<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 FUND SERVICES-Distributor
- -------------------------------------------------------------------------------
HSBC 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 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 Objective, Policies and Risk Factors."
The Fund's investment adviser is HSBC Asset Management Americas Inc. (the
"Adviser"), the North American investment affiliate of HSBC Holdings plc
(Hongkong and Shanghai Banking Corporation) and Marine Midland Bank. 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 HOLDINGS PLC OR ITS
AFFILIATES. IN ADDITION, SUCH SHARES ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY AND MAY
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPLE. THE NET
ASSET VALUE OF THE FUND WILL FLUCTUATE FROM TIME TO TIME.
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 30, 1998, containing additional detailed information
about the Fund, has been filed with the Securities and Exchange Commission and
is available, along with other materials, on the SEC Internet web site
(http:/www.sec.gov). The SAI is incorporated by reference into this Prospectus.
A copy is available without charge and can be obtained by writing the Trust at
the 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 30, 1998 as revised May 5, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Redemption of Shares......... 21
Exchange Privilege.............23......
Dividends, Distributions and
Taxes....................... 23
Account Services............. 25
Transfer Agency and Fund Ac-
counting
Services.................... 25
Custodian.................... 26
Counsel...................... 26
Performance Information...... 26
Shares of Beneficial Inter-
est......................... 27
</TABLE>
<TABLE>
<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.. 17
Determination of Net Asset
Value........................ 17
Purchase of Shares............ 17
</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 expenses for
the Fund for the fiscal year ended December 31, 1997, as adjusted for
estimated operating expenses and voluntary reductions of investment advisory,
administration, co-administration, shareholder servicer assistance and 12b-1
fees.
<TABLE>
<CAPTION>
SERVICE INSTITUTIONAL
SHARES SHARES
SHAREHOLDER TRANSACTION EXPENSES: ------- -------------
<S> <C> <C>
Maximum sales charge imposed on purchases of shares of
the Fund
(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)**................... 0.00% none%
OTHER EXPENSES:
Administrative Services Fee***......................... 0.10% 0.10%
Co-Administrative/Shareholder Services Fee****......... 0.00% 0.00%
Other Operating Expenses............................... 0.57% 0.52%
---- ----
Total Fund Operating Expenses (net of fees and expenses
not imposed)*****........................................ 1.17% 1.12%
==== ====
Total Fund Operating Expenses Before Non-Imposition of
Fees and Expenses........................................ 2.04% 1.60%
==== ====
</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 THE EXAMPLE SET FORTH BELOW
REFLECT THE NON-IMPOSITION OF CERTAIN FEES AND EXPENSES. THE ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. THE FOLLOWING EXAMPLE ASSUMES A 5%
ANNUAL RETURN; HOWEVER, THE 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
------- -------------
<S> <C> <C>
1 year............................................... $ 61 $ 11
3 years.............................................. $ 85 $ 36
5 years.............................................. $111 $ 62
10 years............................................. $185 $136
</TABLE>
- --------
* Reflects advisory fees not imposed as a result of a voluntary waiver by
the Adviser. If these fees had been imposed, the advisory fees for the
Service Class and Institutional Class shares would have been 0.90%.
** 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
Fund--Distribution Plan and Agreement."
*** Reflects administrative fees not imposed as a result of a voluntary
waiver by BISYS Fund Services of 0.05% for both share classes. See
"Management of the Fund--Administrator."
**** Reflects co-administrative fees of 0.03% for both share classes and
shareholder servicer assistance fees of 0.04% for Service Shares
voluntarily waived by the Adviser. The Institutional Shares are not
subject to shareholder servicer assistance fees. See "Management of the
Fund-- Shareholder Servicer Assistant, 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. The Fund may also pay fees to
Participating Organizations for handling recordkeeping and certain
administrative services for the customers who invest in the Fund through
accounts maintained at the Participating Organization. The payment will
not exceed 0.35% of the average daily net assets maintained by such
Participating Organization. See "Management of the Fund--Servicing
Agreements" for additional information.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following supplementary financial information for the period April 25,
1994 (commencement of operations) to December 31, 1994 for the Service Class
and March 1, 1995 (commencement of operations) to December 31, 1995 for the
Institutional Class, and the three years (two years in the case of the
Institutional Shares) ended December 31, 1997 has been audited by Ernst &
Young LLP, whose report thereon appears in the Funds' 1997 Annual Report to
Shareholders. This information should be read in conjunction with the
financial statements and notes thereto.
Selected data for a share outstanding throughout each period:
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SERVICE CLASS SHARES INSTITUTIONAL CLASS SHARES
-------------------------------------------------------- ------------------------------------------
FOR THE FOR THE FOR THE FOR THE PERIOD FOR THE FOR THE FOR THE PERIOD
YEAR ENDED YEAR ENDED YEAR ENDED APRIL 25, 1994(A) YEAR ENDED YEAR ENDED MARCH 1, 1995(A)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31 DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1997 1996 1995 1994 1997 1996 1995
------------ ------------ ------------ ----------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, be-
ginning of period... $ 10.60 $ 9.97 $9.55 $ 10.00 $ 10.61 $ 9.98 $ 8.81
------- ------- ----- ------- ------- ------- -------
Investment Opera-
tions:
- -----------------
Net investment
loss**............. 0.06 (0.07) (0.07) -- 0.04 (0.01) (0.03)
Net realized and
unrealized gain
(loss) from invest-
ments.............. (0.28) 0.65 0.49 (0.43) (0.27) 0.64 1.20
------- ------- ----- ------- ------- ------- -------
Total from investment
operations.......... (0.22) 0.63 0.42 (0.43) (0.23) 0.63 1.17
Distributions:
- --------------
From net investment
income............. (0.03) -- -- -- (0.02) -- --
From excess of net
realized losses on
investments........ -- -- -- (0.02) (0.01) -- --
------- ------- ----- ------- ------- ------- -------
Total distributions.. (0.03) -- -- (0.02) (0.03) -- --
------- ------- ----- ------- ------- ------- -------
Net asset value, end
of period........... $ 10.35 $ 10.60 $9.97 $ 9.55 $ 10.35 $ 10.61 $ 9.98
======= ======= ===== ======= ======= ======= =======
Total return(b)...... (2.06)% 6.32% 4.40% (4.30)%(d) (2.15)% 6.31% 13.28%(d)
Ratios/Supplemental
Data:
- -------------------
Net assets at end of
period (000)....... $ 309 $ 409 $ 658 $16,819 $67,458 $21,100 $15,253
Ratio of expenses to
average net
assets (with fee
waivers)........... 1.17 % 2.10% 1.98 % 2.16%(c) 1.12% 2.04 % 2.62%(c)
Ratio of net invest-
ment loss to
average net assets
(with fee waivers). 0.54 % (0.19)% (1.01)% (0.04)%(c) 0.35 % (0.10)% (0.34)%(c)
Ratio of expenses
(without fee
waivers) to average
net assets*........ 2.19 % 2.94% 3.66 % 2.50%(c) 1.91% 2.89 % 3.12%(c)
Ratio of net
investment loss
(without fee
waivers) to average
net assets*........ (0.48)% (1.03)% (2.69)% (0.39)%(c) (0.44)% (0.95)% (0.84)%(c)
Portfolio turnover
rate............... 112.54% 77.91% 90.31 % 29.37%(d) 112.54% 77.91 % 90.31%(d)
Average commission
rate paid(e)....... $0.0321 $0.0006 N/A N/A $0.0321 $0.0006 N/A
</TABLE>
- --------
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and expense reimbursements had not
occurred, the ratios would have been as indicated.
** Based on average shares outstanding.
(a) Commencement of operations.
(b) Excludes sales charge.
(c) Annualized.
(d) Not annualized.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions for the year ended December 31, 1997, divided by total number
of portfolio shares purchased and sold for which commissions were charged.
Disclosure is not required for periods prior to December 31, 1996.
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.
The International Equity 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 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
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
5
<PAGE>
of foreign stocks for a U.S. investor will be diminished. By contrast, in a
period when the U.S. dollar generally declines, the value of foreign
securities will be enhanced. Further, brokerage costs in purchasing and
selling securities in foreign securities markets generally are higher than
such costs in comparable transactions in domestic securities markets, and
foreign custodial costs relating to the Fund's portfolio securities are higher
than domestic custodial costs.
Investment in emerging market countries presents risks in greater degree
than, and in addition to, those presented by investment in foreign issuers in
general. A number of emerging market countries restrict, to varying degrees,
foreign investment in stocks. Repatriation of investment income, capital, and
the proceeds of sales of foreign investors may require governmental
registration and/or approval in some emerging market countries. A number of
the currencies of developing countries have experienced significant declines
against the U.S. dollar in recent years, and devaluation may occur subsequent
to investments in these currencies by the Fund. Inflation and rapid
fluctuations in inflation rates have had and may continue to have a negative
effect on the economies and securities markets of certain emerging market
countries.
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. The Fund may not invest more than 5% of its total assets in the
securities of one investment company.
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
6
<PAGE>
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.
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.
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
liquid 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
7
<PAGE>
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
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 liquid 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 exchanges 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 or liquid 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
8
<PAGE>
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.
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
9
<PAGE>
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, 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
10
<PAGE>
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.
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. Frequency of portfolio turnover will not be a limiting factor if the
Fund considers it advantageous to purchase or sell securities. For fiscal
years ended December 31, 1997 and December 31, 1996, the International Fund's
portfolio turnover rate was 112.54% and 77.91%, respectively.
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 and (b) 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. The Fund will not invest more
than 10% of its net assets in Rule 144A securities.
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; and
(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 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.
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 140
Broadway, New York, New York 10005. At December 31, 1997, the Adviser managed
over $3.9 billion of assets of individuals, pension plans, corporations and
institutions.
Mr. Paul Guidone, Chief Investment Officer of HSBC Asset Management Americas
Inc. oversees the Fund's investments. Mr. Guidone does not manage the
portfolio but exercises general supervisory authority over all portfolio
managers. Mr. Guidone has been with the Adviser since 1994.
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, 1997 and may be obtained, without charge, from the Trust.
SUB-ADVISERS
At a Board of Trustees Meeting held on May 5, 1998 the Board of Trustees
approved the appointment of Delaware International Advisers Ltd. ("Delaware
International") as a new Sub-Adviser for the International Equity Fund to
replace the Fund's current Sub-Advisers. This appointment is subject to and is
scheduled to take effect only after shareholders approve Delaware
International as Sub-Adviser at a Special Meeting of Shareholders.
Delaware International has its principal business address at 80 Cheapside,
London, England EC2V 6EE. Delaware International provides investment services
primarily to institutional accounts and mutual funds in the global and
international equity and fixed income markets. Delaware International is a
subsidiary of Lincoln National Corporation and as of the date of this
Prospectus had assets under management of approximately $9.5 billion, with
over $5 billion in international/global equity.
Delaware International's approach in selecting investments is primarily
oriented to individual stock selection and is value driven. In selecting
stocks for the International Fund, Delaware International will identify those
stocks that it believes will provide a high total return over a market cycle,
taking into consideration movements in the price of the individual security
and the impact of currency fluctuation on a United States domiciled, dollar-
based investor. Delaware International conducts fundamental research on a
global basis in order to identify securities that, in Delaware International's
opinion, have the potential for long-term total return. This research effort
generally centers on a value-oriented dividend discount methodology with
respect to individual securities and market analysis that isolates value
across country boundaries. The approach focuses on future anticipated
dividends and discounts the value of those dividends back to what they would
be worth if they were being received today. In addition, the analysis
typically includes a comparison of the values and current market
12
<PAGE>
prices of different possible investments. Delaware International's general
management strategy emphasizes long-term holding of securities, although
securities may be sold in Delaware International's discretion without regard
to the length of time they have been held.
The Adviser currently retains HSBC Asset Management Europe Ltd., HSBC Asset
Management Hong Kong Ltd., HSBC Asset Management (Japan) KK, HSBC Asset
Management Singapore and HSBC Asset Management Australia Limited to act as
sub-advisers (the "Sub-Advisers") to the Fund. HSBC Asset Management Europe
Ltd., HSBC Asset Management Hong Kong Ltd., HSBC Asset Management (Japan) KK,
HSBC Asset Management Singapore and HSBC Asset Management Australia Limited
along with the Adviser are all investment advisory affiliates of HSBC Holdings
plc (Hongkong and Shanghai Banking Corporation).
HSBC Asset Management Europe Ltd. is the European investment arm of HSBC
Asset Management Americas Inc. and manages equity and balanced portfolios with
an emphasis on the markets of the United Kingdom and other major European
securities markets. HSBC Asset Management Europe Ltd. also manages global
fixed income portfolios. HSBC Asset Management Europe Ltd. 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 Asset
Management Europe Ltd. amount to approximately U.S.$25.8 billion. Its
principal offices are located at 6 Bevies Marks, London, EC3A 7QP, England.
HSBC Asset Management Hong Kong Ltd. is the Asia Pacific investment arm of
HSBC Asset Management Americas Inc. HSBC Asset Management Hong Kong Ltd.
manages approximately U.S.$11.5 billion of equity portfolios dedicated to the
Pacific Rim, Pacific Basin and the emerging markets of Southeast Asia. HSBC
Asset Management Hong Kong Ltd. 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 Asset Management (Japan) KK provides a full range of investment
services to clients investing in Japanese securities and Japanese investors
investing domestically or internationally. HSBC Asset Management (Japan) KK
manages approximately U.S.$151.2 million in assets. HSBC Asset Management
(Japan) KK has its principal office at 6/F No. 2 Tomoecho Annex. 3-8-27
Toranomon Minato-ku, Tokyo, Japan.
HSBC Asset Management 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 Asset
Management Singapore manages approximately U.S. $414.8 million in assets. HSBC
Asset Management 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 Asset Management Australia Limited 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 Asset Management
Australia Limited manages U.S.$3.7 billion in assets. HSBC Asset Management
Australia Limited 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.
13
<PAGE>
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 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 the Adviser
from continuing to perform such services for the Fund.
If the Adviser were prohibited from performing any of its services for the
Trust, it is expected that the Board of Trustees would recommend to the Fund's
shareholders that they approve new agreements with another entity or entities
qualified to perform such services and selected by the Board.
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.
SHAREHOLDER SERVICER ASSISTANT
The Trust retains the Adviser to act as Shareholder Servicer Assistant of
the Fund in accordance with the terms of the Shareholder Servicer Assistance
Agreement. Pursuant to the Shareholder Servicer Assistance Agreement, the
Adviser shall be responsible for performing Shareholder Servicer
administrative support services, which may, but is not specifically required
to, include any or all of the following: (i) assist personnel who (a) hand out
prospectuses and Fund applications, (b) assist customers with filling out Fund
applications and (c) effect purchases and redemptions; (ii) assist with
preparation of and review Fund written communications, including marketing
material, semi-annual and Annual Reports and prospectus updates; (iii)
educate, describe the Fund to, and answer questions from Shareholder Servicers
to enhance understanding of the Fund and its investment objectives; and (iv)
generally assist the activities of the Shareholder Servicers.
The Adviser shall provide all personnel and facilities necessary in order
for it to perform its functions under the Shareholder Servicer Assistance
Agreement.
For its services as Shareholder Servicer Assistant, the Adviser is paid an
annual fee equal to 0.04% of average daily Service Class net assets.
ADMINISTRATOR
The Trust retains BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services to act as the Administrator of the Fund in accordance with the terms
of the Management and Administration Agreement. Pursuant to the Management and
Administration Agreement, 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 the Adviser
pursuant to the Advisory Contract.
14
<PAGE>
The Trust also retains the Adviser as Co-Administrator. Pursuant to the Co-
Administration Services Contract, the Adviser (i) manages the Fund's
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, the Adviser 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 Agreements") with certain
banks, financial institutions and corporations (the "Participating
Organizations") so that each Participating Organization handles recordkeeping
and provides certain administrative services for its customers who invest in
the Funds through accounts maintained at that Participating Organization. In
such cases the Participating Organization or one of its nominees will be the
shareholder of record as nominee for its customers and will maintain
subaccounts for its customers. In addition, the Participating Organization
will credit cash distributions to each customer account, process purchase and
redemption requests, mail statements of all transactions with respect to each
customer and, if required by law, distribute the Trust's shareholder reports
and proxy statements. However, any customer of a Participating Organization
may become the shareholder of record upon written request to its Participating
Organization or the Fund's Transfer Agent. Each Participating Organization
will receive monthly payments which in some cases may be based upon expenses
that the Participating Organization has incurred in the performance of its
services under the Servicing Agreement. The payments will not exceed, on an
annualized basis, an amount equal to 0.35% of the average daily value during
the month of Fund shares in the subaccount of which the Participating
Organization is record owner as nominee for its customers. Such payments will
be separately negotiated with each Participating Organization and will vary
depending upon such factors as the services provided and the costs incurred by
each Participating Organization. The payments may be more or less than the
fees payable to BISYS Fund Services for the services it provides pursuant to
the Transfer Agency Agreement for similar services.
The payments will be made by the Fund to the Participating Organizations
pursuant to the Servicing Agreements. BISYS Fund Services 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 Fund) 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
related Shareholder Servicing Agreement (the "Plan") for the Service Class
shares pursuant to Rule 12b-1 of the 1940 Act, 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
15
<PAGE>
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 asset 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 the Adviser 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 Fund Services
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 the
Adviser at an annual rate not to exceed 0.45% of the Fund's average daily net
assets. The Adviser and the Sub-Advisers may agree in advance not to impose a
portion of their fees in the future.
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).
YEAR 2000 AND EUROPEAN MONETARY UNION RISKS
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Fund or its service providers and counter parties
do not properly process and calculate date-related information and data from
and after January 1, 2000. The Fund is in the process of assessing and
formulating responses to these potential problems with the Adviser and all
other major service providers and counter parties. There can be no assurance
that the Fund's actions will be sufficient to avoid any adverse impact.
The Fund is also taking steps to ensure that there will be no accommodations
necessary for the Fund to prepare for the upcoming European Monetary Union
("EMU") conversion. The EMU is scheduled to begin on January 1, 1999 and will
ultimately result in the replacement of certain European currencies with the
"Euro." At this time, there can be no assurance that these steps will be
sufficient to avoid adverse impact on the Fund.
16
<PAGE>
TRANSACTIONS WITH AFFILIATES
Broker-dealers which are affiliates of the Adviser 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 the Adviser 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 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.
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. While portfolio
securities that are primarily traded on foreign exchanges are generally valued
at the closing values of such securities on their respective exchanges
preceding the calculation of a Fund's net asset value, when an occurrence
subsequent to the time a value was so established is likely to have changed
such value, the securities will be valued at fair value as determined by the
Board of Trustees. 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 liabilities
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.
17
<PAGE>
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 AS A % OF
OFFERING NET ASSET OFFERING
PRICE VALUE PRICE
PER SHARE PER 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 the Internal Revenue Code
("Charitable Organizations") or for charitable remainder trusts or life income
pools established for the benefit of Charitable Organizations, (6) by
registered representatives of selling brokers and members of their immediate
families, (7) by individuals who have terminated their Employee Benefit Trust
("EBT") Plan or have retired and are purchasing shares in the Fund with the
proceeds of their benefits checks (the EBT Plan must currently own shares of
the Fund at the time of the individual's purchase), (8) by corporations, their
officers or directors, partnerships, and their partners which are customers or
prospective customers of Marine Midland Bank when authorized by an officer of
Marine Midland Bank, and (9) by individuals who, as determined by an officer
of the Fund in accordance with guidelines established by the Fund's Trustees,
have purchased shares under special circumstances not involving sales expenses
to dealers or the Distributor. Eligible investors should contact the Adviser
for details.
The sales load does not apply in any instance to reinvested dividends.
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
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Distributor, at its expense, may also provide additional compensation to
dealers in connection with sales of shares of the Fund. Such compensation may
include financial assistance to dealers in connection with conferences, sales
or training programs for their employees, seminars for the public, advertising
campaigns regarding one or more Funds of the Trust, and/or other dealer-
sponsored special events. In some instances, this compensation may be made
available only to certain dealers whose representatives have sold a
significant number of such shares. Compensation will include payment for
travel expenses, including lodging, incurred in connection with trips taken by
invited registered representatives and members of their registered
representatives and members of their families to locations within or outside
of the United States for meetings or seminars of a business nature.
Compensation may also include the following types of non-cash compensation
offered through sales contests: (1) vacation trips, including the provision of
travel arrangements and lodging at luxury resorts at an exotic location, (2)
tickets for entertainment events (such as concerts, cruises and sporting
events) and (3) merchandise (such as clothing, trophies, clocks and pens).
Dealers may not use sales of the Fund's shares to qualify for the compensation
to the extent such may be prohibited by the laws of any state or any self-
regulatory agency, such as the National Association of Securities Dealers,
Inc. None of the aforementioned compensation is paid for by the Fund or its
shareholders.
Stock certificates will not be issued with respect to the shares. The
Transfer Agent shall keep accounts upon the book of the Trust for
recordholders of such shares.
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.
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.
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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 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.
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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. A redemption of shares is a taxable transaction
on which gain or loss may be recognized for tax purposes. Redemption proceeds
for shares purchased by check will be made available immediately upon
clearance of the purchase check, which may take up to 15 days after those
shares have been credited to the shareholder's account.
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.
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. However,
this option may be suspended for a period of 30 days following a telephonic
address change; or
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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.
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
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<PAGE>
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 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 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. Exchanges may be made by telephonic request to
the Transfer Agent at (800) 634-2536. For a discussion of risks associated
with unauthorized telephone transactions, see "Redemption by Expedited
Redemption Service."
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, 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 a 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.
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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. Distributions from net
realized long-term securities gains of the Fund generally are subject to
Federal income tax as long-term capital gains if you are a citizen or resident
of the United States. The Code provides that an individual generally will be
taxed on his or her net capital gain at a maximum rate of 28% with respect to
capital gain from securities held for more than one year but not more than 18
months and at a maximum rate of 20% with respect to capital gain from
securities held for more than 18 months. Under the Code, interest on
indebtedness incurred or continued to purchase or carry Fund shares which is
deemed to relate to exempt-interest dividends is not deductible.
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 a 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 shareholders. 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
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<PAGE>
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.
If you elect to receive distributions in cash and checks (1) are returned
and marked as "undeliverable" or (2) remain uncashed for six months, your cash
election will be changed automatically and your future dividend and capital
gains distributions will be reinvested in the Fund at the per share net asset
value determined as of the date of payment of the distribution. In addition,
any undeliverable checks or checks that remain uncashed for six months will be
canceled and will be reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.
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 Fund Services 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 AGENCY AND FUND ACCOUNTING SERVICES
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
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<PAGE>
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. BISYS Fund Services also provides certain
accounting services for the Fund pursuant to the Fund Accounting Agreement.
BISYS' fee for performing accounting services will be paid under the
Management and Administration Agreement.
CUSTODIAN
The Bank of New York acts as the Fund's Custodian. Pursuant to the Custodian
Agreement, the Custodian is responsible for holding the Fund's cash and
portfolio securities. The Custodian may enter into sub-custodian agreements
with certain qualified banks.
Rules adopted under the 1940 Act permit investment companies to maintain
their securities and cash in the custody of certain eligible foreign banks and
depositories. The International Equity Fund's portfolio of non-United States
securities are held by sub-custodians which are approved by the Trustees or a
foreign custody manager appointed by the Trustees in accordance with these
rules. The Board has appointed the Custodian as its foreign custody manager.
The determination to place assets with a particular foreign sub-custodian is
made pursuant to these rules which require a consideration of a number of
factors including, but not limited to, the reliability and financial stability
of the sub-custodian; the sub-custodian's practices, procedures and internal
controls; and the reputation and standing of the sub-custodian in its national
market.
COUNSEL
Paul, Weiss, Rifkind, Wharton & Garrison serves as counsel for the Trust and
from time to time provides advice to the Adviser.
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 servicer assistance fee to which Service Class
shareholders will be subject.
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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 a 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 is
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. 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.
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HSBC Mutual Funds Trust
HSBC Asset Management [LOGO]
HSBCsm Mutual Funds Trust
3435 Stelzer Road
Columbus, Ohio 43219
Information:
(800) 634-2536
Investment Adviser and Co-Administrator
HSBC Asset Management Americas Inc.
140 Broadway
New York, New York 10005
Distributor, Administrator, Transfer Agent and
Fund Accounting Agent
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
Custodian
The Bank of New York
90 Washington Street
New York, New York 10286
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
Legal Counsel
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
No dealer, salesman, or other person has been authorized to give any information
or to make any representations, other than those contained in this 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 30, 1998
Fund:
International Equity Fund
Managed by:
HSBC Asset Management Americas Inc.
Sponsored and Distributed by:
BISYS Fund Services
HSBC3P0498
