such an
automatic redemption arrangement is received by the transfer agent by 4:15 p.m.
(Eastern time) on a day the transfer agent is open for business, the redemption
proceeds will be transmitted on the next business day to the investor's customer
account (unless otherwise specified by the Participating Organization).
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in a Fund for at
least seven days may exchange shares of one Fund for shares of any of the other
investment portfolios of the Trust and the HSBC Funds Trust which are available
for sale in their state. A shareholder who has paid a sales load in connection
with the purchase of shares of any of the Funds will be subject only to that
portion of the sales load of the Fund into which the shareholder is exchanging
which exceeds the sales load originally paid by the shareholder. The Transfer
Agent must be advised of the applicability of the sales charge differential when
the exchange order is placed. Shareholders of any of the HSBC Money Market Funds
who exchange shares of any such Money Market Funds for shares of any of the
Funds of the Trust are charged the sales loads applicable to such Funds as
stated in the Prospectus. Before effecting an exchange, shareholders should
review the prospectuses. Exercise of the exchange privilege is treated as a
redemption for Federal and New York State and City income tax purposes and,
depending on the circumstances, a gain or loss may be recognized. The Funds
reserve the right to change the terms or terminate the Exchange Privilege at any
time upon at least 60 days prior written notice to Shareholders.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to declare daily dividends from net investment income at
the close of each business day to the shareholders of record at 4:15 p.m.
(Eastern time) on the previous day and pay such amounts monthly. Shares
purchased will begin earning dividends on the day of settlement and shares
redeemed will earn dividends through the date of redemption. Net investment
income for a Saturday, Sunday or holiday will be declared as a dividend on the
previous business day. Each Fund's present intention is to distribute annually
to its shareholders any net capital gains for the year (taking into account any
capital loss carryovers).
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<PAGE>
Dividends declared in, and attributable to, the preceding month will be
paid within five business days after the end of such month. Dividends declared
by each Fund in October, November or December of any calendar year (as of a
record date in such a month) will be treated for Federal income tax purposes as
having been received by shareholders on December 31 of the year they are
declared, if they are paid during January of the following year. Each Fund's
dividends and capital gains distributions may be reinvested in additional shares
or received in cash.
For all investments effected through customer accounts maintained at
Participating Organizations (see "Purchase of SharesPurchase through Customer
Accounts" above), dividend payments in cash will be transmitted to the
investor's account through which the shares were purchased or, if a
Participating Organization so specifies, to it for crediting to its customer's
account. Dividend checks will be mailed to all other shareholders who elect to
be paid in cash within five business days after the end of each month.
Investors who redeem shares of a Fund prior to a dividend payment will be
entitled to all dividends declared but will not be credited prior to the
designated dividend payment date.
FEDERAL INCOME TAXES
Each Fund is treated as a separate entity for Federal income tax purposes
notwithstanding that it is one of multiple series of the Trust. Each Fund has
elected to be treated, and has qualified and intends to continue to qualify to
be treated as a regulated investment company by complying with the provisions of
the Internal Revenue Code of 1986, as amended (the "Code") applicable to
regulated investment companies. Accordingly, the Funds will not be liable for
federal income tax with respect to amounts distributed to shareholders in
accordance with the timing requirements of the Code. Each Fund intends to
distribute substantially all of its net investment income and net realized
capital gains to its shareholders for each taxable year.
Dividends derived from each Fund's taxable net investment income (if any)
and the excess of net short-term capital gain over net long-term capital loss
will be taxable to that Fund's shareholders at ordinary income rates, whether
such dividends are invested in additional shares or received in cash.
Distributions of the excess of net long-term capital gain over net
short-term capital loss designated by a Fund as capital gain dividends will be
taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares, whether invested in additional shares of a
Fund or received in cash. Dividends and distributions from the New York Fund and
long-term capital gain distributions from the Short-Term and Fixed Income Funds
do not qualify for the dividends-received deduction available to corporations.
Each year the Funds will notify shareholders of the character of dividends
and distributions for Federal income tax purposes including, with respect to the
New York Fund, the portion, if any, of exempt-interest dividends paid by the New
York Fund that should be treated as a tax preference item under the Federal
alternative minimum tax. Shareholders should consult their own tax advisers as
to the Federal, state or local tax consequences of ownership of Fund shares in
their particular circumstances. See "Taxation" in the SAI.
The Funds are required to report to the Internal Revenue Service (the
"IRS") all distributions of taxable dividends and of capital gains, as well as
the gross proceeds of share redemptions. The Funds may be required to
33
<PAGE>
withhold Federal income tax at a rate of 31% ("backup withholding") from taxable
dividends (including capital gain dividends) and the proceeds of redemptions of
shares paid to non-corporate shareholders who have not furnished a Fund with a
correct taxpayer identification number and made certain required certifications
or who have been notified by the IRS that they are subject to backup
withholding. In addition, the Funds may be required to withhold Federal income
tax at a rate of 31% if it is notified by the IRS or a broker that the taxpayer
identification number is incorrect or that backup withholding applies because of
underreporting of interest or dividend income.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares.
New York Fund
Provided that the New York Fund complies with applicable requirements of
the Code, dividends derived from interest on New York Obligations will
constitute exempt-interest dividends and, except as discussed below, will not be
subject to Federal income tax. Some portion of the exempt-interest dividends
paid by the New York Fund will be treated as an item of "tax preference" for
purposes of the alternative minimum tax if the New York Fund invests in certain
types of municipal obligations and New York Obligations (see discussion below).
Under the Code, interest on certain types of Municipal Obligations and New
York Obligations is designated as an item of tax preference for purposes of the
alternative minimum tax on individuals and corporations. Therefore, if the Fund
were to invest in such types of obligations, shareholders would be required to
treat as an item of tax preference that part of the distributions by the New
York Fund that is derived from interest income on such obligations.
Exempt-interest dividends received by corporations which hold shares of the
New York Fund may result in or increase liability for the corporate alternative
minimum tax.
Entities or persons who are "substantial users" (or persons related to
"substantial users") as defined in the Code, of facilities financed by Municipal
Obligations and New York Municipal Obligations issued for certain private
activities should consult their tax advisers before purchasing shares of the New
York Fund.
Exempt-interest dividends and other distributions paid by the New York Fund
are includable in the tax base for determining the taxability of social security
or railroad retirement benefits. Interest on debt incurred to purchase or carry
shares in the Fund may not be deductible for Federal income tax purposes.
Depending on the residence of the New York Fund's shareholders for tax
purposes, distributions may also be subject to state and local taxes.
Shareholders are required to report the amount of tax-exempt interest received
each year, including exempt-interest dividends, on their Federal tax returns.
Shareholders should consult their own tax advisers as to the Federal, state or
local tax consequences of ownership of the New York Fund shares in their
particular circumstances.
34
<PAGE>
NEW YORK TAXES
New York Fund
Exempt-interest dividends paid by the New York Fund will be exempt from New
York State and City personal income taxes to the extent they are derived from
interest on New York Obligations. For New York State and City personal income
tax purposes, whether invested in additional shares of the New York Fund or
received in cash, dividends derived from interest on the New York Fund's other
investments (including interest on Municipal Obligations other than New York
Obligations) and the excess of net short-term capital gain over net long-term
capital loss will be taxed as ordinary income, and dividends treated as
long-term capital gains for Federal tax purposes will be taxed as long-term
capital gains, regardless of how long a shareholder has held his shares.
Dividends paid by the New York Fund, including exempt-interest dividends
derived from interest on New York Obligations, may be subject to the New York
State franchise tax and to the New York City General Corporation Tax if they are
received by a corporation subject to those taxes. Such dividends may also be
subject to state taxes in states other than New York and to local taxes in
cities other than New York City.
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in confirmations
for each shareholder and a monthly shareholder statement. In those cases where a
Participating Organization or its nominee is shareholder of record of shares
purchased for its customer, the Trust has been advised that the statement may be
transmitted to the customer in the discretion of the Participating Organization.
Shareholders can write or call the Trust's transfer agent at P.O. Box 163850,
Columbus, OH 43216-3850, or telephone: (800) 634-2536 with any questions
relating to their investments in Fund shares.
Participating Organizations or their nominees may be the shareholders of
record as nominees for their customers, and may maintain subaccounts for those
customers. Any such customer may become the shareholder of record upon written
request to the Participating Organization, or Transfer Agent.
The Transfer Agent will transmit promptly to each of its customers for whom
it processes purchases and redemptions of shares and to each Participating
Organization copies of all reports to shareholders, proxy statements and other
Trust communications. The Trust's arrangements with the transfer agent and the
subtransfer agent arrangements require Participating Organizations to grant
investors who purchase shares through customer accounts the opportunity to vote
their shares by proxy at all shareholder meetings of the Trust. In certain
cases, a customer of a Participating Organization may have given his
Participating Organization the power to vote shares on his behalf. Customers
with accounts at Participating Organizations should consult their Participating
Organization for information concerning their rights to vote shares.
TRANSFER AND DIVIDEND DISBURSING AGENT AND CUSTODIAN
Pursuant to an Agency Agreement, BISYS Fund Services ("Transfer Agent")
acts as each Fund's transfer and dividend disbursing agent and is responsible
for maintaining account records detailing ownership of Fund shares
35
<PAGE>
and for crediting income, capital gains and other changes in share ownership to
investors' accounts. For its services, the Transfer Agent receives from the
Funds an annual base fee of $25 per shareholder account and subaccount plus
additional transaction costs. The Bank of New York is the Trust's custodian.
Pursuant to the Custodian Agreement, The Bank of New York is responsible for
holding each Fund's cash and portfolio securities. Bank of New York may enter
into such custodian agreements with certain qualified banks.
PERFORMANCE INFORMATION
Each Fund's total return may be included in advertisements or mailings to
prospective investors. Each Fund may occasionally cite statistical reports
concerning its performance. The Funds may also from time to time compare their
performance to various unmanaged indices. (See the SAI for more details
concerning the various indices which might be used.) Each Fund's "total return"
refers to the average annual compounded rates of return over one, five and ten
year periods or for the life of such Fund (which periods will be stated in the
advertisement) that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment, assuming the
deduction of the maximum sales charge and the reinvestment of all dividend and
capital gains distributions. Each Fund calculates its total return by adding the
total dividends paid for the period to the applicable Fund's ending net asset
value per share for that period and dividing that sum by the net asset value per
share of the applicable Fund at the beginning of the period. Each Fund may also
furnish total return calculations based on investments at various sales charge
levels or at net asset value. Any performance data which is based on a Fund's
net asset value per share would be reduced if a sales charge were taken into
account. Each Fund may quote total return on a before tax or after tax basis.
Each Fund may also from time to time include in advertisements or mailings to
prospective investors a current yield quotation based on a specific thirty day
period. Both yield and total return figures are based on historical earnings and
are not intended to indicate future performance.
Investors who purchase and redeem shares of the Fund through a customer
account maintained at a Participating Organization may be charged by such
Participating Organization certain fees, as agreed upon by the Participating
Organization and the investor with respect to the customer services provided by
the Participating Organization. Such fees will have the effect of reducing the
return and yield for those investors. See "Management of the Funds--Servicing
Agreements" in this Prospectus.
SHARES OF BENEFICIAL INTEREST
The authorized capital of the Trust consists of an unlimited number of
shares of beneficial interest having a par value of $0.001 per share. The
Trust's Board of Trustees has authorized the issuance of multiple series
representing shares in corresponding investment portfolios of the Trust and may,
in the future, authorize the issuance of other series or classes of shares of
beneficial interest representing interest in other investment portfolios. Each
additional portfolio within the Trust is separate for investment and accounting
purposes and is represented by a separate series of shares. Each portfolio will
be treated as a separate entity for Federal income tax purposes.
All shares of the Trust have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law or
where the matter involved affects only one class. All shares of the Trust
36
<PAGE>
issued and outstanding are fully paid and nonassessable. The Trust is not
required by law to hold annual shareholder meetings and does not intend to hold
such meetings. For more details concerning the voting rights of shareholders
see the SAI.
Vacancies on the Board of Trustees are filled by the Board of Trustees if
immediately after filling any such vacancy at least two-thirds of the Trustees
then holding office have been elected to such office by shareholders at an
annual or special meeting. In the event that at any time less than a majority of
Trustees holding office were elected by shareholders, the Board of Trustees will
cause to be held within 60 days a shareholders' meeting for the purpose of
electing Trustees to fill any existing vacancies. Trustees are subject to
removal with cause by two-thirds of the remaining Trustees or by a vote of a
majority of the outstanding shares of the Trust. The Trustees are required to
promptly call a shareholders' meeting for voting on the question of removal of
any Trustee when requested to do so in writing by not less than 10% of the
outstanding shares of the Trust. In connection with the calling of such
shareholders' meetings, shareholders will be provided with communication
assistance.
Under Massachusetts law, it is possible that shareholders of a
Massachusetts business trust might, under certain circumstances, be held
personally liable for acts or obligations of the Trust. The Trust's Declaration
of Trust contains an express disclaimer of shareholder liability for acts,
obligations or affairs of the Trust. The Declaration of Trust also provides for
indemnification out of the Trust's assets for all loss and expense of any
shareholder held personally liable by reason of being or having been a
shareholder of the Trust. Thus, the risk that a shareholder of a Fund could
incur financial loss on account of shareholder liability is considered remote
since it is limited to circumstances in which the disclaimer is inoperative and
the Fund itself would be unable to meet its obligations.
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- -----------------------
HSBC Mutual Funds Trust
- -----------------------
HSBC Fund Group
- -----------------------
HSBC Asset Management [Logo]
- -----------------------
HSBC (SM) Mutual Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
General Information:
(800) 634-2536
Investment Adviser and Co-Administrator
HSBC Asset Management Americas Inc.
250 Park Avenue
New York, New York 10177
Distributor, Administrator, Transfer Agent
and Dividend Disbursing Agent
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
Custodian
Bank of New York
90 Washington Street
New York, New York 10286
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
Legal Counsel
Baker & McKenzie
805 Third Avenue
New York, New York 10022
No dealer, salesman, or other person has been authorized to give any information
or to make any representations, other than those contained in the Prospectus, in
connection with the offer contained in this Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Trust, the Distributor or the Investment Adviser. This
Prospectus does not constitute an offering in any state in which such offering
may not lawfully be made.
- --------------------------------------------------------------------------------
Prospectus April 24, 1996
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Funds:
Short-Term U.S. Government Fund
Fixed Income Fund
New York Tax-Free Bond Fund
- --------------------------------------------------------------------------------
Managed and Advised by:
HSBC Asset Management Americas Inc.
- --------------------------------------------------------------------------------
Sponsored and Distributed by:
BISYS Fund Services
- --------------------------------------------------------------------------------
<PAGE>
HSBC MUTUAL FUNDS TRUST
SHORT-TERM U.S. GOVERNMENT FUND
FIXED INCOME FUND
NEW YORK TAX-FREE BOND FUND
3435 Stelzer Road
Columbus, Ohio 43219
Information: (800) 634-2536
STATEMENT OF ADDITIONAL INFORMATION
HSBC Mutual Funds Trust, formerly known as Mariner Mutual Funds Trust, (the
"Trust") is an open-end, diversified management investment company with multiple
investment portfolios including the Short-Term U.S. Government Fund (the "Short-
Term Fund"), the Fixed Income Fund (the "Fixed Income Fund"), and the New York
Tax-Free Bond Fund (the "New York Tax-Free Fund") herein referred to
individually as a "Fund" and collectively as the "Funds".
The investment objective of the Short-Term Fund is preservation of capital
---------------
and generation of current income by investing primarily in fixed-income
securities with a dollar-weighted average portfolio life of between one and
three years.
The investment objective of the Fixed Income Fund is generation of high
-----------------
current income consistent with appreciation of capital by investing in a variety
of fixed-income securities.
The investment objective of the New York Tax-Free Fund is to provide as
high a level of current income exempt from regular Federal, New York State and
New York City income taxes as is consistent with relative stability of capital.
The Fund will invest primarily in New York Obligations. Although the Fund will
have no restriction on the minimum or maximum maturity of any individual New
York Obligation held by it, the Fund will have an average portfolio maturity
ranging from three to 30 years.
Shares of the Funds are primarily offered for sale by BISYS Funds Services,
Inc., the Distributor, as an investment vehicle for institutions, corporations,
fiduciaries and individuals. Certain banks, financial institutions and
corporations ("Participating Organizations") have agreed to act as shareholder
servicing agents for investors who maintain accounts at the Participating
Organizations and to perform certain services for the Funds.
This Statement of Additional Information is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Funds'
Prospectus dated April 18, 1996. This Statement of Additional Information
("SAI") contains additional and more detailed information than that set forth in
each Prospectus and should be read in conjunction with each Prospectus,
additional copies of which may be obtained without charge from the Trust.
April 18, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
INVESTMENT POLICIES AND RISK FACTORS..................... 1
INVESTMENT RESTRICTIONS.................................. 20
MANAGEMENT............................................... 22
CALCULATION OF YIELDS AND PERFORMANCE INFORMATION........ 26
DETERMINATION OF NET ASSET VALUE......................... 29
PORTFOLIO TRANSACTIONS................................... 29
PORTFOLIO TURNOVER....................................... 30
EXCHANGE PRIVILEGE....................................... 30
REDEMPTIONS.............................................. 31
FEDERAL INCOME TAXES..................................... 31
SHARES OF BENEFICIAL INTEREST............................ 34
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT.. 35
INDEPENDENT AUDITORS..................................... 36
EXPERTS.................................................. 36
FINANCIAL STATEMENTS..................................... 37
</TABLE>
<PAGE>
INVESTMENT POLICIES AND RISK FACTORS
The following information supplements the discussion of the investment
objective and policies of the Funds found under "Investment Objective, Policies
and Risk Factors" in the Prospectus.
MORTGAGE-RELATED SECURITIES. (Short-Term and Fixed Income Funds Only)
Each Fund may, consistent with its respective investment objective and policies,
invest in mortgage-related securities.
Mortgage-related securities, for purposes of the Short-Term and Fixed
Income Funds' Prospectuses 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 nongovernmental 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 a 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 a Fund. In addition, 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 a 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.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Each 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 securities so purchased are subject to market
fluctuation during this period and no
<PAGE>
income accrues to a Fund until settlement takes place. To facilitate such
acquisitions, a Fund will maintain with the custodian a separate account with a
segregated portfolio of securities in an amount at least equal to such
commitments. On the delivery dates for such transactions, a Fund will meet its
obligations from maturities or sales of the securities held in the separate
account and/or from cash flow. While a Fund normally enters into these
transactions with the intention of actually receiving or delivering the
securities, it may sell these securities before the settlement date or enter
into new commitments to extend the delivery date into the future, if the
Investment Adviser considers such action advisable as a matter of investment
strategy. Such securities have the effect of leverage on a Fund and may
contribute to volatility of a Fund's net asset value.
LOANS OF PORTFOLIO SECURITIES. The Funds may, subject to the
restrictions set forth under "Investment Restrictions" in the Prospectus, 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% for the Short-Term and Fixed Income Funds and 100% for the New York
Tax-Free Fund 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. 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. The Funds will not enter into any portfolio security
lending arrangement having a duration of longer than one year. Any securities
which a 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 a 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 Funds will not loan securities having a value which exceeds 10% of
the current value of such Fund's total assets. Loans of securities will be
subject to termination at the lender's or the borrower's option. Each Fund may
pay reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated portion of the interest or fee earned with respect
to the collateral to the borrower or the placing broker. Borrowers and placing
brokers may not be affiliated, directly or indirectly, with the Funds, its
investment adviser or subadviser.
The Funds may (as applicable), in the future, engage in the following
investment techniques, although these funds have no present intention of doing
so.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS THEREON. (Short-Term and
Fixed Income Funds Only) The Funds may use interest rate futures contracts
("futures contracts") principally as a hedge against the effects of interest
rate changes. A futures contract is an agreement to purchase or sell a
specified amount of designated debt securities for a set price at a specified
future time. At the time it enters into a futures transaction, a Fund is
required to make a performance deposit (initial margin) of cash or liquid
securities with its custodian in a segregated account in the name of the futures
broker. Subsequent payments of "variation margin" are then made on a daily
basis, depending on the value of the futures which is continually "marked to
market."
The Funds are permitted to engage in bona fide hedging transactions
(as defined in the rules and regulations of the Commodity Futures Trading
Commission) without any quantitative limitations. Futures and related option
transactions which are not for bona fide hedging purposes may be used provided
the total amount of the initial margin and any option premiums attributable to
such positions does not exceed 5% of each Fund's liquidating value after taking
into account unrealized profits and unrealized losses, and excluding any in-the-
money option premiums paid. The Funds will not market, and are not marketing,
themselves as commodity pools or otherwise as vehicles for trading in futures
and related options. The Funds will segregate assets to cover the futures and
options. If the market moves favorably after a Fund enters into an interest
rate futures contract as a hedge against anticipated adverse market movements,
the benefits from such favorable market movements on the value of the securities
so hedged will be offset in whole or in part, by a loss on the futures contract.
- 2 -
<PAGE>
The Funds may engage in futures contract sales to maintain the income
advantage from continued holding of a long-term security while endeavoring to
avoid part or all of the loss in market value that would otherwise accompany a
decline in long-term security prices. If, however, securities prices rise, a
Fund would realize a loss in closing out its futures contract sales that would
offset any increases in prices of the long-term securities it holds.
An option on a futures contract gives the purchaser the right, but not
the obligation, in return for the premium paid, to assume (in the case of a
call) or sell (in the case of a put) a position in a specified underlying
futures contract (which position may be a long or short position) a specified
exercise price at any time during the option exercise period. Sellers of
options on futures contracts, like buyers and sellers of futures contracts, make
an initial performance deposit and are subject to calls for variation margin.
INVESTMENT IN BOND OPTIONS. (Short-Term and Fixed Income Funds Only)
The Funds may purchase put and call options and write covered put and call
options on securities in which each such Fund may invest directly and that are
traded on registered domestic securities exchanges or that result from separate,
privately negotiated transactions with primary U.S. Government securities
dealers recognized by the Board of Governors of the Federal Reserve System
(i.e., over-the-counter (OTC) options). The writer of a call option, who
receives a premium, has the obligation, upon exercise, to deliver the underlying
security against payment of the exercise price during the option period. The
writer of a put, who receives a premium, has the obligation to buy the
underlying security, upon exercise, at the exercise price during the option
period.
The Funds may write put and call options on bonds only if they are
covered, and such options must remain covered as long as the Fund is obligated
as a writer. A call option is covered if a Fund owns the underlying security
covered by the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional cash
consideration if the underlying security is held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A put option is covered if a Fund maintains cash, U.S. Treasury
bills or other high grade short-term obligations with a value equal to the
exercise price in a segregated account with its custodian.
The principal reason for writing put and call options is to attempt to
realize, through the receipt of premiums, a greater current return than would be
realized on the underlying securities alone. In return for the premium received
for a call option, the Funds forego the opportunity for profit from a price
increase in the underlying security above the exercise price so long as the
option remains open, but retains the risk of loss should the price of the
security decline. In return for the premium received for a put option, the
Funds assume the risk that the price of the underlying security will decline
below the exercise price, in which case the put would be exercised and the Fund
would suffer a loss. The Funds may purchase put options in an effort to protect
the value of a security it owns against a possible decline in market value.
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. 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 Funds will succeed in negotiating a closing out of a particular OTC
option at any particular time. If a 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 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
- 3 -
<PAGE>
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 Funds will
treat such options and, except to the extent permitted through the procedure
described in the preceding sentence, assets as subject to each such Fund's
limitation on investments in securities that are not readily marketable.
RISKS INVOLVING FUTURES TRANSACTIONS. Transactions by the Funds in
futures contracts and options thereon involve certain risks. One risk in
employing futures contracts and options thereon to protect against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in a Fund's
portfolio (the portfolio securities will not be identical to the securities
underlying the futures contracts). In addition, commodity exchanges generally
limit the amount of fluctuation permitted in futures contract and option prices
during a single trading day, and the existence of such limits may prevent the
prompt liquidation of futures and option positions in certain cases. Inability
to liquidate positions in a timely manner could result in the Fund's incurring
larger losses than would otherwise be the case.
ILLIQUID SECURITIES. Each Fund has adopted a fundamental policy with
respect to investments in illiquid 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 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.
Each 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 recently 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 Investment Adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this new
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.
- 4 -
<PAGE>
The Investment Adviser will monitor the liquidity of restricted
securities in each Fund's portfolio under the supervision of the Trustees. In
reaching liquidity decisions, the Investment Adviser will consider, inter alia,
----- ----
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
Investment 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 Investment 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 Investment Adviser deems
relevant. The Investment Adviser will also monitor the purchase of Rule 144A
securities to assure that the total of all Rule 144A securities held by a Fund
does not exceed 10% of the 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. 9.
MUNICIPAL OBLIGATIONS. (New York Tax-Free Fund Only) To attempt to
attain its investment objective, the Fund invests in a broad range of Municipal
Obligations which meet the rating standards described in the Prospectus. The
tax-exempt status of a Municipal Obligation is determined by the issuer's bond
counsel at the time of the issuance of the security. Municipal Obligations,
which pay interest that is excludable from gross income for Federal income tax
purposes and which are debt obligations issued by or on behalf of states,
cities, municipalities and other public authorities, include:
MUNICIPAL BONDS. Municipal bonds are issued to obtain funds for
various public purposes, including the construction of schools, highways
and other public facilities, for general operating expenses and for making
loans to other public institutions. Industrial development and pollution
control bonds are municipal bonds which are issued by or on behalf of
public authorities to provide funding for the construction, equipment,
repair and improvement of various privately operated facilities.
Municipal bonds may be categorized as "general obligation" or
"revenue" bonds. General obligation bonds are secured by the issuer's
pledge of its full faith, credit and general taxing power for the payment
of principal and interest. Revenue bonds are secured by the net revenue
derived from a particular facility or group of facilities or, in some
cases, the proceeds of a special excise or other specific revenue source,
but not by the general taxing power. Industrial development and pollution
control bonds (now generally referred to as "private activity bonds") are,
in most cases, revenue bonds and do not generally carry the pledge of the
credit of the issuing municipality or public authority.
MUNICIPAL NOTES. Municipal notes include, but are not limited to,
tax anticipation notes, bond anticipation notes, revenue anticipation
notes, construction loan notes and project notes. Notes sold as interim
financing in anticipation of collection of taxes, a bond sale or receipt of
other revenues are usually general obligations of the issuer. Project
notes are issued by local housing authorities to finance urban renewal and
public housing projects and are secured by the full faith and credit of the
United States Government.
MUNICIPAL COMMERCIAL PAPER. Municipal commercial paper is issued to
finance seasonal working capital needs or as short-term financing in
anticipation of longer-term debt. It is paid from the general revenues of
the issuer or refinanced with additional issuances of commercial paper or
long-term debt.
For purposes of diversification under the Investment Company Act of
1940, the identification of the issuer of New York Municipal Obligations depends
on the terms and conditions of the obligation. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision
would be regarded as the sole issuer. Similarly, in the case of an industrial
development bond or pollution control bond, if the bond is backed only by the
assets and revenues of the non-governmental user, the non-governmental user
would be deemed to be the sole issuer. If in either case the creating
government or another entity guarantees an obligation, the guarantee would be
considered a separate security and be treated as an issue of such government or
entity.
- 5 -
<PAGE>
The Fund's assets will be invested primarily in Municipal Obligations
that are exempt from regular Federal, New York State and New York City income
tax in the opinion of bond counsel to the issue.
The value of municipal securities may be affected by uncertainties in
the municipal market related to legislation or litigation involving the taxation
of municipal securities or the rights of municipal securities holders in the
event of a bankruptcy. Municipal bankruptcies are relatively rare, and certain
provisions of the U.S. Bankruptcy Code governing such bankruptcies are unclear
and remain untested. Further, the application of state law to municipal issuers
could produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the municipal
securities market generally, certain specific segments of the market, or the
relative credit quality of particular securities. Any of these effects could
have a significant impact on the prices of some or all of the municipal
securities held by the Fund.
TAXABLE SECURITIES. (New York Tax-Free Fund Only) As described in
the Prospectus, the Fund may, with certain limitations, elect to invest in
certain taxable securities and repurchase agreements with respect to those
securities. The Fund will enter into repurchase agreements only with dealers,
domestic banks or recognized financial institutions which, in the opinion of the
Fund's investment adviser, present minimal credit risks. In the event of
default by the seller under a repurchase agreement, the Fund may have problems
in exercising its rights to the underlying securities and may incur costs and
experience time delays in connection with the disposition of such securities.
The Fund's investment adviser will monitor the value of the underlying security
at the time the transaction is entered into and at all times during the term of
the repurchase agreement to ensure that the value of the security always equals
or exceeds the agreed upon repurchase price. Repurchase agreements are
considered to be loans under the Investment Company Act of 1940, collateralized
by the underlying securities.
SECURITIES WITH PUT RIGHTS. (New York Tax-Free Fund Only) When the
Fund purchases municipal obligations it may obtain the right to resell them, or
"put" them, to the seller at an agreed upon price within a specific period prior
to their maturity date.
The amount payable to the Fund by the seller upon its exercise of a
put will normally be (i) the Fund's acquisition cost of the securities
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during the period
the securities were owned by the Fund. Absent unusual circumstances, the Fund
values the underlying securities at their amortized value. Accordingly, the
amount payable by a broker-dealer or bank during the time a put is exercisable
will be substantially the same as the value of the underlying securities.
The Fund's right to exercise a put is unconditional and unqualified.
A put is not transferable by the Fund, although the Fund may sell the underlying
securities to a third party at any time. The Fund expects that puts will
generally be available without the payment of any direct or indirect
consideration. However, if necessary and advisable, the Fund may pay for
certain puts either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to such a put (thus reducing the yield to
maturity otherwise available for the same securities).
The Fund may enter into put transactions only with broker-dealers and
banks which, in the opinion of the Fund's investment adviser, present minimal
credit risks. The Fund's ability to exercise a put will depend on the ability
of the broker-dealer or bank to pay for the underlying securities at the time
the put is exercised. In the event that a broker-dealer or bank should default
on its obligation to repurchase an underlying security, the Fund might be unable
to recover all or a portion of any loss sustained from having to sell the
security elsewhere.
The Fund intends to enter into put transactions solely to maintain
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a put will not affect the valuation of the
underlying security which will continue to be valued in accordance with the
amortized cost method. The actual put will be valued at zero in determining net
asset value. Where the Fund pays directly or indirectly for a put, its cost
will be reflected as an unrealized loss for the period during which the put is
held by the Fund and will be reflected in realized
- 6 -
<PAGE>
gain or loss when the put is exercised or expires. If the value of the
underlying security increases, the potential for unrealized or realized gain is
reduced by the cost of the put.
RISK FACTORS FOR THE NEW YORK TAX-FREE BOND FUND
The following information as to certain New York risk factors is given
to investors in view of the New York Tax-Free Fund's policy of concentrating its
investments in New York Municipal Obligation issuers. The factors affecting the
financial conditions of the State of New York (the "State") are complex, and the
following description constitutes only a brief summary; it does not purport to
be a complete description and is based on information from official statements
relating to general obligation bonds issued by the State of New York.
General. The economy of the State is diverse with a comparatively
large share of the nation's finance, insurance, transportation, communications
and services employment, and a comparatively small share of the nation's farming
and mining activity. The State has a declining portion of its work force engaged
in manufacturing, and an increasing portion engaged in service industries,
reflecting the national trend.
The national economy began the current expansion in 1991 and has added
over 7 million jobs since early 1992. However, the recession lasted longer in
the State and the State's economic recovery has lagged behind the nation's.
Although the State has added approximately 185,000 jobs since November 1992,
employment growth in the State has been hindered during recent years by
significant cutbacks in the computer and instrument manufacturing, utility,
defense, and banking industries.
New York has a very high state and local tax burden relative to other
states. The State and its localities have used these taxes to develop and
maintain their transportation networks, public schools and colleges, public
health systems, and social services and recreational facilities. Despite these
benefits, the burden of state and local taxation may have contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State.
The State Budget Process. The requirements of the State budget
process are set forth in Article VII of the State Constitution and the State
Finance law. The process begins with the Governor's submission of the Executive
Budget to the Legislature each January, in preparation for the start of the
fiscal year on April 1. (The submission date is February 1 following a
gubernatorial election.) The budget must contain a complete plan of available
receipts and projected disbursements for the ensuing fiscal year ("State
Financial Plan"). That proposed State Financial Plan must be balanced on a cash
basis, and must be accompanied by bills which: (i) set forth all proposed
appropriations and reappropriations, (ii) provide for any new or modified
revenue measures, and (iii) make any other changes to existing law necessary to
implement the budget recommended by the Governor.
In acting on the bills submitted by the Governor, the Legislature has
the power to alter both recommended appropriations and proposed changes to
substantive law. The Legislature may strike out or reduce an item of
appropriation recommended by the Governor. The Legislature may add items of
appropriation provided such additions are stated separately. These additional
items are then subject to line-item veto by the Governor. If the Governor
vetoes an appropriation or a bill related to the budget, these can be
reconsidered in accordance with the rules of each house of the Legislature. If
approved by two-thirds of the members of each house, the measure will become law
notwithstanding the Governor's veto.
Once the appropriation and other bills become law, the State's
Division of the Budget ("DOB") revises the State Financial Plan based on the
Legislatures's action, and begins the process of implementing the budget.
Throughout the fiscal year, DOB monitors actual receipts and disbursements, and
may adjust the estimates in the State Financial Plan. Adjustments may also be
made to the State Financial Plan to reflect changes in the economy, as well as
new actions taken by the Governor or the Legislature.
The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis State Financial Plan, and an
explanation of any changes from the previous State Financial Plan. As required
by
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the State Finance law, the Governor updates the State Financial Plan within
30 days of the close of each quarter of the fiscal year, generally issuing
reports by July 30, October 30, and as part of the Executive Budget.
Financial Accounting. New York utilizes the fund method of accounting
to report on its financial position and the results of its operations.
Substantially all State non-pension financial operations are accounted for in
the State's governmental funds group ("Governmental Funds"). The Governmental
Funds include the General Fund, which receives all income not required by law to
be deposited in another fund and which for the State's 1995-1996 fiscal year
("Fiscal Year 1995-96") comprises approximately 50% of total projected
Governmental Funds receipts; the Special Revenue Funds, which receive a
preponderance of money received by the State from the federal government and
other income the use of which is legally restricted to certain purposes and
which comprises approximately 40% of total projected Governmental Funds receipts
in the Fiscal Year 1995-96; the Capital Projects Funds, used to finance the
acquisition and construction of major capital facilities by the State and to aid
in certain of such projects conducted by local governments or public
authorities; and the Debt Service Funds, which are used for the accumulation of
monies for the payment of principal of and interest on long term debt and other
contractual commitments. Receipts in the Capital Projects and Debt Service Funds
comprise an aggregate of approximately 10% of total projected Governmental Funds
receipts in the Fiscal Year 1995-96.
Financial information for the funds during each fiscal year is
maintained on a cash basis of accounting ("Cash Basis"). New York also prepares
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements differ in format from the Cash Basis statements
in that, among other things, they are prepared on an accrual basis, include a
combined balance sheet, and report on the activities of all funds. The Cash
Basis financial information is adjusted at fiscal year end by an independent
public accounting firm to reflect financial reporting in conformity with GAAP.
The State maintains a March 31st fiscal year end.
Revenues and Expenditures. New York's Governmental Funds receive over
54% of their revenues from taxes levied by the State. Investment income, fees
and assessments, abandoned property collections, and other varied sources supply
the balance of the receipts for these funds. Revenues not required to be
deposited in another fund are deposited in the General Fund. The major tax
sources for the General Fund are the personal income tax (53% of General Fund
tax receipts in Fiscal Year 1994-95, and 52% of the Fiscal Year 1995-96 budgeted
figure), the 4% user taxes and fees (20% in Fiscal Year 1994-95, 20% of the
Fiscal Year 1995-96 budget), business taxes (15% of the fiscal 1994 budget and
14% of the Fiscal 1995 budget), and other taxes. The majority of Special
Revenue Funds receipts come from federal grants (78% of receipts in Fiscal Year
1994-95, 75% of the Fiscal Year 1995-96 budget). Generally, approximately 87% of
the federal funds received by the Special Revenue Funds are on account of
Medicaid, income maintenance and associated social services, education and
health programs.
New York's major expenditures are grants to local governments, which
are projected to account for 69% of all Governmental Funds expenditures in
Fiscal Year 1995-96. These grants include disbursements for elementary,
secondary and higher education, social services, drug abuse control, and mass
transportation programs.
Fiscal 1994-95 Financial Results (Cash Basis). New York State ended
its 1994-95 fiscal year with the General Fund in balance. The closing fund
balance of $158 million reflects $157 million in the Tax Stabilization Reserve
Fund and $1 million in the Contingency Reserve Fund ("CRF"). The CRF was
established in State fiscal year 1993-94, funded partly with surplus moneys, to
assist the State in financing the 1994-95 fiscal year costs of extraordinary
litigation known or anticipated at that time; the opening fund balance in State
fiscal year 1994-95 was $265 million. The $241 million change in the fund
balance reflects the use of $264 million in the CRF as planned, as well as the
required deposit of $23 million to the Tax Stabilization Reserve Fund. In
addition, $278 million was on deposit in the tax refund reserve account, $250
million of which was deposited at the end of the State's 1994-95 fiscal year to
continue the process of restructuring the State's cash flow as part of the New
York Local Government Assistance Corporation (LGAC) program.
Compared to the State Financial Plan for 1994-95 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes. Of
this
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amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These
shortfalls were offset by better performance in the remaining taxes,
particularly the user taxes and fees, which exceeded projections by $210
million. Of this amount, $227 million was attributable to certain restatements
for accounting treatment purposes pertaining to the CRF and LGAC; these
restatements had no impact on balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the CRF
and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of non-
essential capital projects. These actions, together with $71 million in other
measures comprised the Governor's $259 million gap-closing plan, submitted to
the Legislature in connection with the 1995-96 Executive Budget.
1995-96 State Financial Plan (Cash Basis). The State issued the first
of the three required quarterly updates to the 1995-96 cash-basis State
Financial Plan on July 28, 1995 (the "First Quarter Update"). The First Quarter
Update projected continued balance in the State's 1995-96 Financial Plan, and
incorporated few revisions to the initial State Financial Plan of June 20, 1995.
The economic forecast was unchanged. A number of small, offsetting changes were
made to the annual receipts and disbursements estimates. The First Quarter
Update also incorporated the restatement of three transactions within the budget
so that these transactions conformed with accounting treatments utilized by the
Office of the State Comptroller. These restatements had the net effect of
reducing both General Fund receipts and disbursements by $251 million;
therefore, they had no impact on the closing balance of the General Fund.
The State issued its second quarterly update to the cash-basis 1995-96
State Financial Plan (the "Mid-Year Update") on October 26, 1995. The Mid-Year
Update projected continued balance in the State's 1995-1996 Financial Plan, with
estimated receipts reduced by a net $71 million and estimated disbursements
reduced by a net $30 million as compared to the First Quarter Update. The
resulting General Fund balance decreased from $213 million in the First Quarter
Update to $172 million in the Mid-Year Update, reflecting the expected use of
$41 million from the Contingency Reserve Fund for payments of litigation and
disallowance expenses. The Mid-Year Update also incorporated changes resulting
from implementation of the Governor's Management Review Plan which was released
on October 12, 1995. The Management Review Plan is expected to produce savings
of $148 million in State fiscal year 1995-96, primarily through Medicaid
utilization controls, consolidation of State agency staffing and office space,
controls on staffing, overtime and contractual expenses, and increased
productivity. Of the $148 million in savings attributable to the Management
Review Plan, $146 million was reflected in lower spending from the General Fund
and $2 million was reflected in increased General Fund receipts.
The State also updated its forecast of national and State economic
activity through the end of calendar year 1996. The national economic forecast
remained basically unchanged from the initial forecast on which the original
1995-96 State Financial Plan was based, while the State economic forecast was
marginally weaker.
Receipts through the first two quarters of the 1995-96 State fiscal
year fell short of expectations by $101 million. Much of this shortfall was due
to time-related delays in sources other than taxes. Based on the revised
economic outlook and actual receipts for the first six months of 1995-96,
projected General Food receipts for the
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1995-96 State fiscal year were reduced by $73 million, offset by $2 million in
increased revenues and transfers associated with actions taken in the Management
Review Plan.
Disbursements through the first six months of the fiscal year were $89
million less than projected, primarily because of delays in processing payments
following delayed enactment of the State budget. No savings were included in
the Mid-Year Update from this slower-than-expected spending. Projected
disbursements for the 1995-96 State fiscal year were reduced by $30 million
because spending increases in local assistance and State operations was more
than offset by debt service savings and the reductions from the Management
Review Plan.
Financial Plan Update. The State revised the cash-basis 1995-96 State
Financial Plan on December 15, 1995, in conjunction with the release of the
Executive Budget for the 1996-97 fiscal year.
The 1995-96 General Fund Financial Plan continues to be balanced, with
reductions in projected receipts offset by an equivalent reduction in projected
disbursements. Modest changes were made to the Mid-Year Update, reflecting two
more months of actual results, deficiency requests by State agencies (the
largest of which is for school aid resulting from revisions to data submitted by
school districts), and administrative efficiencies achieved by State agencies.
Total General Fund receipts are expected to be approximately $73 million lower
than estimated at the time of the Mid-Year Update. Tax receipts are now
projected to be $29.57 billion, $8 million less than in the earlier plan.
Miscellaneous receipts and transfers from other funds are estimated at $3.15
billion, $65 million lower than in the Mid-Year Update. The largest single
change in these estimates is attributable to the lag in achieving $50 million in
proceeds from sales of State assets, which are unlikely to be completed prior to
the end of the fiscal year.
Projected General Fund disbursements are reduced by a total of $73
million, with changes made in most major categories of the 1995-96 State
Financial Plan. The reduction in overall spending masks the impact of
deficiency requests totaling more than $140 million, primarily for school aid
and tuition assistance to college students. Offsetting reductions in spending
are attributable to the continued maintenance of strict controls on spending
through the fiscal year by State agencies, yielding savings of $50 million.
Reductions of $49 million in support for capital projects reflect a stringent
review of all capital spending. Reductions of $30 million in debt service costs
reflect savings from refundings undertaken in the current fiscal year, as well
as savings from lower interest rates in the financial market. Finally, the
1995-96 Financial Plan reflects reestimates based on actual results through
November, the largest of which is a reduction of $70 million in projected costs
for income maintenance. This reduction is consistent with declining caseload
projects.
The balance in the General Fund at the close of the 1995-96 fiscal
year is expected to be $172 million, entirely attributable to monies in the Tax
Stabilization Reserve Fund following the required $15 million payment into that
Fund. A $40 million deposit to the Contingency Reserve Fund included as part of
the enacted 1995-96 budget will not be made, and the minor balance of $1 million
currently in the Fund will be transferred to the General Fund. These
Contingency Reserve Fund monies are expected to support payments from the
General Fund for litigation related to the State's Medicaid program, and for
federal disallowances.
CHANGES IN FEDERAL AID PROGRAMS CURRENTLY PENDING IN CONGRESS ARE NOT
EXPECTED TO HAVE A MATERIAL IMPACT ON THE STATE'S 1995-96 FINANCIAL PLAN,
ALTHOUGH PROLONGED INTERRUPTIONS IN THE RECEIPT OF FEDERAL GRANTS COULD CREATE
ADVERSE DEVELOPMENTS, THE SCOPE OF WHICH CAN NOT BE ESTIMATED AT THIS TIME. THE
MAJOR REMAINING UNCERTAINTIES IN THE 1995-96 STATE FINANCIAL PLAN CONTINUE TO BE
THOSE RELATED TO THE ECONOMY AND TAX COLLECTIONS, WHICH COULD PRODUCE EITHER
FAVORABLE OR UNFAVORABLE VARIANCES DURING THE BALANCE OF THE YEAR.
State Financial Plan--GAAP-Basis Results--1995-96 Update. The State
issued its first update to the GAAP-basis Financial Plan for the State's 1995-96
fiscal year on September 1, 1995. The September GAAP-basis update projected a
General Fund operating surplus of $401 million. The prior projection of the
1995-96 GAAP-basis State Financial Plan, issued in March 1995 as part of the
1995-96 Executive Budget, projected an operating surplus in the General Fund of
$800 million. The change to the projection primarily reflects the impact of
legislative changes to
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the 1995-96 Executive Budget, as well as increases in projected accruals for
certain local assistance programs (primarily Medicaid).
Total revenues in the General Fund are projected at $31.871 billion,
consisting of $29.625 billion in tax revenues and $2.246 billion in
miscellaneous revenue. Total expenditures in the General Fund are projected at
$32.444 billion, including $22.678 billion for grants to local governments,
$8.037 billion for State operations, $1.711 billion for general State charges,
and $18 million for debt service. Compared to the projections made in March,
expenditures for grants to local governments are substantially increased,
primarily because of legislative changes to the 1995-96 Executive Budget and
increased projected accruals for Medicaid.
For all governmental funds, the summary GAAP-basis Financial Plan
shows an excess of revenues and other financing sources over expenditures and
other financing uses of $359 million.
1996-97 State Financial Plan. The Governor presented his 1996-97
Executive Budget to the Legislature on December 15, 1995, one month before the
legal deadline. As provided by the State Constitution, the Governor submitted
amendments to this 1996-97 Executive Budget within 30 days following submission.
See "Amendments to 1996-97 Executive Budget" below.
The 1996-97 Financial Plan projects balance on a cash basis in the
General Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.32 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to other funds are
projected to be $31.22 billion, a decrease of $1.5 billion from spending totals
projected for the current fiscal year. After adjustments and transfers for
comparability between the 1995-96 and 1996-97 State Financial Plans, the
Executive Budget proposes an absolute year-to-year decline in General Fund
spending of 5.8 percent. Spending from all funding sources (including federal
aid) is proposed to increase by 0.4 percent from the prior fiscal year after
adjustments and transfers for comparability.
The Executive Budget proposes $3.9 billion in actions to balance the
1996-97 Financial Plan. Before reflecting any actions proposed by the Governor
to restrain spending, General Fund disbursements for 1996-97 were projected at
$35 billion, an increase of $2.3 billion or 7 percent from 1995-96. This
increase would have resulted from growth in Medicaid, inflationary increases in
school aid, higher fixed costs such as pensions and debt service, collective
bargaining agreements, inflation, and the loss of non-recurring resources that
offset spending in 1995-96. Receipts would have been expected to fall by $1.6
billion. This reduction would have been attainable to modest growth in the
State's economy and underlying tax base, the loss of non-recurring revenues
available in 1995-96 and implementation of previously enacted tax reduction
programs.
The Executive Budget proposes to close this gap primarily through a
series of spending reductions and cost containment measures. The Executive
Budget projects (i) over $1.8 billion in savings from cost containment and other
actions in social welfare programs, including Medicaid, welfare and various
health and mental health programs; (ii) $1.3 billion in savings from a reduced
State General Fund share of Medicaid made available from anticipated changes in
the federal Medicaid program, including an increase in the federal share of
Medicaid; (iii) over $450 million in savings from reforms and cost avoidance in
educational services (including school aid and higher education), while
providing fiscal relief from certain State mandates that increase local
spending; and (iv) $350 million in savings from efficiencies and reductions in
other State programs.
The 1996-97 Financial Plan projects receipts of $31.32 billion and
spending of $31.22 billion, allowing for a deposit of $85 million to the
Contingency Reserve Fund and a required repayment of $15 million to the Tax
Stabilization Reserve Fund. Detailed explanations of the 1996-97 Financial Plan
follow a discussion of the economic outlook.
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A SIGNIFICANT RISK TO THE 1996-97 STATE FINANCIAL PLAN PROJECTIONS
ARISES FROM TAX LEGISLATION UNDER CONSIDERATION BY CONGRESS AND THE PRESIDENT.
CONGRESSIONALLY-ADOPTED RETROACTIVE CHANGES TO FEDERAL TAX TREATMENT OF CAPITAL
GAINS WOULD FLOW THROUGH AUTOMATICALLY TO THE STATE PERSONAL INCOME TAX. SUCH
CHANGES, IF ULTIMATELY ENACTED, COULD PRODUCE REVENUE LOSSES IN THE 1996-97
FISCAL YEAR.
UNCERTAINTIES WITH REGARD TO BOTH THE ECONOMY AND POTENTIAL DECISIONS
AT THE FEDERAL LEVEL ADD FURTHER PRESSURE ON FUTURE BUDGET BALANCE IN NEW YORK
STATE. FOR EXAMPLE, VARIOUS PROPOSALS RELATING TO FEDERAL TAX AND SPENDING
POLICIES COULD, IF ENACTED, HAVE A SIGNIFICANT IMPACT ON THE STATE'S FINANCIAL
CONDITION IN 1996-97 AND IN FUTURE FISCAL YEARS. SPECIFICALLY, THE ASSUMPTION
OF $1.3 BILLION IN 1996-97 FINANCIAL PLAN SAVINGS FROM A REDUCED STATE GENERAL
FUND SHARE OF MEDICAID IS CONTINGENT UPON ANTICIPATED CHANGES TO FEDERAL
PROVISIONS WHICH WOULD INCREASE THE FEDERAL SHARE OF MEDICAID FROM 50 TO 60
PERCENT. OTHER BUDGET AND TAX PROPOSALS UNDER CONSIDERATION AT THE FEDERAL
LEVEL BUT NOT INCLUDED IN THE STATE'S 1996-97 EXECUTIVE BUDGET FORECAST COULD
ALSO HAVE A DISPROPORTIONATELY NEGATIVE IMPACT ON THE LONGER-TERM OUTLOOK FOR
THE STATE'S ECONOMY AS COMPARED TO OTHER STATES. MOREOVER, THERE CAN BE NO
ASSURANCE THAT THE LEGISLATURE WILL ENACT THE EXECUTIVE BUDGET AS PROPOSED BY
THE GOVERNOR INTO LAW, OR THAT THE STATE'S ADOPTED BUDGET PROJECTIONS WILL NOT
DIFFER MATERIALLY AND ADVERSELY FROM THE PROJECTIONS SET FORTH IN THIS UPDATE.
Amendments to the 1996-97 Executive Budget. The Governor has
submitted several amendments to the Executive Budget. These amendments have a
nominal impact on the State's Financial Plan for 1996-97 and the subsequent
years. The net impact of the amendments leaves unchanged the total estimated
amount of General Fund spending in 1996-97, which continues to be projected at
$31.22 billion. All funds spending in 1996-97 is increased by $68 million,
primarily reflecting adjustments to projections of federal funds, and now totals
$63.87 billion.
The budget amendments advanced by the Governor involve largely
technical revisions, with General Fund spending increases fully offset by
spending decreases. Reductions in estimated 1996-97 disbursements are
recommended primarily for welfare (associated with updated projections showing a
declining caseload) and debt service (reflecting lower interest rates and recent
bond sales). Disbursement increases are projected for snow and ice control, the
AIDS Institute, Health Department utilization review programs and other items.
Estimated disbursements for other funds are increased to accommodate updated
projections of federal funding in certain categorical grant programs and reduced
for welfare as noted for the General Fund.
State Debt. Under the State Constitution, the State may not, with
limited exceptions for emergencies, undertake long term borrowing (i.e.,
borrowing for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature and approved by
the voters. There is no limitation on the amount of long term debt that may be
so authorized and subsequently incurred by the State. With the exception of
housing bonds (which must be paid in equal annual installments, within 50 years
after issuance, commencing no more than three years after issuance), general
obligation bonds must be paid in equal annual installments, within 40 years
after issuance, beginning not more than one year after issuance of such bonds.
The total amount of long term State general obligation debt outstanding as of
March 31, 1995, was approximately $5.181 billion.
The State may undertake short term borrowings without voter approval
(i) in the anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. Tax and revenue anticipation notes must mature within one
year from their dates of issuance and may not be refunded or refinanced beyond
such period. The amount of tax and revenue anticipation notes issued may not
exceed either the amount of appropriations in force or the amount of taxes and
revenues reasonably expected, at the time the notes are issued, to be available
to pay such notes. The State may issue bond anticipation notes only for the
purposes and within the amounts for which bonds may be issued. Such notes must
be paid from the proceeds of the sale of bonds in anticipation of which they
were issued or from other sources within two years of the date of issuance or,
in the case of notes for housing purposes, within five years from the date of
issuance.
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In 1990, as part of a State fiscal reform program, legislation was
enacted creating the New York Local Government Assistance Corporation ("LGAC"),
a public benefit corporation empowered to issue long term obligations to fund
certain payments to local governments traditionally funded through the State's
annual seasonal borrowing. The legislation empowered LGAC to issue its bonds and
notes in an amount not in excess of $4.7 billion. Over a period of years, the
issuance of those long term obligations, which will be amortized over no more
than 30 years, is expected to result in eliminating the need for continuing
short term seasonal borrowing for those purposes. As of June 30, 1995, LGAC has
issued its bonds to provide net proceeds of $4.7 billion, completing the
program. The impact of LGAC's borrowing is that the State is able to meet its
cash flow needs in the first quarter of the fiscal year without relying on
short-term seasonal borrowings. The 1995-96 State Financial Plan includes no
spring borrowing nor did the 1994-95 State Financial Plan, which was the first
time in 35 years there was no short-term seasonable borrowing. This reflects
the success of the LGAC program in permitting the State to accelerate local aid
payments from the first quarter of the current fiscal year to the fourth quarter
of the previous fiscal year.
Long-term Debt Reform. In June 1994, the Legislature passed a
proposed constitutional amendment that would significantly change the long-term
financing practices of the State and its public authorities. The proposed
amendment would permit the State, within a formula-based cap, to issue revenue
bonds, which would be debt of the State secured solely by a pledge of certain
State tax receipts (including those allocated to State funds dedicated for
transportation purposes), and not by the full faith and credit of the State. In
addition, the proposed constitutional amendment would (i) permit multiple
purpose general obligation bond proposals to be proposed on the same ballot,
(ii) require that State debt be incurred only for capital projects included in a
multi-year capital financing plan, and (iii) prohibit, after its effective date,
lease-purchase and contractual-obligation financing mechanisms for State
facilities.
Before the approved constitutional amendment can be presented to the
voters for their consideration, it must be passed again by a separately elected
Legislature. The amendment must therefore be passed by the newly elected
Legislature in 1995 prior to presentation to the voters in November 1995. The
amendment was passed by the Senate in June 1995, and the Assembly is expected to
pass the amendment shortly. If approved by the voters, the amendment would
become effective January 1, 1996.
1995-96 Borrowing Plan. The State anticipates that its capital
programs will be financed, in part, through borrowings by the State and public
authorities in the 1995-96 fiscal year. The State expects to issue $248 million
in general obligation bonds (including $70 million for purposes of redeeming
outstanding Bond Anticipation Notes) and $186 million in general obligation
commercial paper. The Legislature has also authorized the issuance of up to $33
million in COPs during the State's 1995-96 fiscal year for equipment purchases
and $14 million for capital purposes. The projection of the State regarding its
borrowings for the 1995-96 fiscal year may change if circumstances require.
LGAC is authorized to provide net proceeds of up to $529 million
during the State's 1995-96 fiscal year, to redeem notes sold in June 1995,
completing its financing program as discussed above.
Borrowings by other public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total $2.7 billion, including costs of issuances, reserve funds,
and other costs, net of anticipated refundings and other adjustments for 1994-95
capital projects. Included therein are borrowings by (i) the Dormitory
Authority of the State of New York ("DA") for SUNY, the City University of New
York ("CUNY"), and health facilities, (ii) MCFFA for mental health facilities;
(iii) Thruway Authority for the Dedicated Highway and Bridge Trust Fund and
Consolidated Highway Improvement Program; (iv) UDC for prison and youth
facilities and economic development programs; (v) the Housing Finance Agency
("HFA") for housing programs; and (vi) other borrowings by the Environmental
Facilities Corporation ("EFC") and the Energy Research and Development Authority
("ERDA").
State-Guaranteed Debt. The State Constitution provides that the State
may guarantee the repayment of certain borrowings to carry out designated
projects by the New York State Thruway Authority, the Job Development Authority
and the Port Authority of New
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York and New Jersey. As of March 31, 1995, a total of $358 million in such
State-guaranteed debt was outstanding. In the case of the Job Development
Authority and the Port Authority of New York and New Jersey, additional debt may
be issued as debt is retired. The State has never been called upon to make any
direct payments pursuant to such guarantees.
Lease-Purchase and Contractual-Obligation Financing Arrangements.
Lease Purchase arrangements have been used to finance the construction of State
office buildings, State University and City University buildings, health and
mental hygiene facilities, to reconstruct and preserve the State's highways, to
construct and rehabilitate prison facilities, and to finance various other State
capital projects. In addition, the State has entered into certain contractual-
obligation financing arrangements with numerous public authorities in connection
with the financing of capital facilities or in the furtherance of certain State
programs.
Moral Obligation Financing. Moral obligation indebtedness, to the
extent authorized by legislation, may be incurred by vote of the governing board
of an authority accompanied, in most cases, with the approval of the public
authority's control board. As of March 31, 1995, approximately $7.009 billion in
moral obligation bonds were outstanding. In fiscal 1987, the State was called
upon to appropriate a total of $162.8 million to make up deficiencies in the
debt service reserve funds of the Housing Finance Agency pursuant to moral
obligation provisions. The State has not been called to make such payments since
fiscal 1987 and no payments are anticipated during Fiscal Year 1995-96.
Debt Ratings. Due primarily to the deteriorating economy and
recurring deficits, Moody's lowered its ratings on New York State general
obligations in 1990 from A1 to A. In January 1992, Moody's lowered the ratings
on a substantial number of the State's appropriation-backed debt from A to Baal,
and stated that it had put the State's general obligations under review for
possible downgrade in the future. S&P lowered its rating on the State's general
obligations in March 1990 from AA- to A, and in January 1992, S&P further
lowered the rating to A-. In January 1992, S&P also downgraded to A- various
agency debt, State moral obligations, contractual obligations, lease purchase
obligations, guarantees and school district debt. S&P currently assesses the
rating outlook for New York obligations as "negative." Fitch maintains an A+
rating for New York State general obligations. Future negative rating actions
would tend to increase the State's borrowing costs as well as to negatively
effect the prices of bonds held by the New York Intermediate-Term Municipal
Portfolio.
Litigation. The legal proceedings noted below involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State in
the 1995-96 fiscal year or thereafter.
Adverse developments in these proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced 1995-96
State Financial Plan. The State believes that the 1995-96 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1995-96 fiscal year. There can be no assurance, however, that an
adverse decision in any of these proceedings would not exceed the amount of the
1995-96 State Financial Plan reserves for the payment of judgments and,
therefore, could affect the ability of the State to maintain a balanced 1995-96
State Financial Plan. In its General Purpose Financial Statements, the State
reports its estimated liability in subsequent fiscal years for awarded and
anticipated unfavorable judgments.
Although other litigation is pending against the State, except as
described below, no current litigation involves the State's authority, as a
matter of law, to contract indebtedness, issue its obligation, or pay such
indebtedness when its matures, or affects the State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
In addition to the proceedings noted below, the State is party to
other claims and litigation which its legal counsel has advised are not probable
of adverse court decisions. Although the amounts of potential losses, if any,
are not presently determinable, it is the State's opinion that its ultimate
liability in these cases is not expected to have a material adverse effect on
the State's financial position in the 1995-96 fiscal year or thereafter.
Insurance Law. Two cases challenge provisions of Section 2807-c of
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the Public Health Law, which impose a 13 percent surcharge on inpatient hospital
bills paid by commercial insurers and employee welfare benefit plans, and
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portions of Chapter 55 of the Laws of 1992 which require hospitals to impose and
remit to the State an 11 percent surcharge on hospital bills paid by commercial
insurers and which require health maintenance organizations to remit to the
State a surcharge of up to 9 percent. In The Travelers Insurance Company v.
Cuomo, et al., commenced June 2, 1992, and The Health Insurance Association of
America, et al. v. Chassin, et al., commenced July 20, 1992, both in the United
States District Court for the Southern District of New York and consolidated,
plaintiffs allege that the surcharges are preempted by Federal law. By decision
dated April 26, 1995, the United States Supreme Court upheld the surcharges as
not preempted by Federal law.
In Trustees of and The Pension, Hospitalization Benefit Plan of the
Electrical Industry, et al. v. Cuomo, et al., commenced November 25, 1992 in the
United States District Court for the Eastern District of New York, plaintiff
employee welfare benefit plans seek a declaratory judgment nullifying on the
ground of Federal preemption provisions of Section 2807-c of the Public Health
Law and implementing regulations which impose a bad debt and charity care
allowance on all hospital bills and a 13 percent surcharge on inpatient bills
paid by employee welfare benefit plans.
Tax Law. Aspects of petroleum business taxes are the subject of
-------
administrative claims and litigation (e.g., Tug Buster Bouchard, et al. v.
Wetzler, Supreme Court, Albany County, commenced November 13, 1992). In Tug
Buster Bouchard, petitioner corporations, which purchase fuel out of State and
consume such fuel within State, contend that the assessment of the petroleum
business tax pursuant to Tax Law (S)301 to such fuel violates the Commerce
Clause of the United States Constitution. Petitioners contend that the
application of Section 301 to the interstate transaction but not to purchasers
who purchase and consume fuel within the State discriminates against interstate
commerce.
Medicaid Cases. Several cases challenge the rationality and the
retroactive application of State regulations recalibrating nursing home Medicaid
rates. Following invalidation of such previous regulations by the Court of
Appeals, the State Department of Health in 1991 promulgated new recalibration
regulations, 10 NYCRR (S)86-2.31(a) and (b), for 1989-1991 and 1992 and
subsequent rate years, respectively. In Matter of New York Association of Homes
and Services for the Aging, Inc. v. Commissioner (Supreme Court, Albany County;
Index No. 4885-92), by decision dated June 30, 1994, the Court of Appeals held
invalid the Department's retroactive application to rate years 1989 through 1991
of the nursing home Medicaid reimbursement rate recalibration adjustment set
forth in 10 NYCRR (S)86-2.31(a). Matter of New York Association of Homes and
Services for the Aging, Inc. v. Commissioner (Supreme Court Albany County; Index
No. 4370-92), challenges the new recalibration regulations for rate years
commencing 1992, and is pending.
In Matter of New York State Health Facilities Association, Inc. et al.
v. Axelrod, Supreme Court, Albany County, commenced 1990, petitioner nursing
homes challenge regulations of the State Department of Health, 10 NYCRR (S)86-
2.10 (c) and (d), which reduce base prices for the direct and indirect
components of Medicaid reimbursement for rate years commencing 1989.
In a consolidated action commenced in 1992, Medicaid recipients and
home health care providers and organizations challenge promulgation by the State
Department of Social Services ("DSS") in June 1992 of a home assessment resource
review instrument ("HARRI"), which is to be used by DSS to determine eligibility
for and the nature of home care services for Medicaid recipients, and challenge
the policy of DSS of limiting reimbursable hours of service until a patient is
assessed using the HARRI (Dowd, et al. v. Bane, Supreme Court, New York County).
Office of Mental Health Patient-Care Costs. Two actions, Balzi, et
al. v. Surles, et al., commenced in November 1985 in the United States District
Court for the Southern District of New York, and Brogan, et al. v. Sullivan, et
al., commenced in May 1990 in the United States District Court for the Western
District of New York, now consolidated, challenge the practice of using
patients' Social Security benefits for the costs of care of patients of State
Office of Mental Health facilities.
Shelter Allowance. In an action commenced in March 1987 against State
and New York City officials (Jiggetts, et al. v. Bane, et al.), plaintiffs
allege that the shelter allowance granted to recipients of public assistance is
not adequate for proper housing.
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In an action commenced in 1985 (United States, et al. v. Yonkers Board
of Education, et al.), the United States District Court for the Southern
District of New York found that Yonkers and its public schools were
intentionally segregated. Yonkers enacted an "education improvement plan" which
was adopted in 1986. Plaintiffs allege that defendants have not fulfilled their
responsibility to alleviate the segregation. On January 19, 1989 the State, the
State Education Department and the New York State Urban Development Corporation
were added as defendants.
Indian Land Claims. On March 4, 1985 in Oneida Indian Nation of New
York, et al. v. County of Oneida, the United States Supreme Court affirmed a
judgment of the United States Court of Appeals for the Second Circuit holding
that the Oneida Indians have a common-law right of action against Madison and
Oneida Counties for wrongful possession of 872 acres of land illegally sold to
the State in 1795. At the same time, however, the Court reversed the Second
Circuit by holding that a third-party claim by the counties against the State
for indemnification was not properly before the Federal courts. The case was
remanded to the District Court for an assessment of damages, which action is
still pending. The counties may still seek indemnification in the State courts.
Several other actions involving Indian claims to land in upstate New
York are also pending. Included are Cayuga Indian Nation of New York v. Cuomo,
et al., and Canadian St. Regis Band of Mohawk Indians, et al. v. State of New
York, et al., both in the United States District Court for the Northern District
of New York. The Supreme Court's holding in Oneida Indian Nation of New York
may impair or eliminate certain of the State's defenses to these actions but may
enhance others.
Cogeneration Facility. In Inter-Power of New York, Inc. v. State of
New York, commenced November 16, 1994 in the Court of Claims, plaintiff alleges
that by reason of the failure of the State's Department of Environmental
Conservation to provide in a timely manner accurate and complete data, plaintiff
was unable to complete by the projected completion date a cogeneration facility,
and thereby suffered damages.
New York City. The fiscal health of the State is closely related to
the fiscal health of its localities, particularly the City, which has required
and continues to require significant financial assistance from the State. The
City's independently audited operating results for each of its 1981 through 1992
fiscal years, which end on June 30, show a General Fund surplus reported in
accordance with GAAP. The City has eliminated the cumulative deficit in its net
General Fund position. In addition, the City's financial statements for fiscal
1992 received an unqualified opinion from the City's independent auditors, the
tenth consecutive year the City has received such an opinion.
The City, with a population of approximately 7.3 million, is an
international center of business and culture. Its non-manufacturing economy is
broadly based, with the banking and securities, life insurance, communications,
publishing, fashion design, retailing and construction industries accounting for
a significant portion of the City's total employment earnings. Additionally,
the City is the nation's leading tourist destination. Manufacturing activity in
the City is conducted primarily in apparel and printing.
The national economic downturn which began in July 1990 adversely
affected the local economy, which had been declining since late 1989. As a
result, the City experienced job losses in 1990 and 1991 and real Gross City
Product ("GCP") fell in those two years. Beginning in calendar year 1992, the
improvement in the national economy helped stabilize conditions in the City.
Employment losses moderated toward year-end and real GCP increased, boosted by
strong wage gains. However, after noticeable improvements in the City's economy
during calendar year 1994, economic growth slowed in calendar year 1995, and the
City's current four-year financial plan assumes that economic growth will
continue to slow in calendar year 1996, with local employment increasing
modestly.
For each of the 1981 through 1995 fiscal years, the City achieved
balanced operating results as reported in accordance with then applicable
generally accepted accounting principles ("GAAP"). The City was required to
close substantial budget gaps in recent years in order to maintain balanced
operating results. For fiscal year 1995, the City adopted a budget which halted
the trend in recent years of substantial increases in City-funded spending from
one year to the next. There can be no assurance that the City will continue to
maintain a balanced budget as required by State
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law without additional tax or other revenue increases or additional reductions
in City services or entitlement programs, which could adversely affect the
City's economic base.
Pursuant to the laws of the State, the City prepares a four-year
annual financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City's
current four-year financial plan projects substantial budget gaps for each of
the 1997 through 1999 fiscal years, before implementation of the proposed gap-
closing program contained in the current financial plan. The City is required
to submit its financial plans to review bodies, including the New York State
Financial Control Board ("Control Board").
The City depends on State aid both to enable the City to balance its
budget and to meet its cash requirements. The State's 1995-96 Financial Plan
projects a balanced General Fund. There can be no assurance that there will not
be reductions in State aid to the City from amounts currently projected or that
State budgets in future fiscal years will be adopted by the April 1 statutory
deadline or that any such reductions or delays will not have adverse effects on
the City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants in the City's 1996 fiscal year which could have additional
adverse effects on the City's cash flow or revenues.
The Mayor is responsible for preparing the City's four-year financial
plan, including the City's current financial plan for the 1996 through 1999
fiscal years (the "1996-1999 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies which are uncertain and which may not materialize. Changes in
major assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the condition of the
regional and local economies, the impact on real estate tax revenues of the real
estate market, wage increases for City employees consistent with those assumed
in the Financial Plan, employment growth, the ability to implement proposed
reductions in City personnel and other cost reduction initiatives, which may
require in certain cases the cooperation of the City's municipal unions, the
ability of the New York City Health and Hospitals Corporation ("HHC") and the
Board of Education ("BOE") to take actions to offset reduced revenues, the
ability to complete revenue generating transactions, provision of State and
Federal aid and mandate relief and the impact on City revenues of proposals for
Federal and State welfare reform.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 1996 through 1999 contemplates the issuance of $11.8 billion of
general obligation bonds primarily to reconstruct and rehabilitate the City's
infrastructure and physical assets and to make other capital investments. In
addition, the City issues revenue and tax anticipation notes to finance its
seasonal working capital requirements. The success of projected public sales of
City bonds and notes will be subject to prevailing market conditions, and no
assurance can be given that such sales will be completed. If the City were
unable to sell its general obligation bonds and notes, it would be prevented
from meeting its planned capital and operating expenditures. Future developments
concerning the City and public discussion of such developments, as well as
prevailing market conditions, may affect the market for outstanding City general
obligation bonds and notes.
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
On January 31, 1996, the City published the Financial Plan for the
1996-1999 fiscal years, which is a modification to a financial plan submitted to
the Control Board on July 11, 1995 (the "July Financial Plan") and which relates
to the City, BOE and the City University of New York ("CUNY"). The Financial
Plan sets forth proposed actions by the City for the 1996 fiscal year to close
substantial projected budget gaps resulting from lower than projected tax
receipts and other revenues and greater than projected expenditures. In
addition to substantial proposed agency
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expenditure reductions, the Financial Plan reflects a strategy to substantially
reduce spending for entitlements for the 1996 and subsequent fiscal years, and
to decrease the City's costs for Medicaid in the 1997 fiscal year and thereafter
by increasing the Federal share of Medicaid costs otherwise paid by the City.
This strategy is the subject of substantial debate, and implementation of this
strategy will be significantly affected by State and Federal budget proposals
currently being considered. The Financial Plan, which is consistent with the
City's preliminary budget for the 1997 fiscal year, may be changed significantly
by the time the budget for the 1997 fiscal year is adopted.
1996 Fiscal Year. The July Financial Plan set forth proposed actions
to close a previously projected gap of approximately $3.1 billion for the 1996
fiscal year. The proposed actions in the July Financial Plan for the 1996
fiscal year included (i) a reduction in spending of $400 million, primarily
affecting public assistance and Medicaid payments by the City; (ii) agency
reduction programs, totaling $1.2 billion; (iii) transitional labor savings,
totaling $600 million; and (iv) the phase-in of the increased annual pension
funding cost due to revisions resulting from an actuarial audit of the City
pension systems, which would reduce such costs in the 1996 fiscal year. A
modification to the July Financial Plan published on November 29, 1995 (the
"November Financial Plan") included savings from a proposed refunding of
outstanding debt and other expenditure reductions to offset a $129 million
increase in projected expenditures.
The 1996-1999 Financial Plan published on January 31, 1996 reflects
actual receipts and expenditures and changes in forecast revenues and
expenditures since the November Financial Plan, and projects revenues and
expenditures for the 1996 fiscal year balanced in accordance with GAAP. For the
1996 fiscal year, the Financial Plan includes actions to offset an additional
$759 million budget gap resulting primarily from (i) the failure of the Port
Authority of New York and New Jersey (the "Port Authority") to pay disputed back
rent for the City's airports in the amount included in the November Financial
Plan, (ii) shortfalls in Federal and State aid included in the November
Financial Plan, (iii) shortfalls in revenues and in amounts to be saved through
gap-closing actions at BOE, (iv) shortfalls in projected savings from cost
containment initiatives proposed in the July Financial Plan affecting public
assistance and Medicaid, and (v) the failure of the City and its labor unions to
identify assumed savings in the City's health benefits system. The gap-closing
measures for the 1996 fiscal year set forth in the Financial Plan include (i)
additional proposed agency actions aggregating $207 million, (ii) the receipt of
$150 million from the Municipal Assistance Corporation for the City of New York
("MAC"), and (iii) the receipt of $120 million from the proposed sale of
mortgages, $75 million from increased revenues from the proposed sale of City
tax liens on real property and $207 million from the proposed sale of the City's
television station.
The receipt of funds from MAC is subject to approval of MAC, the sale
of the tax liens requires adoption of a local law by the City Council and the
proposed sale of the City's television station is subject to Federal regulatory
approval. In addition, the Federal budget negotiation process for the 1996
Federal fiscal year could result in a reduction in, or a delay in the receipt
of, Federal grants in the City's 1996 fiscal year. If such approvals are not
received on a timely basis, the City may be required to identify alternative
measures to balance its 1996 fiscal year budget. For additional information
concerning changes since the July Financial Plan, which are reflected in the
Financial Plan.
1997-1999 Fiscal Years. The Financial Plan also sets forth
----------------------
projections for the 1997 through 1999 fiscal years and outlines a proposed gap-
closing program to eliminate a projected gap of $2.0 billion for the 1997 fiscal
year, and to reduce projected gaps of $3.3 billion and $4.1 billion for the 1998
and 1999 fiscal years, respectively, assuming successful implementation of the
gap-closing program for the 1996 fiscal year. The projected gaps for the 1997
through 1999 fiscal years have increased from the gaps projected in the November
Financial Plan to reflect (i) reductions in projected property taxes of $177
million, $294 million and $421 million in the 1997, 1998 and 1999 fiscal years,
respectively, due to a lower than forecast increase in the tentative assessment
roll published by the New York City Department of Finance, (ii) reductions in
other forecast tax revenues of $114 million, $216 million and $261 million in
the 1997, 1998 and 1999 fiscal years, respectively, (iii) reductions in tax
revenues of $79 million, $224 million and $341 million in the 1997, 1998 and
1999 fiscal years, respectively, as a result of new tax reduction initiatives,
including a proposed sales tax exemption on clothing items under $500, and (iv)
increased agency expenditures.
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The proposed gap-closing actions for the 1997 through 1999 fiscal
years include (i) additional agency actions, totaling between $643 million and
$691 million in each of the 1997 through 1999 fiscal years; (ii) additional
savings resulting from State and Federal aid and cost containment in entitlement
programs to reduce City expenditures and increase revenues by $650 million in
the 1997 fiscal year and by $727 million in each of the 1998 and 1999 fiscal
years; (iii) additional proposed Federal aid of $50 million in the 1997 fiscal
year and State aid of $100 million in each of the 1997 through 1999 fiscal
years; (iv) the receipt of $300 million in the 1997 fiscal year from
privatization or other initiatives, including the sale of the City's parking
meters and associated revenues, which may require legislative action by the City
Council, or the sale of other assets; and (v) the assumed receipt of revenues
relating to rent payments for the City's airports, totaling $244 million, $226
million and $70 million in the 1997 through 1999 fiscal years, respectively,
which are currently the subject of a dispute with the Port Authority and the
collection of which may depend on the successful completion of negotiations with
the Port Authority or the enforcement of the City's remedies under the leases
through pending legal actions. The City is also preparing an additional
contingency gap-closing program for the 1997 fiscal year to be comprised of $200
million in additional agency actions.
The Governor has released the 1996-1997 Executive Budget, which will
be considered for adoption by the State Legislature. The City estimates that the
1996-1997 Executive Budget provides the City with $173 million of savings from
Medicaid cost containment proposals and $127 million of savings from proposed
reductions in welfare spending in the 1997 fiscal year. The Financial Plan
assumes that the remaining $350 million of the $650 million of entitlement
reform benefits included in the Financial Plan for the 1997 fiscal year will be
generated by the State providing the City with a portion of the additional funds
received by the State as a result of the increased Federal share of Medicaid
costs proposed in the State Executive Budget. However, the State Executive
Budget does not currently contemplate sharing such funds with the City. In
addition, the President and Congress are currently considering budget proposals
for the 1996 Federal fiscal year. The Federal budget or other factors may cause
substantial amendments to the State Executive Budget.
The Federal and State budgets, when adopted, may result in substantial
reductions in revenues for the City, as well as a reduction in projected
expenditures in entitlement programs, including Medicare, Medicaid and welfare
programs. The Federal and State aid projected in the Financial Plan, and the
substantial savings assumed from cost containment in entitlement programs
included in the Financial Plan gap-dosing program for the 1997 through 1999
fiscal years, will be significantly affected both by the outcome of the current
Federal budget negotiations and by the State budget proposals made by the
Governor and to be considered by the State Legislature. The nature and extent of
the impact on the City of the Federal and State budgets, when adopted, is
uncertain, and no assurance can be given that Federal or State actions included
in the Federal and State adopted budgets may not have a significant adverse
impact on the City's budget and its Financial Plan.
The projections for the 1996 through 1999 fiscal years reflect the
costs of the proposed settlement with the United Federation of Teachers ("UFT")
and the recent settlement with a coalition of unions headed by District Council
37 of the American Federation of State, County and Municipal Employees, and
assume that the City will reach agreement with its remaining municipal unions
under terms which are generally consistent with such settlements. For further
information concerning the labor settlements, including the rejection by certain
UFT members of the tentative settlement. The projections for the 1996 through
1999 fiscal years also assume that BOE will be able to identify actions to
offset possible substantial shortfalls in Federal, State and City revenues.
The City's financial plans have been the subject of extensive public
comment and criticism. The City Comptroller has issued a report identifying
risks ranging between $408 million and $528 million in the 1996 fiscal year
before taking into account the availability of $160 million in the General
Reserve, and between $2.05 billion and $2.15 billion in the 1997 fiscal year
after implementation of the City's proposed gap-closing actions.
In addition, Moody's and S&P have on several occasions lowered their
ratings of New York State and City debt obligations. On July 10, 1995, S&P
revised its rating of the City's General Obligation Bonds downward to BBB+.
S&P's stated that "structural budgetary balance remains elusive because of
persistent softness in the City's economy,
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highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by S&P in lowering
its rating on City bonds included a trend of using one-time measures, including
debt refinancing, to close projected budget gaps, dependence on unratified labor
savings to help balance the Financial Plan, optimistic projections on additional
Federal and State aid or mandate relief, a history of cash flow difficulties
caused by State budget delays and continued high debt levels. Moody's ratings on
New York City's bonds are Baa1. On March 1, 1996, Moody's stated that the rating
for City general obligation bonds remains under review pending the outcome of
the adoption of the City's budget for the 1997 fiscal year and in light of the
status of the debate on public assistance and Medicaid reform; the enactment of
a State budget, upon which major assumptions regarding State aid are dependent,
which may be extensively delayed; and the seasoning of the City's economy with
regard to its strength and direction in the face of a potential national
economic slowdown.
INVESTMENT RESTRICTIONS
The Funds observe the following fundamental investment restrictions
which can be changed only when permitted by law and approved by a majority of a
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.
Each Fund may not:
(1) purchase securities on margin (but Short-Term and Fixed Income
Funds may make margin payments in connection with financial futures
contracts and related options) or purchase real estate or interests
therein, commodities or commodity contracts (except Short-Term and Fixed
Income Funds may purchase financial futures contracts and related options),
or make loans, except loans of portfolio securities and except that each
Fund may purchase or hold short-term debt securities and enter into
repurchase agreements with respect to its portfolio securities described in
each Prospectus. For this purpose, repurchase agreements are considered
loans;
(2) invest more than 10% of the Fund's (5% of the New York Tax-Free
Fund's) total assets taken at market value in the securities of any one
issuer (including securities subject to repurchase agreements for the
Short-Term and Fixed Income Funds only), other than obligations which are
issued or guaranteed by the United States Government, its agencies or
instrumentalities, except that up to 25% of the New York Tax-Free Fund's
total assets may be invested without regard to this 5% limitation;
(3) engage in the underwriting of securities of other issuers,
except to the extent that each 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; or participate on a
joint or joint-and-several basis in any securities trading account. The
"bunching" of orders with other accounts under the management of the
Adviser to save commissions or to average prices among them is not deemed
to result in a securities trading account;
(4) effect a short sale of any security (other than index options or
hedging strategies in the case of Short-Term and Fixed Income Funds only),
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 each Fund may borrow from banks as a
temporary measure for emergency purposes where such borrowings would not
exceed 10% 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 10% of each Fund's
total assets taken at market value. The Funds have no present intention of
engaging in transactions under this paragraph;
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<PAGE>
(6) purchase securities of any company with a record of less than
three years' continuous operation if such purchase would cause each Fund's
investments in all such companies taken at cost to exceed 5% of such Fund's
total assets taken at market value;
(7) invest for the purpose of exercising control over management of
any company;
(8) invest more than 10% of its total assets in the securities of
other investment companies;
(9) 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% (10% in the case of the New York Tax-Free Fund) of
the market value of the Fund's total assets would be so invested;
(10) 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 Funds; 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;
(11) purchase or retain securities of any company if, to the
knowledge of the Funds, officers and Trustees of the Trust and officers and
directors of the Adviser who individually own more than 1/2 of 1% of the
securities of that company together own beneficially more than 5% of such
securities;
(12) have dealings on behalf of the Funds with Officers and Trustees
of the Funds, 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 Funds;
(13) purchase equity securities or other securities convertible into
equity securities; or
(14) 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 each Fund's investments in that
industry would exceed 25% of the current value of a Fund's total assets,
provided that there is no limitation with respect to investments in
obligations of the United States Government, its agencies or
instrumentalities (and, in the case of the New York Tax-Free Fund,
investments in Municipal Obligations (for the purpose of this restriction,
industrial development and pollution control bonds shall not be deemed
Municipal Obligations if the payment of principal and interest on such
bonds is the ultimate responsibility of nongovernmental users)).
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in the market value of an investment, in the net
or total assets of the Funds, in the securities rating of the investment, or any
other later change.
MANAGEMENT
TRUSTEES AND OFFICERS
- ---------------------
The principal occupations of the Trustees and executive officers of
the Funds for the past five years are listed below. The address of each, unless
otherwise indicated, is 3435 Stelzer Road, Columbus, Ohio 43219. Trustees
deemed to be "interested persons" of the Funds for purposes of the Investment
Company Act of 1940, as amended, are indicated by an asterisk.
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<PAGE>
WILLIAM B. BLUNDIN, Chief Executive Officer and Trustee* - Executive Vice
-----------------------------------
President BISYS Fund Services, Inc., March 1995 to Present; Vice Chairman
of Concord Holding Corporation, July 1993 to March 1995; Director and
President of Concord Holding Corporation, February 1987 to July 1993.
Trustee, HSBC Funds Trust.
WOLFE J. FRANKL, Trustee - 40 Gooseneck Lane, Charlottesville, Virginia
-------
22901. Trustee, Excelsior Funds, Inc. Excelsior Tax-Exempt Funds, Inc. and
Excelsior Institutional Funds, Inc. (mutual funds); Director, Deutsche Bank
Financial, Inc.; Director, the Harbus Corporation; Trustee, HSBC Funds
Trust.
WILLIAM L. KUFTA, Trustee - 97 Main Street, Chatham, New Jersey 07928.
-------
Chief Investment Officer, Beacon Trust Company; Senior Vice President,
Pitcairn Financial Management Group from 1987 to 1991; Trustee, HSBC Funds
Trust.
ROBERT A. ROBINSON, Trustee - 251 Laurel Road, New Canaan, Connecticut
-------
06840. Trustee, Henrietta and E. Frederick H. Bugher Foundation; Trustee,
U.S.T. Master Funds, Inc. and U.S.T. Master Tax-Exempt Funds, Inc. (mutual
funds); Trustee, HSBC Funds Trust.
HARALD PAUMGARTEN, Trustee -330 Madison Avenue, New York, NY 10017.
-------
Director, Corporate Finance, Auerbach and Grayson; President, Paumgarten
and Company since 1991; Advisory Managing Director, Lepercq de Neuflize &
Co. Incorporated 1993 to1995; Director, Price Waterhouse AG 1992 to 1993;
Trustee, HSBC Funds Trust.
JOHN P. PFANN, Chairman and Trustee - 43 Captains Walk, Marina Cove, Palm
--------------------
Coast, Florida 32137. Chairman and President, JPP Equities, Inc. 1982 to
1995; Trustee, HSBC Funds Trust.
ANN E. BERGIN President - First Vice President of BISYS Fund Services,
---------
Inc., March 1995 to Present; Senior Vice President, Administration, Concord
Financial Group, August 1991 to March 1995; Assistant Vice President,
Dreyfus Service Corporation, 1982 to August 1991.
WILLIAM J. TOMKO, Vice President - Vice President, BISYS Fund Services,
--------------
Inc. since 1987.
MARK E. NAGLE, Treasurer - Senior Vice President, Fund Accounting Services,
BISYS Fund Services, Inc., September 1995 to present; Senior Vice
President, Fidelity Institutional Retirement Services 1993 to September
1995; Senior Vice President, Fidelity Accounting & Custody Services 1981 to
1993.
MARTIN R. DEAN, Assistant Treasurer - Manager, Mutual Fund Accounting,
-------------------
BISYS Fund Services since 1994; Senior Manager, KPMG Peat Marwick 1989 to
1994.
STEVEN R. HOWARD, Secretary - 805 Third Avenue, New York, New York 10022.
---------
Partner, Baker & McKenzie since April 1991; Partner, Gaston & Snow from
1988 to 1991; Secretary, HSBC Funds Trust since 1987.
ROBERT L. TUCH, Assistant Secretary - Senior Counsel of BISYS Fund
-------------------
Services, Inc., June 1991 to Present; Vice President and Associate General
Counsel with Nation Securities Research Corp., July 1990 to June 1991.
ALAINA V. METZ, Assistant Secretary - Chief Administrator, Administration
-------------------
and Regulatory Services of BISYS Fund Services, Inc., June 1995 to Present;
Supervisor of Mutual Fund Legal Department, Alliance Capital Management,
May 1989 to June 1995.
- 22 -
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Aggregate Pension or Retirement Estimated Annual Total Compensation
Compensation Benefits Accrued as Benefits Upon from the Fund
from the Funds Part of Fund Expenses Retirement Complex*
-------------- ---------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Wolfe J. Frankl, Trustee $4,942 0 N/A $22,000
William L. Kufta, Trustee $4,442 0 N/A $20,000
Harald Paumgarten, Trustee 0 0 N/A 0
John P. Pfann, Trustee $4,942 0 N/A $22,000
Robert A. Robinson, Trustee $4,942 0 N/A $22,000
</TABLE>
* Represents the total compensation paid to such persons during the calendar
year ending December 31, 1995 (and with respect to the Funds, estimated to
be paid during a full calendar year). Mr. Paumgarten was appointed as a
new Trustee subsequent to December 31, 1995 and, therefore, did not receive
any compensation from the Trust. Trustees that are "interested persons" do
not receive compensation from the Trust in connection with their role as
Trustee.
Trustees of the Funds receive from the Funds an annual fee and a fee
for attending each meeting of the Trustees and each committee meeting and are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.
As of the date of this Statement of Additional Information the
Trustees and officers of the Funds as a group owned less than 1% of the
outstanding shares of the Trust.
INVESTMENT ADVISER. The Funds retain HSBC Asset Management Americas
Inc. ("HSBC Americas") to act as the adviser for each Fund. HSBC Americas is
the North American investment affiliate of HSBC Holdings plc (Hong Kong and
Shanghai Banking Corporation) and Marine Midland Bank and is located at 250 Park
Avenue, New York, New York 10177.
The Advisory Contracts for the Funds provide that HSBC Americas will
manage the portfolio of each Fund and will furnish to each Fund investment
guidance and policy direction in connection therewith. HSBC Americas has agreed
to provide to the Trust, among other things, information relating to money
market portfolio composition, credit conditions and average maturity of the
portfolio of each Fund. Pursuant to the Advisory Contract, HSBC Americas also
furnishes to the Trust's Board of Trustees periodic reports on the investment
performance of each Fund. HSBC Americas has also agreed in the Advisory
Contract to provide administrative assistance in connection with the operation
of each Fund. Administrative services provided by HSBC Americas include, among
other things, (i) data processing, clerical and bookkeeping services required in
connection with maintaining the financial accounts and records for the Funds,
(ii) compiling statistical and research data required for the preparation of
reports and statements which are periodically distributed to the Funds' officers
and Trustees, (iii) handling general shareholder relations with Fund investors,
such as advice as to the status of their accounts, the current yield and
dividends declared to date and assistance with other questions related to their
accounts, and (iv) compiling information required in connection with the Funds'
filings with the Securities and Exchange Commission.
- 23 -
<PAGE>
Effective February 1, 1996 the Board of Trustees of the Trust approved
a Co-Administration Services Contract between the Fund and HSBC Americas.
Pursuant to the Co-Administration Services Contract, HSBC Americas (i) manages
the Fund's relationship with BISYS Fund Services, the Administrator to the
Funds, (ii) assists with negotiation of contracts with service providers and
supervises the activities of those service providers, (iii) serves as liaison
with the Board of Trustees, and (iv) assists with general product management and
oversight. HSBC is paid an annual fee equal to 0.03% of each Fund's average
daily net assets pursuant to the Co-Administration Services Contract.
SHAREHOLDER SERVICING AGENT. The Trust retains HSBC Americas to act
as Shareholder Servicing Agent of each Fund in accordance with the terms of the
Shareholder Servicing Agreement. Pursuant to the Shareholder Servicing
Agreement, HSBC Americas (i) assists and trains third-parties who deliver
prospectuses and Fund applications, (ii) assists and trains third-parties who
assist customers with completing Fund applications, (iii) conducts customer
education, reviews Fund written communications and assists third-parties who
answer customer questions, (iv) organizes and conducts investment seminars to
enhance understanding of the Fund and its objectives, (v) assists personnel who
effect customer purchases and redemptions and (vi) assists and supervises the
activities of Participating Organizations. For its services as Shareholder
Servicing Agent, HSBC Americas is paid an annual fee equal to 0.04% of the
Trust's average Trust assets.
DISTRIBUTOR. Shares of the Funds are offered on a continuous basis
through BISYS Fund Services, the Distributor, pursuant to the Distribution
Contract. The Distributor is not obligated to sell any specific amount of
shares.
ADMINISTRATOR. In accordance with resolutions adopted by the Board of
Trustees of the Trust, as of March 1, 1996, BISYS Fund Services became
Administrator of the Fund pursuant to the terms of an Administration and
Accounting Services Agreement (the "Administrative Services Agreement"),
replacing PFPC Inc. Pursuant to the Administrative Services Agreement, BISYS
Fund Services: (i) provides administrative services reasonably necessary for the
operation of the Funds, (other than those services which are provided by HSBC
Americas pursuant to the Advisory Contract) and Fund accounting services; (ii)
provides the Funds with office space and office facilities reasonably necessary
for the operation of the Funds; and (iii) employs or associates with itself such
persons as it believes appropriate to assist it in performing its obligations
under the Administrative Services Agreement.
As compensation for its administrative and accounting services under
the Administrative Services Agreement, BISYS Fund Services is paid a monthly fee
at the following annual rates: 0.15% of a Fund's first $200 million of average
daily net assets; .125% of a Fund's second $200 million of average daily net
assets; 0.10% of a Fund's third $200 million of average daily net assets; and
0.08% of a Fund's average daily net assets in excess of $600 million.
For the year ended December 31, 1995, the Short-Term, Fixed Income,
and New York Tax-Free Funds paid $11,600 (net of fee waivers of $1,000), $78,200
(net of fee waivers of $6,300), and $47,800 (net of fee waivers of $3,800),
respectively, to PFPC Inc. in administration fees under the Administrative
Services Agreement.
For the period of July 1, 1994 to December 31, 1994, the Fixed Income
Fund and Short-Term Income Fund paid $39,779 (net of fee waivers of $4,420) and
$8,300 (net of fee waivers of $593), respectively, to PFPC Inc. in
administration fees under the Administrative Services Agreement. HSBC Americas,
the predecessor to PFPC Inc., earned $771 (net of fee waivers of $6,309) and
$25,868 (net of fee waivers of $5,472) from the Short-Term Income Fund and Fixed
Income Fund, respectively, in administration fees for the six month period ended
June 30, 1994. For the period of June 22, 1994 to December 31, 1994, the New
York Tax-Free Fund paid $25,177 (net of fee waivers of $2,797) to PFPC Inc. in
administration fees under the Administrative Services Agreement. HSBC Americas,
the predecessor to PFPC Inc., waived its entire administration fee of $21,174
for the period January 1, 1994 to June 30, 1994. For the year ended December
31, 1993, HSBC Americas waived its entire administrative fee totaling $12,352
and $53,912, respectively, for the Short Term Income Fund and Fixed Income Fund.
- 24 -
<PAGE>
Effective February 1, 1996 the Board of Trustees of the Trust approved a
Co-Administration Services Contract between the Fund and HSBC Americas. Pursuant
to the Co-Administration Services Contract, HSBC Americas (i) manages the Fund's
relationship with BISYS Fund Services, the Administrator to the Funds, (ii)
assists with negotiation of contracts with service providers and supervises the
activities of those service providers, (iii) serves as liaison with the Board of
Trustees, and (iv) assists with general product management and oversight. HSBC
is paid an annual fee equal to 0.03% of each Fund's average daily net assets
pursuant to the Co-Administration Services Contract.
Shareholder Servicing Agent. The Trust retains HSBC Americas to act as
Shareholder Servicing Agent of each Fund in accordance with the terms of the
Shareholder Servicing Agreement. Pursuant to the Shareholder Servicing
Agreement, HSBC Americas (i) assists and trains third-parties who deliver
prospectuses and Fund applications, (ii) assists and trains third-parties who
assist customers with completing Fund applications, (iii) conducts customer
education, reviews Fund written communications and assists third-parties who
answer customer questions, (iv) organizes and conducts investment seminars to
enhance understanding of the Fund and its objectives, (v) assists personnel who
effect customer purchases and redemptions and (vi) assists and supervises the
activities of Participating Organizations. For its services as Shareholder
Servicing Agent, HSBC Americas is paid an annual fee equal to 0.04% of the
Trust's average Trust assets.
Distributor. Shares of the Funds are offered on a continuous basis through
BISYS Fund Services, the Distributor, pursuant to the Distribution Contract. The
Distributor is not obligated to sell any specific amount of shares.
Administrator. In accordance with resolutions adopted by the Board of
Trustees of the Trust, as of March 1, 1996, BISYS Fund Services became
Administrator of the Fund pursuant to the terms of an Administration and
Accounting Services Agreement (the "Administrative Services Agreement"),
replacing PFPC Inc. Pursuant to the Administrative Services Agreement, BISYS
Fund Services: (i) provides administrative services reasonably necessary for the
operation of the Funds, (other than those services which are provided by HSBC
Americas pursuant to the Advisory Contract) and Fund accounting services; (ii)
provides the Funds with office space and office facilities reasonably necessary
for the operation of the Funds; and (iii) employs or associates with itself such
persons as it believes appropriate to assist it in performing its obligations
under the Administrative Services Agreement.
As compensation for its administrative and accounting services under the
Administrative Services Agreement, BISYS Fund Services is paid a monthly fee at
the following annual rates: 0.15% of a Fund's first $200 million of average
daily net assets; .125% of a Fund's second $200 million of average daily net
assets; 0.10% of a Fund's third $200 million of average daily net assets; and
0.08% of a Fund's average daily net assets in excess of $600 million.
For the year ended December 31, 1995, the Short-Term, Fixed Income, and New
York Tax-Free Funds paid $11,600 (net of fee waivers of $1,000), $78,200 (net of
fee waivers of $6,300), and $47,800 (net of fee waivers of $3,800),
respectively, to PFPC Inc. in administration fees under the Administrative
Services Agreement.
For the period of July 1, 1994 to December 31, 1994, the Fixed Income Fund
and Short-Term Income Fund paid $39,779 (net of fee waivers of $4,420) and
$8,300 (net of fee waivers of $593), respectively, to PFPC Inc. in
administration fees under the Administrative Services Agreement. HSBC Americas,
the predecessor to PFPC Inc., earned $771 (net of fee waivers of $6,309) and
$25,868 (net of fee waivers of $5,472) from the Short-Term Income Fund and Fixed
Income Fund, respectively, in administration fees for the six month period ended
June 30, 1994. For the period of June 22, 1994 to December 31, 1994, the New
York Tax-Free Fund paid $25,177 (net of fee waivers of $2,797) to PFPC Inc. in
administration fees under the Administrative Services Agreement. HSBC Americas,
the predecessor to PFPC Inc., waived its entire administration fee of $21,174
for the period January 1, 1994 to June 30, 1994. For the year ended December 31,
1993, HSBC Americas waived its entire administrative fee totaling $12,352 and
$53,912, respectively, for the Short Term Income Fund and Fixed Income Fund.
- 25 -
<PAGE>
Fees and Expenses
As compensation for its advisory and management services, HSBC Americas is
paid a monthly fee by each Fund at the following annual rates:
Portion of Average Daily Value of Net Assets of
the Short-Term and Fixed Income Funds Advisory
------------------------------------------------ -------------
Not exceeding $400 million ................... 0.550%
In excess of $400 million but
not exceeding $800 million ................. 0.505
In excess of $800 million but
not exceeding $1.2 billion ................. 0.460
In excess of $1.2 billion but
not exceeding $1.6 billion ................. 0.415
In excess of $1.6 billion but
not exceeding $2 billion ................... 0.370
In excess of $2 billion ...................... 0.315
Portion of Average Daily Value of Net Assets of
the Short-Term and Fixed Income Funds Advisory
------------------------------------------------ -------------
Not exceeding $300 million .................... 0.450%
In excess of $300 million but
not exceeding $600 million .................. 0.420
In excess of $600 million but
not exceeding $1 billion .................... 0.385
In excess of $1 billion but
not exceeding $1.5 billion .................. 0.350
In excess of $1.5 billion but
not exceeding $2 billion .................... 0.315
In excess of $2 billion ....................... 0.280
With respect to the Short-Term Fund, for the years ended December 31, 1995,
1994 and 1993, HSBC Americas was paid $25,500 (net of fee waivers of $44,500),
$32,823 (net of fee waivers of $65,649) and $0 (net of fee waivers of $97,053),
respectively, for advisory fees.
With respect to the Fixed Income Fund, for the years ended December 31,
1995, 1994 and 1993, HSBC Americas was paid $464,400 (net of fee waivers of $0),
$446,346 (net of fee waivers of $42,992) and $0 (net of fee waivers of
$423,593), respectively, in advisory fees.
- 26 -
<PAGE>
With respect to the New York Tax-Free Fund, for the years ended December
31, 1995, 1994, and 1993 HSBC Americas was paid $128,900 (net of fee waivers of
$103,200), $144,878 (net of fee waivers of $117,129), and $43,698 (net of fee
waivers of $178,543), respectively, for advisory fees.
One of the states in which the shares of the Short-Term and Fixed Income
Funds are qualified for sale imposes limitations on the expenses of the Funds.
The Advisory Contract and the Administrative Services Agreement provide that if,
in any fiscal year, the total expenses of the Funds (excluding taxes, interest,
brokerage commissions and other portfolio expenses, other expenditures which are
capitalized in accordance with generally accepted accounting principles and
extraordinary expenses, but including the advisory and administrative and
management fees) exceed the expense limitations applicable to the Funds imposed
by the securities regulations of any state, HSBC Americas will reimburse the
Funds in an amount equal to 100% of that excess. Although there is no certainty
that the state limitations will be in effect in the future, the most restrictive
of these limitations on an annual basis with respect to the Funds are currently
2.5% of the first $30 million of average daily net assets, 2% of the next $70
million of average daily net assets and 1.5% of average daily net assets in
excess of $100 million. For the period ended December 31, 1995, there were no
payments or reimbursements required as a result of these expense limitations.
Except for the expenses paid by HSBC Americas under the Advisory Contract
and Co-Administration Services Contract and by PFPC Inc. under the
Administrative Services Agreement, the Funds bear all costs of their operations.
Expenses attributable to a Fund are charged against the assets of the Fund.
The Advisory Contract, Distribution Contract and Administrative Services
Agreement will continue in effect with respect to a Fund from year to year
provided such continuance is approved annually (i) 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. Each contract may be terminated with respect to a Fund at any time,
without payment of any penalty, by a vote of a majority of the outstanding
voting securities of the Fund (as defined in the Investment Company Act of 1940)
or by a vote of a majority of the Trustees. 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). The Board of Trustees of the Trust approved the
continuance of each Fund's Advisory Contract, the Distribution Contract and the
Administrative Services Agreement at a meeting of the Board of Trustees on
January 23, 1996.
Distribution Plans and Expenses
Each Fund has adopted a Distribution Plan and Agreement (the "Plan")
pursuant to Rule 12b-1 of the Investment Company Act of 1940, after having
concluded that there is a reasonable likelihood that the Plan will benefit each
Fund and its shareholders. The Plan provides for a monthly payment by each Fund
to BISYS Fund Services for expenses incurred not to exceed an annual rate of
0.35%.
BISYS Fund Services will use all amounts received under each Plan for
payments to broker-dealers or financial institutions for their assistance in
distributing shares of each Fund and otherwise promoting the sale of the Funds'
shares. BISYS Fund Services may also use all or any portions of such fee to pay
expenses such as the printing and distribution of prospectuses sent to
prospective investors, the preparation, printing and distribution of sales
literature and expenses associated with media advertisements and telephone
services.
The Plans provide for BISYS Fund Services to prepare and submit to the
Board of Trustees on a quarterly basis written reports of all amounts expended
pursuant to the Plan and the purpose for which such expenditures were made. The
Plans may not be amended to increase materially the amount spent for
distribution expenses without approval by a majority of each Fund's outstanding
shares and approval of a majority of the non-interested Trustees.
- 27 -
<PAGE>
The Plan will continue in effect with respect to each Fund from year to
year provided such continuance is approved annually by a vote of the Board of
Trustees of the Trust and of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan, cast in person at a meeting
called for the purpose of voting on such Plan. The Board of Trustees of the
Trust approved the continuance of the Plan at a meeting of the Board of Trustees
on January 23, 1996.
The Short-Term Fund made payments of $14,135, $24,814 and $8,823,
respectively, for the years ended December 31, 1995 and 1994 and for the period
March 1, 1993 (commencement of operations) through December 31, 1993, pursuant
to the Plans.
The Fixed Income Fund made payments of $57,506, $67,381, and $38,508,
respectively, for the years ended December 31, 1995 and 1994 and for the period
January 15, 1993 (commencement of operations) through December 31, 1993,
pursuant to the Plans.
The New York Tax-Free Fund made payments of $60,753, $160,394 and $101,402,
respectively, for the years ended December 31, 1995, 1994, and 1993.
CALCULATION OF YIELDS AND
PERFORMANCE INFORMATION
From time to time, the Funds quote current yield based on a specific thirty
day period. Such thirty day yield, which may be used in advertisements and
marketing material, is calculated by using a method known as "semi-annual
compounding." Yield is calculated by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
Where: yield = 2[(a-b/cd + 1) to the 6th power -1]
a = dividends and interest earned during the period,
including the amortization of market premium or
accretion of market discount.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
The public offering price (net asset value of $9.97, $10.28, and $11.17
plus maximum sales charge of 2.00%, 4.75% and 4.75% of the offering price for
the Short-Term Fund, Fixed Income Fund and New York Tax Free Fund, respectively)
per share at December 31, 1995 was $10.17, $10.79 and $11.73 for the Short-Term
Fund, Fixed Income Fund and New York Tax-Free Fund, respectively.
The current yield for the Short-Term, Fixed Income and New York Tax-Free
Funds as of December 31, 1996, was 4.70%, 5.83% and 4.74%, respectively
(excluding the maximum sales of 2.0%, 4.75%, and 4.75%, respectively). The
current yield as of the same date including the maximum sales charge was 4.61%,
5.55% and 4.51%, respectively, for the Short-Term, Fixed Income and New York
Tax-Free Funds.
- 28 -
<PAGE>
The Funds from time to time may advertise total return and cumulative total
return figures. Total return is the average annual compound rate of return for
the periods of one year and the life of each Fund, where applicable, each ended
on the last day of a recent calendar quarter. Total return quotations reflect
the change in the price of each Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
shares of each Fund. Total return is calculated by finding the average annual
compound rates of return of a hypothetical investment over such periods, that
would compare the initial amount to the ending redeemable value of such
investment according to the following formula (total return is then expressed as
a percentage):
Where: P(1+T)n = ERV
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
The average annual total return information for the Funds for the periods
indicated below is as follows:
Short-Term Fund
Sales Charge * NAV
-------------- ---
One Year Ended December 31, 1995 8.81% 10.99%
Inception (March 1, 1993) to December 31, 1995 4.50% 5.23%
Fixed Income Fund
Sales Charge * NAV
-------------- ---
One Year Ended December 31, 1995 11.17% 16.73%
Inception (January 15, 1993) to December 31, 1995 5.90% 7.64%
New York Tax-Free Fund
Sales Charge * NAV
-------------- ---
One Year Ended December 31, 1995 9.69% 15.17%
Five Years Ended December 31, 1995 7.48% 8.53%
Inception (March 21, 1989) to December 31, 1995 6.16% 8.25%
* Includes maximum sales charge. Past Performance is not predictive of future
performance.
- 29 -
<PAGE>
Cumulative total return is the rate of return on a hypothetical initial
investment of $1,000 for a specified period. Cumulative total return quotations
reflect the change in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Fund. Cumulative total return is calculated by finding the rate of
return of a hypothetical investment over such period, according to the following
formula (cumulative total return is then expressed as a percentage):
C = (ERV/P) - 1
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical
$1,000 investment made at the beginning of the
applicable period.
All Funds
From time to time, in marketing pieces and other Fund literature, each
Fund's or the Funds' total performance may be compared to the performance of
broad groups of comparable funds or unmanaged indices of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Funds. Sources for Fund performance information
may include, but are not limited to, the following:
* Barron's, a Dow Jones and Company, Inc. business and financial weekly
that periodically reviews mutual fund performance data.
* Business Week, a national business weekly that periodically reports
the performance rankings and ratings of a variety of mutual funds
investing abroad.
Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
Financial Times, Europe's business newspaper, which features from time
to time articles on international or country-specific funds.
* Forbes, a national business publication that from time to time reports
the performance of specific investment companies in the mutual fund
industry.
Fortune, a national business publication that periodically rates the
performance of a variety of mutual funds.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
* Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of
fund.
- 30 -
<PAGE>
Money, a monthly magazine that from time to time features both
specific funds and the mutual fund industry as a whole.
New York Times, a nationally distributed newspaper which regularly
covers financial news.
Personal Investor, a monthly investment advisory publication that
includes a "Mutual Funds Outlook" section reporting on mutual fund
performance measures, yields, indices and portfolio holdings.
Sylvia Porter's Personal Finance, a monthly magazine focusing on
personal money management that periodically rates and ranks mutual
funds by performance.
* Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
* Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies,
including comparative data on funds' backgrounds, management policies,
salient features, management results, income and dividend records, and
price ranges.
- ------------------
* Sources of Fund performance information actually used by the Funds in the
past.
DETERMINATION OF NET ASSET VALUE
The Funds' net asset value per share is determined by dividing the total
current market value of the assets of a Fund, less its liabilities, by the total
number of shares outstanding at the time of determination. All expenses,
including the advisory and administrative fees, are accrued daily and taken into
account for the purpose of determining the net asset value.
Portfolio securities are valued at current market value, if available.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the supervision of the
Trust's officers in accordance with guidelines which have been adopted by the
Board of Trustees. Such procedures include the use of independent pricing
services which use prices based on yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to value from dealers; and
general market conditions. Short-term obligations of sixty days or less are
valued at amortized cost, which approximates market value.
The Funds will compute their net asset value once daily as of 4:15 p.m.
(Eastern time), on each day on which the Funds' transfer agent is open for
business. The net asset value of the Funds will not be determined on the
following national, regional or local holidays: New Year's Day, Martin Luther
King, Jr.'s Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas.
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, HSBC Americas is primarily responsible for
portfolio decisions and the placing of portfolio transactions. In placing
orders, it is the policy of the Funds 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
- 31 -
<PAGE>
adviser the use of the Distributor is likely to result in an execution at least
as favorable as that of other qualified brokers. While HSBC Americas generally
seeks reasonably competitive spreads or commissions, the Funds will not
necessarily be paying the lowest spread or commission available.
Purchases and sales of securities will often be principal transactions in
the case of debt securities and, for the Short-Term and Fixed Income Funds,
equity securities traded otherwise than on an exchange. The purchase or sale of
equity securities will frequently involve the payment of a commission to a
broker-dealer who effects the transaction on behalf of a Fund. Debt securities
normally will be purchased or sold from or to issuers directly or to dealers
serving as market makers for the securities at a net price. Generally, money
market securities are traded on a net basis and do not involve brokerage
commissions. Under the Investment Company Act of 1940 ("ICA of 1940"), persons
affiliated with Marine Midland, HSBC Americas, the Funds or BISYS Fund Services
are prohibited from dealing with the Funds as a principal in the purchase and
sale of securities except in accordance with regulations adopted by the
Securities and Exchange Commission. The Funds 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 ICA of 1940. Under the ICA of 1940, persons affiliated with
HSBC Americas, the Funds or BISYS Fund Services may act as a broker for the
Funds. In order for such persons to effect any portfolio transactions for the
Funds, 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 Funds to affiliated brokers.
HSBC Americas 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 HSBC Americas. By allocating
transactions in this manner, HSBC Americas is able to supplement its research
and analysis with the views and information of securities firms.
PORTFOLIO TURNOVER
A Fund's portfolio turnover rate measures the frequency with which a Fund's
portfolio of securities is traded. The Funds will attempt to purchase securities
with intent of holding them for investment but may purchase and sell portfolio
securities whenever the Adviser believes it to be warranted (e.g., the Fund may
sell portfolio securities in anticipation of an adverse market movement). The
purchase and sale of portfolio securities may involve dealer mark-ups,
underwriting commissions or other transaction costs. Generally, the higher the
portfolio turnover rate, the higher the transaction costs to the Fund, which
will generally increase the Fund's total operating expenses. In order to qualify
as a regulated investment company, less than 30% of a Fund's gross income must
be derived from the sale or other disposition of stock, securities or certain
other investments held for less than 3 months. Although increased portfolio
turnover may increase the likelihood of additional capital gains for each Fund,
a Fund expects to satisfy the 30% income test. The Fixed Income Fund's portfolio
turnover rate for the years ended December 31, 1995 and 1994 and for the period
January 15, 1993 to December 31, 1993 was 41.6%, 64.0% and 107.3%, respectively.
The Short-Term Fund's portfolio turnover rate for the years ended December 31,
1995 and 1994 and for the period March 1, 1993 to December 31, 1993 was 53.3%,
68.1% and 32.0%, respectively. The New York Tax-Free Fund's portfolio turnover
rate for the years ended December 31, 1995, 1994, and 1993, was 24.4%, 122.4%,
and 70.4%, respectively.
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<PAGE>
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in a Fund for at
least seven days may exchange those shares for shares of the other portfolios of
the Trust and the HSBC Funds Trust which are available for sale in their state.
A shareholder who has paid a sales load in connection with the purchase of
shares of any of the Funds will not be subject to any additional sales loads in
the event such shareholder exchanges shares of one Fund for shares of another
Fund. Shareholders of any of the HSBC Money Market Funds who exchange shares of
any of such Money Market Funds for shares of any of the Funds are charged the
sales loads applicable to the Funds as stated in the Prospectus.
Before effecting an exchange, shareholders should review the prospectuses.
Exercise of the exchange privilege is treated as a redemption for Federal and
New York State and City income tax purposes and, depending on the circumstances,
a gain or loss may be recognized. See the Prospectus discussion of the Federal
tax treatment of load reductions or eliminations in an exchange.
The exchange privilege may be modified or terminated upon sixty (60) days'
notice to shareholders. Although initially there will be no limit on the number
of times a shareholder may exercise the exchange privilege, the Funds reserve
the right to impose such a limitation. Call or write the Funds for further
details.
REDEMPTIONS
The proceeds of a redemption may be more or less than the amount invested
and, therefore, a redemption may result in a gain or loss for Federal and New
York State and City income tax purposes. Any loss realized on the redemption of
Fund shares held, or treated as held, for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain dividends
received on the redeemed shares.
A shareholder's account with a Fund remains open for at least one year
following complete redemption and all costs during the period will be borne by
the Fund. This permits an investor to resume investments in such Fund during the
period in an amount of $50 or more.
To be in a position to eliminate excessive shareholder expense burdens,
each Fund reserves the right to adopt a policy pursuant to which it may redeem,
upon not less than 30 days' notice, shares of the Fund in an account which has a
value below a designated amount. However, any shareholder affected by the
exercise of this right will be allowed to make additional investments prior to
the date fixed for redemption to avoid liquidation of the account.
The Funds may suspend the right of redemption during any period when (i)
trading on the New York Stock Exchange is restricted or that Exchange is closed,
other than customary weekend and holiday closings, (ii) the Securities and
Exchange Commission has by order permitted such suspension or (iii) an emergency
exists making disposal of portfolio securities or determination of the value of
the net assets of the Funds not reasonably practicable.
Although it would not normally do so, the Trust has the right to pay the
redemption price in whole or in part in securities of a Fund's portfolio as
prescribed by the Trustees. When a shareholder sells portfolio securities
received in this fashion he would incur a brokerage charge. The Trust has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act
of 1940, as amended. Under that rule, the Trust must redeem its shares for cash
except to the extent that the redemption payments to any shareholder during any
90-day period would exceed the lesser of $250,000 or 1% of a Fund's net asset
value at the beginning of such period.
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<PAGE>
FEDERAL INCOME TAXES
The Funds have elected to be treated and intend to continue to be treated
and so qualified in 1995, as regulated investment companies for each taxable
year by complying with the provisions of the Internal Revenue Code of 1986, as
amended (the "Code") applicable to regulated investment companies so that they
will not be liable for Federal income tax with respect to amounts distributed to
shareholders in accordance with the timing requirements of the Code.
In order to qualify as a regulated investment company for a taxable year,
each Fund must, among other things, (a) derive at least 90% of its gross income
from dividends, interest, payments with respect to loans of stock or securities
and gains from the sale or other disposition of stock or securities or foreign
currency gains related to investments in stock or securities or other income
(including gains from options, futures or forward contracts) derived with
respect to the business of investing in stock, securities or currency; (b)
derive less than 30% of its gross income from the sale or other disposition of
stock or securities or certain other investments held less than three months
(excluding some amounts included in income as a result of certain hedging
transactions); and (c) diversify its holdings so that, at the end of each
quarter of its taxable year, (i) at least 50% of the market value of a Fund's
assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other stocks and
securities limited, in the case of other stocks or securities for purposes of
this calculation, in respect of any one issuer, to an amount not greater than 5%
of its assets or 10% of the voting stocks or securities of the issuer, and (ii)
not more than 25% of the value of its assets is invested in the stocks or
securities of any one issuer (other than U.S. Government securities or
securities of other regulated investment companies). As such, and by complying
with the applicable provisions of the Code, a Fund will not be subject to
Federal income tax on taxable income (including realized capital gains) which is
distributed to shareholders in accordance with the timing requirements of the
Code. Compliance with the "30% test" described in clause (b) above may, in
particular, limit a Fund's ability to engage in some transactions involving
options, short-term trading and stock index futures.
The amount of capital gains, if any, realized in any given year will result
from sales of securities made with a view to the maintenance of a portfolio
believed by each Fund's management to be most likely to attain such Fund's
investment objective. Such sales and any resulting gains or losses, may
therefore vary considerably from year to year. Since at the time of an
investor's purchase of shares, a portion of the per share net asset value by
which the purchase price is determined may be represented by realized or
unrealized appreciation in each Fund's portfolio or undistributed income of such
Fund, subsequent distributions (or portions thereof) on such shares may be
taxable to such investor even if the net asset value of his shares is, as a
result of the distributions, reduced below his cost for such shares and the
distributions (or portions thereof) represent a return of a portion of his
investment.
Each Fund is required to report to the Internal Revenue Service (the "IRS")
all distributions of taxable dividends and of capital gains, as well as the
gross proceeds of share redemptions. Each Fund may be required to withhold
Federal income tax at a rate of 31% ("backup withholding") from taxable
dividends (including capital gain dividends) and the proceeds of redemptions of
shares paid to non-corporate shareholders who have not furnished such Fund with
a correct taxpayer identification number and made certain required
certifications or who have been notified by the IRS that they are subject to
backup withholding. In addition, a Fund may be required to withhold Federal
income tax at a rate of 31% if it is notified by the IRS or a broker that the
taxpayer identification number is incorrect or that backup withholding applies
because of underreporting of interest or dividend income.
Distributions of taxable net investment income and net realized capital
gains will be taxable as described in the Prospectus whether made in shares or
in cash. In determining amounts of net realized capital gains to be distributed,
any capital loss carryovers from prior years will be applied against capital
gains. Shareholders receiving distributions in the form of additional shares
will have a cost basis for Federal income tax purposes in each share so received
equal to the net asset value of a share of the Fund on the reinvestment date.
Fund distributions will also be included in individual and corporate
shareholders' income on which the alternative minimum tax may be imposed.
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<PAGE>
Any loss realized upon the redemption of shares held (or treated as held)
for six months or less will be treated as a long-term capital loss to the extent
of any long-term capital gain dividend received on the redeemed shares. Any loss
realized upon the redemption of shares within six months after receipt of an
exempt-interest dividend will be disallowed. All or a portion of a loss realized
upon the redemption of shares may be disallowed to the extent shares are
purchased (including shares acquired by means of reinvested dividends) within 30
days before or after such redemption. Exchanges are treated as redemptions for
Federal tax purposes.
Different tax treatment is accorded to accounts maintained as IRAs,
including a penalty on early distributions. Shareholders should consult their
tax advisers for more information.
Each portfolio within the Trust will be separate for investment and
accounting purposes and will be treated as a separate taxable entity for Federal
income tax purposes. Provided that each Fund qualifies as a regulated investment
company under the Code, it will not be required to pay Massachusetts income or
excise taxes.
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.
The "straddle" rules of Section 1092 of the Code may require the Funds
which are permitted to engage in such transactions to defer the recognition of
certain losses incurred on its transactions involving certain stock or
securities, futures contracts or options. Section 1092 defines a "straddle" to
include "offsetting positions" with respect to publicly traded stock or
securities. A "position" is defined to include a futures contract and an option.
In general, the Funds will be considered to hold offsetting positions if there
is a substantial diminution of its risk of loss from holding one position by
reason of its holding one or more other positions. Section 1092 generally
provides that in the case of a straddle, any loss from the disposition of a
position (the "loss position") in the straddle shall be recognized for any
taxable year only to the extent that the amount of such loss exceeds the
unrealized gains on any offsetting straddle position (the "gain position") and
the unrealized gain on any successor position (which is a position that is
itself offsetting to the gain position and is acquired during a period
commencing 30 days prior to, and ending 30 days after, the disposition of the
loss position).
These special tax rules applicable to options and futures transactions
could affect the amount, timing and character of capital gain distributions to
shareholders by causing holding period adjustments, converting short-term
capital losses into long-term capital losses, and accelerating a Fund's income
or deferring its losses.
Corporate shareholders should also note that their basis in shares of the
Fund may be reduced by the untaxed portion (i.e., the portion qualifying for the
dividends-received deduction) of an "extraordinary dividend" if the shares have
not been held for at least two years prior to declaration of the dividend.
Extraordinary dividends are dividends paid during a prescribed period which
equal or exceed 10% of a corporate shareholder's basis in its Fund shares or
which satisfy an alternative test based on the fair market value of the shares.
To the extent dividend payments received by corporate shareholders of the Fund
constitute extraordinary dividends, such shareholders' basis in their Fund
shares will be reduced and any gain realized upon a subsequent disposition of
such shares will therefore be increased. The untaxed portion of dividends
received by such shareholders is also included in adjusted alternative minimum
taxable income in determining shareholders' liability under the alternative
minimum tax.
Each Fund is subject to a 4% nondeductible excise tax to the extent that it
fails to distribute to its shareholders during each calendar year an amount
equal to at least the sum of (a) 98% of its taxable ordinary investment income
(excluding long-term and short-term capital gain income) for the calendar year;
plus (b) 98% of its capital gain net income for the one year period ending on
October 31 of such calendar year; plus (c) any ordinary investment income or
capital gain net income from the preceding calendar year which was neither
distributed to shareholders nor taxed to
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<PAGE>
a Fund during such year. Each Fund intends to distribute to shareholders each
year an amount sufficient to avoid the imposition of such excise tax.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
Shareholders should consult their own tax advisers with respect to the tax
status of distributions from each Fund, and redemptions of shares of each Fund,
in their own states and localities. Shareholders who are not United States
persons should also consult their tax advisers as to the potential application
of foreign and U.S. taxes, including a 30% U.S. withholding tax (or lower treaty
rate) on dividends representing ordinary income to them.
Special Tax Considerations for the New York Tax-Fee Fund. The New York
Tax-Free Fund also intends to qualify to pay "exempt-interest dividends" within
the meaning of the Code by holding at the end of each quarter of its taxable
year at least 50% of the value of its total assets in the form of Municipal
Obligations. Dividends derived from interest on Municipal Obligations that
constitute exempt-interest dividends will not be includable in gross income for
Federal income tax purposes and exempt-interest dividends derived from interest
on New York Municipal Obligations will not be includable in gross income for
Federal income tax purposes or subject to New York State or City personal income
tax.
The Tax Reform Act of 1986 (the "Tax Act") and subsequent restrictive
legislation may significantly affect the supply and yields of Municipal
Obligations and New York Obligations. The Tax Act imposed new restrictions on
the issuance of Municipal Obligations and New York Obligations. As described in
the Prospectus, pursuant to the Tax Reform Act of 1986, if the Fund invested in
Municipal Obligations and New York Municipal Obligations that are private
activity bonds, some portion of exempt-interest dividends paid by the Fund would
be treated as an item of tax preference for purposes of the Federal alternative
minimum tax on individuals and corporations. In addition, a portion of original
issue discount relating to stripped Municipal Obligations and their coupons may
be treated as taxable income under certain circumstances, as will income from
repurchase agreements and securities loans.
Exempt-interest dividends received by corporations which hold shares of the
Fund will be part of the "adjusted current earnings" of such corporations, and
will increase the "alternative minimum taxable income" of such corporations for
purposes of the alternative minimum tax on corporations.
Property and casualty insurance companies will be required to reduce their
deductions for "losses incurred" by a portion of the exempt-interest dividends
they receive for shares of the Fund. The portion of the income from the Fund
derived from bonds with respect to which a holder is a "substantial user" will
not be tax-exempt in the hands of such user.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of the Fund may not be deductible in whole or in part for
Federal or New York State or City income tax purposes. Pursuant to Treasury
Regulations, the Internal Revenue Service may deem indebtedness to have been
incurred for the purpose of purchasing or carrying shares, even though the
borrowed funds may not be directly traceable to the purchase of shares.
The Fund will determine the portion of any distribution that will qualify
as an exempt-interest dividend based on the proportion of its gross income
derived from interest on Municipal Obligations over the course of the Fund's
taxable year. Therefore, the percentage of any particular distribution
designated as an exempt-interest dividend may
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<PAGE>
be substantially different from the percentage of the Fund's gross income
derived from interest on Municipal Obligations for the period covered by the
distribution.
Opinions relating to the validity of Municipal Obligations (including New
York Municipal Obligations) and to the exclusion of interest thereon from
Federal, New York State and New York City gross income are rendered by bond
counsel for each issue at the time of issuance. Neither the Trust nor its
investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
The Fund may obtain put rights with respect to certain of its Municipal
Obligations. The Internal Revenue Service has issued published and private
rulings concerning the treatment of such put transactions for Federal income tax
purposes. Since these rulings are ambiguous in certain respects, there can be no
assurance that the Fund will be treated as the owner of the Municipal
Obligations subject to the puts or that the interest on such obligations
received by the Fund will be exempt from Federal income tax (and New York State
and City personal income tax in the case of New York Municipal Obligations). If
the Fund is not treated as the owner of the Municipal Obligations subject to the
puts, distributions of income derived from such obligations will be taxed as
ordinary income. The Fund anticipates that, in any event, it will remain
qualified to pay exempt-interest dividends with respect to interest derived from
other obligations in its portfolio.
SHARES OF BENEFICIAL INTEREST
The authorized capital of the Trust consists of an unlimited number of
shares of beneficial interest having a par value of $0.001 per share. The
Declaration of Trust authorizes the Trustees to classify or reclassify any
unissued shares of beneficial interest. Pursuant to that authority, the Board of
Trustees has authorized the issuance of shares in seven investment portfolios.
All shares have equal voting rights and will be voted in the aggregate, and
not by portfolio, except where voting by portfolio is required by law or where
the matter involved affects only one portfolio. As used in the Prospectus and in
this Statement of Additional Information, the term "majority," when referring to
the approvals to be obtained from shareholders in connection with general
matters affecting all of the Funds (e.g., election of Trustees and ratification
of independent auditors), means the vote of a majority of each Fund's
outstanding shares represented at a meeting. The term "majority", when referring
to the approvals to be obtained from shareholders in connection with approval of
the Advisory Contract or changing the fundamental policies of a Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held.
Vacancies on the Board of Trustees are filled by the Board of Trustees if
immediately after filling any such vacancy at least two-thirds of the Trustees
then holding office have been elected to such office by shareholders at an
annual or special meeting. In the event that at any time less than a majority of
Trustees holding office were elected by shareholders, the Board of Trustees will
cause to be held within 60 days a shareholders' meeting for the purpose of
electing trustees to fill any existing vacancies. Trustees are subject to
removal with cause by two-thirds of the remaining Trustees or by a vote of a
majority of the outstanding shares of the Trust. The Trustees are required to
promptly call a shareholders' meeting for voting on the question of removal of
any Trustee when requested to do so in writing by not less than 10% of the
outstanding shares of the Trust. In connection with the calling of such
shareholders' meetings, shareholders will be provided with communication
assistance.
Each share of a Fund represents an equal proportionate interest in the Fund
with each other share of such Fund and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are
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<PAGE>
declared in the discretion of the Trustees. In the event of liquidation or
dissolution, shares of a Fund are entitled to receive the assets belonging to
the Fund which are available for distribution, and of any general assets not
belonging to such Fund which are available for distribution.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Funds.
At March 31, 1996 no person owned of record or, to the knowledge of
management beneficially owned more than 5% of the outstanding shares of any Fund
except as set forth below:
Shares Held & Percent of Class
<TABLE>
<CAPTION>
Name and Address of Short-Term Fixed Income Fund New York Tax-Free
Holder of Record Fund Fund
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Marine Midland Bank 996,499 9,291,839 814,518
Buffalo, NY 95.2% 97.6% 18.7%
Total Shares Outstanding 1,047,170 9,520,197 4,354,500
</TABLE>
HSBC has informed the Trust that it was not the beneficial owner of any of
the shares it held of record.
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
As of September 25, 1995, the Bank of New York has been retained, pursuant
to a Custodian Agreement, to act as custodian for each Fund. The Bank of New
York's address is 90 Washington Street, New York, New York 10286. Under the
Custodian Agreement, the Custodian maintains a custody account or accounts in
the name of each Fund; receives and delivers all assets for each such Fund upon
purchase and upon sale or maturity; collects and receives all income and other
payments and distributions on account of the assets of each such Fund; pays all
expenses of each such Fund; receives and pays out cash for purchases and
redemptions of shares of each such Fund and pays out cash if requested for
dividends on shares of each such Fund; calculates the daily value of the assets
of the Short-Term and Fixed Income Funds; determines the daily net asset value
per share, net investment income and dividend rate for the Short-Term and Fixed
Income Funds; and maintains records for the foregoing services. Under the
Custodian Agreement, each such Fund has agreed to pay the Custodian for
furnishing custodian services a fee for certain administration and transaction
charges and out-of-pocket expenses.
For the period from January 1, 1995 to September 25, 1995, HSBC Americas
paid custodian fees on behalf of the Short-Term Fund and Fixed Income Fund
totaling $4,300 and $9,500, respectively.
The Short-Term Fund and Fixed Income Fund paid $3,991 and $10,148
respectively, for custody services to Marine Midland for the year ended December
31, 1994. For the period March 1, 1993 (commencement of operations) through
December 31, 1993 with respect to the Short-Term Fund and the period January 15,
1993 (commencement of operations) through December 31, 1993 with respect to the
Fixed Income Fund, Marine Midland received $8,094 and
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<PAGE>
$14,883, respectively, for custody services from the Funds, all of which was
paid by HSBC Americas. For the period from January 1, 1995 to September 25,
1995, the New York Tax-Free Fund paid $6,400 in custody fees to Marine Midland
Bank. The New York Tax-Free Fund paid $8,726, and $8,930, respectively, for
custody services to Marine Midland for the years ended December 31, 1994 and
1993.
The Board of Trustees has authorized The Bank of New York in its capacity
as custodian of each such Fund to enter into Subcustodian Agreements with banks
that qualify under the Investment Company Act of 1940 to act as subcustodians
with respect to certain variable rate short-term tax-exempt obligations in each
Fund's portfolio.
Effective April 15, 1996, BISYS Fund Services has been retained by the
Trust to act as transfer agent and dividend disbursing agent for the Funds.
Under the Agency Agreement, BISYS Fund Services performs general transfer agency
and dividend disbursing services. It maintains an account in the name of each
shareholder of record in each Fund reflecting purchases, redemptions, daily
dividend accruals and monthly dividend disbursements, processes purchase and
redemption requests, issues and redeems shares of each Fund, addresses and mails
all communications by each Fund to its shareholders, including financial
reports, other reports to shareholders, dividend and distribution notices, tax
notices and proxy material for its shareholder meetings, and maintains records
for the foregoing services. Under the Agency Agreement, each Fund has agreed to
pay BISYS Fund Services $25.00 per account and subaccount (whether maintained by
HSBC Americas or a correspondent bank) per annum. In addition, the Funds have
agreed to pay BISYS Fund Services certain transaction charges, wire charges and
out-of-pocket expenses incurred by BISYS Fund Services.
The Short-Term Fund and Fixed Income Fund paid $9,179 and $36,235,
respectively, to PFPC Inc., BISYS Fund Services' predecessor, for transfer
agency services for the year ending December 31, 1995.
The Short-Term Fund and Fixed Income Fund paid $9,519 and $20,493,
respectively, to PFPC Inc. and its predecessor, HSBC Americas, for transfer
agency services for the year ending December 31, 1994. For the period March 1,
1993 (commencement of operations) through December 31, 1993 with respect to the
Short-Term Fund and the period January 15, 1993 (commencement of operations)
through December 31, 1993 with respect to the Fixed Income Fund, HSBC Americas
waived its entire fee in the amount of $5,094 and $7,897, respectively, for
transfer agency services from the Funds.
The New York Tax-Free Fund paid $63,295 and $54,827, respectively, to PFPC
Inc., for transfer agency services for the years ending December 31, 1995 and
1994. For the year ended December 31, 1993, HSBC Americas, PFPC Inc.'s
predecessor, received $45,067, respectively, from the Fund for transfer agency
services.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as the independent auditors for the Funds. Ernst &
Young LLP provides audit services, tax return preparation and assistance and
consultation in connection with Securities and Exchange Commission filings.
Ernst & Young LLP's address is 787 Seventh Avenue, New York, New York 10019.
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<PAGE>
EXPERTS
The financial statements audited by Ernst & Young LLP have been included in
this SAI for the year ended December 31, 1995 for the Funds in reliance on their
report, given on the authority of that firm as experts in auditing and
accounting.
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<PAGE>
Growth and Income Fund 3435 Stelzer Road, Columbus, Ohio 43219
Small Cap Fund
Information: (800) 634-2536
HSBC ASSET MANAGEMENT AMERICAS INC.
--Investment Adviser and Co-Administrator
INVESTMENT CONCEPTS, INC.
--Sub-Adviser to the Small Cap Fund
BISYS FUND SERVICES
-- Distributor
- --------------------------------------------------------------------------------
HSBC Mutual Funds Trust, formerly known as Mariner Mutual Funds Trust, (the
"Trust") was organized in Massachusetts on November 1, 1989 as a Massachusetts
business trust and is an open-end, diversified management investment company
with multiple investment portfolios, including the Growth and Income Fund
(formerly known as the Total Return Equity Fund) and the Small Cap Fund (herein
referred to individually as a "Fund" and collectively as the "Funds").
The Growth and Income Fund seeks as its investment objective to provide
investors with long-term growth of capital and current income by investing,
under ordinary market conditions, at least 65% of its total assets in common
stocks, preferred stocks and securities convertible into or with rights to
purchase common stocks. The Small Cap Fund seeks as its investment objective to
provide investors with long-term capital appreciation and, secondarily, income
by investing, under ordinary market conditions, at least 70% of its total assets
in a diversified portfolio of common stocks and securities convertible into
common stocks of small to medium-size companies. The balance of each Fund's
assets may be invested in various types of fixed income securities (and
preferred stocks with respect to the Small Cap Fund) and in money market
instruments. See "Investment Objectives, Policies and Risk Factors." The Funds
may also utilize certain other investment practices to seek to enhance return or
to hedge against fluctuations in the value of portfolio securities. See
"Investment Objectives, Policies and Risk Factors-Other Investment Practices."
Each Fund's investment adviser is HSBC Asset Management Americas Inc.
("HSBC Americas" or the "Adviser"), the North American investment affiliate of
HSBC Holdings plc (Hongkong and Shanghai Banking Corporation) and Marine Midland
Bank (the "HSBC Group"). Investment Concepts, Inc. serves as sub-adviser to the
Small Cap Fund. See "Management of the Funds" in this Prospectus.
Prospective investors should be aware that shares of the Funds are not an
obligation of or guaranteed or endorsed by HSBC Group or its affiliates. In
addition, such shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency and may involve
investment risks, including the possible loss of principal.
Shares of the Funds are offered for sale primarily through its Distributor
as an investment vehicle for institutions, corporations, fiduciaries and
individuals. Certain broker-dealers, banks, financial institutions and
corporations (the "Participating Organizations") have agreed to act as
shareholder servicing agents for investors who maintain accounts at these
Participating Organizations and to perform certain services for the Funds.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. A Statement of Additional Information
(the "SAI"), dated April 24, 1996, containing additional detailed information
about the Funds, has been filed with the Securities and Exchange Commission and
is hereby incorporated by reference into this Prospectus. A copy is available
without charge and can be obtained by writing the Trust at the above address, or
calling the telephone number listed above.
--------------------------
This Prospectus should be read and retained for ready reference to
information about the Funds.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
April 24, 1996
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary of Annual Fund Operating
Expenses.................................. 2
Financial Highlights........................... 4
Investment Objectives, Policies and Risk
Factors................................... 6
Investment Restrictions........................ 17
Management of the Funds........................ 18
Transactions with Affiliates................... 22
Determination of Net Asset Value............... 23
Purchase of Shares............................. 23
Redemption of Shares........................... 27
Exchange Privilege............................. 29
Dividends, Distributions and Taxes............. 29
Account Services............................... 30
Transfer and Dividend Disbursing Agent
and Custodian............................. 31
Performance Information........................ 31
Shares of Beneficial Interest.................. 31
</TABLE>
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SUMMARY OF ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
The purpose of the following information is to assist an investor in
understanding the costs and expenses that an investor in the Funds would bear
directly or indirectly. The information is based on expenses for each Fund for
the fiscal year ended December 31, 1995 as adjusted for estimated other
operating expenses and voluntary reductions of investment advisory,
co-administration and 12b-1 fees.
<TABLE>
<CAPTION>
Growth and
Shareholder Transaction Expenses Income Small Cap
------ ---------
<S> <C> <C>
Maximum sales charge imposed on purchases of shares of the Funds
(as a percentage of offering price)............................................. 5.00% 5.00%
Certain investors will not be subject to the sales charge. See "Purchase of Shares
in this Prospectus."
Annual Fund Operating Expenses
Management Fees.................................................................... 0.55% 0.70%
12b-1 Fees (net of fees not imposed)*.............................................. 0.08% 0.12%
Other Expenses (net of fees and expenses not imposed)
Administrative Services Fee**................................................. 0.10% 0.10%
Co-Administrative Services Fee***............................................. 0.00% 0.00%
Other Operating Expenses...................................................... 0.31% 0.45%
---- ----
Total Fund Operating Expenses (net of fees and expenses not imposed)****........... 1.04% 1.37%
---- ----
Total Fund Operating Expenses Before
Non-Imposition of Fees and Expense Reimbursements .............................. 1.58% 1.72%
==== ====
</TABLE>
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual shareholder's
own investment in the Funds. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
2
<PAGE>
The following example should not be considered a representation of past or
future expenses. The expenses set forth above and example below reflect the
non-imposition of certain fees and expenses. The actual expenses may be greater
or lesser than those shown. The following example assumes a 5% annual return;
however the Funds' actual return will vary and may be greater or less than 5%.
Example:
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return and the reinvestment of all dividends and distributions:+
<TABLE>
Growth
and
Income Small Cap
------ ---------
<S> <C> <C>
1 year...................................... $ 60 $ 63
3 years..................................... $ 81 $ 91
5 years.................................... $105 $121
10 years.................................... $171 $206
</TABLE>
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* The fee under each Fund's Distribution Plan and Agreement is calculated
on the basis of the average daily net assets at an annual rate not to exceed
0.35% and 0.50% for the Small Cap Fund and Growth and Income Fund, respectively.
See "Management of the Funds-Distribution Plan and Agreement."
** Reflects administrative fees not imposed due to a voluntary waiver by
BISYS Fund Services of 0.05% for each Fund. See "Management of the
Funds-Administration."
*** Reflects co-administrative fees of .03% and shareholder servicing fees
of 0.04% voluntarily waived by HSBC Americas for each Fund. "See Management of
the Fund, Administrator and Shareholder Servicing Agent" in this Prospectus.
**** Investors who purchase and redeem shares of the Funds through a
customer account maintained at a Participating Organization may be charged
additional fees by such Participating Organization. See "Management of the
Funds-Servicing Agreements."
+ Includes a maximum sales charge from which certain shareholders may be
exempt. See "Purchase of Shares."
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following supplementary financial information for each of the five
years in the period ended December 31, 1995 with respect to the Growth and
Income Fund and for each of the three years in the period ended December 31,
1995, with respect to the Small Cap Fund has been audited by Ernst & Young LLP
whose report thereon is contained in the Statement of Additional Information
("SAI"). The supplementary financial information for each of the years ended
December 31, 1990 and 1989 also has been audited by Ernst & Young LLP whose
report thereon was unqualified. The supplementary financial information for the
year ended December 31, 1988 and prior has been audited by other auditors. This
information should be read in conjunction with the financial statements and
notes thereto which are included in the SAI.
Selected data for a share of each Fund outstanding throughout each period:
<TABLE>
<CAPTION>
Growth and Income Fund
For the Period
June 2, 1986
Year Ended December 31, (commencement
--------------------------------------------------------------------------------- of operations)
to
1995 1994 1993 1992 1991 1990 1989 1988 1987 December 31,
1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .................. $11.93 $12.87 $12.02 $13.12 $10.77 $11.59 $10.38 $9.56 $10.32 $10.00
------ ------ ------ ------ ------ ------ ------ ----- ------ ------
Income From Investment
Operations:
Net investment income ...... 0.30 0.29 0.33 0.15 0.21 0.32 0.41 0.38 0.31 0.25
Net realized and unrealized
gain/(loss) on investments . 3.64 (0.67) 1.00 0.80 3.21 (0.82) 2.21 1.09 (0.27) 0.07
Total from investment
operations ................. 3.94 (0.38) 1.33 0.95 3.42 (0.50) 2.62 1.47 (0.04) 0.32
Less Distributions from:
Net investment income ...... (0.30) (0.29) (0.33) (0.15) (0.21) (0.38) (0.45) (0.55) -- --
Net realized gains ......... (0.80) (0.15) (0.15) (1.90) (0.86) (1.03) (0.20) (0.25) -- --
Excess of current year net
realized gain on investments -- (0.12) -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ........ (1.10) (0.56) (0.48) (2.05) (1.07) (1.41) (0.65) (0.80) -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of
period ..................... $14.77 $11.93 $12.87 $12.02 $13.12 $10.77 $11.59 $10.38 $9.56 $10.32
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return (a) 33.11% (2.97)% 11.23% 7.74% 31.92% (4.41%) 25.56% 15.52% (0.17%) 3.20%(b)
Ratios/Supplemental Data:
Net assets (000), end of
period ..................... $66,062 $64,985 $77,718 $3,609 $4,798 $4,041 $4,334 $3,863 $5,517 $7,079
Ratio of expenses
(without fee waivers) to
average net assets ......... 0.97% 0.86% 0.88% 2.29% 2.18% 2.86% 2.36% 0.29% 0.19% 0.24%*
Ratio of expenses
(with fee waivers) to
average net assets ......... 0.94% 0.78% 0.23% 1.68% 1.40% 1.19% 0.47% 0.29% 0.19% 0.24%*
Ratio of net investment
income (without fee
waivers) to average
net assets ................. 2.03% 2.17% 2.30% 0.51% 0.91% 1.23% 1.61% 3.17% 2.65% 4.30%*
Ratio of net investment
income (without fee
waivers) to average
net assets ................. 2.06% 2.25% 2.95% 1.12% 1.69% 2.90% 3.50% 3.17% 2.65% 4.30%*
Portfolio turnover rate .... 52.77% 23.31% 14.25% 54.99% 77.11% 45.21% 50.47% 49.11% 163.56% 18.57%(b)
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Excludes sales charge.
(b) Not annualized.
* Annualized.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Small Cap Fund
For the Period
January 4, 1993
(Commencement of
Year Ended December 31, Operations) to
----------------------
1995 1994 December 31, 1993
---- ---- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period .................... $11.90 $12.29 $10.00
------ ------ ------
Income From Investment Operations:
- ----------------------------------
Net investment loss ................................ (0.12) (0.07) (0.05)
Net realized and unrealized
gain/(loss) on investments ...................... 3.24 (0.32) 2.42
---- ----- ----
Total from investment operations ............. 3.12 (0.39) 2.37
---- ----- ----
Less Distribution from:
- -----------------------
Net realized capital gain .......................... (0.56) -- (0.08)
---- ----- ----
Net asset value, end of period .......................... $14.46 $11.90 $12.29
Total Return (a) ........................................ 26.20% (3.17%) 23.74%(b)
Ratios/Supplemental Data:
Net assets (000), end of period .................... $26,036 $24,308 $17,659
Ratio of expenses (without fee waivers)
to average net assets ........................... 1.35% 1.38% 1.58%*
Ratio of expenses (with fee waivers)
to average net assets ........................... 1.33% 1.23% 1.12%*
Ratio of net investment loss (without fee waivers)
to average net assets ........................... (0.87%) (0.73%) (0.97%)*
Ratio of net investment loss (with fee waivers)
to average net assets ........................... (0.85%) (0.68%) (0.51%)*
Portfolio turnover rate ............................ 29.86% 20.17% 5.96%(b)
- ----------
* Annualized.
(a) Excludes sales charge.
(b) Not annualized.
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK FACTORS
Growth and Income Fund
Investment Objective
The investment objective of the Growth and Income Fund is to provide
investors with long-term growth of capital and current income by investing
primarily in common stocks, preferred stocks and securities convertible into or
with rights to purchase common stocks ("equity securities"). There is no
assurance that this objective will be attained.
The Growth & Income Fund's investment objective is fundamental and cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities as defined in the SAI. The other investment
policies and practices of the Growth & Income Fund, unless otherwise noted, are
not fundamental and may therefore be changed by a vote of the Board of Trustees
without shareholder approval.
Investment Policies and Risk Factors
In selecting securities for the portfolio of the Growth and Income Fund,
the Adviser looks for securities that appear to be undervalued, some of which
will be income-producing. To meet the Growth and Income Fund's investment
objective of growth of capital, the Investment Adviser will 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 been reflected yet in the price of the securities. In
order to increase the income generated by the Growth and Income Fund's
portfolio, the Adviser looks for securities that provide current dividends or,
in the opinion of the Adviser, have a potential for dividend growth in the
future. In addition, the Growth and Income Fund may, within certain limitations
as set forth below, lend portfolio securities, enter into repurchase agreements,
invest in when-issued and delayed delivery securities and write covered call
options. The Growth and Income Fund may use stock index futures, related options
and options on stock indices for the sole purpose of hedging the portfolio. See
"Other Investment Practices" for more information.
The Growth and Income Fund will place greater emphasis on capital
appreciation as compared to income, although changes in market conditions and
interest rates will cause the Growth and Income Fund to vary the emphasis of
these two elements of its investment program in order to meet its investment
objective. For example, in a period of rising interest rates, the Adviser may
decide to emphasize the investment objective of current income by investing in
money market investments.
During ordinary market conditions, at least 65% of the Growth and Income
Fund's total assets will be invested in equity securities, and it is expected
that the percentage will ordinarily be much higher. Most of the Growth and
Income 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 "Other Investment
Practices" in this Prospectus for further information on these investments). The
Adviser expects that the Growth and Income Fund's investments will consist of
companies which will be of various sizes and in various industries and may in
many cases be leaders in their fields. Criteria for selecting particular
securities are expected to include the issuer's managerial strength, competitive
position, profit and earnings ratio, profitability, prospects for growth,
underlying asset value and relative market value.
6
<PAGE>
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, no more
than 35% of the Fund's total assets will be invested in fixed income securities
and money market instruments for purposes of meeting the Fund's investment
objective of current income. 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.
The Growth and Income 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
Growth and Income Fund may also invest up to 5% of its total assets in the debt
obligations of foreign issuers (see "Other Investment Practices" in this
Prospectus for more information). Investment grade bonds, for example, are those
rated "Baa" or better by Moody's Investors Service, Inc. ("Moody's") or "BBB" or
better by Standard & Poor's Corporation ("S&P") or of a comparable rating by
another nationally recognized statistical rating organization or, if unrated,
determined by the Adviser to be of comparable investment quality. While
"Baa"/"BBB" securities and comparable unrated securities may produce a higher
return, they are subject to a greater degree of market fluctuation and credit
risks than the higher quality securities in which the Fund may invest and may be
regarded as having speculative characteristics as well. For a complete
description of the ratings of Moody's and S&P, see the Appendix to the SAI.
The types of debt obligations in which the Growth and Income 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. See "Other
Investment Practices" in this Prospectus for further information concerning
these investments.
As a result of investments in fixed income securities, the net asset value
of the Growth and Income Fund may be adversely affected in response to
fluctuations in prevailing interest rates and resulting changes in the value of
its fixed income portfolio securities. When interest rates decline, the value of
fixed income securities already held in the Growth and Income Fund's portfolio
can generally be expected to rise. Conversely, when interest rates rise, the
value of existing fixed income portfolio security holdings can generally be
expected to decline. The risk of these fluctuations increases in the case of
fixed income securities with longer maturities. Consequently, the Growth and
Income Fund will not invest in any fixed income security with a remaining
maturity in excess of five years.
The Growth and Income 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 Growth and Income 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 of the Adviser. During times when the Growth and Income Fund is
maintaining a temporary defensive posture, it may be unable to achieve fully its
investment objective.
7
<PAGE>
The foregoing investment objective and policies and those additional
policies described under "Other Investment Practices" in this Prospectus with
respect to the Growth and Income Fund, unless otherwise noted, are not
fundamental and may be changed by a vote of the Board of Trustees of the Trust
without shareholder approval.
Small Cap Fund
Investment Objective
The investment objective of the Small Cap Fund is to seek long-term capital
appreciation and, secondarily, income by investing primarily in a diversified
portfolio of common stocks and securities convertible into common stocks of
small to medium-size companies with an initial market capitalization of $500
million or less at the time of purchase by the Fund. The universe of small to
medium-size companies includes those companies with market capitalizations of up
to $5 billion. The inherent risks of small to medium-size companies are
two-fold: business risk and market risk. Business risk refers to the possibility
that a company may do poorly due to competitive or financial factors. Market
risk refers mainly to the relatively small number of shares publicly owned as
compared to larger companies.
The Small Cap Fund's investment objective is fundamental and cannot be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities as defined in the SAI. The other investment
policies and practices of the Small Cap Fund, unless otherwise noted, are not
fundamental and may therefore be changed by a vote of the Board of Trustees
without shareholder approval.
Investment Policies and Risk Factors
The Small Cap Fund will tend to utilize a "bottom-up" approach to
securities selection. In this analysis, emphasis is placed upon the prospects of
each individual company rather than on its sector prospects. Particular
attention will be focused upon the prospects of above market earnings growth.
Other characteristics will include return on equity, product profile, condition
of the balance sheet and company management. The Small Cap Fund primarily seeks
long-term return from capital appreciation. The Fund will be managed in a manner
that seeks to provide the same level of income as a growth fund. Also, the Small
Cap Fund will attempt to achieve growth over a period of years that is greater
than that of an income fund. Depending upon the performance of the Small Cap
Fund's investments, the net asset value per share of such Fund may increase or
decrease.
Under normal market conditions, the Small Cap Fund will invest at least 70%
of the value of its total assets in common stocks and securities convertible
into common stocks of companies believed by the Adviser to be characterized by
sound management and the ability to finance expected growth.
The Small Cap Fund may also invest up to 30% of the value of its total
assets in preferred stocks, corporate bonds, notes, warrants, debentures, zero
coupon securities, asset-backed and mortgage-related securities, and cash
equivalents. Such securities will be rated at least "A" by Moody's or S&P, or,
if not rated, deemed to be of comparable quality by the Adviser.
In addition to the general risks inherent in investing in common stock, the
Fund's investments in fixed-income investments, if any, may adversely affect the
net asset value of the Small Cap Fund due to fluctuations in prevailing interest
rates and resulting changes in the value of such investments. When interest
rates decline, the value of fixed securities investments already held in the
Small Cap Fund's portfolio can generally be expected to rise.
8
<PAGE>
Conversely, when interest rates rise, the value of existing fixed income
portfolio security holdings can generally be expected to decline. The risk of
these fluctuations increases in the case of fixed income securities with longer
maturities. Consequently, the Small Cap Fund will not invest in any fixed income
security with a remaining maturity in excess of five years.
"Cash equivalents" are short-term, interest-bearing instruments or
deposits. The purpose of cash equivalents is to provide liquidity and income at
money market rates while minimizing the risk of decline in value to the maximum
extent possible. The instruments may include, but are not limited to, commercial
paper, domestic and Eurodollar certificates of deposit, repurchase agreements,
bankers' acceptances, United States Treasury Bills, variable and floating rate
demand and master demand notes, agency discount notes, bank money market deposit
accounts and money market mutual funds. The Small Cap Fund will only purchase
commercial paper rated at the time of purchase A-1 or better by S&P, Prime-1 or
better by Moody's or F-1 or better by Fitch Investors Service ("Fitch") or, if
not rated, deemed to be of comparable quality by the Adviser. See the Appendix
to the SAI for an explanation of these ratings. During temporary defensive
periods as determined by the Adviser, the Small Cap Fund may hold up to 100% of
its total assets in cash equivalents.
The foregoing investment objective and policies and those additional
policies described under "Other Investment Practices" in this Prospectus with
respect to the Small Cap Fund, unless otherwise noted, are not fundamental and
may be changed by a vote of the Board of Trustees of the Trust without
shareholder approval.
Other Investment Practices
Lending of Portfolio Securities. Each Fund may lend its securities if such
loans are secured continuously by cash or equivalent collateral or by a letter
of credit in favor of such Fund at least equal at all times to 102% of the
market value of the securities loaned plus interest or dividends. While such
securities are on loan, the borrower will pay the Fund the amount of any income
accruing thereon, or, in some cases, a separate fee. Each Fund will not lend
securities having a value which exceeds 10% of the current value of its total
assets. 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
Investment 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.
Investment Company Securities. Each Fund may invest up to 10% of its total
assets in securities issued by other investment companies. Such securities will
be acquired by the Funds within the limits prescribed by the 1940 Act, as
amended, which include a prohibition against a 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 fees.
U.S. Government Securities. Each 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
9
<PAGE>
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, each 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.
Corporate Debt Obligations. Each Fund may invest in U.S. dollar-denominated
obligations issued or guaranteed by U.S. corporations or U.S. commercial banks,
U.S. dollar denominated obligations of foreign issuers, including those
described below under "Foreign Securities and American Depository Receipts."
Such debt obligations include, among others, bonds, notes, debentures,
commercial paper and variable rate demand notes. Bank obligations include, but
are not limited to certificates of deposit, bankers' acceptances, and fixed time
deposits. The Adviser, in choosing corporate debt securities on behalf of each
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 to
such issuer's country; and (iii) other considerations the Adviser deems
appropriate. Investment in obligations of foreign issuers may present a greater
degree of risk than investment in domestic securities (see "Foreign Securities
and American Depository Receipts" below for more details).
Mortgage-Related Securities. Each Fund may invest in various
mortgage-related securities. Mortgage loans made by banks, savings and loan
institutions and other lenders are often assembled into pools, the interests in
which may be issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (but not the market value of the mortgage-related securities
themselves). Interests in such pools are called "mortgage-related securities" or
"mortgage-backed securities."
Most mortgage securities are pass-through securities, which means that they
provide investors with payments consisting of both principal and interest on
mortgages in the underlying mortgage pool. Investors receive a pro rata share of
both regular interest and principal payments (less issuer fees and applicable
loan servicing fees), as well as unscheduled early prepayments on the underlying
mortgage pool. The dominant issuers or guarantors of mortgage securities today
are the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). GNMA guarantees mortgage-backed securities composed of U.S.
Government guaranteed or insured (Federal Housing Authority, Veterans
Administration or Farmers Home Administration) mortgages originated by mortgage
bankers, commercial banks and savings and loan associations. FNMA and FHLMC
guarantee mortgage securities are composed of pools of conventional and
Federally insured or guaranteed residential mortgages obtained from various
entities, including savings and loan associations, savings banks, commercial
banks, credit unions and mortgage bankers.
The principal and interest on GNMA pass-through securities are guaranteed
by GNMA and backed by the full faith and credit of the U.S. Government. FNMA
guarantees full and timely payment of all interest and principal, while FHLMC
currently guarantees timely payment and ultimate payment of interest and either
timely
10
<PAGE>
payment of principal or eventual payment of principal depending upon the
date of issue. Securities issued by FNMA and FHLMC are not backed by the full
faith and credit of the United States; however, their close relationship with
the U.S. Government makes them high quality securities with minimal credit
risks. The yields provided by these mortgage securities have historically
exceeded the yields on other types of U.S. Government securities. However, like
most mortgage-backed securities, the experienced yield is sensitive to the rate
of principal payments (including prepayments). Prepayments on underlying
mortgages result in a loss of anticipated interest, and all or part of a premium
if any has been paid, and the actual yield (or total return) to the Fund may be
different than the quoted yield on the securities. Mortgage prepayments
generally increase with falling interest rates and decrease with rising interest
rates. Like other fixed income securities, when interest rates rise, the value
of a mortgage pass-through security generally will decline; however, when
interest rates are declining, the value of mortgage pass-through securities with
prepayment features may not increase as much as that of other fixed-income
securities.
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, each 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, a 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. Each
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
mortgages, whose liquidity is monitored by the Adviser subject to the
supervision of the Board of Trustees.
Each 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 Funds' ability to invest in such CMOs or REMICs will
be limited. Neither Fund will invest in the residual interests of REMICs. See
"Investment Policies and Risk Factors" in the SAI.
The Adviser expects that new types of mortgage-related securities may be
developed and offered to investors. The Adviser will, consistent with each
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
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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 a 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 a 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. Because of these factors, each Fund's
share value and yield are not guaranteed and will fluctuate, and there can be no
assurance that each Funds' investment objective will be achieved. The magnitude
of these fluctuations generally will be greater when the average maturity of a
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 Funds' investment objectives, policies and quality
standards, each Fund may invest these and other types of asset-backed securities
which may be developed in the future.
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. Each 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.
Each 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.
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Variable and Floating Rate Demand and Master Demand Notes. Each 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 of the prevailing rate for securities with a seven-day or other designated
maturity. A 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 that Fund's net assets.
Each Fund may also buy variable rate master demand notes. The terms of the
obligations permit a 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. A Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount and the borrower may 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 a Fund and borrower,
it is not generally contemplated that they will be traded, and there is no
secondary market for them, although they are redeemable (and, thus, immediately
repayable by the borrower) at principal amount, plus accrued interest, at any
time. 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,
a 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 by the Growth and Income Fund in money market
instruments and investment by the Small Cap Fund in cash equivalents, as
described above.
Repurchase Agreements. Each Fund may invest in securities pursuant to
repurchase agreements, whereby the seller agrees to repurchase such securities
at a 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, each 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 creditworthiness determined by the Investment Adviser to
be substantially equivalent to that of issuers of debt securities rated
investment grade. In addition, each 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, each
Fund will seek to liquidate such collateral. However, the exercise of a 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, each 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 each Fund not to enter into repurchase
agreements exceeding in the aggregate 10% of the market value of each Fund's
total assets.
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Reverse Repurchase Agreements. The Small Cap Fund may borrow funds for
temporary purposes by entering into reverse repurchase agreements in accordance
with the investment restrictions described below. Pursuant to such agreements,
the Small Cap Fund would sell portfolio securities to financial institutions
such as banks and broker-dealers, and agree to repurchase them at a mutually
agreed upon date and price. The Small Cap Fund intends to enter into reverse
repurchase agreements only to avoid selling securities during market conditions
deemed unfavorable by the Adviser to meet redemptions. At the time the Small Cap
Fund enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as liquid high quality debt securities, consistent
with the Fund's investment objective having a value not less the 100% of the
repurchase price (including accrued interest), and will subsequently monitor the
account to ensure that such required value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Small Cap Fund may decline below the price at which such Fund is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by an investment company under the 1940 Act.
When-Issued and Delayed-Delivery Securities. Each 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 securities so purchased are subject to market
fluctuation during this period and no income accrues to a Fund until settlement
takes place. To facilitate such acquisitions, a Fund will maintain with the
custodian a separate account with a segregated portfolio of securities in an
amount at least equal to such commitments. On the delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the separate account and/or from cash flow. It is the
current policy of each 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.
Writing Covered Calls. Each Fund may seek to earn premiums by writing
covered call options against some of the securities in its portfolio. A call
option is "covered" if a 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. Until an option lapses or is cancelled by a closing transaction, the
maximum sales price a Fund can realize on the underlying security is limited to
the strike price. The Fund continues to bear the risk of a decline in the market
price of the security during the option period, although the decline in value
would be mitigated by the amount of the premium received for the call. The
aggregate value of the securities subject to options written by each Fund may
not exceed 25% of the value of such Fund's net assets.
Futures, Related Options and Options on Stock Indices. Each Fund may
attempt to reduce the risk of investment in equity securities by hedging a
portion of its portfolio through the use of certain futures transactions,
options on futures traded on a board of trade and options on stock indices
traded on national securities exchanges. In addition, each Fund may hedge a
portion of its portfolio by purchasing such instruments during a market advance
or when the Adviser anticipates an advance. In attempting to hedge a portfolio,
a Fund may enter into contracts for the future delivery of securities and
futures contracts based on a specific security, class of securities or an index,
purchase or sell options on any such futures contracts, and engage in related
closing transactions.
A stock index assigns relative weightings to the common stocks in the
index, and the index generally fluctuates with changes in the market values of
these stocks. 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
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price at which the agreement is made. Each 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.
In the case of options on stock index futures, the holder of the option
pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to assume the option writer's position
in a stock index futures contract. If the option is exercised by the holder
before the last trading day during the option period, the option writer delivers
the futures position, as well as any balance in the writer's futures margin
account. If it is exercised on the last trading day, the option writer delivers
to the option holder cash in an amount equal to the difference between the
option exercise price and the closing level of the relevant index on the date
the option expires. In the case of options on stock indexes, the holder of the
option pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to receive cash equal to the dollar
amount of the difference between the closing price of the relevant index and the
option exercise price times a specified multiple, called the "multiplier."
During a market decline or when the Adviser anticipates a decline, each
Fund may hedge a portion of its portfolio by selling futures contracts or
purchasing puts on such contracts or on a stock index in order to limit exposure
to the decline. This provides an alternative to liquidation of securities
positions and the corresponding costs of such liquidation. Conversely, during a
market advance or when the Adviser anticipates an advance, each Fund may hedge a
portion of its portfolio by purchasing futures, options on these futures or
options on stock indices. This affords a hedge against a Fund not participating
in a market advance at a time when it is not fully invested and serves as a
temporary substitute for the purchase of individual securities which may later
be purchased in a more advantageous manner.
The Funds' 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 Funds' portfolios diverge from the composition of the relevant index. Such
imperfect correlation may prevent the Funds from achieving the intended hedge or
may expose the Funds to risk of loss. In addition, if the Funds purchase futures
to hedge against market advances before they can invest in common stock in an
advantageous manner and the market declines, the Funds might create a loss on
the futures contract. Particularly in the case of options on stock index futures
and on stock indices, the Funds' ability to establish and maintain positions
will depend on market liquidity. The successful utilization of hedging and risk
management transactions requires skills different from those needed in the
selection of the Funds' portfolio securities. The Funds believe that the Adviser
possesses the skills necessary for the successful utilization of hedging and
risk management transactions.
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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 Funds' ability to effectively hedge their securities. The
Funds will enter into an option or futures position only if there appears to be
a liquid secondary market for such options or futures.
Except as otherwise provided in this Prospectus, the Funds are permitted to
engage in bona fide hedging transactions (as defined in the rules and
regulations of the Commodity Futures Trading Commission) without any
quantitative limitations. Futures and related option transactions which are not
for bona fide hedging purposes may be used provided the total amount of the
initial margin and any option premiums attributable to such positions does not
exceed 5% of each Fund's liquidating value after taking into account unrealized
profits and unrealized losses, and excluding any in-the-money option premiums
paid. The Funds will not market, and are not marketing, themselves as commodity
pools or otherwise as vehicles for trading in futures and related options. The
Funds will segregate assets to cover the futures and options.
Portfolio Turnover. The Funds generally will not engage in the trading of
securities for the purpose of realizing short-term profits, but will adjust
their portfolios as they deem advisable in view of prevailing or anticipated
market conditions to accomplish their investment objective. For example, a Fund
may sell portfolio securities in anticipation of an adverse market movement.
Other than for tax purposes, frequency of portfolio turnover will not be a
limiting factor if a Fund considers it advantageous to purchase or sell
securities. The Small Cap Fund and the Growth and Income Fund do not anticipate
that their annual portfolio turnover rates will exceed 100%.
Foreign Securities and American Depository Receipts ("ADRs"). Each Fund may
invest in foreign securities through the purchase of ADRs and may also invest
directly in certain debt securities of foreign issuers. The foreign debt
securities in which the Small Cap Fund may invest include securities issued by
foreign branches of U.S. banks and foreign banks, Canadian commercial paper and
Europaper (U.S. dollar denominated commercial paper of a foreign issuer). The
foreign debt securities in which the Growth and Income Fund may invest include
debt obligations of foreign banks, corporations and governmental entities, and
supranational organizations, such as the International Bank for Reconstruction
and Development, the European Economic Community and the Inter-American
Development Bank, among others. Each Fund's investment in foreign debt
securities is limited to 5% of the total assets of each Fund.
Investment in foreign securities is subject to special risks, such as
future adverse political and economic developments, possible seizure,
nationalization, or expropriation of foreign investments, less stringent
disclosure requirements, the possible establishment of exchange controls or
taxation at the source, or the adoption of other foreign governmental
restrictions. Investors should note that there is no uniformity among foreign
accounting standards.
As noted above, each Fund may also invest in securities represented by
ADRs. ADRs are dollar-denominated receipts generally issued by domestic banks,
which represent the deposit with the bank of a security of a foreign issuer, and
which are publicly traded on exchanges or over-the-counter in the United States.
The Funds may invest in both sponsored and unsponsored ADR programs. There are
certain risks associated with investments in unsponsored ADR programs. Because
the non-U.S. company does not actively participate in the creation of the
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ADR program, the underlying agreement for service and payment will be between
the depository and the shareholder. The company issuing the stock underlying the
ADRs pays nothing to establish the unsponsored facility, as fees for ADR
issuance and cancellation are paid by brokers. Investors directly bear the
expenses associated with certificate transfer, custody and dividend payment.
In an unsponsored ADR program, there also may be several depositories with
no defined legal obligations to the non-U.S. company. The duplicate depositories
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 ADRs
there is always the risk of loss due to currency fluctuations. Each Fund will
not invest more than 20% of its total assets in ADRs.
Illiquid Securities. The Small Cap Fund will not invest in illiquid
securities if immediately after such investment more than 15% of the Fund's net
assets (taken at market value) would be invested in such securities. For this
purpose, illiquid securities include (a) securities that are illiquid by virtue
of legal or contractual restrictions on resale or the absence of a readily
available market, (b) participation interests in loans that are not subject to
puts and (c) repurchase agreements not terminable within seven days. See
"Repurchase Agreements" above. Securities that have legal or contractual
restrictions on resale but have a readily available market are not deemed
illiquid for purposes of this limitation. Consequently, investments in
restricted securities eligible for resale pursuant to Rule 144A of the
Securities Act of 1933 which have been determined to be liquid by the Fund's
Board of Trustees based upon the trading markets for the securities will not be
included for purposes of this limitation.
The Growth and Income Fund will not 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 of the
Fund's net assets would be so invested.
INVESTMENT RESTRICTIONS
The Statement of Additional Information contains more information on the
Funds' Investment Policies, and also identifies the restrictions on the Funds'
investment activities, which provide among other things:
Growth and Income Fund
The Growth and Income Fund shall not invest more than 5% of its total
assets taken at market value in the securities (including securities subject to
repurchase agreements) of any one issuer other than securities issued or
guaranteed by the United States Government, its agencies or instrumentalities.
The Growth and Income Fund shall not purchase the securities of issuers
conducting their principal business activity in the same industry if,
immediately after the purchase and as a result thereof, the value of the
investments of the Growth and Income Fund in that industry would exceed 25% of
the current value of the total assets of the Fund, except that there is no
limitation with respect to investments in obligations of the United States
Government, its agencies or instrumentalities which are backed by the full faith
and credit of the United States.
The Growth and Income Fund shall not borrow money, except that it may
borrow from banks as a temporary measure for emergency purposes where such
borrowing would not exceed 5% of the total assets (including amount
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borrowed) taken at market value. The Growth and Income Fund shall not purchase
securities while its borrowings exceed 5% of its total assets.
Small Cap Fund
The Small Cap Fund shall not purchase a security if, as a result, with
respect to 75% of its portfolio, (i) more than 5% of the value of its total
assets would be invested in any one issuer, or (ii) it would hold more than 10%
of any class of securities of such issuer or more than 10% of the outstanding
voting securities of the issuer. There is no limit on the percentage of assets
that may be invested in U.S. Treasury bills, notes, or other obligations issued
or guaranteed by the U.S. Government or its agencies and instrumentalities.
The Small Cap Fund shall not purchase a security if, as a result, more than
25% of the value of its total assets would be invested in securities of one or
more issuers conducting their principal business activities in the same
industry, provided that (a) this limitation shall not apply to obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities; (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.
The Small Cap Fund shall not borrow money or issue senior securities,
except that it may borrow from banks or enter into reverse repurchase agreements
for temporary purposes in amounts up to 10% of the value of its total assets at
the time of such borrowing; or mortgage, pledge, or hypothecate any assets,
except in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of its total assets at
the time of its borrowing. The Small Cap Fund shall not purchase securities
while its borrowings (including reverse repurchase agreements) exceed 5% of its
total assets.
The investment restrictions referred to above are fundamental and may be
changed only when permitted by law and approved by a majority of the outstanding
voting securities of the Funds. As used in this Prospectus, such approval means
approval of the lesser of (i) the holders of 67% or more of the shares
represented in a meeting of the holders of more than 50% of the outstanding
shares are present in person or by proxy or (ii) the holders of more than 50% of
the outstanding shares.
MANAGEMENT OF THE FUNDS
The property, affairs and business of the Funds are managed by the Board of
Trustees. The Trustees elect officers who are charged with the responsibility
for the day-to-day operations of the Funds and the execution of policies
formulated by the Trustees. Information about the Trustees as well as the
Trust's executive officers, may be found in the SAI under the heading
"Management--Trustees and Officers".
Investment Adviser
The Trust retains HSBC Asset Management Americas Inc. ("HSBC Americas" or
the "Adviser") to act as the investment adviser for each of its Funds. HSBC
Americas is the North American investment affiliate of HSBC Holdings plc
(Hongkong and Shanghai Banking Corporation) and Marine Midland Bank and is
located at 250 Park Avenue, New York, New York 10177. At December 31, 1995, HSBC
Americas managed over $3.7 billion of assets of individuals, pension plans,
corporations and institutions.
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Mr. Leo Grohowski, Chief Investment Officer of HSBC Americas, is
responsible for the day-to-day management of the Growth and Income Fund's
portfolio. Mr. Grohowski has been the Managing Director, Equity Portfolio
Management of HSBC Americas since 1987 and became Chief Investment Officer in
1994.
Pursuant to the Advisory Contract, HSBC Americas furnishes continuous
investment guidance to the Trust consistent with each Fund's investment
objective and policies and provides administrative assistance in connection with
the operation of each Fund. Information regarding the investment performance of
each Fund is contained in each Fund's Annual Report dated December 31, 1995
which may be obtained, without charge, from the Trust.
Sub-Adviser to the Small Cap Fund
HSBC Americas retains Investment Concepts, Inc. ("ICI") to serve as
sub-adviser to the Small Cap Fund. ICI is a subsidiary of BancOklahoma Trust
Company ("BOTC"), the largest trust company in the State of Oklahoma. BOTC is a
subsidiary of Bank of Oklahoma, N.A. ("BOK") which in turn is a subsidiary of
Bank of Oklahoma Corporation ("BOK Financial"). BOK Financial is controlled by
its principal shareholder, George B. Kaiser. Through its subsidiaries, BOK
Financial provides a full array of trust, commercial banking and retail banking
services. Its non-bank subsidiaries engage in various bank-related services,
including mortgage banking and providing credit life, accident, and health
insurance on certain loans originated by its subsidiaries.
ICI maintains an office in Tulsa, Oklahoma, and offers a variety of
services for both corporate and individual customers. BOTC also serves as
transfer agent and registrar for corporate securities, paying agent for
dividends and interest, and indenture trustee of bond issues. At December 31,
1995, BOTC was responsible for approximately $7.2 billion in assets including
approximately $3.2 billion in assets under management and possessed total
capital, surplus and undivided profits of $7.7 million.
Mr. Joe P. Sing, Jr. is responsible for the day-to-day management of the
Small Cap Fund. Mr. Sing has been a portfolio manager with ICI since 1984.
Under its Sub-Advisory Contract with HSBC Americas, ICI will undertake at
its own expense to furnish the Small Cap Fund and HSBC Americas with micro- and
macroeconomic research, advice and recommendations, and economic and statistical
data, with respect to the Fund's investments, subject to the overall review by
HSBC Americas and the Board of Trustees.
Banking Laws
Counsel to the Trust and special counsel to the Advisers, have advised the
Adviser that the Adviser may perform the services for the Funds contemplated by
the Advisory Contract without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Counsel to ICI has given similar advice
to ICI with respect to its performance of services under the Sub-Advisory
Contract. Such counsel has pointed out, however, that this question has not been
authoritatively determined and that judicial or administrative decisions or
interpretations of present Federal or state statutes and regulations relating to
the permissible activities of banks or trust companies and their subsidiaries or
affiliates, as well as future changes in Federal or state statutes and
regulations and judicial or administrative decisions or interpretations thereof,
could prevent HSBC Americas and ICI from continuing to perform such services for
the Funds.
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If the Adviser and ICI were prohibited from performing any of their
services for the Trust, it is expected that the Board of Trustees would
recommend to the Funds' shareholders that they approve new agreements with
another entity or entities qualified to perform such services and selected by
the Board.
Distributor
BISYS Fund Services, the Distributor (the "Distributor"), has its principal
office at 3435 Stelzer Road, Columbus, Ohio 43219. The Distributor will receive
orders for, sell, and distribute shares of the Funds.
Shareholder Servicing Agent
The Trust retains HSBC Americas to act as Shareholder Servicing Agent of
the Fund in accordance with that terms of the Shareholder Servicing Agreement.
Pursuant to the Shareholder Servicing Agreement, HSBC Americas (i) assists and
trains third parties who distribute prospectuses and Fund applications, (ii)
assists and trains third parties who assist customers with completing Fund
applications, (iii) performs customer education, reviews Fund written
communications and assists third parties who answer customer questions, (iv)
organizes and conducts investment seminars to enhance understanding of the Fund
and its objectives, (v) assists third parties who effect customer purchases and
redemptions and (vi) assists and supervises the activities of Participating
Organizations.
For its services as Shareholder Servicing Agent, HSBC Americas is paid an
annual fee equal to 0.04% of each Fund's average daily net assets.
Administrator
The Trust retains BISYS Fund Services to act as the Administrator of the
Funds in accordance with to the terms of an Administration and Accounting
Services Agreement replacing PFPC Inc. ("PFPC"). BISYS has its principal office
at 3435 Stelzer Road, Columbus, Ohio 43219. Pursuant to the Administrative and
Accounting Services Agreement, the Administrator, at its expense, generally will
supervise the operation of the Trust and the Funds by reviewing the expenses of
the Funds monthly to ensure the Funds are within their respective budgets and by
providing personnel, office space and administrative and fund accounting
services reasonably necessary for the operation of the Trust and the Funds other
than those provided by HSBC Americas pursuant to the Advisory Contract.
BISYS's annual administration and accounting fee is an asset-based fee of
.15% of each Fund's first $200 million of average net assets; .125% of each Fund
next $200 million of average net assets; .10% of each Fund's next $200 million
of average net assets; and .08% of each Fund's average net assets in excess of
$600 million; exclusive of out-of-pocket expenses.
The Trust also retains HSBC Americas to act as Co-Administrator in
accordance with the terms of the Co-Administration Services Contract. Pursuant
to the Co-Administration Services Contract, HSBC Americas (i) manages the Funds'
relationship with service providers, (ii) assists with negotiation of contracts
with service providers and supervises the activities of those service providers,
(iii) serves as a liaison with Fund trustees, and (iv) assists with general
product management and oversight. For its services as Co-Administrator, HSBC
Americas is paid an annual fee equal to 0.03% of each Fund's daily average net
assets.
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<PAGE>
Servicing Agreements
The Fund may enter into agreements (the "Servicing Agreement") with certain
banks, financial institutions and corporations (the "Participating
Organizations") so that each Participating Organization handles recordkeeping
and provides certain administrative services for its customers who invest in the
Funds through accounts maintained at that Participating Organization. In such
cases, the Participating Organization or one of its nominees will be the
shareholder of record as nominee for its customers and will maintain subaccounts
for its customers. In addition, the Participating Organization will credit cash
distributions to each customer account, process purchase and redemption
requests, mail statements of all transactions with respect to each customer and,
if required by law, distribute the Trust's shareholder reports and proxy
statements. However, any customer of a Participating Organization may become the
shareholder of record upon written requests to its Participating Organization or
the Fund's as transfer agent. Each Participating Organization will receive
monthly payments which in some cases may be based upon expenses that the
Participating Organization has incurred in the performance of its services under
the Servicing Agreement. The payments will not exceed, on an annualized basis,
an amount equal to 0.25% of the average daily net assets during the month of
Fund shares in the subaccount of which the Participating Organization is record
owner as nominee for its customers. Such payments will be separately negotiated
with each Participating Organization and will vary depending upon such factors
as the services provided and the costs incurred by each Participating
Organization. The payments may be more or less than the fees payable to BISYS
for the services it provides pursuant to the Transfer Agency Agreement for
similar services.
The payments will be made by the Fund to the Participating Organizations
pursuant to the Servicing Agreements. BISYS will not receive any compensation as
transfer or dividend disbursing agent with respect to the subaccounts maintained
by Participating Organizations. The Board of Trustees will review, at least
quarterly, the amounts paid and the purposes for which such expenditures were
made pursuant to the Servicing Agreements.
Under separate agreements, the Adviser (not the Funds) may make
supplementary payments from its own revenues to a Participating Organization
that agrees to perform services such as advising customers about the status of
their subaccounts, the current yield and dividends declared to date and
providing related services a shareholder may request. Such payments will vary
depending upon such factors as the services provided and the costs incurred by
each Participating Organization.
Investors who purchase and redeem shares of the Funds through a customer
account maintained at a Participating Organization may be charged one or more of
the following types of fees by a Participating Organization, as agreed upon by
the Participating Organization and the investor, with respect to the customer
services provided by the Participating Organization: account fees (a fixed
amount per month or per year); transaction fees (a fixed amount per transaction
processed); compensating balance requirements (a minimum dollar amount a
customer must maintain in order to obtain the services offered); or account
maintenance fees (a periodic charge based upon a percentage of the assets in the
account or of the dividends paid on those assets).
Distribution Plan and Agreement
The Board of Trustees of the Trust has adopted a Distribution Plan and
Agreement (the "Plan") pursuant to Rule 12b-1 of the 1940 Act, as amended, after
having concluded that there is a reasonable likelihood that the Plan will
benefit each Fund and its shareholders. The Plan provides for a monthly payment
by each Fund to reimburse the Distributor in such amounts that they may request
for expenses such as the printing and distribution of
21
<PAGE>
prospectuses sent to prospective investors, the preparation, printing and
distribution of sales literature and expenses associated with media
advertisements and telephone services and other direct and indirect
distribution-related expenses, including the payment of a monthly fee to broker-
dealers for rendering distribution-related asset introduction and asset
retention services. The Funds may also make payments to other broker-dealers or
financial institutions for their assistance in distributing shares of the Funds
and otherwise promoting the sale of each Fund's shares. The total of each
monthly payment is based on each Fund's average daily net assets during the
preceding month and is calculated at an annual rate not to exceed 0.35% and
0.50% with respect to the Small Cap Fund & Growth and Income Fund, respectively.
The Plan provides for the Distributor to prepare and submit to the Board of
Trustees on a quarterly basis written reports of all amounts expended pursuant
to the Plan and the purpose for which such expenditures were made. The Plan may
not be amended to increase materially the amount spent for distribution expenses
without approval by a majority of each Fund's outstanding shares and approval of
a majority of the non-interested Trustees. Distribution expenses incurred in one
year will not be carried forward into and reimbursed in the next year for actual
expenses incurred in the previous year.
Fees and Expenses
The Growth and Income Fund pays HSBC Americas, as compensation for its
advisory services a monthly fee equal to an annual rate of 0.55% of average
daily net assets up to $400 million. The fee is reduced at several breakpoints
for average daily net assets in excess of $400 million up to $2 billion, at
which point it becomes 0.315% of the average daily net assets in excess of $2
billion. The Small Cap Fund pays HSBC Americas, as compensation for its advisory
services a monthly fee equal to an annual rate of 0.70% of average daily net
assets up to $400 million. The fee is reduced at several breakpoints for average
daily net assets in excess of $400 million up to $2 billion, at which point it
becomes 0.415% of the average daily net assets in excess of $2 billion.
As compensation for its services, ICI receives a monthly fee from HSBC
Americas at an annual rate not to exceed 0.50% of the Small Cap Fund's average
daily net assets up to $400 million. The fee is reduced at several breakpoints
for average daily net assets in excess of $400 million up to $2 billion, at
which point it becomes 0.290% of the average daily net assets in excess of $2
billion.
As compensation for its co-administrative services and shareholder
services, HSBC Americas receives from each Fund a monthly fee equal to an annual
rate of 0.07% of the average daily net assets of each Fund.
HSBC Americas and ICI reserve the right to waive in advance a portion of
their fees at any time.
TRANSACTIONS WITH AFFILIATES
Broker-dealers which are affiliates of HSBC Americas or ICI may act as
brokers for the Funds. At all times, however, their commissions, fees or other
charges must be reasonable and fair in comparison with those that would be paid
to unaffiliated firms for comparable transactions. The Funds will not do
business with nor pay commissions to affiliates of HSBC Americas or ICI in any
portfolio transactions where they act as principal. In placing orders for the
purchase and sale of portfolio securities, the Funds seek the best execution at
the most favorable price, considering all of the circumstances. The Adviser may
consider sales of shares of the Fund and of other HSBC funds as a factor in
selecting a broker. The Adviser may cause a 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.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value per share for the purpose of pricing purchase
and redemption orders is determined at 4:15 p.m. (Eastern time) on each day the
Funds' transfer agent is open for business. The net asset value will not be
computed on the following holidays: New Year's Day, Martin Luther King, Jr.'s
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving and Christmas. The net asset value per
share of each Fund is computed by dividing the value of the net assets of a Fund
(i.e. the value of the assets less the liabilities) by the total number of
shares outstanding. All expenses, including the management, advisory,
sub-advisory and administrative fees, are accrued daily and taken into account
for the purpose of determining the net asset value.
Portfolio securities are valued at the last quoted sales price as of the
close of business on the day the valuation is made, or lacking any sales, at the
mean between closing bid and asked prices. Price information on listed
securities is taken from the exchange where the security is primarily traded.
The value for each unlisted security is based on the last trade price for that
security on a day in which the security is traded. The value for each unlisted
security on a day such security is not traded shall be based on the mean of the
bid and ask quotations for that day. The value of each security for which
readily available market quotations exist will be based on a decision as to the
broadest and most representative market for such security. Options on stock
indices traded on national securities exchanges are valued at the close of
options trading on such exchanges (which is currently 4:10 p.m., Eastern time).
Stock index futures and related options, which are traded on commodities
exchanges, are valued at their last sale price as of the close of such exchanges
(which is currently 4:15 p.m., Eastern time). Other assets and securities for
which no quotations are readily available are valued at fair value as determined
in good faith by the Trustees. Securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities. Short-term investments are valued at amortized
cost, which approximates market value. The Board of Trustees has determined in
good faith that amortized cost equals fair market value.
PURCHASE OF SHARES
Shares of each 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. Prospectuses and
accompanying sales material can be obtained from the Transfer Agent or
Distributor.
The minimum initial investment requirement for each Fund is $1,000. The
minimum subsequent investment requirement for each Fund is $50. There are no
minimum investment requirements with respect to investments effected through
certain automatic purchase and redemption arrangements on behalf of customer
accounts maintained at Participating Organizations. The minimum investment
requirements may be waived or lowered for investments effected on a group basis
by certain other institutions and their employees, such as pursuant to a payroll
deduction plan. All funds will be invested in full and fractional shares. The
Trust reserves the right to reject any purchase order.
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<PAGE>
Orders for shares of the Funds will be executed at the net asset value per
share next determined after receipt of an order by the dealer, plus a sales
charge varying with the amount invested in accordance with the following
schedule:
<TABLE>
<CAPTION>
Reallowance
to
Service
Total Sales Load Organizations
---------------- -------------
As a % of
As a % of Net Asset As a % of
Amount Invested Offering Price Value Per Offering Price
(including sales charge) Per Share Share Per Share
- ------------------------ --------- ----- ---------
<S> <C> <C> <C>
Less than $50,000.................... 5.00% 5.26% 4.50%
$50,000 but less than $100,000....... 4.50% 4.71% 4.00%
$100,000 but less than $250,000...... 3.75% 3.90% 3.40%
$250,000 but less than $500,000...... 2.50% 2.56% 2.25%
$500,000 but less than $1 million.... 2.00% 2.04% 1.75%
$1 million and above................. 1.00% 1.01% 0.90%
</TABLE>
The sales charge will be waived on the following purchases: (1) by Trustees
and officers of the Trust and of HSBC 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 Funds with the
proceeds of their benefits checks (the EBT Plan must currently own shares of a
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 Funds in accordance with guidelines established by the Funds' Board of
Trustees, have purchased shares under special circumstances not involving sales
expenses to dealers or the Distributor. Eligible investors should contact HSBC
Americas for details.
The sales load does not apply in any instance to reinvested dividends.
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 any of the Funds. 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 will be
made available only to certain dealers whose representatives have sold a
significant amount
24
<PAGE>
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. 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 a 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
any Fund or its Shareholders.
Stock certificates will not be issued with respect to shares of each Fund.
The Transfer Agent shall keep accounts upon the books of the Trust for record
holders of such shares.
Right of Accumulation
The Funds offer to all shareholders a right of accumulation under which any
shareholder may purchase shares of a Fund at the offering price applicable to
the total of (a) the dollar amount then being purchased plus (b) an amount equal
to the offering price of the shareholder's combined holdings of the shares of
such Fund. For the right of accumulation to be exercised, a shareholder must
provide at the time of purchase confirmation of the total number of shares of
such Fund owned by such shareholder. Acceptance of the purchase order is subject
to such confirmation. The right of accumulation may be amended or terminated at
any time on sixty days notice to shareholders. Shares held in the name of a
nominee or custodian under pension, profit-sharing, or other employee benefit
plans may not be combined with other shares held in the name of such nominee or
custodian for other plans to qualify for the right of accumulation.
Letter of Intent
By initially investing at least $1,000 and submitting a Letter of Intent to
the transfer agent, a "single purchaser" may purchase shares of the Funds and
other eligible HSBC Funds (other than Money Market Funds) during a 13-month
period at the reduced sales charge rates applying to the aggregate amount of the
intended purchases stated in the Letter. The Letter of Intent may apply to
purchases made up to 90 days before the date of submission of the Letter of
Intent. Dividends and distributions of capital gains paid in shares of the Funds
at net asset value will not apply towards the completion of the Letter of
Intent. The Letter of Intent does not obligate a shareholder to buy the amount
indicated in the Letter of Intent; however, if the intended purchases are not
completed during the Letter of Intent period, the shareholder will be obligated
to pay the Distributor an amount equal to the difference between the regular
sales charge applicable to a single purchase of the number of shares purchased
and the sales charge actually paid. For further details, including escrow
provisions, see the Letter of Intent. The Funds reserve the right to amend,
suspend or cease offering this program at any time.
Prospective investors who wish to obtain additional information concerning
investment procedures should contact the Transfer Agent at: (800) 634-2536.
New Account Purchase By Wire
1. Telephone: The Transfer Agent at (800) 634-2536 for instructions.
Please note your bank will normally charge a fee for handling this
transaction.
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<PAGE>
New Account Purchase by Mail
1. Complete a Purchase Application.
2. Mail the Purchase Application and a check for $1,000 or more, to HSBC
Family of Funds to the Transfer Agent at:
HSBC Mutual Funds Trust c/o BISYS, P.O. Box 163850, Columbus, Ohio 43216-3850.
Third party checks will not be accepted. Check payments must be in U.S.
dollars. Please include the Fund Name and your account number on all checks.
Additional Purchases by Wire and Mail
Additional purchases of shares may be made by wire by telephoning the
Transfer Agent and then instructing the wiring bank to transmit the amount ($50
or more) of any additional purchase in Federal funds. Additional purchases may
also be made by mail by making a check ($50 or more) payable to the HSBC Family
of Funds indicating your fund account number on the check and mailing it to the
Transfer Agent at the address set forth above.
Purchase through Customer Accounts
Purchases of shares also may be made through customer accounts maintained
at Participating Organizations, including qualified Individual Retirement and
Keogh Plan accounts. Purchases will be made through a customer's account only as
directed by or on behalf of the customer on a direction form executed prior to
the customer's first purchase of shares of any Fund. For example, a customer
with an account at a Participating Organization may instruct the Participating
Organization to invest money in excess of a level agreed upon between the
customer and the Participating Organization in shares of one of the Funds
periodically or give other instructions to the Participating Organization within
limits prescribed by that Participating Organization.
Automatic Investment Plan
Investors may make regular monthly investments of $50 or more in shares
automatically from a checking or savings account if their bank is a member of
automated clearing house (ACH). Upon written authorization, the Transfer Agent
will electronically debit the investor's checking or savings account each month
and use the proceeds to purchase shares for the investor's account.
Approval by the investor's bank is required, so that establishment of a
program may require at least 30 days. The authorized amount and/or bank
information may be changed or the program terminated at any time by writing to
the Transfer Agent. A reasonable period (usually up to 15 days) may be required
after receipt of such instructions to implement them. The purchase application
contains the requirements applicable to this plan. The Trust reserves the right
to amend, suspend or cease offering this program at any time without prior
notice.
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<PAGE>
REDEMPTION OF SHARES
Upon receipt by the Trust's transfer agent of a redemption request in
proper form ($50 minimum), shares of the Funds will be redeemed at their next
determined net asset value. See "Determination of Net Asset Value" in this
Prospectus. For the shareholder's convenience, the Trust has established several
different direct redemption procedures. Redemptions of shares purchased by check
will be effected immediately upon clearance of the purchase check, which may
take up to 15 days after those shares have been credited to the shareholder's
account. A redemption of shares is a taxable transaction on which gain or loss
may be recognized for tax purposes.
The Funds reserve the right to redeem (on 30 days' notice) accounts whose
values shareholders have reduced to $500 or less.
Redemption by Mail
1. Complete a letter of instruction indicating the Fund, the account number
and either the dollar amount or number of shares to be redeemed.
2. Sign the letter in exactly the same way the account is registered. If
there is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $5,000 or more, the
signature(s) must be guaranteed by a bank, trust company, broker, dealer, credit
union, securities exchange or association, clearing agency or savings
association. Signature guarantees by notaries public are not acceptable. Further
documentation, such as copies of corporate resolutions and instruments of
authority, may be requested from corporations, administrators, executors,
personal representatives, trustees or custodians to evidence the authority of
the person or entity making the redemption request.
4. Mail the letter to the Transfer Agent at the address set forth under
"Purchase of Shares" in this Prospectus.
Checks for redemption proceeds will normally be mailed within seven days to
the shareholder's address of record.
Upon request, the proceeds of a redemption amounting to $1,000 or more can
be sent by wire to the shareholder's predesignated bank account. Please note a
wire transfer fee will normally be charged. When proceeds of a redemption are to
be paid to someone other than the shareholder, either by wire or check, the
signature(s) on the letter of instruction must be guaranteed regardless of the
amount of the redemption.
Redemption by Expedited Redemption Service
If shares are held in book credit form and the Expedited Redemption Service
has been elected on the Purchase Application on file with the Trust's transfer
agent, redemption of shares may be requested on any day the Transfer Agent is
open for business by telephone or letter. A signature guarantee is not required.
1. Telephone the request to the Transfer Agent toll free: (800) 634-2536;
or
2. Mail the request to the Transfer Agent at the address set forth under
"Purchase of Shares" in this Prospectus.
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<PAGE>
Proceeds of Expedited Redemptions of $1,000 or more can be wired to the
shareholder's bank indicated in the Purchase Application. If an Expedited
Redemption request is received by the Trust's transfer agent by 4:00 p.m.
(Eastern time) on a day the transfer agent is open for business, the redemption
proceeds will be transmitted to the shareholder's bank on the next business day.
A check for proceeds of less than $1,000 will be mailed to the shareholder's
address of record.
The Transfer Agent employs reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Transfer Agent fails
to employ such reasonable procedures, the transfer agent may be liable for any
loss, damage or expense arising out of any telephone transactions purporting to
be on a shareholder's behalf. In order to ensure the accuracy of instructions
received by telephone, the Transfer Agent requires some form of personal
identification prior to acting upon instructions received by telephone, records
telephone instructions and provides written confirmation to investors of such
transactions.
Systematic Withdrawal Plan
An owner of $10,000 or more of shares of a Fund may elect to have periodic
redemptions from his account to be paid on a monthly basis. The minimum periodic
payment is $50. A sufficient number of shares to make the scheduled redemption
will be redeemed on the first or fifteenth day of the month. Redemptions for the
purpose of making such payments may reduce or even exhaust the account if the
monthly checks exceed the dividends, interest and capital appreciation, if any,
on your shares. A shareholder may request that these payments be sent to a
predesignated bank or other designated party.
Amounts paid to you pursuant to the Systematic Withdrawal Plan are not a
return on your investment. Payments to you pursuant to the Systematic Withdrawal
Plan are derived from the redemption of shares in your account and is a taxable
transaction on which gain or loss may be recognized for Federal, state and local
income tax purposes.
Reinstatement Privilege
A shareholder in a Fund who has redeemed shares may reinvest, without a
sales charge, up to the full amount of such redemption at the net asset value
determined at the time of the reinvestment within 60 days of the original
redemption. This privilege must be effected within 60 days of the redemption and
the investor at the time of purchase must provide the number of shares redeemed
within the 60 day period. The shareholder must reinvest in the same Fund and
account from which the shares were redeemed. A redemption is a taxable
transaction and gain or loss may be recognized for Federal income tax purposes
even if the reinstatement privilege is exercised. Any loss realized upon the
redemption will not be recognized as to the number of shares acquired by
reinstatement, except through an adjustment in the tax basis of the shares so
acquired.
Redemption through Customer Accounts
Investors who purchase shares through customer accounts maintained at
Participating Organizations may redeem those shares only through the
Participating Organization. In some cases, a customer may instruct the
Participating Organization which maintains the account through which the
customer purchases shares to redeem shares periodically as required to bring the
customer's account balance up to a level agreed upon between the customer and
the Participating Organization. If a redemption request with respect to such an
automatic redemption arrangement is received by the transfer agent by 4:00 p.m.
(Eastern time) on a day the transfer agent is open for business, the redemption
proceeds will be transmitted on the next business day to the investor's customer
account (unless otherwise specified by the Participating Organization).
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<PAGE>
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in a Fund for at
least seven days may exchange shares of one Fund for shares of any of the other
investment portfolios of the Trust and HSBC Funds Trust which are available for
sale in their state. A shareholder who has paid a sales load in connection with
the purchase of shares of any of the Funds will be subject only to that portion
of the sales load of the Fund into which the shareholder is exchanging which
exceeds the sales load originally paid by the shareholder. The Transfer Agent
must be advised of the applicability of the sales charge differential when the
exchange order is placed. Shareholders of any of the HSBC Money Market Funds who
exchange shares of any such Money Market Funds for shares of any of the Funds of
the Trust are charged the sales load applicable to such Funds as stated in the
Prospectus. Before effecting an exchange, shareholders should review the
prospectuses. Exercise of the exchange privilege is treated as a redemption for
Federal and New York State and City income tax purposes and, depending on the
circumstances, a gain or loss may be recognized. The Funds reserve the right to
change the terms of or terminate the Exchange Privilege at any time upon at
least 60 days prior written notice to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to distribute annually substantially all of its net
investment income in the form of dividends. The Funds pay semi-annual dividends.
Net capital gains, if any, are distributed at least once annually.
Each Fund's dividend and capital gains distributions may be reinvested in
additional shares or received in cash.
In order to satisfy certain annual distribution requirements of the
Internal Revenue Code of 1986, as amended, (the "Code"), the Funds may declare
special dividend and capital gains distributions during October, November or
December as of a record date in such a month. Such distributions, if paid to
shareholders in the following January, are deemed for Federal income tax
purposes to have been paid by the Funds and received by shareholders on December
31 of the prior year.
Each Fund will be treated as a separate entity for Federal income tax
purposes, notwithstanding that it is one of a multiple series of the Trust. Each
Fund has elected to be treated and has qualified as a registered investment
company and intends to continue to qualify to be treated as a regulated
investment company for each taxable year by complying with the provisions of the
Code applicable to regulated investment companies so that it will not be liable
for Federal income tax with respect to its net investment income and net
realized capital gains distributed to shareholders in accordance with the timing
requirements of the Code. Each Fund intends to distribute substantially all of
its net investment income and net realized capital gains to its shareholders for
each taxable year.
Dividends derived from each Fund's taxable net investment income (if any)
and the excess of net short-term capital gain over net long-term capital loss
will be taxable to that Fund's shareholders as ordinary income, whether such
dividends are invested in additional shares or received in cash. A portion of
each Fund's dividends will normally qualify for the dividends-received deduction
for corporations. In general, the amount so qualifying will depend primarily on
the portion of a Fund's gross income that is represented by dividends received
by such Fund from stock in domestic corporations held by such Fund subject to
the requisite holding period under the Code and not treated as debt financed
under the Code. The dividends-received deduction will be reduced to the extent
shares of such Fund are treated as debt-financed and will be eliminated if such
shares are held for less than 46 days.
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<PAGE>
Distributions of the excess of net long-term capital gain over net
short-term capital loss designated by the Funds as capital gain dividends will
be taxable as long-term capital gains, regardless of how long a shareholder has
held his Fund shares, whether they are invested in additional shares or received
in cash. Long-term capital gain distributions will generally not qualify for the
dividends-received deduction for corporations.
Each year the Funds will notify shareholders of the character of its
dividends and distributions for federal income tax purposes. Depending on the
residence of the shareholder for tax purposes, such dividends and distributions
may also be subject to state, local or foreign taxes. Shareholders should
consult their own tax advisers as to the Federal, state, local or foreign tax
consequences of ownership of Fund shares in their particular circumstances.
Shareholders who are not U.S. persons under the Code should also consult
their tax advisers as to the possible application of U.S. taxes, including a 30%
U.S. withholding tax (or lower treaty rate) on dividends.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in a Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares.
ACCOUNT SERVICES
All transactions in shares of the Funds will be reflected in confirmations
for each shareholder and a monthly shareholder statement. In those cases where a
Participating Organization or its nominee is shareholder of record of shares
purchased for its customer, the Trust has been advised that the statement may be
transmitted to the customer in the discretion of the Participating Organization.
Shareholders can write or call the Trust's transfer agent at P.O. Box 163850,
Columbus, OH 43216-3850, telephone (800) 634-2536 with any questions relating to
their investments in Fund shares.
Participating Organizations or their nominees may be the shareholders of
record as nominees for their customers, and may maintain subaccounts for those
customers. Any such customer may become the shareholder of record upon written
request to the Participating Organization or transfer agent.
The transfer agent will transmit promptly to each of its customers for whom
it processes purchases and redemptions of shares and to each Participating
Organization copies of all reports to shareholders, proxy statements and other
Trust communications. The Trust's arrangements with the transfer agent and the
subtransfer agent arrangements require Participating Organizations to grant
investors who purchase shares through customer accounts the opportunity to vote
their shares by proxy at all shareholder meetings of the Trust. In certain
cases, a customer of a Participating Organization may have given his
Participating Organization the power to vote shares on his behalf. Customers
with accounts at Participating Organizations should consult their Participating
Organization for information concerning their rights to vote shares.
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<PAGE>
TRANSFER AND DIVIDEND
DISBURSING AGENT AND CUSTODIAN
Pursuant to an Agency Agreement, BISYS Fund Services ("Transfer Agent")
acts as the Funds' transfer and dividend disbursing agent and is responsible for
maintaining account records detailing ownership of Fund shares and for crediting
income, capital gains and other changes in share ownership to investors'
accounts. For its services, the Transfer Agent receives from the Funds an annual
base fee of $25 per shareholder account plus additional transaction costs. Bank
of New York is the Funds' custodian. Pursuant to the Custodian Agreement, Bank
of New York is responsible for holding the Funds' cash and portfolio securities.
Bank of New York may enter into sub-custodian agreements with certain qualified
banks.
PERFORMANCE INFORMATION
Each Fund's total return may be included in advertisements or mailings to
prospective investors. Each Fund may occasionally cite statistical reports
concerning its performance. Each Fund may also from time to time compare its
performance to various unmanaged indices, such as the Standard & Poor's 500
Composite Stock Price Index. (See the Statement of Additional Information for
more details concerning the various indices which might be used.) A Fund's
"total return" refers to the average annual compounded rates of return over one,
five and ten year periods or for the life of the Fund (which periods will be
stated in the advertisement) that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment,
assuming the deduction of the maximum sales charge and the reinvestment of all
dividend and capital gains distributions. Each Fund may quote total return on a
before tax or after tax basis. Each Fund calculates its total return by adding
the total dividends paid for the period to the Fund's ending net asset value per
share for that period and dividing that sum by the net asset value per share of
the Fund at the beginning of the period. Each Fund may also furnish total return
calculations based on investments at various sales charge levels or at net asset
value. Any performance data which is based on a Fund's net asset value per share
would be reduced if a sales charge were taken into account. Total return figures
are based on historical earnings and are not intended to indicate future
performance.
Investors who purchase and redeem shares of the Funds through a customer
account maintained at a Participating Organization may be charged by such
Participating Organization certain fees, as agreed upon by the Participating
Organization and the investor, with respect to the customer services provided by
the Participating Organization. Such fees will have the effect of reducing the
return for those investors. See "Management of the Funds--Servicing Agreements"
in this Prospectus.
SHARES OF BENEFICIAL INTEREST
The authorized capital stock of the Trust consists of an unlimited number
of shares of beneficial interest having a par value of $0.001 per share. The
Trust's Board of Trustees has authorized the issuance of multiple series
representing shares in corresponding investment portfolios of the Trust. All
shares of the Trust have equal voting rights and will be voted in the aggregate,
and not by class, except where voting by class is required by law or where the
matter involved affects only one class. All shares of the Trust issued and
outstanding are fully paid and nonassessable. The Trust is not required by law
to hold annual shareholder meetings and does not intend to hold such meetings;
however, the Trustees are required to call a meeting for the purpose of
considering the removal of persons serving as Trustee if requested to do so in
writing by the holders of not less than 10% of the outstanding
31
<PAGE>
shares of the Trust. Each Fund will be treated as a separate entity
for Federal income tax purposes. For more details concerning the voting rights
of shareholders, see the SAI.
Vacancies on the Board of Trustees are filled by the Board of Trustees if
immediately after filling any such vacancy at least two-thirds of the Trustees
then holding office have been elected to such office by shareholders at an
annual or special meeting. In the event that at any time less than a majority of
Trustees holding office were elected by shareholders, the Board of Trustees will
cause to be held within 60 days a shareholders' meeting for the purpose of
electing Trustees to fill any existing vacancies. Trustees are subject to
removal with cause by two-thirds of the remaining Trustees or by a vote of a
majority of the outstanding shares of the Trust. The Trustees are required to
promptly call a shareholders' meeting for voting on the question of removal of
any Trustee when requested to do so in writing by not less than 10% of the
outstanding shares of the Trust. In connection with the calling of such
shareholders' meetings, shareholders will be provided with communication
assistance.
Under Massachusetts law, it is possible that shareholders of a
Massachusetts business trust might, under certain circumstances, be held
personally liable for acts or obligations of the Trust. The Trust's Declaration
of Trust contains an express disclaimer of shareholder liability for acts,
obligations or affairs of the Trust. The Declaration of Trust also provides for
indemnification out of the Trust's assets for all loss and expense of any
shareholder held personally liable by reason of being or having been a
shareholder of the Trust. Thus, the risk that a shareholder of a Fund could
incur financial loss on account of shareholder liability is considered remote
since it is limited to circumstances in which the disclaimer is inoperative and
the Fund itself would be unable to meet its obligations.
32
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HSBC Mutual Funds Trust
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HSBC Fund Group
- --------------------------------------------------------------------------------
HSBC Asset Management [LOGO]
- --------------------------------------------------------------------------------
HSBC(SM) Mutual Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
Information:
(800) 634-2536
Investment Adviser and Co-Administrator
HSBC Asset Management Americas Inc.
250 Park Avenue
New York, New York 10177
Sub-Adviser to Small Cap Fund
Investment Concepts, Inc.
One Williams Center
P.O. Box 2300
Tulsa, Oklahoma 74192
Distributor, Administrator, Transfer Agent and Dividend Disbursing Agent
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
Legal Counsel
Baker & McKenzie
805 Third Avenue
New York, New York 10022
No dealer, salesman, or other person has been authorized to give any information
or to make any representations, other than those contained in the Prospectus, in
connection with the offer contained in this Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Trust, the Distributor or the Investment Adviser. This
Prospectus does not constitute an offering in any state in which such offering
may not lawfully be made.
Prospectus April 24, 1996
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Funds:
Growth and Income Fund
Small Cap Fund
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Managed and Advised by:
HSBC Asset Management Americas Inc.
- --------------------------------------------------------------------------------
Managed by:
Investment Concepts, Inc.
(with respect to the Small Cap Fund only)
- --------------------------------------------------------------------------------
Distributed by:
BISYS Fund Services
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<PAGE>
HSBC MUTUAL FUNDS TRUST
GROWTH AND INCOME FUND
SMALL CAP FUND
3435 Stelzer Road
Columbus, Ohio 43219
Information: (800) 634-2536
STATEMENT OF ADDITIONAL INFORMATION
HSBC Mutual Funds Trust, formerly known as Mariner Mutual Funds Trust, (the
"Trust") is an open-end, diversified management investment company with multiple
portfolios, including the Growth and Income Fund (formerly known as the Total
Return Equity Fund) (the "Growth and Income Fund") and the Small Cap Fund (the
"Small Cap Fund") (together herein referred to as the "Funds").
The investment objective of the Growth and Income Fund is to provide
----------------------
investors with long-term growth of capital and current income by investing
primarily in common stocks, preferred stocks and securities convertible into or
with rights to purchase common stocks ("equity securities"). As a matter of
fundamental policy, during normal market conditions, at least 65% of the value
of the Fund's total assets will be invested in equity securities.
The investment objective of the Small Cap Fund is to provide investors with
--------------
long-term capital appreciation and, secondarily, income by investing primarily
in a diversified portfolio of common stocks and securities convertible into
common stocks of small to medium-size companies with an initial market
capitalization of $500 million or less at the time of purchase by the Fund. The
universe of small to medium-size companies includes those companies with market
capitalization of up to $5 billion ("small cap equity securities"). As a matter
of fundamental policy, during normal market conditions, at least 70% of the
value of the Fund's total assets will be invested in small cap equity
securities.
Shares of the Funds are primarily offered for sale by BISYS Fund Services,
Inc., the Sponsor and Distributor, as an investment vehicle for institutions,
corporations, fiduciaries and individuals. Certain banks, financial
institutions and corporations ("Participating Organizations") have agreed to act
as shareholder servicing agents for investors who maintain accounts at the
Participating Organizations and to perform certain services for the Funds.
This Statement of Additional Information ("SAI") is not a prospectus and is
only authorized for distribution when preceded or accompanied by the Funds'
Prospectus dated April 18, 1996. This SAI contains additional and more detailed
information than that set forth in the Prospectus and should be read in
conjunction with the Prospectus, additional copies of which may be obtained
without charge from the Trust.
April 18, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT POLICIES AND RISK FACTORS..................... 1
INVESTMENT RESTRICTIONS.................................. 6
MANAGEMENT............................................... 8
PERFORMANCE INFORMATION.................................. 14
DETERMINATION OF NET ASSET VALUE......................... 16
PORTFOLIO TRANSACTIONS................................... 16
EXCHANGE PRIVILEGE....................................... 18
REDEMPTIONS.............................................. 18
FEDERAL INCOME TAXES..................................... 19
SHARES OF BENEFICIAL INTEREST............................ 22
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT.. 23
INDEPENDENT AUDITORS..................................... 24
EXPERTS.................................................. 24
</TABLE>
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INVESTMENT POLICIES AND RISK FACTORS
The following information supplements the discussion of the investment
objective and policies of the Funds found under "Investment Objective, Policies
and Risk Factors" in the Prospectus.
The following investment policies apply to each of the Funds.
SHORT-TERM TRADING. Although the Funds will not make a practice of
short-term trading, purchases and sales of securities will be made whenever
necessary in the management's view to achieve the investment objectives of a
Fund. Management does not expect that in pursuing each Fund's investment
objective unusual portfolio turnover will be required and intends to keep
turnover to a minimum consistent with such investment objective. Management
believes unsettled market economic conditions during certain periods require
greater portfolio turnover in pursuing each Fund's investment objective than
would otherwise be the case. A higher incidence of portfolio turnover will
result in greater transaction costs to a Fund. During periods of relatively
stable market and economic conditions, the management expects that the portfolio
turnover of each Fund will not exceed 100% annually, so that normally no more
than 100% of the securities held by a Fund would be replaced in any one year.
LOANS OF PORTFOLIO SECURITIES. The Funds may 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 100% of
the current market value of the securities loaned (including accrued dividends
and interest thereon) plus the interest payable with respect to the loan is
maintained by the borrower with the lending Fund in a segregated account. 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. Neither Fund will enter into any portfolio security lending
arrangement having a duration of longer than one year. Any securities which a
lending Fund may receive as collateral will not become part of the Fund's
portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof which is a security in which the Fund is permitted to
invest. During the time securities are on loan, the borrower will pay the 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.
Neither Fund will loan securities having a value which exceeds 10% of
the current value of such Fund's total assets. Loans of securities will be
subject to termination at the lender's or the borrower's option. Each Fund may
pay reasonable administrative and custodial fees in connection with a securities
loan and may pay a negotiated portion of the interest or fee earned with respect
to the collateral to the borrower or the placing broker. Borrowers and placing
brokers may not be affiliated, directly or indirectly, with the Funds, its
investment adviser or subadviser.
WRITING COVERED CALLS. The Funds may engage in the writing of covered
call options (options on securities which a Fund owns) provided the options are
listed on a national securities exchange. Each 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. Each 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.
AMERICAN DEPOSITORY RECEIPTS. The Funds may invest in American
Depository Receipts ("ADRs"). Generally these are receipts issued by a bank or
trust company that evidence ownership of underlying securities issued by a
foreign corporation and that are designed for use in the domestic securities
market. The Funds intend to invest less than 20% of each Fund's total net
assets in ADRs.
<PAGE>
There are certain risks associated with investments in unsponsored ADR
programs. Because the non-U.S. company does not actively participate in the
creation of the ADR program, the underlying agreement for service and payment
will be between the depository and the shareholder. The company issuing the
stock underlying the ADRs pays nothing to establish the unsponsored facility, as
fees for ADR issuance and cancellation are paid by brokers. Investors directly
bear the expenses associated with certificate transfer, custody and dividend
payment.
In an unsponsored ADR program, there also may be several depositories
with no defined legal obligations to the non-U.S. company. The duplicate
depositories 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 ADRs, there is always the risk of
loss due to currency fluctuations.
To the extent permitted in the Prospectus of the Funds, each such Fund
may engage in transactions for the purchase and sale of stock index options,
stock index futures contracts and options on stock index futures as described
below.
STOCK INDEX OPTIONS. Each Fund may purchase and write put and call
options on stock indexes listed on national securities exchanges in order to
realize its investment objectives or for the purpose of hedging its 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.
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. Each Fund may enter into stock index
futures contracts in order to protect the value of its 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
contracts 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
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<PAGE>
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. 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.
Each Fund intends to utilize stock index futures contracts 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 a Fund against
an increase in prices of stocks which the Fund intends to purchase. If a 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
futures contract. If a 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 purchased. A Fund also may buy
or sell stock index futures contracts to close out existing futures positions.
OPTIONS ON STOCK INDEX FUTURES. Each 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.
If a 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 a 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 a Fund for the option.
If a 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 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. A Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
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
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<PAGE>
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, as amended (the
"Securities Act"), there is no assurance that the Funds will succeed in
negotiating a closing out of a particular OTC option at any particular time. If
a 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 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 Funds will treat such options and, except to the extent permitted
through the procedure described in the preceding sentence, assets as subject to
each such Fund's limitation on investments in securities that are not readily
marketable.
RISKS INVOLVING FUTURES TRANSACTIONS. Transactions by the Funds in
futures contracts and options thereon involve certain risks. One risk in
employing futures contracts and options thereon to protect against cash market
price volatility is the possibility that futures prices will correlate
imperfectly with the behavior of the prices of the securities in a Fund's
portfolio (the portfolio securities will not be identical to the securities
underlying the futures contracts). In addition, commodity exchanges generally
limit the amount of fluctuation permitted in futures contract and option prices
during a single trading day, and the existence of such limits may prevent the
prompt liquidation of futures and option positions in certain cases. Inability
to liquidate positions in a timely manner could result in the Fund's incurring
larger losses than would otherwise be the case.
MORTGAGE-RELATED SECURITIES. The Funds, may, consistent with its
respective investment objective and policies, invest in mortgage-related
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
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 nongovernmental 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 securities
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages and, therefore, it is not possible to predict accurately the
securities return to the Fund. In addition, regular payments received in
respect of mortgage-related securities include both interest and principal. No
assurance can be given as to the return a Fund will receive when these amounts
are reinvested.
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<PAGE>
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 stock-holders. 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 on account of 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.
OPTION PREMIUMS. In order to comply with certain state securities
regulations, each 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.
ILLIQUID SECURITIES. Each Fund has adopted a fundamental policy with
respect to investments in illiquid 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,
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 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.
Each 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
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<PAGE>
under Section 4(2) of the Securities Act will be treated as illiquid and subject
to the Fund's investment restriction on illiquid securities.
Rule 144A of the Securities Act provides for 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 Investment Adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
will expand further as a result of this new 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 Investment Adviser will consider, inter alia, 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 Investment 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 Investment Adviser; (3) dealer undertakings to make a market
in the security; (4) the nature of the security and the nature of the market
place 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 Investment Adviser deems relevant. The Investment Adviser will
also monitor the purchase of Rule 144A securities to assure that the total of
all Rule 144A securities held by a Fund does not exceed 10% of the 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 RESTRICTIONS
The Funds observe the following fundamental investment restrictions
which can be changed only when permitted by law and approved by a majority of a
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 each Fund may not:
(1) purchase securities on margin (but may make margin payments
in connection with financial futures contracts and related options) or
purchase real estate or interests therein, commodities or commodity
contracts (except financial futures contracts and related options), or
make loans, except loans of portfolio securities and except that each
Fund may purchase or hold short-term debt securities and enter into
repurchase agreements with respect to its portfolio securities
described in each Prospectus. For this purpose, repurchase agreements
are considered loans;
(2) engage in the underwriting of securities of other issuers,
except to the extent that each 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; or participate
on a joint or joint-and-several basis in any securities trading
account. The "bunching" of orders
-6-
<PAGE>
with other accounts under the management of the Adviser to save
commissions or to average prices among them is not deemed to result in
a securities trading account;
(3) effect a short sale of any security (other than index
options or hedging strategies), or issue senior securities except as
permitted in paragraph (4). 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;
(4) borrow money, except that each Fund may borrow from banks
(and the Small Cap Fund may enter into reverse repurchase agreements)
as a temporary measure for emergency purposes where such borrowings
would not exceed 5% (or 10% with respect to the Small Cap Fund) 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 5% (or 10% with
respect to the Small Cap Fund) of each Fund's total assets taken at
market value. The Funds have no present intention of engaging in
transactions under this paragraph;
(5) purchase securities of any company with a record of less than
three years' continuous operation if such purchase would cause each
Fund's investments in all such companies taken at cost to exceed 5% of
such Fund's total assets taken at market value;
(6) invest for the purpose of exercising control over or
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% (10% with respect to
the Growth and Income Fund) of the market value of the Fund's total
assets would be so invested;
(9) purchase interests in oil, gas, or other mineral exploration
programs or real estate and real estate mortgage loans except as
provided in the Prospectus of the Funds, or invest in oil, gas or
other mineral leases, or in real estate limited partnership interests;
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) purchase or retain securities of any company if, to the
knowledge of the Funds, officers and Trustees of the Trust and
officers and directors of the Adviser who individually own more than
1/2 of 1% of the securities of that company together own beneficially
more than 5% of such securities;
(11) have dealings on behalf of the Funds with Officers and
Trustees of the Funds, 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 Funds; or
-7-
<PAGE>
(12) invest in excess of 5% of net assets in warrants; provided
that warrants that are listed on the New York or American Stock
Exchange may not exceed 2% of net assets.
In addition, the Growth and Income Fund may not:
(1) Invest more than 5% of its total assets taken at market value
in the securities (including securities subject to repurchase
agreements) of any one issuer other than securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities; or
(2) (i) purchase more than 10% of the outstanding voting
securities of any one issuer or (ii) purchase the securities of
issuers conducting their principal business activity in the same
industry if, immediately after the purchase and as a result thereof,
the value of the investments of the Growth and Income Fund in that
industry would exceed 25% of the current value of the total assets of
the Fund, except that there is no limitation with respect to
investments in obligations of the United States Government, its
agencies or instrumentalities which are backed by the full faith and
credit of the United States.
In addition, the Small Cap Fund may not:
(1) purchase a security if, as a result, with respect to 75% of
its portfolio, (i) more than 5% of the value of its total assets would
be invested in any one issuer, or (ii) it would hold more than 10% of
any class of securities of such issuer or more than 10% of the
outstanding voting securities of the issuer. There is no limit on the
percentage of assets that may be invested in U.S. Treasury bills,
notes, or other obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities; or
(2) purchase a security if, as a result, more than 25% of the
value of its total assets would be invested in securities of one or
more issuers conducting their principal business activities in the
same industry, provided that (a) this limitation shall not apply to
obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities; (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.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in the market value of an investment, in the net
or total assets of the Funds, in the securities rating of the investment, or any
other later change.
MANAGEMENT
TRUSTEES AND OFFICERS
The principal occupations for the past five of the Trustees and
executive officers of the Funds are listed below. The address of each, unless
otherwise indicated, is 3435 Stelzer Road, Columbus, Ohio 43219. The Trustees
deemed to be "interested persons" of the Funds for purposes of the Investment
Company Act of 1940 are indicated by an asterisk.
WILLIAM B. BLUNDIN, Chief Executive Officer and Trustee* - Executive Vice
-----------------------------------
President BISYS Fund Services, Inc., March 1995 to present; Vice Chairman of
Concord Holding Corporation, July 1993 to March 1995; Director and President
of Concord Holding Corporation, February 1987 to July 1993; Trustee, HSBC
Funds Trust.
-8-
<PAGE>
WOLFE J. FRANKL, Trustee - 40 Gooseneck Lane, Charlottesville, Virginia
-------
22901. Trustee, Excelsior Funds, Inc., Excelsior Tax-Exempt Funds, Inc. and
Excelsior Institutional Funds, Inc. (mutual funds); Director, Deutsche Bank
Financial, Inc.; Director, The Harbus Corporation; Trustee, HSBC Funds Trust
(formerly, Mariner Funds Trust).
WILLIAM L. KUFTA, Trustee - 97 Main Street, Chatham, New Jersey 07928. Chief
-------
Investment Officer, Beacon Trust Company; Senior Vice President, Pitcairn
Financial Management Group from 1987 to 1991; Trustee, HSBC Funds Trust.
ROBERT A. ROBINSON, Trustee - 251 Laurel Road, New Canaan, Connecticut
-------
06840. Trustee, Henrietta and E. Frederick H. Bugher Foundation; Trustee,
U.S.T. Master Funds, Inc. and U.S.T. Master Tax-Exempt Funds, Inc. (mutual
funds); Trustee, HSBC Funds Trust.
HARALD PAUMGARTEN, Trustee -330 Madison Avenue, New York, NY 10017.
-------
Director, Corporate Finance, Auerbach and Grayson; President, Paumgarten and
Company since 1991; Advisory Managing Director, Lepercq de Neuflize & Co.
Incorporated 1993 to1995; Director, Price Waterhouse AG 1992 to 1993;
Trustee, HSBC Funds Trust.
JOHN P. PFANN, Chairman and Trustee - 43 Captains Walk, Marina Cove, Palm
--------------------
Coast, Florida 32137. Chairman and President, JPP Equities, Inc., 1982 to
1995; Trustee, HSBC Funds Trust.
ANN E. BERGIN President - First Vice President of BISYS Fund Services, Inc.,
---------
March 1995 to Present; Senior Vice President, Administration, Concord
Financial Group, August 1991 to March 1995; Assistant Vice President,
Dreyfus Service Corporation, 1982 to August 1991.
WILLIAM J. TOMKO, Vice President - Vice President, BISYS Fund Services, Inc.
--------------
since 1987.
MARK E. NAGLE, Treasurer - Senior Vice President, Fund Accounting Services,
---------
BISYS Fund Services, Inc., September 1995 to present; Senior Vice President,
Fidelity Institutional Retirement Services 1993 to September 1995; Senior
Vice President, Fidelity Accounting & Custody Services, 1981 to 1993.
MARTIN R. DEAN, Assistant Treasurer - Manager, Mutual Fund Accounting, BISYS
-------------------
Fund Services since 1994; Senior Manager, KPMG Peat Marwick 1989 to 1994.
STEVEN R. HOWARD, Secretary - 805 Third Avenue, New York, New York 10022.
---------
Partner, Baker & McKenzie since April 1991; Partner, Gaston & Snow from 1988
to 1991; Secretary, HSBC Funds Trust since 1987.
ROBERT L. TUCH, Assistant Secretary - Senior Counsel of BISYS Fund Services,
-------------------
Inc., June 1991 to Present; Vice President and Associate General Counsel
with Nation Securities Research Corp., July 1990 to June 1991.
ALAINA V. METZ, Assistant Secretary - Chief Administrator, Administrator and
-------------------
Regulatory Services of BISYS Fund Services, Inc., June 1995 to Present;
Supervisor of Mutual Fund Legal Department, Alliance Capital Management, May
1989 to June 1995.
Trustees of the Funds receive from the Funds an annual fee and a fee
for attending each meeting of the Trustees and each committee meeting and are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.
-9-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or
Retirement Estimated Total
Aggregate Benefits Accrued Annual Benefits Compensation
Compensation as Part of Fund Upon from the Fund
from the Fund Expenses Retirement complex*
------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Wolfe J. Frankl, Trustee $3,295 0 N/A $22,000
William L. Kufta, Trustee $2,961 0 N/A $20,000
Harald Paumgarten, Trustee $ 0 0 N/A $ 0
John P. Pfann, Trustee $3,295 0 N/A $22,000
Robert A. Robinson, Trustee $3,295 0 N/A $22,000
</TABLE>
_____________________
* Represents the total compensation paid to such persons during the calendar
year ending December 31, 1995 (and with respect to the Funds estimated to be
paid during a full calendar year). Mr. Paumgarten was appointed as a new
Trustee subsequent to December 31, 1995, and, therefore, did not receive any
compensation from the Trust. Trustees that are "interested persons" do not
receive compensation from the Trust in connection with their role as Trustee.
As of the date of the Statement of Additional Information the Trustees
and officers of the Funds as a group owned less than 1% of the outstanding
shares of the Funds.
INVESTMENT ADVISER. The Funds retain HSBC Asset Management Americas
Inc. ("HSBC Americas" or the "Adviser") to act as the adviser for each Fund.
HSBC Americas is the North American investment affiliate of HSBC Holdings pc
(Hong Kong and Shanghai Banking Corporation) and Marine Midland Bank and is
located at 250 Park Avenue, New York, New York 10177.
The Advisory Contracts for the Funds provide that HSBC Americas will
manage the portfolio of each Fund and will furnish to each Fund investment
guidance and policy direction in connection therewith. HSBC Americas has agreed
to provide to the Funds, among other things, information relating to portfolio
composition. Pursuant to the Advisory Contract, HSBC Americas also furnishes to
the Trust's Board of Trustees periodic reports on the investment performance of
each Fund.
HSBC Americas has also agreed in the Advisory Contract to provide
administrative assistance in connection with the operation of the Funds.
Administrative services provided by HSBC Americas include, among other things,
(i) data processing, clerical and bookkeeping services required in connection
with maintaining the financial accounts and records for the Funds, (ii)
compiling statistical and research data required for the preparation of reports
and statements which are periodically distributed to the Funds' officers and
Trustees, (iii) handling general shareholder relations with Fund investors, such
as advice as to the status of their accounts, the dividends declared to date and
assistance with other questions related to their accounts, and (iv) compiling
information required in connection with the Funds' filings with the SEC.
-10-
<PAGE>
Effective February 1, 1996 the Board of Trustees of the Trust approved
a Co-Administration Services Contract between the Fund and HSBC Americas.
Pursuant to the Co-Administration Services Contract, HSBC Americas (i) manages
the Fund's relationship with BISYS Fund Services, the Administrator to the Fund,
(ii) assists with negotiation of contracts with service providers and supervises
the activities of those service providers, (iii) serves as liaison with the
Board of Trustees, and (iv) assists with general product management and
oversight. HSBC is paid an annual fee equal to 0.03% of the Fund's average daily
net assets pursuant to the Co-Administration Services Contract.
SUB-ADVISER TO THE SMALL CAP FUND. HSBC Americas retains Investment
Concepts, Inc. ("ICI") to serve as sub-adviser to the Small Cap Fund. ICI is a
subsidiary of BancOklahoma Trust Company ("BOTC"), the largest trust company in
the State of Oklahoma. BOTC is a subsidiary of Bank of Oklahoma, N.A. ("BOK")
which in turn is a subsidiary of Bank of Oklahoma Corporation ("BOK Financial").
BOK Financial is controlled by its principal shareholder, George B. Kaiser.
Through its subsidiaries, BOK Financial provides a full array of trust,
commercial banking and retail banking services. Its non-bank subsidiaries
engage in various bank-related services, including mortgage banking and
providing credit life, accident, and health insurance on certain loans
originated by its subsidiaries.
ICI maintains an office in Tulsa, Oklahoma and offers a variety of
services for both corporate and individual customers. ICI also serves as
transfer agent and registrar for corporate securities, paying agent for
dividends and interest, and indenture trustee of bond issues. At December 31,
1995, BOTC was responsible for approximately $7.2 billion in assets including
approximately $3.2 billion in assets under management and possessed total
capital, surplus and undivided profits of $7.7 million.
SHAREHOLDER SERVICING AGENT. The Trust retains HSBC Americas to act
as Shareholder Servicing Agent of the Fund in accordance with the terms of the
Shareholder Servicing Agreement. Pursuant to the Shareholder Servicing
Agreement, HSBC Americas (i) assists and trains third-parties who deliver
prospectuses and Fund applications, (ii) assists and trains third-parties who
assist customers with completing Fund applications, (iii) conducts customer
education, reviews Fund written communications and assists third-parties who
answer customer questions, (iv) organizes and conducts investment seminars to
enhance understanding of the Fund and its objectives, (v) assists personnel who
effect customer purchases and redemptions and (vi) assists and supervises the
activities of Participating Organizations. For its services as Shareholder
Servicing Agent, HSBC Americas is paid an annual fee equal to 0.04% of the
Fund's average daily net assets.
DISTRIBUTOR. Shares of the Funds are offered on a continuous basis
through BISYS Fund Services, the Distributor, pursuant to the Distribution
Contract. The Distributor is not obligated to sell any specific amount of
shares.
ADMINISTRATOR. In accordance with resolutions adopted by the Board of
Trustees of the Trust, as of March 1, 1996, BISYS Fund Services became
Administrator of the Fund pursuant to the terms of an Administration and
Accounting Services Agreement (the "Administrative Services Agreement"),
replacing PFPC, Inc. Pursuant to the Administrative Services Agreement, BISYS
Fund Services: (i) provides administrative services reasonably necessary for the
operation of the Fund, (other than those services which are provided by HSBC
Americas pursuant to the Advisory Contract) and Fund accounting services; (ii)
provides the Funds with office space and office facilities reasonably necessary
for the operation of the Funds; and (iii) employs or associates with itself such
persons as it believes appropriate to assist it in performing its obligations
under the Administrative Services Contract.
As compensation for its administrative and accounting services under
the Administrative Services Agreement, BISYS Fund Services is paid a monthly fee
at the following annual rates: 0.15% of the Fund's first $200 million of average
daily net assets; .125% of the Fund's second $200 million of average daily net
assets;
-11-
<PAGE>
0.10% of the Fund's third $200 million of average daily net assets; and 0.08% of
the Fund's average daily net assets in excess of $600 million.
For the year ended December 31, 1995, the Funds paid $61,800 (net of
fee waivers of $5,000) and $23,700 (net of fee waivers of $1,900), respectively,
to PFPC, Inc., BISYS Fund Services' predecessor, in administration fees under
the Administrative Services Agreement for the Growth and Income Fund and Small
Cap Fund, respectively. For the period July 1, 1994 to December 31, 1994, the
Growth and Income and Small Cap Funds paid $33,295 (net of fee waivers of
$3,699) and $10,459 (net of fee waivers of $1,162), respectively, to PFPC, Inc.
in administration fees. HSBC Americas, the predecessor to PFPC, Inc., earned
$22,091 (net of fee waivers of $4,687) and $6,110 (net of fee waivers of $1,060)
for the six months ended June 30, 1994 for the Growth and Income Fund and Small
Cap Fund, respectively. For the year ended December 31, 1993, the Growth and
Income Fund paid $46,651 in administration fees, to HSBC Americas. For the
period January 4, 1993 (commencement of operations) to December 31, 1993, HSBC
Americas waived its entire administration fee totalling $9,390 for the Small Cap
Fund.
For the year ended December 31, 1995, the Growth and Income and Small
Cap Funds paid $20,014 and $7,671, respectively, to HSBC Americas in co-
administration fees under the Co-Administration Agreement.
FEES AND EXPENSES
The Growth and Income Fund. As compensation for its advisory and
--------------------------
management services, HSBC Americas is paid a monthly fee with respect to the
Total Return Fund at the following annual rates:
Portion of average daily value
of net assets of the Fund Advisory
------------------------------ --------
Not exceeding $400 million............ 0.550%
In excess of $400 million but
not exceeding $800 million.......... 0.505%
In excess of $800 million but
not exceeding $1.2 billion.......... 0.460%
In excess of $1.2 billion but
not exceeding $1.6 billion.......... 0.415%
In excess of $1.6 billion but
not exceeding $2 billion............ 0.370%
In excess of $2 billion............... 0.315%
For the years ended December 31, 1995 and 1994, HSBC Americas earned
$367,300 and $377,042, respectively, in advisory fees (net of fee waivers of $ 0
and $36,828, respectively). For the year ended December 31, 1993, HSBC Americas
waived its entire fee for advisory services of $366,540.
The Small Cap Fund. As compensation for its advisory and management
------------------
services, HSBC Americas is paid a monthly fee with respect to the Small Cap Fund
at the following annual rates:
-12-
<PAGE>
Portion of average daily value
of net assets of the Fund Advisory
------------------------------ --------
Not exceeding $400 million............. 0.700%
In excess of $400 million but
not exceeding $800 million........... 0.645%
In excess of $800 million but
not exceeding $1.2 billion........... 0.590%
In excess of $1.2 billion but
not exceeding $1.6 billion........... 0.535%
In excess of $1.6 billion but
not exceeding $2 billion............. 0.480%
In excess of $2 billion................ 0.415%
As compensation for its management services with respect to the Small
Cap Fund, ICI is paid by HSBC Americas a monthly fee at an annual rate not to
exceed 0.50% of average daily net assets up to $400 million. The fee is reduced
at several breakpoints for average daily net assets in excess of $400 million up
to $2 billion, at which point it becomes 0.290% of the average daily net assets
in excess of $2 billion.
For the years ended December 31, 1995 and 1994, HSBC Americas earned
$179,300 and $150,019, respectively, in advisory fees (net of fee waivers of
$ 0 and $3,027, respectively), $128,100 and $109,319, respectively, of which was
- ---
paid to ICI. For the period January 4, 1993 (commencement of operations) to
December 31, 1993, HSBC Americas earned $54,524 in advisory fees (net of waivers
of $39,376), all of which was paid to ICI.
One of the states in which the shares of the Funds are qualified for
sale imposes limitations on the expenses of the Funds. If in any fiscal year,
the total expenses of a Fund (excluding taxes, interest, distribution expenses,
brokerage commissions and other portfolio transaction expenses, other
expenditures which are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the advisory and
administrative services fees) exceed the expense regulations of such state, HSBC
Americas will reimburse the Funds in an amount equal to that excess. Although
there is no certainty that these limitations will be in effect in the future,
the effective limitation on an annual basis with respect to each Fund is
currently 2.5% per annum of the first $30 million of the average daily net
assets, 2.0% of the next $70 million of average daily net assets and 1.5% of
average daily net assets in excess of $100 million. There were no payments or
reimbursements required as a result of these expense limitations with respect to
the Total Return Fund and Small Cap Fund for the period ended December 31, 1995.
Except for the expenses paid by HSBC Americas under the Advisory
Contract and Co-Administration Services Agreement, and by PFPC Inc. under the
Administrative Services Agreement and by ICI under the Sub-Advisory Contract
with respect to the Small Cap Fund, the Funds bear all costs of their operations
subject to the expense limitation provisions discussed above. Expenses
attributable to a Fund are charged against the assets of the Fund.
The Advisory Contract, Distribution Contract, Administrative Services
Agreement and Sub-Advisory Contract will continue in effect with respect to a
Fund from year to year provided such continuance is approved annually (i) by the
holders of a majority of the outstanding voting securities of the 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. Each contract may be terminated with respect to a
Fund at any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act of 1940) or by a vote of a majority of the Trustees. The Advisory Contract,
Administrative Services Contract, the Distribution Contract and Sub-Advisory
-13-
<PAGE>
Contract shall terminate automatically in the event of their assignment (as
defined in the Investment Company Act of 1940).
The Board of Trustees of the Trust approved the continuance of each of
the Fund's Advisory Contract (including Sub-Advisory Contract with respect to
the Small Cap Fund), the Distribution Contract and the Administrative Services
Agreement at a meeting of the Board of Trustees on January 23, 1996.
Distribution Plans and Expenses
-------------------------------
Each Fund has adopted a Distribution Plan and Agreement (the "Plan")
pursuant to Rule 12b-1 of the Investment Company Act of 1940, after having
concluded that there is a reasonable likelihood that the Plan will benefit each
Fund and its shareholders. The Plan provides for a monthly payment by each Fund
to BISYS Fund Services for expenses incurred not to exceed an annual rate as
follows:
The Growth and Income Fund 0.50 of 1% *
The Small Cap Fund 0.35 of 1%
BISYS Fund Services will use all amounts received under each Plan for
payments to broker-dealers or financial institutions for their assistance in
distributing shares of each Fund and otherwise promoting the sale of Fund
shares. BISYS Fund Services may also use all or any portions of such fee to pay
expenses such as the printing and distribution of prospectuses sent to
prospective investors, the preparation, printing and distribution of sales
literature and expenses associated with media advertisements and telephone
services.
The Plans provide for BISYS Fund Services to prepare and submit to the
Board of Trustees on a quarterly basis written reports of all amounts expended
pursuant to the Plan and the purpose for which such expenditures were made. The
Plans may not be amended to increase materially the amount spent for
distribution expenses without approval by a majority of each Fund's outstanding
shares and approval of a majority of the non-interested Trustees.
The Plans will continue in effect with respect to the Funds from year
to year provided such continuance is approved annually by a vote of the Board of
Trustees of the Trust and of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the operation of the
Plans or in any agreements related to the Plans, cast in person at a meeting
called for the purpose of voting on such Plans. The Board of Trustees of the
Trust approved the continuance of the Plans at a meeting of the Board of
Trustees on January 23, 1996.
For the years ended December 31, 1995, 1994, and 1993, the Growth and
Income Fund made payments totalling $46,892, $58,524, and $33,322, respectively,
pursuant to its Plan.
For the years ended December 31, 1995 and 1994, the Small Cap Fund
made payments totalling $22,041 and $28,178, respectively, pursuant to its Plan.
For the period January 4, 1993 (commencement of operations) through December 31,
1993, the Small Cap Fund made payments totalling $5,452 pursuant to its Plan.
- ----------------------
* The Fund has committed not to exceed 0.35 of 1% for the next fiscal year.
-14-
<PAGE>
PERFORMANCE INFORMATION
The Funds from time to time may advertise total return and cumulative
total return figures. Total return is the average annual compound rate of return
for the periods of one year and the life of each Fund, where applicable, each
ended on the last day of a recent calendar quarter. Total return quotations
reflect the change in the price of each Fund's shares and assume that all
dividends and capital gains distributions during the respective periods were
reinvested in shares of each Fund. Total return is calculated by finding the
average annual compound rates of return of a hypothetical investment over such
periods, that would compare the initial amount to the ending redeemable value of
such investment according to the following formula (total return is then
expressed as a percentage):
Where: P(1+T)/n/= ERV
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.
Cumulative total return is the rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect the change in the price of each Fund's shares and assume that
all dividends and capital gains distributions during the period were reinvested
in shares of each Fund. Cumulative total return is calculated by finding the
rate of return of a hypothetical investment over such period, according to the
following formula (cumulative total return is then expressed as a percentage):
C = (ERV/P) - 1
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.
The average annual total return information for the shares of the Funds
are as follows:
<TABLE>
<CAPTION>
Sales
Growth and Income Fund Charge/*/ NAV
- ---------------------- -------- ---------
<S> <C> <C>
One Year Ended December 31, 1995 26.41% 33.11%
Five Years Ended December 31, 1995 14.16% 15.35%
Inception (June 2, 1986) to December
31, 1995 11.21% 11.81%
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Sales
Small Cap Fund Charge/*/ NAV
- -------------- -------- ---------
<S> <C> <C>
One Year Ended December 31, 1995 19.85% 26.20%
Inception (January 4, 1993) to
December 31, 1995 12.88% 14.84%
</TABLE>
* INCLUDES MAXIMUM SALES CHARGE. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
From time to time, in marketing pieces and other Fund literature, each
Fund's or the Funds' total performance may be compared to the performance of
broad groups of comparable funds or unmanaged indices of comparable securities.
Evaluations of Fund performance made by independent sources may also be used in
advertisements concerning the Funds. Sources for Fund performance information
may include, but are not limited to, the following:
* Barron's, a Dow Jones and Company, Inc. business and financial weekly
--------
that periodically reviews mutual fund performance data.
* Business Week, a national business weekly that periodically reports
-------------
the performance rankings and ratings of a variety of mutual funds
investing abroad.
* Changing Times, The Kiplinger Magazine, a monthly investment advisory
--------------------------------------
publication that periodically features the performance of a variety of
securities.
* Financial Times, Europe's business newspaper, which features from time
---------------
to time articles on international or country-specific funds.
* Forbes, a national business publication that from time to time reports
------
the performance of specific investment companies in the mutual fund
industry.
* Fortune, a national business publication that periodically rates the
-------
performance of a variety of mutual funds.
* Global Investor, a European publication that periodically reviews the
---------------
performance of U.S. mutual funds investing internationally.
* Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
-------------------------------------------------------------------
weekly publication of industry-wide mutual fund averages by type of
fund.
* Money, a monthly magazine that from time to time features both
-----
specific funds and the mutual fund industry as a whole.
* New York Times, a nationally distributed newspaper which regularly
--------------
covers financial news.
* Personal Investor, a monthly investment advisory publication that
-----------------
includes a "Mutual Funds Outlook" section reporting on mutual fund
performance measures, yields, indices and portfolio holdings.
* Sylvia Porter's Personal Finance, a monthly magazine focusing on
--------------------------------
personal money management that periodically rates and ranks mutual
funds by performance.
-16-
<PAGE>
* Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
-------------------
regularly covers financial news.
* Wiesenberger Investment Companies Services, an annual compendium of
------------------------------------------
information about mutual funds and other investment companies,
including comparative data on funds' backgrounds, management policies,
salient features, management results, income and dividend records, and
price ranges.
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value per share for the purpose of pricing and
redemption orders is determined at 4:15 p.m. (Eastern time) on each day the
Funds' transfer agent is open for business. The net asset value will not be
computed on the following holidays: New Year's Day, Martin Luther King, Jr.'s
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving and Christmas. The net asset value
per share of each Fund is computed by dividing the value of the net assets of a
Fund (i.e. the value of the assets less the liabilities) by the total number of
shares outstanding. All expenses, including the advisory and administrative
fees, are accrued daily and taken into account for the purpose of determining
the net asset value. The public offering price (net asset value of $14.77 and
$14.46 for the Growth and Income Fund and Small Cap Fund, respectively, plus
maximum sales charge of 5.00% of the offering price) per share at December 31,
1995 was $15.55 and $15.22 for the Growth and Income Fund and Small Cap Fund
respectively.
Portfolio securities are valued at the last quoted sales price as of
the close of business on the day the valuation is made, or lacking any sales, at
the mean between closing bid and asked prices. Price information on listed
securities is taken from the exchange where the security is primarily traded.
The value for each unlisted security is based on the last trade price for that
security on a day in which the security is traded. The value for each unlisted
security on a day such security is not traded shall be based on the mean of the
bid and ask quotations for that day. The value of each security for which
readily available market quotations exist will be based on a decision as to the
broadest and most representative market for such security. Options on stock
indices traded on national securities exchanges are valued at the close of
options trading on such exchanges (which is currently 4:10 p.m., Eastern time).
Stock index futures and related options, which are traded on commodities
exchanges, are valued at their last sale price as of the close of such exchanges
(which is currently 4:15 p.m., Eastern time). Other assets and securities for
which no quotations are readily available are valued at fair value as determined
in good faith by the Trustees. Securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities. Short-term investments are valued at amortized
cost, which approximates market value. The Board of Trustees has determined in
good faith that amortized cost approximates fair market value.
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, HSBC Americas is primarily responsible for
portfolio decisions and the placing of portfolio transactions. In placing
orders, it is the policy of the Funds 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
- --------------------
* Sources of Fund performance information actually used by the Funds in the
past.
-17-
<PAGE>
at least as favorable as that of other qualified brokers. While HSBC Americas
generally seeks reasonably competitive spreads or commissions, the Funds will
not necessarily be paying the lowest spread or commission available.
Purchases and sales of securities will often be principal transactions
in the case of debt securities and equity securities traded otherwise than on an
exchange. The purchase or sale of equity securities will frequently involve the
payment of a commission to a broker-dealer who effects the transaction on behalf
of a Fund. Debt securities normally will be purchased or sold from or to
issuers directly or to dealers serving as market makers for the securities at a
net price. Generally, money market securities are traded on a net basis and do
not involve brokerage commissions. Under the Investment Company Act of 1940,
persons affiliated with Marine Midland, HSBC Americas, the Funds or BISYS Fund
Services are prohibited from dealing with the Funds as a principal in the
purchase and sale of securities except in accordance with regulations adopted by
the SEC. The Funds 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
Investment Company Act of 1940. Under the Investment Company Act of 1940,
persons affiliated with HSBC Americas, the Funds or BISYS Fund Services may act
as a broker for the Funds. In order for such persons to effect any portfolio
transactions for the Funds, 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 Funds to affiliated
brokers.
HSBC Americas 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 HSBC Americas. By allocating
transactions in this manner, HSBC Americas is able to supplement its research
and analysis with the views and information of securities firms.
For the years ended December 31, 1995, 1994, and 1993 the Growth and
Income Fund paid an aggregate of $117,652, $50,365, and $63,263, respectively,
in brokerage commissions.
For the years ended December 31, 1995 and 1994, the Small Cap Fund
paid an aggregate of $12,091 and $7,006, respectively, in brokerage commissions.
For the period January 4, 1993 (commencement of operations) through December 31,
1993, the Small Cap Fund paid an aggregate of $16,398 in brokerage commissions.
PORTFOLIO TURNOVER
The portfolio turnover rate measures the frequency with which a Fund's
portfolio of securities is traded. Each of the Funds will attempt to purchase
securities with intent of holding them for investment but may purchase and sell
portfolio securities whenever the adviser believes it to be warranted (e.g., the
Fund may sell portfolio securities in anticipation of an adverse market
movement). The purchase and sale of portfolio securities may involve dealer
mark-ups, underwriting commissions or other transaction costs. Generally, the
higher the portfolio turnover rate, the higher the transaction costs to the
Fund, which will generally increase the Fund's total operating expenses. In
order to qualify as a regulated investment company, less than 30% of the Fund's
gross income must be derived from the sale or other disposition of stock,
securities or certain other investments held for less than 3 months. Although
increased portfolio turnover may increase the likelihood of additional capital
gains for the Funds, each Fund expects to satisfy the 30% income test. The
Growth and Income Fund's portfolio turnover rate for the years ending December
31, 1995, 1994 and 1993 was 52.8%, 23.3% and 14.3%, respectively. The Small
Cap Fund portfolio turnover rate for the years ended December 31, 1995 and 1994
and for the period January 4, 1993 to December 31, 1993 was 29.9%, 20.2% and 6%,
respectively.
-18-
<PAGE>
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in a Fund for
at least seven days may exchange those shares for shares of the other portfolios
of the Trust and the HSBC Funds Trust which are available for sale in their
state. A shareholder who has paid a sales load in connection with the purchase
of shares of any of the Funds will not be subject to any additional sales loads
in the event such shareholder exchanges shares of one Fund for shares of another
Fund. Shareholders of any of the HSBC Money Market Funds who exchange shares of
any of such Money Market Funds for shares of any of such Funds of the Trust are
charged the sales loads applicable to the Funds as stated in the Prospectus.
Before effecting an exchange, shareholders should review the
prospectuses. Exercise of the exchange privilege is treated as a redemption for
Federal, state and local income tax purposes and, depending on the
circumstances, a gain or loss may be recognized. See the Prospectus discussion
of the federal tax treatment of load reductions or eliminations in an exchange.
The exchange privilege may be modified or terminated upon sixty (60)
days' written notice to shareholders. Although initially there will be no limit
on the number of times a shareholder may exercise the exchange privilege, the
Funds reserve the right to impose such a limitation. Call or write the Funds
for further details.
REDEMPTIONS
The proceeds of a redemption may be more or less than the amount
invested and, therefore, a redemption may result in a gain or loss for Federal,
state and local income tax purposes. Any loss realized on the redemption of
Fund shares held, or treated as held, for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain dividends
received on the redeemed shares.
A shareholder's account with a Fund remains open for at least one year
following complete redemption and all costs during the period will be borne by
the Fund. This permits an investor to resume investments in such Fund during
the period in an amount of $50 or more.
To be in a position to eliminate excessive shareholder expense
burdens, each Fund reserves the right to adopt a policy pursuant to which it may
redeem, upon not less than 30 days' notice, shares of the Fund in an account
which has a value below a designated amount. However, any shareholder affected
by the exercise of this right will be allowed to make additional investments
prior to the date fixed for redemption to avoid liquidation of the account.
The Funds may suspend the right of redemption during any period when
(i) trading on the New York Stock Exchange is restricted or that Exchange is
closed, other than customary weekend and holiday closings, (ii) the Securities
and Exchange Commission has by order permitted such suspension or (iii) an
emergency exists making disposal of portfolio securities or determination of the
value of the net assets of the Funds not reasonably practicable.
Although it would not normally do so, the Trust has the right to pay
the redemption price in whole or in part in securities of a Fund's portfolio as
prescribed by the Trustees. When a shareholder sells portfolio securities
received in this fashion he would incur a brokerage charge. The Trust has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act
of 1940, as amended. Under that rule, the Trust must redeem its shares for cash
except to the extent that the redemption payments to any shareholder
-19-
<PAGE>
during any 90-day period would exceed the lesser of $250,000 or 1% of a Fund's
net asset value at the beginning of such period.
FEDERAL INCOME TAXES
Each of the Funds has elected to be treated as a regulated investment
company and qualified as such in 1995. Each Fund intends to continue to so
qualify by complying with the provisions of the Internal Revenue Code of 1986,
as amended (the "Code") applicable to regulated investment companies so that it
will not be liable for Federal income tax with respect to amounts distributed to
shareholders in accordance with the timing requirements of the Code.
In order to qualify as a regulated investment company for a taxable
year, each Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock or
securities and gains from the sale or other disposition of stock or securities
or foreign currency gains related to investments in stock or securities or other
income (including gains from options, futures or forward contracts) derived with
respect to the business of investing in stock, securities or currency; (b)
derive less than 30% of its gross income from the sale or other disposition of
certain investments held less than three months (including stocks and securities
and excluding some amounts included in income as a result of certain hedging
transactions); and (c) diversify its holdings so that, at the end of each
quarter of its taxable year, (i) at least 50% of the market value of each Fund's
assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other stock and
securities limited, in the case of other securities for purposes of this
calculation, in respect of any one issuer, to an amount not greater than 5% of
each Fund's total assets or 10% of the voting stocks or securities of the
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 or
stocks or securities of other regulated investment companies). As such, and by
complying with the applicable provisions of the Code, a Fund will not be subject
to Federal income tax on taxable income (including realized capital gains) which
is distributed to shareholders in accordance with the timing requirements of the
Code. Compliance with the "30% test" described in clause (b) above may, in
particular, limit a Fund's ability to engage in some transactions involving
options, short-term trading and stock index futures.
The amount of capital gains, if any, realized in any given year will
result from sales of securities made with a view to the maintenance of a
portfolio believed by each Fund's management to be most likely to attain such
Fund's investment objective. Such sales and any resulting gains or losses, may
therefore vary considerably from year to year. Since at the time of an
investor's purchase of shares, a portion of the per share net asset value by
which the purchase price is determined may be represented by realized or
unrealized appreciation in each Fund's portfolio or undistributed income of such
Fund, subsequent distributions (or portions thereof) on such shares may be
taxable to such investor even if the net asset value of his shares is, as a
result of the distributions, reduced below his cost for such shares and the
distributions (or portions thereof) represent a return of a portion of his
investment.
Each Fund is required to report to the Internal Revenue Service (the
"IRS") all distributions of taxable dividends and of capital gains, as well as
the gross proceeds of share redemptions. Each Fund may be required to withhold
Federal income tax at a rate of 31% ("backup withholding") from taxable
dividends (including capital gain dividends) and the proceeds of redemptions of
shares paid to non-corporate shareholders who have not furnished such Fund with
a correct taxpayer identification number and made certain required
certifications or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. In addition, a Fund may be required to
withhold Federal income tax at a rate of 31% if it is notified by the IRS or a
broker that the taxpayer identification number is incorrect or that backup
withholding applies because of under reporting of interest or dividend income.
-20-
<PAGE>
Distributions of taxable net investment income and net realized
capital gains will be taxable as described in the Prospectus whether made in
shares or in cash. In determining amounts of net realized capital gains to be
distributed, any capital loss carryovers from prior years will be applied
against capital gains. Shareholders receiving distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in each
share so received equal to the net asset value of a share of the Fund on the
reinvestment date. Fund distributions will also be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.
Any loss realized upon the redemption of shares held (or treated as
held) for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain dividend received on the redeemed shares.
Any loss realized upon the redemption of shares within six months after receipt
of an exempt-interest dividend will be disallowed. All or a portion of a loss
realized upon the redemption of shares may be disallowed to the extent shares
are purchased (including shares acquired by means of reinvested dividends)
within 30 days before or after such redemption. Exchanges are treated as
redemptions for Federal tax purposes.
Different tax treatment is accorded to accounts maintained as IRAs,
including a penalty on early distributions. Shareholders should consult their
tax advisers for more information.
Each portfolio within the Trust will be separate for investment and
accounting purposes and will be treated as a separate taxable entity for Federal
income tax purposes. Provided that each Fund qualifies as a regulated
investment company under the Code, it will not be required to pay Massachusetts
income or excise taxes.
Gains or losses on sales of stock or securities by each Fund will
ordinarily be long-term capital gains or losses if the stock or securities have
been held by it for more than one year. However, if an Equity Fund writes a
covered call option which has an exercise price below the price of the
underlying stock or security at the time the call is written, or if it acquires
a put option with respect to stock or securities which have been held for less
than the applicable capital gain holding period, the holding period of such
stock or securities will be terminated or suspended for purposes of determining
long-term capital gains treatment and will start again only when such Fund
enters into a closing transaction with respect to such option or when such
option expires.
Each Fund will be required to treat stock index futures, options on
such futures and options on the stock indices held at the end of each taxable
year as having been sold at market value on the last business day of the year.
For purposes of computing gain or loss, 60% of any gain or loss recognized on
these deemed sales, on actual sales or on termination by closing transactions,
delivery, exercise, lapse or otherwise will be treated as long-term capital gain
or loss, and the remaining 40% will be treated as short-term capital gain or
loss. However, under certain circumstances a Fund may be able to make an
election under which these provisions would not apply to such futures and
options.
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.
The "straddle" rules of Section 1092 of the Code may require the Funds
which are permitted to engage in such transactions to defer the recognition of
certain losses incurred on its transactions involving certain stock or
securities, futures contracts or options. Section 1092 defines a "straddle" to
include "offsetting positions" with respect to publicly traded stock or
securities. A "position" is defined to include a futures contract and an
option. In general, the Funds will be considered to hold offsetting positions
if there is a substantial diminution of its risk of loss from holding one
position by reason of its holding one or more other positions. Section 1092
generally provides that in the case of a straddle, any loss from the disposition
of a position (the "loss position") in the straddle shall be recognized for any
taxable year only to the extent that the amount of such loss exceeds the
unrealized gains on any offsetting straddle position (the "gain position") and
the unrealized gain on any successor
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<PAGE>
position (which is a position that is itself offsetting to the gain position and
is acquired during a period commencing 30 days prior to, and ending 30 days
after, the disposition of the loss position).
These special tax rules applicable to options and futures transactions
could affect the amount, timing and character of capital gain distributions to
shareholders by causing holding period adjustments, converting short-term
capital losses into long-term capital losses, and accelerating a Fund's income
or deferring its losses.
For purposes of the dividends-received deduction available to
corporations, dividends received by the Funds from taxable domestic corporations
in respect of any share of stock treated as debt-financed under the Code or held
by each Fund for 45 days or less (90 days or less in the case of certain
preferred stock) will not be treated as qualifying dividends. To the extent
applicable, for purposes of the dividends-received deduction, the holding period
of any share of stock will not include any period during which a Fund has an
option or a contractual obligation to sell, or has granted certain call options
with respect to, substantially identical stock or securities or, under Treasury
regulations to be promulgated, the Funds may diminish their risk of loss by
holding one or more other positions with respect to substantially similar or
related property. It is anticipated that these rules will operate so as to
reduce the portion of distributions paid by the Funds that will be eligible for
the dividends-received deduction available to corporate shareholders of such
Fund. The dividends-received deduction is reduced to the extent the shares of
the Funds with respect to which the dividends are received are treated as debt-
financed under the Code and is eliminated if the shares are deemed to have been
held for less than 46 days.
Corporate shareholders should also note that their basis in shares of
a Fund may be reduced by the untaxed portion (i.e., the portion qualifying for
- -
the dividends-received deduction) of an "extraordinary dividend" if the shares
have not been held for at least two years prior to declaration of the dividend.
Extraordinary dividends are dividends paid during a prescribed period which
equal or exceed 10% of a corporate shareholder's basis in its Fund shares or
which satisfy an alternative test based on the fair market value of the shares.
To the extent dividend payments received by corporate shareholders of a Fund
constitute extraordinary dividends, such shareholders' basis in their Fund
shares will be reduced and any gain realized upon a subsequent disposition of
such shares will therefore be increased.
The untaxed portion of dividends received by such shareholders is
also included in adjusted alternative minimum taxable income in determining
shareholders' liability under the alternative minimum tax.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
Each Fund is subject to a 4% nondeductible excise tax to the extent
that it fails to distribute to its shareholders during each calendar year an
amount equal to at least the sum of (a) 98% of its taxable ordinary investment
income (excluding long-term and short-term capital gain income) for the calendar
year; plus (b) 98% of its capital gain net income for the one year period ending
on October 31 of such calendar year; plus (c) any ordinary investment income or
capital gain net income from the preceding calendar year which was neither
distributed to shareholders nor taxed to a Fund during such year. Each Fund
intends to distribute to shareholders each year an amount sufficient to avoid
the imposition of such excise tax.
Shareholders should consult their own tax advisers with respect to the
tax status of distributions from each Fund, and redemptions of shares of each
Fund, in their own states and localities. Shareholders who are not United
States persons should also consult their tax advisers as to the potential
application of foreign and U.S. taxes, including a 30% U.S. withholding tax (or
lower treaty rate) on dividends representing ordinary income to them.
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<PAGE>
SHARES OF BENEFICIAL INTEREST
The authorized capitalization of the Trust consists of an unlimited
number of shares of beneficial interest having a par value of $0.001 per share.
The Declaration of Trust authorizes the Trustees to classify or reclassify any
unissued shares of beneficial interest. Pursuant to that authority, the Board
of Trustees has authorized the issuance of shares in seven investment
portfolios.
All shares have equal voting rights and will be voted in the
aggregate, and not by class, except where voting by class is required by law or
where the matter involved affects only one class. As used in the Prospectus and
in this Statement of Additional Information, the term "majority", when referring
to the approvals to be obtained from shareholders in connection with general
matters affecting all of the Funds (e.g., election of Trustees and ratification
- -
of independent auditors), means the vote of a majority of each Fund's
outstanding shares represented at a meeting. The term "majority", when
referring to the approvals to be obtained from shareholders in connection with
approval of the Advisory Contract or changing the fundamental policies of a
Fund, means the vote of the lesser of (i) 67% of the shares of the Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy, or (ii) more than 50% of
the outstanding shares of the Fund. Shareholders are entitled to one vote for
each full share held, and fractional votes for fractional shares held.
Vacancies on the Board of Trustees are filled by the Board of Trustees
if immediately after filling any such vacancy at least two-thirds of the
Trustees then holding office have been elected to such office by shareholders at
an annual or special meeting. In the event that at any time less than a
majority of Trustees holding office were elected by shareholders, the Board of
Trustees will cause to be held within 60 days a shareholders' meeting for the
purpose of electing Trustees to fill any existing vacancies. Trustees are
subject to removal with cause by two-thirds of the remaining Trustees or by a
vote of a majority of the outstanding shares of the Trust. The Trustees are
required to promptly call a shareholders' meeting for voting on the question of
removal of any Trustee when requested to do so in writing by not less than 10%
of the outstanding shares of the Trust. In connection with the calling of such
shareholders' meetings, shareholders will be provided with communication
assistance.
Each share of a Fund represents an equal proportionate interest in the
Fund with each other share of such Fund and is entitled to such dividends and
distributions out of the income earned on the assets belonging to that Fund as
are declared in the discretion of the Trustees. In the event of liquidation or
dissolution, shares of each Fund are entitled to receive the assets belonging to
that Fund which are available for distribution, and of any general assets not
belonging to such Fund which are available for distribution.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by each Fund.
At March 31, 1996, no person owned of record or, to the knowledge of
management, beneficially owned more than 5% of the outstanding shares of any
Fund except as set forth below:
-23-
<PAGE>
SHARES HELD & PERCENT OF CLASS
<TABLE>
<CAPTION>
NAME AND ADDRESS OF GROWTH AND SMALL
HOLDER OF RECORD INCOME FUND CAP FUND
<S> <C> <C>
Marine Midland Bank, N.A. 4,165,210 1,704,597
Buffalo, NY 14240 92.4% 94.8%
TOTAL SHARES OUTSTANDING 4,506,970 1,798,151
</TABLE>
Marine Midland has informed the Trust that it was not the beneficial
owner of any of the shares it held of record.
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
As of September 25, 1995, the Bank of New York has been retained,
pursuant to a Custodian Agreement, to act as custodian for each Fund. The Bank
of New York's address is 90 Washington Street, New York, New York 10286. Under
the Custodian Agreement, the Custodian maintains a custody account or accounts
in the name of each Fund; receives and delivers all assets for each such Fund
upon purchase and upon sale or maturity; collects and receives all income and
other payments and distributions on account of the assets of each such Fund;
pays all expenses of each such Fund; receives and pays out cash for purchases
and redemptions of shares of each such Fund and pays out cash if requested for
dividends on shares of each such Fund, and maintains records for the foregoing
services. Under the Custodian Agreement, each such Fund has agreed to pay the
Custodian for furnishing custodian services a fee for certain transaction
charges and out-of-pocket expenses.
For the period from September 25, 1995 to December 31, 1995, the Bank
of New York received $2,681 for custody services for the Growth and Income Fund.
For the period January 1, 1995 to September 25, 1995 and the years ended
December 31, 1994 and 1993, Marine Midland received $8,200, $8,070, and $12,040,
respectively, (all of which was paid by HSBC Americas) from the Growth and
Income Fund for custody services. For the period from January 1, 1995 to
September 25, 1995 and for the year ended December 31, 1994, HSBC Americas paid
Marine Midland $5,535 and $3,744, respectively, for custody services with
respect to the Small Cap Fund. For the period January 4, 1993 (commencement of
operations) through December 31, 1993, HSBC Americas paid the Small Cap Fund's
entire custodial fee totalling approximately $7,307.
The Board of Trustees has authorized the Custodian in its capacity as
custodian of each such Fund to enter into Subcustodian Agreements with banks
that qualify under the Investment Company Act of 1940 to act as subcustodians
with respect to certain securities in each Fund's portfolio.
BISYS Fund Services has been retained by the Trust to act as transfer
agent and dividend disbursing agent for the Funds. Under the Agency Agreement,
BISYS Fund Services performs general transfer agency and dividend disbursing
services. It maintains an account in the name of each shareholder of record in
each Fund reflecting purchases, redemptions, daily dividend accruals and monthly
dividend disbursements, processes purchase and redemption requests, issues and
redeems shares of each Fund, addresses and mails all communications by each Fund
to its shareholders, including financial reports, other reports to shareholders,
dividend and distribution notices, tax notices and proxy material for its
shareholder meetings, and maintains records for the foregoing services. Under
the Agency Agreement, each Fund has agreed to pay BISYS Fund
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<PAGE>
Services $25.00 per account and subaccount per annum. In addition, the Funds
have agreed to pay BISYS Fund Services certain transaction charges, wire charges
and out-of-pocket expenses incurred by BISYS Fund Services.
PFPC Inc. was paid $35,052 from the Growth and Income Fund for
transfer agency services for the fiscal year ending December 31, 1995. PFPC
Inc. and its predecessor, HSBC Americas, were paid $22,291 in the aggregate from
the Growth and Income Fund for transfer agency services for the fiscal year
ended December 31, 1994. For the year ended December 31, 1993, HSBC Americas
waived its entire fee of $8,885 and incurred no expenses payable by the Growth
and Income Fund for transfer agency and sub-transfer agency services.
For the year ended December 31, 1995, PFPC Inc.'s predecessor, HSBC
Americas, was paid $14,619 in the aggregate by the Small Cap Fund for transfer
agency services. PFPC Inc.'s predecessor, HSBC Americas, was paid $12,045 in
the aggregate from the Small Cap Fund for transfer agency services for the year
ended December 31, 1994. For the period January 4, 1993 (commencement of
operations) through December 31, 1993, HSBC Americas waived its entire transfer
agency fee totalling approximately $6,207 with respect to the Small Cap Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as the independent auditors for the Funds.
Ernst & Young LLP provides audit services, tax return preparation and assistance
and consultation in connection with review of Securities and Exchange Commission
filings. Ernst & Young LLP's address is 787 Seventh Avenue, New York, New York
10019.
EXPERTS
The financial statements audited by Ernst & Young LLP have been
included in this Statement of Additional Information for the year ended December
31, 1995 with respect to the Growth and Income Fund and the Small Cap Fund in
reliance on their reports, given on the authority of that firm as experts in
auditing and accounting.
-25-
<PAGE>
================================================================================
HSBC Mutual Funds Trust
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
International Equity Fund 3435 Stelzer Road, Columbus, Ohio 43219
Information: (800) 634-2536
HSBC ASSET MANAGEMENT AMERICAS INC.
--Investment Adviser and Co-Administrator
BISYS FUNDS SERVICES--Distributor
- --------------------------------------------------------------------------------
HSBC Mutual Funds Trust, formerly known as Mariner Mutual Funds Trust (the
"Trust") was organized in Massachusetts on November 1, 1989 as a Massachusetts
business trust and is an open-end, management investment company with multiple
investment portfolios, including the diversified International Equity Fund (the
"Fund").
The Fund's investment objective is to seek to provide investors with
long-term capital appreciation by investing at least 80% of its total assets in
equity securities (including American and European Depositary Receipts) issued
by companies based outside of the United States. The balance of the Fund's
assets will be invested in equity and debt securities of companies based in the
United States and outside of the United States including bonds and money market
instruments. Dividend income is expected to be incidental to the Fund's
investment objective. The Fund may also use other investment practices to
enhance return or to hedge against fluctuations in the value of portfolio
securities. See "Investment Objectives and Policies -- Other Investment
Practices" in this Prospectus.
The Fund's investment adviser is HSBC Asset Management Americas Inc. ("HSBC
Americas" or the "Adviser"), the North American investment affiliate of HSBC
Holdings plc (Hongkong and Shanghai Banking Corporation) and Marine Midland Bank
(the "HSBC Group"). See "Management of the Fund" in this Prospectus.
Prospective investors should be aware that shares of the Fund are not an
obligation of or guaranteed or endorsed by the HSBC Group or its affiliates. In
addition, such shares are not insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency and may involve
investment risks, including the possible loss of principal.
Shares of the Fund are offered for sale primarily through its distributor
as an investment vehicle for institutions, corporations, fiduciaries and
individuals. Certain banks, broker-dealers, financial institutions and
corporations (the "Participating Organizations") have agreed to act as
shareholder servicing agents for investors who maintain accounts at these
Participating Organizations and to perform certain services for the Fund.
The International Equity Fund offers and the Prospectus relates to two
classes of shares -- the Institutional Class and Service Class. The
Institutional Class of shares are available to customers of 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. The Service Class of shares are available to all other
investors. The Institutional Class shares and Service Class shares are identical
in all respects, with the exception that Institutional Class shares are not
subject to a sales load and do not impose any shareholder servicing or Rule
12b-1 fees.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. A Statement of Additional Information
(the "SAI"), dated April 24, 1996, containing additional detailed information
about the Fund, has been filed with the Securities and Exchange Commission and
is hereby incorporated by reference into this Prospectus. A copy is available
without charge and can be obtained by writing the Trust at the above address, or
calling the telephone number listed above.
----------
This Prospectus should be read and retained for ready reference to
information about the Fund.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
April 24, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Summary of Annual Fund Operating
Expenses .............................................................. 2
Financial Highlights ...................................................... 4
Investment Objective, Policies and Risk
Factors ............................................................... 5
Investment Restrictions ................................................... 11
Management of the Fund .................................................... 12
Transactions with Affiliates .............................................. 16
Determination of Net Asset Value .......................................... 16
Purchase of Shares ........................................................ 17
Redemption of Shares ...................................................... 20
Exchange Privilege ........................................................ 22
Dividends, Distributions and Taxes ........................................ 22
Account Services .......................................................... 24
Transfer and Dividend Disbursing Agent
and Custodian ......................................................... 25
Performance Information ................................................... 25
Shares of Beneficial Interest ............................................. 25
</TABLE>
-----------------------
SUMMARY OF ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
The purpose of the following information is to assist an investor in
understanding the costs and expenses that an investor in the Fund would bear
directly or indirectly in connection with the purchase of Service Class and
Institutional Class shares. The information provided is based on estimated
expenses for the Fund for the fiscal year ended December 31, 1995, as adjusted
for estimated operating expenses and voluntary reductions of investment
advisory, co-administration and 12b-1 fees.
<TABLE>
<CAPTION>
Service Institutional
Shareholder Transaction Expenses Shares Shares
------- -------------
<S> <C> <C>
Maximum sales charge imposed on purchases of shares of the Funds
(as a percentage of offering price)...................................... 5.00% 0.00%
---- ----
Certain investors will not be subject to the sales charge.
See "Purchase of Shares" in this Prospectus.)
Annual Fund Operating Expenses
Management Fees (net of fees not imposed)*.................................... 0.50% 0.50%
12b-1 Fees (net of fees not imposed)**........................................ 0.05% 0.00%
Other Expenses
Administrative Services Fee***........................................... 0.10% 0.10%
Co-Administrative/Shareholder Services Fee****........................... 0.00% 0.00%
Other Operating Expenses+................................................ 2.72% 2.72%
---- ----
Total Fund Operating Expenses (net of fees and expenses not imposed)*****..... 3.37% 3.32%
==== ====
Total Fund Operating Expenses Before Non-Imposition of
Fees and Expense Reimbursements.......................................... 4.19% 3.80%
==== ====
</TABLE>
Investors should be aware that the above table is not intended to reflect
in precise detail the fees and expenses associated with an individual
shareholder's own investment in the Fund. Rather, the table has been provided
only to assist investors in gaining a more complete understanding of fees,
charges and expenses. For a more detailed discussion of these matters, investors
should refer to the appropriate sections of this Prospectus.
2
<PAGE>
THE FOLLOWING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. THE EXPENSES SET FORTH ABOVE AND EXAMPLE SET FORTH BELOW
REFLECT THE NON-IMPOSITION OF CERTAIN FEES AND EXPENSES. THE ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. THE FOLLOWING EXAMPLE ASSUMES A 5% ANNUAL
RETURN; HOWEVER, THE FUND'S ACTUAL RETURN WILL VARY AND MAY BE GREATER OR LESS
THAN 5%.
Example:
You would pay the following expenses on a $1,000 investment assuming a 5%
annual return and the reinvestment of all dividends and distributions:+
<TABLE>
<CAPTION>
Service Institutional
Shares Shares
------- -------------
<C> <C> <C>
1 year ................................... $ 82 $ 33
3 years .................................. $148 $102
5 years .................................. $217 $173
10 years ................................. $397 $361
</TABLE>
- ----------
* Reflects advisory fees not imposed as a result of a voluntary waiver by
the Adviser. If these fees had been imposed the Service Class and
Institutional Class shares would have paid .90% for advisory fees.
** The fee under the Fund's Distribution Plan and Agreement is calculated on
the basis of the average daily net assets of the Fund's Service Shares at
an annual rate not to exceed 0.35%. See "Management of the
Funds--Distribution Plan and Agreement".
*** Reflects administrative fees not imposed as a voluntarily waiver by BISYS
Fund Services of 0.05% for both share classes. See "Management of the
Fund--Administrator and Shareholder Servicing Agent".
**** Reflects co-administrative fees of 0.03% for both share classes and
shareholder servicing fees of 0.04% for Service Shares voluntarily waived
by HSBC Americas. See "Management of the Fund--Shareholder Servicing
Agent, and Administrator".
***** Investors who purchase and redeem shares of the Fund through a customer
account maintained at a Participating Organization may be charged
additional fees by such Participating Organization related to services it
provides for such Investors. See "Management of the Fund--Servicing
Agreements" for additional information.
+ Includes a maximum sales charge for the Service Class Shares from which
certain shareholders may be exempt. See "Purchase of Shares" in this
Prospectus.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following supplementary financial information has been audited by Ernst
& Young LLP, whose report thereon is contained in the SAI. This information
should be read in conjunction with the financial statements and notes thereto
which are included in the SAI and may be obtained by shareholders.
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Institutional
Service Shares Shares
----------------------------------- ------------------
Period from Period from
April 25, 1994 March 1, 1995
For the (Commencement of (Commencement of
year ended of Operations) to of Distribution) to
December 31, 1995 December 31, 1994 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period .............................. $ 9.55 $ 10.00 $ 8.81
---------- ---------- ----------
Income From Investment Operation:**
Net investment loss .......................................... (0.07) -- (0.03)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions ........................ 0.49 (0.43) 1.20
---------- ---------- ----------
Total from investments operations ................................. 0.42 (0.43) 1.17
---------- ---------- ----------
Less Distributions:
- ------------------
In excess of net realized loss on investments ................ -- (0.02) --
Total distributions ............................................... -- (0.02) --
Net asset value, end of period .................................... $ 9.97 $ 9.55 $ 9.98
========== ========== ==========
Total Return (a) .................................................. 4.40% (4.30)%(b) 13.28%(b)
Ratios/Supplemental Data
- ------------------------
Net assets (000), end of period .............................. $ 658 16,819 $ 15,253
Ratio of expenses (with fee waivers) to average
net assets ............................................... 1.98% 2.16%* 2.62%*
Ratio of expenses (without fee waivers) to average
net assets ............................................... 3.66% 2.50%* 3.12%*
Ratio of net investment loss (with fee waivers)
to average net assets .................................... (1.01)% (0.04)%* (0.34)%*
Ratio of net investment loss (without fee waivers)
to average net assets .................................... (2.69)% (0.39)%* (0.84)%*
Portfolio turnover rate ...................................... 90.31% 29.37%(b) 90.31%
</TABLE>
- ----------
(a) Excludes sales charge.
(b) Not annualized.
* Annualized.
** Based on average shares outstanding.
4
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
Investment Objective
The investment objective of the Fund is to seek to provide investors with
long-term capital appreciation by investing at least 80% of its total assets in
equity securities (including American and European Depositary Receipts) issued
by companies based outside of the United States. The balance of the Fund's
assets will be invested in equity and debt securities of companies based in the
United States and outside of the United States including bonds and money market
instruments. Dividend income is expected to be incidental to the Fund's
investment objective. There is no assurance that the Fund's objective will be
achieved.
Investment Policies
The Fund seeks to achieve its investment objective by investing in a
diversified portfolio of equity investments in a variety of non-U.S. markets
with a focus on equity investments that have the potential for favorable price
appreciation and currency movements. The Fund invests primarily in appreciation
oriented equity securities of seasoned companies located outside the United
States. The Fund will invest its assets in securities traded on as many as sixty
foreign stock markets, including but not limited to Japan, the United Kingdom,
Germany, France, Switzerland, the Netherlands, Sweden, Australia, Hong Kong and
Singapore. Up to 20% of the Fund's total assets may be invested in "emerging
markets", including but not limited to Mexico, Hong Kong, Indonesia, Malaysia,
Thailand, South Africa and Peru. The Adviser believes that both the selection of
individual stocks and the allocation of the Fund's assets across foreign stock
markets are important in managing an international equity portfolio. Within each
country, criteria for selecting particular securities are expected to include
among other things, as determined by the Adviser, the issuer's managerial
strength, competitive market position, prospects for profits and earnings
growth, underlying asset value and relative valuation.
Risk Factors
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 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.
5
<PAGE>
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 negative effect on the economies and
securities markets of certain emerging market countries.
Other Investment Practices
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.
Long-Term and Short-Term Corporate Debt Obligations. The Fund may invest up
to 20% of its total assets 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.
The Fund will not purchase corporate debt securities rated below Baa by
Moody's Investors Service ("Moody's") or BBB by Standard &Poor's Corporation
("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.
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 the underlying stock. The value of convertible securities is also
affected by prevailing interest rates, the credit quality of the issuer and any
call provisions.
6
<PAGE>
Depositary Receipts. The Fund may invest in the securities of foreign
issuers in the form of American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"). 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. 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. The Fund may invest in ADRs, EDRs and CDRs 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 the holders of such receipts in respect of the
deposited securities.
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 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.
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 securities so purchased are subject to market
fluctuation during this period and no income is credited to the Fund until
settlement takes place. To facilitate such acquisitions, the Fund will maintain
with the custodian a separate account with a segregated portfolio of securities
in an amount at least equal to such commitments. On the delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of the
securities held in the separate account and/or from cash flow. It is the current
policy of the 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.
Forward Currency Contracts. The Fund may conduct its foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into forward
currency contracts to protect against uncertainty in the level of future
exchange rates between a particular foreign currency and the U.S. Dollar or
between foreign currencies in which the Fund's securities are or may be
7
<PAGE>
denominated. A forward contract involves an obligation to purchase or sell
a specific currency amount at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Under normal circumstances, consideration of the
prospect for changes in currency exchange rates will be incorporated into the
Fund's long-term investment strategies. However, the Adviser believes that it is
important to have the flexibility to enter into forward currency contracts when
it determines that the best interests of the Fund will be served. The Fund will
convert currency on a spot basis from time to time, and investors should be
aware of the transaction costs of currency conversion.
When the Adviser believes that the currency of a particular country may
suffer a significant decline against the U.S. Dollar or against another
currency, the Fund may enter into a currency contract to sell, for a fixed
amount of U.S. Dollars or other appropriate currency, the amount of foreign
currency approximating the value of some or all of the Fund's securities
denominated in such foreign currency.
At the maturity of a forward contract, the Fund may either sell a portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader,
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. The Fund may realize a gain or loss from currency
transactions.
Generally, the Fund will enter into forward currency contracts only as a
hedge against foreign currency exposure affecting the Fund. If the Fund enters
into forward currency contracts to cover activities which are essentially
speculative, the Fund will segregate cash or readily marketable securities with
its custodian, or a designated sub-custodian, in an amount at all times equal to
or exceeding the Fund's commitment with respect to such contracts.
Options on Currencies. The Fund will purchase and write put and call
options on foreign currencies (traded on U.S. and foreign exchange or
over-the-counter markets) to manage the Fund's exposure to changes in dollar
exchange rates. Call options on foreign currency written by the Fund will be
"covered," which means that the Fund will own an equal amount of the underlying
foreign currency. With respect to put options on foreign currency written by the
Fund, the Fund will establish a segregated account with its custodian bank
consisting of cash, U.S. government securities or other high grade liquid debt
securities in an amount equal to the amount the Fund would be required to pay
upon exercise of the put.
Options on Securities. The Fund may write (sell) covered put and call
options and purchase put and call options with a value of up to 25% of its total
assets. The Fund will engage in options trading principally for hedging
purposes. The Fund may write call options on a covered basis only, and will not
engage in option writing strategies for speculative purposes.
The Fund may purchase call options, but only to effect a "closing
transaction" -- i.e., to offset an obligation pursuant to a previously written
call option to prevent an underlying security from being called, or to permit
the sale of the underlying security or the writing of a new option on the
security prior to the outstanding option's expiration. The Fund may also
purchase securities with put options, sometimes referred to as stand-by
commitments, which are otherwise eligible for investment in amounts not
exceeding 10% of its total assets, when the Fund anticipates a decline in the
market value of securities in the Fund's portfolio. The Fund will incur costs,
in the form of premiums, on options it purchases and may incur transaction costs
on options that it exercises. The Fund will ordinarily realize a gain from a put
option it has purchased if the value of the securities subject to the option
decreases sufficiently below the exercise price to cover both the premium and
the transaction costs.
8
<PAGE>
Interest Rate Futures Contracts. The Fund may, to a limited extent, enter
into interest rate futures contracts i.e., contracts for the future delivery of
securities or index-based futures contracts -- that are, in the opinion of --
the Fund, sufficiently correlated with the Fund's portfolio. These investments
will be made primarily in an attempt to protect the Fund against the effects of
adverse changes in interest rates (i.e., "hedging"). When interest rates are
increasing and portfolio values are falling, the sale of futures contracts can
offset a decline in the value of the Fund's current portfolio securities. The
Fund will engage in such transactions solely for bona fide hedging purposes and
not for the purpose of engaging in speculative trading practices. The SAI
describes these investments in greater detail.
Options on Interest Rate Futures Contracts. The Fund may purchase put and
call options on interest rate futures contracts, which give the Fund the right
to sell or purchase the underlying futures contract for a specified price upon
exercise of the option at any time during the option period. The Fund may also
write (sell) put and call options on such futures contracts. For options on
interest rate futures that the Fund writes, the Fund will receive a premium in
return for granting to the buyer the right to sell to the Fund or to buy from
the Fund the underlying futures contract for a specified price at any time
during the option period. As with futures contracts, the Fund will purchase or
sell options on interest rate futures contracts solely for bona fide hedging
purposes and not as a means of speculative trading.
Futures, Related Options and Options on Stock Indices. The Fund may attempt
to reduce the risk of investment in equity securities by hedging a portion of
its portfolio through the use of certain futures transactions, options on
futures traded on a board of trade and options on stock indices traded on
national securities exchanges. In addition, the Fund may hedge a portion of its
portfolio by purchasing such instruments during a market advance or when the
Adviser anticipates an advance. In attempting to hedge its portfolio, the Fund
may enter into contracts for the future delivery of securities and futures
contracts based on a specific security, class of securities or an index,
purchase or sell options on any such futures contracts, and engage in related
closing transactions. The Fund will not engage in transactions in futures
contracts or options for speculation. The Fund will use these instruments only
as a hedge against changes resulting from market conditions in the values of
securities held in its portfolio or which it intends to purchase.
A stock index assigns relative weightings to the common stocks in the
index, and the index generally fluctuates with changes in the market values of
these stocks. 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. 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.
In the case of options on stock index futures, the holder of the option
pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to assume the option writer's position
in a stock index futures contract. If the option is exercised by the holder
before the last trading day during the option period, the option writer delivers
the futures position, as well as any balance in the writer's futures margin
account.
9
<PAGE>
If it is exercised on the last trading day, the option writer delivers
to the option holder cash in an amount equal to the difference between the
option exercise price and the closing level of the relevant index on the date
the option expires. In the case of options on stock indexes, the holder of the
option pays a premium and receives the right, upon exercise of the option at a
specified price during the option period, to receive cash equal to the dollar
amount of the difference between the closing price of the relevant index and the
option exercise price times a specified multiple, call the "multiplier."
During a market decline or when the Adviser anticipates a decline, the Fund
may hedge a portion of its portfolio by selling futures contracts or purchasing
puts on such contracts or on a stock index in order to limit exposure to the
decline. This provides an alternative to liquidation of securities positions and
the corresponding costs of such liquidation. Conversely, during a market advance
or when the Adviser anticipates an advance, the Fund may hedge a portion of its
portfolio by purchasing futures, options on these futures or options on stock
indices. This affords a hedge against the Fund not participating in a market
advance at a time when it is not fully invested and serves as a temporary
substitute for the purchase of individual securities which may later be
purchased in a more advantageous manner. The Fund will sell options on futures
and on stock indices only to close out existing hedge positions.
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 from 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 Fund's total assets after
taking into account unrealized profits and unrealized losses on any such
contract; (iii) the Fund will not market, and is not marketing, itself as a
commodity pool or otherwise as a vehicle for trading in commodity futures and
related options; and (iv) the Fund will segregate assets to cover the futures
and options.
10
<PAGE>
Portfolio Turnover. The Fund generally will not engage in the trading of
securities for the purpose of realizing short-term profits, but will adjust its
portfolio as it deems advisable in view of prevailing or anticipated market
conditions to accomplish its investment objective. For example, the Fund may
sell portfolio securities in anticipation of an adverse market movement. Other
than for tax purposes, frequency of portfolio turnover will not be a limiting
factor if the Fund considers it advantageous to purchase or sell securities. The
Fund does not anticipate that its annual portfolio turnover rate will exceed
200%.
Illiquid Securities. The Fund will not invest in illiquid securities if
immediately after such investment more than 15% of the Fund's net assets (taken
at market value) would be invested in such securities. For this purpose,
illiquid securities include (a) securities that are illiquid by virtue of legal
or contractual restrictions on resale or the absence of a readily available
market, (b) participation interests in loans that are not subject to puts; and
(c) repurchase agreements not terminable within seven days. See "Repurchase
Agreements" above. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation.
INVESTMENT RESTRICTIONS
The SAI contains more information on the Fund's Investment Policies, and
also identifies the restrictions on the Fund's investment activities, which
provide among other things that the Fund may not:
(1) with respect to 75% of its total assets, invest more than 5% of its total
assets taken at market value in the securities of any one issuer (excluding
U.S. Government securities but including securities subject to repurchase
agreements) or purchase more than 10% of the outstanding voting securities
of any single issuer.
(2) purchase the securities of issuers conducting their principal business
activity in the same industry immediately after the purchase and as a
result thereof, the value of the investments of the Fund in that industry
would exceed 25% of the current value of the total assets of the Fund,
except that there is no limitation with respect to investments in
obligations of the United States Government, its agencies or
instrumentalities which are backed by the full faith and credit of the
United States.
(3) borrow money, except that it may borrow from banks as a temporary measure
for emergency purposes where such borrowing would not exceed 5% of the
total assets (including amount borrowed) taken at market value. The Fund
shall not purchase securities while such borrowings are outstanding.
* * * * *
The investment restrictions referred to above are fundamental and may be
changed only when permitted by law and approved by a majority of the outstanding
voting securities of the Fund. As used in this Prospectus, such approval means
approval by the lesser of (i) the holders of 67% or more the shares represented
in a meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy or (ii) the holders of more than 50% of the
outstanding shares.
11
<PAGE>
MANAGEMENT OF THE FUND
The property, affairs and business of the Fund are managed by the Board of
Trustees. The Trustees elect officers who are charged with the responsibility
for the day-to-day operations of the Fund and the execution of policies
formulated by the Trustees. Information about the Trustees as well as the
Trust's executive officers may be found in the SAI under the heading
"Management--Trustees and Officers."
Investment Adviser
The Trust retains HSBC Asset Management Americas Inc. to act as the
investment adviser for the Fund. HSBC Asset Management Americas Inc. is the
North American investment affiliate of HSBC Holdings plc (Hongkong and Shanghai
Banking Corporation) and Marine Midland Bank and is located at 250 Park Avenue,
New York, New York 10177. At December 31, 1995, the Adviser managed over $3.7
billion of assets of individuals, pension plans, corporations and institutions.
Mr. James B. McHugh, Director Client Investment Services, HSBC Americas, is
responsible for the day-to-day management of the Fund's portfolio. Mr. McHugh is
also responsible for setting the asset allocation for domestic balanced
portfolios and several international equity portfolios. He chairs the Americas
Asset Allocation Committee and is also a member of HSBC's Global Investment
Strategy Group. Before joining the firm in late 1994, Mr. McHugh was Director of
Portfolio Management at Prudential Diversified Investment Strategies ("PDI"). At
PDI, Mr. McHugh was responsible for asset allocation on over $8 billion of
institutional assets, including three mutual funds.
Pursuant to the Advisory Contract, the Adviser furnishes continuous
investment guidance to the Trust consistent with the Fund's investment objective
and policies and provides administrative assistance in connection with the
operation of the Fund. Information regarding the investment performance of the
Fund is contained in the Fund's Annual Report dated December 31, 1995 and may be
obtained, without charge, from the Trust
Sub-Advisers
The Adviser retains HSBC Asset Management Europe Ltd. ("HSBC Europe"), HSBC
Asset Management Hong Kong Ltd. ("HSBC Hong Kong"), HSBC Asset Management
(Japan) KK ("HSBC Japan"), HSBC Asset Management Singapore ("HSBC Singapore")
and HSBC Asset Management Australia Limited ("HSBC Australia") to act as
sub-advisers (the "Sub-Advisers") to the Fund. HSBC Europe, HSBC Hong Kong, HSBC
Japan, HSBC Singapore and HSBC Australia along with the Adviser are all
investment advisory affiliates of HSBC Holdings plc (Hongkong and Shanghai
Banking Corporation).
HSBC Europe is the European investment arm of HSBC Asset Management and
manages equity and balanced portfolios with an emphasis on the markets of the
United Kingdom and other major European securities markets. HSBC Europe also
manages global fixed income portfolios. HSBC Europe manages separate accounts
for pension plans, corporations, bank trust divisions, endowments and
foundations and provides continuous supervision for the entire James Capel
family of Unit Investment Trusts. Total assets managed by HSBC Europe amount to
approximately U.S. $16.3 billion. Its principal offices are located at 6 Bevies
Marks, London, EC3A 7QP, England.
12
<PAGE>
HSBC Hong Kong is the Asia Pacific investment arm of HSBC Asset Management.
HSBC Hong Kong manages approximately U.S. $10.1 billion of equity portfolios
dedicated to the Pacific Rim, Pacific Basin and the emerging markets of
Southeast Asia. HSBC Hong Kong was founded in 1973 and has its principal
business address at 10/F Citibank Tower, 3 Garden Road, Hong Kong. It is one of
the largest investment managers in the Asia Pacific region, managing accounts
for corporations, pension plans and the full-line of Wardley Unit Investment
Trusts.
HSBC Japan provides a full range of investment services to clients
investing in Japanese securities and Japanese investors investing domestically
or internationally. HSBC Japan manages approximately U.S. $151 million in
assets. HSBC Japan has its principal office at 6/F No. 2 Tomoecho Annex. 3-8-27
Toranomon Minato-ku, Tokyo, Japan.
HSBC Singapore is one of the largest fund managers in Singapore providing a
full range of investment discretionary and advisory services to government and
government related bodies, corporations, trusts, charities, insurance companies,
and high-net-worth individuals. HSBC Singapore's investment management
activities began in Singapore in 1982 and has its principal business address at
21 Collyer Quay, #20-02, Hongkong Bank Building, Singapore 049320.
HSBC Australia is one of the largest fund managers in Australia offering a
full range of investment services to superannuation funds, public bodies,
corporations, trusts, charities, high-net-worth individuals and unit trusts for
smaller investors. HSBC Australia manages U.S. $2.72 billion in assets. HSBC
Australia has its principal address at P.O. Box 291, Market Street, Melbourne,
Victoria 3000, Australia.
Under its Sub-Advisory Contract with the Adviser, each Sub-Adviser will
undertake at its own expense to furnish the Fund and the Adviser with micro- and
macro-economic research, advice and recommendations, and economic and
statistical data, with respect to the Fund's investments, subject to the overall
review by the Adviser and the Board of Trustees.
Banking Laws
Counsel to the Trust and special counsel to the Adviser, have advised HSBC
Americas that HSBC Americas may perform the services for the Fund contemplated
by the Advisory Contract without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. Such counsel has pointed out, however,
that this question has not been authoritatively determined and that judicial or
administrative decisions or interpretations of present Federal or state statutes
and regulations relating to the permissible activities of banks or trust
companies and their subsidiaries or affiliates, as well as future changes in
Federal or state statutes and regulations and judicial or administrative
decisions or interpretations thereof, could prevent HSBC Americas from
continuing to perform such services for the Fund.
If HSBC Americas 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.
Distributor
BISYS Fund Services, the Distributor (the "Distributor"), has its principal
office at 3435 Stelzer Road, Columbus, Ohio 43219. The Distributor will receive
orders for, sell, and distribute shares of the Fund.
13
<PAGE>
Shareholder Servicing Agent
The Trust retains HSBC Americas to act as Shareholder Servicing Agent of
the Service Class of the Fund in accordance with the terms of the Shareholder
Servicing Agreement. Pursuant to the Shareholder Servicing Agreement, HSBC
Americas (i) assists and trains third parties who deliver prospectuses and Fund
applications, (ii) assists and trains third parties who assist customers with
completing Fund applications, (iii) performs customer education, reviews Fund
written communications and assists third parties who answer customer questions,
(iv) organizes and conducts investment seminars to enhance understanding of the
Fund and its objectives, (v) assists personnel who effect customer purchases and
redemptions and (vi) assists and supervises the activities of Participating
Organizations.
For its services as Shareholder Servicing Agent, HSBC Americas is paid an
annual fee equal to 0.04% of average daily Service Class net assets.
Administrator
The Trust retains BISYS Fund Services to act as the Administrator of the
Fund in accordance with the terms of the Administrative Services Contract.
Pursuant to the Administrative Services Contract, the Administrator, at its
expense, generally supervises the operation of the Trust and the Fund by
reviewing the expenses of the Fund monthly to ensure timing and accuracy of the
Fund's operating expense budget and by providing administrative personnel,
office space and administrative services reasonably necessary for the operation
of the Trust and the Fund, other than those services which are provided by HSBC
Americas pursuant to the Advisory Contract.
The Trust also retains HSBC Americas as Co-Administrator. Pursuant to the
Co-Administration Services Contract, HSBC America (i) manages the Funds'
relationship with the Fund's Service Providers, (ii) assists with negotiation of
contracts with service providers and supervises the activities of those service
providers, (iii) serves as a liaison with Fund trustees, and (iv) assists with
general product management and oversight. For its services as Co-Administrator,
HSBC Americas is paid an annual fee equal to 0.03% of the Fund's average daily
net assets.
Servicing Agreements
The Fund may enter into agreements (the "Servicing Agreement") with certain
banks, financial institutions and corporations (the "Participating
Organizations") so that each Participating Organization handles recordkeeping
and provides certain administrative services for its customers who invest in the
Funds through accounts maintained at that Participating Organization. In such
cases the Participating Organization or one of its nominees will be the
shareholder of record as nominee for its customers and will maintain subaccounts
for its customers. In addition, the Participating Organization will credit cash
distributions to each customer account, process purchase and redemption
requests, mail statements of all transactions with respect to each customer and,
if required by law, distribute the Trust's shareholder reports and proxy
statements. However, any customer of a Participating Organization may become the
shareholder of record upon written requests to its Participating Organization or
the Fund's Transfer Agent. Each Participating Organization will receive monthly
payments which in some cases may be based upon expenses that the Participating
Organization has incurred in the performance of its services under the Servicing
Agreement. The payments will not exceed, on an annualized basis, an amount equal
to 0.25% of the average daily value during the month of Fund shares in the
subaccount of which the Participating Organization is record owner as nominee
for its customers. Such payments will be separately negotiated with each
Participating Organization and will vary depending upon such factors as the
services provided and the costs incurred by each
14
<PAGE>
Participating Organization. The payments may be more or less than the fees
payable to BISYS for the services it provides pursuant to the Transfer Agency
Agreement for similar services.
The payments will be made by the Fund to the Participating Organizations
pursuant to the Servicing Agreements. BISYS will not receive any compensation as
transfer or dividend disbursing agent with respect to the subaccounts maintained
by Participating Organizations. The Board of Trustees will review, at least
quarterly, the amounts paid and the purposes for which such expenditures were
made pursuant to the Servicing Agreements.
Under separate agreements, HSBC Americas (not the funds) may make
supplementary payments from its own revenues to a Participating Organization
that agrees to perform services such as advising customers about the status of
their subaccounts, the current yield and dividends declared to date and
providing related services a shareholder may request. Such payments will vary
depending upon such factors as the services provided and the cost incurred by
each Participating Organization.
Distribution Plan and Agreement
The Board of Trustees of the Trust has adopted a Distribution Plan and
Agreement (the "Plan") for the Service Class shares pursuant to Rule 12b-1 of
the Investment Company Act of 1940, as amended, after having concluded that
there is a reasonable likelihood that the Plan will benefit the Fund and the
Service Class shareholders. The Plan provides with respect to the Service Class
shares only for a monthly payment by the Fund to reimburse the Distributor in
such amounts that they may request for expenses such as the printing and
distribution of prospectuses sent to prospective investors, the preparation,
printing and distribution of sales literature and expenses associated with media
advertisements and telephone services and other direct and indirect
distribution-related expenses, including the payment of a monthly fee to
broker-dealers for rendering distribution-related asset introduction and asset
retention services. The Fund may also make payments to other broker-dealers or
financial institutions for their assistance in distributing shares of the Fund
and otherwise promoting the sale of the Fund's shares. The total monthly payment
is based on the Fund's Service Class shares average daily net assets value
during the preceding month and is calculated at an annual rate not to exceed
0.35%.
The Plan provides for the Distributor to prepare and submit to the Board of
Trustees on a quarterly basis written reports of all amounts expended pursuant
to the Plan and the purpose for which such expenditures were made. The Plan may
not be amended to increase materially the amount spent for distribution expenses
without approval by a majority of the Fund's outstanding shares subject to the
Plan and approval of a majority of the non-interested Trustees. Distribution
expenses incurred in one year will not be carried forward into and reimbursed in
the next year for actual expenses incurred in the previous year.
Fees and Expenses
The Fund pays HSBC Americas as compensation for its advisory services a
monthly fee equal to an annual rate of 0.90% of the Fund's average daily net
assets. As compensation for its administrative services, BISYS receives from the
Fund a monthly fee equal to an annual rate of 0.15% of the Fund's average daily
net assets. The Distributor is not paid a fee by the Fund, but is reimbursed for
certain distribution expenses described above under "Distribution Plan and
Agreement" in this Prospectus. As compensation for their services, the
Sub-Advisers collectively receive fees from HSBC Americas at an annual rate not
to exceed 0.45% of the Fund's average daily net assets. HSBC Americas and the
Sub-Advisers may agree in advance not to impose a portion of their fees in the
future.
15
<PAGE>
Investors who purchase and redeem shares of the Fund through a customer
account maintained at a Participating Organization may be charged one or more of
the following types of fees by Participating Organizations, as agreed upon by
the Participating Organization and the investor, with respect to the customer
services provided by the Participating Organization: account fees (a fixed
amount per month or per year); transaction fees (a fixed amount per transaction
processed); compensating balance requirements (a minimum dollar amount a
customer must maintain in order to obtain the services offered); or account
maintenance fees (a periodic charge based upon a percentage of the assets in the
account or of the dividends paid on those assets).
TRANSACTIONS WITH AFFILIATES
Broker-dealers which are affiliates of HSBC Americas may act as brokers for
the Fund. At all times, however, their commissions, fees or other charges must
be reasonable and fair in comparison with those that would be paid to
unaffiliated firms for comparable transactions. The Fund will not do business
with nor pay commissions to affiliates of HSBC Americas in any portfolio
transactions where they act as principal. In placing orders for the purchase and
sale of portfolio securities, the Fund seeks the best execution at the most
favorable price, considering all of the circumstances. The Advisor may consider
sales of shares of the Fund and of other HSBC Funds as a factor in selecting a
broker. The Adviser may cause a 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.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share for the purpose of pricing purchase
and redemption orders is determined at 4:15 p.m. (Eastern time) on each day the
Fund's transfer agent is open for business. The net asset value will not be
computed on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving and Christmas. The net asset value per
share of each class is computed by dividing the value of the net assets of each
class (i.e., the value of the assets less the liabilities) by the total number
of shares outstanding of each class. All expenses, including the management,
advisory, sub-advisory and administrative fees, are accrued daily and taken into
account for the purpose of determining the net asset value.
Portfolio securities are valued at the last quoted sales price as of the
close of business on the day the valuation is made, or lacking any sales, at the
mean between closing bid and asked prices. Price information on listed
securities is taken from the exchange where the security is primarily traded.
The value for each unlisted security is based on the last trade price for that
security on a day in which the security is traded. The value of each security
for which readily available market quotations exist will be based on a decision
as to the broadest and most representative market for such security. Options on
stock indices traded on national securities exchanges are valued at the close of
options trading on such exchanges (which is currently 4:10 p.m., Eastern time).
Stock index futures and related options, which are traded on commodities
exchanges, are valued at their last sale price as of the close of such exchanges
(which is currently 4:15 p.m., Eastern time). Other assets and securities for
which no quotations are readily available are valued at fair value as determined
in good faith by the Trustees. Securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities. Short-term investments are valued at amortized
cost, which approximates market value. The Board of Trustees has determined in
good faith that amortized cost equals fair market value. All assets and
liabil-
16
<PAGE>
ities initially expressed in foreign currencies will be translated into
U.S. Dollars at the bid price of such currencies against U.S. Dollars last
quoted by a major bank or broker. If such quotations are not available as of the
close of the New York Stock Exchange, the rate of exchange will be determined in
accordance with policies established in good faith by the Board of Trustees.
PURCHASE OF SHARES
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. Prospectuses and
accompanying sales material can be obtained from the Transfer Agent or
Distributor.
The minimum initial investment requirement for the Fund is $1,000. The
minimum subsequent investment requirement is $50. There are no minimum
investment requirements with respect to investments effected through certain
automatic purchase and redemption arrangements on behalf of customer accounts
maintained at Participating Organizations. The minimum investment requirements
may be waived or lowered for investments effected on a group basis by certain
other institutions and their employees, such as pursuant to a payroll deduction
plan. All funds will be invested in full and fractional shares. The Trust
reserves the right to reject any purchase order. Compensation to salespersons
may vary depending upon whether Service Class or Institutional Class shares are
sold.
Orders for shares of the Fund will be executed at the net asset value per
share next determined after receipt of an order by the dealer, plus a sales
charge (Service Class shares only) varying with the amount invested in
accordance with the following schedule:
<TABLE>
<CAPTION>
Reallowance
to
Service
Total Sales Load Organizations
------------------------------ -------------
As a % of
As a % of Net Asset As a % of
Offering Price Value Per Offering Price
Per Share Share Per Share
-------------- --------- --------------
<S> <C> <C> <C>
Less than $50,000..................................... 5.00% 5.26% 4.50%
$50,000 but less than $100,000........................ 4.50% 4.71% 4.00%
$100,000 but less than $250,000....................... 3.75% 3.90% 3.40%
$250,000 but less than $500,000....................... 2.50% 2.56% 2.25%
$500,000 but less than $1 million..................... 2.00% 2.04% 1.75%
$1 million and above.................................. 1.00% 1.01% 0.90%
</TABLE>
The sales charge applicable to the purchase of Service Class shares will be
waived on the following purchases: (1) by Trustees and officers of the Trust and
of HSBC 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
17
<PAGE>
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 HSBC Americas for details.
The sales load does not apply in any instance to reinvested dividends.
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 a 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
any 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.
Right of Accumulation
The Fund offers to all shareholders a right of accumulation under which any
shareholder may purchase shares of the Fund at the offering price applicable to
the total of (a) the dollar amount then being purchased plus (b) an amount equal
to the offering price of the shareholder's combined holdings of the shares of
the Fund. For the right of accumulation to be exercised, a shareholder must
provide at the time of purchase confirmation of the total number of shares of
the Fund owned by such shareholder. Acceptance of the purchase order is subject
to such confirmation. The right of accumulation may be amended or terminated at
any time on sixty days notice to shareholders. Shares held in the name of a
nominee or custodian under pension, profit-sharing, or other employee benefit
plans may not be combined with other shares held in the name of such nominee or
custodian for other plans to qualify for the right of accumulation.
18
<PAGE>
Letter of Intent
By initially investing at least $1,000 and submitting a Letter of Intent to
the transfer agent, a "single purchaser" may purchase shares of the Fund and
other eligible HSBC Funds (other than Money Market Funds) during a 13-month
period at the reduced sales charge rates applying to the aggregate amount of the
intended purchases stated in the Letter of Intent. The Letter of Intent may
apply to purchases made up to 90 days before the date of submission of the
Letter. Dividends and distributions of capital gains paid in shares of the Fund
at net asset value will not apply towards the completion of the Letter of
Intent. The Letter of Intent does not obligate a shareholder to buy the amount
indicated in the Letter of Intent; however, if the intended purchases are not
completed during the Letter of Intent period, the shareholder will be obligated
to pay the Distributor an amount equal to the difference between the regular
sales charge applicable to a single purchase of the number of shares purchased
and the sales charge actually paid. For further details, including escrow
provisions, see the Letter of Intent. The Fund reserves the right to amend,
suspend or cease offering this program at any time.
PROSPECTIVE INVESTORS WHO WISH TO OBTAIN ADDITIONAL INFORMATION CONCERNING
INVESTMENT PROCEDURES SHOULD CONTACT THE TRANSFER AGENT AT: (800) 634-2536.
New Account Purchase By Wire
1. Telephone: The Transfer Agent at (800) 634-2536 for instructions. Please
note your bank will normally charge a fee for handling this transaction.
New Account Purchase By Mail
1. Complete a Purchase Application. Indicate the services to be used.
2. Mail the Purchase Application and a check for $1,000 or more, payable to
HSBC Family of Funds to the Transfer Agent at:
HSBC Mutual Funds Trust, c/o BISYS, P.O. Box 163850, Columbus OH 43216-3850
Third-party checks will not be accepted. Checks must be in U.S. dollars.
Please include the Fund name and your account number on all checks.
Additional Purchases By Wire and Mail
Additional purchases of shares may be made by wire by telephoning the
Transfer Agent at (800) 634-2536 and then instructing the wiring bank to
transmit the amount ($50 or more) of any additional purchase in Federal funds.
Additional purchases may also be made by mail by making a check ($50 or more)
payable to the HSBC Family of Funds indicating your fund account number on the
check and mailing it to the Transfer Agent at the address set forth above.
Purchase through Customer Accounts
Purchases of shares also may be made through customer accounts maintained
at Participating Organizations, including qualified Individual Retirement and
Keogh Plan accounts. Purchases will be made through a customer's account only as
directed by or on behalf of the customer on a direction form executed prior to
the customer's first
19
<PAGE>
purchase of shares of the Fund. For example, a customer with an account at a
Participating Organization may instruct the Participating Organization to invest
money in excess of a level agreed upon between the customer and the
Participating Organization in shares of the Fund periodically or give other
instructions to the Participating Organization within limits prescribed by that
Participating Organization.
Automatic Investment Plan
Investors may make regular monthly investments of $50 or more in shares
automatically from a checking or savings account if their bank is a member of
automated clearing house (ACH). Upon written authorization, the Transfer Agent
will electronically debit the investor's checking or savings account each month
and use the proceeds to purchase shares for the investor's account.
Approval by the investor's bank is required, so that establishment of a
program may require at least 30 days. The authorized amount and/or bank
information may be changed or the program terminated at any time by writing to
the Transfer Agent. A reasonable period (usually up to 15 days) may be required
after receipt of such instructions to implement them. The purchase application
contains the requirements applicable to this plan. The Trust reserves the right
to amend, suspend or cease offering this program at any time without prior
notice.
REDEMPTION OF SHARES
Upon receipt by the Transfer Agent of a redemption request in proper form
($50 minimum), shares of the Fund will be redeemed at their next determined net
asset value. See "Determination of Net Asset Value" in this Prospectus. For the
shareholder's convenience, the Trust has established several different direct
redemption procedures. Redemptions of shares purchased by check will be effected
immediately upon clearance of the purchase check, which may take up to 15 days
after those shares have been credited to the shareholder's account. A redemption
of shares is a taxable transaction on which gain or loss may be recognized for
tax purposes.
The Fund reserves the right to redeem (on 30 days' notice) accounts whose
values shareholders have reduced to $500 or less.
Redemption By Mail
1. Complete a letter of instruction indicating the Fund, the account number
and either the dollar amount or number of shares to be redeemed.
2. Sign the letter of instruction in exactly the same way the account is
registered. If there is more than one owner of the shares, all must sign.
3. If shares to be redeemed have a value of $5,000 or more, the
signature(s) must be guaranteed by a bank, trust company, broker, dealer, credit
union, securities exchange or association, clearing agency or savings
association. Signature guarantees by notaries public are not acceptable. Further
documentation, such as copies of corporate resolution and instruments of
authority, may be requested from corporations, administrators, executors,
personal representatives, trustees or custodians to evidence the authority of
the person or entity making the redemption request.
4. If shares to be redeemed are held in certificate form, enclose the
certificates with the letter. Do not sign the certificates and for your
protection use registered mail.
20
<PAGE>
5. Mail the letter to the Transfer Agent at the address set forth under
"Purchase of Shares" in this Prospectus.
Checks for redemption proceeds will normally be mailed within seven days to
the shareholder's address of record.
Upon request, the proceeds of a redemption amounting to $1,000 or more will
be sent by wire to the shareholder's predesignated bank account. Please note a
wire transfer fee will normally be charged. When proceeds of a redemption are to
be paid to someone other than the shareholder, either by wire or check, the
signature(s) on the letter of instruction must be guaranteed regardless of the
amount of the redemption.
Redemption By Expedited Redemption Service
If shares are held in book credit form and the Expedited Redemption Service
has been elected on the Purchase Application on file with the Trust's Transfer
Agent, redemption of shares may be requested on any day the Transfer Agent is
open for business by telephone or letter. A signature guarantee is not required.
1. Telephone the request to the Transfer Agent at (800) 634-2536; or
2. Mail the request to the Transfer Agent at the address set forth under
"Purchase of Shares" in this Prospectus.
Proceeds of Expedited Redemptions of $1,000 or more will be wired to the
shareholder's bank indicated in the Purchase Application. If an Expedited
Redemption request is received by the Trust's transfer agent by 4:00 p.m.
(Eastern time) on a day the transfer agent is open for business, the redemption
proceeds will be transmitted to the shareholder's bank on the next business day.
A check for proceeds of less than $1,000 will be mailed to the shareholder's
address of record.
The Fund's Transfer Agent employs reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Transfer Agent fails
to employ such reasonable procedures, the Transfer Agent may be liable for any
loss, damage or expense arising out of any telephone transactions purporting to
be on a shareholder's behalf. In order to assure the accuracy of instructions
received by telephone, the transfer agent requires some form of personal
identification prior to acting upon instructions received by telephone, records
telephone instructions and provides written confirmation to investors of such
transactions.
Systematic Withdrawal Plan
An owner of $10,000 or more of shares of the Fund may elect to have
periodic redemptions from his account to be paid on a monthly basis. The minimum
periodic payment is $50. A sufficient number of shares to make the scheduled
redemption will be redeemed on the first or the fifteenth day of the month.
Redemptions for the purpose of making such payments may reduce or even exhaust
the account if your monthly checks exceed the dividend, interest and capital
appreciation, if any, on your shares. A shareholder may request that these
payments be sent to a predesignated bank or other designated party. Shareholders
holding share certificates are not eligible to establish a Systematic Withdrawal
Plan because share certificates must accompany all withdrawal requests.
Amounts paid to you pursuant to the Systematic Withdrawal Plan are not a
return on your investment. Payments to you pursuant to the Systematic Withdrawal
Plan are derived from the redemption of shares in your account and is a taxable
transaction on which gain or loss may be recognized for Federal, state and local
income tax purposes.
21
<PAGE>
Reinstatement Privilege
A shareholder in the Fund who has redeemed shares may reinvest, without a
sales charge, up to the full amount of such redemption at the net asset value
determined at the time of the reinvestment within 60 days of the original
redemption. This privilege must be effected within 60 days of the redemption and
the investor at the time of purchase must provide the number of shares redeemed
within the 60 day period. The shareholder must reinvest in the same Fund and
account from which the shares were redeemed. A redemption is a taxable
transaction and gain or loss may be recognized for Federal income tax purposes
even if the reinstatement privilege is exercised. Any loss realized upon the
redemption will not be recognized as to the number of shares acquired by
reinstatement, except through an adjustment in the tax basis of the shares so
acquired.
Redemption through Customer Accounts
Investors who purchase shares through customer accounts maintained at
Participating Organizations may redeem those shares only through the
Participating Organization. In some cases, a customer may instruct the
Participating Organization which maintains the account through which the
customer purchases shares to redeem shares periodically as required to bring the
customer's account balance up to a level agreed upon between the customer and
the Participating Organization. If a redemption request with respect to such an
automatic redemption arrangement is received by the transfer agent by 4:00 p.m.
(Eastern time) on a day the Transfer Agent is open for business, the redemption
proceeds will be transmitted on the next business day to the investor's customer
account (unless otherwise specified by the Participating Organization).
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in a Fund for at
least seven days may exchange shares of one Fund for shares of any of the other
portfolios of the Trust and the Mariner Funds Trust which are available for sale
in their state. A shareholder who has paid a sales load in connection with the
purchase of shares of any of the Funds will be subject only to that portion of
the sales load of the Fund into which the shareholder is exchanging which
exceeds the sales load originally paid by the shareholder. The Transfer Agent
must be advised of the applicability of the sales charge differential when the
exchange order is placed. Shareholders of any of the HSBC Money Market Funds who
exchange shares of any such Money Market Funds for shares of any of the Funds of
HSBC Mutual Funds Trust are charged the sales load applicable to such Funds as
stated in the Prospectus. Before effecting an exchange, shareholders should
review the prospectuses. Exercise of the exchange privilege is treated as a
redemption for Federal and New York State and City income tax purposes and,
depending on the circumstances, a gain or loss may be recognized. The Trust
reserves the right to change the terms or terminate the Exchange Privilege at
any time upon at least 60 days prior written notice to shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to distribute annually substantially all of its net
investment income in the form of dividends. The Fund pays dividends and
distributes net capital gains, if any, at least once annually. The Fund's
dividend and capital gains distributions may be reinvested in additional shares
or received in cash.
In order to satisfy certain annual distribution requirements of the
Internal Revenue Code of 1986 (the "Code"), the Fund may declare special
dividend and capital gains distributions during October, November or December as
of a record date in such a month. Such distributions, if paid to shareholders in
the following January,
22
<PAGE>
are deemed for Federal income tax purposes to have been paid by the Fund and
received by shareholders on December 31 of the prior year.
The Fund will be treated as a separate entity for Federal income tax
purposes, notwithstanding that it is one of multiple series of the Trust. The
Fund has elected to be treated, and has qualified and intends to continue to
qualify to be treated as a regulated investment company for each taxable year by
complying with the provisions of the Code applicable to regulated investment
companies so that it will not be liable for Federal income tax with respect to
its net investment income and net realized capital gains distributed to
shareholders in accordance with the timing requirements of the Code. The Fund
intends to distribute substantially all of its net investment income and net
realized capital gains to its shareholders for each taxable year.
Dividends derived from the Fund's taxable net investment income (if any)
and the excess of net short-term capital gain over net long-term capital loss
will be taxable to the Fund's shareholders as ordinary income, whether such
dividends are invested in additional shares or received in cash.
Distributions of the excess of net long-term capital gain over net
short-term capital loss designated by the Fund as capital gain dividends will be
taxable as long-term capital gains, regardless of how long a shareholder has
held his Fund shares, whether they are invested in additional shares or received
in cash. Dividends and distributions will generally not qualify for the
dividends-received deduction for corporations.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency denominated debt securities or
payables or receivables denominated in a foreign currency are subject to Section
988 of the Code which causes such gains and losses to be treated as ordinary
income and losses rather than capital gains and losses and may affect the
amount, timing and character of distributions to shareholders.
If the Fund invests in certain "passive foreign investment companies"
("PFICs") which do not distribute their income on a regular basis, it could be
subject to Federal income tax (and possibly additional interest charges) on a
portion of any "excess distribution" or gain from the disposition of such shares
even if it distributes such income to its shareholders. If the Fund elects to
treat the PFIC as a "qualified electing fund" ("QEF") and the PFIC furnishes the
Fund certain financial information in the required form, the Fund would instead
be required to include in income each year a portion of the ordinary earnings
and net capital gains of the QEF, regardless of whether received, and such
amounts would be subject to the various distribution requirements described
above.
It is expected that dividends and interest from non-U.S. sources received
by the Fund will be subject to non-U.S. withholding taxes. Such withholding
taxes may be reduced or eliminated under the terms of applicable United States
income tax treaties, and the Fund intends to undertake any procedural steps
required to claim the benefits of such treaties. With respect to any non-U.S.
taxes (including withholding taxes) actually paid by the Fund, if more than 50%
in value of the Fund's total assets at the close of any taxable year consists of
stocks or securities of any non-U.S. corporations, the Fund may elect to treat
any non-U.S. taxes paid by it as paid by its sharehold-
23
<PAGE>
ers. If the Fund does not make the election permitted under Section 853, any
foreign taxes paid or accrued will represent an expense to the Fund which will
reduce its investment company taxable income. Absent this election, shareholders
will not be able to claim either a credit or a deduction for their pro rata
portion of such taxes paid by the Fund, nor will shareholders be required to
treat as part of the amounts distributed to them their pro rata portion of such
taxes paid.
In the event the Fund makes the election described above to pass through
non-U.S. taxes to shareholders, shareholders will be required to include in
income (in addition to any distributions received) their proportionate portion
of the amount of non-U.S. taxes paid by the Fund and will be entitled to claim
either a credit or deduction for their portion of such taxes in computing their
U.S. Federal income tax liability. Availability of such a credit or deduction is
subject to certain limitations. Shareholders will be informed each year in which
the Fund makes the election regarding the amount and nature of foreign taxes to
be included in their income for U.S. Federal income tax purposes.
Each year the Fund will notify shareholders of the character of its
dividends and distributions for federal income tax purposes. Depending on the
residence of the shareholder for tax purposes, such dividends and distributions
may also be subject to state, local or foreign tax consequences of ownership of
Fund shares in their particular circumstances.
Shareholders who are not U.S. persons under the Code should also consult
their tax advisers as to the possible application of U.S. taxes, including a 30%
U.S. withholding tax (or lower treaty rate) on dividends.
ACCOUNT SERVICES
All transactions in shares of the Fund will be reflected in confirmations
for each shareholder and a quarterly shareholder statement. In those cases where
a Participating Organization or its nominee is shareholder of record of shares
purchased for its customer, the Trust has been advised that the statement may be
transmitted to the customer in the discretion of the Participating Organization.
Shareholders can write or call the Trust's transfer agent at P.O. Box 163850,
Columbus, OH 43216-3850, or telephone: (800) 634-2536 with any questions
relating to their investments in Fund shares.
Participating Organizations or their nominees may be the shareholders of
record as nominees for their customers, and may maintain subaccounts for those
customers. Any such customer may become the shareholder of record upon written
request to the Participating Organization, or Transfer Agent.
As transfer agent, BISYS will transmit promptly to each of its customers
for whom it processes purchases and redemptions of shares and to each
Participating Organization copies of all reports to shareholders, proxy
statements and other Trust communications. The Trust's arrangements with the
transfer agent and the subtransfer agent arrangements require Participating
Organizations to grant investors who purchase shares through customer accounts
the opportunity to vote their shares by proxy at all shareholder meetings of the
Trust. In certain cases, a customer of a Participating Organization may have
given his Participating Organization the power to vote shares on his behalf.
Customers with accounts at Participating Organizations should consult their
Participating Organization for information concerning their rights to vote
shares.
24
<PAGE>
TRANSFER AND DIVIDEND
DISBURSING AGENT AND CUSTODIAN
Pursuant to an Agency Agreement, BISYS Fund Services (the "Transfer Agent")
acts as the Fund's transfer and dividend disbursing agent and is responsible for
maintaining account records detailing ownership of Fund shares and for crediting
income, capital gains and other changes in share ownership to investors'
accounts. For its services the Transfer Agent receives from the Fund an annual
base fee of $25 per shareholder account plus additional transaction costs. State
Street Bank and Trust Company ("State Street") is the Fund's custodian. Pursuant
to the Custodian Agreement, State Street is responsible for holding the Fund's
cash and portfolio securities. State Street may enter into sub-custodian
agreements with certain qualified banks.
PERFORMANCE INFORMATION
The Fund's total return may be included in advertisements or mailings to
prospective investors. The Fund may occasionally cite statistical reports
concerning its performance. The Fund may also from time to time compare its
performance to various unmanaged indices, such as the Morgan Stanley Capital
International Index (EAFE). (See the SAI for more details concerning the various
indices which might be used.) The Fund's "total return" refers to the average
annual compounded rates of return over one, five and ten year periods or for the
life of the Fund (which periods will be stated in the advertisement) that would
equate an initial amount invested at the beginning of a stated period to the
ending redeemable value of the investment, assuming the deduction of the maximum
sales charge and the reinvestment of all dividend and capital gains
distributions. The Fund calculates its total return by adding the total
dividends paid for the period to the Fund's ending net asset value per share for
that period and dividing that sum by the net asset value per share of the Fund
at the beginning of the period. The Fund may also furnish total return
calculations based on investments at various sales charge levels or at net asset
value. Any performance data which is based on the Fund's net asset value per
share would be reduced if a sales charge were taken into account. Total return
figures are based on historical earnings and are not intended to indicate future
performance. Shareholders of the Service Class of shares will experience a lower
net return on their investment than shareholders of the Institutional Class of
shares because of the sales load, Rule 12b-1 fee and shareholder servicing
charge to which Service Class shareholders will be subject.
Investors who purchase and redeem shares of the Fund through a customer
account maintained at a Participating Organization may be charged by such
Participating Organization certain fees, as agreed upon by the Participating
Organization and the investor, with respect to the customer services provided by
the Participating Organization. Such fees will have the effect of reducing the
return for those investors. See "Management of the Funds -- Servicing
Agreements" in the Prospectus.
SHARES OF BENEFICIAL INTEREST
The authorized capital stock of the Trust consists of an unlimited number
of shares of beneficial interest having a par value of $0.001 per share. The
Trust's Board of Trustees has authorized the issuance of multiple series
representing shares in corresponding investment portfolios of the Trust. All
shares of the Trust have equal voting rights and will be voted in the aggregate,
and not by class, except where voting by class is required by law or where the
matter involved affects only one class. The International Equity Fund offers and
the Prospectus relates to two classes of shares -- the Institutional Class and
Service Class. The Institutional Class of shares are available to customers of
financial institutions or corporations on behalf of their customers or
employees, or on behalf of any trust,
25
<PAGE>
pension, profit sharing or other benefit plan for such customers or employees.
The Service Class of shares are available to all other investors. The
Institutional Class shares and Service Class shares are identical in all
respects, with the exception that Institutional Class shares are not subject to
a sales load and do not impose any shareholder servicing or Rule 12b-1 fees. All
shares of the Trust issued and outstanding are fully paid and nonassessable. The
Trust is not required by law to hold annual shareholder meetings and does not
intend to hold such meetings; however, the Trustees are required to call a
meeting for the purpose of considering the removal of persons serving as Trustee
if requested to do so in writing by the holders of not less than 10% of the
outstanding shares of the Trust. The Fund will be treated as a separate entity
for Federal income tax purposes. For more details concerning the voting rights
of shareholders, see the SAI.
Vacancies on the Board of Trustees are filled by the Board of Trustees if
immediately after filling any such vacancy at least two-thirds of the Trustees
then holding office have been elected to such office by shareholders at an
annual or special meeting. In the event that at any time less than a majority of
Trustees holding office were elected by shareholders, the Board of Trustees will
cause to be held within 60 days a shareholders' meeting for the purpose of
electing Trustees to fill any existing vacancies. Trustees are subject to
removal with cause by two-thirds of the remaining Trustees or by a vote of a
majority of the outstanding shares of the Trust. The Trustees are required to
promptly call a shareholders' meeting for voting on the question of removal of
any Trustee when requested to do so in writing by not less than 10% of the
outstanding shares of the Trust. In connection with the calling of such
shareholders' meetings, shareholders will be provided with communication
assistance.
Under Massachusetts law, it is possible that shareholders of a
Massachusetts business trust might, under certain circumstances, be held
personally liable for acts or obligations of the Trust. The Trust's Declaration
of Trust contains an express disclaimer of shareholder liability for acts,
obligations or affairs of the Trust. The Declaration of Trust also provides for
indemnification out of the Trust's assets for all loss and expense of any
shareholder held personally liable by reason of being or having been a
shareholder of the Trust. Thus, the risk that a shareholder of the Fund could
incur financial loss on account of shareholder liability is considered remote
since it is limited to circumstances in which the disclaimer is inoperative and
the Fund itself would be unable to meet its obligations.
26
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27
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================================================================================
HSBC Mutual Funds Trust
- --------------------------------------------------------------------------------
HSBC Fund Group
- --------------------------------------------------------------------------------
HSBC Asset Management [LOGO]
================================================================================
HSBC(SM) Mutual Funds Trust
3435 Stelzer Road
Columbus OH 43219
Information:
(800) 634-2536
Investment Adviser and Co-Administrator
HSBC Asset Management Americas Inc.
250 Park Avenue
New York, New York 10177
Distributor Administrator Transfer Agent
and Dividend Disbursing Agent
BISYS Fund Services
3435 Stelzer Road
Columbus OH 43219
Custodian Prospectus April 24, 1996
State Street Bank and Trust Company
P.O. Box 1713 ---------------------------------------
Boston, Massachusetts 02105 Fund:
International Equity Fund
Independent Auditors
Ernst & Young LLP ---------------------------------------
787 Seventh Avenue Managed by:
New York, New York 10019 HSBC Asset Management Americas Inc.
Legal Counsel ---------------------------------------
Baker & McKenzie Sponsored and Distributed by:
805 Third Avenue BISYS Funds Services
New York, New York 10022
---------------------------------------
No dealer, salesman, or other
person has been authorized to give any
information or to make any
representations, other than those
contained in the Prospectus, in
connection with the offer contained in
this Prospectus, and, if given or made,
such other information or
representations must not be relied upon
as having been authorized by the Trust,
the Distributor or the Investment
Adviser. This Prospectus does not
constitute an offering in any state in
which such offering may not lawfully be
made.
<PAGE>
HSBC MUTUAL FUNDS TRUST
INTERNATIONAL EQUITY FUND
3435 Stelzer Road
Columbus, Ohio 43219
Information: (800) 634-2536
STATEMENT OF ADDITIONAL INFORMATION
HSBC Mutual Funds Trust, formerly known as Mariner Mutual Funds Trust (the
"Trust"), is an open-end, management investment company with multiple
portfolios, including the diversified International Equity Fund (the "Fund").
The investment objective of the Fund is to seek to provide investors with
long-term capital appreciation by investing at least 80% of its total assets in
equity securities (including American and European Depositary Receipts) issued
by companies based outside of the United States. The balance of the Fund's
assets will be invested in securities of companies based in the United States
and outside of the United States including bonds and money market instruments.
Dividend income is expected to be incidental to the Fund's investment objective.
The Fund offers two classes of shares - the Institutional Class and Service
Class shares. The Institutional Class shares are available to financial
institutions while the Service Class shares are available to all other
investors. The Institutional Class and Service Class shares are identical in
all respects except that Institutional Class shares are not subject to a sales
load and do not impose any shareholder servicing or Rule 12b-1 fees. See
"Shares of Beneficial Interest" herein.
There is no assurance that the Fund's investment objective will be
achieved.
Shares of the Fund are primarily offered for sale by BISYS Fund Services,
the Sponsor and Distributor, as an investment vehicle for institutions,
corporations, fiduciaries and individuals. Certain banks, broker-dealers,
financial institutions and corporations ("Participating Organizations") have
agreed to act as shareholder servicing agents for investors who maintain
accounts at the Participating Organizations and to perform certain services for
the Fund.
This Statement of Additional Information (the "SAI") is not a prospectus
and is only authorized for distribution when preceded or accompanied by the Fund
Prospectus dated April 18, 1996. This SAI contains additional and more detailed
information than that set forth in the Prospectus and should be read in
conjunction with the Prospectus, additional copies of which may be obtained
without charge from the Trust.
April 18, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Policies and Risk Factors...................... 1
Investment Restrictions................................... 6
Management................................................ 8
Service Organizations..................................... 12
Performance Information................................... 13
Determination of Net Asset Value.......................... 14
Portfolio Transactions.................................... 15
Portfolio Turnover........................................ 15
Expense Limitations....................................... 16
Exchange Privilege........................................ 16
Redemptions............................................... 16
Federal Income Taxes...................................... 17
Shares of Beneficial Interest............................. 20
Custodian, Transfer Agent and Dividend Disbursing Agent... 21
Independent Auditors...................................... 21
Financial Statements.........................................
</TABLE>
-ii-
<PAGE>
INVESTMENT POLICIES AND RISK FACTORS
The following information supplements the discussion of the investment
objective and policies of the Fund found under "Investment Objectives, Policies
and Risk Factors" in the Prospectus.
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
in the management's view to achieve the investment objective of the Fund. The
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 objective than would
otherwise be the case. A higher incidence of portfolio turnover will result in
greater transaction costs to the Fund. During periods of relatively stable
market and economic conditions, management expects that the portfolio turnover
of the Fund will not exceed 200% annually.
LOANS OF PORTFOLIO SECURITIES. The Fund may 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 Fund in a segregated account. 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. 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 a value which exceeds 10% of the
current value of such 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, or the
Adviser.
DEPOSITARY RECEIPTS. The Fund may invest in the securities of foreign
issuers in the form of American Depositary Receipts ("ADRs"), European
Depository Receipts ("EDRs") and other depositary receipts. 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. 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. The Fund may invest in ADRs,
EDRs and CDRs 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 the holders of such receipts in
respect of the deposited securities.
There are certain risks associated with investments in unsponsored ADR and
EDR programs. Because the non-U.S. company does not actively participate in the
creation of the ADR or EDR program, the underlying agreement for service and
payment will be between the depositary and the shareholder. The company issuing
the stock underlying the ADRs or EDRs pays nothing to establish the unsponsored
facility, as fees for ADR or EDR issuance and cancellation
<PAGE>
are paid by brokers. Investors directly bear the expenses associated with
certificate transfer, custody and dividend payment.
In an unsponsored ADR or EDR 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 ADRs and EDRs, there is always the risk of
loss due to currency fluctuations.
WRITING COVERED CALLS. The Fund may engage in the writing of covered call
options (options on securities which the Fund owns) provided the options are
listed on a national securities exchange. 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.
To the extent permitted in the Prospectus, 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 its 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.
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 its 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 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
-2-
<PAGE>
the two index levels at the expiration of the stock index futures contract, and
the purchaser will realize a loss. 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 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
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 purchased. 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 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.
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 succeed in negotiating a closing
-3-
<PAGE>
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.
FORWARD FOREIGN EXCHANGE CONTRACTS. The Fund may enter into forward
foreign exchange contracts. A forward foreign exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. These contracts are traded
in the interbank market conducted directly between currency traders (usually
large commercial banks) and its customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
At the maturity of a forward contract, the Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing purchase transaction involving the purchase or sale of an
offsetting contract. Closing purchase transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract.
The Fund may enter into forward foreign exchange contracts in several
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when a Fund anticipates
the receipt in a foreign currency of dividend or interest payments on such a
security which it holds, the Fund may desire to "lock in" the U.S. dollar price
of the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward contract for the
purchase or sale, for a fixed amount of dollars, of the amount of foreign
currency involved in the underlying transactions, a Fund will attempt to protect
itself against an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when management of the Fund believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and date it matures. The precise projection of short-
term currency market movements is not possible, and short-term hedging provides
a means of fixing the dollar value of only a portion of the Fund's foreign
assets.
The Fund will not enter into forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency. The
Fund's custodian will place cash or liquid high grade debt securities into a
segregated account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of forward foreign exchange contracts
requiring the Fund to purchase foreign currencies or forward contracts entered
into for non-hedging purposes. If the value of the securities placed in
-4-
<PAGE>
the segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of the Fund's commitments with respect to such contracts.
The Fund generally will not enter into forward contracts with a term of
greater than one year. Using forward contracts to protect the value of the
Fund's portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which the Fund can achieve at some future
point in time.
While the Fund will enter into forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks
and, while the Fund may benefit from such transactions, unanticipated changes in
currency prices may result in a poorer overall performance for a Fund than if it
had not engaged in any such transactions. Moreover, there may be imperfect
correlation between the Fund's portfolio holdings of securities denominated in a
particular currency and forward contracts entered into by the Fund. Such
imperfect correlation may prevent the Fund from achieving a complete hedge or
may expose the Fund to risk of foreign exchange loss.
RISKS INVOLVING FUTURES TRANSACTIONS. Transactions by the Fund in futures
contracts and options thereon involve certain risks. One risk in employing
futures contracts and options thereon to protect against cash market price
volatility is the possibility that futures prices will correlate imperfectly
with the behavior of the prices of the securities in the Fund's portfolio (the
portfolio securities will not be identical to the securities underlying the
futures contracts). In addition, commodity exchanges generally limit the amount
of fluctuation permitted in futures contract and option prices during a single
trading day, and the existence of such limits may prevent the prompt liquidation
of futures and option positions in certain cases. Inability to liquidate
positions in a timely manner could result in the Fund incurring larger losses
than would otherwise be the case.
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.
ILLIQUID SECURITIES. The Fund has adopted a fundamental policy with
respect to investments in illiquid 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 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
-5-
<PAGE>
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 Investment Adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this new
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 Investment Adviser will monitor the liquidity of restricted
securities in the Fund's portfolio under the supervision of the Trustees. In
reaching liquidity decisions, the Investment Adviser will consider, inter alia,
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
Investment 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 Investment 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 Investment Adviser deems
relevant. The Investment Adviser will also monitor the purchase of Rule 144A
securities to assure that the total of all Rule 144A securities held by a Fund
does not exceed 10% of the 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 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 (but may make margin payments in
connection with financial futures contracts and related options) or
purchase real estate or interests therein, commodities or commodity
contracts (except financial futures contracts and related options), or
make loans, except loans of portfolio securities and except that the
Fund may purchase or hold short-term debt securities and enter into
repurchase agreements with respect to its portfolio securities
described in the Prospectus. For this purpose, repurchase agreements
are considered loans;
(2) 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; or participate
on a joint or joint-and-several basis in any securities trading
account. The "bunching" of orders with other
-6-
<PAGE>
accounts under the management of the Adviser to save commissions or to
average prices among them is not deemed to result in a securities
trading account;
(3) effect a short sale of any security (other than index options
or hedging strategies), or issue senior securities except as permitted
in paragraph (4). 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;
(4) borrow money, except that the Fund may borrow from banks as a
temporary measure for emergency purposes where such borrowings would
not exceed 5% 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 5%
of the Fund's total assets taken at market value. The Fund has no
present intention of engaging in transactions under this paragraph;
(5) purchase securities of any company with a record of less than
three years' continuous operation if such purchase would cause the
Fund's investments in all such companies taken at cost to exceed 5% of
such Fund's total assets taken at market value;
(6) invest for the purpose of exercising control over or 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
of the Fund's assets would be so invested;
(9) purchase interests in oil, gas, or other mineral exploration
programs or real estate and real estate mortgage loans, or oil, gas or
other mineral leases, or in real estate limited partnership interests;
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) purchase or retain securities of any company if, to the
knowledge of the Fund, officers and trustees of the Trust and officers
and directors of the Adviser who individually own more than 1/2 of 1%
of the securities of that company together own beneficially more than
5% of such securities;
(11) 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, trustees or
employees of the Fund;
(12) purchase a security if, as a result, it would hold more than
10% of any class of securities of such issuer or more than 10% of the
outstanding voting securities of the issuer. There is no limit on the
percentage of assets that may be invested in U.S. Treasury bills,
notes, or other obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities;
(13) purchase a security if, as a result, more than 25% of the
value of its total assets would be invested in securities of one or
more issuers conducting their principal business activities
-7-
<PAGE>
in the same industry, provided that (a) this limitation shall not
apply to obligations issued or guaranteed by the U.S. Government or
its agencies and instrumentalities; (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;
(14) invest in warrants in excess of 5% of net assets, provided
that within that amount, investments in warrants which are listed on
the New York or American Stock Exchanges shall not exceed 2% of net
assets.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in the market value of an investment, in the net
or total assets of the Fund, in the securities rating of the investment, or any
other later change.
MANAGEMENT
TRUSTEES AND OFFICERS
The principal occupations for the past five years of the Trustees and
executive officers of the Trust are listed below. The address of each, unless
otherwise indicated, is 3435 Stelzer Road, Columbus, Ohio 43219. Trustees deemed
to be "interested persons" of the Fund for purposes of the Investment Company
Act of 1940, as amended, are indicated by an asterisk.
WILLIAM B. BLUNDIN, Chief Executive Officer and Trustee* - Executive
-----------------------------------
Vice President BISYS Fund Services, Inc., March 1995 to Present; Vice
Chairman of Concord Holding Corporation, July 1993 to March 1995;
Director and President of Concord Holding Corporation, February 1987
to July 1993; Trustee, HSBC Funds Trust.
WOLFE J. FRANKL, Trustee - 40 Gooseneck Lane, Charlottesville,
-------
Virginia 22901. Trustee, Excelsior Funds, Inc. , Excelsior Tax-Exempt
Funds, Inc. and Excelsior Institutional Funds, Inc., (mutual funds);
Trustee, IP Capital Fund II (Deutsche Bank Capital Corp.); Director,
Deutsche Bank Financial, Inc.; Director, The Harbus Corporation;
Trustee, HSBC Funds Trust.
WILLIAM L. KUFTA, Trustee - 97 Main Street, Chatham, New Jersey 07928.
-------
Chief Investment Officer, Beacon Trust Company; Senior Vice President,
Pitcairn Financial Management Group from 1987 to 1991; Trustee, HSBC
Funds Trust.
ROBERT A. ROBINSON, Trustee - 251 Laurel Road, New Canaan, Connecticut
-------
06840. Trustee, Henrietta and E. Frederick H. Bugher Foundation;
Trustee, U.S.T. Master Funds, Inc. and U.S.T. Master Tax-Exempt Funds,
Inc. (mutual funds); Trustee, HSBC Funds Trust.
HARALD PAUMGARTEN, Trustee -330 Madison Avenue, New York, NY 10017.
-------
Director, Corporate Finance, Auerbach and Grayson; President,
Paumgarten and Company since 1991; Advisory Managing Director, Lepercq
de Neuflize & Co. Incorporated 1993 to1995; Director, Price Waterhouse
AG 1992 to 1993; Trustee, HSBC Funds Trust.
JOHN P. PFANN, Chairman and Trustee - 43 Captains Walk, Marina Cove,
--------------------
Palm Coast, Florida 32137. Chairman and President, JPP Equities, Inc.,
1982 to 1995; Trustee, HSBC Funds Trust.
-8-
<PAGE>
ANN E. BERGIN President - First Vice President of BISYS Fund Services,
---------
Inc., March 1995 to Present; Senior Vice President, Administration,
Concord Financial Group, August 1991 to March 1995; Assistant Vice
President, Dreyfus Service Corporation, 1982 to August 1991.
WILLIAM J. TOMKO, Vice President - Vice President, BISYS Fund
--------------
Services, Inc. since 1987.
MARK E. NAGLE, Treasurer - Senior Vice President, Fund Accounting
---------
Services, BISYS Fund Services, Inc., September 1995 to present; Senior
Vice President, Fidelity Institutional Retirement Services 1993 to
September 1995; Senior Vice President, Fidelity Accounting & Custody
Services 1981 to 1993.
MARTIN R. DEAN, Assistant Treasurer - Manager, Mutual Fund Accounting,
-------------------
BISYS Fund Services since 1994; Senior Manager, KPMG Peat Marwick 1989
to 1994.
STEVEN R. HOWARD, Secretary - 805 Third Avenue, New York, New York
---------
10022. Partner, Baker & McKenzie since April 1991; Partner, Gaston &
Snow from 1988 to 1991; Secretary, HSBC Funds Trust since 1987.
ROBERT L. TUCH, Assistant Secretary - Senior Counsel of BISYS Fund
-------------------
Services, Inc., June 1991 to Present; Vice President and Associate
General Counsel with Nation Securities Research Corp., July 1990 to
June 1991.
ALAINA V. METZ, Assistant Secretary - Chief Administrator,
-------------------
Administrator and Regulatory Services of BISYS Fund Services, Inc.,
June 1995 to Present; Supervisor of Mutual Fund Legal Department,
Alliance Capital Management, May 1989 to June 1995.
Trustees of the Fund receive from the Fund an annual fee and a fee for
attending each meeting of the Trustees and each committee meeting and are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Estimated Total
Aggregate Pension or Retirement Annual Compensation
Compensation Benefits Accrued as Part Benefits Upon from the Fund
from the Funds of Fund Expenses Retirement complex*
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wolfe J. Frankl, Trustee $3,647 0 N/A $22,000
William L. Kufta, Trustee $3,481 0 N/A $20,000
Harald Paumgarten, Trustee $ 0 0 N/A $ 0
John P. Pfann, Trustee $3,647 0 N/A $22,000
Robert A. Robinson, Trustee $3,647 0 N/A $22,000
</TABLE>
_____________________
* Represents the total compensation paid to such persons during the calendar
year ending December 31, 1995 (and with respect to the Fund, estimated to be
paid during a full calendar year). Mr. Paumgarten was appointed as a new
Trustee subsequent to December 31, 1995, and, therefore, did not receive any
compensation from the Trust. Trustees that are "interested persons" do not
receive compensation from the Trust in connection with their role as Trustee.
-9-
<PAGE>
As of the date of this SAI the Trustees and officers of the Fund as a group
owned less than 1% of the outstanding shares of the Fund.
INVESTMENT ADVISER. The Fund retains HSBC Asset Management Americas, Inc.
("HSBC Americas" or the "Adviser") to act as the adviser for the Fund. HSBC
Americas is the North American investment affiliate of HSBC Holdings plc (Hong
Kong and Shanghai Banking corporation) and Marine Midland Bank and is located at
250 Park Avenue, New York, New York 10177.
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 Fund, among other things, information relating to portfolio composition.
Pursuant to the Advisory Contracts 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 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 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.
SUB-ADVISERS. The Adviser retains HSBC Asset Management Europe Ltd.,
("HSBC Europe"), HSBC Asset Management Hong Kong Ltd.,("HSBC Hong Kong"), HSBC
Asset Management (Japan) KK ("HSBC Japan"), HSBC Asset Management Australia
Limited ("HSBC Australia") and HSBC Asset Management Singapore Ltd. (HSBC
Singapore") to act as sub-advisers (the "Sub-Advisers") to the Fund. HSBC
Europe, HSBC Hong Kong, HSBC Japan, HSBC Singapore, and HSBC Australia along
with the Adviser are all parts of HSBC Holdings plc (Hongkong and Shanghai
Banking Corporation).
HSBC Europe is the European investment arm of HSBC Asset Management and
manages equity and balanced portfolios with an emphasis on the markets of the
United Kingdom and other major European securities markets, the Middle East and
Africa. HSBC Europe also manages global fixed income portfolios, HSBC Europe
manages separate accounts for pension plans, corporations, bank trust divisions,
endowments and foundations and provides continuous supervision for the entire
James Capel family of Unit Investment Trusts. Total assets managed by HSBC
Europe amount to approximately U.S. $16.3 billion. Its principal offices are
located at 6 Beview Marks, London, EC3A, 7QP, England.
HSBC Hong Kong is the Asian Pacific investment arm of HSBC Asset
Management. HSBC Hong Kong manages approximately U.S. $10.1 billion of equity
portfolios dedicated to the Pacific Rim, Pacific Basin and the emerging markets
of Southeast Asia. HSBC Hong Kong was founded in 1973 and has its principal
business address at GPO Box 8983 Hong Kong, 12/F, Bank of America Tower, 12
Harcourt Road, Hong Kong. It is one of the largest investment managers in the
Asia Pacific region, managing accounts for corporations, pension plans and the
full-line of Wardley Unit Investment Trusts.
HSBC Japan provides a full range of investment services to clients
investing in Japanese securities and Japanese investors investing domestically
or internationally. HSBC Japan manage approximately U.S. $151 million in
assets. HSBC Japan has its principal office at 6/F No. 2 Tomoecho Annex.
3-8-27 Toranomon Minato-ku, Tokyo, Japan.
HSBC Singapore is one of the largest fund managers in Singapore, providing
a full range of investment discretionary and advisory services to government and
government related bodies, corporations, trusts, charities, insurance companies,
and high-net-worth individuals. HSBC Singapore's investment management
activities began in Singapore in 1982 and has its principal business address at
21 Collyer Quay, #20-02, Hongkong Bank Building, Singapore 049320.
-10-
<PAGE>
HSBC Australia is one of the largest fund managers in Australia offering a
full range of investment services to superannuation funds, public bodies,
corporations, trusts, charities, high-net-worth individuals and unit trusts for
smaller investors. HSBC Australian manages U.S. $2.72 billion in assets. HSBC
Australia has its principal address at P.O. Box 291, Market Street, Melbourne,
Victoria 3000, Australia.
Pursuant to the terms of their sub-advisory contracts, HSBC Europe and HSBC
Hong Kong commenced their sub-advisory services from the commencement of Fund
operations. HSBC Japan and HSBC Australia commenced their sub-advisory services
on July 1, 1994. HSBC Singapore commenced their sub-advisory services on April
30, 1996.
Under its Sub-Advisory Contract with the Adviser, each Sub-Adviser will
undertake at its own expense to furnish the Fund and the Adviser with micro- and
macroeconomic research, advice and recommendations, and economic and statistical
data, with respect to the Fund's investments, subject to the overall review by
the Adviser and the Board of Trustees.
SHAREHOLDER SERVICING AGENT. The Trust retains HSBC Americas to act as
Shareholder Servicing Agent of the Fund in accordance with the terms of the
Shareholder Servicing Agreement. Pursuant to the Shareholder Servicing
Agreement, HSBC Americas (i) assists and trains third-parties who deliver
prospectuses and Fund applications, (ii) assists and trains third-parties who
assist customers with completing Fund applications, (iii) conducts customer
education programs, reviews Fund communications and assists third-parties who
answer customer questions, (iv) organizes and conducts investment seminars to
enhance understanding of the Fund and its objectives, (v) assists personnel who
effect customer purchases and redemptions and (vi) assists and supervises the
activities of Participating Organizations. For its services as Shareholder
Servicing Agent, HSBC Americas is paid an annual fee equal to 0.04% of the
Fund's daily average net assets.
DISTRIBUTOR. Shares of the Fund are offered on a continuous basis through
BISYS Fund Services ("BISYS"), the Distributor, pursuant to the Distribution
Contract. The Distributor is not obligated to sell any specific amount of
shares.
ADMINISTRATOR. Pursuant to the Administrative Services Contract, BISYS:
(i) provides administrative services reasonably necessary for the operation of
the Fund, (other than those services which are provided by it pursuant to the
Advisory Contract); (ii) provides the Fund with office space and office
facilities reasonably necessary for the operation of the Fund; and (iii) employs
or associates with itself such persons as it believes appropriate to assist it
in performing its obligations under the Administrative Services Contract.
Effective February 1, 1996, the Board of Trustees of the Trust approved a
Co-Administration Services Contract between the Fund and HSBC Americas.
Pursuant to the Co-Administration Services Contract, HSBC Americas (i) manages
the Fund's relationship with BISYS, the Administrator to the Fund, (ii) assists
with negotiation of contracts with service providers and supervises the
activities of those service providers, (iii) serves as liaison with the Board of
Trustees, and (iv) assists with general product management and oversight. HSBC
is paid an annual fee equal to 0.03% of the Fund's average daily net assets
pursuant to the Co-Administration Services Contract.
FEES AND EXPENSES. The Fund pays HSBC Americas as compensation for its
advisory services a monthly fee equal to an annual rate of 0.90% of average
daily net assets. As compensation for its administrative services, BISYS
receives from the Fund a monthly fee equal to an annual rate of 0.15% of the
average daily net assets. As compensation for their services, the Sub-Advisers
receive fees from HSBC Americas at an annual rate not to exceed 0.45% of the
average net assets of the Fund. HSBC Americas and the Sub-Adviser may agree in
advance not to impose a portion of their fees in the future.
For the year ended December 31, 1995, as Adviser and Administrator, HSBC
Americas earned $149,012 (net of fee waivers of $66,081) and $24,797,
respectively.
-11-
<PAGE>
For the period of April 25, 1994 (commencement of operations) to December
31, 1994, as Adviser and Administrator, HSBC Americas earned $85,631 and
$14,569, respectively.
Except for the expenses paid by the Adviser under the Advisory and
Administrative Services Contract, 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 Administrative Services
Contract will continue in effect with respect to the Fund from year to year
provided such continuance is approved annually (i) by the holders of a majority
of the outstanding voting securities of the 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. Each contract may be terminated at any time, without payment of any
penalty, by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Investment Company Act of 1940) or by a vote of a
majority of the Trustees. 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).
DISTRIBUTION PLANS AND EXPENSES. The Service Class shares of the Fund has
adopted a Distribution Plan and Agreement (the "Plan") pursuant to Rule 12b-1 of
the Investment Company Act of 1940, after having concluded that there is a
reasonable likelihood that the Plan will benefit the Fund and its Service Class
shareholders. The Plan provides for a monthly payment by the Service Class
Shares of the Fund to BISYS Fund Services for expenses incurred not to exceed an
annual rate of 0.35 of 1%.
BISYS will use all amounts received under the Plan for payments to broker-
dealers or financial institutions for their assistance in distributing shares of
the Fund and otherwise promoting the sale of Fund shares. BISYS may also use
all or any portion of such fee to pay expenses such as the printing and
distribution of prospectuses sent to prospective investors, the preparation,
printing and distribution of sales literature and expenses associated with media
advertisements and telephone services.
The Plan provides for BISYS to prepare and submit to the Board of Trustees
on a quarterly basis written reports of all amounts expended pursuant to the
Plan and the purpose for which such expenditures were made. The Plan may not be
amended to increase materially the amount spent for distribution expenses
without approval by a majority of the Fund's outstanding Service Class shares
and approval of a majority of the non-interested Trustees.
The Plan will continue in effect with respect to the Fund from year to year
provided such continuance is approved annually by a vote of the Board of
Trustees of the Trust and of the Trustees who are not interested persons of the
Trust and have no direct or indirect financial interest in the operation of the
Plan or in any agreements related to the Plan, cast in person at a meeting
called for the purpose of voting on such Plan. The Board of Trustees of the
Trust approved the continuance of the Plan at a meeting of the Board of Trustees
on January 23, 1996.
The Service Class shares of the Fund made payments of $7,340 for the year
ended December 31, 1995. Pursuant to the Plan for the period from April 25, 1994
(commencement of operations) to December 31, 1994, the Service Class Shares of
the Fund made payments of $4,960 pursuant to the Plan.
SERVICE ORGANIZATIONS
The Trust also contracts with banks (including Marine Midland Bank), trust
companies, broker-dealers or other financial organizations ("Service
Organizations") on behalf of the Fund to provide certain administrative services
for the Fund at a fee of up to an annual rate of 0.25%. Services provided by
Service Organizations may include among other things: providing necessary
personnel and facilities to establish and maintain certain shareholder accounts
and records; assisting in processing purchase and redemption transactions;
arranging for the wiring of funds; transmitting and receiving funds in
connection with shareholders orders to purchase or redeem shares; verifying and
guaranteeing
-12-
<PAGE>
client signatures in connection with redemption orders, transfers among and
changes in shareholders designating accounts; providing periodic statements
showing a shareholder's account balance and, to the extent practicable,
integrating such information with other client transactions; furnishing periodic
and annual statements and confirmations of all purchases and redemptions of
shares in a shareholder's account; transmitting proxy statements, annual
reports, and updating prospectuses and other communications from the Fund to
shareholders; and providing such other services as the Fund or a shareholder
reasonably may request, to the extent permitted by applicable statute, rule or
regulation.
Some Service Organizations may impose additional or different conditions on
their clients, such as requiring their clients to invest more than the minimum
initial or subsequent investments specified by the Fund or charging a direct fee
for servicing. If imposed, these fees would be in addition to any amounts which
might be paid to the Service Organization by the Fund. Each Service
Organization has agreed to transmit to its clients a schedule of any such fees.
Shareholders using Service Organizations are urged to consult them regarding any
such fees or conditions.
The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting, selling or
distributing securities. There currently is no precedent prohibiting banks from
performing administrative and shareholder servicing functions as Service
Organizations. However, judicial or administrative decisions or interpretations
of such laws, as well as changes in either Federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, could prevent a bank from continuing to perform all
or a part of its servicing activities. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law.
If a bank were prohibited from so acting, its shareholder clients would be
permitted to remain shareholders of the Trust and alternative means for
continuing the servicing of such shareholders would be sought. In that event,
changes in the operation of the Trust might occur and a shareholder serviced by
such a bank might no longer be able to avail itself of any services then being
provided by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these occurrences.
PERFORMANCE INFORMATION
The Fund from time to time may advertise total return and cumulative total
return figures. Total return is the average annual compound rate of return for
the periods of one year and the life of the Fund, where applicable, each ended
on the last day of a recent calendar quarter. Total return quotations reflect
the change in the price of the Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
shares of the Fund. Total return is calculated by finding the average annual
compound rates of return of a hypothetical investment over such periods, that
would compare the initial amount to the ending redeemable value of such
investment according to the following formula (total return is then expressed as
a percentage):
Where: P(1+T) to the nth power = ERV
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of
the applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Total return will generally be lower for the Service and Institutional
Shares due to the shareholder servicing and Rule 12b-1 fees on the Service
shares.
-13-
<PAGE>
The average annual total return information for shares of the Fund are as
follows:
<TABLE>
<CAPTION>
Service Class Shares Sales Charge* NAV
- -------------------- -------------- ------
<S> <C> <C>
One year ended December 31, 1995 (0.85 %) 4.40%
Inception (April 25, 1994) to December 31, 1995 (3.10 %) (0.08 %)
Institutional Class Shares Sales Charge* NAV
- -------------------------- -------------- ------
Inception (March 1, 1995) to December 31, 1995 N/A 13.28%
</TABLE>
* Includes maximum sales charge. Past performance not predictive of future
performance.
Cumulative total return is the rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect the change in the price of the Fund's shares and assume that
all dividends and capital gains distributions during the period were reinvested
in shares of the Fund. Cumulative total return is calculated by finding the
rate of return of a hypothetical investment over such period, according to the
following formula (cumulative total return is then expressed as a percentage):
C = (ERV/P) - 1
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the
end of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable period.
From time to time, in marketing pieces and other Fund literature, the
Fund's total performance may be compared to the performance of broad groups of
comparable funds or unmanaged indices of comparable securities. Evaluations of
Fund performance made by independent sources may also be used in advertisements
concerning the Fund. Sources for Fund performance information may include, but
are not limited to, the following:
Barron's, a Dow Jones and Company, Inc. business and financial weekly
that periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports
the performance rankings and ratings of a variety of mutual funds
investing abroad.
-14-
<PAGE>
Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
Financial Times, Europe's business newspaper, which features from time
to time articles on international or country-specific funds.
Forbes, a national business publication that from time to time reports
the performance of specific investment companies in the mutual fund
industry.
Fortune, a national business publication that periodically rates
the performance of a variety of mutual funds.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of
fund.
Money, a monthly magazine that from time to time features both
specific funds and the mutual fund industry as a whole.
New York Times, a nationally distributed newspaper which regularly
covers financial news.
Personal Investor, a monthly investment advisory publication that
includes a "Mutual Funds Outlook" section reporting on mutual fund
performance measures, yields, indices and portfolio holdings.
Sylvia Porter's Personal Finance, a monthly magazine focusing on
personal money management that periodically rates and ranks mutual
funds by performance.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies,
including comparative data on funds' backgrounds, management policies,
salient features, management results, income and dividend records, and
price ranges.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share for the purpose of pricing and
redemption orders is determined at 4:15 p.m. (Eastern time) on each day the
Fund's transfer agent is open for business. The net asset value will not be
computed on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans' Day, Thanksgiving and Christmas. The net asset value
per share of the Fund is computed by dividing the value of the net assets of
each class (i.e. the value of the assets less the liabilities) by the total
number of shares outstanding of each class of the Fund. All expenses,
including the advisory and administrative fees, are accrued daily and taken into
account for the purpose of determining the net asset value. The public offering
price for the Service Class Shares of the Fund (net asset value of $9.97 plus
maximum sales charge of 5.00% of the offering price) was $10.49 at December 31,
1995.
-15-
<PAGE>
Portfolio securities are valued at the last quoted sales price as of
the close of business on the day the valuation is made, or lacking any sales, at
the mean between closing bid and asked prices. Price information on listed
securities is taken from the exchange where the security is primarily traded.
The value for each unlisted security is based on the last trade price for that
security on a day in which the security is traded. The value for each unlisted
security on a day such security is not traded shall be based on the mean of the
bid and ask quotations for that day. The value of each security for which
readily available market quotations exist will be based on a decision as to the
broadest and most representative market for such security. Options on stock
indices traded on national securities exchanges are valued at the close of
options trading on such exchanges (which is currently 4:10 p.m., Eastern time).
Stock index futures and related options, which are traded on commodities
exchanges, are valued at their last sale price as of the close of such exchanges
(which is currently 4:15 p.m., Eastern time). Other assets and securities for
which no quotations are readily available are valued at fair value as determined
in good faith by the Trustees. Securities may be valued on the basis of prices
provided by a pricing service when such prices are believed to reflect the fair
market value of such securities. Short-term investments are valued at amortized
cost, which approximates market value. The Board of Trustees has determined in
good faith that amortized cost equals fair market value.
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.
Purchases and sales of securities will often be principal transactions
in the case of debt securities and equity securities traded otherwise than on an
exchange. The purchase or sale of equity securities will frequently involve the
payment of a commission to a broker-dealer who effects the transaction on behalf
of a Fund. Debt securities normally will be purchased or sold from or to
issuers directly or to dealers serving as market makers for the securities at a
net price. Generally, money market securities are traded on a net basis and do
not involve brokerage commissions. Under the Investment Company Act of 1940,
persons affiliated with Marine Midland, 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 SEC. 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
Investment Company Act of 1940. Under the Investment Company Act of 1940,
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 Adviser may, in circumstances in which two or more dealers are in
a position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to the Adviser. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the views and information of securities firms.
-16-
<PAGE>
The aggregate brokerage commissions paid by the Fund for the year
ended December 31, 1995 and for the period of April 25, 1994 (commencement of
operations) to December 31, 1994 was $113,904 and $102,490, respectively. The
Fund paid $0 and $1,065 in brokerage commissions to affiliated brokers during
the same periods.
PORTFOLIO TURNOVER
A Fund's portfolio turnover rate measures the frequency with which a
Fund's portfolio of securities is traded. The Fund will attempt to purchase
securities with intent of holding them for investment but may purchase and sell
portfolio securities whenever the adviser believes it to be warranted (e.g., the
Fund may sell portfolio securities in anticipation of an adverse market
movement). The purchase and sale of portfolio securities may involve dealer
mark-ups, underwriting commissions or other transaction costs. Generally, the
higher the portfolio turnover rate, the higher the transaction costs to the
Fund, which will generally increase the Fund's total operating expenses. In
order to qualify as a regulated investment company, less than 30% of the Fund's
gross income must be derived from the sale or other disposition of stock,
securities or certain other investments held for less than 3 months. Although
increased portfolio turnover may increase the likelihood of additional capital
gains for the Fund, the Fund expects to satisfy the 30% income test. The Fund's
portfolio turnover rate for the year ended December 31, 1995 and for the period
from April 25, 1994 (commencement of operations) to December 31, 1994, was 90.3%
and 29.4% (not annualized), respectively.
EXPENSE LIMITATIONS
If expenses borne by the Fund in any fiscal year exceed limitations
imposed by applicable state securities regulations, HSBC Americas, in its
capacity as investment adviser to the Fund, will reimburse the Company for any
such excess to the extent required by such regulations up to the amount of the
fees payable to it for such period. Any such reimbursement would be made no
less frequently than the payment of fees to such organization. California is
the only state which currently imposes such an expense limitation. As of the
date of this SAI, the limitation is 2.5% of the first $30 million of the average
net assets, 2% of the next $70 million of the average net assets and 1.5% of the
remaining average net assets of funds which have registered their shares in
California. Such amount, if any, will be estimated, reconciled and paid on a
monthly basis.
EXCHANGE PRIVILEGE
Shareholders who have held all or part of their shares in the Fund for
at least seven days may exchange those shares for shares of the other portfolios
of the Trust and the HSBC Funds Trust which are available for sale in their
state. A shareholder who has paid a sales load in connection with the purchase
of shares of a Fund will be subject only to that portion of the sales load of
the Fund into which the shareholder is exchanging which exceeds the sales load
originally paid by the shareholder. Shareholders of any of the HSBC Money
Market Funds who exchange shares of any of such Money Market Funds for shares of
any of such Funds of HSBC Funds Trust are charged the sales loads applicable to
the Fund as stated in the Prospectus.
Before effecting an exchange, shareholders should review the
prospectuses. Exercise of the exchange privilege is treated as a redemption for
Federal income tax purposes and, depending on the circumstances, a gain or loss
may be recognized. See the Prospectus discussion of the federal tax treatment
of load reductions or eliminations in an exchange.
The exchange privilege may be modified or terminated upon sixty (60)
days' written notice to shareholders. Although initially there will be no limit
on the number of times a shareholder may exercise the exchange privilege, the
Fund reserves the right to impose such a limitation. Call or write the Fund for
further details.
REDEMPTIONS
-17-
<PAGE>
The proceeds of a redemption may be more or less than the amount
invested and, therefore, a redemption may result in a gain or loss for Federal
and state and local income tax purposes. Any loss realized on the redemption of
Fund shares held, or treated as held, for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain dividends
received on the redeemed shares.
A shareholder's account with the Fund remains open for at least one
year following complete redemption and all costs during the period will be borne
by the Fund. This permits an investor to resume investments in the Fund during
the period in an amount of $50 or more.
To be in a position to eliminate excessive shareholder expense
burdens, the Fund reserve the right to adopt a policy pursuant to which it may
redeem, upon not less than 30 days' notice, shares of the Fund in an account
which has a value below a designated amount. However, any shareholder affected
by the exercise of this right will be allowed to make additional investments
prior to the date fixed for redemption to avoid liquidation of the account.
The Fund may suspend the right of redemption during any period when
(i) trading on the New York Stock Exchange is restricted or that Exchange is
closed, other than customary weekend and holiday closings, (ii) the Securities
and Exchange Commission has by order permitted such suspension or (iii) an
emergency exists making disposal of portfolio securities or determination of the
value of the net assets of the Fund not reasonably practicable.
Although it would not normally do so, the Trust has the right to pay
the redemption price in whole or in part in securities of the Fund's portfolio
as prescribed by the Trustees. When a shareholder sells portfolio securities
received in this fashion he would incur a brokerage charge. The Trust has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act
of 1940, as amended. Under that rule, the Trust must redeem its shares for cash
except to the extent that the redemption payments to any shareholder during any
90-day period would exceed the lesser of $250,000 or 1% of the Fund's net asset
value at the beginning of such period.
FEDERAL INCOME TAXES
The Fund has elected to be treated and has qualified and intends to
continue to qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code") in 1995. The Fund
intends to continue to so qualify by complying with the provisions of the Code
applicable to regulated investment companies so that it will not be liable for
Federal income tax with respect to amounts distributed to shareholders in
accordance with the timing requirements of the Code.
In order to qualify as a regulated investment company for a taxable
year, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock or
securities and gains from the sale or other disposition of stock or securities
or foreign currency gains related to investments in stock or securities or other
income (including gains from options, futures or forward contracts) derived with
respect to the business of investing in stock, securities or currency; (b)
derive less than 30% of its gross income from the sale or other disposition of
certain investments held less than three months (including stocks and securities
and excluding some amounts included in income as a result of certain hedging
transactions); and (c) diversify its holdings so that, at the end of each
quarter of its taxable year, (i) at least 50% of the market value of the Fund's
assets is represented by cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other stock and
securities limited, in the case of other securities for purposes of this
calculation, in respect of any one issuer, to an amount not greater than 5% of
the Fund's assets or 10% of the voting stocks or securities of the issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities or stocks or securities
of other regulated investment companies). As such, and by complying with the
applicable provisions of the Code, the Fund will not be subject to Federal
income tax on taxable income (including realized capital gains) which is
distributed to shareholders in accordance with the timing requirements of the
Code. Compliance with the "30% test"
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<PAGE>
described in clause (b) above may, in particular, limit the Fund's ability to
engage in some transactions involving options, short-term trading and stock
index futures.
The amount of capital gains, if any, realized in any given year will
result from sales of securities made with a view to the maintenance of a
portfolio believed by the Fund's management to be most likely to attain the
Fund's investment objective. Such sales and any resulting gains or losses, may
therefore vary considerably from year to year. Since at the time of an
investor's purchase of shares, a portion of the per share net asset value by
which the purchase price is determined may be represented by realized or
unrealized appreciation in the Fund's portfolio or undistributed income of the
Fund, subsequent distributions (or portions thereof) on such shares may be
taxable to such investor even if the net asset value of his shares is, as a
result of the distributions, reduced below his cost for such shares and the
distributions (or portions thereof) represent a return of a portion of his
investment.
The Fund is required to report to the Internal Revenue Service (the
"IRS") all distributions of taxable dividends and of capital gains, as well as
the gross proceeds of share redemptions. The Fund may be required to withhold
Federal income tax at a rate of 31% ("backup withholding") from taxable
dividends (including capital gain dividends) and the proceeds of redemptions of
shares paid to non-corporate shareholders who have not furnished the Fund with a
correct taxpayer identification number and made certain required certifications
or who have been notified by the IRS that they are subject to backup
withholding. In addition, the Fund may be required to withhold Federal income
tax at a rate of 31% if it is notified by the IRS or a broker that the taxpayer
identification number is incorrect or that backup withholding applies because of
under reporting of interest or dividend income.
Distributions of taxable net investment income and net realized
capital gains will be taxable as described in the Prospectus whether made in
shares or in cash. In determining amounts of net realized capital gains to be
distributed, any capital loss carryovers from prior years will be applied
against capital gains. Shareholders receiving distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in each
share so received equal to the net asset value of a share of the Fund on the
reinvestment date. Fund distributions will also be included in individual and
corporate shareholders' income on which the alternative minimum tax may be
imposed.
Any loss realized upon the redemption of shares held (or treated as
held) for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain dividend received on the redeemed shares.
Any loss realized upon the redemption of shares within six months after receipt
of an exempt-interest dividend will be disallowed. All or a portion of a loss
realized upon the redemption of shares may be disallowed to the extent shares
are purchased (including shares acquired by means of reinvested dividends)
within 30 days before or after such redemption. Exchanges are treated as
redemptions for Federal tax purposes.
Different tax treatment is accorded to accounts maintained as IRAs,
including a penalty on early distributions. Shareholders should consult their
tax advisers for more information.
Each portfolio within the Trust will be separate for investment and
accounting purposes and will be treated as a separate taxable entity for Federal
income tax purposes. Provided that the Fund qualifies as a regulated investment
company under the Code, it will not be required to pay Massachusetts income or
excise taxes.
Gains or losses on sales of stock or securities by the Fund will
ordinarily be long-term capital gains or losses if the stock or securities have
been held by it for more than one year. However, if the Fund writes a covered
call option which has an exercise price below the price of the underlying stock
or security at the time the call is written, or if it acquires a put option with
respect to stock or securities which have been held for less than the applicable
capital gain holding period, the holding period of such stock or securities will
be terminated or suspended for purposes of determining long-term capital gains
treatment and will start again only when the Fund enters into a closing
transaction with respect to such option or when such option expires.
-19-
<PAGE>
The Fund will be required to treat stock index futures, options on
such futures and options on the stock indices held at the end of each taxable
year as having been sold at market value on the last business day of the year.
For purposes of computing gain or loss, 60% of any gain or loss recognized on
these deemed sales, on actual sales or on termination by closing transactions,
delivery, exercise, lapse or otherwise will be treated as long-term capital gain
or loss, and the remaining 40% will be treated as short-term capital gain or
loss. However, under certain circumstances, the Fund may be able to make an
election under which these provisions would not apply to such futures and
options.
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.
The "straddle" rules of Section 1092 of the Code may require the Fund
to defer the recognition of certain losses incurred on its transactions
involving certain stock or securities, futures contracts or options. Section
1092 defines a "straddle" to include "offsetting positions" with respect to
publicly traded stock or securities. A "position" is defined to include a
futures contract and an option. In general, the Fund will be considered to hold
offsetting positions if there is a substantial diminution of its risk of loss
from holding one position by reason of its holding one or more other positions.
Section 1092 generally provides that in the case of a straddle, any loss from
the disposition of a position (the "loss position") in the straddle shall be
recognized for any taxable year only to the extent that the amount of such loss
exceeds the unrealized gains on any offsetting straddle position (the "gain
position") and the unrealized gain on any successor position (which is a
position that is itself offsetting to the gain position and is acquired during a
period commencing 30 days prior to, and ending 30 days after, the disposition of
the loss position).
These special tax rules applicable to options and futures transactions
could affect the amount, timing and character of capital gain distributions to
shareholders by causing holding period adjustments, converting short-term
capital losses into long-term capital losses, and accelerating the Fund's income
or deferring its losses.
For purposes of the dividends-received deduction available to
corporations, dividends received by the Fund from taxable domestic corporations
in respect of any share of stock treated as debt-financed under the Code or held
by the Fund for 45 days or less (90 days or less in the case of certain
preferred stock) will not be treated as qualifying dividends. To the extent
applicable, for purposes of the dividends-received deduction, the holding period
of any share of stock will not include any period during which the Fund has an
option or a contractual obligation to sell, or has granted certain call options
with respect to, substantially identical stock or securities or, under Treasury
regulations to be promulgated, the Fund may diminish its risk of loss by holding
one or more other positions with respect to substantially similar or related
property. It is anticipated that these rules will operate so as to reduce the
portion of distributions paid by the Fund that will be eligible for the
dividends-received deduction available to corporate shareholders of such Fund.
The dividends-received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under the Code and is eliminated if the shares are deemed to have been held for
less than 46 days.
Corporate shareholders should also note that their basis in shares of
the Fund may be reduced by the untaxed portion (i.e., the portion qualifying for
the dividends-received deduction) of an "extraordinary dividend" if the shares
have not been held for at least two years prior to declaration of the dividend.
Extraordinary dividends are dividends paid during a prescribed period which
equal or exceed 10% of a corporate shareholder's basis in its Fund shares or
which satisfy an alternative test based on the fair market value of the shares.
To the extent dividend payments received by corporate shareholders of the Fund
constitute extraordinary dividends, such shareholders' basis in their Fund
shares will be reduced and any gain realized upon a subsequent disposition of
such shares will therefore be increased.
The untaxed portion of dividends received by such shareholders is also
included in adjusted alternative minimum taxable income in determining
shareholders' liability under the alternative minimum tax.
-20-
<PAGE>
The Fund is subject to a 4% nondeductible excise tax to the extent
that it fails to distribute to its shareholders during each calendar year an
amount equal to at least the sum of (a) 98% of its taxable ordinary investment
income (excluding long-term and short-term capital gain income) for the calendar
year; plus (b) 98% of its capital gain net income for the one year period ending
on October 31 of such calendar year; plus (c) any ordinary investment income or
capital gain net income from the preceding calendar year which was neither
distributed to shareholders nor taxed to the Fund during such year. The Fund
intends to distribute to shareholders each year an amount sufficient to avoid
the imposition of such excise tax.
The Fund's use of equalization accounting, if such method of tax
accounting is used for any taxable year, may affect the amount, timing and
character of its distributions to shareholders.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
Special Tax Considerations. Certain foreign governments levy
withholding taxes against dividend and interest income. Although in some
countries a portion of these taxes are recoverable, the non-recovered portion of
foreign withholding taxes will reduce the income received from the companies
comprising the Fund. See the Prospectus for more information on foreign
withholding taxes and foreign tax credits.
Shareholders should consult their own tax advisers with respect to the
tax status of distributions from the Fund, and redemptions of shares of the
Fund, in their own states and localities. Shareholders who are not United
States persons should also consult their tax advisers as to the potential
application of foreign and U.S. taxes, including a 30% U.S. withholding tax (or
lower treaty rate) on dividends representing ordinary income to them.
SHARES OF BENEFICIAL INTEREST
The authorized capitalization of the Trust consists of an unlimited
number of shares of beneficial interest having a par value of $0.001 per share.
The Trust's Board of Trustees has authorized the issuance of multiple series
representing shares in corresponding investment portfolios of the Trust. All
shares of the Trust have equal voting rights and will be voted in the aggregate,
and not by class, except where voting by class is required by law or where the
matter involved affects only one class.
The Fund offers and the Prospectus relates to two classes of shares -
the Institutional and Service classes of shares. The Institutional Shares are
available to customers of 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. The Service Shares are
available to all other investors. Institutional Shares of the Fund are not
subject to a sales charge, Rule 12b-1 fee or a shareholder servicing fee. The
Fund's Service Shares are subject to a sales charge, Rule 12b-1 fee and a
shareholder servicing fee. All shares of the Trust issued and outstanding are
fully paid and nonassessable. The Trust is not required by law to hold annual
shareholder meetings and does not intend to hold such meetings; however, the
Trustees are required to call a meeting for the purpose of considering the
removal of persons serving as Trustee if requested to do so in writing by the
holders of not less than 10% of the outstanding shares of the Trust.
As used in the Prospectus and in this SAI, the term "majority", when
referring to the approvals to be obtained from shareholders in connection with
general matters affecting the Fund (e.g., election of Trustees and ratification
of independent auditors), means the vote of a majority of the Fund's outstanding
shares represented at a meeting. The term "majority", when referring to the
approvals to be obtained from shareholders in connection with approval of the
-21-
<PAGE>
Advisory Contract or changing the fundamental policies of the Fund, means the
vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present in person or by proxy, or (ii) more than 50% of the outstanding shares
of the Fund. Shareholders are entitled to one vote for each full share held,
and fractional votes for fractional shares held.
Vacancies on the Board of Trustees are filled by the Board of Trustees
if immediately after filling any such vacancy at least two-thirds of the
Trustees then holding office have been elected to such office by shareholders at
an annual or special meeting. In the event that at any time less than a
majority of Trustees holding office were elected by shareholders, the Board of
Trustees will cause to be held within 60 days a shareholders' meeting for the
purpose of electing Trustees to fill any existing vacancies. Trustees are
subject to removal with cause by two-thirds of the remaining Trustees or by a
vote of a majority of the outstanding shares of the Trust. The Trustees are
required to promptly call a shareholders' meeting for voting on the question of
removal of any Trustee when requested to do so in writing by not less than 10%
of the outstanding shares of the Trust. In connection with the calling of such
shareholders' meetings, shareholders will be provided with communication
assistance.
Each share of the Fund represents an equal proportionate interest in
the Fund with each other share of the Fund and is entitled to such dividends and
distributions out of the income earned on the assets belonging to the Fund as
are declared in the discretion of the Trustees. In the event of liquidation or
dissolution, shares of the Fund are entitled to receive the assets belonging to
the Fund which are available for distribution, and of any general assets not
belonging to the Fund which are available for distribution.
Shareholders are not entitled to any preemptive rights. All shares,
when issued, will be fully paid and non-assessable by the Fund.
As of March 31, 1996, no person owned of record or, to the knowledge
of management, beneficially owned more than 5% of the outstanding shares of the
Fund except as set forth below:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF HOLDER OF RECORD SHARES HELD AND PERCENT OF CLASS
- ------------------------------------ --------------------------------
INSTITUTIONAL CLASS SHARES
- --------------------------
<S> <C> <C>
751,329 48.1%
Marine Midland Bank
Buffalo, NY 14240
Wabank & Company 799,281 51.2%
Tulsa, OK 74101
Total Outstanding Shares: 1,562,341
SERVICE CLASS SHARES
- --------------------
7,500 12.7%
Donaldson Lufkin & Jenrette
Jersey City, NJ 07303
Marine Midland Bank 5,400 9.2%
Buffalo, NY 14240
Paul M. Duongy 4,700 8.0%
Steven Oaks Kent, England
Ann B. Birmingham 3,185 5.4%
Pittsford, NY 14534
Total Shares Outstanding: 58,956
</TABLE>
-22-
<PAGE>
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company ("State Street") has been retained
to act as custodian for the Fund pursuant to a Custodian Contract. State
Street's address is 225 Franklin Street, Boston, Massachusetts 02110. Under
the Custodian Contract, the Custodian maintains a custody account or accounts in
the name of the Fund; receives and delivers all assets upon purchase and upon
sale or maturity; collects and receives all income and other payments and
distributions; receives and pays out cash for purchases and redemptions of
shares of the Fund and pays out cash if requested for dividends on shares of the
Fund; and maintains records for the foregoing services.
Under the Custodian Contract, the Trust has agreed to pay State Street
for furnishing Custodian Services to the Fund, certain transaction charges and
out-of-pocket expenses. The Fund paid approximately $179,000 and $60,052,
respectively, in custody fees for the year ended December 31, 1995 and the
period ended December 31, 1994.
The Board of Trustees has also authorized State Street Bank in its
capacity as Custodian for the Fund to enter into Subcustodian Agreements with
certain foreign banking institutions and foreign securities depositaries
pursuant to rule 17f-5 of the Investment Company Act of 1940.
Effective March 15, 1996, BISYS has been retained by the Trust to act
as transfer agent and dividend agent for the Fund. Under the Transfer Agency
Agreement, BISYS performs general transfer agency and dividend disbursing
services. It maintains an account in the name of each shareholder of record in
the Fund reflecting purchases, redemptions, daily dividend accruals and monthly
dividend disbursements, processes purchase and redemption requests, issues and
redeems shares of the Fund, addresses and mails all communications by the Fund
to its shareholders, including financial reports, other reports to shareholders,
dividend and distribution notices, tax notices and proxy material for its
shareholder meetings, and maintains records for the foregoing services. Under
the Agency Agreement, the Fund have agreed to pay BISYS $ 16,000 per annum. In
addition, the Fund has agreed to pay BISYS certain account based fees and out-
of-pocket expenses incurred by BISYS. For the year ended December 31, 1995 and
the period ended December 31, 1994, PFPC earned $12,067 and $5,313,
respectively, in transfer agency fees from the Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as the independent auditors for the Fund.
Ernst & Young LLP provides audit services, tax return preparation and assistance
and consultation in connection with review of Securities and Exchange Commission
filings. Ernst & Young LLP's address is 787 Seventh Avenue, New York, New York
10019.
FINANCIAL STATEMENTS
The financial statements of the Fund audited by Ernst & Young LLP have
been included in this SAI for the year ended December 31, 1995 in reliance on
their report, given on the authority of that firm as experts in auditing and
accounting.
-23-
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements
--------------------
(a) Financial Statements:
Financial Statements included in Part A:
---------------------------------------
ALL FUNDS
Financial Highlights
Financial Information included in Part B:
----------------------------------------
ALL FUNDS
Statements of Net Assets at December 31, 1995
Statements of Operations for the year ended December 31, 1995.
With the exception of the Short-Term U.S. Government Fund which
presents a Statement of Assets and Liabilities and a Statement of
Investments.
Statements of Changes in Net Assets for each of the two years
ended December 31, 1994 and December 31, 1995.
Notes to Financial Statements
Financial Highlights
Reports of Independent Auditors, dated February 5, 1996
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
1 -- Amended and Restated Declaration of Trust.
2 -- By-Laws of Registrant.
3 -- None.
*4 -- Form of Specimen Certificates of Shares.
+5(a) -- Advisory Contract between Registrant and HSBC Asset Management
Americas Inc. (Also Previously filed with Post-Effective Amendment
No. 1 to Registration Statement on March 4, 1991.)
5(b) -- Management and Administration Agreement between Registrant and
BISYS Fund Services.
***5(c) -- Form of Advisory Contract between Mariner U.S. Government
Securities Fund and Marine Midland Bank, N.A.
++5(d) -- Accounting Services Agreement between Registrant and BISYS Fund
Services
5(e) -- Co-Administration Services Contract between HSBC Asset Management
Americas Inc. and Registrant dated July 1, 1994
5(f) -- Sub-Advisory Contract between HSBC Asset Management Americas, Inc.
and HSBC Asset Management Europe Ltd. with respect to the Mariner
International Equity Fund dated April 25, 1995
5(g) -- Sub-Advisory Contract between HSBC Asset Management Americas, Inc.
and HSBC Asset Management Australia Limited with respect to the
Mariner International Equity Fund dated April 25, 1995
5(h) -- Sub-Advisory Contract between HSBC Asset Management Americas, Inc.
and HSBC Asset Management Japan (KK) with respect to the Mariner
International Equity Fund dated April 25, 1995
5(i) -- Sub-Advisory Contract between HSBC Asset Management Americas, Inc.
and HSBC Asset Management Hong Kong Ltd. with respect to the
Mariner International Equity Fund dated April 25, 1995
5(j) -- Sub-Advisory Contract between HSBC Asset Management Americas, Inc.
(formerly Marinvest Inc.) and Investment Concepts, Inc. with
respect to the Mariner Small Cap Fund dated September 22, 1992
5(k) -- Sub-Advisory Contract between HSBC Asset Management Americas, Inc.
and HSBC Asset Management Singapore Limited with respect to the
HSBC International Equity Fund dated April 30, 1996.
</TABLE>
C-2
<PAGE>
<TABLE>
<C> <S>
6 -- Distribution Agreement between Registrant and BISYS Fund Services.
7 -- None.
8(a) -- Custodian Agreement between Registrant and The Bank of New York.
8(b) -- Custodian Agreement between Registrant and State Street Bank and
Trust Company
9(a) -- Transfer Agency Agreement between Registrant and BISYS Fund
Services
**9(b) -- Agreement concerning the name "Mariner."
++++9(c) -- Shareholder Servicing Agreement between Registrant and HSBC Asset
Management Americas Inc. dated November 1, 1994
9(d) -- Service Organization Agreement between Bank of Oklahoma and
Registrant, dated October 25, 1994
9(e) -- Fund Accounting Agreement between Registrant and BISYS Fund
Services
++9(f) -- Fund Accounting Agreement between Registrant and State Street Bank
and Trust on behalf of International Equity Fund
10 -- Consent of Baker & McKenzie, counsel to Registrant.
11 -- Consent of Ernst & Young LLP, independent auditors
12 -- None.
*13 -- Subscription Agreement.
14 -- None.
15(a) -- Rule 12b-1 Distribution Plan and Agreement between Registrant and
BISYS Fund Services.
+15(b) -- Distributor's Selected Dealer Agreement dated August 1, 1992.
+++16 -- Schedule for Computation of Performance Quotations.
17 -- Financial Data Schedule
18 -- Form of Rule 18f-3 Plan
</TABLE>
C-3
<PAGE>
Other Exhibits
--------------
(a) -- Power of Attorney for William B. Blundin, Wolfe J. Frankl,
William L. Kufta, John P. Pfann, Robert A. Robinson, Harald
Paumgarten.
- -----------------------
* Filed with the Trust's Registration Statement dated March 2, 1990.
** Filed with Post-Effective Amendment No. 1 and 3 to the Trust's
Registration Statement on March 4, 1991 and January 23, 1992,
respectively.
*** Filed with Post-Effective Amendment No. 9 on July 12, 1993.
+ Filed with Post-Effective Amendment No. 6 to the Trust's Registration
Statement on November 6, 1992.
++ To be filed by Amendment.
+++ Filed with Post-Effective Amendment No. 4 to Trust Registration
Statement on May 1, 1992.
++++ Filed with Post-Effective Amendment No. 14 to Trust Registration
Statementon April 28, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
None.
Item 26. Number of Holders of Securities at March 31, 1996.
--------------------------------------------------
Growth & Income Fund 514
New York Tax-Free Bond Fund 1,498
Small Cap Fund 197
Short-Term U.S. Government Fund 40
Fixed Income Fund 125
International Equity Fund- Service Class Shares 120
International Equity Fund - Institutional Shares. 4
Item 27. Indemnification.
---------------
Reference is made to Article IV of Registrant's By-Laws and
paragraphs 9 and 10 of the Distribution Contract.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant understands that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or
C-4
<PAGE>
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Registrant, has in force a Directors and Officers Liability
Policy which covers all present and future directors and officers of
Registrant against loss arising from any civil claim or claims by reason of
"any breach of duty, neglect, error, misstatement, misleading statement,
omission or act done or wrongfully attempted" while acting as trustees or
officers of the Registrant. The period of insurance under the present
policy is for the period ending August 1, 1996. The policy covers 100% of
the excess of $100,000 up to an annual aggregate limit of $10,000,000 of
any losses including legal and other expenses in connection with any claim.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
HSBC Asset Management Americas Inc. also serves as investment
adviser to HSBC Funds Trust.
Item 29. Principal Underwriter
---------------------
(a) BISYS Fund Services is also Distributor for Mariner Funds
Trust. BISYS Fund Services also acts as Distributor to a
number of other registered companies not affiliated with the
HSBC Funds.
(b) Officers and Directors
Name and Positions and Positions and
Principal Business Address Offices Offices
with Registrant with Underwriter
- ------------------------------ --------------- --------------------
BISYS Fund Service, Inc. None Sole General Partner
3435 Stelzer Road
Columbus, OH 43219
WC Subsidiary Corporation None Sole Limited Partner
150 Clove Road
Little Falls, New Jersey 07424
The BISYS Group, Inc. None Sole Shareholder
150 Clove Road
Little Falls, New Jersey 07424
(c) Not applicable.
C-5
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
All accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
rules thereunder are maintained at the offices of HSBC Asset
Management Americas Inc., the Registrant's Investment Adviser at
250 Park Avenue, New York, New York, 10177, and at the offices of
BISYS Fund Services, the Registrant's Administrator, Distributor,
Transfer Agent and Dividend Disbursing Agent, at 3435 Stelzer
Road Columbus, OH 43219 and at The Bank of New York, the
Registrant's Custodian, at 90 Washington Street, New York, New
York 10286. For the International Equity Fund, accounts, books
and other documents are also maintained at State Street Bank, at
P.O. Box 1713, Boston, Massachusetts 02105.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Registrant undertakes to call a meeting of shareholders for
the purpose of voting upon the removal of a Trustee if
requested to do so by the holders of at least 10% of the
Registrant's outstanding shares.
(b) Registrant undertakes to provide the support to shareholders
specified in Section 16(c) of the 1940 Act as though that
Section applied to the Registrant.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request without
charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant hereby certifies that it
meets all of the requirements for effectiveness of this Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Amendment to the Registration Statement to be
signed in its behalf by the undersigned, thereunto duly authorized, in the
City of New York, on April 24, 1996.
HSBC MUTUAL FUNDS TRUST
(Registrant)
By: /s/ ANN E. BERGIN
-------------------------
Ann E. Bergin, President
C-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Trustee, Chief Executive April 24, 1996
-------------------------- Officer
William B. Blundin
President April 24, 1996
--------------------------
Ann E. Bergin
Vice President April 24, 1996
--------------------------
William J. Tomko
Treasurer (Principal Finan- April 24, 1996
-------------------------- cial & Accounting Officer)
Mark E. Nagle
* WOLFE J. FRANKL Trustee April 24, 1996
--------------------------
Wolfe J. Frankl
* WILLIAM L. KUFTA Trustee April 24, 1996
--------------------------
William L. Kufta
* HARALD PAUMGARTEN Trustee April 24, 1996
--------------------------
Harald Paumgarten
* JOHN P. PFANN Trustee and April 24, 1996
-------------------------- Chairman
John P. Pfann
* ROBERT A. ROBINSON Trustee April 24, 1996
--------------------------
Robert A. Robinson
</TABLE>
C-8
<PAGE>
* Pursuant to Power of Attorney filed with this Post-Effective Amendment 17
to Registration Statement Nos. 33-33734 and 811-6057.
C-9
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
EXHIBITS
to
POST-EFFECTIVE AMENDMENT NO. 17
to
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AND
THE INVESTMENT COMPANY ACT OF 1940
- --------------------------------------------------------------------------------
HSBC MUTUAL FUNDS TRUST
<PAGE>
EXHIBIT INDEX - HSBC MUTUAL FUNDS TRUST
<TABLE>
<S> <C>
Exhibit 1 Amended and Restated Declaration of Trust
Exhibit 2 By-Laws
Exhibit 5(b) Management and Administration Agreement between Registrant and
BISYS Fund Services
Exhibit 5(e) Co-Administration Services Contract between HSBC Asset Management
Americas Inc. and Registrant, dated July 1, 1994
Exhibit 5(f) Sub-Advisory Contract between HSBC Asset Management Americas Inc.
and HSBC Asset Management Europe Ltd. with respect to the Mariner
International Equity Fund dated April 25, 1995
Exhibit 5(g) Sub-Advisory Contract between HSBC Asset Management Americas Inc.
and HSBC Asset Management Australia Limited with respect to the
Mariner International Equity Fund dated April 25, 1995
Exhibit 5(h) Sub-Advisory Contract between HSBC Asset Management Americas Inc.
and HSBC Asset Management Japan (KK) with respect to the Mariner
International Equity Fund dated April 25, 1995
Exhibit 5(i) Sub-Advisory Contract between HSBC Asset Management Americas Inc.
and HSBC Asset Management Hong Kong Ltd. with respect to the Mariner
International Equity Fund dated April 25, 1995
Exhibit 5(j) Sub-Advisory Contract between HSBC Asset Management Americas Inc.
(formerly Marinvest Inc.) and Investment Concepts, Inc. with respect
to the Mariner Small Cap Fund dated September 22, 1992
Exhibit 5(k) Sub-Advisory Contract between HSBC Asset Management Americas Inc.
and HSBC Asset Management Singapore Limited with respect to the HSBC
International Equity Fund dated April 30, 1996
Exhibit 6 Distribution Agreement between Registrant and BISYS Fund Services
Exhibit 8(a) Custodian Agreement between Registrant and The Bank of New York
Exhibit 9(a) Transfer Agency Agreement between Registrant and BISYS Fund Services
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Exhibit 9(d) Service Organization Agreement between Bank of Oklahoma and
Registrant, dated October 25, 1994
Exhibit 9(e) Fund Accounting Agreement between Registrant and BISYS Fund
Services
Exhibit 10 Consent of Baker & McKenzie, counsel to Registrant
Exhibit 11 Consent of Ernst & Young LLP, independent auditors
Exhibit 15(a) Rule 12b-I Distribution Plan and Agreement between Registrant and
BISYS Fund Services
Exhibit 17 Financial Data Schedule
Exhibit 18 Form of Rule 18f-3 Plan
Other Exhibits
(a) Power of Attorney for William B. Blundin, Wolfe J. Frankl, William L.
Kufta, John P. Pfann, Robert A. Robinson, and Harald Paumgarten
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000861106
<NAME> HSBC MUTUAL FUNDS TRUST
<SERIES>
<NUMBER> 2
<NAME> SHORT-TERM U.S. GOVERNMENT SECURITIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 10,638,133
<INVESTMENTS-AT-VALUE> 10,745,098
<RECEIVABLES> 235,516
<ASSETS-OTHER> 23,447
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,004,061
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 96,252
<TOTAL-LIABILITIES> 96,252
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,213,541
<SHARES-COMMON-STOCK> 1,094,435
<SHARES-COMMON-PRIOR> 1,542,887
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (412,697)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 106,965
<NET-ASSETS> 10,907,809
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 836,356
<OTHER-INCOME> 0
<EXPENSES-NET> 132,604
<NET-INVESTMENT-INCOME> 703,752
<REALIZED-GAINS-CURRENT> 10,304
<APPREC-INCREASE-CURRENT> 619,944
<NET-CHANGE-FROM-OPS> 1,334,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 703,752
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 708,797
<NUMBER-OF-SHARES-REDEEMED> 1,390,378
<SHARES-REINVESTED> 9,196
<NET-CHANGE-IN-ASSETS> (3,733,951)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69,957
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 183,298
<AVERAGE-NET-ASSETS> 10,907,809
<PER-SHARE-NAV-BEGIN> 9.49
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .48
<PER-SHARE-DIVIDEND> 1.02
<PER-SHARE-DISTRIBUTIONS> .54
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000861106
<NAME> HSBC MUTUAL FUNDS TRUST
<SERIES>
<NUMBER> 4
<NAME> FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 84,301,262
<INVESTMENTS-AT-VALUE> 86,731,582
<RECEIVABLES> 13,692,139
<ASSETS-OTHER> 33,445
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,457,166
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 515,121
<TOTAL-LIABILITIES> 515,121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 98,621,639
<SHARES-COMMON-STOCK> 9,718,065
<SHARES-COMMON-PRIOR> 9,069,614
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,109,914)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,430,320
<NET-ASSETS> 99,942,045
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,874,281
<OTHER-INCOME> 0
<EXPENSES-NET> 784,971
<NET-INVESTMENT-INCOME> 5,089,310
<REALIZED-GAINS-CURRENT> (89,155)
<APPREC-INCREASE-CURRENT> 8,168,553
<NET-CHANGE-FROM-OPS> 13,168,708
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,089,310
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,636,901
<NUMBER-OF-SHARES-REDEEMED> 3,914,258
<SHARES-REINVESTED> 25,095
<NET-CHANGE-IN-ASSETS> 15,167,899
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,020,759)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 464,374
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 805,901
<AVERAGE-NET-ASSETS> 49,942,045
<PER-SHARE-NAV-BEGIN> 9.35
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> .93
<PER-SHARE-DIVIDEND> 1.52
<PER-SHARE-DISTRIBUTIONS> .59
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.28
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000861106
<NAME> HSBC MUTUAL FUNDS TRUST
<SERIES>
<NUMBER> 3
<NAME> NEW YORK TAX FREE BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 46,302,244
<INVESTMENTS-AT-VALUE> 49,816,837
<RECEIVABLES> 1,019,823
<ASSETS-OTHER> 5,651
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,842,311
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 165,547
<TOTAL-LIABILITIES> 165,547
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,264,823
<SHARES-COMMON-STOCK> 4,538,498
<SHARES-COMMON-PRIOR> 4,971,702
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,079,663)
<ACCUM-APPREC-OR-DEPREC> 3,491,604
<NET-ASSETS> 50,676,764
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,125,148
<OTHER-INCOME> 0
<EXPENSES-NET> 510,451
<NET-INVESTMENT-INCOME> 2,614,697
<REALIZED-GAINS-CURRENT> 842,141
<APPREC-INCREASE-CURRENT> 3,785,950
<NET-CHANGE-FROM-OPS> 7,242,788
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,614,697)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,191,650
<NUMBER-OF-SHARES-REDEEMED> 2,345,463
<SHARES-REINVESTED> 414,503
<NET-CHANGE-IN-ASSETS> (34,599)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3,921,804)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 232,105
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 620,422
<AVERAGE-NET-ASSETS> 50,676,764
<PER-SHARE-NAV-BEGIN> 10.20
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .97
<PER-SHARE-DIVIDEND> 1.51
<PER-SHARE-DISTRIBUTIONS> .54
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.17
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000861106
<NAME> HSBC MUTUAL FUNDS TRUST
<SERIES>
<NUMBER> 5
<NAME> GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 58,743,753
<INVESTMENTS-AT-VALUE> 72,296,303
<RECEIVABLES> 4,456,125
<ASSETS-OTHER> 6,400
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,758,828
<PAYABLE-FOR-SECURITIES> 5,016,137
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,680,633
<TOTAL-LIABILITIES> 10,696,770
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,510,329
<SHARES-COMMON-STOCK> 4,474,227
<SHARES-COMMON-PRIOR> 5,816,247
<ACCUMULATED-NII-CURRENT> 5,770
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,591)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,552,550
<NET-ASSETS> 66,062,058
<DIVIDEND-INCOME> 2,005,943
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 629,250
<NET-INVESTMENT-INCOME> 1,376,693
<REALIZED-GAINS-CURRENT> 4,058,707
<APPREC-INCREASE-CURRENT> 13,600,231
<NET-CHANGE-FROM-OPS> 19,035,631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,372,062
<DISTRIBUTIONS-OF-GAINS> 3,645,492
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 826,333
<NUMBER-OF-SHARES-REDEEMED> 2,411,589
<SHARES-REINVESTED> 21,812
<NET-CHANGE-IN-ASSETS> 1,063,193
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 367,306
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 646,376
<AVERAGE-NET-ASSETS> 66,062,058
<PER-SHARE-NAV-BEGIN> 11.93
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> 3.64
<PER-SHARE-DIVIDEND> 3.94
<PER-SHARE-DISTRIBUTIONS> 1.10
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.77
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000861106
<NAME> HSBC MUTUAL FUNDS TRUST
<SERIES>
<NUMBER> 6
<NAME> SMALL CAP FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 19,703,928
<INVESTMENTS-AT-VALUE> 27,405,055
<RECEIVABLES> 10,378
<ASSETS-OTHER> 203,637
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,619,070
<PAYABLE-FOR-SECURITIES> 528,408
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,054,970
<TOTAL-LIABILITIES> 1,583,378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,648,578
<SHARES-COMMON-STOCK> 1,800,980
<SHARES-COMMON-PRIOR> 2,043,503
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (314,013)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,701,127
<NET-ASSETS> 26,035,692
<DIVIDEND-INCOME> 123,461
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 340,371
<NET-INVESTMENT-INCOME> (216,911)
<REALIZED-GAINS-CURRENT> 2,920,761
<APPREC-INCREASE-CURRENT> 2,875,059
<NET-CHANGE-FROM-OPS> 5,578,909
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,004,447
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,031,816
<NUMBER-OF-SHARES-REDEEMED> 668,276
<SHARES-REINVESTED> 225
<NET-CHANGE-IN-ASSETS> 1,728,113
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,230,327)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 179,340
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 346,714
<AVERAGE-NET-ASSETS> 26,035,692
<PER-SHARE-NAV-BEGIN> 11.90
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 3.24
<PER-SHARE-DIVIDEND> 3.12
<PER-SHARE-DISTRIBUTIONS> .56
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.46
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000861106
<NAME> HSBC MUTUAL FUNDS TRUST
<SERIES>
<NUMBER> 1
<NAME> INTERNATIONAL EQUITY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 15,083,245
<INVESTMENTS-AT-VALUE> 15,902,562
<RECEIVABLES> 63,180
<ASSETS-OTHER> 214,240
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,179,982
<PAYABLE-FOR-SECURITIES> 225,463
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44,125
<TOTAL-LIABILITIES> 267,588
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,865,922
<SHARES-COMMON-STOCK> 1,528,095
<SHARES-COMMON-PRIOR> 1,761,154
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (776,197)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 920,665
<NET-ASSETS> 15,910,394
<DIVIDEND-INCOME> 244,012
<INTEREST-INCOME> 58,997
<OTHER-INCOME> 0
<EXPENSES-NET> 353,687
<NET-INVESTMENT-INCOME> (70,658)
<REALIZED-GAINS-CURRENT> (584,588)
<APPREC-INCREASE-CURRENT> 1,487,280
<NET-CHANGE-FROM-OPS> 88,994
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,005,308
<NUMBER-OF-SHARES-REDEEMED> 2,411,276
<SHARES-REINVESTED> 142
<NET-CHANGE-IN-ASSETS> (908,630)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (222,321)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149,012
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 464,112
<AVERAGE-NET-ASSETS> 15,910,394
<PER-SHARE-NAV-BEGIN> 9.55
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> .49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 1.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
Exhibit 1
Amended and Restated Declaration of Trust
<PAGE>
- --------------------------------------------------------------------------------
FIRST RESTATED AND AMENDED
DECLARATION OF TRUST
OF
MARINER MUTUAL FUNDS TRUST
DATED AS OF APRIL 3, 1996
- --------------------------------------------------------------------------------
600 W. Hillsboro Blvd.
Suite 300
Deerfield Beach, Florida 33441
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I -- NAME AND DEFINITIONS.................................................................................2
Section 1.1 Name...................................................................................2
Section 1.2 Definitions............................................................................2
ARTICLE II -- TRUSTEES............................................................................................3
Section 2.1 Powers.................................................................................3
Section 2.2 Legal Title............................................................................7
Section 2.3 Number of Trustees; Term of Office.....................................................8
Section 2.4 Qualification of Trustees..............................................................8
Section 2.5 Election of Trustees...................................................................8
Section 2.6 Resignation and Removal................................................................8
Section 2.7 Vacancies..............................................................................9
Section 2.8 Committees; Delegation.................................................................9
Section 2.9 Action Without a Meeting; Participation by Conference Telephone.......................10
Section 2.10 By-Laws...............................................................................10
Section 2.11 No Bond Required......................................................................10
Section 2.12 Reliance on Experts, Etc..............................................................10
ARTICLE III -- CONTRACTS.........................................................................................11
Section 3.1 Distribution Contract.................................................................11
Section 3.2 Advisory or Management Contract.......................................................11
Section 3.3 Affiliations of Trustees or Officers, Etc.............................................11
ARTICLE IV -- LIMITATION OF LIABILITY; INDEMNIFICATION...........................................................12
Section 4.1 No Personal Liability of Shareholders, Trustees, Etc..................................12
Section 4.2 Execution of Documents; Notice; Apparent Authority....................................12
Section 4.3 Indemnification of Trustees, Officers, Etc............................................12
Section 4.4 Indemnification of Shareholders.......................................................13
ARTICLE V -- SHARES OF BENEFICIAL INTEREST.......................................................................14
Section 5.1 Beneficial Interest...................................................................14
Section 5.2 Rights of Shareholders................................................................14
Section 5.3 Trust Only............................................................................14
Section 5.4 Issuance of Shares....................................................................15
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 5.4.1 General......................................................................15
Section 5.4.2 Price........................................................................15
Section 5.4.3 On Merger or Consolidation...................................................15
Section 5.4.4 Fractional Shares............................................................15
Section 5.5 Register of Shares....................................................................15
Section 5.6 Share Certificates....................................................................15
Section 5.6.1 General......................................................................15
Section 5.6.2 Loss of Certificates.........................................................16
Section 5.6.3 Issuance of New Certificates to Pledgee......................................16
Section 5.6.4 Discontinuance of Issuance of Certificates...................................16
Section 5.7 Transfer of Shares....................................................................16
Section 5.8 Voting Powers.........................................................................16
Section 5.9 Transfer of Shares....................................................................17
Section 5.10 Action Without a Meeting..............................................................17
ARTICLE VI -- REDEMPTION AND REPURCHASE OF SHARES................................................................17
Section 6.1 Redemption of Shares..................................................................17
Section 6.2 Price.................................................................................18
Section 6.3 Payment...............................................................................18
Section 6.4 Effect of Suspension of Right of Redemption...........................................18
Section 6.5 Repurchase by Agreement...............................................................18
Section 6.6 Suspension of Right of Redemption.....................................................18
Section 6.7 Involuntary Redemption of Shares; Disclosure of Holding...............................19
ARTICLE VII -- DETERMINATION OF NET ASSET VALUE; DISTRIBUTIONS...................................................20
Section 7.1 By Whom Determined....................................................................20
Section 7.2 When Determined.......................................................................20
Section 7.3 Computation of Per Share Net Asset Value..............................................20
Section 7.3.1 Net Asset Value Per Share....................................................20
Section 7.3.2 Value of the Net Assets of the Trust.........................................20
Section 7.4 Interim Determinations................................................................21
Section 7.5 Outstanding Shares....................................................................22
Section 7.6 Distributions to Shareholders.........................................................22
Section 7.7 Power to Modify Foregoing Procedures..................................................23
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VIII -- CUSTODIAN........................................................................................23
Section 8.1 Appointment and Duties................................................................23
Section 8.2 Action Upon Termination of Custodian Agreement........................................24
Section 8.3 Central Certificate System, Etc.......................................................24
Section 8.4 Acceptance of Receipts in Lieu of Certificates........................................24
ARTICLE IX --DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC...................................................................................24
Section 9.1 Duration and Termination..............................................................24
Section 9.2 Amendment Procedure...................................................................25
Section 9.3 Merger, Consolidation and Sale of Assets..............................................26
Section 9.4 Incorporation.........................................................................26
Section 9.5 Series Vote...........................................................................26
ARTICLE X -- REPORTS TO SHAREHOLDERS.............................................................................26
ARTICLE XI -- MISCELLANEOUS......................................................................................27
Section 11.1 Filing................................................................................27
Section 11.2 Governing Law.........................................................................27
Section 11.3 Counterparts..........................................................................27
Section 11.4 Reliance by Third Parties.............................................................27
Section 11.5 Provisions in Conflict with Law or Regulations........................................27
Section 11.6 Section Headings; Interpretation......................................................28
Section 11.7 Registered Agent......................................................................28
</TABLE>
- iii -
<PAGE>
--------------------------------
FIRST RESTATED AND AMENDED
DECLARATION OF TRUST
OF
MARINER MUTUAL FUNDS TRUST
DATED AS OF APRIL 3, 1996
--------------------------------
FIRST RESTATED AND AMENDED DECLARATION OF TRUST dated as of April 3, 1996
by the trustees (the "Trustees") of the Mariner Mutual Funds Trust (the
"Trust").
WHEREAS, the Trustees desire to establish a Massachusetts business trust
for the investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
WHEREAS, the Trustees desire to restate and amend the Declaration of Trust,
dated November 1, 1989, and to file such First Restated and Amended Declaration
of Trust with the Secretary of State of the Commonwealth of Massachusetts and
with the Clerk of the City of Boston, and
WHEREAS, pursuant to Section 9.2(c) of the Declaration of Trust, dated
November 1, 1989, the Trustees have resolved and unanimously voted to restate
and amend such Declaration as herein provided; and
WHEREAS, the Trustees desire the Mariner Mutual Funds Trust to be renamed
HSBC Mutual Funds Trust;
NOW THEREFORE, the Trustees hereby declare that the Declaration of Trust of
this trust be herein provided and that all money and property contributed to the
trust established hereunder and all proceeds thereof shall be held and managed
in trust for the pro rata benefit of the holders, from time to time, of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof.
<PAGE>
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. The name of the trust created hereby is the "Mariner
Mutual Funds Trust", and as far as may be practicable the Trustees shall conduct
the business and activities of the trust created hereby and execute all
documents and take all actions under that name or any other name they may from
time to time determine, which name (and the word "Trust" whenever used in this
Declaration, except where the context requires otherwise) shall refer to the
Trustees in their capacity as Trustees, and not individually or personally, and
shall not refer to the officers, agents, employees or shareholders of the trust
created hereby or of such Trustees.
Section 1.2 Definitions. Wherever they are used herein, the following terms
have the following meanings:
"Affiliated Person" shall have the meaning set forth in Section 2(a)(3) of
the 1940 Act.
"By-Laws" shall mean the By-Laws, if any, adopted pursuant to Section 2.10
hereof, as from time to time amended.
"Commission" shall mean the Securities and Exchange Commission.
"Custodian" shall mean any Person other than the Trustees who has custody
of any Trust Property as required by Section 17(f) of the 1940 Act.
"Declaration" shall mean this Declaration of Trust as amended from time to
time.
"Distributor" shall have the meaning set forth in Section 3.1 hereof.
"Interested Person" shall have the meaning set forth in Section 2(a)(19) of
the 1940 Act.
"Investment Adviser" shall have the meaning set forth in Section 3.2
hereof.
"Investment Sub-Adviser" shall have the meaning set forth in Section 3.2
hereof.
"Majority Shareholder Vote" shall mean the vote Of a majority of the
outstanding voting securities, as defined in Section 2(a)(42) of the 1940 Act.
"1940 Act" shall mean the Investment Company Act of 1940, as amended from
time to time.
"Person" shall mean an individual, a company, a corporation, partnership,
trust, or association, a joint venture, an organization, a business, a firm or
other entity, whether or not a
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legal entity, or a country, state, municipality or other political subdivision
or any governmental agency or instrumentality.
"Portfolio" shall mean the assets and liabilities of the Trust which relate
to a Series of Shares.
"Principal Underwriter" shall have the meaning set forth in Section
2(a)(29) of the 1940 Act.
"Series" shall mean a class of Shares.
"Series Majority Shareholder Vote" shall mean the vote of a majority of the
outstanding voting securities of a Series, as defined in Section 2(a)(42) of the
1940 Act.
"Shareholder" shall mean a record owner of Shares.
"Shares" shall mean the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time to
time and includes fractions of Shares as well as whole Shares.
"Transfer Agent" shall mean any Person other than the Trustees who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
"Trust" shall mean the Massachusetts business trust, Mariner Mutual Fund
Trust, 600 W. Hillsboro Blvd., Suite 300, Deerfield Beach, Florida 33441,
established by this Declaration of Trust, as from time to time amended.
"Trust Property" shall mean any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
"Trustees" shall mean the individuals who have signed this Declaration of
Trust, so long as they shall continue in office in accordance with the terms
hereof, and all other individuals who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance with the provisions
of Article II hereof, and reference herein to a Trustee or the Trustees shall
refer to such person or persons in his or her capacity or their capacities as
trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1 Powers. The Trustees, subject only to the specific limitations
contained in this Declaration, shall have exclusive and absolute power, control
and authority over the Trust Property and over the business of the Trust to the
same extent as if the Trustees were
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the sole owners of the Trust Property and business in their own right, including
such power, control and authority to do all such acts and things as in their
sole judgment and discretion are necessary, incidental, convenient or desirable
for the carrying out of or conducting of the business of the Trust or in order
to promote the interests of the Trust, but with such powers of delegation as may
be permitted by this Declaration. The enumeration of any specific power, control
or authority herein shall not be construed as limiting the aforesaid power,
control and authority or any other specific power, control or authority. The
Trustees shall have power to conduct and carry on the business of the Trust, or
any part thereof, to have one or more offices and to exercise any or all of its
trust powers and rights, in the Commonwealth of Massachusetts, in any other
states, territories, districts, colonies and dependencies of the United States
and in any foreign countries. In construing the provisions of this Declaration,
the presumption shall be in favor of a grant of power to the Trustees. Such
powers of the Trustees may be exercised without order of or resort to any court.
Without limiting the foregoing, the Trustees shall have the power:
(a) To operate as and to carry on the business of an investment
company, and to exercise all the powers necessary and appropriate to the
conduct of such operations.
(b) To subscribe for and to invest and reinvest funds in, and hold for
investment, the securities (including but not limited to bonds, debentures,
time notes, certificates of deposit, commercial paper, bankers' acceptances
and all other evidences of indebtedness and shares, stock, subscription
rights, profit-sharing interests or participations and all other contracts
for or evidences of equity interests) of any Person and to hold cash
uninvested.
(c) To acquire (by purchase, subscription or otherwise), to trade in
and deal in, to sell or otherwise dispose of, to enter into repurchase
agreements and firm commitment agreements with respect to, and to lend and
to pledge any such securities.
(d) To acquire (by purchase, subscription or otherwise), to trade in
and deal in, to sell or otherwise dispose of, options or futures.
(e) To exercise all rights, powers and privileges of ownership or
interest in all securities included in the Trust Property, including the
right to vote, give assent, execute and deliver proxies or powers of
attorney to such person or persons as the Trustees shall deem proper and
otherwise act with respect thereto and to do all acts for the preservation,
protection, improvement and enhancement in value of all such securities and
to delegate, assign, waive or otherwise dispose of any of such rights,
powers or privileges.
(f) To exercise powers and rights of subscription or otherwise which
in any manner arise out of the Trust's ownership of securities.
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(g) To declare (from interest, dividends or other income received or
accrued, from accruals of original issue or other discounts on obligations
held, from capital or other profits whether realized or unrealized and from
any other lawful sources) dividends and distributions on the Shares and to
credit the same to the account of Shareholders, or at the election of the
Trustees to accrue income to the account of Shareholders, on such dates
(which may be as frequently as every day) as the Trustees may determine.
Such dividends, distributions or accruals shall be payable in cash,
property or Shares at such intervals as the Trustees may determine at any
time in advance of such payment, whether or not the amount of such
dividend, distribution or accrual can at the time of declaration or accrual
be determined or must be calculated subsequent to declaration or accrual
and prior to payment by reference to amounts or other factors not yet
determined at the time of declaration or accrual (including but not limited
to the amount of a dividend or distribution to be determined by reference
to what is sufficient to enable the Trust to qualify as a regulated
investment company under the United States Internal Revenue Code or to
avoid liability for Federal income tax).
The power granted by this Subsection (g) shall include, without
limitation, and if otherwise lawful, the power (A) to declare dividends or
distributions or to accrue income to the account of Shareholders by means
of a formula or other similar method of determination whether or not the
amount of such dividend or distribution can be calculated at the time of
such declaration; (B) to establish record or payment dates for dividends or
distributions on any basis, including the power to establish a number of
record or payment dates subsequent to the declaration of any dividend or
distribution; (C) to establish the same payment date for any number of
dividends or distributions declared prior to such date; (D) to provide for
payment of dividends or distributions declared and as yet unpaid, or unpaid
accrued income, to Shareholders redeeming Shares prior to the payment date
otherwise applicable; and (E) to provide in advance for conditions under
which any dividend or distribution may be payable in Shares to all or less
than all of the Shareholders.
(h) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale, lease or otherwise) any
property, real or personal, and any interest therein.
(i) To borrow money, and in this connection to issue notes or other
evidences of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting to security interests the Trust Property; and to lend
Trust Property.
(j) To aid by further investment any Person, if any obligation of or
interest in such Person is included in the Trust Property or if the
Trustees have any direct or indirect interest in the affairs of such
Person; to do anything designed to preserve, protect, improve or enhance
the value of such obligation or
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interest; and to endorse or guarantee or become surety on any or all
of the contracts, stocks, bonds, notes, debentures and other obligations of
any such Person; and to mortgage the Trust Property or any part thereof to
secure any of or all such obligations.
(k) To promote or aid the incorporation of any organization or
enterprise under the law of any country, state, municipality or other
political subdivision, and to cause the same to be dissolved, wound up,
liquidated, merged or conslidated.
(l) To enter into joint ventures, general or limited partnerships and
any other combinations or association.
(m) To purchase and pay for entirely out of Trust Property insurance
policies insuring the Shareholders, Trustees, officers, employees and
agents of the Trust, the Investment Adviser, the Distributor and dealers or
independent contractors of the Trust against all claims and liabilities of
every nature arising by reason of holding or having held any such position
or by reason of any action taken or omitted by any such Person in such
capacity, whether or not constituting negligence, to the extent the Trust
would have the power, under provisions of applicable law, to indemnify such
Person against such liability.
(n) To establish and carry out pension, profit-sharing, share
purchase, share bonus, savings, thrift and other retirement, incentive and
benefit plans for any Trustees, officers, employees or agents of the Trust.
(o) To the extent permitted by law and determined by the Trustees, to
indemnify any Person with whom the Trust has dealings, including, without
limitation, the Shareholders, the Trustees, the officers, employees and
agents of the Trust, the Investment Adviser, the Distributor, the Transfer
Agent, the Custodian and dealers.
(p) To incur and pay any charges, taxes and expenses which in the
opinion of the Trustees are necessary or incidental to or proper for
carrying out any of the purposes of this Declaration, and to pay from the
funds of the Trust Property to themselves as Trustees reasonable
compensation and reimbursement for expenses.
(q) To prosecute or abandon and to compromise, arbitrate or otherwise
adjust claims in favor of or against the Trust or any matter in
controversy, including but not limited to claims for taxes.
(r) To foreclose any security interest securing any obligations owed
to the Trust.
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(s) To exercise the right to consent, and to enter into releases,
agreements and other instruments, including, but not limited to, the right
to consent or participate in any plan for the reorganization, consolidation
or merger of any corporation or issuer any security of which is or was held
by the Trust; to consent to any contract, lease, mortgage, purchase or sale
of such property by said corporation or issuer and to pay calls or
subscriptions with respect to securities held by the Trust.
(t) To employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust.
(u) To determine and change the fiscal year of the Trust and the
method in which its accounts shall be kept.
(v) To adopt a seal for the Trust, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust.
(w) To take such actions as are authorized or required to be taken by
the Trustees pursuant to other provisions of this Declaration.
(x) In general to carry on any other business in connection with or
incidental to any of the objects and purposes of the Trust, to do
everything necessary, suitable or proper for the accomplishment of any
purpose or the attainment of any object or the furtherance of any power
herein set forth, either alone or in association with others, and to take
any action incidental or appurtenant to or growing out of or connected with
the business, purposes, objects or powers of the Trustees.
The foregoing clauses shall be construed both as objects and as powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited by any law now or hereafter in effect
limiting the investments which may be made or retained by fiduciaries, but they
shall have full power and authority to make any and all investments within the
limitation of this Declaration that they, in their sole and absolute discretion,
shall determine, and without liability for loss even though such investments do
not or may not produce income or are of a character or in an amount not
considered proper for the investment of trust funds.
Section 2.2 Legal Title. Legal title to all the Trust Property shall as far
as may be practicable be vested in the name of the Trust, which name shall refer
to the Trustees in their capacity as Trustees, and not individually or
personally, and shall not refer to the officers, agents, employees or
Shareholders of the Trust or of the Trustees, provided that the Trustees shall
have power to cause legal title to any Trust Property to be held by or in the
name of one or more of the Trustees with suitable reference to their Trustee
status, or in the name of the Trust, or in a form
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not indicating any trust, whether in bearer, unregistered or other negotiable
form, or in the name of a custodian or sub-custodian or a nominee or nominees or
otherwise. The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each Person who may hereafter become a Trustee. Upon
the termination of the term of office of a Trustee, whether upon such Trustee's
resignation or removal, or upon the due election and qualification of his
successor or upon the occurrence of any of the events specified in the first
sentence of Section 2.7 hereof or otherwise, such Trustee shall automatically
cease to have any right, title or interest in any of the Trust Property, and the
right, title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing of documents have been executed
and delivered.
Section 2.3 Number of Trustees; Term of Office. The number of Trustees
shall be six, which number may be increased and thereafter decreased from time
to time by a written instrument signed by a majority of the Trustees, provided,
that the number of Trustees shall not be less than two nor more than 15. The
Trustees shall hold office until the next Shareholders' meeting and until their
successors are elected and qualified or until the earlier occurrence of any
events specified in the first sentence of Section 2.7 hereof.
Section 2.4 Qualification of Trustees. Of the total number of Trustees, at
least 40% shall be persons who are not Interested Persons of the Trust or of the
Distributor.
Section 2.5 Election of Trustees. Except as otherwise provided in Section
2.7 hereof, the Trustees shall be elected at a special Shareholders' meeting.
Trustees may succeed themselves in office. Trustees shall be elected by a
plurality of the votes validly cast. The election of any Trustee (other than an
individual who was serving as a Trustee immediately prior thereto) shall not
become effective, however, until the individual named shall have accepted in
writing such election and agreed in writing to be bound by the terms of this
Declaration. Trustees need not own Shares.
Section 2.6 Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the Chairman of the Board, or the Secretary or
any Assistant Secretary, and such resignation shall be effective upon such
delivery, or at any later date specified in the instrument. The Trustees shall
promptly call a special Shareholders' meeting for voting on the question of
removal of any Trustee when requested in writing to do so by not less than 10%
of the outstanding shares of the Trust. Any of the Trustees may be removed
(provided the aggregate number of Trustees after such removal shall not be less
than two) with cause by the affirmative vote of two-thirds of the remaining
Trustees. Upon the resignation or removal of a Trustee, or his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property held in the name of the resigning or
removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
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Section 2.7 Vacancies. The term of office of a Trustee shall terminate and
a vacancy shall occur in the event of the death, retirement, resignation or
removal (whether pursuant to Section 2.6 hereof or otherwise), bankruptcy,
adjudication of incompetence or other incapacity to perform the duties of the
office of a Trustee. No vacancy shall operate to annul this Declaration or to
revoke any existing agency created pursuant to the terms of the Declaration. In
the case of an existing vacancy, including a vacancy existing by reason of an
increase in the authorized number of Trustees, the remaining Trustees shall,
subject to the requirement of Section 2.4 hereof, fill such vacancy by the
appointment of such individual as they in their sole and absolute discretion
shall see fit, made by a written instrument signed by a majority of the Trustees
then in office, provided that immediately after filling any such vacancy at
least two-thirds of the Trustees then holding office shall have been elected to
such office by the Shareholders. In the event that at any time less than a
majority of the Trustees holding office at that time were elected by the
Shareholders, a meeting of the Shareholders shall be held promptly and in any
event within 60 days (unless the Commission shall by order extend such period)
for the purpose of electing Trustees to fill any existing vacancies. No such
appointment or election shall become effective, however, until the person named
shall have accepted in writing such appointment or election and agreed in
writing to be bound by the terms of this Declaration. Whenever a vacancy is
filled as provided in this Section 2.7, the Trustees in office, regardless of
their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by the Declaration.
Section 2.8 Committees; Delegation. The Trustees shall have the power to
appoint from their own number, and terminate, any one or more committees
consisting of two or more Trustees, including an executive committee which may
exercise some or all of the power and authority of the Trustees as the Trustees
may determine (including but not limited to the power to determine net asset
value and net income), subject to any limitations contained in the By-Laws, and
in general to delegate from time to time to one or more of their number or to
officers, employees or agents of the Trust such power an authority and the doing
of such things and the execution of such instruments, either in the name of the
Trust or the names of the Trustees or otherwise, as the Trustees may deem
expedient, provided, that no committee shall have the power
(a) to change the principal office of the Trust;
(b) to amend the By-Laws;
(c) to issue Shares;
(d) to elect or remove from office any Trustee or the Chairman of the
Board, the President, the Treasurer, or the Secretary of the Trust;
(e) to increase or decrease the number of Trustees;
(f) to declare a dividend or other distribution of the Shares;
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(g) to authorize the repurchase of Shares; or
(h) to authorize any merger, consolidation or sale, lease or exchange of
all or substantially all of the Trust Property.
Section 2.9 Action Without a Meeting; Participation by Conference
Telephone. Unless the 1940 Act requires that a particular action must be taken
only at a meeting of Trustees, any action required or permitted to be taken at
any meeting of the Trustees (or of any committee of the Trustees) may be taken
without a meeting if written consents thereto are signed by a majority of the
Trustees then in office (or by a majority of the members of such committees) and
such written consents are filed with the records of the meetings. Unless the
1940 Act requires that Trustees must be present in person at a meeting of
Trustees, Trustees may participate in a meeting of the Trustees (or of any
committee of the Trustees) by means of a conference telephone or similar
communications equipment if all individuals participating can hear each other at
the same time. Participation in a meeting by these means shall constitute
presence in person at the meeting.
Section 2.10 By-Laws. The Trustees may adopt By-Laws not inconsistent with
this Declaration or law to provide for the conduct of the business of the Trust,
and may amend or repeal such By-Laws.
Section 2.11 No Bond Required. No Trustee shall be obligated to give any
bond or other security for the performance of any of his duties hereunder.
Section 2.12 Reliance on Experts, Etc. Each Trustee, officer, agent and
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected in relying in good faith upon the books of
account or other records of the Trust, or upon reports made to the Trustees (a)
by any of the officers or employees of the Trust, (b) by the Investment Adviser,
the Investment Sub-Adviser, the Distributor, the Custodian or the Transfer
Agent, or (c) by any accountants, selected dealers or appraisers or other
agents, experts or consultants selected with reasonable care by the Trustees,
regardless of whether such agent, expert of consultant may also be a Trustee.
The Trustees, officers, agents and employees of the Trust may take advice of
counsel with respect to the meaning and operation of this Declaration, and shall
be under no liability for any act or omission in accordance with such advice or
for failing to follow such advice. The exercise by the Trustees of their powers
and discretion hereunder and the construction in good faith by the Trustees of
the meaning or effect of any provision of this Declaration shall be binding upon
everyone interested. A Trustee, officer, agent or employee shall be liable for
his own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law.
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ARTICLE III
CONTRACTS
Section 3.1 Distribution Contract. The Trustees may from time to time enter
into a distribution contract with another Person (the "Distributor") providing
for the sale of Shares, pursuant to which the Trustees may agree to sell the
Shares to the Distributor or appoint the Distributor their sales agent for the
Shares. Such contract may also provide for the repurchase of Shares by the
Distributor as agent of the Trustees and shall contain such terms and
conditions, if any, as may be prescribed in the By-Laws and such further terms
and conditions not inconsistent with the provisions of this Article III or of
the By-Laws as the Trustees may in their discretion determine.
Section 3.2 Advisory or Management Contract. Subject to approval by a
Series Majority Shareholder Vote, the Trustees may from time to time enter into
an investment advisory or management contract with other Persons (the
"Investment Advisers") pursuant to which such Investment Advisers shall agree to
furnish to the Trustees management, investment advisory, statistical and
research facilities and services, with respect to one or more of the Portfolios
of the Trust, such contracts to contain such other terms and conditions, if any,
as may be prescribed in the By-Laws and such further terms and conditions not
inconsistent with the provisions of this Article III, the By-Laws or applicable
law as the Trustees may in their discretion determine, including the grant of
authority to the Investment Adviser to determine what securities shall be
purchased or sold by the Portfolios of the Trust and what portion of its assets
shall be uninvested and to implement its determinations by making changes in the
Portfolio's investments. Such contracts may also provide for the Trust and such
Investment Advisers to enter into contracts with Persons ("Investment
Sub-Advisers") pursuant to which management, investment advisory, statistical
and research facilities may be supplied to the Trust and Investment Adviser.
Section 3.3 Affiliations of Trustees or Officers, Etc. The fact that any
Shareholder, Trustee, officer, agent or employee of the Trust is a shareholder,
member, director, officer, partner, trustee, employee, manager, adviser or
distributor of or for any Person or of or for any parent or affiliate of any
Person with which an investment advisory or management contract, principal
underwriter or distributor contract or custodian, transfer agent, disbursing
agent or similar agency contract may have been or may hereafter be made, or that
any such Person, or any parent or affiliate thereof, is a Shareholder of or has
any other interest in the Trust, or that any such person also has any one or
more similar contracts with one or more other such Persons, or has other
businesses on interests, shall not affect the validity of any such contract made
or that may hereafter be made with the Trustees or disqualify any Shareholder,
Trustee, officer, agent or employee of the Trust from voting upon or executing
the same or create any liability or accountability to the Trustees, the Trust or
the Shareholders.
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ARTICLE IV
LIMITATION OF LIABILITY; INDEMNIFICATION
Section 4.1 No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever in connection
with Trust Property or the acts, obligations or affairs of the Trust. All
Persons extending credit to, contracting with or having any claim against the
Trust shall look only to the assets of the Trust for payment under such credit,
contract or claim, and neither the Shareholders nor the Trustees, nor any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. The Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, employee or agent
(including, without limitation, the Investment Advisor, any Investment
Sub-Adviser, the Distributor, the Custodian and the Transfer Agent) of the
Trust, nor shall any Trustee be responsible or liable for the act or omission of
any other Trustee. Nothing in this Declaration shall, however, protect any
Trustee, officer, employee or agent of the Trust against any liability to which
such Person would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Section 4.2 Execution of Documents; Notice; Apparent Authority. Every note,
bond, contract, instrument, certificate or undertaking any every other act or
thing whatsoever executed or done by or on behalf of the Trust or the Trustees
or any of them in connection with the Trust shall be conclusively deemed to have
been executed or done only in or with respect to their or his or her capacity as
Trustees or Trustee, and such Trustees or Trustee shall not be personally liable
thereon. Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officers or officer shall give notice that
this Declaration of Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts and shall recite that the obligations of such
instruments are not binding upon any of the Trustees, Shareholders, officers,
employees or agents of the Trust individually but are binding only upon the
assets and property of the Trust, but the omission thereof shall not operate to
bind any Trustees, Shareholders or officers, employees and agents of the Trust
individually. No purchaser, lender, Transfer Agent or other Person dealing with
the Trustees or any officer, employee or agent of the Trust shall be bound to
make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by such officer, employee or agent or make inquiry
concerning or be liable for the application of money or property paid, loaned or
delivered to or on the order of the Trustees or of such officer, employee or
agent.
Section 4.3 Indemnification of Trustees, Officers, Etc. The Trust shall
indemnify each of its Trustees, officers, employees and agents (including any
individual who serves at its request as director, officer, partner, trustee or
the like of another organization in which it has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties and counsel fees reasonably incurred by him or her in connection
with the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, before any court or administrative or legislative body in
which he or she may be or may have
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been involved as a party or otherwise or with which he or she may be or may have
been threatened, while acting as Trustee or as an officer, employee or agent of
the Trust or the Trustees, as the case may be, or thereafter, by reason of his
or her being or having been such a Trustee, officer, employee or agent, except
with respect to any matter as to which he or she shall have been adjudicated not
to have acted in good faith in the reasonable belief that his or her action was
in the best interests of the Trust, provided that no individual shall be
indemnified hereunder against any liability to the Trust or the Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, and provided further
that as to any matter disposed of by settlement or a compromise payment by such
Trustee, officer, employee or agent, pursuant to a consent decree or otherwise,
no indemnification either for said payment or for any other expenses shall be
provided unless there has been a determination that such compromise is in the
best interests of the Trust and that such Person appears to have acted in good
faith in the reasonable belief that his or her action was in the best interests
of the Trust and did not engage in willful misfeasance, bad faith, gross
negligence reckless disregard of the duties involved in the conduct of his or
her office. All determinations that the applicable standards of conduct have
been met for indemnification hereunder shall be made by (a) a majority vote of a
quorum consisting of disinterested Trustees who are not parties to the
proceeding relating to indemnification, or (b) if such a quorum is not
obtainable or, even if obtainable, if a majority vote of such quorum so directs,
by independent legal counsel in a written opinion, or (c) a Majority Shareholder
Vote (excluding Shares owned of record or beneficially by such individual); and
provided that as to any matter disposed of without a court determination (i) on
the merits that such Trustee, officer, employee or agent was not liable or (ii)
that such Person was not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, no indemnification shall be provided hereunder unless there has been
a determination by independent legal counsel in a written opinion that such
Person did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
The Trustees may make advance payments in connection with the expense of
defending any action with respect to which indemnification might be sought under
this Section 4.3; provided that the indemnified Trustee, officer, employee or
agent shall have given a written undertaking to reimburse the Trust in the event
it is subsequently determined that he or she is not entitled to such
indemnification and provided further that (a) the indemnified Trustee, officer,
employee or agent shall provide security for his or her undertaking or (b) the
Trust shall be insured against losses arising by reason of lawful advances or
(c) a majority of a quorum of disinterested Trustees or an independent legal
counsel in a written opinion shall determine, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there is reason
to believe that an indemnitee ultimately will be found entitled to
indemnification. The rights accruing to any Trustee, officer, employee or agent
under these provisions shall not exclude any other right to which he or she may
be lawfully entitled and shall inure to the benefit of his or her heirs,
executors, administrators or other legal representatives.
Section 4.4 Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder and not because of acts or omissions
or for some other reason, the Shareholder or former Shareholder (or his or her
heirs, executors, administrators or other legal
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representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of the Trust to
be held harmless from and indemnified against all loss and expense, including
legal expenses reasonably incurred, arising from such liability. The rights
accruing to a Shareholder under this Section 4.4 shall not exclude any other
right to which such Shareholder may be lawfully entitled, nor shall anything
contained herein restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1 Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest, of
$0.001 par value per share ("Shares"). The Trustees shall have the power to
classify and reclassify, as the case may be, any unissued Shares into Series
relating to portfolios (the "Portfolios") of assets in which the Trust may
invest. Each Series of Shares shall be one class, none having preference or
priority with each other Share of that Series, and shall represent an equal
proportionate interest in the Portfolio to which the Shares relate. The Trustees
may from time to time divide or combine the Shares in each Series into a greater
or lesser number without thereby changing the proportionate beneficial interests
in the Trust. The number of shares of beneficial interest authorized hereunder
is unlimited.
Section 5.2 Rights of Shareholders. Shares shall be deemed to be personal
property giving only the rights provided in this Declaration. Every Shareholder
by virtue of having become a Shareholder shall be held to have expressly
assented and agreed to the terms hereof and to have become a party hereto. The
ownership of the Trust Property and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the Trust
nor can they be called upon to share or assume any losses of the Trust or suffer
an assessment of any kind by virtue of their ownership of Shares. The death of a
Shareholder during the continuance of the Trust shall not operate to terminate
the same nor to entitle the legal representative of such Shareholder to an
accounting or to take any action in any court or otherwise against other
Shareholders or the Trustees or the Trust Property, but only to the rights of
such Shareholder hereunder. The Shares shall not entitle the holder to
preference, preemptive, appraisal, conversion or exchange rights.
Section 5.3 Trust Only. The Trust shall be of the type commonly termed a
Massachusetts business trust. It is the intention of the Trustees to create only
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
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Section 5.4 Issuance of Shares.
Section 5.4.1 General. The Trustees may from time to time without vote of
the Shareholders issue and sell or cause to be issued and sold Shares, except
that only Shares previously contracted to be sold may be issued during any
period when the right of redemption is suspended pursuant to the provisions of
Section 6.6 hereof. All such Shares, when issued in accordance with the terms of
this Section 5.4, shall be fully paid and nonassessable.
Section 5.4.2 Price. No Shares shall be issued or sold by the Trustees for
less than an amount which would result in proceeds to the Trust, before taxes
and other expenses payable by the Trust in connection with such transaction, of
at least the net asset value per share next determined as set forth in Article
VII hereof after receipt of a purchase order for such Shares. For this purpose,
the time of receipt of an order shall be the time it is first received in proper
form at such office or agency as may be designated for the purpose.
Section 5.4.3 On Merger or Consolidation. In connection with the
acquisition of assets (including the acquisition of assets subject to, and in
connection with the assumption of, liabilities), businesses or stock of another
Person, the Trustees may issue or cause to be issued Shares and accept in
payment therefor, in lieu of cash, such assets or businesses at their market
value (as determined by the Trustees) or such stock at the market value (as
determined by the Trustees) of the assets held by such other Person, either with
or without adjustment for contingent costs or liabilities, provided that the
funds of the Trust are permitted by law to be invested in such assets,
businesses or stock.
Section 5.4.4 Fractional Shares. The Trustees may issue and sell fractions
of Shares, to two decimal places, having pro rata all the rights of full Shares,
including, without limitation, the right to vote and to receive dividends and
distributions.
Section 5.5 Register of Shares. A register shall be kept at the principal
office of the Trust or an office of the Transfer Agent which shall contain the
names and addresses of the Shareholders and the number of Shares held by them
respectively and a record of all transfers thereof. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-Laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trust as shall keep the said register for entry
thereon.
Section 5.6 Share Certificates.
Section 5.6.1 General. Each shareholder shall be entitled to a certificate
stating the number of Shares he or she owns, in such form as shall be prescribed
from time to time by the Trustees. Such certificates shall be signed by the
Chairman of the Board, President or Vice President and by the Treasurer or
Assistant Treasurer. Such signatures may be facsimile if the certificate is
signed by a transfer agent, or by a registrar, other than a Trustee, officer or
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employee of the Trust. In case any officer who has signed or whose facsimile
signature has been placed on such certificate shall cease to be such officer
before such certificate is issued, it may be issued by the Trust with the same
effect as if he or she were such officer at the time of its issue.
In lieu of issuing certificates for shares, the Trustees or the transfer
agent may either issue receipts therefor or may keep accounts upon the books of
the Trust for the record holders of such shares, who shall in either case be
deemed, for all purposes hereunder, to be the holders of certificates for such
shares as if they had accepted such certificates and shall be held to have
expressly assented and agreed to the terms hereof.
Section 5.6.2 Loss of Certificates. In case of the alleged loss or
destruction or the mutilation of a share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees shall prescribe.
Section 5.6.3 Issuance of New Certificates to Pledgee. A pledge of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it is
held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder and entitled to vote
thereon.
Section 5.6.4 Discontinuance of Issuance of Certificates. The Trustees may
at any time discontinue the issuance of share certificates and may, by written
notice to each shareholder, require the surrender of share certificates to the
Trust for cancellation. Such surrender and cancellation shall not affect the
ownership of Shares in the Trust.
Section 5.7 Transfer of Shares. Shares shall be transferable on the records
of the Trust upon delivery to the Trust or the Transfer Agent or Agents of
appropriate evidence of assignment, transfer, succession or authority to
transfer accompanied by any certificate or certificates representing such Shares
previously issued to the transferor. Upon such delivery the transfer shall be
recorded on the register of the Trust. Until such record is made, the Trustees,
the Transfer Agent, and the officers, employees and agents of the Trust shall
not be entitled or required to treat the assignee or transferee of any Share as
the absolute owner thereof for any purpose, and accordingly shall not be bound
to recognize any legal, equitable or other claim or interest in such Share on
the part of any Person, other than the holder of record, whether or not any of
them shall have express or other notice of such claim or interest.
Section 5.8 Voting Powers. The Shareholders shall have power to vote only:
(a) for the election of Trustees as provided in Sections 2.5 and 2.7 hereof; (b)
with respect to any investment advisory or management contract entered into
pursuant to Section 3.2 hereof; (c) with respect to any termination of the
Trust, as provided in Section 9.1 hereof; (d) with respect to any amendment of
this Declaration to the extent and as provided in Section 9.2 hereof; (e) with
respect to any merger, consolidation or sale of assets of the Trust as provided
in Section 9.3 hereof; (f) with respect to incorporation of the Trust to the
extent and as provided in Section 9.4 hereof; (g) to the same extent as the
stockholders of a Massachusetts business corporation as to
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whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the shareholders; and (h) with respect to such additional matters relating to
the Trust as may be required by this Declaration or the By-laws or by reason of
the registration of the Trust or the Shares with the Commission or any State or
by any applicable law or any regulation or order of the Commission or any State
or as the Trustees may consider necessary or desirable. Each whole Share shall
be entitled to one vote as to any matter on which Shareholders are entitled to
vote and each fractional Share shall be entitled to a proportionate fractional
vote. On any matter submitted to a vote of Shareholders, all Shares issued and
outstanding small be voted in the aggregate and not by Series except (i) when
required by the 1940 Act or (ii) when the matter does not affect any interest of
a particular Series, only Shareholders of affected Series shall be entitled to
vote thereon. A majority of the Shares voted shall decide any questions, except
when a different vote is specified by applicable law, any provision of the
By-Laws or this Declaration. There shall be no cumulative voting in the election
of Trustees. Shares may be voted in person or by Proxy. Until Shares are issued,
the Trustees may exercise all rights of Shareholders (including the right to
authorize an amendment to this Declaration under Section 9.2 hereof) and may
take any action required by law, the By-Laws or this Declaration to be taken by
Shareholders. The By-Laws may include further provisions for Shareholders' votes
and related matters.
Section 5.9 Transfer of Shares. Special meeting of the Shareholders shall
be held for the purpose of reelecting Trustees or electing new Trustees in place
of and to succeed those in office at that time or to fill vacancies and for such
other purposes as may be specified by the Trustees. Special meetings of the
Shareholders may be called at any time by the Chairman of the Board, the
President or any Vice President of the Trust, or by a majority of the Trustees
for the purpose of taking action upon any matter requiring the vote or authority
of the Shareholders as herein provided or upon any other matters deemed to be
necessary or desirable. A special meeting of Shareholders may also be called at
any time upon the written request of a holder or the holders of not less than
25% of all of the Shares entitled to be voted at such meeting, provided that the
Shareholder or Shareholders requesting such meeting shall have paid to the Trust
the reasonably estimated cost of preparing and mailing the notice thereof, which
the Secretary shall determine and specify to such Shareholder or Shareholders.
Section 5.10 Action Without a Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if such proportion of Shareholders
as is required to vote for approval of the matter by law, the Declaration or the
By-Laws consents to the action in writing and the written consents are filed
with the records of Shareholders' meeting. Such consents shall be treated for
all purposes as a vote taken at a Shareholders' meeting.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1 Redemption of Shares. The Trustees shall redeem Shares, subject
to the conditions and at the price determined as herein set forth, upon proper
application of the record holder thereof at such office or agency as may be
designated from time to time for that
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purpose by the Trustees. The Trustees shall have power to determine from time to
time the form and the other accompanying documents which shall be necessary to
constitute a proper application for redemption.
Section 6.2 Price. Such Shares shall be redeemed for an amount not
exceeding the net asset value of such Shares next determined as set forth in
Article VII hereof after receipt of a proper application for redemption.
Section 6.3 Payment. Payment for such Shares redeemed shall be made to the
Shareholder of record within 7 days after the date upon which proper application
is received, subject to the Trustees or their designated agent being satisfied
that the purchase price of such Shares has been collected and to the provisions
of Section 6.4 hereof. Such payment shall be made in cash or other assets of the
Trust or both, as the Trustees shall prescribe. For the purposes of such payment
for Shares redeemed, the value of assets delivered shall be determined as set
forth in Article VII hereof as of the same time as of which the per share net
asset value of such Shares is determined.
Section 6.4 Effect of Suspension of Right of Redemption. If, pursuant to
Section 6.6 hereof, the Trustees shall declare a suspension of the right of
redemption, the rights of Shareholders (including those who shall have applied
for redemption pursuant to Section 6.1 hereof but who shall not yet have
received payment) to have Shares redeemed and paid for by the Trust shall be
suspended until the time specified in Section 6.6. Any record holder who shall
have his redemption right so suspended may, during the period of such
suspension, by appropriate written notice of revocation at the office or agency
where application was made, revoke any application for redemption not honored.
The redemption price of Shares for which redemption applications have not been
revoked shall not exceed the net asset value of such Shares next determined as
set forth in Article VII hereof after the termination of such suspension, and
payment shall be made within 7 days after the date upon which the application
was made plus the period after such application during which the determination
of net asset value was suspended.
Section 6.5 Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per share next determined as set forth in Article VII hereof after
the time when the contract of purchase is made.
Section 6.6 Suspension of Right of Redemption. The Trustees may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (a) during which the New York
Stock Exchange is closed, other than customary weekend and holiday closings, (b)
during which trading on the New York Stock Exchange is restricted, (c) during
which an emergency exists as a result of which disposal by the Trustees of
securities owned by them is not reasonably practicable or it is not reasonably
practicable for the Trustees fairly to determine the value of the net assets of
the Trust, or (d) during which the Commission may for the protection of security
holders of the Trust by order permit suspension of the right of redemption or
postponement of the date of payment or
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redemption. Such suspension shall take effect at such time as the Trustees shall
specify, which shall not be later than the close of business on the business day
next following the declaration, and thereafter there shall be no determination
of net asset value until the Trustees shall declare the suspension at an end,
except that the suspension shall terminate in any event on the first day on
which (i) the condition giving rise to the suspension shall have ceased to exist
and (ii) no other condition exists under which suspension is authorized under
this Section 6.6. Each declaration by the Trustees pursuant to this Section 6.6
shall be consistent with such applicable rules and regulations, if any, relating
to the subject matter thereof as shall have been promulgated by the Commission
or any other governmental body having jurisdiction over the Trust and as shall
be in effect at the time. To the extent not inconsistent with such rules and
regulations, the determination of the Trustees shall be conclusive.
Section 6.7 Involuntary Redemption of Shares; Disclosure of Holding. (a) If
the Trustees shall, at any time and in good faith, be of the opinion that direct
or indirect ownership of Shares or other securities of the Trust has or may
become concentrated in any Person to an extent which would disqualify the Trust
as a regulated investment company under the United States Internal Revenue Code,
then the Trustees shall have the power by lot or other means deemed equitable by
them
(i) to call for redemption a number, or principal amount, of Shares
sufficient in the opinion of the Trustees to maintain or bring the direct
or indirect ownership of Shares into conformity with the requirements for
such qualification and
(ii) to refuse to transfer or issue Shares to any Person whose
acquisition of the Shares in question would in the opinion of the Trustees
result in such disqualification.
Any redemption pursuant to this Section 6.7(a) shall be effected at a redemption
price determined in accordance with Section 6.2 hereof.
(b) The holders of Shares shall upon request disclose to the Trustees in
writing such information with respect to direct and indirect ownership of Shares
as the Trustees deem necessary to comply with the provisions of the United
States Internal Revenue Code, or to comply with the requirements of any other
taxing authority.
(c) The Trustees shall have the power to redeem Shares in any account at a
redemption price determined in accordance with Section 6.2 hereof if at any time
the total number of Shares held in such account is fewer than 100, in which
event Shareholders shall be notified that the number of their Shares is fewer
than 100 and allowed 30 days to purchase additional Shares before their Shares
are redeemed.
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ARTICLE VII
DETERMINATION OF NET ASSET VALUE; DISTRIBUTIONS
Section 7.1 By Whom Determined. The Trustees shall have the power and duty
to determine from time to time the net asset value per share of the Shares. They
may appoint one or more Persons to assist them in the determination of the value
of securities in the Trust's portfolio and to make the actual calculations
pursuant to their directions. Any determination made pursuant to this Article
VII shall be binding on all parties concerned.
Section 7.2 When Determined. The net asset value shall be determined at
such times as the Trustees shall prescribe in accordance with the applicable
provisions of the 1940 Act and regulations and orders from time to time in
effect thereunder. The Trustees may suspend the daily determination of net asset
value to the extent permitted by the 1940 Act or the regulations and orders from
time to time in effect thereunder.
Section 7.3 Computation of Per Share Net Asset Value.
Section 7.3.1 Net Asset Value Per Share. The net asset value of each
Share as of any particular time shall be the quotient obtained by dividing the
value of the net assets of the Trust (determined in accordance with Section
7.3.2) by the total number of outstanding Shares.
Section 7.3.2 Value of the Net Assets of the Trust. The value of the net
assets of the Trust as of any particular time shall be the value of the Trust's
assets less its liabilities, determined and computed as follows:
(1) Trust's Assets. The Trust's assets shall be deemed to include: (A)
all cash on hand or on deposit, including any interest accrued thereon, (B)
all bills and demand notes and accounts receivable, (C) all securities
owned or contracted for by the Trustees, (D) all stock and cash dividends
and cash distributions payable to but not yet received by the Trustees
(when the valuation of the underlying security is being determined
ex-dividend), (E) all interest accrued on any interest-bearing securities
owned by the Trustees (except accrued interest included in the valuation of
the underlying security) and (F) all other property of every kind and
nature, including prepaid expenses.
(2) Valuation of Assets. The value of such assets is to be determined
as follows:
(i) Cash and Prepaid Expenses. The value of any cash on hand and
of any prepaid expenses shall be deemed to be their full amount.
(ii) Other Current Assets. The value of any accounts receivable
and cash dividends and interest declared or accrued as aforesaid and
not
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yet received shall be deemed to be the full amount thereof,
unless the Trustees shall determine that any such item is not worth
its full amount. In such case the value of the item shall be deemed to
be its reasonable value, as determined by the Trustees.
(iii) Securities and Other Property. A security for which market
quotations are readily available which is not subject to restrictions
against sale and has a remaining maturity of more than 60 days from
the date of valuation may be valued on the basis of such quotations.
Any security which has a remaining maturity of 60 days or less may be
valued at cost plus earned discount; if such security was acquired
with a remaining maturity of more than 60 days, the cost thereof for
purposes of such valuation shall be deemed to be the value on the
sixty-first day prior to maturity. Any security for which market
quotations are not readily available and any other property the
valuation of which is not provided for above, shall be valued at its
fair market value as determined in such manner as the Trustees shall
from time to time prescribe by resolution. For the purposes of this
Article VII, market quotations shall not be deemed to be readily
available if in the judgment of the Trustees such quotations, if any,
do not afford a fair and adequate basis for valuing holdings of
securities of a size normally held by the Trust, whether due to the
infrequency or size of the transactions represented by such quotations
or otherwise.
(3) Liabilities. The Trust's liabilities shall not be deemed to
include any Shares and surplus, but they shall be deemed to include: (A)
all bills And accounts payable, (B) all administrative expenses accrued and
unpaid, (C) all contractual obligations for the payment of money or
property, including the amount of any declared but unpaid dividends upon
Shares and the amount of all income accrued but not paid to Shareholders,
(D) all reserves authorized or approved by the Trustees for taxes or
contingencies and (E) all other liabilities of whatsoever kind and nature
except any liabilities represented by Shares and surplus.
(4) Series of Shares. When the Trust has more than one Series of
Shares outstanding relating to separate Portfolios of assets and
liabilities, the net asset value of the Shares as determined in Section
7.3.2 hereof shall be determined as if each such Portfolio were the Trust
as referred to in such computation, but with its assets limited to the
assets belonging to such Portfolio, its liabilities limited to the
liabilities belonging to such Portfolio and the total number of Shares
deemed to be outstanding limited to the outstanding Shares of such Series.
Section 7.4 Interim Determinations. Any determination of net asset value
other than as of the close of trading on the New York Stock Exchange may be made
either by
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appraisal or by calculation or estimate. Any such calculation or estimate shall
be based on changes in the market value of representative or selected securities
or on changes in recognized market averages since the last closing appraisal and
made in a manner which in the opinion of the Trustees will fairly reflect the
changes in the net asset value.
Section 7.5 Outstanding Shares. For the purposes of this Article VII,
outstanding Shares shall mean those Shares shown from time to time on the books
of the Trust or the Transfer Agent as then issued and outstanding, adjusted as
follows:
(a) Shares sold shall be deemed to be outstanding Shares from the time
when the sale is reported to the Trustees or their agents for determining
net asset value, but not before (i) an unconditional purchase order
therefor has been received by the Trustees (directly or through one of
their agents) or by the Principal Underwriter of the Shares and the sale
price in currency has been determined and (ii) receipt by the Trustees
(directly or through one of their agents) of Federal funds in the amount of
the sale price; and such sale price (net of commission, if any, and any
stamp or other tax payable by the Trust in connection with the issue and
sale of the Shares sold) shall be thereupon deemed to be an asset of the
Trust.
(b) Shares distributed pursuant to Section 7.6 shall be deemed to be
outstanding as of the time that Shareholders who shall receive the
distribution are determined.
(c) Shares for which a proper application for redemption has been made
or which are subject to repurchase by the Trustees shall be deemed to be
outstanding Shares up to and including the time as of which the redemption
or repurchase price is determined. After such time, they shall be deemed to
be no longer outstanding Shares and the redemption or purchase price until
paid shall be deemed to be a liability of the Trust.
Section 7.6 Distributions to Shareholders. Without limiting the powers of
the Trustees under Subsection (f) of Section 2.1 of Article II hereof, the
Trustees may at any time and from time to time, as they may determine, allocate
or distribute to Shareholders of each Series such income and capital gains of
the Portfolio related to the Series, accrued or realized, as the Trustees may
determine, after providing for actual, accrued or estimated expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with generally accepted accounting practices. The Trustees shall
have full discretion to determine which items shall be treated as income and
which items as capital and their determination shall be binding upon the
Shareholders. Such distributions shall be made in cash, property or Shares or
any combination thereof as determined by the Trustees. Any such distribution
paid in Shares shall be paid at the net asset value thereof as determined
pursuant to this Article VII. The Trustees may adopt and offer to Shareholders
such dividend reinvestment plans, cash dividend payout plans or related plans as
the Trustees shall deem appropriate. Inasmuch as the computation of net income
and gains for Federal income tax purposes may vary from the
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computation thereof on the books of the Trust, the above provisions shall be
interpreted to give the Trustees the power in their discretion to allocate or
distribute for any fiscal year as ordinary dividends and as capital gains
distributions, respectively, additional amounts sufficient to enable the Trust
to avoid or reduce liability for taxes.
Section 7.7 Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for the determination of
the per share net asset value of Shares as may be permitted by, or as they may
deem necessary or desirable to enable the Trust to comply with, any provision of
the 1940 Act, any rule or regulation thereunder (including any rule or
regulation adopted pursuant to Section 22 of the 1940 Act by the Commission or
any securities association or exchange registered under the Securities Exchange
Act of 1934, as amended) or any order of exemption issued by the Commission, all
as in effect now or as hereafter amended or modified.
ARTICLE VIII
CUSTODIAN
Section 8.1 Appointment and Duties. Subject to the 1940 Act and such rules,
regulations and orders as the Commission may adopt, the Trustees shall employ a
bank or trust company having a capital, surplus and undivided profits of at
least $2,000,000 as custodian with authority as the agent of the Trust, but
subject to such restrictions, limitations and other requirements, if any, as may
be contained in the By-laws of the Trust:
(a) to hold the securities owned by the Trust and deliver the same
upon written order;
(b) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct; and
(c) to disburse such funds upon orders or vouchers.
The Trustees may authorize such custodian as the agent of the Trust (x) to keep
the books and accounts of the Trust and furnish clerical and accounting services
and (y) to compute the net income and the value of the net assets of the Trust.
The Trustees may also authorize the Investment Adviser or an affiliate of
the Investment Adviser to be the custodian.
The acts and services of the custodian shall be performed upon such basis
of compensation as may be agreed upon by the Trustees and the custodian. If so
directed by a
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Majority Shareholder Vote, the custodian shall deliver and pay over all property
of the Trust held by it as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States of one of the states thereof and having capital,
surplus and undivided profits of at least $2,000,000. '
Section 8.2 Action Upon Termination of Custodian Agreement. Upon
termination of a custodian agreement or inability of any custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special Shareholders' meeting to determine whether the Trust shall
function without a Custodian or shall be liquidated. If so directed by vote of
the holders of a majority of the Shares outstanding and entitled to vote, the
custodian shall deliver and pay over all Trust Property held by it as specified
in such vote.
Section 8.3 Central Certificate System, Etc. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
Section 8.4 Acceptance of Receipts in Lieu of Certificates. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu or receipt of certificates representing such securities.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC
Section 9.1 Duration and Termination. (a) Unless terminated as provided
herein, the Trust shall continue without limitation of time. The Trust may be
terminated by the affirmative vote of at least 66 2/3% of the Shares outstanding
or, when authorized by a Majority
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Shareholder Vote, by an instrument in writing signed by a majority of the
Trustees. Upon the termination of the Trust,
(i) the Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) the Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration shall continue
until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of
all or any part of the remaining Trust Property to one or more persons at
public or private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge or pay
its liabilities, and do all other acts appropriate to liquidate its
business, provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property that requires Shareholder approval under Section 9.3 hereof shall
receive the approval so required.
(iii) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders according to their respective rights.
(b) After termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall there, cease.
Section 9.2 Amendment Procedure. (a) This Declaration may be amended from
time to time by an instrument in writing signed by a majority of the Trustees
when authorized by a Majority Shareholder Vote, provided that any amendment
having the purpose of changing the name of the Trust or of supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision shall not require authorization by the
Shareholders. Nothing contained in this Declaration shall permit the amendment
of this Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to permit
assessments upon Shareholders.
(b) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted as aforesaid, or a copy of this
Declaration as amended, executed by a majority of the Trustees, shall be
conclusive evidence of such amendment when lodged among the records of the
Trust.
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<PAGE>
(c) Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall become effective,
this Declaration may be terminated or amended in any respect by the affirmative
vote of a majority of the Trustees or by an instrument signed by a majority of
the Trustees.
Section 9.3 Merger, Consolidation and Sale of Assets. The Trust may merge
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any Shareholders' meeting called
for the purpose by a Majority Shareholder Vote.
Section 9.4 Incorporation. With the approval of a Majority Shareholder
Vote, the Trustees may cause to be organized or assist in organizing under the
laws of any jurisdiction a corporation or corporations or any other trust,
partnership, association or other organization to take over all of the Trust
Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and may sell, convey and transfer the Trust
Property to any such corporation, trust, partnership, association or other
organization in exchange for the shares or securities thereof or otherwise, and
may lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or other
organization, or any corporation, partnership, trust, association or other
organization in which the Trust holds or is about to acquire shares or any other
interest. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization. Nothing contained herein shall be construed
as requiring approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring less than all or
substantially all of the Trust Property to such organization or entities.
Section 9.5 Series Vote. When the 1940 Act so requires, the actions
permitted under this Article IX shall be authorized by a Series Majority
Shareholder Vote.
ARTICLE X
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust, including financial
statements which shall at least annually be accompanied by a report thereon of
independent public accountants.
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<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.1 Filing. This Declaration and any amendment hereto shall be
filed with the Secretary of the Commonwealth of Massachusetts and in such other
places as may be required under the laws of the Commonwealth of Massachusetts
and may also be filed or recorded in such other places as the Trustees deem
appropriate. Unless any such amendment sets forth some later time for the
effectiveness of such amendment, such amendment shall be effective upon its
filing with the Secretary of the Commonwealth of Massachusetts. A restated
Declaration, integrating into a single instrument all of the provisions of this
Declaration which are then in effect and operative, may be executed from time to
time by a majority of the Trustees and shall, upon filing with the Secretary of
the Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may hereafter be referred to in lieu of the original
Declaration and the various amendments thereto.
Section 11.2 Governing Law. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said Commonwealth.
Section 11.3 Counterparts. This Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instruments,
which shall be sufficiently evidenced by any such original counterpart.
Section 11.4 Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees or (f) the existence of any fact or facts which
in any manner relate to the affairs of the Trust, shall be conclusive evidence
as to the matters so certified in favor of any Person dealing with the Trustees
and their successors.
Section 11.5 Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with requirements of the 1940 Act, would be inconsistent with any of
the conditions necessary for qualification of the Trust as a regulated
investment company under the United States Internal Code or is inconsistent with
other applicable laws and regulations, such provision shall be deemed never to
have constituted a part of this Declaration, provided that such determination
shall not affect any of the remaining
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<PAGE>
provisions of this Declaration or render invalid or improper any action taken or
omitted prior to such determination.
(b) If any provisions of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
Section 11.6 Section Headings; Interpretation. Section headings in this
Declaration are for convenience of reference only, and shall not limit or
otherwise affect the meaning hereof. References in this Declaration to "this
Declaration" shall be deemed to refer to this Declaration as from time to time
amended, and all expressions such as "thereof", "herein"' and "hereunder" shall
be deemed to refer to this Declaration and not exclusively to the article or
section in which such words appear.
Section 11.7 Registered Agent. The registered agent for the Trust is Pamela
J. Wilson, Esq., Gaston Snow, One Federal Street, Boston, Massachusetts 02110.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument this
_____, day of November, 1989.
------------------------------
John P. Pfann, as Trustee and
not individually
The name and address of the sole Trustee is:
John P. Pfann
J.P.P. Equities, Inc.
3 Hollis Drive
HoHoKus, New Jersey 07423
STATE OF NEW JERSEY
State of New Jersey, City of HoHoKus,, to wit: I hereby certify, that on
this _____ day of November, in the year 1989, before the subscriber,
_____________________, personally appeared John P. Pfann and acknowledged the
foregoing document to be his free act and deed.
Before me,
------------------------------
Notary Public
My commission expires:
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<PAGE>
MARINER MUTUAL FUNDS TRUST
CERTIFICATE OF INCUMBENCY
Trustee Principal Address
- ------- -----------------
John P. Pfann 600 W. Hillsboro Blvd.
Suite 300
Deerfield Beach, Florida 33441
<PAGE>
Exhibit 2
By-Laws
<PAGE>
BY-LAWS
OF
MARINER MUTUAL FUNDS TRUST
As adopted on November 1, 1989
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I -- Definitions..........................................................................................1
ARTICLE II -- Offices and Seal....................................................................................1
Section 2.1 Principal Office.......................................................................1
Section 2.2 Registered Office......................................................................1
Section 2.3 Other Offices..........................................................................1
Section 2.4 Seal...................................................................................1
ARTICLE III -- Shareholders.......................................................................................2
Section 3.1 Meetings...............................................................................2
Section 3.2 Place of Meeting.......................................................................2
Section 3.3 Notice of Meetings.....................................................................2
Section 3.4 Shareholders Entitled to Vote..........................................................3
Section 3.5 Quorum.................................................................................3
Section 3.6 Adjournment............................................................................3
Section 3.7 Proxies................................................................................4
Section 3.8 Inspection of Records..................................................................4
Section 3.9 Record Dates...........................................................................4
ARTICLE IV -- Meetings of Trustees................................................................................5
Section 4.1 Regular Meetings.......................................................................5
Section 4.2 Special Meetings.......................................................................5
Section 4.3 Notice.................................................................................5
Section 4.4 Waiver of Notice.......................................................................5
Section 4.5 Quorum, Adjournment and Voting.........................................................6
Section 4.6 Compensation...........................................................................6
ARTICLE V -- Executive Committee and Other Committees.............................................................6
Section 5.1 How Constituted........................................................................6
Section 5.2 Powers of the Executive Committee......................................................6
Section 5.3 Other Committees of Trustees...........................................................7
Section 5.4 Proceedings, Quorum and Manner of Acting...............................................7
Section 5.5 Other Committees.......................................................................7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VI -- Officers............................................................................................8
Section 6.1 General................................................................................8
Section 6.2 Election, Term of Office and Qulifications.............................................8
Section 6.3 Resignations and Removals..............................................................8
Section 6.4 Vacancies and Newly Created Offices....................................................9
Section 6.5 Chairman of the Board..................................................................9
Section 6.6 President..............................................................................9
Section 6.7 Vice President........................................................................10
Section 6.8 Treasurer and Assistant Treasurers....................................................10
Section 6.9 Secretary and Assistant Secretaries...................................................10
Section 6.10 Subordinate Officers..................................................................11
Section 6.11 Remuneration..........................................................................11
Section 6.12 Surety Bonds..........................................................................11
ARTICLE VII -- Execution of Instruments, Voting of Securities ...................................................12
Section 7.1 Execution of Instruments..............................................................12
Section 7.2 Voting of Securities..................................................................12
ARTICLE VIII -- Fiscal Year, Accountants.........................................................................13
Section 8.1 Fiscal Year...........................................................................13
Section 8.2 Accountants...........................................................................13
ARTICLE IX -- Amendments.........................................................................................14
Section 9.1 General...............................................................................14
</TABLE>
ii
<PAGE>
BY-LAWS
OF
MARINER MUTUAL FUNDS TRUST
ARTICLE I
Definitions
The terms "Affiliated Person", "Commission", "Declaration", "Interested
Person", "Investment Adviser", "Majority Shareholder Vote", "1940 Act",
Principal Underwriter", "Series", "Series Majority Shareholder Vote,
"Shareholder", "Shares", "Trust", "Trust Property" and "Trustees" have the
meanings given them in the Declaration of Trust (the "Declaration") of Mariner
Mutual Funds Trust (the "Trust"), dated November 1, 1989, as amended from time
to time.
ARTICLE II
Offices and Seal
Section 2.1 Principal Office. The principal office of the Trust shall be
located in the City of New York, State of New York.
Section 2.2 Registered Office. The Trust shall maintain a registered office
in the City of Boston, Commonwealth of Massachusetts.
Section 2.3 Other Offices. The Trust may establish and maintain such other
offices and places of business within or without the Commonwealth of
Massachusetts as the Trustees may from, time to time determine.
Section 2.4 Seal. The seal of the Trust shall be circular in form and shall
bear the name of the Trust, the year of its organization, and the words "Common
Seal" and "A Massachusetts Voluntary Association". The form of the seal shall be
subject to alteration by the Trustees and the seal may be used by causing it or
a facsimile to be impressed or affixed or
<PAGE>
printed or otherwise reproduced. Any officer or Trustee of the Trust shall have
authority to affix the seal of the Trust to any document requiring the same but,
unless otherwise required by the Trustees, the seal shall not be necessary to be
placed on, and its absence shall not impair the validity, of any document,
instrument or other paper executed and delivered by or on behalf of the Trust.
ARTICLE III
Shareholders
Section 3.1 Meetings. A Shareholders' meeting for the election of Trustees
and the transaction of other proper business shall be held when authorized under
or required by the Declaration.
Section 3.2 Place of Meeting. All Shareholders' meetings shall be held at
such place within or without the Commonwealth of Massachusetts as the Trustees
shall designate.
Section 3.3 Notice of Meetings. Notice of all Shareholders' meetings,
stating the time, place and purpose of the meeting, shall be given by the
Secretary or an Assistant Secretary of the Trust by mail to each Shareholder
entitled to notice of and to vote at such meeting at his address as recorded on
the register of the Trust mailed at least 10 days and not more than 60 days
before the meeting. Such notice shall be deemed to be given when deposited in
the United States mail, with postage thereon prepaid. Any adjourned meeting may
be held as adjourned without further notice. No notice need be given (a) to any
Shareholder if a written waiver of notice, executed before or after the meeting
by such Shareholder or his attorney thereunto duly authorized, is filed with the
records of the meeting, or (b) to any Shareholder who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him. A waiver of notice need not specify the purposes of the meeting.
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<PAGE>
Section 3.4 Shareholders Entitled to Vote. If, pursuant to Section 3.9
hereof, a record date has been fixed for the determination of Shareholders
entitled to notice of and to vote at any Shareholders' meeting, each Shareholder
of the Trust shall be entitled to vote, in person or by proxy, each Share or
fraction thereof standing in his name on the register of the Trust at the time
of determining net asset value on such record date. If the Declaration or the
1940 Act require that Shares be voted by Series, each Shareholder shall only be
entitled to vote, in person or by proxy, each Share or fraction thereof of such
Series standing in his name on the register of the Trust at the time of
determining net asset value on such record date. If no record date has been
fixed for the determination of Shareholders so entitled, the record date for the
determination of Shareholders entitled to notice of and to vote at a
Shareholders' meeting shall be at the close of business on the day on which
notice of the meeting is mailed or, if notice is waived by all Shareholders, at
the close of business on the tenth day next preceding the day on which the
meeting is held.
Section 3.5 Quorum. The presence at any Shareholders' meeting in person or
by proxy, of Shareholders entitled to cast a majority of the votes thereat shall
be a quorum for the transaction of business.
Section 3.6 Adjournment. The holders of a majority of the Shares entitled
to vote at the meeting and present thereat in person or by proxy, whether or not
constituting a quorum, or, if no Shareholder entitled to vote is present thereat
in person or by proxy, any Trustee or officer present thereat entitled to
preside or act as Secretary of such meeting, may adjourn the meeting sine die or
from time to time. Any business that might have been transacted at the meeting
originally called may be transacted at any such adjourned meeting at which a
quorum is present.
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<PAGE>
Section 3.7 Proxies. Shares may be voted in person or by proxy. When any
Share is held jointly by several persons, any one of them may vote at any
meeting in person or by proxy in respect of such Share unless at or prior to
exercise of the vote the trustees receive a specific written notice to the
contrary from any one of them, but if more than one of them shall be present at
such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger.
Section 3.8 Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders of
a Massachusetts business corporation.
Section 3.9 Record Dates. The Trustees may fix in advance a date as a
record date for the purpose of determining the Shareholders who are entitled to
notice of and to vote at any meeting or any adjournment thereof, or to express
consent in writing without a meeting to any action of the Trustees, or who shall
receive payment of any dividend or of any other distribution, or for the purpose
of any other lawful action, provided that such record date shall be not more
than 60 days before the date on which the particular action requiring such
determination of Shareholders is to be taken. In such case, subject to the
provisions of Section 3.4, each eligible Shareholder of record on such record
date shall be entitled to notice of, and to vote at, such meeting or
adjournment, or to express such consent, or to receive payment of such dividend
or distribution or to take such other action, as the case may be,
notwithstanding any transfer of Shares on the register of the Trust after the
record date.
- 4 -
<PAGE>
ARTICLE IV
Meetings of Trustees
Section 4.1 Regular Meetings. The Trustees from time to time shall provide
by resolution for the holding of regular meetings for the election of officers
and the transaction of other proper business and fix their time and place within
or without the Commonwealth of Massachusetts.
Section 4.2 Special Meetings. Special meetings of the Trustees shall be
held whenever called by the Chairman of the Board, the President (or, in the
absence or disability of the President, by any Vice President), the Treasurer,
the Secretary or two or more Trustees, at the time and place within or without
the Commonwealth of Massachusetts specified in the respective notices or waivers
of notice of such meetings.
Section 4.3 Notice. Notice of regular and special meetings, stating the
time and place, shall be (a) mailed to each Trustee at his residence or regular
place of business at least five days before the day on which the meeting is to
be held or (b) caused to be delivered to him personally or to be transmitted to
him by telegraph, cable or wireless at least two days before the day on which
the meeting is to be held. Unless otherwise required by law, such notice need
not include a statement of the business to be transacted at, or the purpose of,
the meeting. No notice of adjournment of a meeting of the Trustees to another
time or place need be given if such time and place are announced at such
meeting.
Section 4.4 Waiver of Notice. Notice of a meeting need not be given to any
Trustee if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any Trustee who attends
the meeting without protesting prior
- 5 -
<PAGE>
thereto or at its commencement the lack of notice to him. A waiver of notice
need not specify the purposes of the meeting.
Section 4.5 Quorum, Adjournment and Voting. At all meetings of the
Trustees, the presence of a majority of the total number of Trustees authorized,
but not less than two, shall constitute a quorum for the transaction of
business. A majority of the Trustees present, whether or not constituting a
quorum, may adjourn the meeting, from time to time. The action of a majority of
the Trustees present at a meeting at which a quorum is present shall be the
action of the Trustees unless the concurrence of a greater proportion is
required for such action by law, by the Declaration or by these By-Laws.
Section 4.6 Compensation. Each Trustee may receive such remuneration for
his services as such as shall be fixed from time to time by resolution of the
Trustees.
ARTICLE V
Executive Committee and Other Committees
Section 5.1 How Constituted. The Trustees may, by resolution, designate one
or more committees, including an Executive Committee, an Audit Committee, a
Nominating Committee and a Committee on Administration, each consisting of at
least two Trustees. The Trustees may, by resolution, designate one or more
alternate members of any committee to serve in the absence of any member or
other alternate member of such committee. Each member and alternate member of a
committee shall be a Trustee and shall hold office at the pleasure of the
Trustees. The Chairman of the Board and the President shall be members of the
Executive Committee.
Section 5.2 Powers of the Executive Committee. Unless otherwise provided by
resolution of the Trustees, the Executive Committee shall have and may exercise
all of the
- 6 -
<PAGE>
power and authority of the Trustees, provided that the power and authority of
the Executive Committee shall be subject to the limitations contained in the
Declaration.
Section 5.3 Other Committees of Trustees. To the extent provided by
resolution of the Trustees, other committees shall have and may exercise any of
the power and authority that may lawfully be granted to the Executive Committee.
Section 5.4 Proceedings, Quorum and Manner of Acting. In the absence of
appropriate resolution of the Trustees' each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that the quorum shall not be less than two
Trustees. In the absence of any member or alternate member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a Trustee to act in the place of such absent
member or alternate member. Members and alternate members of a committee may
participate in a meeting of such committee by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5.5 Other Committees. The Trustees may appoint other committees,
each consisting of one or more persons who need not be Trustees. Each such
committee shall have such powers and perform such duties as may be assigned to
it from time to time by the Trustees, but shall not exercise any power which may
lawfully be exercised only by the Trustees or a committee thereof.
- 7 -
<PAGE>
ARTICLE VI
Officers
Section 6.1 General. The officers of the Trust shall be a Chairman of the
Board, a President, a Secretary, and a Treasurer, and may include one or more
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 6.10 of this Article VI.
Section 6.2 Election, Term of Office and Qualifications. The officers of
the Trust (except those appointed pursuant to Section 6.10) shall be elected by
the Trustees at their first meeting. If any officer or officers are not elected
at any such meeting, such officer or officers may be elected at any subsequent
regular or special meeting of the Trustees. Each officer elected by the Trustees
shall hold office subject to Sections 6.3 and 6.4 of this Article VI and until
his successor shall have been chosen and qualified. No person shall hold more
than one office of the Trust, except that the President may hold the office of
Chairman of the Board and any Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary of the Trust may also hold the office of Vice President. The
Chairman of the Board and the President shall be selected from among the
Trustees of the Trust and may hold such offices only so long as they continue to
be Trustees. Any Trustee or officer may be but need not be a Shareholder of the
Trust.
Section 6.3 Resignations and Removals. Any officer may resign his office at
any time by delivering a written resignation to the Trustees, the President, the
Secretary or any Assistant Secretary. Unless otherwise specified therein, such
resignation shall take effect upon delivery. Any officer may be removed from
office with or without cause by the vote of a majority of the Trustees at any
regular meeting or any special meeting. Except to the extent expressly provided
in a written agreement with the Trust, no officer resigning and no officer
- 8 -
<PAGE>
removed shall have any right to any compensation for any period following his
resignation or removal, or any right to damages on account of such removal.
Section 6.4 Vacancies and Newly Created Offices. If any vacancy shall occur
in any office by reason of death, resignation, removal, disqualification or
other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Trustees at any regular or special meeting
or, in the case of any office created pursuant to Section 6.10 of this Article
VI, by any officer upon whom such power shall have been conferred by the
Trustees.
Section 6.5 Chairman of the Board. The Chairman of the Board shall be the
chief executive officer of the Trust, shall preside at all Shareholders'
meetings and at all meetings of the Trustees and shall be ex officio a member of
all committees of the Trustees, except the Audit Committee. Subject to the
supervision of the Trustees, he shall have general charge of the business of the
Trust, the Trust Property and the officers, employees and agents of the Trust.
He shall have such other powers and perform such other duties as may be assigned
to him from time to time by the Trustees.
Section 6.6 President. The President shall be the chief operating officer
of the Trust and, at the request of or in the absence or disability of the
Chairman of the Board, he shall preside at all Shareholders' meetings and at all
meetings of the Trustees and shall in general exercise the powers and perform
the duties of the Chairman of the Board. Subject to the supervision of the
Trustees and such direction and control as the Chairman of the Board may
exercise, he shall have general charge of the operations of the Trust and its
officers, employees and agents. He shall exercise such other powers and perform
such other duties as from time to time may be assigned to him by the Trustees.
- 9 -
<PAGE>
Section 6.7 Vice President. The Trustees may, from time to time, designate
and elect one or more Vice Presidents who shall have such powers and perform
such duties as from time to time may be assigned to them by the Trustees or the
President. At the request or in the absence or disability of the President, the
Vice President (or, if there are two or more Vice Presidents, the Vice President
designated by the Trustees) may perform all the duties of the President and,
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President.
Section 6.8 Treasurer and Assistant Treasurers. The Treasurer shall be the
principal financial and accounting officer of the Trust and shall have general
charge of the finances and books of account of the Trust. Except as otherwise
provided by the Trustees, he shall have general supervision of the funds and
property of the Trust and of the performance by the Custodian appointed pursuant
to Section 8.1 of the Declaration of its duties with respect thereto. The
Treasurer shall render a statement of condition of the finances of the Trust to
the Trustees as often as they shall require the same and he shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him by the Trustees.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Trustees may assign, and, in the absence of the Treasurer, he
may perform all the duties of the Treasurer.
Section 6.9 Secretary and Assistant Secretaries. The Secretary shall attend
to the giving and serving of all notices of the Trust and shall record all
proceedings of the meetings of the Shareholders and Trustees in one or more
books to be kept for that purpose. He shall keep in safe custody the seal of the
Trust, and shall have charge of the records of the Trust, including
- 10 -
<PAGE>
the register of shares and such other books and papers as the Trustees may
direct and such books, reports, certificates and other documents required by law
to be kept, all of which shall at all reasonable times be open to inspection by
any Trustee. He shall perform such other duties as appertain to his office or as
may be required by the Trustee.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary or the Trustees may assign, and, in the absence of the Secretary, he
may perform all the duties of the Secretary.
Section 6.10 Subordinate Officers. The Trustees from time to time may
appoint such other subordinate officers or agents as they may deem advisable,
each of whom shall have such title, hold office for such period, have such
authority and perform such duties as the Trustees may determine. The Trustees
from time to time may delegate to one or more officers or agents the power to
appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 6.11 Remuneration. The salaries or other compensation of the
officers of the Trust shall be fixed from time to time by resolution of the
Trustees, except that the Trustees may by resolution delegate to any person or
group of persons the power to fix the salaries or other compensation of any
subordinate officers or agents appointed in accordance with the provisions of
Section 6.10 hereof.
Section 6.12 Surety Bonds. The Trustees may require any officer or agent of
the Trust to execute a bond (including, without limitation, any bond required by
the 1940 Act and the rules and regulations of the Commission) to the Trustees in
such sum and with such surety or sureties as the Trustees may determine,
conditioned, upon the faithful performance of his duties to the Trust, including
responsibility for negligence and for the accounting of any of
- 11 -
<PAGE>
the Trust Property that may come into his hands. In any such case, a new bond of
like character shall be given at least every six years, so that the date of the
new bond shall not be more than six years subsequent to the date of the bond
immediately preceding.
ARTICLE VII
Execution of Instruments, Voting of Securities
Section 7.1 Execution of Instruments. All deeds, documents, transfers,
contracts, agreements, requisitions or orders, promissory notes, assignments,
endorsements, checks and drafts for the payment of money by the Trust, and other
instruments requiring execution either in the name of the Trust or the names of
the Trustees or otherwise may be signed by the Chairman, the President, a Vice
President or the Secretary and by the Treasurer or an Assistant Treasurer, or as
the Trustees may otherwise, from time to time, authorize, provided that
instructions in connection with the execution of portfolio securities
transactions may be signed by one such officer. Any such authorization may be
general or confined to specific instances.
Section 7.2 Voting of Securities. Unless otherwise ordered by the Trustees,
the Chairman, the President or any Vice President shall have full power and
authority on behalf of the Trustees to attend and to act and to vote, or in the
name of the Trustees to execute proxies to vote, at any meeting of stockholders
of any company in which the Trust may hold stock. At any such meeting such
officer shall possess and may exercise (in person or by proxy) any and all
rights, powers and privileges incident to the ownership of such stock. The
Trustees may by resolution from time to time confer like powers upon any other
person or persons.
- 12 -
<PAGE>
ARTICLE VIII
Fiscal Year, Accountants
Section 8.1 Fiscal Year. The fiscal year of the Trust shall be established
by resolution of the Trustees.
Section 8.2 Accountants.
(a) The Trustees shall employ an independent public accountant or firm of
independent public accountants as their accountant to examine the accounts of
the Trust and to sign and certify at least annually financial statements filed
by the Trust. The accountant's certificates and reports shall be addressed both
to the Trustees and to the Shareholders.
(b) A majority of the Trustees who are not Interested Persons of the Trust
shall select the accountant at any meeting held before the first Shareholders'
meeting, and thereafter shall select the accountant annually by votes, cast in
person, at a meeting held within 30 days before or after the beginning of the
fiscal year of the Trust. Such selection shall be submitted for ratification or
rejection at the next succeeding Shareholders' meeting. If such meeting shall
reject such selection, the accountant shall be selected by a Majority
Shareholder Vote, either at the meeting at which the rejection occurred or at a
subsequent Shareholders' meeting called for the purpose.
(c) Any vacancy occurring due to the death or resignation of the
accountant, may be filled at a meeting called for the purpose by the vote, cast
in person, of a majority of those Trustees who are not Interested Persons of the
Trust.
- 13 -
<PAGE>
ARTICLE IX
Amendments
Section 9.1 General. These By-Laws may be amended or repealed, in whole or
in part, by a majority of the Trustees then in office at any meeting of the
Trustees, or by one or more writings signed by such a majority.
- 14 -
<PAGE>
Exhibit 5(b)
Management and Administration Agreement between
Registrant and BISYS Fund Services
<PAGE>
MANAGEMENT AND ADMINISTRATION AGREEMENT
AGREEMENT made this day of , 1996, between MARINER MUTUAL FUNDS TRUST (the
"Trust"), a Massachusetts business trust having its principal place of business
at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES LIMITED
PARTNERSHIP d/b/a BISYS FUND SERVICES ("Administrator"), having its principal
place of business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company, organized
as a Massachusetts business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940
(the "1940 Act"); and
WHEREAS, the Trust desires to retain Administrator to furnish management
and administration services to each of the investment portfolios of the Trust
(individually referred to herein as a "Fund" and collectively referred to herein
as the "Funds"); and
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Manager and Administrator
Subject to the direction and control of the Board of Trustees of the Trust,
Administrator will assist in supervising all aspects of the operations of the
Funds except those performed by the investment adviser for the Funds under its
Investment Advisory Agreement, the custodian for the Funds under its Custodian
Agreement, the transfer agent for the Funds under its Transfer Agency Agreement
and the fund accountant for the Funds under its Fund Accounting Agreement.
Administrator will maintain office facilities (which may be in the offices
of Administrator or an affiliate but shall be in such location as the Trust
shall reasonably determine) and shall perform the services that are set forth in
Schedule A hereto. In compliance with the requirements of Rule 31a-3 under the
1940 Act, Administrator hereby agrees that all records which it maintains for
the Trust are the property of the Trust and further agrees to surrender promptly
to the Trust any of such records upon the Trust's request. Administrator further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the 1940 Act.
Administrator may delegate some or all of its responsibilities under this
Agreement.
Administrator may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder; provided,
however, that Administrator shall not be relieved of any of its obligations
under this Agreement by the appointment of such
<PAGE>
subcontractor and provided further, that Administrator shall be responsible, to
the extent provided in Section 4 hereof, for all acts of such subcontractor as
if such acts were its own.
2. Fees; Expenses; Expense Reimbursement
In consideration of services rendered and expenses assumed pursuant to this
Agreement, each of the Funds will pay Administrator on the first business day of
each month, or at such time(s) as Administrator shall request and the parties
hereto shall agree, a fee computed daily and paid as specified below calculated
at the applicable annual rate set forth on Schedule B hereto. The fee for the
period from the day of the month this Agreement is entered into until the end of
that month shall be prorated according to the proportion which such period bears
to the full monthly period. Upon any termination of this Agreement before the
end of any month, the fee for such part of a month shall be prorated according
to the proportion which such period bears to the full monthly period and shall
be payable upon the date of termination of this Agreement.
For the purpose of determining fees payable to Administrator, the value of
the net assets of a particular Fund shall be computed in the manner described in
the Trust's Declaration of Trust or in the Prospectus or Statement of Additional
Information respecting that Fund as from time to time is in effect for the
computation of the value of such net assets in connection with the determination
of the liquidating value of the shares of such Fund.
Administrator will from time to time employ or associate with itself such
person or persons as Administrator may believe to be particularly fitted to
assist it in the performance of this Agreement. Such person or persons may be
partners, officers, or employees who are employed by both Administrator and the
Trust. The compensation of such person or persons shall be paid by Administrator
and no obligation may be incurred on behalf of the Funds in such respect. Other
expenses to be incurred in the operation of the Funds including taxes, interest,
brokerage fees and commissions, if any, fees of Trustees who are not partners,
officers, directors, shareholders or employees of Administrator or the
investment adviser or distributor for the Funds, Commission fees and state Blue
Sky qualification and renewal fees and expenses, investment advisory fees,
custodian fees, transfer and dividend disbursing agents' fees, fund accounting
fees including pricing of portfolio securities, service organization fees,
certain insurance premiums, outside and, to the extent authorized by the Trust,
inside auditing and legal fees and expenses, costs of maintenance of corporate
existence, typesetting and printing prospectuses for regulatory purposes and for
distribution to current shareholders of the Funds, costs of shareholders' and
Trustees' reports and meetings and any extraordinary expenses will be borne by
the Funds; provided, however, that the Funds will not bear, directly or
indirectly, the cost of any activity which is primarily intended to result in
the distribution of shares of the Funds, except for expenses incurred pursuant
to a Rule 12b-1 plan adopted by the Trust.
If in any fiscal year the aggregate expenses of a particular Fund (as
defined under the securities regulations of any state having jurisdiction over
the Trust) exceed the expense limitations of any such State, Administrator will
reimburse such Fund for a portion of such excess expenses equal to such excess
times the ratio of the fees respecting such Fund otherwise payable to
2
<PAGE>
Administrator hereunder to the aggregate fees respecting such Fund otherwise
payable to Administrator hereunder and to HSBC Asset Management Americas, Inc.
("the Adviser") under the Investment Advisory Agreements between the Adviser and
the Trust. The expense reimbursement obligation of Administrator is limited to
the amount of its fees hereunder for such fiscal year, provided, however, that
notwithstanding the foregoing, Administrator shall reimburse a particular Fund
for such proportion of such excess expenses regardless of the amount of fees
paid to it during such fiscal year to the extent that the securities regulations
of any state having jurisdiction over the Trust so require. Such expense
reimbursement, if any, will be estimated daily and reconciled and paid on a
monthly basis.
3. Proprietary and Confidential Information
Administrator agrees on behalf of itself and its partners and employees to
treat confidentially and as proprietary information of the Trust all records and
other information relative to the Trust and prior, present, or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval shall
not be unreasonably withheld and may not be withheld where Administrator may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Trust.
4. Limitation of Liability
Administrator shall not be liable for any loss suffered by the Funds in
connection with the matters to which this Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also a
partner, employee, or agent of Administrator, who may be or become an officer,
Trustee, employee, or agent of the Trust or the Funds shall be deemed, when
rendering services to the Trust or the Funds, or acting on any business of that
party, to be rendering such services to or acting solely for that party and not
as a partner, employee, or agent or one under the control or direction of
Administrator even though paid by it.
5. Term
5.01 Initial Term; Renewal Terms
This Agreement shall become effective as of the date first written above
and shall continue until March 1, 1999, and thereafter shall be renewed
automatically for successive one-year terms, unless (i) it is terminated for
cause pursuant to paragraph 5.03 below, (ii) it is terminated pursuant to
paragraph 5.04 below, or (iii) written notice not to renew is given by the
non-renewing party to the other party at least 120 days prior to the expiration
of the then-current term; provided that such continuance is specifically
reviewed and approved at least annually (i) by the vote of a
3
<PAGE>
majority of the Trust's Board of Trustees or by the vote of a majority of the
outstanding voting securities of the Trust and (ii) by the majority of the
Trust's Trustees who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval. The scope of
such review shall be whether there is any "cause" (as defined below) that would
justify terminating the Agreement.
5.02 Termination of Agreement
This Agreement is terminable with respect to a particular Fund (i) upon
provision of written notice not to renew in accordance with paragraph 5.01, (ii)
upon mutual agreement of the parties hereto, (iii) for cause by the party
alleging cause pursuant to paragraph 5.03, or (iv) upon provision of written
notice to terminate in accordance with paragraph 5.04. Written notice not to
renew may be given for any reason, with or without "cause" (as defined in
paragraph 5.03). Upon termination of this Agreement, if Administrator, with the
written consent of the Trust, in fact continues to perform any one or more of
the services contemplated by this Agreement or any schedule or exhibit hereto,
the provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due and payable to Administrator and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. Administrator shall be entitled to collect from the Trust, in
addition to the compensation described under Section 2 hereof, the amount of all
of Administrator's cash disbursements for services in connection with
Administrator's activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its designees of the Trust's
property, records, instruments and documents, or any copies thereof. Subsequent
to such termination, for a reasonable fee, Administrator will provide the Trust
with reasonable access to any Trust documents or records remaining in its
possession.
5.03 Termination for Cause
This Agreement may be terminated for cause in accordance with this
paragraph 5.03. In the event cause, as defined below, is alleged, the party
alleging cause shall provide written notice to the other party specifying the
event or events constituting cause and demanding that such other party cure the
same. If appropriate corrective action is not taken within 30 days following
receipt of such notice, the party alleging cause may terminate this Agreement by
the provision of 60 days' written notice. For purposes of this Agreement,
"cause" shall mean (a) willful misfeasance, bad faith, gross negligence or
reckless disregard on the part of the party to be terminated with respect to its
obligations and duties set forth herein; (b) a final, unappealable judicial,
regulatory or administrative ruling or order in which the party to be terminated
has been found guilty of criminal or unethical behavior in the conduct of its
business; or (c) financial difficulties on the part of the party to be
terminated which is evidenced by the authorization or commencement of, or
involvement by way of pleading, answer, consent, or acquiescence in, a voluntary
or involuntary case under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
4
<PAGE>
modification or alteration of the rights of creditors. Notwithstanding the
foregoing, the absence of either or both an annual review or ratification of
this Agreement by the Board of Trustees shall not, in and of itself, constitute
"cause" as used herein.
5
<PAGE>
5.04 Termination in the Event of a Fund Liquidation or Fund Merger, or an
Assignment of the Investment Advisory Contract
If, during the initial term of this Agreement (as set forth in paragraph
5.01), (i) a Fund is liquidated or is merged into a mutual fund portfolio that
is not part of the Trust or Mariner Funds Trust, or (ii) the investment advisory
agreement between HSBC Asset Management Americas, Inc. ("HSBC") and the Trust is
assigned (excluding any technical assignment based solely upon a change in
control of HSBC) such that HSBC ceases to be the investment adviser to the
Trust, this Agreement may be terminated by the Trust with respect to each
liquidated or merged Fund (or, in the case of the assignment of the investment
advisory agreement as described above, with respect to all of the Funds) by the
provision of 60 days' written notice; provided, however, that upon such
termination, the Trust shall make a one-time cash payment, as liquidated
damages, to Administrator equal to the fees payable to Administrator hereunder
for the shorter of (i) the eighteen-month period commencing on the termination
date or (ii) the remainder of the initial term of this Agreement, assuming for
purposes of calculation of the payment that the asset level of the Trust on the
termination date will remain constant for the balance of such initial term.
5.05 Termination Without Cause
In the event (i) the Trust terminates this Agreement for any reason other
than (A) "cause" pursuant to paragraph 5.03 or (B) the reasons described in
paragraph 5.04, (ii) Administrator is otherwise replaced as fund manager and
administrator or (iii) a third party is added to perform all or a part of the
services provided by Administrator under this Agreement (excluding any
sub-administrator appointed by Administrator as provided in Section 1 hereof),
then the Trust shall make a one-time cash payment, as liquidated damages, to
Administrator equal to the balance due Administrator for the remainder of the
term of this Agreement, assuming for purposes of calculation of the payment that
the asset level of the Trust on the date Administrator is replaced, or a third
party is added will remain constant for the balance of the contract term.
6. Governing Law and Matters Relating to the Trust as a Massachusetts
Business Trust
This Agreement shall be governed by the law of the Commonwealth of
Massachusetts. It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust personally, but shall bind only the
trust property of the Trust. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the trust
property of the Trust as provided in the Trust's Agreement and Declaration of
Trust.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first written
above.
MARINER MUTUAL FUNDS TRUST BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: _________________________ By:____________________________
Title: ______________________ Title:_________________________
Date: _______________________ Date:__________________________
7
<PAGE>
SCHEDULE A
TO THE
MANAGEMENT AND ADMINISTRATION AGREEMENT
BETWEEN MARINER MUTUAL FUNDS TRUST
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
MANAGEMENT AND ADMINISTRATION SERVICES
Administration
1. Maintain calendar and files of all Board and shareholder meeting
materials
2. Maintain and manage annual regulatory filing calendar and follow up
with responsible parties
3. Obtain insurance coverage (i.e., fidelity bonds and professional
liability policies), including annual insurance renewals, on behalf of
the Trust
4. Maintain insurance files for the Trust
5. Review registration statements, including prospectuses, SAIs and proxy
statements prepared by counsel to the Trust
6. Review periodic supplements to prospectuses, as prepared by counsel to
the Trust (Administrator may, from time to time, prepare certain
prospectus supplements that require limited disclosure, with the
consent of counsel to the Trust)
7. Prepare portfolio compliance training manual for the Trust
8. Review materials and reports prepared by Fund auditors and materials
prepared by counsel to the Trust that are submitted to BISYS
9. Communicate all income breakdown data to client services and transfer
agent and coordinate printing/mailing of state income letters
10. Review and coordinate all registration statement filings
11. Coordinate printing and distribution of prospectuses, annual reports,
semi-annual reports and prospectus supplements
12. Coordinate printing, distribution and tabulation of proxies
13. Review and file Form N-SAR
14. Prepare and file Rule 24f-2 Notices (subject to review by counsel to
the Trust) within 60 days following fiscal year-end
15. Coordinate Rule 17f-2 audits with custodians (if applicable)
16. Apply for all portfolio tax identification numbers
17. Coordinate all Fund NRSRO rating meetings
18. Coordinate NASDAQ Fund registration
19. Coordinate distribution of trustee/officer questionnaires prepared by
Fund Counsel and respond to Trustees'/officers' questions relating
thereto
20. Coordinate seed money and establish control accounts for new Funds
21. Maintain open file summary, authorized signers list and Fund
compliance calendars
A-1
<PAGE>
Compliance
1. Review monthly compliance reports prepared by the Adviser
2. Perform independent monthly portfolio compliance testing
3. Prepare quarterly tax compliance letters to assist Fund portfolio
managers
4. Notify appropriate officers of mark-to-market issues
5. Monitor compliance by the Funds with various conditions imposed by
exemptive order, if applicable, relating to multiple classes of shares
6. Quarterly review of securities transactions by persons designated as
access persons by the investment adviser for purposes of determining
compliance with the Trust's Code of Ethics
7. Respond to SEC Fund audits and coordinate SEC inspections
8. Respond to Fund audit requests from independent fund accountants
9. Consult with and provide compliance advice to portfolio managers
10. Coordinate brokerage allocation reports
11. Monitor fidelity bond coverage for the Funds
12. Perform initial on-site compliance training based on Fund-specific
compliance manuals prepared by BISYS
Board Process and Meetings
1. Prepare quarterly Board meeting responsibility chart
2. Provide at least one person to attend Board meetings
3. Prepare Board agendas and BISYS sections of Board materials
4. Review all Board minutes and agendas
5. Prepare special Board meeting materials (including Lipper information
that may be appropriate for annual contract renewals)
6. Review, as requested, investment adviser's reports to be submitted to
the Board pursuant to applicable Fund procedures
7. Coordinate Board book production and distribution
Legal Services
1. Provide support to Fund Administration, broker/dealer compliance and
blue sky personnel
2. Review broker/dealer agreements, bank agreements and service
agreements
3. Review Fund agreements to which BISYS is a party
4. Maintain files of registration statements, Fund contracts, Fund
proxies and other Fund documents
5. Prepare for and manage shareholder meetings
6. Assist in preparing for and complying with any regulatory examinations
of or involving the Trust
7. Provide advice concerning product development issues
8. Conduct research and provide advice concerning applicable Federal and
state securities laws, Internal Revenue Code provisions and related
regulations, and bank regulatory issues
9. Prepare Fund Serv/NSCC reporting
10. Respond to state registration comment letters when necessary
A-2
<PAGE>
11. Respond to regulatory agency (i.e. NASD, SEC, IRS, bank regulatory)
proposals
Fund Officers
1. Make available personnel to serve as officers for the Trust
Blue Sky
1. Register the Funds and their shares with appropriate state blue sky
authorities
2. Respond to state comments during the registration process
3. Obtain all sales permits required by relevant state authorities
4. Amend and renew sales permits, as required from time to time
5. Monitor the sales of shares in individual states on a daily basis and
report required sales to appropriate states
6. File all registration statements, prospectuses, proxy statements, Rule
24f-2 Notices and other Fund reports and documents as required by
applicable state laws and regulations
7. Maintain Fund blue sky calendars
8. Respond to all blue sky audit and examination issues
9. File all renewal registrations for the Funds
10. Conduct requested blue sky fee analysis
11. Implement SRD electronic filings
A-3
<PAGE>
Dated:_________________
SCHEDULE B
TO THE
MANAGEMENT AND ADMINISTRATION AGREEMENT
BETWEEN MARINER MUTUAL FUNDS TRUST
AND BISYS FUND SERVICES LIMITED PARTNERSHIP
Compensation*
Annual Rate of:
Fifteen one-hundredths of one percent (.15%) of each such Fund's average
daily net assets up to $200,000,000
Twelve and one-half one-hundredths of one percent (.125%) of each such
Fund's average daily net assets in excess of $200,000,000 up to
$400,000,000
Ten one-hundredths of one percent (.10%) of each such Fund's average daily
net assets in excess of $400,000,000 up to 600,000,000
Eight one-hundredths of one percent (.08%) of each such Fund's average
daily net assets in excess of $600,000,000
MARINER MUTUAL FUNDS TRUST
By:_________________________________
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
- --------
* All fees are computed daily and paid periodically. All Funds that are
created after the date set forth above shall be subject to a per Fund annual
minimum of $60,000. The compensation set forth above represents (i) compensation
payable to Administrator for services rendered and expenses assumed pursuant to
the Management and Administration Agreement to which this Schedule B is attached
and (ii) compensation payable to BISYS Fund Services, Inc. ("BFSI"), an
affiliate of Administrator, for services rendered and expenses assumed pursuant
to the Fund Accounting Agreement between BFSI and the Trust dated March 1, 1996.
Administrator has agreed to receive the compensation payable under the Fund
Accounting Agreement on behalf of BFSI and to remit such compensation to BFSI
immediately upon receipt.
B-1
<PAGE>
By:_________________________________
B-2
<PAGE>
Exhibit 5(e)
Co-Administration Services Contract between HSBC Asset
Management Americas Inc. and Registrant, dated July 1, 1994
<PAGE>
CO-ADMINISTRATION SERVICES CONTRACT
MARINER MUTUAL FUNDS TRUST
370 17th Street
Denver,Colorado
November 1, 1994
HSBC Asset Management Americas Inc.
250 Park Avenue
New York, New York 10017
Dear Sirs or Madams:
This will confirm the agreement between the undersigned (the "Trust") and
you (the "Co-Administrator") as follows:
1. The Trust is an open-end investment company organized as a Massachusetts
business trust, and consists of one or more separate investment portfolios, as
may be established and designated by the Trustees from time to time (the
"Funds"). This contract shall pertain to any Fund currently in existence and any
additional Funds as shall be designated in a Supplement to this contract
("Supplement"), as further agreed by the Trust and the Co-Administrator. A
separate class of shares of beneficial interest in the Trust is offered to
investors with respect to each Fund. The Trust engages in the business of
investing and reinvesting the assets of the Funds in the manner and in
accordance with the investment objective and restrictions specified in the
Prospectus or Prospectuses (the "Prospectus") relating to the Trust and the Fund
included in the Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Trust under the Investment Company Act
of 1940 (the "1940 Act") and the Securities Act of 1933 (the "1933 Act"). The
Fund has retained PFPC, Inc. to act as Fund administrator. Copies of the
documents referred to in the preceding sentence have been furnished to the
Co-Administrator.
<PAGE>
Any amendments to those documents shall be furnished to the Co- Administrator
promptly.
2. (a) The Co-Administrator shall (i) manage the Funds' relationship with
PFPC Inc. or any successor administrator, (ii) assist with negotiation of
contracts with Fund service providers and supervise the activities of those
service providers, (iii) serve as a liaison with Fund trustees, and (iv) provide
general product management and oversight. The Co-Administrator shall make
periodic reports to the Trust's Board of Trustees on the performance of its
obligations under this Contract.
(b) The Co-Administrator shall, at its expense, employ or associate with
itself such persons as it believes appropriate to assist it in performing its
obligations under this contract.
3. The Co-Administrator shall give the Trust the benefit of the
Co-Administrator's best judgment and efforts in rendering services under this
contract. As an inducement to the Co-Administrator's undertaking to render these
services, the Trust agrees that the Co-Administrator shall not be liable under
this contract for any mistake in judgment or in any other event whatsoever
except for lack of good faith, provided that nothing in this contract shall be
deemed to protect or purport to protect the Co-Administrator against any
liability to the Trust or its shareholders to which the Co-Administrator would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Co-Administrator's duties under this
contract or by reason of the Co-Administrator's reckless disregard of its
obligations and duties hereunder.
4. In consideration of the services to be rendered by the Co-Administrator
under this contract, the Trust shall pay the Co-Administrator a monthly fee with
respect to each Fund on the first business day of each month, at an annual rate
of 0.03% of the average daily value of the net assets of the Fund during the
preceding month.
If the fees payable to the Co-Administrator pursuant to this paragraph 4
begin to accrue before the end of any month or if this contract terminates
before the end of any month, the fees
2
<PAGE>
for the period from that date to the end of that month or from the beginning of
that month to the date of termination, as the case may be, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. For purposes of calculating the monthly
fees, the value of the net assets of the Fund shall be computed in the manner
specified in the Prospectus for the computation of net asset value. For purposes
of this contract, "business day" means each weekday except those holidays on
which the Federal Reserve Bank of New York, the New York Stock Exchange (the
"Exchange") or the investment adviser is closed. Currently, those holidays
include: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas.
5. This contract and any Supplement shall become effective with respect to
a Fund only if they have been approved by vote of a majority of (i) the Board of
Trustees of the Trust, and (ii) the trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in this contract, cast in person at a meeting called for the
purpose of voting on such approval. This contract, and any Supplement, shall
continue in effect with respect to a Fund until the last day of the calendar
year next following the date of effectiveness specified in a Supplement to the
contract, and thereafter shall continue automatically for successive annual
periods ending on the last day of each calendar year, subject to the immediately
following sentence, and provided such continuance is specifically approved at
least annually by a vote of a majority of (i) the Trust's Board of Trustees and
(ii) the trustees who are not "interested persons" (as defined in the 1940 Act)
of the Trust and who have no direct or indirect financial interest in the
contract, by vote cast in person at a meeting called for the purpose of voting
on such approval. This contract may be terminated with respect to a Fund at any
time, without payment of any penalty, by a vote of a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act) or by a vote of a
majority of the Trust's Board of Trustees on 60 days' written notice to the
Co-Administrator or by the Co- Administrator on 60 days' written notice to the
Trust. If this contract is terminated with respect to any Fund, it shall
nonetheless remain in effect with respect to any remaining Funds. This contract
shall terminate automatically in the event of its
3
<PAGE>
assignment (as defined in the 1940 Act).
6. Except to the extent necessary to perform the Co- Administrator's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Co- Administrator, or any affiliate of the
Co-Administrator, or any employee of the Co-Administrator, to engage in any
other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, firm, individual or
association.
7. The Certificate of Trust, establishing the Trust, dated as of May 1,
1988, together with all amendments thereto (the "Certificate"), is on file in
the Office of the Secretary of the State of Massachusetts. The obligations of
the Trust are not personally binding upon, nor shall resort be had to the
private property of, any of the Trustees, shareholders, officers, employees, or
agents of the Trust, but only the Trust's property shall be bound.
8. This contract shall be construed and its provisions interpreted in
accordance with the laws of the State
of New York.
If the foregoing correctly sets forth the agreement between the Trust and
the Co-Administrator, please so indicate by signing and returning to the Trust
the enclosed copy hereof.
Very truly yours,
MARINER MUTUAL FUNDS TRUST
By __________________________
Title:
ACCEPTED:
HSBC ASSET MANAGEMENT AMERICAS INC.
By __________________________
Title:
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Exhibit 5(f)
Sub-Advisory Contract between HSBC Asset Management Americas Inc.
and HSBC Asset Management Europe Ltd. with respect to the
Mariner International Equity Fund dated April 25, 1994
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MARINER INTERNATIONAL EQUITY FUND
SUB-ADVISORY CONTRACT
April 25, 1995
HSBC Asset Management Europe Ltd.
6 Bevies Marks
London, EC3A 7QP
England
Dear Sirs:
The Mariner International Equity Fund (the "Fund") is one of the investment
portfolios of Mariner Mutual Funds Trust (the "Trust"), an open-end management
investment company, which was organized as a business trust under the laws of
the Commonwealth of Massachusetts. The Trust's shares of beneficial interest may
be classified into series in which each series represents the entire undivided
interests of a separate portfolio of assets. This Sub- Advisory Contract regards
certain services to be provided in connection with the management of the Fund,
on whose behalf HSBC Asset Management Americas, Inc. ("the Adviser") enters into
this Contract.
The Trustees of the Trust have selected HSBC Asset Management Americas,
Inc. (the "Adviser") to provide overall investment advice and management for the
Fund and to provide certain other services, under the terms and conditions
provided in the Master Advisory Contract between the Trust and the Adviser (the
"Advisory Contract"). The Adviser and the Trustees have selected HSBC Asset
Management Europe Ltd. (the "Sub-Adviser") to provide the Adviser and the Fund
with the advice and services set forth below and the Sub-Adviser is willing to
provide the Adviser and the Fund with the advice and services, subject to the
review of the Trustees and overall supervision of the Adviser, under the terms
and conditions hereinafter set forth. Accordingly, the Adviser agrees with the
Sub-Adviser as follows:
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1. DEFINITIONS AND DELIVERY OF DOCUMENTS. All references herein to this
Contract shall be deemed to be references to this Contract as it may from time
to time be amended. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Trust's declaration of
Trust, dated November 1, 1989 (the "Declaration of Trust"), and the currently
effective Prospectus (the "Prospectus") relating to the Fund included in the
Trust's Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Trust under the Investment Company Act of 1940 (the
"1940 Act") and the Securities Act of 1933 (the "1933 Act"). Copies of the
documents referred to in the preceding sentence have been furnished to the
Sub-Adviser. Any amendments to those documents shall be furnished to the
Sub-Adviser promptly.
2. REPRESENTATIONS. The Sub-Adviser is registered with the Securities and
Exchange Commission (the "SEC") as an investment adviser pursuant to Section 203
of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
agrees to maintain such registration during the term of this agreement.
3. SUB-ADVISORY SERVICES.
(i) The Sub-Adviser shall act as sub-adviser of a portion the Fund
designated by the Adviser under the terms of this Contract and will use its best
efforts to provide to the Fund a continuing and suitable investment program in
the Sub-Advisor's region consistent with the investment policies, objectives and
restrictions of the Fund, as set forth in the Trust's Declaration of Trust, the
Registration Statement, the applicable law and provisions of the Internal
Revenue Code of 1986, as amended, relating to regulated investment companies,
subject to policy decisions adopted by the Trust's Board of Trustees, and will
take any such actions as it may in its opinion deem necessary or desirable for
or incidental to any such purposes.
(ii) The Sub-Adviser will also, at its own expense:
(a) furnish the Trust and the Adviser with advice and
recommendations, consistent with the investment policies, objectives
and restrictions of the Fund;
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(b) subject to such consultation as the Adviser may request for a
written response, determine which Investments of the Fund should be
purchased, held or disposed of and what portion of such Assets, if
any, should be held in cash or cash equivalents, and the rationale for
those determinations;
(c) furnish the Adviser with a monthly commentary and a quarterly
report concerning market overview, performance analysis and trading
activity;
(d) subject to the supervision of the Adviser, maintain and
preserve certain records including this Sub-Advisory Contract and any
research provided to the Adviser. The Sub-Adviser agrees that such
Trust records are the property of the Trust and that such Trust
records or copies thereof will be surrendered to the Trust promptly
upon request therefor;
(e) give instructions in the form of trade tickets representing
purchases and sales of the Fund's portfolio securities to the Adviser
via facsimile transmission no later than trade date plus one; and
(f) cooperate generally with the Trust and the Adviser so far as
the Sub-Adviser is able to provide information necessary for the
preparation of registration statements and periodic reports to be
filed with the SEC, including Forms N-1A and N-SAR, periodic
statements, shareholder communications and proxy materials furnished
to holders of shares of the Fund, filings with state "blue sky"
authorities and with United States and foreign agencies responsible
for tax matters, and other reports and filings of like nature.
(iii) No provision of this Contract may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement
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of the change, waiver, discharge or termination is sought, and no amendment,
transfer, assignment, sale, hypothecation or pledge of this Contract shall be
effective until approved by (a) the Trustees of the Trust, including a majority
of the Trustees who are not interested persons of the Adviser, of the
Sub-Adviser or of the Trust (other than as Trustees), cast in person at a
meeting called for the purpose of voting on such approval, and (b) a majority of
the outstanding voting securities of the Fund; provided, however, that the
approval required in subsection (a) above, shall be evidenced by a resolution of
the entire Board of Trustees and of the Trustees who are not interested persons
of the Adviser, of the Sub-Adviser or of the Trust (other than as Trustees); and
provided further that such resolutions shall be sent to the Sub-Adviser by
facsimile and confirmed in writing by letter.
(iv) All transactions in Investments shall be subject to the rules,
regulations and customs of the exchange or market and/or clearing house through
which the transactions are executed and to all Applicable Law, and, if there is
any conflict between any such rules, customs, law and the provisions of this
Contract the former shall prevail.
(v) The Sub-Adviser may not, without specific instruction in writing (and
compliance applicable policies and restrictions of the Fund set forth in its
Registration Statement), borrow on the Adviser's behalf or commit the Adviser to
a contract (other than a trade ticket).
(vi) The Sub-Adviser has the right under this Contract to act for more than
one client collectively (including the Adviser) in any one transaction or series
of transactions without prior reference to the Adviser.
4. THE SUB-ADVISER.
(i) The Sub-Adviser shall act as agent for the Adviser and shall be
entitled to instruct such brokers and other agents as it may decide. The
Sub-Adviser may (and any such broker or sub-agent may) execute transactions on
the Adviser's behalf without prior disclosure to the Adviser of the fact that in
doing so, it is or may be dealing with or in circumstances involving an
affiliate of the Sub-Adviser; provided, however, that (a) the Sub- Adviser will
not do business with nor pay commissions to any
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affiliate in any portfolio transaction where an affiliate acts as principal; (b)
in purchasing Investments for the Funds, neither the Sub-Adviser nor any of its
directors, officers or employees will act as principal or agent or receive any
commissions; and (c) the Sub-Adviser shall use its best efforts to obtain
execution and pricing within the policy guidelines, if any, determined by the
Trustees and set forth in the Prospectus and Statement of Additional Information
of the Funds. The Sub-Adviser shall not be under any duty to account to the
Adviser for any profits or other benefits received by the Sub-Adviser or any
affiliate as a result of such transactions.
(ii) Should the Sub-Adviser deem it appropriate to match one client's order
with that of another client by acting as agent for each party, prior written
consent from both parties will be obtained before the transaction is effected.
(iii) The Sub-Adviser may effect transactions with or through the agency of
another person with whom it has an arrangement under which that person will from
time to time provide to, or procure for, the Sub-Adviser services or other
benefits the nature of which are such that their provision results, or is
designed to result, in an improvement of the Sub-Adviser's performance in
providing services for its clients and for which the Sub-Adviser makes no direct
payment but instead undertakes to place business (including business on behalf
of the Adviser) with that person. All such transactions effected for the Adviser
will, however, secure best execution, disregarding any benefit which might
accrue to the Sub-Adviser from the arrangement.
(iv) The Sub-Adviser shall not knowingly recommend that the Fund purchase,
sell or retain securities of any issue in which the Sub-Adviser or any of its
affiliated persons has a financial interest, except in instances in which the
Sub-Adviser fully discloses in writing to the Investment Adviser the nature of
its financial interest prior to purchase, sale or retention. It shall be the
duty of the Investment Adviser to notify the Trustees of the Fund of these
financial interests.
(v) the Adviser authorizes the Sub-Adviser to disclose any information
which it may be required to disclose under this Contract, the Applicable Law,
the rules and regulations of the SEC or of any market on which an Investment is
acquired.
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(vi) Nothing herein contained shall prevent the Sub- Adviser
or any of its affiliated persons or associates from engaging in any other
business or from acting as investment adviser or Sub-Adviser for any other
person or entity, whether or not having investment policies similar to the Fund.
(vii) The Sub-Adviser will pay the cost of maintaining the staff and
personnel necessary for it to perform its obligations under this Contract, the
expenses of office rent, telephone and other facilities it is obligated to
provide in order to perform the services specified in Sections 3 and 4 and any
other expenses incurred by it in connection with the performance of its duties
hereunder, including, but not limited to, attendance in person at a minimum of
one meeting each year with the Board of Trustees of the Trust and the Adviser.
(viii) The Sub-Adviser will not be required to pay any expenses which this
Contract does not expressly state shall be payable by it. In particular, and
without limiting the generality of the foregoing but subject to the provisions
of Section 4(vii), the Sub-Adviser will not be required to pay;
(a) the compensation and expenses of Trustees of the Trust, and of
independent advisers, independent contractors, consultants,
managers, and other agents employed by the Trust other than
through the Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the Fund;
(c) the fees or disbursements of the custodian, the transfer agent
and the dividend disbursing agent;
(d) stamp and other duties, taxes, impositions, governmental fees,
and fiscal charges of any nature whatsoever, assessed against the
Fund's assets and payable by the Trust;
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(e) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders, except that
the Sub-Adviser shall bear the costs of providing the services
referred to in Sections 3 and 4;
(f) brokers' commissions and underwriting fees; and
(g) the expense of periodic calculations of the net asset value of
the Fund's shares.
5. FURTHER PROVISIONS.
(i) The Sub-Adviser enters into this Contract for itself. the Adviser
includes the Adviser's successors in title or personal representatives as the
case may be.
(ii) This Contract shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Contract with the Fund, and
the Adviser shall immediately notify the Sub-Adviser of such termination. No
assignment of this Contract shall be made by the Sub-Adviser without the consent
of the Adviser.
(iii) If any provision of this Contract is or becomes invalid or
contravenes any applicable law, the remaining provisions shall remain in full
force and effect.
6. CLIENT MONEY AND CUSTODY.
The Sub-Adviser will not hold any client money on behalf of the Adviser.
The Sub-Adviser shall not be the registered holder, or custodian, of
Investments or documents of title relating thereto.
7. INSTRUCTIONS AND COMMUNICATIONS. Instructions may be given by the
Adviser in writing (by letter or facsimile or telex with correct answerback) or
by telephone unless it is required under an express provision of this Contract
for instructions to be given in writing. the Adviser shall give written
instructions to the Sub-Adviser at its Registered Office. The Sub-Adviser shall
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communicate with the Adviser in writing or by telephone except when it is
required to communicate in writing (by letter or facsimile or telex with correct
answerback) either under this Contract or in accordance with applicable law. The
Sub-Adviser shall be required to communicate instructions in the form of trade
tickets by facsimile in accordance with Section 3(ii)(e) hereof. The Sub-
Adviser shall communicate with the Adviser at the address last notified to the
Sub-Adviser. the Adviser shall be entitled to rely on the instructions of any
person who is listed on Appendix I and may assume the genuineness of all
signatures and the authenticity of all instructions and communications unless
the Adviser had reason to know such signatures, instructions or communications
were unauthorized. All trade tickets representing purchases and sales of the
Fund's portfolio securities shall be signed by at least two such persons listed
on Appendix I.
8. FEES AND EXPENSES. In consideration of the services to be rendered,
facilities furnished and expenses paid or assumed by the Sub-Adviser under this
Contract, the Adviser shall pay the Sub-Adviser a monthly fee at the annual rate
of up to 0.45% of the average net assets of the Fund managed by the Sub-Adviser.
If the fees payable to the Sub-Adviser pursuant to this paragraph 8 begin
to accrue before the end of any month or if this Contract terminates before the
end of any month, the fees for the period from that date to the end of that
month or from the beginning of that month to the date of termination, as the
case may be, shall be prorated according to the proportion which the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of the
Fund shall be computed in the manner specified in the Prospectus for the
computation of net asset value.
Notwithstanding the foregoing, if, after consultation with the Sub-Adviser,
the Adviser determines to waive any part of the fee paid to it by the Fund, the
fee paid to the Sub-Adviser hereunder may be reduced proportionately.
If in any month of the fiscal year of the Fund the Adviser is required by
the law of any state in the United States to reduce its fee or to reimburse
expenses of the Fund pursuant to the terms of the Advisory Contract. the Adviser
will reduce its fee or reimburse the Fund and notify the Sub-Adviser will
likewise reduce
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its fe or reimburse the Fund, within 30 days after receipt of such notice, in an
amount proportionately equal to the amount of reduction or reimbursement being
made by the Adviser as such amounts bear in relation to the sum of all fees to
be paid to the Adviser under the Advisory Contract and to the Sub-Adviser under
this Contract.
9. FORCE MAJEURE. The Sub-Adviser shall not be in breach of this Contract
if there is any total or partial failure of performance of its duties and
obligations occasioned by any act of God, fire, act of government or state, war,
civil commotion, insurrection, embargo, inability to communicate with market
makers for whatever reason, failure of any computer dealing system, prevention
from or hindrance in obtaining any raw materials, energy or other supplies,
labor disputes of whatever nature or any other reason (whether or not similar in
kind to any of the above) beyond the Sub-Adviser's control, provided the
Sub-Adviser has made every reasonable effort to overcome such difficulties.
10. NO PARTNERSHIP OR JOINT VENTURE. The Trust, the Adviser and the
Sub-Adviser are not partners of or joint venturers with each other and nothing
herein shall be construed so as to make them such partners or joint ventures or
impose any liability as such on any of them.
11. TERMINATION.
(i) This Contract shall become effective upon the above date, and shall
thereafter continue in effect; provided that this Contract shall continue in
effect for a period of more than two years only as so long as the continuance is
specifically approved at least annually by (a) a majority of the Trustees of the
Trust who are not interested persons of the Adviser, the Sub- Adviser or the
Trust (other than as Trustees), cast in person at meeting called for the purpose
of voting on such approval, and (b) either (i) the Trustees of the Trust, or
(ii) a majority of the outstanding voting securities of the Fund. This Contract
may, on 60 days' written notice, be terminated at any time, without the payment
of any penalty, by the Trustees of the Trust, by vote of a majority of the
outstanding voting securities of the Trust, by the Adviser or by the
Sub-Adviser. Termination shall not affect any action taken by the Sub-Adviser
permitted under this Contract prior
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to the date of termination or any warranty or indemnity given by the Adviser
under this Contract or implied by law.
(ii) On termination by either party the Sub-Adviser shall be entitled to
receive from the Adviser all fees, costs, charges and expenses accrued or
incurred under this Contract up to the date of termination including any
additional expenses or losses necessarily incurred in settling outstanding
obligations or terminating this Contract, whether they occur before or after the
date of termination.
(iii) If the Adviser terminates this Contract, it shall be subject to a
proportion of the annual fee corresponding to the proportion of the year that
has expired when this Contract is terminated.
12. CAPTIONS. The captions in this Contract are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Contract may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
13. RESERVATION OF NAMES. The names "Mariner Mutual Fund Trust" and
"Mariner International Equity Fund" are the designation of the Trustees under
the Declaration of Trust. The Sub-Adviser may not use the names "Mariner" or
"Mariner International Equity Fund" without prior written authorization by the
Trustees and officers of the Trust. The Trust and the Adviser may use the name
of the Sub-Adviser or any name derived from or similar to that name in reports,
filings, shareholder communications, registration statements, advertising
materials of like nature, only for so long as this Contract or any extension,
renewal of amendment hereof remains in effect and only upon the prior written
consent of the Sub-Adviser. At such time as this Contract shall no longer be in
effect, the Trust the Adviser will (to the extent they lawfully can) cease to
use the name of the Sub- Adviser or any other name indicating that the Fund or
the Adviser is advised by or otherwise connected with the Sub-Adviser.
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14. GOVERNING LAW. This Contract shall be construed in accordance with laws
of the State of New York and the applicable provision for the Investment Company
Act of 1940, as amend (the "1940 Act") and the Advisers Act. As used herein the
Terms "affiliated person", "assignment", "interested person", and "vote of
majority of the outstanding voting securities" shall have the meaning set forth
in the 1940 Act.
15. PERSONAL LIABILITY. The Trust's Declaration of Trust is on file with
the Secretary of State of the Commonwealth of Massachusetts. The obligations of
the Trust are not personally binding upon, nor shall resort be had to the
private property of, andy of the Trustees, shareholders, officers, employee or
agents of the Trust, but only the Trust's property shall be bound.
Yours very truly,
HSBC ASSET MANAGEMENT
AMERICAS, INC.
By:
-----------------------
Title:
The foregoing Contract
is hereby agreed to as
of the date hereof
By: _____________________
Title: President
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SCHEDULE 1
DEFINITIONS
In this Contract the following expressions shall have the following
meaning unless the context otherwise requires:
"Applicable Law"
means shall applicable laws and regulations of the
jurisdiction in which the Sub-Adviser is domiciled and of the
Securities and Exchange Commission of the United States of
America, and of any governmental or self-regulatory
organization of which the Sub-Adviser is a member, each as
from time to time amended;
"Assets"
means Investments of the Fund deposited by or on behalf
of the Adviser pursuant to which this Sub-Advisory
Contract relates;
"Fund"
means the separate portfolio of Assets of the Trust on whose
behalf the Adviser has entered into this Sub- Advisory
Contract;
"Investment"
means any asset, right or interest in respect of property
of any kind held by the Fund;
"Registered Office"
means 6 Bevies Marks, London, EC3A 7QP, England,
Telephone: ____________. Facsimile: ___________. Telex:
N/A_.
"Series"
means the series of shares of beneficial interest representing
undivided interests in the Trust's investment portfolios,
including the Fund.
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April 25, 1995
APPENDIX I
AUTHORIZED SIGNATORY LIST
The following persons are authorized to give instructions on behalf of the
Sub-Adviser to the Adviser:
Name Signature Position
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Exhibit 5(g)
Sub-Advisory Contract betweenl HSBC Asset Management Americas Inc.
and HSBC Asset Management Australia Limited with respect to
the Mariner International Equity Fund dated April 25, 1995
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MARINER INTERNATIONAL EQUITY FUND
SUB-ADVISORY CONTRACT
April 25, 1995
HSBC Asset Management Australia Limited
P.O.Box 291
Market Street, Melbourne
Victoria 3000, Australia
Dear Sirs:
The Mariner International Equity Fund (the "Fund") is one of the investment
portfolios of Mariner Mutual Funds Trust (the "Trust"), an open-end management
investment company, which was organized as a business trust under the laws of
the Commonwealth of Massachusetts. The Trust's shares of beneficial interest may
be classified into series in which each series represents the entire undivided
interests of a separate portfolio of assets. This Sub- Advisory Contract regards
certain services to be provided in connection with the management of the Fund,
on whose behalf HSBC Asset Management Americas, Inc. ("the Adviser") enters into
this Contract.
The Trustees of the Trust have selected HSBC Asset Management Americas,
Inc. (the "Adviser") to provide overall investment advice and management for the
Fund and to provide certain other services, under the terms and conditions
provided in the Master Advisory Contract between the Trust and the Adviser (the
"Advisory Contract"). The Adviser and the Trustees have selected HSBC Asset
Management Australia Limited (the "Sub-Adviser") to provide the Adviser and the
Fund with the advice and services set forth below and the Sub-Adviser is willing
to provide the Adviser and the Fund with the advice and services, subject to the
review of the Trustees and overall supervision of the Adviser, under the terms
and conditions hereinafter set forth. Accordingly, the Adviser agrees with the
Sub-Adviser as follows:
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1. DEFINITIONS AND DELIVERY OF DOCUMENTS. All references herein to this
Contract shall be deemed to be references to this Contract as it may from time
to time be amended. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Trust's declaration of
Trust, dated November 1, 1989 (the "Declaration of Trust"), and the currently
effective Prospectus (the "Prospectus") relating to the Fund included in the
Trust's Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Trust under the Investment Company Act of 1940 (the
"1940 Act") and the Securities Act of 1933 (the "1933 Act"). Copies of the
documents referred to in the preceding sentence have been furnished to the
Sub-Adviser. Any amendments to those documents shall be furnished to the
Sub-Adviser promptly.
2. REPRESENTATIONS. The Sub-Adviser is registered with the Securities and
Exchange Commission (the "SEC") as an investment adviser pursuant to Section 203
of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
agrees to maintain such registration during the term of this agreement.
3. SUB-ADVISORY SERVICES.
(i) The Sub-Adviser shall act as sub-adviser of a portion the Fund
designated by the Adviser under the terms of this Contract and will use its best
efforts to provide to the Fund a continuing and suitable investment program in
the Sub-Advisor's region consistent with the investment policies, objectives and
restrictions of the Fund, as set forth in the Trust's Declaration of Trust, the
Registration Statement, the applicable law and provisions of the Internal
Revenue Code of 1986, as amended, relating to regulated investment companies,
subject to policy decisions adopted by the Trust's Board of Trustees, and will
take any such actions as it may in its opinion deem necessary or desirable for
or incidental to any such purposes.
(ii) The Sub-Adviser will also, at its own expense:
(a) furnish the Trust and the Adviser with advice and recommendations,
consistent with the investment policies, objectives and restrictions of the
Fund;
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(b) subject to such consultation as the Adviser may request for a
written response, determine which Investments of the Fund should be
purchased, held or disposed of and what portion of such Assets, if any,
should be held in cash or cash equivalents, and the rationale for those
determinations;
(c) furnish the Adviser with a monthly commentary and a quarterly
report concerning market overview, performance analysis and trading
activity;
(d) subject to the supervision of the Adviser, maintain and preserve
certain records including this Sub-Advisory Contract and any research
provided to the Adviser. The Sub-Adviser agrees that such Trust records are
the property of the Trust and that such Trust records or copies thereof
will be surrendered to the Trust promptly upon request therefor;
(e) give instructions in the form of trade tickets representing
purchases and sales of the Fund's portfolio securities to the Adviser via
facsimile transmission no later than trade date plus one; and
(f) cooperate generally with the Trust and the Adviser so far as the
Sub-Adviser is able to provide information necessary for the preparation of
registration statements and periodic reports to be filed with the SEC,
including Forms N-1A and N-SAR, periodic statements, shareholder
communications and proxy materials furnished to holders of shares of the
Fund, filings with state "blue sky" authorities and with United States and
foreign agencies responsible for tax matters, and other reports and filings
of like nature.
(iii) No provision of this Contract may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement
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of the change, waiver, discharge or termination is sought, and no amendment,
transfer, assignment, sale, hypothecation or pledge of this Contract shall be
effective until approved by (a) the Trustees of the Trust, including a majority
of the Trustees who are not interested persons of the Adviser, of the
Sub-Adviser or of the Trust (other than as Trustees), cast in person at a
meeting called for the purpose of voting on such approval, and (b) a majority of
the outstanding voting securities of the Fund; provided, however, that the
approval required in subsection (a) above, shall be evidenced by a resolution of
the entire Board of Trustees and of the Trustees who are not interested persons
of the Adviser, of the Sub-Adviser or of the Trust (other than as Trustees); and
provided further that such resolutions shall be sent to the Sub-Adviser by
facsimile and confirmed in writing by letter.
(iv) All transactions in Investments shall be subject to the rules,
regulations and customs of the exchange or market and/or clearing house through
which the transactions are executed and to all Applicable Law, and, if there is
any conflict between any such rules, customs, law and the provisions of this
Contract the former shall prevail.
(v) The Sub-Adviser may not, without specific instruction in writing (and
compliance applicable policies and restrictions of the Fund set forth in its
Registration Statement), borrow on the Adviser's behalf or commit the Adviser to
a contract (other than a trade ticket).
(vi) The Sub-Adviser has the right under this Contract to act for more than
one client collectively (including the Adviser) in any one transaction or series
of transactions without prior reference to the Adviser.
4. THE SUB-ADVISER.
(i) The Sub-Adviser shall act as agent for the Adviser and shall be
entitled to instruct such brokers and other agents as it may decide. The
Sub-Adviser may (and any such broker or sub-agent may) execute transactions on
the Adviser's behalf without prior disclosure to the Adviser of the fact that in
doing so, it is or may be dealing with or in circumstances involving an
affiliate of the Sub-Adviser; provided, however, that (a) the Sub- Adviser will
not do business with nor pay commissions to any
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affiliate in any portfolio transaction where an affiliate acts as principal; (b)
in purchasing Investments for the Funds, neither the Sub-Adviser nor any of its
directors, officers or employees will act as principal or agent or receive any
commissions; and (c) the Sub-Adviser shall use its best efforts to obtain
execution and pricing within the policy guidelines, if any, determined by the
Trustees and set forth in the Prospectus and Statement of Additional Information
of the Funds. The Sub-Adviser shall not be under any duty to account to the
Adviser for any profits or other benefits received by the Sub-Adviser or any
affiliate as a result of such transactions.
(ii) Should the Sub-Adviser deem it appropriate to match one client's order
with that of another client by acting as agent for each party, prior written
consent from both parties will be obtained before the transaction is effected.
(iii) The Sub-Adviser may effect transactions with or through the agency of
another person with whom it has an arrangement under which that person will from
time to time provide to, or procure for, the Sub-Adviser services or other
benefits the nature of which are such that their provision results, or is
designed to result, in an improvement of the Sub-Adviser's performance in
providing services for its clients and for which the Sub-Adviser makes no direct
payment but instead undertakes to place business (including business on behalf
of the Adviser) with that person. All such transactions effected for the Adviser
will, however, secure best execution, disregarding any benefit which might
accrue to the Sub-Adviser from the arrangement.
(iv) The Sub-Adviser shall not knowingly recommend that the Fund purchase,
sell or retain securities of any issue in which the Sub-Adviser or any of its
affiliated persons has a financial interest, except in instances in which the
Sub-Adviser fully discloses in writing to the Investment Adviser the nature of
its financial interest prior to purchase, sale or retention. It shall be the
duty of the Investment Adviser to notify the Trustees of the Fund of these
financial interests.
(v) the Adviser authorizes the Sub-Adviser to disclose any information
which it may be required to disclose under this Contract, the Applicable Law,
the rules and regulations of the SEC or of any market on which an Investment is
acquired.
<PAGE>
(vi) Nothing herein contained shall prevent the Sub- Adviser or any of its
affiliated persons or associates from engaging in any other business or from
acting as investment adviser or Sub-Adviser for any other person or entity,
whether or not having investment policies similar to the Fund.
(vii) The Sub-Adviser will pay the cost of maintaining the staff and
personnel necessary for it to perform its obligations under this Contract, the
expenses of office rent, telephone and other facilities it is obligated to
provide in order to perform the services specified in Sections 3 and 4 and any
other expenses incurred by it in connection with the performance of its duties
hereunder, including, but not limited to, attendance in person at a minimum of
one meeting each year with the Board of Trustees of the Trust and the Adviser.
(viii) The Sub-Adviser will not be required to pay any expenses which this
Contract does not expressly state shall be payable by it. In particular, and
without limiting the generality of the foregoing but subject to the provisions
of Section 4(vii), the Sub-Adviser will not be required to pay;
(a) the compensation and expenses of Trustees of the Trust, and of
independent advisers, independent contractors, consultants, managers, and
other agents employed by the Trust other than through the Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the Fund;
(c) the fees or disbursements of the custodian, the transfer agent and
the dividend disbursing agent;
(d) stamp and other duties, taxes, impositions, governmental fees, and
fiscal charges of any nature whatsoever, assessed against the Fund's assets
and payable by the Trust;
<PAGE>
(e) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders, except that the
Sub-Adviser shall bear the costs of providing the services referred to in
Sections 3 and 4;
(f) brokers' commissions and underwriting fees; and
(g) the expense of periodic calculations of the net asset value of the
Fund's shares.
5. FURTHER PROVISIONS.
(i) The Sub-Adviser enters into this Contract for itself. the Adviser
includes the Adviser's successors in title or personal representatives as the
case may be.
(ii) This Contract shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Contract with the Fund, and
the Adviser shall immediately notify the Sub-Adviser of such termination. No
assignment of this Contract shall be made by the Sub-Adviser without the consent
of the Adviser.
(iii) If any provision of this Contract is or becomes invalid or
contravenes any applicable law, the remaining provisions shall remain in full
force and effect.
6. CLIENT MONEY AND CUSTODY.
The Sub-Adviser will not hold any client money on behalf of the Adviser.
The Sub-Adviser shall not be the registered holder, or custodian, of
Investments or documents of title relating thereto.
7. INSTRUCTIONS AND COMMUNICATIONS. Instructions may be given by the
Adviser in writing (by letter or facsimile or telex with correct answerback) or
by telephone unless it is required under an express provision of this Contract
for instructions to be given in writing. the Adviser shall give written
instructions to the Sub-Adviser at its Registered Office. The Sub-Adviser shall
<PAGE>
communicate with the Adviser in writing or by telephone except when it is
required to communicate in writing (by letter or facsimile or telex with correct
answerback) either under this Contract or in accordance with applicable law. The
Sub-Adviser shall be required to communicate instructions in the form of trade
tickets by facsimile in accordance with Section 3(ii)(e) hereof. The Sub-
Adviser shall communicate with the Adviser at the address last notified to the
Sub-Adviser. the Adviser shall be entitled to rely on the instructions of any
person who is listed on Appendix I and may assume the genuineness of all
signatures and the authenticity of all instructions and communications unless
the Adviser had reason to know such signatures, instructions or communications
were unauthorized. All trade tickets representing purchases and sales of the
Fund's portfolio securities shall be signed by at least two such persons listed
on Appendix I.
8. FEES AND EXPENSES. In consideration of the services to be rendered,
facilities furnished and expenses paid or assumed by the Sub-Adviser under this
Contract, the Adviser shall pay the Sub-Adviser a monthly fee at the annual rate
of up to 0.45% of the average net assets of the Fund managed by the Sub-Adviser.
If the fees payable to the Sub-Adviser pursuant to this paragraph 8 begin
to accrue before the end of any month or if this Contract terminates before the
end of any month, the fees for the period from that date to the end of that
month or from the beginning of that month to the date of termination, as the
case may be, shall be prorated according to the proportion which the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of the
Fund shall be computed in the manner specified in the Prospectus for the
computation of net asset value.
Notwithstanding the foregoing, if, after consultation with the Sub-Adviser,
the Adviser determines to waive any part of the fee paid to it by the Fund, the
fee paid to the Sub-Adviser hereunder may be reduced proportionately.
If in any month of the fiscal year of the Fund the Adviser is required by
the law of any state in the United States to reduce its fee or to reimburse
expenses of the Fund pursuant to the terms of the Advisory Contract. the Adviser
will reduce its fee or reimburse the Fund and notify the Sub-Adviser will
likewise reduce
<PAGE>
its fe or reimburse the Fund, within 30 days after receipt of such notice, in an
amount proportionately equal to the amount of reduction or reimbursement being
made by the Adviser as such amounts bear in relation to the sum of all fees to
be paid to the Adviser under the Advisory Contract and to the Sub-Adviser under
this Contract.
9. FORCE MAJEURE. The Sub-Adviser shall not be in breach of this Contract
if there is any total or partial failure of performance of its duties and
obligations occasioned by any act of God, fire, act of government or state, war,
civil commotion, insurrection, embargo, inability to communicate with market
makers for whatever reason, failure of any computer dealing system, prevention
from or hindrance in obtaining any raw materials, energy or other supplies,
labor disputes of whatever nature or any other reason (whether or not similar in
kind to any of the above) beyond the Sub-Adviser's control, provided the
Sub-Adviser has made every reasonable effort to overcome such difficulties.
10. NO PARTNERSHIP OR JOINT VENTURE. The Trust, the Adviser and the
Sub-Adviser are not partners of or joint venturers with each other and nothing
herein shall be construed so as to make them such partners or joint ventures or
impose any liability as such on any of them.
11. TERMINATION.
(i) This Contract shall become effective upon the above date, and shall
thereafter continue in effect; provided that this Contract shall continue in
effect for a period of more than two years only as so long as the continuance is
specifically approved at least annually by (a) a majority of the Trustees of the
Trust who are not interested persons of the Adviser, the Sub- Adviser or the
Trust (other than as Trustees), cast in person at meeting called for the purpose
of voting on such approval, and (b) either (i) the Trustees of the Trust, or
(ii) a majority of the outstanding voting securities of the Fund. This Contract
may, on 60 days' written notice, be terminated at any time, without the payment
of any penalty, by the Trustees of the Trust, by vote of a majority of the
outstanding voting securities of the Trust, by the Adviser or by the
Sub-Adviser. Termination shall not affect any action taken by the Sub-Adviser
permitted under this Contract prior
<PAGE>
to the date of termination or any warranty or indemnity given by the Adviser
under this Contract or implied by law.
(ii) On termination by either party the Sub-Adviser shall be entitled to
receive from the Adviser all fees, costs, charges and expenses accrued or
incurred under this Contract up to the date of termination including any
additional expenses or losses necessarily incurred in settling outstanding
obligations or terminating this Contract, whether they occur before or after the
date of termination.
(iii) If the Adviser terminates this Contract, it shall be subject to a
proportion of the annual fee corresponding to the proportion of the year that
has expired when this Contract is terminated.
12. CAPTIONS. The captions in this Contract are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Contract may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
13. RESERVATION OF NAMES. The names "Mariner Mutual Fund Trust" and
"Mariner International Equity Fund" are the designation of the Trustees under
the Declaration of Trust. The Sub-Adviser may not use the names "Mariner" or
"Mariner International Equity Fund" without prior written authorization by the
Trustees and officers of the Trust. The Trust and the Adviser may use the name
of the Sub-Adviser or any name derived from or similar to that name in reports,
filings, shareholder communications, registration statements, advertising
materials of like nature, only for so long as this Contract or any extension,
renewal of amendment hereof remains in effect and only upon the prior written
consent of the Sub-Adviser. At such time as this Contract shall no longer be in
effect, the Trust the Adviser will (to the extent they lawfully can) cease to
use the name of the Sub- Adviser or any other name indicating that the Fund or
the Adviser is advised by or otherwise connected with the Sub-Adviser.
14. GOVERNING LAW. This Contract shall be construed in accordance with laws
of the State of New York and the applicable
<PAGE>
provision for the Investment Company Act of 1940, as amend (the "1940 Act") and
the Advisers Act. As used herein the Terms "affiliated person", "assignment",
"interested person", and "vote of majority of the outstanding voting securities"
shall have the meaning set forth in the 1940 Act.
15. PERSONAL LIABILITY. The Trust's Declaration of Trust is on file with
the Secretary of State of the Commonwealth of Massachusetts. The obligations of
the Trust are not personally binding upon, nor shall resort be had to the
private property of, andy of the Trustees, shareholders, officers, employee or
agents of the Trust, but only the Trust's property shall be bound.
Yours very truly,
HSBC ASSET MANAGEMENT
AMERICAS, INC.
By:
-----------------------
Title:
The foregoing Contract
is hereby agreed to as
of the date hereof
By: _____________________
Title: President
<PAGE>
SCHEDULE 1
DEFINITIONS
In this Contract the following expressions shall have the following
meaning unless the context otherwise requires:
"Applicable Law"
means shall applicable laws and regulations of the
jurisdiction in which the Sub-Adviser is domiciled and of the
Securities and Exchange Commission of the United States of
America, and of any governmental or self-regulatory
organization of which the Sub-Adviser is a member, each as
from time to time amended;
"Assets"
means Investments of the Fund deposited by or on behalf
of the Adviser pursuant to which this Sub-Advisory
Contract relates;
"Fund"
means the separate portfolio of Assets of the Trust on whose
behalf the Adviser has entered into this Sub- Advisory
Contract;
"Investment"
means any asset, right or interest in respect of property
of any kind held by the Fund;
"Registered Office"
means P.O. Box 291, Market Street, Melbourne, Victoria
3000, Australia, Telephone: ____________. Facsimile:
___________. Telex: N/A_.
"Series"
<PAGE>
means the series of shares of beneficial interest representing
undivided interests in the Trust's investment portfolios,
including the Fund.
<PAGE>
April 25, 1995
APPENDIX I
AUTHORIZED SIGNATORY LIST
The following persons are authorized to give instructions on behalf of the
Sub-Adviser to the Adviser:
Name Signature Position
<PAGE>
Exhibit 5(h)
Sub-Advisory Contract between HSBC Asset Management Americas
Inc. and HSBC Asset Management Japan (KK) with respect to the
Mariner International Equity Fund dated April 25, 1995
<PAGE>
MARINER INTERNATIONAL EQUITY FUND
SUB-ADVISORY CONTRACT
April 25, 1995
HSBC Asset Management Japan (KK)
6/F No. 2 Tomoecho
Annex 3-8-27
Toranomon Minato-ku
Tokyo, Japan
Dear Sirs:
The Mariner International Equity Fund (the "Fund") is one of the
investment portfolios of Mariner Mutual Funds Trust (the "Trust"), an open-end
management investment company, which was organized as a business trust under the
laws of the Commonwealth of Massachusetts. The Trust's shares of beneficial
interest may be classified into series in which each series represents the
entire undivided interests of a separate portfolio of assets. This Sub-Advisory
Contract regards certain services to be provided in connection with the
management of the Fund, on whose behalf HSBC Asset Management Americas, Inc.
("the Adviser") enters into this Contract.
The Trustees of the Trust have selected HSBC Asset Management
Americas, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund and to provide certain other services, under the terms
and conditions provided in the Master Advisory Contract between the Trust and
the Adviser (the "Advisory Contract"). The Adviser and the Trustees have
selected HSBC Asset Management Japan (KK) (the "Sub-Adviser") to provide the
Adviser and the Fund with the advice and services set forth below and the Sub-
Adviser is willing to provide the Adviser and the Fund with the advice and
services, subject to the review of the Trustees and overall supervision of the
Adviser, under the terms and conditions hereinafter set forth. Accordingly, the
Adviser agrees with the Sub-Adviser as follows:
<PAGE>
1. DEFINITIONS AND DELIVERY OF DOCUMENTS. All references herein to
this Contract shall be deemed to be references to this Contract as it may from
time to time be amended. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Trust's declaration of
Trust, dated November 1, 1989 (the "Declaration of Trust"), and the currently
effective Prospectus (the "Prospectus") relating to the Fund included in the
Trust's Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Trust under the Investment Company Act of 1940 (the
"1940 Act") and the Securities Act of 1933 (the "1933 Act"). Copies of the
documents referred to in the preceding sentence have been furnished to the Sub-
Adviser. Any amendments to those documents shall be furnished to the Sub-
Adviser promptly.
2. REPRESENTATIONS. The Sub-Adviser is registered with the
Securities and Exchange Commission (the "SEC") as an investment adviser pursuant
to Section 203 of the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and agrees to maintain such registration during the term of this
agreement.
3. SUB-ADVISORY SERVICES.
(i) The Sub-Adviser shall act as sub-adviser of a portion the Fund
designated by the Adviser under the terms of this Contract and will use its best
efforts to provide to the Fund a continuing and suitable investment program in
the Sub-Advisor's region consistent with the investment policies, objectives and
restrictions of the Fund, as set forth in the Trust's Declaration of Trust, the
Registration Statement, the applicable law and provisions of the Internal
Revenue Code of 1986, as amended, relating to regulated investment companies,
subject to policy decisions adopted by the Trust's Board of Trustees, and will
take any such actions as it may in its opinion deem necessary or desirable for
or incidental to any such purposes.
(ii) The Sub-Adviser will also, at its own expense:
(a) furnish the Trust and the Adviser with advice and recommendations,
consistent with the investment policies, objectives and restrictions of the
Fund;
<PAGE>
(b) subject to such consultation as the Adviser may request for a
written response, determine which Investments of the Fund should be purchased,
held or disposed of and what portion of such Assets, if any, should be held in
cash or cash equivalents, and the rationale for those determinations;
(c) furnish the Adviser with a monthly commentary and a quarterly
report concerning market overview, performance analysis and trading activity;
(d) subject to the supervision of the Adviser, maintain and preserve
certain records including this Sub-Advisory Contract and any research provided
to the Adviser. The Sub-Adviser agrees that such Trust records are the property
of the Trust and that such Trust records or copies thereof will be surrendered
to the Trust promptly upon request therefor;
(e) give instructions in the form of trade tickets representing
purchases and sales of the Fund's portfolio securities to the Adviser via
facsimile transmission no later than trade date plus one; and
(f) cooperate generally with the Trust and the Adviser so far as the
Sub-Adviser is able to provide information necessary for the preparation of
registration statements and periodic reports to be filed with the SEC, including
Forms N-1A and N-SAR, periodic statements, shareholder communications and proxy
materials furnished to holders of shares of the Fund, filings with state "blue
sky" authorities and with United States and foreign agencies responsible for tax
matters, and other reports and filings of like nature.
(iii) No provision of this Contract may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement
<PAGE>
of the change, waiver, discharge or termination is sought, and no amendment,
transfer, assignment, sale, hypothecation or pledge of this Contract shall be
effective until approved by (a) the Trustees of the Trust, including a majority
of the Trustees who are not interested persons of the Adviser, of the Sub-
Adviser or of the Trust (other than as Trustees), cast in person at a meeting
called for the purpose of voting on such approval, and (b) a majority of the
outstanding voting securities of the Fund; provided, however, that the approval
required in subsection (a) above, shall be evidenced by a resolution of the
entire Board of Trustees and of the Trustees who are not interested persons of
the Adviser, of the Sub-Adviser or of the Trust (other than as Trustees); and
provided further that such resolutions shall be sent to the Sub-Adviser by
facsimile and confirmed in writing by letter.
(iv) All transactions in Investments shall be subject to the rules,
regulations and customs of the exchange or market and/or clearing house through
which the transactions are executed and to all Applicable Law, and, if there is
any conflict between any such rules, customs, law and the provisions of this
Contract the former shall prevail.
(v) The Sub-Adviser may not, without specific instruction in writing
(and compliance applicable policies and restrictions of the Fund set forth in
its Registration Statement), borrow on the Adviser's behalf or commit the
Adviser to a contract (other than a trade ticket).
(vi) The Sub-Adviser has the right under this Contract to act for more
than one client collectively (including the Adviser) in any one transaction or
series of transactions without prior reference to the Adviser.
4. THE SUB-ADVISER.
(i) The Sub-Adviser shall act as agent for the Adviser and shall be
entitled to instruct such brokers and other agents as it may decide. The Sub-
Adviser may (and any such broker or sub-agent may) execute transactions on the
Adviser's behalf without prior disclosure to the Adviser of the fact that in
doing so, it is or may be dealing with or in circumstances involving an
affiliate of the Sub-Adviser; provided, however, that (a) the Sub-Adviser will
not do business with nor pay commissions to any
<PAGE>
affiliate in any portfolio transaction where an affiliate acts as principal; (b)
in purchasing Investments for the Funds, neither the Sub-Adviser nor any of its
directors, officers or employees will act as principal or agent or receive any
commissions; and (c) the Sub-Adviser shall use its best efforts to obtain
execution and pricing within the policy guidelines, if any, determined by the
Trustees and set forth in the Prospectus and Statement of Additional Information
of the Funds. The Sub-Adviser shall not be under any duty to account to the
Adviser for any profits or other benefits received by the Sub-Adviser or any
affiliate as a result of such transactions.
(ii) Should the Sub-Adviser deem it appropriate to match one client's
order with that of another client by acting as agent for each party, prior
written consent from both parties will be obtained before the transaction is
effected.
(iii) The Sub-Adviser may effect transactions with or through the
agency of another person with whom it has an arrangement under which that person
will from time to time provide to, or procure for, the Sub-Adviser services or
other benefits the nature of which are such that their provision results, or is
designed to result, in an improvement of the Sub-Adviser's performance in
providing services for its clients and for which the Sub-Adviser makes no direct
payment but instead undertakes to place business (including business on behalf
of the Adviser) with that person. All such transactions effected for the Adviser
will, however, secure best execution, disregarding any benefit which might
accrue to the Sub-Adviser from the arrangement.
(iv) The Sub-Adviser shall not knowingly recommend that the Fund
purchase, sell or retain securities of any issue in which the Sub-Adviser or any
of its affiliated persons has a financial interest, except in instances in which
the Sub-Adviser fully discloses in writing to the Investment Adviser the nature
of its financial interest prior to purchase, sale or retention. It shall be the
duty of the Investment Adviser to notify the Trustees of the Fund of these
financial interests.
(v) the Adviser authorizes the Sub-Adviser to disclose any information
which it may be required to disclose under this Contract, the Applicable Law,
the rules and regulations of the SEC or of any market on which an Investment is
acquired.
<PAGE>
(vi) Nothing herein contained shall prevent the Sub-Adviser or any of
its affiliated persons or associates from engaging in any other business or from
acting as investment adviser or Sub-Adviser for any other person or entity,
whether or not having investment policies similar to the Fund.
(vii) The Sub-Adviser will pay the cost of maintaining the staff and
personnel necessary for it to perform its obligations under this Contract, the
expenses of office rent, telephone and other facilities it is obligated to
provide in order to perform the services specified in Sections 3 and 4 and any
other expenses incurred by it in connection with the performance of its duties
hereunder, including, but not limited to, attendance in person at a minimum of
one meeting each year with the Board of Trustees of the Trust and the Adviser.
(viii) The Sub-Adviser will not be required to pay any expenses which
this Contract does not expressly state shall be payable by it. In particular,
and without limiting the generality of the foregoing but subject to the
provisions of Section 4(vii), the Sub-Adviser will not be required to pay;
(a) the compensation and expenses of Trustees of the Trust, and of
independent advisers, independent contractors, consultants, managers, and other
agents employed by the Trust other than through the Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the Fund;
(c) the fees or disbursements of the custodian, the transfer agent and
the dividend disbursing agent;
(d) stamp and other duties, taxes, impositions, governmental fees, and
fiscal charges of any nature whatsoever, assessed against the Fund's assets and
payable by the Trust;
<PAGE>
(e) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders, except that the Sub-
Adviser shall bear the costs of providing the services referred to in Sections 3
and 4;
(f) brokers' commissions and underwriting fees; and
(g) the expense of periodic calculations of the net asset value of the
Fund's shares.
5. FURTHER PROVISIONS.
(i) The Sub-Adviser enters into this Contract for itself. the Adviser
includes the Adviser's successors in title or personal representatives as the
case may be.
(ii) This Contract shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Contract with the Fund, and
the Adviser shall immediately notify the Sub-Adviser of such termination. No
assignment of this Contract shall be made by the Sub-Adviser without the consent
of the Adviser.
(iii) If any provision of this Contract is or becomes invalid or
contravenes any applicable law, the remaining provisions shall remain in full
force and effect.
6. CLIENT MONEY AND CUSTODY.
The Sub-Adviser will not hold any client money on behalf of the
Adviser.
The Sub-Adviser shall not be the registered holder, or custodian, of
Investments or documents of title relating thereto.
7. INSTRUCTIONS AND COMMUNICATIONS. Instructions may be given by
the Adviser in writing (by letter or facsimile or telex with correct answerback)
or by telephone unless it is required under an express provision of this
Contract for instructions to be given in writing. the Adviser shall give
written instructions to the Sub-Adviser at its Registered Office. The Sub-
Adviser shall
<PAGE>
communicate with the Adviser in writing or by telephone except when it is
required to communicate in writing (by letter or facsimile or telex with correct
answerback) either under this Contract or in accordance with applicable law.
The Sub-Adviser shall be required to communicate instructions in the form of
trade tickets by facsimile in accordance with Section 3(ii)(e) hereof. The Sub-
Adviser shall communicate with the Adviser at the address last notified to the
Sub-Adviser. the Adviser shall be entitled to rely on the instructions of any
person who is listed on Appendix I and may assume the genuineness of all
signatures and the authenticity of all instructions and communications unless
the Adviser had reason to know such signatures, instructions or communications
were unauthorized. All trade tickets representing purchases and sales of the
Fund's portfolio securities shall be signed by at least two such persons listed
on Appendix I.
8. FEES AND EXPENSES. In consideration of the services to be
rendered, facilities furnished and expenses paid or assumed by the Sub-Adviser
under this Contract, the Adviser shall pay the Sub-Adviser a monthly fee at the
annual rate of up to 0.45% of the average net assets of the Fund managed by the
Sub-Adviser.
If the fees payable to the Sub-Adviser pursuant to this paragraph 8
begin to accrue before the end of any month or if this Contract terminates
before the end of any month, the fees for the period from that date to the end
of that month or from the beginning of that month to the date of termination, as
the case may be, shall be prorated according to the proportion which the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of the
Fund shall be computed in the manner specified in the Prospectus for the
computation of net asset value.
Notwithstanding the foregoing, if, after consultation with the Sub-
Adviser, the Adviser determines to waive any part of the fee paid to it by the
Fund, the fee paid to the Sub-Adviser hereunder may be reduced proportionately.
If in any month of the fiscal year of the Fund the Adviser is required
by the law of any state in the United States to reduce its fee or to reimburse
expenses of the Fund pursuant to the terms of the Advisory Contract. the
Adviser will reduce its fee or reimburse the Fund and notify the Sub-Adviser
will likewise reduce
<PAGE>
its fe or reimburse the Fund, within 30 days after receipt of such notice, in an
amount proportionately equal to the amount of reduction or reimbursement being
made by the Adviser as such amounts bear in relation to the sum of all fees to
be paid to the Adviser under the Advisory Contract and to the Sub-Adviser under
this Contract.
9. FORCE MAJEURE. The Sub-Adviser shall not be in breach of this
Contract if there is any total or partial failure of performance of its duties
and obligations occasioned by any act of God, fire, act of government or state,
war, civil commotion, insurrection, embargo, inability to communicate with
market makers for whatever reason, failure of any computer dealing system,
prevention from or hindrance in obtaining any raw materials, energy or other
supplies, labor disputes of whatever nature or any other reason (whether or not
similar in kind to any of the above) beyond the Sub-Adviser's control, provided
the Sub-Adviser has made every reasonable effort to overcome such difficulties.
10. NO PARTNERSHIP OR JOINT VENTURE. The Trust, the Adviser and the
Sub-Adviser are not partners of or joint venturers with each other and nothing
herein shall be construed so as to make them such partners or joint ventures or
impose any liability as such on any of them.
11. TERMINATION.
(i) This Contract shall become effective upon the above date, and
shall thereafter continue in effect; provided that this Contract shall continue
in effect for a period of more than two years only as so long as the continuance
is specifically approved at least annually by (a) a majority of the Trustees of
the Trust who are not interested persons of the Adviser, the Sub-Adviser or the
Trust (other than as Trustees), cast in person at meeting called for the purpose
of voting on such approval, and (b) either (i) the Trustees of the Trust, or
(ii) a majority of the outstanding voting securities of the Fund. This Contract
may, on 60 days' written notice, be terminated at any time, without the payment
of any penalty, by the Trustees of the Trust, by vote of a majority of the
outstanding voting securities of the Trust, by the Adviser or by the Sub-
Adviser. Termination shall not affect any action taken by the Sub-Adviser
permitted under this Contract prior
<PAGE>
to the date of termination or any warranty or indemnity given by the Adviser
under this Contract or implied by law.
(ii) On termination by either party the Sub-Adviser shall be entitled
to receive from the Adviser all fees, costs, charges and expenses accrued or
incurred under this Contract up to the date of termination including any
additional expenses or losses necessarily incurred in settling outstanding
obligations or terminating this Contract, whether they occur before or after the
date of termination.
(iii) If the Adviser terminates this Contract, it shall be subject to
a proportion of the annual fee corresponding to the proportion of the year that
has expired when this Contract is terminated.
12. CAPTIONS. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Contract may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
13. RESERVATION OF NAMES. The names "Mariner Mutual Fund Trust" and
"Mariner International Equity Fund" are the designation of the Trustees under
the Declaration of Trust. The Sub-Adviser may not use the names "Mariner" or
"Mariner International Equity Fund" without prior written authorization by the
Trustees and officers of the Trust. The Trust and the Adviser may use the name
of the Sub-Adviser or any name derived from or similar to that name in reports,
filings, shareholder communications, registration statements, advertising
materials of like nature, only for so long as this Contract or any extension,
renewal of amendment hereof remains in effect and only upon the prior written
consent of the Sub-Adviser. At such time as this Contract shall no longer be in
effect, the Trust the Adviser will (to the extent they lawfully can) cease to
use the name of the Sub-Adviser or any other name indicating that the Fund or
the Adviser is advised by or otherwise connected with the Sub-Adviser.
14. GOVERNING LAW. This Contract shall be construed in accordance
with laws of the State of New York and the applicable
<PAGE>
provision for the Investment Company Act of 1940, as amend (the "1940 Act") and
the Advisers Act. As used herein the Terms "affiliated person", "assignment",
"interested person", and "vote of majority of the outstanding voting securities"
shall have the meaning set forth in the 1940 Act.
15. PERSONAL LIABILITY. The Trust's Declaration of Trust is on file
with the Secretary of State of the Commonwealth of Massachusetts. The
obligations of the Trust are not personally binding upon, nor shall resort be
had to the private property of, andy of the Trustees, shareholders, officers,
employee or agents of the Trust, but only the Trust's property shall be bound.
Yours very truly,
HSBC ASSET MANAGEMENT
AMERICAS, INC.
By:
_______________________
Title:
The foregoing Contract
is hereby agreed to as
of the date hereof
By: _____________________
Title: President
<PAGE>
SCHEDULE 1
DEFINITIONS
In this Contract the following expressions shall have the following meaning
unless the context otherwise requires:
"Applicable Law"
means shall applicable laws and regulations of the jurisdiction in which the
Sub-Adviser is domiciled and of the Securities and Exchange Commission of the
United States of America, and of any governmental or self-regulatory
organization of which the Sub-Adviser is a member, each as from time to time
amended;
"Assets"
means Investments of the Fund deposited by or on behalf of the Adviser pursuant
to which this Sub-Advisory Contract relates;
"Fund"
means the separate portfolio of Assets of the Trust on whose behalf the Adviser
has entered into this Sub-Advisory Contract;
"Investment"
means any asset, right or interest in respect of property of any kind held by
the Fund;
"Registered Office"
means 6/F No. 2 Tomoecho, Annex 3-8-27, Toranomon Minato-ku, Tokyo, Japan,
Telephone: ____________. Facsimile: ___________. Telex: N/A_.
"Series"
<PAGE>
means the series of shares of beneficial interest representing undivided
interests in the Trust's investment portfolios, including the Fund.
<PAGE>
April 25, 1995
APPENDIX I
AUTHORIZED SIGNATORY LIST
The following persons are authorized to give instructions on behalf of the Sub-
Adviser to the Adviser:
NAME SIGNATURE POSITION
---- --------- --------
<PAGE>
Exhibit 5(i)
Sub-Advisory Contract between HSBC Asset Management Americas
Inc. and HSBC Asset Management Hong Kong Ltd. with respect
to the Mariner International Equity Fund dated April 25, 1995
<PAGE>
MARINER INTERNATIONAL EQUITY FUND
SUB-ADVISORY CONTRACT
April 25, 1995
HSBC Asset Management Hong Kong Ltd.
10/F Citibank Tower
3 Garden Road, Hong Kong
Dear Sirs:
The Mariner International Equity Fund (the "Fund") is one of the investment
portfolios of Mariner Mutual Funds Trust (the "Trust"), an open-end management
investment company, which was organized as a business trust under the laws of
the Commonwealth of Massachusetts. The Trust's shares of beneficial interest may
be classified into series in which each series represents the entire undivided
interests of a separate portfolio of assets. This Sub- Advisory Contract regards
certain services to be provided in connection with the management of the Fund,
on whose behalf HSBC Asset Management Americas, Inc. ("the Adviser") enters into
this Contract.
The Trustees of the Trust have selected HSBC Asset Management Americas,
Inc. (the "Adviser") to provide overall investment advice and management for the
Fund and to provide certain other services, under the terms and conditions
provided in the Master Advisory Contract between the Trust and the Adviser (the
"Advisory Contract"). The Adviser and the Trustees have selected HSBC Asset
Management Hong Kong Ltd. (the "Sub-Adviser") to provide the Adviser and the
Fund with the advice and services set forth below and the Sub-Adviser is willing
to provide the Adviser and the Fund with the advice and services, subject to the
review of the Trustees and overall supervision of the Adviser, under the terms
and conditions hereinafter set forth. Accordingly, the Adviser agrees with the
Sub-Adviser as follows:
1. DEFINITIONS AND DELIVERY OF DOCUMENTS. All references herein to this
Contract shall be deemed to be references
<PAGE>
to this Contract as it may from time to time be amended. The Trust engages in
the business of investing and reinvesting the assets of the Fund in the manner
and in accordance with the investment objective and restrictions specified in
the Trust's declaration of Trust, dated November 1, 1989 (the "Declaration of
Trust"), and the currently effective Prospectus (the "Prospectus") relating to
the Fund included in the Trust's Registration Statement, as amended from time to
time (the "Registration Statement"), filed by the Trust under the Investment
Company Act of 1940 (the "1940 Act") and the Securities Act of 1933 (the "1933
Act"). Copies of the documents referred to in the preceding sentence have been
furnished to the Sub-Adviser. Any amendments to those documents shall be
furnished to the Sub-Adviser promptly.
2. REPRESENTATIONS. The Sub-Adviser is registered with the Securities and
Exchange Commission (the "SEC") as an investment adviser pursuant to Section 203
of the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
agrees to maintain such registration during the term of this agreement.
3. SUB-ADVISORY SERVICES.
(i) The Sub-Adviser shall act as sub-adviser of a portion the Fund
designated by the Adviser under the terms of this Contract and will use its best
efforts to provide to the Fund a continuing and suitable investment program in
the Sub-Advisor's region consistent with the investment policies, objectives and
restrictions of the Fund, as set forth in the Trust's Declaration of Trust, the
Registration Statement, the applicable law and provisions of the Internal
Revenue Code of 1986, as amended, relating to regulated investment companies,
subject to policy decisions adopted by the Trust's Board of Trustees, and will
take any such actions as it may in its opinion deem necessary or desirable for
or incidental to any such purposes.
(ii) The Sub-Adviser will also, at its own expense:
(a) furnish the Trust and the Adviser with advice and recommendations,
consistent with the investment policies, objectives and restrictions of the
Fund;
<PAGE>
(b) subject to such consultation as the Adviser may request for a
written response, determine which Investments of the Fund should be
purchased, held or disposed of and what portion of such Assets, if any,
should be held in cash or cash equivalents, and the rationale for those
determinations;
(c) furnish the Adviser with a monthly commentary and a quarterly
report concerning market overview, performance analysis and trading
activity;
(d) subject to the supervision of the Adviser, maintain and preserve
certain records including this Sub-Advisory Contract and any research
provided to the Adviser. The Sub-Adviser agrees that such Trust records are
the property of the Trust and that such Trust records or copies thereof
will be surrendered to the Trust promptly upon request therefor;
(e) give instructions in the form of trade tickets representing
purchases and sales of the Fund's portfolio securities to the Adviser via
facsimile transmission no later than trade date plus one; and
(f) cooperate generally with the Trust and the Adviser so far as the
Sub-Adviser is able to provide information necessary for the preparation of
registration statements and periodic reports to be filed with the SEC,
including Forms N-1A and N-SAR, periodic statements, shareholder
communications and proxy materials furnished to holders of shares of the
Fund, filings with state "blue sky" authorities and with United States and
foreign agencies responsible for tax matters, and other reports and filings
of like nature.
(iii) No provision of this Contract may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement
<PAGE>
of the change, waiver, discharge or termination is sought, and no amendment,
transfer, assignment, sale, hypothecation or pledge of this Contract shall be
effective until approved by (a) the Trustees of the Trust, including a majority
of the Trustees who are not interested persons of the Adviser, of the
Sub-Adviser or of the Trust (other than as Trustees), cast in person at a
meeting called for the purpose of voting on such approval, and (b) a majority of
the outstanding voting securities of the Fund; provided, however, that the
approval required in subsection (a) above, shall be evidenced by a resolution of
the entire Board of Trustees and of the Trustees who are not interested persons
of the Adviser, of the Sub-Adviser or of the Trust (other than as Trustees); and
provided further that such resolutions shall be sent to the Sub-Adviser by
facsimile and confirmed in writing by letter.
(iv) All transactions in Investments shall be subject to the rules,
regulations and customs of the exchange or market and/or clearing house through
which the transactions are executed and to all Applicable Law, and, if there is
any conflict between any such rules, customs, law and the provisions of this
Contract the former shall prevail.
(v) The Sub-Adviser may not, without specific instruction in writing (and
compliance applicable policies and restrictions of the Fund set forth in its
Registration Statement), borrow on the Adviser's behalf or commit the Adviser to
a contract (other than a trade ticket).
(vi) The Sub-Adviser has the right under this Contract to act for more than
one client collectively (including the Adviser) in any one transaction or series
of transactions without prior reference to the Adviser.
4. THE SUB-ADVISER.
(i) The Sub-Adviser shall act as agent for the Adviser and shall be
entitled to instruct such brokers and other agents as it may decide. The
Sub-Adviser may (and any such broker or sub-agent may) execute transactions on
the Adviser's behalf without prior disclosure to the Adviser of the fact that in
doing so, it is or may be dealing with or in circumstances involving an
affiliate of the Sub-Adviser; provided, however, that (a) the Sub- Adviser will
not do business with nor pay commissions to any
<PAGE>
affiliate in any portfolio transaction where an affiliate acts as principal; (b)
in purchasing Investments for the Funds, neither the Sub-Adviser nor any of its
directors, officers or employees will act as principal or agent or receive any
commissions; and (c) the Sub-Adviser shall use its best efforts to obtain
execution and pricing within the policy guidelines, if any, determined by the
Trustees and set forth in the Prospectus and Statement of Additional Information
of the Funds. The Sub-Adviser shall not be under any duty to account to the
Adviser for any profits or other benefits received by the Sub-Adviser or any
affiliate as a result of such transactions.
(ii) Should the Sub-Adviser deem it appropriate to match one client's order
with that of another client by acting as agent for each party, prior written
consent from both parties will be obtained before the transaction is effected.
(iii) The Sub-Adviser may effect transactions with or through the agency of
another person with whom it has an arrangement under which that person will from
time to time provide to, or procure for, the Sub-Adviser services or other
benefits the nature of which are such that their provision results, or is
designed to result, in an improvement of the Sub-Adviser's performance in
providing services for its clients and for which the Sub-Adviser makes no direct
payment but instead undertakes to place business (including business on behalf
of the Adviser) with that person. All such transactions effected for the Adviser
will, however, secure best execution, disregarding any benefit which might
accrue to the Sub-Adviser from the arrangement.
(iv) The Sub-Adviser shall not knowingly recommend that the Fund purchase,
sell or retain securities of any issue in which the Sub-Adviser or any of its
affiliated persons has a financial interest, except in instances in which the
Sub-Adviser fully discloses in writing to the Investment Adviser the nature of
its financial interest prior to purchase, sale or retention. It shall be the
duty of the Investment Adviser to notify the Trustees of the Fund of these
financial interests.
(v) the Adviser authorizes the Sub-Adviser to disclose any information
which it may be required to disclose under this Contract, the Applicable Law,
the rules and regulations of the SEC or of any market on which an Investment is
acquired.
<PAGE>
(vi) Nothing herein contained shall prevent the Sub- Adviser or any of its
affiliated persons or associates from engaging in any other business or from
acting as investment adviser or Sub-Adviser for any other person or entity,
whether or not having investment policies similar to the Fund.
(vii) The Sub-Adviser will pay the cost of maintaining the staff and
personnel necessary for it to perform its obligations under this Contract, the
expenses of office rent, telephone and other facilities it is obligated to
provide in order to perform the services specified in Sections 3 and 4 and any
other expenses incurred by it in connection with the performance of its duties
hereunder, including, but not limited to, attendance in person at a minimum of
one meeting each year with the Board of Trustees of the Trust and the Adviser.
(viii) The Sub-Adviser will not be required to pay any expenses which this
Contract does not expressly state shall be payable by it. In particular, and
without limiting the generality of the foregoing but subject to the provisions
of Section 4(vii), the Sub-Adviser will not be required to pay;
(a) the compensation and expenses of Trustees of the Trust, and of
independent advisers, independent contractors, consultants, managers, and
other agents employed by the Trust other than through the Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the Fund;
(c) the fees or disbursements of the custodian, the transfer agent and
the dividend disbursing agent;
(d) stamp and other duties, taxes, impositions, governmental fees, and
fiscal charges of any nature whatsoever, assessed against the Fund's assets
and payable by the Trust;
<PAGE>
(e) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders, except that the
Sub-Adviser shall bear the costs of providing the services referred to in
Sections 3 and 4;
(f) brokers' commissions and underwriting fees; and
(g) the expense of periodic calculations of the net asset value of the
Fund's shares.
5. FURTHER PROVISIONS.
(i) The Sub-Adviser enters into this Contract for itself. the Adviser
includes the Adviser's successors in title or personal representatives as the
case may be.
(ii) This Contract shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Contract with the Fund, and
the Adviser shall immediately notify the Sub-Adviser of such termination. No
assignment of this Contract shall be made by the Sub-Adviser without the consent
of the Adviser.
(iii) If any provision of this Contract is or becomes invalid or
contravenes any applicable law, the remaining provisions shall remain in full
force and effect.
6. CLIENT MONEY AND CUSTODY.
The Sub-Adviser will not hold any client money on behalf of the Adviser.
The Sub-Adviser shall not be the registered holder, or custodian, of
Investments or documents of title relating thereto.
7. INSTRUCTIONS AND COMMUNICATIONS. Instructions may be given by the
Adviser in writing (by letter or facsimile or telex with correct answerback) or
by telephone unless it is required under an express provision of this Contract
for instructions to be given in writing. the Adviser shall give written
instructions to the Sub-Adviser at its Registered Office. The Sub-Adviser shall
<PAGE>
communicate with the Adviser in writing or by telephone except when it is
required to communicate in writing (by letter or facsimile or telex with correct
answerback) either under this Contract or in accordance with applicable law. The
Sub-Adviser shall be required to communicate instructions in the form of trade
tickets by facsimile in accordance with Section 3(ii)(e) hereof. The Sub-
Adviser shall communicate with the Adviser at the address last notified to the
Sub-Adviser. the Adviser shall be entitled to rely on the instructions of any
person who is listed on Appendix I and may assume the genuineness of all
signatures and the authenticity of all instructions and communications unless
the Adviser had reason to know such signatures, instructions or communications
were unauthorized. All trade tickets representing purchases and sales of the
Fund's portfolio securities shall be signed by at least two such persons listed
on Appendix I.
8. FEES AND EXPENSES. In consideration of the services to be rendered,
facilities furnished and expenses paid or assumed by the Sub-Adviser under this
Contract, the Adviser shall pay the Sub-Adviser a monthly fee at the annual rate
of up to 0.45% of the average net assets of the Fund managed by the Sub-Adviser.
If the fees payable to the Sub-Adviser pursuant to this paragraph 8 begin
to accrue before the end of any month or if this Contract terminates before the
end of any month, the fees for the period from that date to the end of that
month or from the beginning of that month to the date of termination, as the
case may be, shall be prorated according to the proportion which the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of the
Fund shall be computed in the manner specified in the Prospectus for the
computation of net asset value.
Notwithstanding the foregoing, if, after consultation with the Sub-Adviser,
the Adviser determines to waive any part of the fee paid to it by the Fund, the
fee paid to the Sub-Adviser hereunder may be reduced proportionately.
If in any month of the fiscal year of the Fund the Adviser is required by
the law of any state in the United States to reduce its fee or to reimburse
expenses of the Fund pursuant to the terms of the Advisory Contract. the Adviser
will reduce its fee or reimburse the Fund and notify the Sub-Adviser will
likewise reduce
<PAGE>
its fe or reimburse the Fund, within 30 days after receipt of such notice, in an
amount proportionately equal to the amount of reduction or reimbursement being
made by the Adviser as such amounts bear in relation to the sum of all fees to
be paid to the Adviser under the Advisory Contract and to the Sub-Adviser under
this Contract.
9. FORCE MAJEURE. The Sub-Adviser shall not be in breach of this Contract
if there is any total or partial failure of performance of its duties and
obligations occasioned by any act of God, fire, act of government or state, war,
civil commotion, insurrection, embargo, inability to communicate with market
makers for whatever reason, failure of any computer dealing system, prevention
from or hindrance in obtaining any raw materials, energy or other supplies,
labor disputes of whatever nature or any other reason (whether or not similar in
kind to any of the above) beyond the Sub-Adviser's control, provided the
Sub-Adviser has made every reasonable effort to overcome such difficulties.
10. NO PARTNERSHIP OR JOINT VENTURE. The Trust, the Adviser and the
Sub-Adviser are not partners of or joint venturers with each other and nothing
herein shall be construed so as to make them such partners or joint ventures or
impose any liability as such on any of them.
11. TERMINATION.
(i) This Contract shall become effective upon the above date, and shall
thereafter continue in effect; provided that this Contract shall continue in
effect for a period of more than two years only as so long as the continuance is
specifically approved at least annually by (a) a majority of the Trustees of the
Trust who are not interested persons of the Adviser, the Sub- Adviser or the
Trust (other than as Trustees), cast in person at meeting called for the purpose
of voting on such approval, and (b) either (i) the Trustees of the Trust, or
(ii) a majority of the outstanding voting securities of the Fund. This Contract
may, on 60 days' written notice, be terminated at any time, without the payment
of any penalty, by the Trustees of the Trust, by vote of a majority of the
outstanding voting securities of the Trust, by the Adviser or by the
Sub-Adviser. Termination shall not affect any action taken by the Sub-Adviser
permitted under this Contract prior
<PAGE>
to the date of termination or any warranty or indemnity given by the Adviser
under this Contract or implied by law.
(ii) On termination by either party the Sub-Adviser shall be entitled to
receive from the Adviser all fees, costs, charges and expenses accrued or
incurred under this Contract up to the date of termination including any
additional expenses or losses necessarily incurred in settling outstanding
obligations or terminating this Contract, whether they occur before or after the
date of termination.
(iii) If the Adviser terminates this Contract, it shall be subject to a
proportion of the annual fee corresponding to the proportion of the year that
has expired when this Contract is terminated.
12. CAPTIONS. The captions in this Contract are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Contract may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
13. RESERVATION OF NAMES. The names "Mariner Mutual Fund Trust" and
"Mariner International Equity Fund" are the designation of the Trustees under
the Declaration of Trust. The Sub-Adviser may not use the names "Mariner" or
"Mariner International Equity Fund" without prior written authorization by the
Trustees and officers of the Trust. The Trust and the Adviser may use the name
of the Sub-Adviser or any name derived from or similar to that name in reports,
filings, shareholder communications, registration statements, advertising
materials of like nature, only for so long as this Contract or any extension,
renewal of amendment hereof remains in effect and only upon the prior written
consent of the Sub-Adviser. At such time as this Contract shall no longer be in
effect, the Trust the Adviser will (to the extent they lawfully can) cease to
use the name of the Sub- Adviser or any other name indicating that the Fund or
the Adviser is advised by or otherwise connected with the Sub-Adviser.
14. GOVERNING LAW. This Contract shall be construed in accordance with laws
of the State of New York and the applicable
<PAGE>
provision for the Investment Company Act of 1940, as amend (the "1940 Act") and
the Advisers Act. As used herein the Terms "affiliated person", "assignment",
"interested person", and "vote of majority of the outstanding voting securities"
shall have the meaning set forth in the 1940 Act.
15. PERSONAL LIABILITY. The Trust's Declaration of Trust is on file with
the Secretary of State of the Commonwealth of Massachusetts. The obligations of
the Trust are not personally binding upon, nor shall resort be had to the
private property of, andy of the Trustees, shareholders, officers, employee or
agents of the Trust, but only the Trust's property shall be bound.
Yours very truly,
HSBC ASSET MANAGEMENT
AMERICAS, INC.
By:
-----------------------
Title:
The foregoing Contract
is hereby agreed to as
of the date hereof
By: _____________________
Title: President
<PAGE>
SCHEDULE 1
DEFINITIONS
In this Contract the following expressions shall have the following
meaning unless the context otherwise requires:
"Applicable Law"
means shall applicable laws and regulations of the
jurisdiction in which the Sub-Adviser is domiciled and of the
Securities and Exchange Commission of the United States of
America, and of any governmental or self-regulatory
organization of which the Sub-Adviser is a member, each as
from time to time amended;
"Assets"
means Investments of the Fund deposited by or on behalf
of the Adviser pursuant to which this Sub-Advisory
Contract relates;
"Fund"
means the separate portfolio of Assets of the Trust on whose
behalf the Adviser has entered into this Sub- Advisory
Contract;
"Investment"
means any asset, right or interest in respect of property
of any kind held by the Fund;
"Registered Office"
means 10/F Citibank Tower, 3 Garden Road, Hong Kong,
Telephone: ____________. Facsimile: ___________. Telex:
N/A_.
"Series"
<PAGE>
means the series of shares of beneficial interest representing
undivided interests in the Trust's investment portfolios,
including the Fund.
<PAGE>
April 25, 1995
APPENDIX I
AUTHORIZED SIGNATORY LIST
The following persons are authorized to give instructions on behalf of the
Sub-Adviser to the Adviser:
Name Signature Position
<PAGE>
Exhibit 5(j)
Sub-Advisory Contract between HSBC Asset Mangement Americas
Inc. (formerly Marinvest Inc.) and Investment Concepts, Inc. with
respect to the Mariner Small Cap Fund dated September 22, 1992
<PAGE>
MARINER SMALL CAP FUND
SUB-ADVISORY CONTRACT
September 22, 1992
Investment Concepts, Inc.
One Williams Center
Bancoklahoma Tower
10th Floor
Tulsa, Oklahoma 74192
Dear Sirs:
The Mariner Small Cap Fund (the "Fund") is one of the investment portfolios
of Mariner Mutual Funds Trust (the "Trust"), an open-end management investment
company, which was organized as a business trust under the laws of the
Commonwealth of Massachusetts. The Trust's shares of beneficial interest may be
classified into series in which each series represents the entire undivided
interests of a separate portfolio of assets. This Sub-Advisory Contract regards
certain services to be provided in connection with the management of the Fund,
on whose behalf Marinvest Inc. ("Marinvest") enters into this Contract.
The Trustees of the Trust have selected Marinvest to provide overall
investment advice and management for the Fund and to provide certain other
services, under the terms and conditions provided in the Master Advisory
Contract, dated May 1, 1990, between the Trust and Marinvest (the "Advisory
Contract"). Marinvest and the Trustees have selected Investment Concepts, Inc.
(the "Sub-Adviser") to provide Marinvest and the Fund with the advice and
services set forth below and the Sub-Adviser is willing to provide Marinvest and
the Fund with the advice and services, subject to the review of the Trustees and
overall supervision of Marinvest, under the terms and condition hereinafter set
forth. Accordingly, Marinvest agrees with the Sub-Adviser as follows:
1. DEFINITIONS AND DELIVERY OF DOCUMENTS. All references hereinto to this
Contract shall be deemed to be references to this Contract as it may from time
to time be amended. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Trust's Declaration of
Trust, dated November 1, 1989 (the "Declaration of Trust"), and the currently
effective Prospectus (the "Prospectus") relating to the Fund included in the
Trust's Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Trust under the Investment Company Act of 1940 (the
"1940 Act") and the Securities Act of 1933 (the "1933 Act"). Copies of the
documents referred to in the preceding sentence have been furnished to the
Sub-Adviser. Any amendments to those documents shall be furnished to the
Sub-Adviser promptly.
- 1 -
<PAGE>
2. REPRESENTATIONS. The Sub-Adviser is registered with the Securities and
Exchange Commission (the "SEC") as an investment adviser pursuant to Section 203
of the Investment Advisers Act of 1940, as amended (the "Advisers Acts"), and
agrees to maintain such registration during the term of this agreement.
3. SUB-ADVISORY SERVICES.
(i) The Sub-Adviser shall act as sub-adviser of the Fund under the terms of
this Contract and will use its best efforts to provide to the Fund a continuing
and suitable investment program consistent with the investment policies,
objectives and restrictions of the Fund, as set forth in the Trust's Declaration
of Trust, the Registration Statement, the applicable laws and provisions of the
Internal Revenue Code of 1986, as amended, relating to regulated investment
companies, subject to policy decisions adopted by the Trust's Board of Trustees,
and will take any such actions as it may in its opinion deem necessary or
desirable for or incidental to any such purposes.
(ii) The Sub-Adviser will also, at its own expense:
(a) furnish the Trust and Marinvest with advice and
recommendations, consistent with the investment policies, objectives
and restrictions of the Fund;
(b) subject to such consultation as Marinvest may request,
including a request for a written response, determine which
Investments of the Fund should be purchased, held or disposed of and
what portion of such Assets, if any, should be held in cash or cash
equivalents, and the rationale for those determinations;
(c) furnish Marinvest with a monthly commentary and a quarterly
report concerning market overview, performance analysis and trading
activity;
(d) subject to the supervision of Marinvest, maintain and
preserve certain records including this Sub-Advisory Contract and any
research provided to Marinvest. The Sub-Adviser agrees that such Trust
records are the property of the Trust and that such Trust records or
copies thereof will be surrendered to the Trust promptly upon request
therefor;
(e) give instructions in the form of trade tickets representing
purchases and sales of the Fund's portfolio securities to Marinvest
via facsimile transmission no later than trade date plus one; and
- 2 -
<PAGE>
(f) cooperate generally with the Trust and Marinvest so far as
the Sub-Adviser is able to provide information necessary for the
preparation of registration statements and periodic reports to be
filed with the SEC, including Forms N-1A and N-SAR, periodic
statements, shareholder communications and proxy materials furnished
to holders of shares of the Fund, filings with state "blue sky"
authorities end with United States and foreign agencies responsible
for tax matters, and other reports and filings of like nature.
(iii) No provision of this Contract may be changed, waiver, discharged or
terminated orally, but only by an instrument in writing signet by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of
this Contract shall be effective until approved by (a) the Trustees of the
Trust, including a majority of the Trustees who are not interested persons of
Marinvest, of the Sub-Adviser or of the Trust (other than as Trustees), cast in
person at a meeting called for the purpose of voting on such approval, and (b) a
majority of the outstanding voting securities of the Fund; provided, however
that the approval required in subsection (a) above, shall e evidenced by a
resolution of the entire Board of Trustees and of the Trustees who are not
interested persons of Marinvest, of the Sub-Adviser or of the Trust (other than
as Trustees); and provided further that such resolutions shall be sent to the
Sub-Adviser by facsimile and confirmed in writing by letter.
(iv) All transactions in Investments shall be subject to the rules,
regulations and customs of the exchange or market and/or clearing house through
which the transactions are executed and to all Applicable Law, and, if there is
any conflict between any such rules, customs, law and the provisions of this
Contract the former shall prevail.
(v) The Sub-Adviser may not, without specific instruction in writing (and
compliance applicable policies and restrictions of the Fund set forth in its
Registration Statement), borrow on Marinvest's behalf or commit Marinvest to a
contract (other than a trade ticket).
(vi) The Sub-Adviser has the right under this contract to act for more than
one client collectively (including Marinvest) in any one transaction or series
of transactions without prior reference to Marinvest.
4. THE SUB-ADVISER.
(i) The Sub-Adviser shall act as agent for Marinvest and shall be entitled
to instruct such brokers and other agents as it may decide. The Sub-Adviser may
(and any such broker or sub-agent may) execute transactions on Marinvest's
behalf without prior disclosure to Marinvest of the fact that in doing so, it is
or may be dealing with or in circumstances involving an affiliate of the
Sub-Adviser; provided, however, that (a) the Sub-Adviser will not do business
with nor pay commissions to any affiliate in any portfolio transaction where an
affiliate acts as principal; (b) in purchasing Investments for the Funds,
neither the Sub-Adviser nor any of its directors, officers
- 3 -
<PAGE>
or employees will act as principal or agent or receive any commissions; and (e)
the Sub-Adviser shall use its best efforts to obtain execution and pricing
within the policy guidelines, if any, determined by the Trustees and set forth
in the Prospectus and Statement of Additional Information of the Funds. The
Sub-Adviser shall not be under any duty to account to Marinvest for any profits
or other benefit received by the Sub-Adviser or any affiliate as a result of
such transactions.
(ii) Should the Sub-Adviser deem it appropriate to match one client's order
with that of another client by acting as agent for each party, prior written
consent from both parties will be obtainer before the transaction Is effected.
(iii) The Sub-Adviser may effect transactions with or through the agency of
another person with whom It has an arrangement under which that person will from
time to time provide to, or procure for, the Sub-Adviser services or other
benefits the nature of which are such that their provision results, or is
designed to result, in an improvement of the Sub-Adviser's performance In
providing services for its clients and for which the Sub-Adviser makes no direct
payment but instead undertakes to place business (including business on behalf
of Marinvest) with that person. All such transactions effected for Marinvest
will, however, secure best execution, disregarding any benefit which might
accrue to the Sub-Adviser from the arrangement.
(iv) The Sub-Adviser shall not knowingly recommend that the Fund purchase,
sell or retain securities of any issuer In which the Sub-Adviser or any of its
affiliated persons has a financial interest, except in instances in which the
Sub-Adviser fully discloses In writing to the Investment Adviser the nature of
his financial Interest prior to purchase, sale or retention. It shall be the
duty of the Investment Adviser to notify the Trustees of the Fund of these
financial Interests.
(v) Marinvest authorizes the Sub-Adviser to disclose any information which
it may be required to disclose under this Contract, the Applicable Law, the
rules and regulations of the SEC or of any market on which an Investment Is
acquired.
(vi) Nothing herein contained shall prevent the Sub-Adviser or any of its
affiliated persons or associates from engaging in any other business or from
acting as investment adviser or Sub-Adviser for any other person or entity,
whether or not having investment policies similar to the Fund.
(vii) The Sub-Adviser will pay the cost of maintaining the staff and
personnel necessary for it to perform its obligations under this Contract, the
expenses of office rent, telephone and other facilities it is obligated to
provide in order to perform the services specified In Sections 3 and 4 and any
other expenses incurred by it in connection with the performance of its duties
hereunder, including, but not limited to, attendance in person at a minimum of
one meeting each year with the Board of Trustees of the Trust and Marinvest.
- 4 -
<PAGE>
(viii) The Sub-Adviser will not be required to pay any expenses which this
Contract does not expressly state shall be payable by it. In particular, and
without limiting the generality of the foregoing but subject to the provisions
of Section 4(vii), the Sub-Adviser will not be required to pay:
(a) the compensation and expenses of Trustees of the Trust, and of
independent advisers, independent contractors, consultants, managers and
other agents employed by the Trust other than through the Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the Fund;
(c) the fees or disbursements of the custodian, the transfer agent and
the dividend disbursing agent;
(d) stamp and other duties, taxes, impositions, governmental fees, and
fiscal charges of any nature whatsoever, assessed against the Fund's assets
and payable by the Trust;
(e) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders, except that the
Sub-Adviser shall bear the costs of providing the services referred to in
Sections 3 and 4;
(f) brokers' commissions and underwriting fees; and
(g) the expense of periodic calculations of the net asset value of the
Fund's shares.
5. FURTHER PROVISIONS.
(i) The Sub-Adviser enters into this Contract for itself. Marinvest
includes Marinvest's successors in title or personal representatives as the case
may be.
(ii) This Contract shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Contract with the Fund, and
Marinvest shall immediately notify the Sub-Adviser of such termination. No
assignment of this Contract shall be made by the Sub-Adviser without the consent
of Marinvest.
(iii) If any provision of this Contract is or becomes invalid or
contravenes any applicable law, the remaining provisions shall remain in full
force and effect.
6. CLIENT MONEY AND CUSTODY.
The Sub-Adviser will not hold any client money on behalf of Marinvest.
- 5 -
<PAGE>
The Sub-Adviser shall not be the registered holder, or custodian, of
Investments or documents of title relating thereto.
7. INSTRUCTIONS AND COMMUNICATIONS. Instructions may be given by Marinvest
in writing (by letter or facsimile or telex with correct answerback) or by
telephone unless it is required under an express provision of this Contract for
instructions to be given in writing. Marinvest shall give written instructions
to the Sub-Adviser at its Registered Office. The Sub-Adviser shall communicate
with Marinvest in writing or by telephone except when it is required to
communicate in writing (by letter or facsimile or telex with correct answerback)
either under this Contract or in accordance with applicable law. The Sub-Adviser
shall be required to communicate instructions in the form of trade tickets by
facsimile in accordance with Section 3(ii)(e) hereof. The Sub-Adviser shall
communicate with Marinvest at the address last notified to the Sub-Adviser.
Marinvest shall be entitled to rely on the instructions of any person who is
listed on Appendix I and may assume the genuineness of all signatures and the
authenticity of all instructions and communications unless Marinvest had reason
to know such signatures, instructions or communications were unauthorized. All
trade tickets representing purchases and sales of the Fund's portfolio
securities shall be signed by at least two such persons listed on Appendix I.
8. FEES AND EXPENSES. In consideration of the services to be rendered,
facilities furnished and expenses paid or assumed by the Sub-Adviser under this
Contract, Marinvest shall pay the Sub-Adviser a monthly fee at the following
annual rates:
Portion of Average Daily Sub-
Value of Net Assets of the Fund Advisory Fee
------------------------------- ------------
Not exceeding $400 million... 0.500%
In excess of $400 million but
not exceeding $800 million... 0.460%
In excess of $800 million but
not exceeding $1.2 billion... 0.420%
In excess of $1.2 billion but
not exceeding $1.6 billion... 0.380%
In excess of $1.6 billion but
not exceeding $2 billion... 0.340%
In excess of $2 billion... 0.290%
- 6 -
<PAGE>
If the fees payable to the Sub-Adviser pursuant to this paragraph 8 begin
to accrue before the end of any month or if this Contract terminates before the
end of any month, the fees for the period from that date to the end of that
month or from the beginning of that month to the date of termination, as the
case may be, shall be prorated according to the proportion which the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of the
Fund shall be computed in the manner specified in the Prospectus for the
computation of net asset value.
Notwithstanding the foregoing, if, after consultation with the Sub-Adviser,
Marinvest determines to waive any part of the fee paid to it by the Fund, the
fee paid to the Sub-Adviser hereunder may be reduced proportionately.
If in any month of the fiscal year of the Fund Marinvest is required by the
law of any state in the United States to reduce its fee or to reimburse expenses
of the Fund pursuant to the terms of the Advisory Contract, Marinvest will
reduce its fee or reimburse the Fund and notify the Sub-Adviser of such
reduction or reimbursement. The Sub-Adviser will likewise reduce its fee or
reimburse the Fund, within 30 days after receipt of such notice, in an amount
proportionately equal to the amount of reduction or reimbursement being made by
Marinvest as such amounts bear in relation to the sum of all fees to be paid to
{Marinvest under the Advisory Contract ant to the Sub-Adviser under this
Contract.
9. FORCE MAJEURE. The Sub-Adviser shall not be in breach of this Contract
if there is any total or partial failure of performance of its duties and
obligations occasioned by any act of God, fire, act of government or state, war,
civil commotion, insurrection, embargo, inability to communicate with market
makers for whatever reason, failure of any computer dealing system, prevention
from or hindrance in obtaining any raw materials, energy or other supplies,
labor disputes of whatever nature or any other reason (whether or not similar in
kind to any of the above) beyond the Sub-Adviser's control, provided the
Sub-Adviser has made every reasonable effort to overcome such difficulties.
10. NO PARTNERSHIP OR JOINT VENTURE. The Trust, Marinvest and the
Sub-Adviser are not partners of or Joint venturers with each other ant nothing
herein shall be construed so as to make them such partners or Joint venturers or
impose any liability as such on any of them.
11. TERMINATION.
(i) This Contract shall become effective upon the above date, and shall
thereafter continue in effect; provided that this Contract shall continue in
effect for a period of more than two years only so long as the continuance is
specifically approved at least annually by (a) a majority of the trustees of the
Trust Who are not interested persons of Marinvest, the Sub-Adviser or the Trust
(other than as Trustees), cast in person at a meeting called for the purpose of
voting on such approval, and (b) either (i) the trustees of the Trust, or (ii) a
majority of the outstanding voting
- 7 -
<PAGE>
securities of the Fund. This Contract may, on 60 days' written notice, be
terminated at any time, without the payment of any penalty, by the Trustees of
the Trust, by vote of a majority of the outstanding voting securities of the
Trust, by Marinvest or by the Sub-Adviser. Termination shall not affect any
action taken by the Sub-Adviser permitted under this Contract prior to the date
of termination or any warranty or indemnity given by Marinvest under this
Contract or implied by law.
(ii) On termination by either party the Sub-Adviser shall be entitled to
receive from Marinvest all fees, costs, charges and expenses accrued or incurred
under this Contract up to the date of termination including any additional
expenses or losses necessarily incurred in settling outstanding obligations or
terminating this Contract, whether they occur before or after the date of
termination.
(iii) If Marinvest terminates this Contract, it shall be subject to a
proportion of the annual fee corresponding to the proportion of the year that
has expired when this Contract is terminated.
12. CAPTIONS. The captions in this Contract are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Contract may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
13. RESERVATION OF NAMES. The names "Mariner Mutual Funds Trust" and
"Mariner Small Cap Fund" are the designation of the Trustees under the
Declaration of Trust. The Sub-Adviser may not use the names "Mariner" or
"Mariner Small Cap Fund" without prior written authorization by the Trustees and
officers of the Trust. The Trust and Marinvest may use the name "Investment
Concepts, Inc." or any name derived from or similar to that name in reports,
filings, shareholder communications, registration statements, advertising
materials and materials of like nature, only for so long as this Contract or any
extension, renewal of amendment hereof remains in effect and only upon the prior
written consent of the Sub-Adviser. At such time as this Contract shall no
longer be in effect, the Trust and Marinvest will (to the extent they lawfully
can) cease to use the name "Investment Concepts, Inc." or any other name
indicating that the Fund or Marinvest is advised by or otherwise connected with
the Sub-Adviser.
14. GOVERNING LAW. This Contract shall be construed in accordance with the
laws of the State of New York and the applicable provisions of the Investment
Company Act of 1940, as amend (the "1940 Acts") and the Advisers Act. As used
herein the terms "affiliated person", "assignment", "interested person", and
"vote of a majority of the outstanding voting securities" shall have the
meanings set forth in the 1940 Act.
- 8 -
<PAGE>
15. PERSONAL LIABILITY. The Trust's Declaration of Trust is on file with
the Secretary of State of the Commonwealth of Massachusetts. The Obligations of
the Trust are not personally binding upon, nor shall resort be had to the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Trust, but only the Trust's property shall be bound.
Yours very truly, MARINVEST INC.
By: _________________________
Title: Managing Director
The foregoing Contract
is hereby agreed to as
of the date hereof
INVESTMENT CONCEPTS, INC.
By:______________________
Title: President
- 9 -
<PAGE>
SCHEDULE 1
DEFINITIONS
In this Contract the following expressions shall have the following meanings
unless the context otherwise requires:
"Applicable Law"
means all applicable laws and regulations of the jurisdiction in which
the Sub-Adviser is domiciled and of the Securities and Exchange
Commission of the.United States of America, and of any governmental or
self-regulatory organization of which the Sub-Adviser is a member, each
as from time to time amended;
"Assets"
means Investments of the Fund deposited by or on behalf of Marinvest
pursuant to which this Sub-Advisory Contract relates;
"Fund"
means the separate portfolio of Assets of the Trust on whose behalf
Marinvest has entered into this Sub-Advisory Contract;
"Investment"
means any asset, right or interest in respect of property of any kind
held by the Fund;
"Registered Office"
means One Williams Center, Bancoklahoma Tower, 10th Floor, Tulsa,
Oklahoma 74192 Telephone: 918-588-6317. Facsimile 918-588-6939. Telex:
N/A_.
"Series"
means the series of shares of beneficial interest representing
undivided interests in the Trust's investment portfolios, including the
Fund.
- 10 -
<PAGE>
September 22, 1992
APPENDIX I
AUTHORIZED SIGNATORY LIST
The following persons are authorized to give instructions on behalf of the
Sub-Adviser to Marinvest:
Name Signature Position
- ---- --------- --------
Rudy M. Thomas President
Brian K. Hayes Principal
Jim L. Huntzinger Principal
Grafton M. Potter Principal
Forrest L. Armstrong Portfolio Manager
William C. Bequette Portfolio Manager
Joe P. Sing Portfolio Manager
Robin D. Basolo Equity Trader
Patti S. Robertson Trader
- 11 -
<PAGE>
Exhibit 5(k)
Sub-Advisory Contract between HSBC Asset Management Americas and
HSBS Asset Management Singapore Limited with respect to
HSBC International Equity Fund
<PAGE>
HSBC MUTUAL FUNDS TRUST
INTERNATIONAL EQUITY FUND
SUB-ADVISORY CONTRACT
April 30, 1996
HSBC Asset Management Singapore Limited
21 Collyer Quay 02
#20-02 Hongkong Bank Building
Singapore 049320
Dear Sirs:
The International Equity Fund (the "Fund") is one of the investment
portfolios of HSBC Mutual Funds Trust, formerly Mariner Mutual Funds Trust (the
"Trust"), an open-end management investment company, which was organized as a
business trust under the laws of the Commonwealth of Massachusetts. The Trust's
shares of beneficial interest may be classified into series in which each series
represents the entire undivided interests of a separate portfolio of assets.
This Sub-Advisory Contract regards certain services to be provided in connection
with the management of the Fund, on whose behalf HSBC Asset Management Americas,
Inc. ("the Adviser") enters into this Contract.
The Trustees of the Trust have selected HSBC Asset Management
Americas, Inc. (the "Adviser") to provide overall investment advice and
management for the Fund and to provide certain other services, under the terms
and conditions provided in the Master Advisory Contract between the Trust and
the Adviser (the "Advisory Contract"). The Adviser and the Trustees have
selected HSBC Asset Management Singapore Ltd. (the "Sub-Adviser") to provide the
Adviser and the Fund with the advice and services set forth below and the Sub-
Adviser is willing to provide the Adviser and the Fund with the advice and
services, subject to the review of the Trustees and overall supervision of the
Adviser, under the terms and conditions hereinafter set forth. Accordingly, the
Adviser agrees with the Sub-Adviser as follows:
1. DEFINITIONS AND DELIVERY OF DOCUMENTS. All references herein to
this Contract shall be deemed to be references to this Contract as it may from
time to time be amended. The Trust engages in the business of investing and
reinvesting the assets of the Fund in the manner and in accordance with the
investment objective and restrictions specified in the Trust's declaration of
Trust, dated November 1, 1989 (the "Declaration of Trust"), and the currently
effective Prospectus (the "Prospectus") relating to the Fund included in the
Trust's Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the
<PAGE>
Trust under the Investment Company Act of 1940 (the "1940 Act") and the
Securities Act of 1933 (the "1933 Act"). Copies of the documents referred to in
the preceding sentence have been furnished to the Sub-Adviser. Any amendments
to those documents shall be furnished to the Sub-Adviser promptly.
2. REPRESENTATIONS. The Sub-Adviser is registered with the
Securities and Exchange Commission (the "SEC") as an investment adviser pursuant
to Section 203 of the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and agrees to maintain such registration during the term of this
agreement.
3. SUB-ADVISORY SERVICES.
(i) The Sub-Adviser shall act as sub-adviser of a portion the Fund
designated by the Adviser under the terms of this Contract and will use its best
efforts to provide to the Fund a continuing and suitable investment program in
the Sub-Advisor's region consistent with the investment policies, objectives and
restrictions of the Fund, as set forth in the Trust's Declaration of Trust, the
Registration Statement, the applicable law and provisions of the Internal
Revenue Code of 1986, as amended, relating to regulated investment companies,
subject to policy decisions adopted by the Trust's Board of Trustees, and will
take any such actions as it may in its opinion deem necessary or desirable for
or incidental to any such purposes.
(ii) The Sub-Adviser will also, at its own expense:
(a) furnish the Trust and the Adviser with advice and recommendations,
consistent with the investment policies, objectives and restrictions of the
Fund;
(b) subject to such consultation as the Adviser may request for a
written response, determine which Investments of the Fund should be purchased,
held or disposed of and what portion of such Assets, if any, should be held in
cash or cash equivalents, and the rationale for those determinations;
(c) furnish the Adviser with a monthly commentary and a quarterly
report concerning market overview, performance analysis and trading activity;
(d) subject to the supervision of the Adviser, maintain and preserve
certain records including this Sub-Advisory Contract and any research provided
to the Adviser. The Sub-Adviser agrees that such Trust records are the property
of the Trust and that such Trust records or copies thereof will be surrendered
to the Trust promptly upon request therefor;
<PAGE>
(e) give instructions in the form of trade tickets representing
purchases and sales of the Fund's portfolio securities to the Adviser via
facsimile transmission no later than trade date plus one; and
(f) cooperate generally with the Trust and the Adviser so far as the
Sub-Adviser is able to provide information necessary for the preparation of
registration statements and periodic reports to be filed with the SEC, including
Forms N-1A and N-SAR, periodic statements, shareholder communications and
proxy materials furnished to holders of shares of the Fund, filings with state
"blue sky" authorities and with United States and foreign agencies responsible
for tax matters, and other reports and filings of like nature.
(iii) No provision of this Contract may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, and no amendment, transfer, assignment, sale, hypothecation or pledge of
this Contract shall be effective until approved by (a) the Trustees of the
Trust, including a majority of the Trustees who are not interested persons of
the Adviser, of the Sub-Adviser or of the Trust (other than as Trustees), cast
in person at a meeting called for the purpose of voting on such approval, and
(b) a majority of the outstanding voting securities of the Fund; provided,
however, that the approval required in subsection (a) above, shall be evidenced
by a resolution of the entire Board of Trustees and of the Trustees who are not
interested persons of the Adviser, of the Sub-Adviser or of the Trust (other
than as Trustees); and provided further that such resolutions shall be sent to
the Sub-Adviser by facsimile and confirmed in writing by letter.
(iv) All transactions in Investments shall be subject to the rules,
regulations and customs of the exchange or market and/or clearing house through
which the transactions are executed and to all Applicable Law, and, if there is
any conflict between any such rules, customs, law and the provisions of this
Contract the former shall prevail.
(v) The Sub-Adviser may not, without specific instruction in writing
(and compliance applicable policies and restrictions of the Fund set forth in
its Registration Statement), borrow on the Adviser's behalf or commit the
Adviser to a contract (other than a trade ticket).
(vi) The Sub-Adviser has the right under this Contract to act for more
than one client collectively (including the Adviser) in any one transaction or
series of transactions without prior reference to the Adviser.
4. THE SUB-ADVISER.
<PAGE>
(i) The Sub-Adviser shall act as agent for the Adviser and shall be
entitled to instruct such brokers and other agents as it may decide. The Sub-
Adviser may (and any such broker or sub-agent may) execute transactions on the
Adviser's behalf without prior disclosure to the Adviser of the fact that in
doing so, it is or may be dealing with or in circumstances involving an
affiliate of the Sub-Adviser; provided, however, that (a) the Sub-Adviser will
not do business with nor pay commissions to any affiliate in any portfolio
transaction where an affiliate acts as principal; (b) in purchasing Investments
for the Funds, neither the Sub-Adviser nor any of its directors, officers or
employees will act as principal or agent or receive any commissions; and (c) the
Sub-Adviser shall use its best efforts to obtain execution and pricing within
the policy guidelines, if any, determined by the Trustees and set forth in the
Prospectus and Statement of Additional Information of the Funds. The Sub-
Adviser shall not be under any duty to account to the Adviser for any profits or
other benefits received by the Sub-Adviser or any affiliate as a result of such
transactions.
(ii) Should the Sub-Adviser deem it appropriate to match one client's
order with that of another client by acting as agent for each party, prior
written consent from both parties will be obtained before the transaction is
effected.
(iii) The Sub-Adviser may effect transactions with or
through the agency of another person with whom it has an arrangement under which
that person will from time to time provide to, or procure for, the Sub-Adviser
services or other benefits the nature of which are such that their provision
results, or is designed to result, in an improvement of the Sub-Adviser's
performance in providing services for its clients and for which the Sub-Adviser
makes no direct payment but instead undertakes to place business (including
business on behalf of the Adviser) with that person. All such transactions
effected for the Adviser will, however, secure best execution, disregarding any
benefit which might accrue to the Sub-Adviser from the arrangement.
(iv) The Sub-Adviser shall not knowingly recommend that the Fund
purchase, sell or retain securities of any issue in which the Sub-Adviser or any
of its affiliated persons has a financial interest, except in instances in which
the Sub-Adviser fully discloses in writing to the Investment Adviser the nature
of its financial interest prior to purchase, sale or retention. It shall be the
duty of the Investment Adviser to notify the Trustees of the Fund of these
financial interests.
(v) the Adviser authorizes the Sub-Adviser to disclose any information
which it may be required to disclose under this Contract, the Applicable Law,
the rules and regulations of the SEC or of any market on which an Investment is
acquired.
(vi) Nothing herein contained shall prevent the Sub-Adviser or any of
its affiliated persons or associates from engaging in any other business or from
acting as investment adviser or Sub-Adviser for any other person or entity,
whether or not having investment policies similar to the Fund.
<PAGE>
(vii) The Sub-Adviser will pay the cost of maintaining the staff and
personnel necessary for it to perform its obligations under this Contract, the
expenses of office rent, telephone and other facilities it is obligated to
provide in order to perform the services specified in Sections 3 and 4 and any
other expenses incurred by it in connection with the performance of its duties
hereunder, including, but not limited to, attendance in person at a minimum of
one meeting each year with the Board of Trustees of the Trust and the Adviser.
(viii) The Sub-Adviser will not be required to pay any
expenses which this Contract does not expressly state shall be payable by it.
In particular, and without limiting the generality of the foregoing but subject
to the provisions of Section 4(vii), the Sub-Adviser will not be required to
pay;
(a) the compensation and expenses of Trustees of the Trust, and of
independent advisers, independent contractors, consultants, managers, and other
agents employed by the Trust other than through the Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the Fund;
(c) the fees or disbursements of the custodian, the transfer agent and
the dividend disbursing agent;
(d) stamp and other duties, taxes, impositions, governmental fees, and
fiscal charges of any nature whatsoever, assessed against the Fund's assets and
payable by the Trust;
(e) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders, except that the Sub-
Adviser shall bear the costs of providing the services referred to in Sections 3
and 4;
(f) brokers' commissions and underwriting fees; and
(g) the expense of periodic calculations of the net asset value of the
Fund's shares.
5. FURTHER PROVISIONS.
------------------
(i) The Sub-Adviser enters into this Contract for itself. The Adviser
includes the Adviser's successors in title or personal representatives as the
case may be.
<PAGE>
(ii) This Contract shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Contract with the Fund, and
the Adviser shall immediately notify the Sub-Adviser of such termination. No
assignment of this Contract shall be made by the Sub-Adviser without the consent
of the Adviser.
(iii) If any provision of this Contract is or becomes invalid or
contravenes any applicable law, the remaining provisions shall remain in full
force and effect.
6. CLIENT MONEY AND CUSTODY.
------------------------
The Sub-Adviser will not hold any client money on behalf of the
Adviser.
The Sub-Adviser shall not be the registered holder, or custodian, of
Investments or documents of title relating thereto.
7. INSTRUCTIONS AND COMMUNICATIONS. Instructions may be given by
-------------------------------
the Adviser in writing (by letter or facsimile or telex with correct answerback)
or by telephone unless it is required under an express provision of this
Contract for instructions to be given in writing. the Adviser shall give
written instructions to the Sub-Adviser at its Registered Office. The Sub-
Adviser shall communicate with the Adviser in writing or by telephone except
when it is required to communicate in writing (by letter or facsimile or telex
with correct answerback) either under this Contract or in accordance with
applicable law. The Sub-Adviser shall be required to communicate instructions
in the form of trade tickets by facsimile in accordance with Section 3(ii)(e)
hereof. The Sub-Adviser shall communicate with the Adviser at the address last
notified to the Sub-Adviser. the Adviser shall be entitled to rely on the
instructions of any person who is listed on Appendix I and may assume the
genuineness of all signatures and the authenticity of all instructions and
communications unless the Adviser had reason to know such signatures,
instructions or communications were unauthorized. All trade tickets
representing purchases and sales of the Fund's portfolio securities shall be
signed by at least two such persons listed on Appendix I.
8. FEES AND EXPENSES. In consideration of the services to be
-----------------
rendered, facilities furnished and expenses paid or assumed by the Sub-Adviser
under this Contract, the Adviser shall pay the Sub-Adviser a monthly fee at the
annual rate of up to 0.45% of the average net assets of the Fund managed by the
Sub-Adviser.
If the fees payable to the Sub-Adviser pursuant to this paragraph 8
begin to accrue before the end of any month or if this Contract terminates
before the end of any month, the fees for the period from that date to the end
of that month or from the beginning of that month to the date of termination, as
the case may be, shall be prorated according to the proportion which the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of the
Fund shall be computed in the manner specified in the Prospectus for the
computation of net asset value.
<PAGE>
Notwithstanding the foregoing, if, after consultation with the Sub-
Adviser, the Adviser determines to waive any part of the fee paid to it by the
Fund, the fee paid to the Sub-Adviser hereunder may be reduced proportionately.
If in any month of the fiscal year of the Fund the Adviser is required
by the law of any state in the United States to reduce its fee or to reimburse
expenses of the Fund pursuant to the terms of the Advisory Contract. the
Adviser will reduce its fee or reimburse the Fund and notify the Sub-Adviser
will likewise reduce its Fe or reimburse the Fund, within 30 days after receipt
of such notice, in an amount proportionately equal to the amount of reduction or
reimbursement being made by the Adviser as such amounts bear in relation to the
sum of all fees to be paid to the Adviser under the Advisory Contract and to the
Sub-Adviser under this Contract.
9. FORCE MAJEURE. The Sub-Adviser shall not be in breach of this
-------------
Contract if there is any total or partial failure of performance of its duties
and obligations occasioned by any act of God, fire, act of government or state,
war, civil commotion, insurrection, embargo, inability to communicate with
market makers for whatever reason, failure of any computer dealing system,
prevention from or hindrance in obtaining any raw materials, energy or other
supplies, labor disputes of whatever nature or any other reason (whether or not
similar in kind to any of the above) beyond the Sub-Adviser's control, provided
the Sub-Adviser has made every reasonable effort to overcome such difficulties.
10. NO PARTNERSHIP OR JOINT VENTURE. The Trust, the Adviser and the
-------------------------------
Sub-Adviser are not partners of or joint venturers with each other and nothing
herein shall be construed so as to make them such partners or joint ventures or
impose any liability as such on any of them.
11. TERMINATION.
-----------
(i) This Contract shall become effective upon the above date, and
shall thereafter continue in effect; provided that this Contract shall continue
in effect for a period of more than two years only as so long as the continuance
is specifically approved at least annually by (a) a majority of the Trustees of
the Trust who are not interested persons of the Adviser, the Sub-Adviser or the
Trust (other than as Trustees), cast in person at meeting called for the purpose
of voting on such approval, and (b) either (i) the Trustees of the Trust, or
(ii) a majority of the outstanding voting securities of the Fund. This Contract
may, on 60 days' written notice, be terminated at any time, without the payment
of any penalty, by the Trustees of the Trust, by vote of a majority of the
outstanding voting securities of the Trust, by the Adviser or by the Sub-
Adviser. Termination shall not affect any action taken by the Sub-Adviser
permitted under this Contract prior to the date of termination or any warranty
or indemnity given by the Adviser under this Contract or implied by law.
(ii) On termination by either party the Sub-Adviser shall be entitled
to receive from the Adviser all fees, costs, charges and expenses accrued or
incurred under this
<PAGE>
Contract up to the date of termination including any additional expenses or
losses necessarily incurred in settling outstanding obligations or terminating
this Contract, whether they occur before or after the date of termination.
(iii) If the Adviser terminates this Contract, it shall be subject to
a proportion of the annual fee corresponding to the proportion of the year that
has expired when this Contract is terminated.
12. CAPTIONS. The captions in this Contract are included for
--------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Contract may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
13. RESERVATION OF NAMES. The names "HSBC Mutual Fund Trust" and
--------------------
"HSBC International Equity Fund" are the designation of the Trustees under the
Declaration of Trust. The Sub-Adviser may not use the name "HSBC International
Equity Fund" without prior written authorization by the Trustees and officers of
the Trust. The Trust and the Adviser may use the name of the Sub-Adviser or any
name derived from or similar to that name in reports, filings, shareholder
communications, registration statements, advertising materials of like nature,
only for so long as this Contract or any extension, renewal of amendment hereof
remains in effect and only upon the prior written consent of the Sub-Adviser.
At such time as this Contract shall no longer be in effect, the Trust the
Adviser will (to the extent they lawfully can) cease to use the name of the Sub-
Adviser or any other name indicating that the Fund or the Adviser is advised by
or otherwise connected with the Sub-Adviser.
14. GOVERNING LAW. This Contract shall be construed in accordance
-------------
with laws of the State of New York and the applicable provision for the
Investment Company Act of 1940, as amend (the "1940 Act") and the Advisers Act.
As used herein the Terms "affiliated person", "assignment", "interested person",
and "vote of majority of the outstanding voting securities" shall have the
meaning set forth in the 1940 Act.
<PAGE>
15. PERSONAL LIABILITY. The Trust's Declaration of Trust is on file
------------------
with the Secretary of State of the Commonwealth of Massachusetts. The
obligations of the Trust are not personally binding upon, nor shall resort be
had to the private property of, and of the Trustees, shareholders, officers,
employee or agents of the Trust, but only the Trust's property shall be bound.
Yours very truly,
HSBC ASSET MANAGEMENT
AMERICAS, INC.
By: _______________________
Title:
The foregoing Contract
is hereby agreed to as
of the date hereof
HSBC ASSET MANAGEMENT SINGAPORE
LIMITED
By: _____________________
Title: President
<PAGE>
SCHEDULE 1
DEFINITIONS
In this Contract the following expressions shall have the following meaning
unless the context otherwise requires:
"Applicable Law"
means shall applicable laws and regulations of the jurisdiction in which the
Sub-Adviser is domiciled and of the Securities and Exchange Commission of the
United States of America, and of any governmental or self-regulatory
organization of which the Sub-Adviser is a member, each as from time to time
amended;
"Assets"
means Investments of the Fund deposited by or on behalf of the Adviser pursuant
to which this Sub-Advisory Contract relates;
"Fund"
means the separate portfolio of Assets of the Trust on whose behalf the Adviser
has entered into this Sub-Advisory Contract;
"Investment"
means any asset, right or interest in respect of property of any kind held by
the Fund;
"Registered Office"
means 21 Collyer Quay 02, #20-02 Hongkong Bank Building, Singapore 049320,
Telephone: 65-530-2828. Facsimile: 65-225-4324. Telex: N/A.
"Series"
means the series of shares of beneficial interest representing undivided
interests in the Trust's investment portfolios, including the Fund.
<PAGE>
April 30, 1996
APPENDIX I
AUTHORIZED SIGNATORY LIST
The following persons are authorized to give instructions on behalf of the Sub-
Adviser to the Adviser:
NAME SIGNATURE POSITION
---- --------- --------
<PAGE>
Exhibit 6
Distribution Agreement between Registrant
and BISYS Fund Services
<PAGE>
EXHIBIT 99.6
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made this _____ day of __________________, 1996, between MARINER
MUTUAL FUNDS TRUST (the "Trust"), a Massachusetts business trust having its
principal place of business at 125 West 55th Street, New York, New York 10019,
and BISYS FUND SERVICES LIMITED PARTNERSHIP d/b/a BISYS FUND SERVICES
("Distributor"), having its principal place of business at 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company, organized
as a Massachusetts business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
------------------------
1.1 Distributor will act as agent for the distribution of the
Shares covered by the registration statement and prospectus of the Trust then in
effect under the Securities Act of 1933, as amended (the "Securities Act"). As
used in this Agreement, the term "registration statement" shall mean Parts A
(the prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit
orders for the sale of the Shares and will undertake such advertising and
promotion as it believes reasonable in connection with such solicitation. The
Trust understands that Distributor is now and may in the future be the
distributor of the shares of several investment companies or series (together,
"Companies") including Companies having investment objectives similar to those
of the Trust. The Trust further understands that investors and potential
investors in the Trust may invest in shares of such other Companies. The Trust
agrees that Distributor's duties to such Companies shall not be deemed in
conflict with its duties to the Trust under this paragraph 1.2.
<PAGE>
Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable, which are primarily intended to result in the sale of
the Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
1.3 In its capacity as distributor of the Shares, all activities
of Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for
purchase or redemption of the Shares to the transfer agent and custodian for the
Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in
connection with the sale of the Shares, such information with respect to the
Funds and the Shares as Distributor may reasonably request; and the Trust
warrants that the statements contained in any such information shall fairly show
or represent what they purport to show or represent. The Trust shall also
furnish Distributor upon request with: (a) unaudited semi-annual statements of
the Funds' books and accounts prepared by the Trust, (b) a monthly itemized list
of the securities in the Funds, (c) monthly balance sheets as soon as
practicable after the end of each month, and (d) from time to time such
additional information regarding the financial condition of the Funds as
Distributor may reasonably request.
1.10 The Trust represents to Distributor that, with respect to the
Shares, all registration statements and prospectuses filed by the Trust with the
Commission under the Securities Act have been carefully prepared in conformity
with requirements of said Act and rules and
2
<PAGE>
regulations of the Commission thereunder. The registration statement and
prospectus contain all statements required to be stated therein in conformity
with said Act and the rules and regulations of said Commission and all
statements of fact contained in any such registration statement and prospectus
are true and correct. Furthermore, neither any registration statement nor any
prospectus includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of the Shares. The Trust may, but shall
not be obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any prospectus
as, in the light of future developments, may, in the opinion of the Trust's
counsel, be necessary or advisable. If the Trust shall not propose such
amendment or amendments and/or supplement or supplements within fifteen days
after receipt by the Trust of a written request from Distributor to do so,
Distributor may, at its option, terminate this Agreement. The Trust shall not
file any amendment to any registration statement or supplement to any prospectus
without giving Distributor reasonable notice thereof in advance; provided,
however, that nothing contained in this Agreement shall in any way limit the
Trust's right to file at any time such amendments to any registration statement
and/or supplements to any prospectus, of whatever character, as the Trust may
deem advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust shall indemnify, defend and hold harmless Distributor,
its partners and employees and any person who controls Distributor within the
meaning of the Securities Act, from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred in
connection therewith) which Distributor, its partners and employees or any such
controlling person, may incur under the Securities Act, the 1940 Act, the common
law or otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in the registration statement or any prospectus or
arising out of or based upon any alleged omission by the Trust to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished in writing to the Trust by
or on behalf of Distributor for use in the preparation of the registration
statement or the prospectuses. Notwithstanding the foregoing, this indemnity
agreement, to the extent that it might require indemnity of any person who is a
partner or employee of Distributor and who is also a Trustee of the Trust, shall
not inure to the benefit of such partner or employee unless a court of competent
jurisdiction shall determine, or it shall have been determined by controlling
precedent, that such result would not be against public policy as expressed in
the Securities Act or the 1940 Act. This Agreement shall not be construed to
protect Distributor against any liability to the Trust or its shareholders to
which Distributor would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
its reckless disregard of its obligations and duties under this Agreement. This
indemnity agreement shall not inure to the benefit of Distributor, its partners
or employees or any controlling person as aforesaid if any untrue statement or
omission made in any prospectus delivered to a purchaser of shares is corrected
in any amendment or supplement to such prospectus and such amended or
supplemented prospectus shall
3
<PAGE>
not have been delivered or sent to such purchaser within the time required by
the Securities Act and the rules promulgated thereunder, provided that the Trust
has delivered such amended or supplemented prospectus to Distributor in
requisite quantity on a timely basis to permit such delivery or sending. This
indemnity agreement is expressly conditioned upon the Trust's being notified of
any action brought against Distributor, its partners or employees or any such
controlling person, which notification shall be given by letter or by telegram
addressed to the Trust at its principal office in New York, New York and sent to
the Trust by the person against whom such action is brought within 10 days after
the summons or other first legal process shall have been served. The failure to
notify the Trust of any such action shall not relieve the Trust from any
liability which it may have to the person against whom such action is brought by
reason of any such alleged untrue statement or omission otherwise than on
account of the indemnity agreement contained in this paragraph. The Trust shall
be entitled to assume the defense of any suit brought to enforce any such
claims, demand or liability, but, in such case, the defense shall be conducted
by counsel chosen by the Trust and reasonably approved by Distributor. If the
Trust elects to assume the defense of any such suit and retain counsel approved
by Distributor, Distributor, its partners and employees and controlling persons
named as the defendant, or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them, but in case the
Trust does not elect to assume the defense of any such suit, or in case
Distributor does not approve of counsel chosen by the Trust, the Trust will
reimburse such person or persons named as defendant or defendants in such suit,
for the reasonable fees and expenses of any counsel retained by Distributor or
such other persons. In addition, Distributor shall have the right to employ
counsel to represent it, its partners and employees and any such controlling
person who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by Distributor against the Trust hereunder if any
such indemnified party shall have been advised by its counsel that
representation of such indemnified party and the Trust by the same counsel would
be inappropriate under applicable standards of professional conduct due to
actual or potential differing interests between them, in which event the
reasonable fees and expenses of such separate counsel shall be borne by the
Trust. Notwithstanding the preceding two sentences, the Trust shall, in
connection with any such suit and any separate but substantially similar or
related suits, actions or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all persons entitled to indemnity under this paragraph.
The Trust shall not be liable to indemnify any person for any settlement of any
suit or claim effected without the Trust's written consent. This indemnity
agreement and the Trust's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of Distributor, its partners and employees or any such
controlling person. This indemnity agreement shall inure exclusively to the
benefit of Distributor, its partners and employees and any such controlling
persons and their respective successors and estates. The Trust shall promptly
notify Distributor of the commencement of any litigation or proceedings against
it in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold harmless the
Trust, its officers and Trustees and any person who controls the Trust within
the meaning of the Securities Act, from and
4
<PAGE>
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Trust, its
officers or Trustees or any such controlling person may incur under the
Securities Act, the 1940 Act, the common law or otherwise, but only to the
extent that such liability or expense incurred by the Trust, its officers or
Trustees or such controlling person results from such claims or demands as shall
arise out of or be based upon (a) any alleged untrue statement of a material
fact contained in information furnished in writing by Distributor to the Trust
specifically for use in the registration statement or any prospectus or shall
arise out of or be based upon any alleged omission to state a material fact
required to be stated therein or necessary to make such statement therein not
misleading and (b) any alleged act or omission on Distributor's part as the
Trust's agent that has not been expressly authorized by the Trust in writing.
This indemnity agreement is expressly conditioned upon Distributor's being
notified of any action brought against the Trust, its officers or Trustees or
any such controlling person, which notification shall be given by letter or
telegram addressed to Distributor at its principal office in Columbus, Ohio, and
sent to Distributor by the person against whom such action is brought, within 10
days after the summons or other first legal process shall have been served. The
failure to notify Distributor of any such action shall not relieve Distributor
from any liability which it may have to the Trust, its officers or Trustees or
such controlling person by reason of any such alleged misstatement, act or
omission on Distributor's part otherwise than on account of the indemnity
agreement contained in this paragraph. Distributor shall have a right to control
the defense of such action with counsel of its own choosing and reasonably
approved by the Trust if such action is based solely upon such alleged
misstatement, act or omission on Distributor's part, in which event (except as
stated below) the Trust, its officers and Trustees or such controlling person
shall each have the right to participate in the preparation of the defense of
such action at their own expense. If the Trust does not approve of counsel
chosen by Distributor, and therefore Distributor does not control the defense of
such action, Distributor will reimburse the Trust, its officers and Trustees and
controlling person named as defendant or defendants in such action, for the
reasonable fees and expenses of any counsel retained by the Trust or such other
persons. In addition, the Trust shall have the right to employ counsel to
represent it, its officers and Trustees and any such controlling person who may
be the subject of liability arising out of any claim in respect of which
indemnity may be sought by the Trust or any such other person against
Distributor hereunder if any such indemnified party shall have been advised by
its counsel that representation of such indemnified party and Distributor by the
same counsel would be inappropriate under applicable standards of professional
conduct due to actual or potential differing interests between them, in which
event the reasonable fees and expenses of such separate counsel shall be borne
by Distributor. Notwithstanding the preceding two sentences, Distributor shall,
in connection with any such action and any separate but substantially similar or
related suits, actions or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all persons entitled to indemnity under this paragraph.
This indemnity agreement and Distributor's representations and warranties in
this Agreement shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Trust, its officers and Trustees
or any such controlling person. This indemnity agreement shall inure
exclusively to the benefit of the Trust, its officers and Trustees and any such
controlling persons and
5
<PAGE>
their respective successors and estates. Distributor shall promptly notify the
Trust of the commencement of any litigation or proceedings against it in
connection with the issue and sale of any shares.
1.13 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act or if and so long as a current prospectus as required by Section
10(b)(2) of said Act is not on file with the Commission; provided, however, that
nothing contained in this paragraph 1.13 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Trust's prospectus,
Agreement and Declaration of Trust, or Bylaws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or for additional
information;
(b) in the event of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or prospectus then in
effect or the initiation by service of process on the Trust of any proceeding
for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the registration statement or prospectus then in effect or
which requires the making of a change in such registration statement or
prospectus in order to make the statements therein not misleading; and
(d) of all action of the Commission with respect to any amendment to
any registration statement or prospectus which may from time to time be filed
with the Commission.
For purposes of this section, informal requests by or acts of the
Staff of the Commission shall not be deemed actions of or requests by the
Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Trust, which
approval shall not be
6
<PAGE>
unreasonably withheld and may not be withheld where Distributor may be exposed
to civil or criminal contempt proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when so
requested by the Trust.
1.16 This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
2. Appointment of Agent.
--------------------
Distributor may enter into a written agreement with another party
qualified to perform distribution services to carry out some or all of its
responsibilities under this Agreement, provided, however, that the Trust agrees
in writing to the retention of the party chosen and the written agreement
related thereto; and provided further, that the party chosen shall be the agent
of Distributor and not the agent of the Trust, and that Distributor shall be
fully responsible for the acts of such party and shall not be relieved of any of
its responsibilities hereunder.
3. Fee.
----
Distributor shall receive from the Funds identified in the
Distribution and Shareholder Service Plan attached as Schedule A hereto (the
"Distribution Plan Funds") a distribution fee at the rate and upon the terms and
conditions set forth in such Plan. The distribution fee shall be accrued daily
and shall be paid on the first business day of each month, or at such time(s) as
the Distributor shall reasonably request.
4. Sale and Payment.
-----------------
Shares of a Fund may be subject to a sales load and may be subject to
the imposition of a distribution fee pursuant to the Distribution and Service
Plan referred to above. To the extent that Shares of a Fund are sold at an
offering price which includes a sales load or at net asset value subject to a
contingent deferred sales load with respect to certain redemptions (either
within a single class of Shares or pursuant to two or more classes of Shares),
such Shares shall hereinafter be referred to collectively as "Load Shares" (in
the case of Shares that are sold with a front-end sales load or Shares that are
sold subject to a contingent deferred sales load), "Front-End Load Shares" or
"CDSL Shares" and individually as a "Load Share," a "Front-End Load Share" or a
"CDSL Share." A Fund that contains Front-End Load Shares shall hereinafter be
referred to collectively as "Load Funds" or "Front-End Load Funds" and
individually as a "Load Fund" or a "Front-end Load Fund." A Fund that contains
CDSL Shares shall hereinafter be referred to collectively as "Load Funds" or
"CDSL Funds" and individually as a "Load Fund" or a "CDSL Fund." Under this
Agreement, the following provisions shall apply with respect to the sale of, and
payment for, Load Shares.
4.1 Distributor shall have the right to purchase Load Shares at
their net asset value and to sell such Load Shares to the public against orders
therefor at the applicable public offering
7
<PAGE>
price, as defined in Section 4 hereof. Distributor shall also have the right to
sell Load Shares to dealers against orders therefor at the public offering price
less a concession determined by Distributor, which concession shall not exceed
the amount of the sales charge or underwriting discount, if any, referred to in
Section 4 below.
4.2 Prior to the time of delivery of any Load Shares by a Load
Fund to, or on the order of, Distributor, Distributor shall pay or cause to be
paid to the Load Fund or to its order an amount in Boston or New York clearing
house funds equal to the applicable net asset value of such Shares. Distributor
may retain so much of any sales charge or underwriting discount as is not
allowed by Distributor as a concession to dealers.
5. Public Offering Price.
----------------------
The public offering price of a Load Share shall be the net asset value
of such Load Share, plus any applicable sales charge, all as set forth in the
current prospectus of the Load Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Agreement and Declaration of
Trust and Bylaws of the Trust and the then-current prospectus of the Load Fund.
6. Issuance of Shares.
-------------------
The Trust reserves the right to issue, transfer or sell Load Shares at
net asset value (a) in connection with the merger or consolidation of the Trust
or the Load Fund(s) with any other investment company or the acquisition by the
Trust or the Load Fund(s) of all or substantially all of the assets or of the
outstanding shares of any other investment company; (b) in connection with a pro
rata distribution directly to the holders of Shares in the nature of a stock
dividend or split; (c) upon the exercise of subscription rights granted to the
holders of Shares on a pro rata basis; (d) in connection with the issuance of
Load Shares pursuant to any exchange and reinvestment privileges described in
any then-current prospectus of the Load Fund; and (e) otherwise in accordance
with any then-current prospectus of the Load Fund.
7. Term, Duration and Termination.
-------------------------------
This Agreement shall become effective with respect to each Fund as of
the date first written above and, unless sooner terminated as provided herein,
shall continue with respect to a particular Fund automatically for successive
one-year terms, provided that such continuance is specifically approved at least
annually by (a) by the vote of a majority of those members of the Trust's Board
of Trustees who are not parties to this Agreement or interested persons of any
such party, cast in person at a meeting for the purpose of voting on such
approval and (b) by the vote of the Trust's Board of Trustees or the vote of a
majority of the outstanding voting securities of such Fund. This Agreement is
terminable without penalty, on not less than sixty days' prior written notice,
by the Trust's Board of Trustees, by vote of a majority of the outstanding
voting securities of the Trust or by the Distributor. This Agreement will also
terminate automatically in the event of
8
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its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" shall have
the same meanings as ascribed to such terms in the 1940 Act.)
8. Limitation of Liability of the Trustees and Shareholders.
---------------------------------------------------------
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees, and this Agreement has been signed and delivered by
an authorized officer of the Trust, acting as such, and neither such
authorization by the Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in the Trust's Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first written
above.
MARINER MUTUAL FUNDS TRUST BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By: ____________________________ By: ____________________________
Title: _________________________ Title: _________________________
Date: __________________________ Date: __________________________
9
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Dated: ______________
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
MARINER MUTUAL FUNDS TRUST
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
A-1
<PAGE>
Exhibit 8(a)
Custodian Agreement between Registrant and BISYS Fund Services
<PAGE>
CUSTODY AGREEMENT
Agreement made as of this 25th day of September, 1995, between MARINER
MUTUAL FUNDS TRUST, a Massachusetts business trust organized and existing under
the laws of the Commonwealth of Massachusetts, having its principal office and
place of business at 250 Park Avenue, New York, New York 10177 (hereinafter
called the "Fund"), and THE BANK OF NEW YORK, a New York corporation authorized
to do a banking business, having its principal office and place of business at
48 Wall Street, New York, New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set forth,
the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry
system for United States and federal agency securities, its successor or
successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement to be given to the Custodian
which is actually received by the Custodian and signed on behalf of the Fund by
any two Officers, and the term Certificate shall also include instructions by
the Fund to the Custodian communicated by a Terminal Link.
4. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
5. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration
<PAGE>
of, the Custodian's issuance of (a) any Put Option guarantee letter or similar
document described in paragraph 8 of Article V herein, or (b) any receipt
described in Article V or VIII herein.
6. "Covered Call Option" shall mean an exchange traded option entitling the
holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer hereof and subject
to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company ("DTC"), a clearing
agency registered with the Securities and Exchange Commission, its successor or
successors and its nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository under the
Investment Company Act of 1940, its successor or successors and its nominee or
nominees, specifically identified in a certified copy of a resolution of the
Fund's Board of Trustees specifically approving deposits therein by the
Custodian .
8. "Financial Futures Contract" shall mean the firm commitment to buy or
sell fixed income securities including, without limitation, U.S. Treasury Bills,
U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of deposit,
and Eurodollar certificates of deposit, during a specified month at an agreed
upon price.
9. "Futures Contract" shall mean a Financial Futures Contract and/or Stock
Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
11. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
12. "Money Market Security" shall be deemed to include, without limitation,
certain Reverse Repurchase Agreements, debt obligations issued or guaranteed as
to interest and principal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase agreements with
respect to the same and bank time deposits, where the purchase and sale of such
securities normally requires settlement in federal funds on the same day as such
purchase or sale.
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<PAGE>
13. "O.C.C." shall mean the options clearing corporation, a clearing agency
registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
14. "Officers" shall be deemed to include the President, and Vice
President, the Secretary, the Clerk, the Treasurer, the Controller, any
Assistant Secretary, any Assistant Clerk, any Assistant Treasurer, and any other
person or persons, whether or not any such other person is an officer of the
Fund, duly authorized by the Board of Trustees of the Fund to execute any
Certificate, instruction, notice or other instrument on behalf of the Fund and
listed in the Certificate annexed hereto as Appendix A or such other Certificate
as may be received by the Custodian from time to time.
15. "Option" shall mean a Call Option, Covered Call Option, Stock Index
Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions actually received by
the Custodian from an Officer or from a person reasonably believed by the
Custodian to be an Officer.
17. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
19. "Security" shall be deemed to include, without Limitation, Money Market
Securities, Call Options, Put Options, Stock Index Options, Stock Index Futures
Contracts, Stock Index Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agreements, common stocks
and other securities having characteristics similar to common stocks, preferred
stocks, debt obligations issued by state or municipal governments and by public
authorities (including, without limitation, general obligation bonds, revenue
bonds, industrial bonds and industrial development bonds), bonds, debentures,
notes, mortgages or other obligations, and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase, sell or subscribe
for the same, or evidencing or representing any other rights or interest
therein, or any property or assets.
20. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
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<PAGE>
21. "Series" shall mean the various portfolios, it any, of the Fund as
described from time to time in the current and effective prospectus for the Fund
and listed on Appendix B hereto as amended from time to time.
22. "Shares" shall mean the shares of beneficial interest of the Fund, each
of which is, in the case of a Fund having Series, allocated to a particular
Series.
23. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the value
of a particular stock index at the close of the last business day of the
contract and the price at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded option entitling the
holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the late of exercise.
25. "Terminal Link" shall mean an electronic data transmission link between
the Fund and the Custodian requiring in connection with each use of the Terminal
Link by or on behalf of the Fund use of an authorization code provided by the
Custodian and at least two access codes established by the Fund.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints. Custodian as custodian of the
Securities and moneys at time owned by the Fund during the period of this
Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees to
perform the duties thereto hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Trustees of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing
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<PAGE>
and instructing the Custodian on a continuous and on-going basis to deposit in
the Book-Entry System all Securities eligible for deposit therein, regardless of
the Series to which the same are specifically allocated and to utilize the
Book-Entry System to the extent possible in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities and deliveries and
returns of Securities collateral. Prior to a deposit of Securities specifically
allocated to a Series in the Depositary, the Fund shall deliver to the Custodian
a certified resolution of the Board of Trustees of the Fund, substantially in
the form of Exhibit B hereto, approving, authorizing and instructing the
Custodian on a continuous and ongoing basis until instructed to the contrary by
a Certificate actually received by the Custodian to deposit in the Depository
all Securities specifically allocated to such Series eligible for deposit
therein, and to utilize the Depository to the extent possible with respect to
such Securities in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities, and deliveries and returns of Securities collateral.
Securities and moneys deposited in either the Book-Entry System or the
Depository will be represented in accounts which include only assets held by the
Custodian for customers, including, but not limited to, accounts in which the
Custodian acts in a fiduciary or representative capacity and will be
specifically allocated on the Custodian's books to the separate account for the
applicable Series. Prior to the Custodian's accepting, utilizing and acting with
respect to Clearing Member confirmations for Options and transactions in Options
for a Series as provided in this Agreement, the Custodian shall have received a
certified resolution of the Fund's Board of Trustees, substantially in the form
of Exhibit C hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis, until instructed to the contrary by a Certificate
actually received by the Custodian, to accept, utilize and act in accordance
with such confirmations as provided in this Agreement with respect to such
Series.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and address of the
person to whom the payment is to be made, the Series account from which
payment is to be made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian shall
furnish the Fund with confirmations and a summary, on a per Series basis, of all
transfers to or from the account of the Fund for a Series, either hereunder or
with any co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to the account of
the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the
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<PAGE>
name of the Custodian (or its nominee) or shown on the Custodian's account on
the books of the Book-Entry System or the Depository. At least monthly and from
time to time, the Custodian shall furnish the Fund with a detailed statement, on
a per Series basis, of the Securities and moneys held by the Custodian for the
Fund.
4. Except as otherwise provided in paragraph 7 or this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that Form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon such
Securities which are called, but only if either (i) the Custodian receives
a written notice of such call, or (ii) notice of such call appears in one
or more of the publications listed in Appendix C annexed hereto, which may
be amended at any time by the Custodian without the prior notification or
consent of the Fund;
(c) Present for payment and collect the amount payable upon all
Securities which mature;
(d) Surrender Securities in temporary form for definitive Securities;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the Federal Income Tax Laws or the laws or regulations
of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of a Series,
all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder.
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<PAGE>
6. Upon receipt of a Certificate and not otherwise, the Custodian, directly
or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated in such
Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities held by the
Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian hereunder for the
Series specified in such Certificate in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation,
or the exercise of any conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received
in exchange;
(c) Deliver any Securities held by the Custodian hereunder for the
Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold hereunder
specifically allocated to such Series such certificates of deposit, interim
receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Series
specified in such Certificate, and take such other steps as shall be stated
in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon Securities
not described in preceding paragraph 5(b) of this Article which may be
called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the Custodian
shall not be required to obtain possession of any instrument or certificate
representing any Futures Contract, any Option, or any Futures Contract Option
until after it shall have determined, or shall have received a Certificate from
the Fund stating, that any such instruments or certificates are available. The
Fund shall deliver to the Custodian such a Certificate no later than the
business day preceding the availability of any such instrument or certificate.
Prior to such availability, the Custodian shall comply with Section 17(f) of the
Investment Company Act of 1940, as amended, in connection with the purchase,
sale, settlement, closing out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or
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<PAGE>
any nominee of the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin Account
and payments with respect to Securities to which a Margin Account relates, shall
be made in accordance with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are available, the
Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (I) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker specified in the Certificate out of the moneys held for the account of
such Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a sale of
any Option, Futures Contract, Futures Contract Option, or any Reverse Repurchase
Agreement, the Fund shall deliver to the Custodian (i) with respect to each sale
of Securities which are not Money Market Securities, a Certificate, and (ii)
with respect to each sale of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such sale: (a) the Series to which
such Securities were specifically allocated; (b) the name of the issuer and the
title of the Security; (c) the number of shares or principal amount sold, and
accrued interest, if any; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon such sale; and (h)
the name of the Clearing Member through whom the sale was made. The Custodian
shall consent to the delivery of the Option sold by the Clearing Member which
previously supplied the confirmation described in the preceding paragraph 1 of
this Article with respect to such Option against payment
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<PAGE>
to the Custodian of the total amount payable to the Fund, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund shall
deliver to the Custodian a Certificate specifying with respect to each Option
purchased: (a) the Series to which such Option is specifically allocated; (b)
the type of Option (put or call); (c) the name of the issuer and the title and
number of shares subject to such Option or, in the case of a Stock Index Option,
the stock index to which such Option relates and the number of Stock Index
Options purchased; (d) the expiration date; (e) the exercise price; (f) the
dates of purchase and settlement; (g) the total amount payable by the Fund in
connection with such purchase; (h) the name of the Clearing Member through whom
such Option was purchased; and (i) the name of the broker to whom payment is to
be made. The Custodian shall pay, upon receipt of a Clearing Member's statement
confirming the purchase of such Option held by such Clearing Member for the
account of the Custodian (or any duly appointed and registered nominee of the
Custodian) as custodian for the Fund, out of moneys held for the account of the
Series to which such Option is to be specifically allocated, the total amount
payable upon such purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant to
paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund or any Call Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian
a Certificate specifying with respect to such Call Option: (a) the Series to
which such Call Option was specifically allocated; (b) the name of the issuer
and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the
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<PAGE>
Series to which such Call Option was specifically allocated the total amount
payable to the Clearing Member through whom the Call Option was exercised,
provided that the same conforms to the total amount payable as set forth in such
Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian
a Certificate specifying with respect to such Put Option: (a) the Series to
which such Put Option was specifically allocated; (b) the name of the issuer and
the title and number of shares subject to the Put Option; (c) the expiration
date; (d) the date of exercise and settlement; (e) the exercise price per share;
(f) the total amount to be paid to the Fund upon such exercise; and (g) the name
of the Clearing Member through whom such Put Option was exercised. The Custodian
shall, upon receipt of the amount payable upon the exercise of the Put Option,
deliver or direct the Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the amount payable to
the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Covered
Call Option: (a) the Series for which such Covered Call Option was written; (b)
the name of the issuer and the title and number of shares for which the Covered
Call Option was written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the Fund; (f) the date
such Covered Call Option was written; and (g) the name of the Clearing Member
through whom the premium is to be received. The Custodian shall deliver or cause
to be delivered, in exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such receipts as are
required in accordance with the customs prevailing among Clearing Members
dealing in Covered Call Options and shall impose, or direct the Depository to
impose, upon the underlying Securities specified in the Certificate specifically
allocated to such Series such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not deposited with the
Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be
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delivered; and (d) the total amount payable to the Fund upon such delivery. Upon
the return and/or cancellation of any receipts delivered pursuant to paragraph 6
of this Article, the Custodian shall deliver, or direct the Depository to
deliver, the underlying Securities as specified in the Certificate against
payment of the amount to be received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to such Put Option: (a)
the Series for which such Put Option was written; (b) the name of the issuer and
the title and number of shares for which the Put Option is written and which
underlie the same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Option is written; (g)
the name of the Clearing Member through whom the premium is to be received and
to whom a Put Option guarantee letter is to be delivered; (h) the amount of
cash, and/or the amount and kind of Securities, if any, specifically allocated
to such Series to be deposited in the Senior Security Account for such Series;
and (i) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be deposited into the Collateral Account for such
Series. The Custodian shall, after making the deposits into the Collateral
Account specified in the Certificate, issue a Put Option guarantee letter
substantially in the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Certificate against
receipt of the premium specified in said Certificate. Notwithstanding the
foregoing, the Custodian shall be under no obligation to issue any Put Option
guarantee letter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and described in the preceding
paragraph is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject to the Put Option;
(c) the Clearing Member from whom the underlying Securities are to be received;
(d) the total amount payable by the Fund upon such delivery; (e) the amount of
cash and/or the amount and kind of Securities specifically allocated to such
Series to be withdrawn from the Collateral Account for such Series and (f) the
amount of cash and/or the amount and kind of Securities, specifically allocated
to such Series, if any, to be withdrawn from the Senior Security Account. Upon
the return and/or cancellation of any Put Option guarantee letter or similar
document issued by the Custodian in connection with such Put Option, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Put Option was specifically allocated the total amount payable to the
Clearing Member specified in the Certificate as set forth in such Certificate
against delivery of such Securities, and shall make the withdrawals specified in
such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the series to which such Stock Index Option was written; (a)
Whether such Stock Index Option is a put or a call; (c) the number of options
written; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the Clearing Member through whom such Option
was written; (h) the premium to be received by the Fund; (i) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Senior Security Account for such Series; (j) the
amount of cash and/or the amount and kind of Securities, if any,
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<PAGE>
specifically allocated to such Series to be deposited in the Collateral Account
for such Series; and (k) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited in a
Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs, 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin Account, or
the Senior Security Account for such Series. Upon the Custodian's payment of the
premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant
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<PAGE>
to paragraph 3 Article III herein, and upon the return and/or cancellation of
any receipts issued by the Custodian, shall make such withdrawals from the
Collateral Account, and the Margin Account and/or the Senior Security Account as
may be specified in a Certificate received in connection with such expiration,
exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Futures
Contract, (or with respect to any number of identical Futures Contract(s)): (a)
the Series for which the Futures Contract is being entered; (b) the category of
Futures Contract (the name of the underlying stock index or financial
instrument); (c) the number of identical Futures Contracts entered into; (d) the
delivery or settlement date of the Futures Contract(s); (e) the date the Futures
Contract(s) was (were) entered into and the maturity date; (f) whether the Fund
is buying (going long) or selling (going short) on such Futures Contract(s); (g)
the amount of cash and/or the amount and kind of Securities, if any, to be
deposited in the Senior Security Account for such Series; (h) the name of the
broker, dealer, or futures commission merchant through whom the Futures Contract
was entered into; and (i) the amount of fee or commission, if any, to be paid
and the name of the broker, dealer, or futures commission merchant to whom such
amount is to be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of the Margin Account
Agreement. The Custodian shall make payment out of the moneys specifically
allocated to such Series of the fee or commission, if any, specified in the
Certificate and deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities specified in said
Certificate.
2. (a) Any variation margin payment or similar payment required to be made
by the Fund to a broker, dealer, or futures commission merchant with respect to
an outstanding Futures Contract, shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker, dealer,
or futures commission merchant to the Fund with respect to an outstanding
Futures Contract, shall be received and dealt with by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is retained
by the Fund until delivery or settlement is made on such Futures Contract, the
Fund shall deliver to the Custodian a Certificate specifying: (a) the Futures
Contract and the Series to which the same relates; (b) with respect to a Stock
Index Futures Contract, the total cash settlement amount to be paid or received,
and with respect to a Financial Futures Contract, the Securities and/or amount
of cash to be delivered or received; (c) the broker, dealer, or futures
commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment
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<PAGE>
or delivery specified in the Certificate, and delete such Futures Contract from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the Fund,
the Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to such Futures Contract Option: (a) the Series to which such Option is
specifically allocated; (b) the type of Futures Contract Option (put or call);
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Contract Option; (d) the
expiration date; (e) the exercise price; (f) the dates of purchase and
settlement; (g) the amount of premium to be paid by the Fund upon such purchase;
(h) the name of the broker or futures commission merchant through whom such
option was purchased; and (i) the name of the broker, or futures commission
merchant, to whom payment is to be made. The Custodian shall pay out of the
moneys specifically allocated to such Series, the total amount to be paid upon
such purchase to the broker or futures commissions merchant through whom the
purchase was made, provided the same conforms to the amount set forth in such
Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) Series to
which such Futures Contract Option was specifically allocated; (b) the type of
Future Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker of futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
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<PAGE>
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract Option;
(d) the date of exercise; (e) the name of the broker or futures commission
merchant through whom the Futures Contract Option is exercised; (f) the net
total amount, if any, payable by the Fund; (g) the amount, if any, to be
received by the Fund; and (h) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall make, out of the moneys and Securities specifically allocated to
such Series, the payments, if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The deposits, if any, to be
made to the Margin Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account shall
be made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call
is exercised, the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement. 6. Whenever a Futures Contract Option which is written by the
Fund and which is a put is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying such Futures Contract Option; (d)
the name of the broker or futures commission merchant through whom such Futures
Contract Option is exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable
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<PAGE>
by the Fund upon such exercise; and (g) the amount and kind of Securities and/or
cash to be withdrawn from or deposited in, the Senior Security Account for such
Series, if any. The Custodian shall, upon its receipt of the net total amount
payable to the Fund, if any, specified in the Certificate, make out of the
moneys and Securities specifically allocated to such Series, the payments, if
any, and the deposits, if any, into the Senior Security Account as specified in
the Certificate. The deposits to and/or withdrawals from the Margin Account, if
any, shall be made by the Custodian in accordance with the terms and conditions
of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to a
previously written Futures Contract Option described in this Article in order to
liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing transaction
with respect to, any Futures Contract Option written or purchased by the Fund
and described in this Article, the Custodian shall (a) delete such Futures
Contract Option from the statements delivered to the Fund pursuant to paragraph
3 of Article III and herein, (b) make such withdrawals from and/or in the case
of an exercise such deposits into the Senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
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<PAGE>
9. Futures Contracts acquired by the Fund through the exercise of a Futures
Contract Option described in this Article shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund shall
promptly deliver to the Custodian a Certificate specifying: (a) the Series for
which such short sale was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of the broker
through whom the Fund is effecting such closing-out. The Custodian shall, upon
receipt of the net total amount payable to the Fund upon such closing-out, and
the return and/or cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the moneys held for
the account of the Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase
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Agreement is entered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically allocated to such
Series; (c) the broker or dealer through or with whom the Reverse Repurchase
Agreement is entered; (d) the amount and kind of Securities to be delivered by
the Fund to such broker or dealer; (e) the date of such Reverse Repurchase
Agreement; and (f) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in a Senior
Security Account for such Series in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount payable to the
Fund specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions to the Custodian specifying: (a)
the Reverse Repurchase Agreement being terminated and the Series for which same
was entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or the amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically allocated
to a Series held by the Custodian hereunder, the Fund shall deliver or cause to
be delivered to the Custodian a Certificate specifying with respect to each such
loan: (a) the Series to which the loaned Securities are specifically allocated;
(b) the name of the issuer and the title of the Securities, (c) the number of
shares or the principal amount loaned, (d) the date of loan and delivery, (e)
the total amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the premium, if any,
separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the Fund,
the Fund shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan termination and return of Securities:
(a) the Series to which the loaned Securities are
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specifically allocated; (b) the name of the issuer and the title of the
Securities to be returned, (c) the number of shares or the principal amount to
be returned, (d) the date of termination, (e) the total amount to be delivered
by the Custodian (including the cash collateral for such Securities minus any
offsetting credits as described in said Certificate), and (f) the name of the
broker, dealer, or financial institution from which the Securities will be
returned. The Custodian shall receive all Securities returned from the broker,
dealer, or financial institution to which such Securities were loaned and upon
receipt thereof shall pay, out of the moneys held for the account of the Fund,
the total amount payable upon such return of Securities as set forth in the
Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under no obligation to
make any such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin Account to
the broker, dealer, futures commission merchant or Clearing Member in whose
name, or for whose benefit, the account was established as specified in the
Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in and
to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name
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of a Margin Account a copy of the statement furnished the Fund with respect to
such Margin Account.
6. Promptly after the close of business on each business day in which cash
and/or Securities are maintained in a Collateral Account for any Series, the
Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of the
Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, either (i) setting forth with
respect to the Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent and any sub-dividend agent or
co-dividend agent of the Fund on the payment date, or (ii) authorizing with
respect to the Series specified therein the declaration of dividends and
distributions on a daily basis and authorizing the Custodian to rely on Oral
Instructions or a Certificate setting forth the date of the declaration of such
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral Instructions or
Certificate, as the case may be, the Custodian shall pay out of the moneys held
for the account of each Series the total amount payable to the Dividend Agent
and any sub-dividend agent or co-dividend agent of the Fund with respect to such
Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and price; and
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(b) The amount of money to be received by the Custodian for the sale
of such Shares and specifically allocated to the separate account in the
name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian shall
credit such money to the separate account in the name of the Series for which
such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the Custodian
to make payment out of the money held by the Custodian hereunder in connection
with a redemption of any Shares, it shall furnish to the Custodian a Certificate
specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any
Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the moneys held in
the separate account of the Series of the Shares being redeemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on behalf
of any Series which results in an overdraft because the moneys held by the
Custodian in the separate account for such Series shall be insufficient to pay
the total amount payable upon a purchase of Securities specifically allocated to
such Series, as set forth in a Certificate or Oral Instructions, or which
results in an overdraft in the separate account of such Series for some other
reason, or if the Fund is for any other reason indebted to the Custodian with
respect to a Series, including any indebtedness to The Bank of New York under
the Fund's Cash Management and Related Services Agreement, (except a borrowing
for investment or for temporary or emergency purposes using Securities as
collateral pursuant to a separate agreement and subject to the provisions of
paragraph
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2 of this Article), such overdraft or indebtedness shall be deemed to be a loan
made by the Custodian to the Fund for such Series payable on demand and shall
bear interest from the date incurred at a rate per annum (based on a 360-day
year for the actual number of days involved) equal to 1/2% over Custodian's
prime commercial lending rate but in no event to be less than 6% per annum. In
addition, the Fund hereby agrees that the Custodian shall have a continuing lien
and security interest in and to any property specifically allocated to such
Series at any time held by it for the benefit of such Series or in which the
Fund may have an interest which is then in the Custodian's possession or control
or in possession or control of any third party acting in the Custodian's behalf.
The Fund authorizes the Custodian, in its sole discretion, at any time to charge
any such overdraft or indebtedness together with interest due thereon against
any balance of accounting standing to such Series' credit on the Custodian's
books. The Custodian shall notify the Fund of any such charge on the same day on
which it is made. In addition, the Fund hereby covenants that on each Business
Day on which either it intends to enter a Reverse Repurchase Agreement and/or
otherwise borrow from a third party, or which next succeeds a Business Day on
which at the close of business the Fund had outstanding a Reverse Repurchase
Agreement or such a borrowing, it shall prior to 9 a.m., New York City time,
advise the Custodian, in writing, of each such borrowing, shall specify the
Series to which the same relates, and shall not incur any indebtedness not so
specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be tendered to
it. In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and number of shares or the principal amount of
any particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities.
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ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund only for the purpose of
the Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after the Fund shall have delivered to the Custodian a
Certificate substantially in the form of Exhibit D and shall have established
access codes. Each use of the Terminal Link by the Fund shall constitute a
representation and warranty that the Terminal Link is being used only for the
purposes permitted hereby, that at least two Officers have each utilized an
access code, that such safekeeping procedures have been established by the Fund,
and that such use does not contravene the Investment Company Act of 1940, as
amended, or the rules or regulations thereunder.
3. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the Custodian shall not be
responsible for the reliability or availability of any such equipment or
services.
4. The Fund acknowledges that any data bases made available as part of, or
through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than any such which are or become part of
the public domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. The Fund shall, and shall cause others to which it discloses
the Information, to keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Custodian.
5. Upon termination of this Agreement for any reason, the Fund shall return
to the Custodian any and all copies of the Information which are in the Fund's
possession or under its control, or which the Fund distributed to third parties.
The provisions of this Article shall not affect the copyright status of any of
the Information which may be copyrighted and shall apply to all Information
whether or not copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from time
to time without notice to the Fund except that the Custodian shall give the Fund
notice not less than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund agrees that the
Fund shall not modify or attempt to modify the Terminal Link without the
Custodian's prior written consent. The Fund acknowledges that any software or
procedures provided the Fund as part of the Terminal Link are the property of
the Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund, or
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by the Custodian and whether with or without the Custodian's consent, shall
become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it utilizes or
the Fund utilizes in connection with the Terminal Link makes any warranties or
representations, express or implied, in fact or in law, including but not
limited to warranties of merchantability and fitness for a particular purpose.
8. The Fund will cause its Officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance with
and rely on Certificates received by it through the Terminal Link. The Fund
acknowledges that it is its responsibility to assure that only its Officers use
the Terminal Link on its behalf, and that a Custodian shall not be responsible
nor liable for use of the Terminal Link on the Fund's behalf by persons other
than such persons or Officers, or by only a single Officer, nor for any
alteration, omission, or failure to promptly forward.
9. (a) Except as otherwise specifically provided in Section
9(b) of this Article, the Custodian shall have no liability for any losses,
damages, injuries, claims, costs or expenses arising out of or in connection
with any failure, malfunction or other problem relating to the Terminal Link
except for money damages suffered as the direct result of the negligence of the
Custodian in an amount not exceeding for any incident $25,000 provided, however,
that the Custodian shall have no liability under this Section 9 if the Fund
fails to comply with the provisions of Section ll.
(b) The Custodian's liability for its negligence in executing or failing to
execute in accordance with a Certificate received through Terminal Link shall be
only with respect to a transfer of funds which is not made in accordance with
such Certificate after such Certificate shall have been duly acknowledged by the
Custodian, and shall be contingent upon the Fund complying with the provisions
of Section 12 of this Article, and shall be limited to (i) restoration of the
principal amount mistransferred, if and to the extent that the Custodian would
be required to make such restoration under applicable law, and (ii) the lesser
of (A) a Fund's actual pecuniary loss incurred by reason of its loss of use of
the mistransferred funds or the funds which were not transferred, as the case
may be, or (B) compensation for the loss of the use of the mistransferred funds
or the funds which were not transferred, as the case may be, at a rate per annum
equal to the average federal funds rate as computed from the Federal Reserve
Bank of New York's daily determination of the effective rate for federal funds,
for the period during which a Fund has lost use of such funds. In no event shall
the Custodian have any liability for failing to execute in accordance with a
Certificate a transfer of funds where the Certificate is received by the
Custodian through Terminal Link other than through the applicable transfer
module for the particular instructions contained in such Certificate.
10. Without limiting the generality of the foregoing, in no event shall the
Custodian or any manufacturer or supplier of its computer equipment, software or
services relating to the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which the Fund may incur or experience by
reason of its use of the Terminal Link even if the Custodian or any manufacturer
or supplier has been advised of the possibility of such damages, nor with
respect to the use of the Terminal Link shall the Custodian or any such
manufacturer or supplier be liable for acts of God, or with respect to the
following to the extent beyond such person's
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reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Terminal Link.
12. The Custodian shall verify to the Fund, by use of the Terminal Link,
receipt of each Certificate the Custodian receives through the Terminal Link,
and in the absence of such verification the Custodian shall not be liable for
any failure to act in accordance with such Certificate and the Fund may not
claim that such Certificate was received by the Custodian. Such verification,
which may occur after the Custodian has acted upon such Certificate, shall be
accomplished on the same day on which such Certificate is received.
ARTICLE XVI
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor its nominee
shall be liable for any loss or damage, including counsel fees, resulting from
its action or omission to act or otherwise, either hereunder or under any Margin
Account Agreement, except for any such loss or damage
of the Fund during the period of such loan or at the termination of such
loan, provided, however, that the Custodian shall promptly notify the Fund in
the event that such dividends or interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of money and/or Securities held
in any Margin Account, Senior Security Account or Collateral Account in
connection with transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer, futures commission
merchant or Clearing Member makes payment to the Fund of any variation margin
payment or similar payment which the Fund may be entitled to receive from such
broker, dealer, futures commission merchant or Clearing Member, to see that any
payment received by the Custodian from any broker, dealer, futures commission
merchant or Clearing Member is the amount the Fund is entitled to receive, or to
notify the Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the Custodian
of, any money, whether or not represented by any check, draft, or other
instrument for the payment of money, received by it on behalf of the Fund until
the Custodian actually receives and collects such money directly or by the final
crediting of the account representing the Fund's interest at the Book-Entry
System or the Depository.
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4. The Custodian shall have no responsibility and shall not be liable for
ascertaining or acting upon any calls, conversions, exchange offers, tenders,
interest rate changes or similar matters relating to Securities held in the
Depository, unless the Custodian shall have actually received timely notice from
the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount due to the Fund from the Transfer Agent of
the Fund nor to take any action to effect payment or distribution by the
Transfer Agent of the Fund of any amount paid by the Custodian to the Transfer
Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take action
to effect collection of any amount if the Securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may appoint one or more banking institutions as Depository
or Depositories, as Sub-Custodian or Sub-Custodians, or as Co-Custodian or
Co-Custodians including, but not limited to, banking institutions located in
foreign countries, of Securities and moneys at any time owned by the Fund, upon
such terms and conditions as may be approved in a Certificate or contained in an
agreement executed by the Custodian, the Fund and the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to ascertain
whether any Securities at any time delivered to, or held by it for the account
of the Fund and specifically allocated to a Series are such as properly may be
held by the Fund or such Series under the provisions of its then current
prospectus, or (b) to ascertain whether any transactions by the Fund, whether or
not involving the Custodian, are such transactions as may properly be engaged in
by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to pay to
the Custodian all out-of-pocket expenses and such compensation as may be agreed
upon from time to time between the Custodian and the Fund. The Custodian may
charge such compensation and any expenses with respect to a Series incurred by
the Custodian in the performance of its duties pursuant to such agreement
against any money specifically allocated to such Series. Unless and until the
Fund instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series' pro rata share (based on such Series net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the
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amount of any loss, damage, liability or expense, including counsel fees, for
which it shall be entitled to reimbursement under the provisions of this
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate, notice or
other instrument in writing received by the Custodian and reasonably believed by
the Custodian to be a Certificate. The Custodian shall be entitled to rely upon
any Oral Instructions actually received by the Custodian hereinabove provided
for. The Fund agrees to forward to the Custodian a Certificate or facsimile
thereof confirming such Oral Instructions in such manner so that such
Certificate or facsimile thereof is received by the Custodian, whether by hand
delivery, telecopier or other similar device, or otherwise, by the close of
business of the same day that such Oral Instructions are given to the Custodian.
The Fund agrees that the fact that such confirming instructions are not
received, or that contrary instructions are received, by the Custodian shall in
no way affect the validity of the transactions or enforceability of the
transactions hereby authorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral Instructions given to
the Custodian hereunder concerning such transactions provided such instructions
reasonably appear to have been received from an Officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies. Upon reasonable request of the Fund, the Custodian shall
provide in hard copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by the Custodian on a
computer disc, or are similarly maintained, and the Fund shall reimburse the
Custodian for its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System,
the Depository or O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees,
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howsoever arising or incurred because of or in connection with this Agreement,
including the Custodian's payment or non-payment of checks pursuant to paragraph
6 of Article XIII as part of any check redemption privilege program of the Fund,
except for any such liability, claim, loss and demand arising out of the
Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agreement, the Custodian
may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian in
accordance with the customs prevailing from time to time among brokers or
dealers in such Securities. When the Custodian is instructed to deliver
Securities against payment, delivery of such Securities and receipt of payment
therefor may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
the Custodian's delivery of Securities pursuant to instructions of the Fund,
which responsibility and liability shall continue until final payment in full
has been received by the Custodian.
16. In the event the Custodian receives a delivery of Securities for the
Account of the Fund prior to the Custodian's receipt of a Certificate, or of
Oral Instructions in the case of a delivery of Money Market Securities, or if
the delivery to the Custodian by the broker differs from the Certificate or Oral
Instructions received from the Fund, the Custodian shall attempt to contact an
Officer of the Fund to advise it of such delivery and such non-receipt of a
Certificate or Oral Instructions, as the case may be, or of such difference. The
Custodian shall "DK" the delivery only if the Custodian does not receive an
appropriate Certificate, or appropriate Oral Instructions, as the case may be,
prior to the latest time at which such delivery may be made subject to a "DK."
17. The Custodian shall pre-post income due in accordance with Exhibit E
hereto, as such Exhibit may be unilaterally amended by the Custodian from time
to time. Upon any such amendment, the Custodian shall promptly advise the Fund
of the same. Any pre-postings described on Exhibit E shall be subject to the
provisions of this Agreement, including, without limitation, Section 1 of
Article III.
18. If the Custodian due to its own negligence or wilful misconduct fails
to effect a delivery of Securities for settlement, the Custodian shall at its
election either advance the amount of the proceeds which would have been
received upon such settlement, or, alternatively, pay compensation at an
available fed funds rate as determined by the Custodian. Any such advance shall
be subject to the provisions of this Agreement, including, without limitation,
Section 1 of Article III.
19. The acts or omissions for which the Custodian shall be liable to the
extent set forth in Section 1 of Article XVI shall, subject to Section 4 of
Article XVI, include its failure to send copies of any materials it receives
from the issuer with respect to corporate actions relating to Securities held
for the account of the Fund, unless such failure is due to circumstances beyond
the reasonable control of the Custodian.
20. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XVII
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TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the Board of Trustees of the Fund, certified by the
Secretary, the Clerk, any Assistant Secretary or any Assistant Clerk, electing
to terminate this Agreement and designating a successor custodian or custodians,
each of which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board of Trustees of the
Fund, certified by the Secretary, the Clerk, any Assistant Secretary or any
Assistant Clerk, designating a successor custodian or custodians. In the absence
of such designation by the Fund, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian shall upon receipt
of a notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then owned by the
Fund and held by it as Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the Custodian
in accordance with the preceding paragraph, the Fund shall upon the date
specified in the notice of termination of this Agreement and upon the delivery
by the Custodian of all Securities (other than Securities held in the Book-Entry
System which cannot be delivered to the Fund) and moneys then owned by the Fund
be deemed to be its own custodian and the Custodian shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement, other than the duty
with respect to Securities held in the Book Entry System which cannot be
delivered to the Fund to hold such Securities hereunder in accordance with this
Agreement
ARTICLE XVIII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its seal, setting forth the names and the
signatures of the present Officers. The Fund agrees to furnish to the Custodian
a new Certificate in similar form in the event that any such present Officer
ceases to be an Officer or in the event that other or additional Officers are
elected or appointed. Until such new Certificate shall be received, the
Custodian shall be fully protected in acting under the provisions of this
Agreement upon Oral Instructions or signatures of the present Officers as set
forth in the last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
- 29 -
<PAGE>
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing.
4. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Trustees.
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
8. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Board of Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or shareholders individually but are
binding only upon the assets and property of the Fund; provided, however, that
the Declaration of Trust of the Fund provides that the assets of a particular
Series of the Fund shall under no circumstances be charged with liabilities
attributable to any other Series of the Fund and that all persons extending
credit to, or contracting with or having any claim against a particular Series
of the Fund shall look only to the assets of that particular Series for payment
of such credit. contract or claim.
- 30 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized hereunto and
their respective seals to be hereunto affixed, as of the day and year first
above written.
MARINER MUTUAL FUNDS TRUST
[SEAL] By:______________________________
Attest:
- --------------------------------
THE BANK OF NEW YORK
[SEAL] By:______________________________
Ira R. Rosner
Vice President
Attest:
- 31 -
<PAGE>
APPENDIX A
I ____________________________________________, President and I,
____________________________________________, _________________________ of
Mariner Mutual Funds Trust, a Massachusetts business trust (the "Fund"), do
hereby certify that:
The following individuals serve in the following positions with the Fund
and each has been duly elected or appointed by the Board of Trustees of the Fund
to each such position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws, and the signatures set forth opposite their
respective names are their true and correct signatures:
Name Position Signature
- ------------------------ ------------------------ ------------------------
<PAGE>
APPENDIX B
SERIES
U.S. Government Securities Fund
New York Tax-Free Bond Fund
Short-Term Fixed Income Fund
Fixed Income Fund
Total Return Equity Fund
Small Cap Fund
<PAGE>
APPENDIX C
I, Ira R. Rosner, a Vice President with THE BANK OF NEW YORK do hereby
designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, Mark Pougnet , hereby certifies that he or she is the duly
elected and acting VP and Treasurer of Mariner Mutual Funds Trust, a
Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on October 31, 1995, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as
of September 25, 1995 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to deposit in the
Book-Entry System, as defined in the Custody Agreement, all securities
eligible for deposit therein, regardless of the Series to which the
same are specifically allocated, and to utilize the Book-Entry System
to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Mariner
Mutual Funds, as of the ____ day of __________________ 1995.
---------------------------------------
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, Mark Pougnet , hereby certifies that he or she is the duly
elected and acting VP and Treasurer of Mariner Mutual Funds Trust, a
Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on October 31 , 1995, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as
of September 25, 1995 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of
the Series to which the same are specifically allocated, and to
utilize the Depository to the extent possible in connection with its
performance thereunder, including, without limitation, in connection
with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Mariner
Mutual Funds Trust, as of the day of _______________, 1995.
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, Mark Pougnet, hereby certifies that he or she is the duly
elected and acting VP and Treasurer of Mariner Mutual Funds Trust, a
Massachusetts business trust (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on October 31, 1995, at which a quorum was at all times
present and that such resolution has not been modified or rescinded and is in
full force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as
of September 25, 1995 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary, to accept, utilize and act with respect to Clearing Member
confirmations for Options and transaction in Options, regardless of
the Series to which the same are specifically allocated, as such terms
are defined in the Custody Agreement, as provided in the Custody
Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Mariner
Mutual Funds Trust, as of the _____ day of ______________, 1995.
---------------------------------------
[SEAL]
<PAGE>
EXHIBIT D
The undersigned, Mark Pougnet , hereby certifies that he or she is the duly
elected and acting VP and Treasurer of Mariner Mutual Funds Trust, a
Massachusetts business trust (the "Fund"), further certifies that the following
resolutions were adopted by the Board of Trustees of the Fund at a meeting duly
held on October 31, 1995, at which a quorum was at all times present and that
such resolutions have not been modified or rescinded and are in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to the
Custody Agreement between The Bank of New York and the Fund dated as
of September 25 , 1995 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to act in accordance
with, and to rely on Certificates (as defined in the Custody
Agreement) given by the Fund to the Custodian by a Terminal Link (as
defined in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant us
of such access codes only to Officers of the fund as defined in the
Custody Agreement, shall establish internal safekeeping procedures to
safeguard and protect the confidentiality and availability of such
access codes, shall limit its use of the Terminal Link to those
purposes permitted by the Custody Agreement, shall require at least
two such Officers to utilize their respective access codes in
connection with each such Certificate, and shall use the Terminal Link
only in a manner that does not contravene the Investment Company Act
of 1940, as amended, or the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the
establishment of such access codes and such internal safekeeping
procedures, advise the Custodian that the same have been established
by delivering a Certificate, as defined in the Custody Agreement, and
the Custodian shall be entitled to rely upon such advice.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of Mariner
Mutual Funds Trust, as of the ________ day of _____________, 1995.
---------------------------------
[SEAL]
<PAGE>
EXHIBIT E
PD = Payment Date MD = Maturity Date FF = Fed Funds C = Collection Basis
<TABLE>
<CAPTION>
Security Type Income Paydown Maturities
- ------------------------------------------------------ ------------------------------ -------------------------------
<S> <C> <C>
Equities PD+1/FF N/A
U.S. Governments PD/FF MD/FF
Corporate Bond PD+1/FF MD+1/FF
Municipal Bonds PD+1FF MD/FF
Promisssory Notes N/A MD/FF
Variable Rate Bonds PD+1/FF* MD/FF
Medium Term Notes PD+1/FF MD/FF
Anticipation Note PD+1/FF MD/FF
Unit Investment Trust PD+1/FF MD+1/FF
Dutch Auctions PD+1/FF* MD+1/FF
Unannounced Equities PD+1/FF* N/A
Private Placements PD+1/FF* MD/FF
Sabres PD+1/FF MD/FF
CMOs & Asset-Back
Securities PD+1/FF* MD/FF
Depositary Receipts PD+1/FF MD+1/FF
Money Market Instruments
Commercial Paper PD/FF MD/FF
Certificates of Deposit PD/FF MD/FF
Bankers' Acceptances N/A MD/FF
Mortgage-Backed Securities
GNMA I & II PD+1/FF MD/FF
Non-PTC GNMA PD+1/FF MD/FF
FHLMC PD/FF MD/FF
FNMA PD/FF MD/FF
GPM PD+1/FF MD/FF
SBA LOANS C/FF MD/FF
SBA POOLS PD+1/FF* MD/FF
FHA C/FF MD/FF
FBE Zero Coupon N/A PD/FF
Stripped Coupons MD/FF N/A
Non-U.S. Securities PD/Currency Rec'd MD/Currency Rec'd
Canadian Securities PD+1/FF MD+1/FF
* Payment contingent upon adequate servicing information payment history.
</TABLE>
<PAGE>
Exhibit 9(a)
Transfer Agency Agreement between Registrant
and BISYS Fund Services
<PAGE>
TRANSFER AGENCY AGREEMENT
AGREEMENT made this day of , , between MARINER
MUTUAL FUNDS TRUST (the "Trust"), a Massachusetts business trust having its
principal place of business at 3435 Stelzer Road, Columbus, Ohio 43219, and
BISYS FUND SERVICES, INC. ("BISYS"), an Ohio corporation having its principal
place of business at 3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for each of
the investment portfolios of the Trust (individually referred to herein as a
"Fund" and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services.
BISYS shall perform for the Trust the transfer agent services set forth in
Schedule A hereto. BISYS also agrees to perform for the Trust such special
services incidental to the performance of the services enumerated herein as
agreed to by the parties from time to time. BISYS shall perform such additional
services as are provided on an amendment to Schedule A hereof, in consideration
of such fees as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing other parties qualified to
perform transfer agency services reasonably acceptable to the Trust
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the
Trust or such Fund, and that BISYS shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
2. Fees.
The Trust shall pay BISYS for the services to be provided by BISYS under
this Agreement in accordance with, and in the manner set forth in, Schedule B
hereto. BISYS may increase the fees it charges pursuant to the fee schedule;
provided, however, that BISYS may not increase such fees until the expiration of
the Initial Term of this Agreement (as defined below), unless the Trust
otherwise agrees to such change in writing. Fees for any additional services to
be
<PAGE>
provided by BISYS pursuant to an amendment to Schedule A hereto shall be subject
to mutual agreement at the time such amendment to Schedule A is proposed.
3. Reimbursement of Expenses.
In addition to paying BISYS the fees described in Section 2 hereof, the
Trust agrees to reimburse BISYS for BISYS' out-of-pocket expenses in providing
services hereunder, including without limitation, the following:
(a) All freight and other delivery and bonding charges incurred by BISYS
in delivering materials to and from the Trust and in delivering all
materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by BISYS in communication
with the Trust, the Trust's investment adviser or custodian, dealers,
shareholders or others as required for BISYS to perform the services
to be provided hereunder;
(c) Costs of postage, couriers, stock computer paper, statements, labels,
envelopes, checks, reports, letters, tax forms, proxies, notices or
other form of printed material which shall be required by BISYS for
the performance of the services to be provided hereunder;
(d) The cost of microfilm or microfiche of records or other materials; and
(e) Any expenses BISYS shall incur at the written direction of an officer
of the Trust thereunto duly authorized.
4. Effective Date.
This Agreement shall become effective as of the date first written above
(the "Effective Date").
5. Term
5.01 Initial Term; Renewal Terms
This Agreement shall become effective as of the date first written above
and shall continue until March 1, 1999, and unless sooner terminated as provided
herein, thereafter shall be renewed automatically for successive one-year terms,
unless (i) it is terminated for cause pursuant to paragraph 5.03 below, (ii) it
is terminated pursuant to paragraph 5.04 below, or (iii) written notice not to
renew is given by the non-renewing party to the other party at least 120 days
prior to the expiration of the then-current term; provided that such continuance
is specifically reviewed and
2
<PAGE>
approved at least annually (i) by the vote of a majority of the Trust's Board of
Trustees or by the vote of a majority of the outstanding voting securities of
such Fund and (ii) by the majority of the Trust's Trustees who are not parties
to this Agreement or interested persons (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. The scope of such review shall be whether
there is any "cause" (as defined below) that would justify terminating the
Agreement.
5.02 Termination of Agreement
This Agreement is terminable with respect to a particular Fund (i) upon
provision of written notice not to renew in accordance with paragraph 5.01, (ii)
upon mutual agreement of the parties hereto, (iii) for cause by the party
alleging cause pursuant to paragraph 5.03, or (iv) upon provision of written
notice to terminate in accordance with paragraph 5.04. Written notice not to
renew may be given for any reason, with or without "cause" (as defined in
paragraph 5.03). Upon termination of this Agreement, if BISYS, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due and payable to BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the compensation described under Section 2 hereof, the amount of all of BISYS'
cash disbursements for services in connection with BISYS' activities in
effecting such termination, including without limitation, the delivery to the
Trust and/or its designees of the Trust's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination, for a
reasonable fee, BISYS will provide the Trust with reasonable access to any Trust
documents or records remaining in its possession.
5.03 Termination for Cause
This Agreement may be terminated for cause in accordance with this
paragraph 5.03. In the event cause, as defined below, is alleged, the party
alleging cause shall provide written notice to the other party specifying the
event or events constituting cause and demanding that such other party cure the
same. If appropriate corrective action is not taken within 30 days following
receipt of such notice, the party alleging cause may terminate this Agreement by
the provision of 60 days' written notice. For purposes of this Agreement,
"cause" shall mean (a) willful misfeasance, bad faith, gross negligence or
reckless disregard on the part of the party to be terminated with respect to its
obligations and duties set forth herein; (b) a final, unappealable judicial,
regulatory or administrative ruling or order in which the party to be terminated
has been found guilty of criminal or unethical behavior in the conduct of its
business; or (c) financial difficulties on the part of the party to be
terminated which is evidenced by the authorization or commencement of, or
involvement by way of pleading, answer, consent, or acquiescence in, a voluntary
or involuntary case under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
3
<PAGE>
modification or alteration of the rights of creditors. Notwithstanding the
foregoing, the absence of either or both an annual review or ratification of
this Agreement by the Board of Trustees shall not, in and of itself, constitute
"cause" as used herein.
5.04 Termination in the Event of a
Fund Liquidation or Fund Merger,
or an Assignment of the Investment Advisory Contract
If, during the initial term of this Agreement (as set forth in paragraph
5.01), (i) a Fund is liquidated or is merged into a mutual fund portfolio that
is not part of the Trust or Mariner Funds Trust, or (ii) the investment advisory
agreement between HSBC Asset Management Americas, Inc. ("HSBC") and the Trust is
assigned (excluding any technical assignment based solely upon a change in
control of HSBC) such that HSBC ceases to be the investment adviser to the
Trust, this Agreement may be terminated by the Trust with respect to each
liquidated or merged Fund (or, in the case of the assignment of the investment
advisory agreement as described above, with respect to all of the Funds) by the
provision of 60 days' written notice; provided, however, that upon such
termination, the Trust shall make a one-time cash payment, as liquidated
damages, to BISYS equal to the fees payable to BISYS hereunder for the shorter
of (i) the eighteen-month period commencing on the termination date or (ii) the
remainder of the initial term of this Agreement, assuming for purposes of
calculation of the payment that the asset level of the Trust on the termination
date will remain constant for the balance of such initial term.
5.05 Termination Without Cause
In the event (i) the Trust terminates this Agreement for any reason other
than (A) "cause" pursuant to paragraph 5.03 or (B) the reasons described in
paragraph 5.04, (ii) BISYS is otherwise replaced as fund manager and
administrator or (iii) a third party is added to perform all or a part of the
services provided by BISYS under this Agreement (excluding any sub-administrator
appointed by BISYS as provided in Section 1 hereof), then the Trust shall make a
one-time cash payment, as liquidated damages, to BISYS equal to the balance due
BISYS for the remainder of the term of this Agreement, assuming for purposes of
calculation of the payment that the asset level of the Trust on the date BISYS
is replaced, or a third party is added will remain constant for the balance of
the contract term.
6. Uncontrollable Events.
BISYS assumes no responsibility hereunder, and shall not be liable for any
damage, loss of data, delay or any other loss whatsoever caused by events beyond
its reasonable control.
7. Legal Advice.
BISYS shall notify the Trust at any time BISYS believes that it is in need
of the advice of counsel (other than counsel in the regular employ of BISYS or
any affiliated companies)
4
<PAGE>
with regard to BISYS' responsibilities and duties pursuant to this Agreement;
and after so notifying the Trust, BISYS, at its discretion, shall be entitled to
seek, receive and act upon advice of legal counsel of its choosing, such advice
to be at the expense of the Trust or Funds unless relating to a matter involving
BISYS' willful misfeasance, bad faith, gross negligence or reckless disregard
with respect to BISYS' responsibilities and duties hereunder and BISYS shall in
no event be liable to the Trust or any Fund or any shareholder or beneficial
owner of the Trust for any action reasonably taken pursuant to such advice.
8. Instructions.
Whenever BISYS is requested or authorized to take action hereunder pursuant
to instructions from a properly authorized agent of the Trust, a shareholder, or
a properly authorized agent of a shareholder ("shareholder's agent"), concerning
an account in a Fund, BISYS shall be entitled to rely upon any certificate,
letter or other instrument or communication, believed by BISYS to be genuine and
to have been properly made, signed or authorized by an officer or other
authorized agent of the Trust or by the shareholder or shareholder's agent, as
the case may be, and shall be entitled to receive as conclusive proof of any
fact or matter required to be ascertained by it hereunder a certificate signed
by an officer of the Trust or any other person authorized by the Trust's Board
of Trustees or by the shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely conclusively
upon the terms of the Prospectuses and Statement of Additional Information of
the Trust relating to the Funds to the extent that such services are described
therein unless BISYS receives written instructions to the contrary in a timely
manner from the Trust.
9. Standard of Care; Reliance on Records and Instructions; Indemnification.
BISYS shall use its best efforts to ensure the accuracy of all services
performed under this Agreement, but shall not be liable to the Trust for any
action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, gross negligence or from reckless disregard by it of its
obligations and duties. The Trust agrees to indemnify and hold harmless BISYS,
its employees, agents, directors, officers and nominees from and against any and
all claims, demands, actions and suits, whether groundless or otherwise, and
from and against any and all judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character arising
out of or in any way relating to BISYS' actions taken or nonactions with respect
to the performance of services under this Agreement or based, if applicable,
upon reasonable reliance on information, records, instructions or requests given
or made to BISYS by the Trust, the investment adviser and on any records
provided by any fund accountant or custodian thereof; provided that this
indemnification shall not apply to actions or omissions of BISYS in cases of its
own bad faith, willful misfeasance, gross negligence or from reckless disregard
by it of its obligations and duties; and further provided that prior to
confessing any claim against it which may be the subject of this
indemnification, BISYS shall give the Trust written notice of and reasonable
opportunity to defend against said claim in its own name or in the name of
BISYS.
5
<PAGE>
10. Record Retention and Confidentiality.
BISYS shall keep and maintain on behalf of the Trust all books and records
which the Trust or BISYS is, or may be, required to keep and maintain pursuant
to any applicable statutes, rules and regulations, including without limitation
Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended (the
"1940 Act"), relating to the maintenance of books and records in connection with
the services to be provided hereunder. BISYS further agrees that all such books
and records shall be the property of the Trust and to make such books and
records available for inspection by the Trust or by the Securities and Exchange
Commission (the "Commission") at reasonable times and otherwise to keep
confidential all books and records and other information relative to the Trust
and its shareholders, except when requested to divulge such information by
duly-constituted authorities or court process, or requested by a shareholder or
shareholder's agent with respect to information concerning an account as to
which such shareholder has either a legal or beneficial interest or when
requested by the Trust, the shareholder, or shareholder's agent, or the dealer
of record as to such account.
11. Reports.
BISYS shall prepare the reports set forth in Schedule C hereto and shall
furnish them to appropriate persons designated by the Trust.
12. Rights of Ownership.
All computer programs and procedures developed to perform services required
to be provided by BISYS under this Agreement are the property of BISYS. All
records and other data except such computer programs and procedures are the
exclusive property of the Trust and all such other records and data will be
furnished to the Trust in appropriate form as soon as practicable after
termination of this Agreement for any reason.
13. Return of Records.
BISYS may at its option at any time, and shall promptly upon the Trust's
demand, turn over to the Trust and cease to retain BISYS' files, records and
documents created and maintained by BISYS pursuant to this Agreement which are
no longer needed by BISYS in the performance of its services or for its legal
protection. If not so turned over to the Trust, such documents and records will
be retained by BISYS for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
14. Bank Accounts.
The Trust and the Funds shall establish and maintain such bank accounts
with such bank or banks as are selected by the Trust, as are necessary in order
that BISYS may perform the
6
<PAGE>
services required to be performed hereunder. To the extent that the performance
of such services shall require BISYS directly to disburse amounts for payment of
dividends, redemption proceeds or other purposes, the Trust and Funds shall
provide such bank or banks with all instructions and authorizations necessary
for BISYS to effect such disbursements.
15. Representations of the Trust.
The Trust certifies to BISYS that: (a) as of the close of business on the
Effective Date, each Fund which is in existence as of the Effective Date has
authorized unlimited shares, and (b) by virtue of its Declaration of Trust,
shares of each Fund which are redeemed by the Trust may be sold by the Trust
from its treasury, and (c) this Agreement has been duly authorized by the Trust
and, when executed and delivered by the Trust, will constitute a legal, valid
and binding obligation of the Trust, enforceable against the Trust in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors and secured parties.
16. Representations of BISYS.
BISYS represents and warrants that: (a) BISYS has been in, and shall
continue to be in, substantial compliance with all provisions of law, including
Section 17A(c) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), required in connection with the performance of its duties under this
Agreement; (b) the various procedures and systems which BISYS has implemented
with regard to safekeeping from loss or damage attributable to fire, theft or
any other cause of the blank checks, records, and other data of the Trust and
BISYS' records, data, equipment, facilities and other property used in the
performance of its obligations hereunder are adequate and that it will make such
changes therein from time to time as are required for the secure performance of
its obligations hereunder, and (c) this Agreement has been duly authorized by
BISYS and, when executed and delivered by BISYS, will constitute a legal, valid
and binding obligation of BISYS, enforceable against BISYS in accordance with
its terms, subject to bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting the rights and remedies of creditors
and secured parties.
17. Insurance.
BISYS shall notify the Trust should its insurance coverage with respect to
professional liability or errors and omissions coverage be canceled or reduced.
Such notification shall include the date of change and the reasons therefor.
BISYS shall notify the Trust of any material claims against it with respect to
services performed under this Agreement, whether or not they may be covered by
insurance, and shall notify the Trust from time to time as may be appropriate of
the total outstanding claims made by BISYS under its insurance coverage.
7
<PAGE>
18. Information to be Furnished by the Trust and Funds.
The Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any amendments
thereto, certified by the proper official of the state in which such
Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of Trustees covering
the following matters:
A. Approval of this Agreement and authorization of a specified
officer of the Trust to execute and deliver this Agreement
and authorization for specified officers of the Trust to
instruct BISYS hereunder; and
B. Authorization of BISYS to act as Transfer Agent for the
Trust on behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen signatures
of those officers, who are authorized to instruct BISYS in all
matters.
(d) Two copies of the following (if such documents are employed by the
Trust):
1. Prospectuses and Statement of Additional Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its Distributor
with regard to their relationships and transactions with
shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date of BISYS'
appointment as Transfer Agent (or as of the date on which BISYS'
services are commenced, whichever is the later date) and as to receipt
of full consideration by the Trust for all shares outstanding, such
statement to be certified by the Treasurer of the Trust.
8
<PAGE>
19. Information Furnished by BISYS.
BISYS has furnished to the Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a specified
officer of BISYS to execute and deliver this Agreement;
2. Authorization of BISYS to act as Transfer Agent for the
Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed with the
Commission pursuant to Rule 17Ad-13 under the Exchange Act.
Copies of reports described in paragraph (d) directly above that are
produced after the Effective Date will be furnished to the Trust upon
request.
20. Amendments to Documents.
The Trust shall furnish BISYS written copies of any amendments to, or
changes in, any of the items referred to in Section 18 hereof forthwith upon
such amendments or changes becoming effective. In addition, the Trust agrees
that no amendments will be made to the Prospectuses or Statement of Additional
Information of the Trust which might have the effect of changing the procedures
employed by BISYS in providing the services agreed to hereunder or which
amendment might affect the duties of BISYS hereunder unless the Trust first
obtains BISYS' approval of such amendments or changes.
21. Reliance on Amendments.
BISYS may rely on any amendments to or changes in any of the documents and
other items to be provided by the Trust pursuant to Sections 18 and 20 of this
Agreement and the Trust hereby indemnifies and holds harmless BISYS from and
against any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, counsel fees and other expenses of every nature
and character which may result from actions or omissions on the part of BISYS in
reasonable reliance upon such amendments and/or changes. Although BISYS is
authorized to rely on the above-mentioned amendments to and changes in the
documents and other items to be provided pursuant to Sections 18 and 20 hereof,
BISYS shall be under no duty to comply with or
9
<PAGE>
take any action as a result of any of such amendments or changes unless the
Trust first obtains BISYS' written consent to and approval of such amendments or
changes.
22. Compliance with Law.
Except for the obligations of BISYS set forth in Section 10 hereof, the
Trust assumes full responsibility for the preparation, contents, and
distribution of each prospectus of the Trust as to compliance with all
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), the 1940 Act, and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the 1933 Act and the 1940
Act has been declared or becomes effective.
23. Notices.
Any notice provided hereunder shall be sufficiently given when sent by
registered or certified mail to the party required to be served with such notice
at the following address: 3435 Stelzer Road, Columbus, Ohio 43219, or at such
other address as such party may from time to time specify in writing to the
other party pursuant to this Section.
24. Headings.
Paragraph headings in this Agreement are included for convenience only and
are not to be used to construe or interpret this Agreement.
25. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
by either of the parties hereto except by the specific written consent of the
other party. This Section 25 shall not limit or in any way affect BISYS' right
to appoint a Sub-transfer Agent pursuant to Section 1 hereof.
26. Governing Law and Matters Relating to the Trust as a Massachusetts
Business Trust.
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the Commonwealth of Massachusetts. It is expressly
agreed that the obligations of the Trust hereunder shall not be binding upon any
of the Trustees, shareholders, nominees, officers, agents or employees of the
Trust personally, but shall bind only the trust property of the Trust. The
execution and delivery of this Agreement have been authorized by the Trustees,
and this Agreement has been signed and delivered by an authorized officer of the
Trust, acting as such, and neither such authorization by the Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally,
10
<PAGE>
but shall bind only the trust property of the Trust as provided in the Trust's
Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
MARINER MUTUAL FUNDS TRUST
By:________________________________
BISYS FUND SERVICES, INC.
By:________________________________
11
<PAGE>
Dated:
--------------------
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
MARINER MUTUAL FUNDS TRUST
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENCY SERVICES
Record Keeping
1. Produce monthly shareholder statements by the fifth business day
2. Post shareholder transactions
3. Produce and mail daily confirmations to shareholders
4. Produce and mail dividend and redemption checks
5. Balance daily transaction activity
6. Disburse dividends and capital gains
7. Maintain shareholder information files
8. Manage daily ACH transmissions
9. Monitor NSCC activity
10. Complete cash settlement between funds, custodians, NSCC and shareholders
11. Reconcile deposit, redemption, wire, check writing, dividend and DDAs
12. Microfiche all source documentation
13. Prepare daily open items report
14. Distribute new account welcome kits and all forms necessary for shareholders
to transact business with the Trust (e.g., change-of-address forms,
power-of-attorney forms, letter of intent forms)
15. Calculate and produce shareholder tax records
16. Coordinate development of systematic enhancements
17. Communicate and coordinate corporate action events
18. Generate user defined reports from the shareholder system
19. Perform legal review on all incoming transactions
20. Acquire fund CUSIPs
21. Complete quality assurance review of transactions
22. Calculate and distribute sales commissions
23. Track and report sales activity
24. Accept and track incoming retirement rollover subscriptions
A-1
<PAGE>
Retail Features
1. Process previously-authorized purchases
2. Process systematic withdrawals
3. Complete gross dividend reinvestment
4. Process payments to multiple payees
5. Manage FundServ linkage
6. Support full NSCC networking support
7. Establish account relationship linking
8. Maintain 401(k) interface
9. Provide an automated voice response unit (scripts to be provided by HSBC
following NASD approval)
Systems (charges will vary)
1. Research/Feasibility Studies
2. Systems specifications and implementation plans
3. Design and Testing
4. Implementation/conversion
Miscellaneous
1. Coordinate use of outside vendors by Fund
2. Provide a designated project manager for routine ongoing projects
3. Institutional trade facilitation
4. Asset-related conversions
5. Provide proxy support by furnishing shareholder lists and mailing labels
A-2
<PAGE>
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
MARINER MUTUAL FUNDS TRUST
AND
BISYS FUND SERVICES, INC.
TRANSFER AGENT FEES
Annual Per Fund Fee:
$16,000
Annual Per Account Fee:
Retail/Load Retail/No-Load Institutional
----------- -------------- -------------
Daily Dividend $25.00 $21.00 $17.00
Periodic Dividend $23.00 $19.00 $15.00
Closed Accounts $ 5.00 $ 5.00 $ 5.00
Multiple Classes of Shares:
Classes of shares which have different net asset values or pay different daily
dividends will be treated as separate classes, and the fee schedule above,
including the appropriate minimums, will be charged for each separate class.
Additional Services:
Additional services such as IRA processing, development of interface
capabilities, servicing of 403(b) and 408(c) accounts, management of cash sweeps
between DDAs and mutual fund accounts and coordination of the printing and
distribution of prospectuses, annual reports and semi-annual reports are subject
to additional fees which will be quoted upon request. Programming costs or
database management fees for special reports or specialized processing will be
quoted upon request.
Out-of-pocket Expenses:
BISYS shall be entitled to be reimbursed for all reasonable out-of-pocket
expenses including, but not limited to, the expenses set forth in Section 3 of
the Transfer Agency Agreement to which this Schedule C is attached.
B-1
<PAGE>
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
MARINER MUTUAL FUNDS TRUST
AND
BISYS FUND SERVICES, INC.
REPORTS
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
C-1
<PAGE>
Exhibit 9(d)
Service Organization Agreement between Bank of Oklahoma and
Registrant, dated October 25, 1994
<PAGE>
October 25, 1994
SERVICE ORGANIZATION AGREEMENT
MARINER MUTUAL FUNDS TRUST
Dear Sirs:
You have advised us that you are authorized and intend to invest shares of
beneficial interest of the Trust ("Mariner Shares") on behalf of certain
customers (the "Customers"), that you will be the shareholder of record, as
nominee for the Customers, and that you intend to maintain subaccounts and
handle investor relation services for the Customers. This letter sets forth the
terms on which these services will be provided.
You will perform shareholder services for Customers in a manner consistent with
the Prospectus. Shareholder services include (a) maintenance of a separate
subaccount for each Customer in which each transaction with respect to the
Customer's interest in Mariner Shares will be promptly reflected; (b) prompt
crediting of cash distributions to the customer account through which a
Customer's interest in the Mariner Shares was acquired; (c) maintenance of
records for each subaccount containing substantially the same information as
referred to above; (d) processing purchase and redemption requests; (e) mailing
to each Customer periodically a statement reflecting all transactions with
respect to the Customer's interest in Mariner Shares; and (f) if required by
law, distribution of the Trust's shareholder reports and proxy statements to
Customers. If requested by a Customer, you will promptly request that Mariner
Shares held on the Customer's behalf be registered in the Customer's name. In
connection with these services, you will furnish us, or our auditors with such
information as we or they may reasonably request with respect to such services,
including, without limitation, confirmation of the provision of such services,
information required for preparation of reports of the Trust or
<PAGE>
the determination of amounts payable by the Trust to us or by us to you.
In consideration of the Shareholder services provided by you hereunder, we will
reimburse you for your costs involved in providing these services, and you will
accept as full payment therefor, an amount payable monthly not to exceed the
maximum rate of twenty-five basis points per annum of the average daily value
during the month of Mariner Shares held of record by you from time to time on
behalf of Customers ("Customers' Mariner Shares"). For purposes of determining
the fees payable under this paragraph, the daily value of the Customers' Mariner
Shares will be computed in the manner specified in the Prospectus and the
Trust's registration statement (as the same are in effect from time to time) in
connection with the computation of the net asset value of Mariner Shares for
purposes of purchases and redemptions. The fee rate stated above may be
prospectively increased or decreased by us, in our sole discretion, at any time
upon notice to you.
Reimbursement will be paid as indicated below:
o By direct payment to you of the amount equal to
such costs.
o By crediting the amount equal to such costs
against other amounts due from you to us as agreed
upon from time to time
You will indemnify and hold us harmless from all loss, cost, damage and expense,
including reasonable expenses for counsel, incurred by us resulting from any
claim, demand, action or suit arising out of this Agreement, which does not
arise out of our negligence or willful misconduct.
Please acknowledge this Agreement by signing and returning a copy
of this letter. This Agreement will become effective upon
****
<PAGE>
receipt by us of a signed copy. This Agreement shall replace and terminate a
similar agreement between you and HSBC Asset Management Americas Inc.
Very truly yours,
MARINER FUNDS TRUST
Acknowledged: By:______________________
Name:
BANK OF OKLAHOMA
Title:
By:_________________________
Title:
<PAGE>
Exhibit 9(e)
Fund Accounting Agreement between Registrant
and BISYS Fund Services
<PAGE>
FUND ACCOUNTING AGREEMENT
AGREEMENT made this day of , , between MARINER MUTUAL FUNDS TRUST (the
"Trust"), a Massachusetts business trust having its principal place of business
at 3435 Stelzer Road, Columbus, Ohio 43219, and BISYS FUND SERVICES, INC.
("BISYS"), a corporation organized under the laws of the State of Ohio and
having its principal place of business at 3435 Stelzer Road, Columbus, Ohio
43219.
WHEREAS, the Trust desires that BISYS perform certain fund accounting
services for each investment portfolio of the Trust (individually referred to
herein as the "Fund" and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Fund Accountant.
(a) Maintenance of Books and Records. BISYS will keep and maintain the
following books and records of each Fund pursuant to Rule 31a-1 under
the Investment Company Act of 1940 (the "Rule"):
(i) Journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements
of cash and all other debits and credits, as required by
subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, including interest
accrued and interest received, as required by subsection
(b)(2)(I) of the Rule;
(iii) Separate ledger accounts required by subsection (b)(2)(ii) and
(iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b)(8) of the
Rule.
(b) Performance of Daily Accounting Services. In addition to the
maintenance of the books and records specified above, BISYS shall
perform the following accounting services daily for each Fund:
<PAGE>
(i) Calculate the net asset value per share utilizing prices obtained
from the sources described in subsection 1(b)(ii) below;
(ii) Obtain security prices from independent pricing services, or if
such quotes are unavailable, then obtain such prices from each
Fund's investment adviser or its designee, as approved by the
Trust's Board of Trustees;
(iii) Verify and reconcile with the Funds' custodian all daily trade
activity;
(iv) Compute, as appropriate, each Fund's net income and capital
gains, dividend payables, dividend factors, 7-day yields, 7-day
effective yields, 30-day yields, and weighted average portfolio
maturity;
(v) Review daily the net asset value calculation and dividend factor
(if any) for each Fund prior to release to shareholders, check
and confirm the net asset values and dividend factors for
reasonableness and deviations, and distribute net asset values
and yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of securities in any
money market Funds, with the comparison to the amortized cost
basis;
(vii) Determine unrealized appreciation and depreciation on securities
held in variable net asset value Funds;
(viii) Upon receipt of timely instructions from each Fund's investment
adviser, amortize premiums and accrete discounts on securities
purchased at a price other than face value;
(ix) Update fund accounting system to reflect rate changes, as
received from a Fund's investment adviser, on variable interest
rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to instructions received
from the Trust's Administrator;
(xii) Determine the outstanding receivables and payables for all (1)
security trades, (2) Fund share transactions and (3) income and
expense accounts;
2
<PAGE>
(xiii) Provide accounting reports in connection with the Trust's regular
annual audit and other audits and examinations by regulatory
agencies; and
(xiv) Provide such periodic reports as the parties shall agree upon, as
set forth in a separate schedule.
(c) Special Reports and Services.
(i) BISYS may provide additional special reports upon the request of
the Trust or a Fund's investment adviser, which may result in an
additional charge, the amount of which shall be agreed upon
between the parties.
(ii) BISYS may provide such other similar services with respect to a
Fund as may be reasonably requested by the Trust, which may
result in an additional charge, the amount of which shall be
agreed upon between the parties.
(d) Additional Accounting Services. BISYS shall also perform the following
additional accounting services for each Fund:
(i) Provide monthly a download (and hard copy thereof) of the
financial statements described below, within ten (10) business
days of month-end. The download will include the following items:
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(ii) Provide accounting information for the following:
(A) federal and state income tax returns and federal excise tax
returns;
(B) the Trust's semi-annual reports with the Securities and
Exchange Commission ("SEC") on Form N-SAR;
(C) the Trust's annual, semi-annual and quarterly (if any)
shareholder reports;
(D) registration statements on Form N-1A and other filings
relating to the registration of shares;
3
<PAGE>
(E) the Administrator's monitoring of the Trust's status as a
regulated investment company under Subchapter M of the
Internal Revenue Code, as amended;
(F) annual audit by the Trust's auditors; and
(G) examinations performed by the SEC.
2. Subcontracting.
BISYS may, at its expense, subcontract with any entity or person concerning
the provision of the services contemplated hereunder; provided, however, that
BISYS shall not be relieved of any of its obligations under this Agreement by
the appointment of such subcontractor and provided further, that BISYS shall be
responsible, to the extent provided in Section 7 hereof, for all acts of such
subcontractor as if such acts were its own.
3. Compensation.
BISYS shall be entitled to receive compensation for the services provided
herein in such amounts as the parties may agree upon. Such compensation shall be
paid to BISYS Fund Services Limited Partnership ("BFSLP") by the Trust along
with fees that are payable to BFSLP for services provided under its Management
and Administration Agreement with the Trust. BFSLP has agreed to remit the
compensation payable to BISYS hereunder that it receives pursuant to this
payment arrangement.
4. Reimbursement of Expenses.
In addition to paying BISYS the fees described in Section 3 hereof, the
Trust agrees to reimburse BISYS for its out-of-pocket expenses in providing
services hereunder, including without limitation the following:
(a) All freight and other delivery and bonding charges incurred by BISYS
in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by BISYS in communication
with the Trust, the Trust's investment advisor or custodian, dealers
or others as required for BISYS to perform the services to be provided
hereunder;
(c) The cost of obtaining security market quotes pursuant to Section
l(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other materials;
(e) Any expenses BISYS shall incur at the written direction of an officer
of the Trust thereunto duly authorized; and
4
<PAGE>
(f) Any additional expenses reasonably incurred by BISYS in the
performance of its duties and obligations under this Agreement.
5. Effective Date.
This Agreement shall become effective with respect to a Fund as of the date
first written above (or, if a particular Fund is not in existence on that date,
on the date an amendment to Schedule A to this Agreement relating to the Fund is
executed) (the "Effective Date").
6. Term
6.01 Initial Term; Renewal Terms
This Agreement shall become effective as of the date first written above
and shall continue until March 1, 1999, and unless sooner terminated as provided
herein, thereafter shall be renewed automatically for successive one-year terms,
unless (i) it is terminated for cause pursuant to paragraph 6.03 below, (ii) it
is terminated pursuant to paragraph 6.04 below, or (iii) written notice not to
renew is given by the non-renewing party to the other party at least 120 days
prior to the expiration of the then-current term; provided that such continuance
is specifically reviewed and approved at least annually (i) by the vote of a
majority of the Trust's Board of Trustees or by the vote of a majority of the
outstanding voting securities of such Fund and (ii) by the majority of the
Trust's Trustees who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting on such approval. The scope of
such review shall be whether there is any "cause" (as defined below) that would
justify terminating the Agreement.
6.02 Termination of Agreement
This Agreement is terminable with respect to a particular Fund (i) upon
provision of written notice not to renew in accordance with paragraph 6.01, (ii)
upon mutual agreement of the parties hereto, (iii) for cause by the party
alleging cause pursuant to paragraph 6.03, or (iv) upon provision of written
notice to terminate in accordance with paragraph 6.04. Written notice not to
renew may be given for any reason, with or without "cause" (as defined in
paragraph 6.03). Upon termination of this Agreement, if BISYS, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due and payable to BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the compensation described under Section 3 hereof, the amount of all of BISYS'
cash disbursements for services in connection with BISYS' activities in
effecting such termination, including without limitation, the delivery to the
Trust and/or its designees of the Trust's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination, for a
reasonable fee, BISYS
5
<PAGE>
will provide the Trust with reasonable access to any Trust documents or records
remaining in its possession.
6.03 Termination for Cause
This Agreement may be terminated for cause in accordance with this
paragraph 6.03. In the event cause, as defined below, is alleged, the party
alleging cause shall provide written notice to the other party specifying the
event or events constituting cause and demanding that such other party cure the
same. If appropriate corrective action is not taken within 30 days following
receipt of such notice, the party alleging cause may terminate this Agreement by
the provision of 60 days' written notice. For purposes of this Agreement,
"cause" shall mean (a) willful misfeasance, bad faith, gross negligence or
reckless disregard on the part of the party to be terminated with respect to its
obligations and duties set forth herein; (b) a final, unappealable judicial,
regulatory or administrative ruling or order in which the party to be terminated
has been found guilty of criminal or unethical behavior in the conduct of its
business; or (c) financial difficulties on the part of the party to be
terminated which is evidenced by the authorization or commencement of, or
involvement by way of pleading, answer, consent, or acquiescence in, a voluntary
or involuntary case under Title 11 of the United States Code, as from time to
time is in effect, or any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors. Notwithstanding the
foregoing, the absence of either or both an annual review or ratification of
this Agreement by the Board of Trustees shall not, in and of itself, constitute
"cause" as used herein.
6.04 Termination in the Event of a
Fund Liquidation or Fund Merger,
or an Assignment of the Investment Advisory Contract
If, during the initial term of this Agreement (as set forth in paragraph
6.01), (i) a Fund is liquidated or is merged into a mutual fund portfolio that
is not part of the Trust or Mariner Funds Trust, or (ii) the investment advisory
agreement between HSBC Asset Management Americas, Inc. ("HSBC") and the Trust is
assigned (excluding any technical assignment based solely upon a change in
control of HSBC) such that HSBC ceases to be the investment adviser to the
Trust, this Agreement may be terminated by the Trust with respect to each
liquidated or merged Fund (or, in the case of the assignment of the investment
advisory agreement as described above, with respect to all of the Funds) by the
provision of 60 days' written notice; provided, however, that upon such
termination, the Trust shall make a one-time cash payment, as liquidated
damages, to BISYS equal to the fees payable to BISYS hereunder for the shorter
of (i) the eighteen-month period commencing on the termination date or (ii) the
remainder of the initial term of this Agreement, assuming for purposes of
calculation of the payment that the asset level of the Trust on the termination
date will remain constant for the balance of such initial term.
6
<PAGE>
6.05 Termination Without Cause
In the event (i) the Trust terminates this Agreement for any reason other
than (A) "cause" pursuant to paragraph 6.03 or (B) the reasons described in
paragraph 6.04, (ii) BISYS is otherwise replaced as fund manager and
administrator or (iii) a third party is added to perform all or a part of the
services provided by BISYS under this Agreement (excluding any sub-administrator
appointed by BISYS as provided in Section 1 hereof), then the Trust shall make a
one-time cash payment, as liquidated damages, to BISYS equal to the balance due
BISYS for the remainder of the term of this Agreement, assuming for purposes of
calculation of the payment that the asset level of the Trust on the date BISYS
is replaced, or a third party is added will remain constant for the balance of
the contract term.
7. Standard of Care; Reliance on Records and Instructions; Indemnification.
BISYS shall use its best efforts to insure the accuracy of all services
performed under this Agreement, but shall not be liable to the Trust for any
action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. A Fund agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement with respect to such Fund or based,
if applicable, upon reasonable reliance on information, records, instructions or
requests with respect to such Fund given or made to BISYS by a duly authorized
representative of the Trust; provided that this indemnification shall not apply
to actions or omissions of BISYS in cases of its own bad faith, willful
misfeasance, gross negligence or from reckless disregard by it of its
obligations and duties, and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
8. Record Retention and Confidentiality.
BISYS shall keep and maintain on behalf of the Trust all books and records
which the Trust and BISYS is, or may be, required to keep and maintain pursuant
to any applicable statutes, rules and regulations, including without limitation
Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended (the
"1940 Act"), relating to the maintenance of books and records in connection with
the services to be provided hereunder. BISYS further agrees that all such books
and records shall be the property of the Trust and to make such books and
records available for inspection by the Trust or by the Securities and Exchange
Commission at reasonable times and otherwise to keep confidential all books and
records and other information relative to the Trust and its shareholders; except
when requested to divulge such information by duly-constituted authorities or
court process.
7
<PAGE>
9. Uncontrollable Events.
BISYS assumes no responsibility hereunder, and shall not be liable, for any
damage, loss of data, delay or any other loss whatsoever caused by events beyond
its reasonable control.
10. Reports.
BISYS shall furnish the reports prepared under this Agreement to
appropriate persons designated by the Trust.
11. Rights of Ownership.
All computer programs and procedures developed to perform services required
to be provided by BISYS under this Agreement are the property of BISYS. All
records and other data except such computer programs and procedures are the
exclusive property of the Trust and all such other records and data will be
furnished to the Trust in appropriate form as soon as practicable after
termination of this Agreement for any reason.
12. Return of Records.
BISYS may at its option at any time, and shall promptly upon the Trust's
demand, turn over to the Trust and cease to retain BISYS' files, records and
documents created and maintained by BISYS pursuant to this Agreement which are
no longer needed by BISYS in the performance of its services or for its legal
protection. If not so turned over to the Trust, such documents and records will
be retained by BISYS for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to the Trust
unless the Trust authorizes in writing the destruction of such records and
documents.
13. Representations of the Trust.
The Trust certifies to BISYS that: (1) as of the close of business on the
Effective Date, each Fund that is in existence as of the Effective Date has
authorized unlimited shares, and (2) this Agreement has been duly authorized by
the Trust and, when executed and delivered by the Trust, will constitute a
legal, valid and binding obligation of the Trust, enforceable against the Trust
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
14. Representations of BISYS.
BISYS represents and warrants that: (1) the various procedures and systems
which BISYS has implemented with regard to safeguarding from loss or damage
attributable to fire, theft, or any other cause the records, and other data of
the Trust and BISYS' records, data, equipment facilities and other property used
in the performance of its obligations hereunder are adequate and
8
<PAGE>
that it will make such changes therein from time to time as are required for the
secure performance of its obligations hereunder, and (2) this Agreement has been
duly authorized by BISYS and, when executed and delivered by BISYS, will
constitute a legal, valid and binding obligation of BISYS, enforceable against
BISYS in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
15. Insurance.
BISYS shall notify the Trust should any of its insurance coverage be
canceled or reduced. Such notification shall include the date of change and the
reasons therefor. BISYS shall notify the Trust of any material claims against it
with respect to services performed under this Agreement, whether or not they may
be covered by insurance, and shall notify the Trust from time to time as may be
appropriate of the total outstanding claims made by BISYS under its insurance
coverage.
16. Information to be Furnished by the Trust and Funds.
The Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any amendments
thereto, certified by the proper official of the state in which such
Declaration has been filed.
(b) Copies of the following documents:
(i) The Trust's Bylaws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of Trustees covering
the approval of this Agreement, authorization of a specified
officer of the Trust to execute and deliver this Agreement and
authorization for specified officers of the Trust to instruct
BISYS thereunder.
(c) A list of all the officers of the Trust, together with specimen
signatures of those officers who are authorized to instruct BISYS in
all matters.
(d) Two copies of the Prospectuses and Statements of Additional
Information for each Fund.
9
<PAGE>
17. Information Furnished by BISYS.
(a) BISYS has furnished to the Trust the following:
(i) BISYS' Articles of Incorporation; and
(ii) BISYS' Bylaws and any amendments thereto.
(b) BISYS shall, upon request, furnish certified copies of corporate
actions covering the following matters:
(i) Approval of this Agreement, and authorization of a specified
officer of BISYS to execute and deliver this Agreement; and
(ii) Authorization of BISYS to act as fund accountant for the Trust
and to provide accounting services for the Trust.
18. Amendments to Documents.
The Trust shall furnish BISYS written copies of any amendments to, or
changes in, any of the items referred to in Section 16 hereof forthwith upon
such amendments or changes becoming effective. In addition, the Trust agrees
that no amendments will be made to the Prospectuses or Statements of Additional
Information of the Trust which might have the effect of changing the procedures
employed by BISYS in providing the services agreed to hereunder or which
amendment might affect the duties of BISYS hereunder unless the Trust first
obtains BISYS' approval of such amendments or changes.
19. Compliance with Law.
Except for the obligations of BISYS set forth in Section 8 hereof, the
Trust assumes full responsibility for the preparation, contents and distribution
of each prospectus of the Trust as to compliance with all applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
the 1940 Act and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the Securities Act and the
1940 Act has been declared or becomes effective.
20. Notices.
Any notice provided hereunder shall be sufficiently given when sent by
registered or certified mail to the party required to be served with such
notice, at the following address:
10
<PAGE>
3435 Stelzer Road, Columbus, Ohio 43219, or at such other address as such party
may from time to time specify in writing to the other party pursuant to this
Section.
21. Headings.
Paragraph headings in this Agreement are included for convenience only and
are not to be used to construe or interpret this Agreement.
22. Assignment.
This Agreement and the rights and duties hereunder shall not be assignable
with respect to a Fund by either of the parties hereto except by the specific
written consent of the other party.
23. Governing Law.
This Agreement shall be governed by and provisions shall be construed in
accordance with the laws of the Commonwealth of Massachusetts.
24. Limitation of Liability of the Trustees and Shareholders.
It is expressly agreed that the obligations of the Trust hereunder shall
not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees, and this Agreement has been signed and delivered by
an authorized officer of the Trust, acting as such, and neither such
authorization by the Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in the Trust's Agreement and Declaration of Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
MARINER MUTUAL FUNDS TRUST
By:________________________________
BISYS FUND SERVICES, INC.
By:________________________________
11
<PAGE>
Exhibit 10
Consent of Baker & McKenzie,
counsel to Registrant
<PAGE>
April 22, 1996
HSBC Mutual Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
RE: HSBC Mutual Funds Trust
Registration No. 33-33734
-------------------------
Dear Sir or Madam:
It is our opinion that the securities being registered hereunder will, when
sold, be legally issued, fully paid and non-assessable, and we hereby consent to
the reference to our firm as Counsel in Post-Effective Amendment No. 17 to
Registration No. 33-33734.
Very truly yours,
BAKER & McKENZIE
<PAGE>
EXHIBIT 99.11
Exhibit 11
Consent of Ernst & Young,
independent accountants
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORSD
We consent to the reference to our firm under the captions "Financial
Highlights", "Independent Auditors" and "Experts" and to the use of our reports
dated February 5, 1996, in this Registration Statement (Form N-1A No. 33-33734)
of HSBC Mutual Funds Trust, formerly Mariner Mutual Funds Trust.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
April 23, 1996
<PAGE>
Exhibit 15(a)
Rule 12-b Distribution Plan and Agreement between
Registrant and BISYS Fund Services
<PAGE>
HSBC MUTUAL FUNDS TRUST
HSBC FUNDS TRUST
(together, the "Trust")
RULE 12b-1 DISTRIBUTION PLAN
1. Definitions. (a) The Trust is an open-end management investment company
organized under the laws of the Commonwealth of Massachusetts. The Trust is
registered under the Investment Company Act of 1940, as amended (the "Act"). The
Trust's shares of beneficial interest may be classified into series in which
each series represents the entire undivided interests of a separate portfolio of
assets. For all purposes of this Agreement, a "Fund" shall mean a separate
portfolio of assets of the Trust and a "Series" shall mean the series of shares
of beneficial interest representing undivided interests in a Fund.
(b) As permitted by Rule 12b-1 (the "Rule") under the Act, the Trust has
adopted a Distribution Plan (the "Plan") for each Fund (except Premium
Institutional Class Shares) pursuant to which the Trust may make certain
payments to the Distributor for expenses incurred in connection with the
distribution of shares of the Funds. The Trust's Board of Trustees has
determined that there is a reasonable likelihood that the Plan will benefit the
Funds and their shareholders.
2. Adoption of Plan. The Trust hereby adopts this Plan, and the parties
hereto enter into this Plan, on the terms and conditions specified herein.
3. Distribution-Related Fee. (a) The Trust shall pay the Distributor a
monthly distribution-related fee on the first business day of each month in such
an amount as the Distributor may request, provided that each such payment shall
be based upon the average daily value of a Fund's net assets (as determined on
each business day at the time set forth in the Trust's currently effective
prospectus for determining net asset value per share) during the preceding month
and shall be calculated at an annual rate not in excess of 0.35% (0.50% for
Growth and Income Fund and Money Market Funds).
(b) For purposes of calculating each such monthly fee, the value of a
Fund's net assets shall be computed in the manner specified in the Trust's
currently effective Prospectus and Restated and Amended Declaration of Trust.
All expenses incurred by the Trust hereunder shall be charged against such
Fund's assets. For purposes of this Plan, a "business day" is any day the Trust
is open for business.
4. Purposes of Payments. The Distributor shall be obligated to use all
amounts received under this Plan for (i) payments to broker/dealers and other
financial intermediaries including the Distributor for their assistance in the
distribution of Fund shares, and (ii) payments to broker/dealers and other
financial intermediaries including the Distributor for promoting the sale of
such Fund shares, such as by paying for the printing and distribution of
prospectuses sent to prospective investors, the preparation, printing and
distribution of sales literature and the
<PAGE>
expenses associated with media advertisements and telephone correspondents. The
services rendered by the Distributor hereunder are in addition to the
administrative services reasonably necessary for the operation of the Trust and
the Funds pursuant to the Administrative Services Contract between the Trust and
BISYS Fund Services Limited Partnership, dated as of March 9, 1996.
5. Related Agreements. All other agreements relating to the implementation
of this Plan (the "related agreements") shall be in writing, and such related
agreements shall be subject to termination, without penalty, on not more than
sixty days' written notice to any other party to the agreement, in accordance
with the provisions of clauses (a) and (b) of paragraph 9 hereof.
6. Approvals by Trustees and Shareholders. This Plan shall become effective
upon approval by (a) a majority of the Board of Trustees of the Trust for each
Fund, including a majority of the Trustees who are not "interested persons" (as
defined in the Act) of the Trust and who have not direct or indirect financial
interest in the operation of the plan or in any related agreements (the "Plan
Trustees"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on the Plan, and (b) the holders of a majority of the
outstanding securities of a Fund (as defined in the Act). Related agreements
shall be subject to approval by the Trustees in the manner provided in clause
(a) of the preceding sentence.
7. Duration and Annual Approval by Trustees. This Plan and any related
agreements shall continue in effect for a period of more than one year from the
date of their adoption by a majority of the Board of Trustees, including a
majority of the Plan Trustees, pursuant to a vote cast in person at a meeting
called for the purpose of voting on the continuance of this Plan or any related
agreement.
8. Amendments. This Plan may be amended at any time with the approval of a
majority of the Board of Trustees, provided that (a) any material amendment of
this Plan must be approved by the Trustees, and (b) any amendment to increase
materially the amount to be expended by the Fund pursuant to this Plan must also
be approved by the vote of the holders of a majority of the outstanding voting
securities of the Fund (as defined in the Act).
9. Termination. This Plan may be terminated at any time, without the
payment of any penalty, by (a) the vote of a majority of the Plan Trustees, or
(b) the vote of the holders of a majority of the outstanding voting securities
of a Fund (as defined in the Act). If this plan is terminated with respect to
any Funds, it shall nonetheless remain in effect with respect to any remaining
Funds.
10. Selection and Nomination of Trustees. While this Plan is in effect, the
selection and nomination of the Trustees who are not "interested persons" of the
Trust (as defined in the Act) shall be committed to the discretion of the
Trustees then in office who are not "interested persons" of the Trust.
<PAGE>
11. Effect of Assignment. To the extent that this Plan constitutes a plan
of distribution adopted pursuant to the Rule, it shall remain in effect as such
so as to authorize the use of the Fund's assets in the amounts and for the
purposes set forth herein, notwithstanding the occurrence of an assignment (as
defined in the Act). To the extent this Plan concurrently constitutes an
agreement relating to implementation of the plan of distribution, it shall
terminate automatically in the event of its assignment, and the Trust may
continue to make payments pursuant to this Plan only (a) upon the approval of
the Board of Trustees, and (b) if the obligations of the Distributor under this
Plan are to be performed by any organization other than the Distributor, upon
such organization's adoption and assumption in writing of all provisions of this
Plan as party hereto.
12. Quarterly Reports to Trustees. The Distributor shall prepare and
furnish to the Board of Trustees, at least quarterly, a written report setting
forth all amounts expended pursuant to this Plan and any related agreements and
the purposes for which such expenditures were made. The written report shall
include a detailed description of the continuing services provided by
broker/dealers and other financial intermediaries pursuant to paragraph 4 of
this Plan.
13. Preservation of Records. The Trust shall preserve copies of this Plan,
any related agreements and any reports made pursuant to this Plan for a period
of not less than six years from the date of this Plan or any such related
agreement or report. For the first two years, copies of such documents shall be
preserved in an easily accessible place.
14. Limitations on Liability of Distributor. The Distributor shall give the
Trust the benefit of the Distributor's best judgment and efforts in rendering
services under this Plan. As an inducement to the Distributor's undertaking to
render these services, the Trust agrees that the Distributor shall not be liable
under this Plan for any mistake in judgment or in any other event whatsoever
except for lack of good faith, provided that nothing in this Plan shall be
deemed to protect or purport to protect the Distributor against any liability to
the Trust or its shareholders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Distributor's duties under this Plan, or by reason of the
Distributor's reckless disregard of its obligations and duties hereunder.
15. Other distribution-Related Expenditures. Nothing in this Plan shall
operate or be construed to limit the extent to which the Distributor or any
other person other than the Trust may incur costs and pay expenses associated
with the distribution of Fund shares.
16. Miscellaneous. The Trust's Amended and Restated Declaration of Trust is
on file with the Secretary of State of the Commonwealth of Massachusetts. The
obligations of the Trust are not personally binding upon, nor shall resort be
had to the private property of, any of the Trustees, shareholders, officers,
employees or agents of the Trust, but only the Trust's property shall be bound.
<PAGE>
Exhibit 18
Form of Rule 18f-3
<PAGE>
HSBC MUTUAL FUNDS TRUST
Rule 18f-3 Plan
Rule 18f-3
Pursuant to Rule 18f-3 (" Rule 18f-3") of the Investment Company Act of
1940, as amended (the "Act"), an open-end management investment company whose
shares are registered on Form N- 1A may issue more than one class of voting
stock (hereinafter referred to as "shares"), provided that these multiple
classes differ either in the manner of distribution, or in services they provide
to shareholders, or both. The HSBC Mutual Funds Trust (the "Trust"), a
registered open-end investment company whose shares are registered on Form N-1A,
consisting of the Short-Term U.S. Government Fund, Fixed Income Fund, New York
Tax-Free Bond Fund, Growth & Income Fund, Small Cap Fund, and International
Equity Fund, and any future fund or series created by the Trust (collectively,
the "Funds"), may offer to shareholders multiple classes of shares in the Funds
in accordance with a Rule 18f-3 Plan as described herein.
Authorized Classes
Each Fund may issue one or more classes of shares, in the same or separate
prospectuses which may include the Service Class, the Institutional Class and
the Premium Institutional Class (collectively, the "Classes" and individually,
each a "Class"). The Service Class shares are available (as defined in the
respective Fund prospectus) to retail investors subject to a minimum initial
investment which may vary from Fund to Fund. There is no minimum initial
investment, however, for accounts establishing automatic purchase and redemption
arrangements on behalf of customer accounts maintained at Participating
Organizations. Service Class shares are offered and sold with a sales load, the
amount of which may vary from Fund to Fund, as may be approved by the Board of
Trustees of the Trust from time to time. The sales load for the Service Class
Shares may vary or be eliminated for certain classes of offerees as described in
the Fund's prospectus. Service Class shares may also be offered with fees for
distribution, servicing and marketing of such shares ("12b-1 Fees"), as well as
fees for shareholder servicing ("Service Organization Fees" and "Shareholder
Servicing Fees") of such shares pursuant to a Servicing Agreement and
Shareholder Servicing Agreement, respectively.
Institutional Class shares are available to customers of 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. Institutional Shares are offered and sold without a
sales load, and may impose 12b-1 Fees, Service Organization and Shareholder
Servicing Fees on a Fund by Fund basis as determined by the Board.
Premium Institutional Class shares will be issued to investors making a
minimum initial investment of [$25,000,000.] Premium Institutional shares are
offered without a sales load, and do not impose 12b-1 Fees, Service Organization
Fees or Shareholder Servicing Fees.
The Classes of shares issued by any Fund will be identical in all respects
except for Class designation, allocation of certain expenses directly related to
the distribution or service arrangement, or both, for a Class, and voting
rights--each Class votes separately with respect to issues affecting
<PAGE>
only that Class. Shares of all Classes will represent interests in the same
investment fund; therefore each Class is subject to the same investment
objectives, policies and limitations.
Class Expenses
Each Class of shares shall bear expenses, not including advisory or
custodial fees or other expenses related to the management of the Fund's assets,
that are directly attributable to the kind or degree of services rendered to
that Class ("Class Expenses"). Class Expenses, including the management fee or
the fee of other service providers, may be waived or reimbursed by the Funds'
investment adviser, underwriter or any other provider of services to the Funds
with respect to each Class of a Fund on a Class by Class basis.
Exchanges and Conversion Privileges
For a nominal charge, shareholders who have held all or part of their
shares in a Fund for at least seven days may exchange shares of one Fund for
shares of any of the other portfolios of the Trust and the HSBC Funds Trust
which are available for sale in their state. A shareholder who has paid a sales
load in connection with the purchase of shares of any of the Funds will be
subject only to that portion of the sales load of the Fund into which the
shareholder is exchanging which exceeds the sales load originally paid by the
shareholder.
- 2 -
<PAGE>
EXHIBIT 99.99
Other Exhibits (a)
Power of Attorney for William B. Blundin, Wolfe J. Frankl, William L.
Kufta, John P. Pfann, Robert A. Robinson, and Harald Paumgarten
<PAGE>
POWER OF ATTORNEY
We, the undersigned Trustees of HSBC Global Funds Trust, a business trust
organized under the laws of the Commonwealth of Massachusetts (the "Trust"), do
hereby constitute and appoint William B. Blundin, Ann E. Bergin, William J.
Tomko, Mark E. Nagle, Steven R. Howard, Martin R. Dean, Robert L. Tuch, and
Alaina V. Metz, and each of them individually, our true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable:
(i) to enable the Trust to comply with the Securities Act of
1933, as amended, and any rules, regulations, orders or other
requirements of the Securities and Exchange Commission thereunder,
in connection with the registration under such Securities Act of
1933 of shares of beneficial interest of the Trust to be offered by
the Trust,
(ii) to enable the Trust to comply with the Investment
Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the Securities and Exchange Commission
thereunder, in connection with the registration of the Trust under
the Investment Company Act of 1940, as amended, and
(iii) to enable the Trust to comply with state securities
laws and any rules, regulations, orders or other requirements of
state securities commissions, in connection with the registration
under state securities laws of the Trust and with the registration
under state securities laws of the shares of beneficial interest of
the Trust to be offered by the Trust,
including specifically, but without limitation of the foregoing, power and
authority to sign the name of the Trust in its behalf and to affix its seal, and
to sign the name of such Trustee in his behalf as such Trustee as indicated
below, to any amendment or supplement (including post-effective amendments) to
the registration statement or statements filed with the Securities and Exchange
Commission under such Securities Act of 1933 and such Investment Company Act of
1940, and to execute any instruments or documents filed or to be filed as a part
of or in connection with such registration statement or statements; and to
execute any instruments or documents filed or to be filed as part of or in
connection with compliance with state securities laws, including, but not
limited to, all state filings for any purpose, state filings in connection with
corporate or trust organization or amending corporate or trust documentation,
filings for purposes of state tax laws and filings in connection with blue sky
regulations; and the undersigned hereby ratifies and confirms all that said
attorneys and agents shall do or cause to be done by virtue hereof.
- 1 -
<PAGE>
IN WITNESS WHEREOF, the undersigned place their hands this 7th day March,
1996.
/s/ William B. Blundin
----------------------------
William B. Blundin
----------------------------
Wolfe J. Frankl
----------------------------
William L. Kufta
----------------------------
Harald Paumgarten
----------------------------
John P. Pfann
----------------------------
Robert A. Robinson
- 2 -
