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SUBJECT TO COMPLETION: DATED _______________, 2000
BNY
HAMILTON
[GRAPHIC]
PROSPECTUS
BNY HAMILTON U.S. BOND MARKET INDEX FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or said whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a crime.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
___________________________, 2000
BNY
HAMILTON
FUNDS
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ABOUT THE FUND
4 BNY Hamilton U.S. Bond Market Index Fund
ACCOUNT POLICIES
7 Daily NAV Calculation
7 Distribution (12b-1) Plan
8 Opening an Account/Purchasing Shares
9 Making Exchanges/Redeeming Shares
10 Distributions and Tax Considerations
11 Investment Adviser
11 Portfolio Managers
11 Past Performance of Lehman Brothers Aggregate Bond Index Fund
For More Information
Back Cover
2
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ABOUT THE FUND
AN INTRODUCTION TO BNY HAMILTON FUNDS
The BNY Hamilton Funds aim for high investment returns with consistent
performance over many market cycles.
RISKS OF MUTUAL FUND INVESTING
Investments in mutual funds are not bank deposits, nor are they guaranteed by
the Federal Deposit Insurance Corporation or any other government agency. It is
important to read all the disclosure information provided and to understand that
you could lose money by investing in the Fund.
3
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BNY HAMILTON U.S. BOND MARKET INDEX FUND
CUSIP Numbers:
Institutional Shares _____________ [GRAPHIC]
Investor Shares ________________
INVESTMENT OBJECTIVE
The Fund seeks to track the total rate of return of the Lehman Brothers
Aggregate Bond Index (the "Lehman Bond Index"). The Lehman Bond Index is a
broad-based, unmanaged index that covers the U.S. investment grade fixed-rate
bond market and is comprised of investment-grade government, corporate and
mortgage- and asset-backed bonds that are denominated in U.S. dollars, all with
maturities longer than one year. Investment-grade securities are rated in the
four highest rating categories by a nationally-recognized statistical rating
organization ("rating agency"). Bonds are represented in the Lehman Bond Index
in proportion to their market value. Lehman Brothers is not affiliated with this
Fund, and it does not sell or endorse the Fund, nor does it guarantee the
performance of the Fund or the Lehman Bond Index.
MANAGEMENT STRATEGY
The Fund pursues its objective by employing a passive management strategy
designed to match the performance of the Lehman Bond Index as closely as
possible before the deduction of Fund expenses. The Fund will be substantially
invested in bonds that comprise the Lehman Bond Index, and will invest at least
80% of its assets in bonds or other financial instruments in, or correlated
with, the Lehman Bond Index.
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MAIN INVESTMENT RISKS
Because the Fund uses an indexing strategy, it does not attempt to manage market
volatility, use defensive strategies or reduce the effects of any long-term
periods of poor performance. You may, therefore, lose money.
The Fund's investment is also subject to interest rate and credit risks.
Interest rate risk is the risk that when interest rates rise, the value of debt
instruments generally falls. In general, changes in interest rates cause greater
fluctuations in the market value of longer-term securities than of shorter-term
securities. Credit risk is the risk that the issuer will be unable to pay the
interest or principal when due. The degree of credit risk depends on both the
financial condition of the issuer and the terms of the obligation.
[Many debt securities are subject to prepayment risk, i.e., the risk that an
issuer of a security can repay principal prior to the security's maturity. Such
securities generally offer less potential for gains during a declining interest
rate environment and similar or greater potential for loss in a rising interest
rate environment.]
The Adviser may engage in "market-timing", i.e., switching money into
investments when they expect prices to rise, and taking money out when they
expect prices to fall. Such a strategy may not always work as planned, in which
case the Funds' performance would suffer.
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PAST PERFORMANCE
Because the Fund commenced operations on the date of this Prospectus, it has no
prior history to report.
FEES AND EXPENSES
The table below outlines the fees and expenses you could expect to pay as an
investor in the Fund. "Annual Operating Expenses" are deducted from Fund assets,
and are reflected in the total return. Since the Fund is "no-load," shareholders
pay no fees or out-of-pocket expenses.
Fee table (% of average net assets)
Institutional Investor
Shares Shares
Shareholder Fees _____ _____
Annual Operating Expenses
Management fee _____ _____
Distribution (12b-1) fees None _____
Other expenses (a) _____ _____
Total annual operating expenses _____ _____
- -----------------------------
(a) This is an estimate because the Fund has no prior operating history.
The table below shows the anticipated expenses on a $10,000 investment in the
Fund over the indicated periods. All mutual Funds present this information so
that you can make comparisons. Your actual costs could be higher or lower than
this example.
Expenses on a $10,000 investment* ($)
1 Year 3 Years
------ -------
Institutional Shares ______ ______
Investor Shares ______ ______
* Assumptions: $10,000 original investment, all dividends and distributions
reinvested, 5% annual returns and no changes in the Fund's operating expenses
from those indicated for Year 1.
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ACCOUNT POLICIES
The Fund in this prospectus is offered in two share classes -- Institutional and
Investor. Institutional Shares do not have 12b-1 fees and have generally lower
operating expenses, which improves investment performance. Institutional Shares
are available only to direct investments over $100,000 or to investors who have
specific asset management relationships with the Adviser.
All other investors may purchase Investor Shares. The information below on Daily
NAV Calculation and Distributions and Tax Considerations applies to both share
classes. The other account policies apply to Investor Shares only. If you want
to purchase, exchange or redeem Institutional Shares, contact your Bank of New
York representative.
DAILY NAV CALCULATION
The Fund calculates its net asset value per share (NAV) at the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. eastern time) each
day that the exchange is open. When market prices are not available, the Fund
will use fair value prices as determined by the board of directors.
Purchase orders received before the regular close of the New York Stock Exchange
will be executed at the NAV calculated at that day's close.
DISTRIBUTION (12B-1) PLAN
The directors have adopted a 12b-1 distribution plan with respect to the
Investor Shares of the Fund in this prospectus. The plan permits the Fund to
reimburse the Distributor for distribution expenses in an amount up to 0.25% of
the annual average daily net assets of Investor Shares. These fees are paid out
of Fund assets on an ongoing basis, and over time, they could cost you more than
paying other types of sales charges.
OPENING AN ACCOUNT/PURCHASING SHARES
Minimum investment requirements
Minimum initial Minimum continuing
Account Type investment investments Minimum balance
- --------------------------------------------------------------------------------
IRA $250 $25 N/A
Regular Account $2,000* $100* $500
Automatic Investment
Program $500 $50 N/A
* Employees and retirees of The Bank of the New York and its affiliates, and
employees of the administrator, distributor and their affiliates may open a
regular account with $100 and make continuing investments of $25. Employees and
retirees of The Bank of New York and its affiliates may also invest through
payroll deduction. Call 800-4BNY-FND (800-426-9363) for details.
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OPENING AN ACCOUNT/PURCHASING SHARES
Open an account Add to your investment
Mail
- --------------------------------------------------------------------------------
Send completed new account Send a check payable directly to the
application and a check payable Fund to:
directly to the Fund to:
BNY Hamilton Funds Inc.
BNY Hamilton Funds P.O. Box 806
P.O. Box 163310 Newark, NJ 07101-0806
Columbus, OH 43216-3310
If possible, include a tear-off
For all enrollment forms, call payment stub from one of your
800-426-9363. transaction confirmation statements.
Wire
- --------------------------------------------------------------------------------
The Fund does not charge a fee for
wire transactions, but your bank may.
Mail your completed new account
application to the Ohio address
above. Call the transfer agent at
800-426-9363 for an account number.
Instruct your bank to wire funds to a Instruct your bank to wire funds to:
new account at:
The Bank of New York The Bank of New York
New York, NY 10286 New York, NY 10286
ABA: 021000018 ABA: 021000018
BNY Hamilton Funds BNY Hamilton Funds
DDA 8900275847 DDA 8900275847
Attn: BNY Hamilton S & P 500 Index Attn: BNY Hamilton S & P 500 Index
Fund Fund
Ref: [your name, account number and Ref: [your name, account number and
taxpayer ID] taxpayer ID]
Dealer
- --------------------------------------------------------------------------------
Note: a broker-dealer may charge a fee.
Contact your broker-dealer. Contact your broker-dealer.
Automatic Investment Program
- --------------------------------------------------------------------------------
Automatic investments are withdrawn
from your bank Account on a monthly
or biweekly basis.
Make an initial investment of at Once you specify a dollar amount
least $500 by whatever method you (minimum $50), investments are
choose. Be sure to fill in the automatic.
information required in section 7 of
your new account application. You can modify or terminate this
service at any time by mailing a
Your bank must be a member of the ACH notice to:
(Automated Clearing House) system.
BNY Hamilton Funds
P.O. Box 163310
Columbus, OH 43216-3310
Purchases by personal checks or money orders should be in U.S. dollars and
payable to the Fund. Third-party checks are not accepted. In addition, you may
not redeem shares purchased by check until your original purchase clears, which
may take up to ten business days.
Wire transactions. The Adviser does not charge a fee for wire transfers from
your bank to the Fund. However, your bank may charge a service fee for wiring
funds.
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MAKING EXCHANGES/REDEEMING SHARES
To exchange shares between mutual To redeem shares
funds (minimum $500)
Phone
- --------------------------------------------------------------------------------
Call 800-426-9363. Call 800-426-9363.
The proceeds can be wired to your
bank account two business days after
your redemption request, or a check
can be mailed to you at the address
of record on the following business
day.
Mail
- --------------------------------------------------------------------------------
Your instructions should include: Your instructions should include:
o your account number o your account number
o names of the Funds and number of o names of the Funds and number of
shares or dollar amount you want shares or dollar amount you want
to exchange. to exchange.
A signature guarantee is required
whenever:
o you redeem more than $50,000
o you want to send the proceeds to a
different address
o you have changed your account
address within the last 60 days
Dealer
- --------------------------------------------------------------------------------
Contact your broker-dealer. Contact your broker-dealer.
Systematic Withdrawal
- --------------------------------------------------------------------------------
Requires $10,000 minimum fund balance
You can choose from several options
for monthly, quarterly, semi-annual
or annual withdrawals:
o declining balance
o fixed dollar amount
o fixed share quantity
o fixed percentage of your account
Call 800-426-9363 for details.
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MAKING EXCHANGES/ REDEEMING SHARES
As with purchase orders, redemption requests received before the regular close
of the New York Stock Exchange will be executed at the offering price calculated
at that day's close.
Minimum account balances. If your account balance falls below $500 due to
redemptions, rather than market movements, the Fund may give you 60 days to
bring the balance back up. If you do not increase your balance, the Fund may
close your account and send you the proceeds.
Exchange minimums. You may exchange shares of the same class between funds. From
the perspective of tax liability, an exchange is the same as a redemption from
one fund and purchase of another, meaning that you are likely to generate a
capital gain or loss when you make an exchange. Shares to be exchanged must have
a value of at least $500. If you will be investing in a new fund, you must also
exchange enough shares to meet the minimum balance requirement.
Signature guarantees. You can get a signature guarantee from many brokers and
from some banks, savings institutions and credit unions. A notary public cannot
provide a signature guarantee.
DISTRIBUTIONS AND TAX CONSIDERATIONS
The Fund pays monthly dividends, if any, and an annual capital gains
distribution, if any, approximately 10 calendar days before the end of the month
or the year, as the case may be. Distributions are automatically paid in the
form of additional Fund shares.
Notify the transfer agent in writing to:
o choose to receive dividends or distributions (or both) in cash
o change the way you currently receive distributions
Your taxable income is the same regardless of which option you choose.
Type of Distribution Federal Tax Status
Dividends from net investment income ordinary income
Short-term capital gains ordinary income
Long-term capital gains capital gain
Tax-free dividends tax-free
Distributions from the Fund are expected to be primarily ordinary income and
capital gains.
The Fund issues detailed annual tax information statements for each investor,
recording all distributions and redemptions for the preceding year. Any investor
who does not provide a valid Social Security or taxpayer identification number
to the Fund may be subject to federal backup withholding tax.
Whenever you redeem or exchange shares, you are likely to generate a capital
gain or loss, which will be short- or long-term depending on how long you held
the shares.
If you invest in the Fund shortly before an expected taxable dividend or capital
gain distribution, you may end up getting part of your investment back right
away in the form of taxable income.
You should consult your tax adviser about your own particular tax situation.
10
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INVESTMENT ADVISER
The Bank of New York, located at One Wall Street, New York, NY 10286 is the
Adviser of the Fund. Founded by Alexander Hamilton in 1784, it is one of the
largest commercial banks in the United States, with over $66.6 billion in
assets. The Bank of New York began offering investment services in the 1830s and
today manages more than $48.4 billion in investments for institutions and
individuals.
Adviser compensation. The Adviser is responsible for all business activities and
investment decisions for the Fund. In return for these services, the Fund pays
the Adviser an annual fee of ___% of the Fund's average daily net assets.
Fund Fee
as a % of
average daily
net assets
BNY Hamilton U.S. Bond
Market Index Fund _____
PORTFOLIO MANAGERS
The day-to-day management of the Fund is handled by a team of investment
professionals under the leadership of the portfolio managers, who are described
below.
BNY Hamilton U.S. Bond Market Index Fund
William D. Baird is a vice president of the adviser specializing in government,
mortgage backed and asset backed security analysis. He joined the adviser in
1993 and has been managing assets since 1981. Mr. Baird has also managed the BNY
Hamilton Intermediate Government Fund since 1997.
PAST PERFORMANCE OF LEHMAN BROTHERS AGGREGATE BOND INDEX
1 Year 3 Year 5 Year 10 Year
------ ------ ------ -------
-0.83 5.74 7.73 7.70
* Returns are annualized and do not incorporate any fees which would be charged
by the Fund.
11
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NOTES
_____ Notes
12
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BNY
HAMILTON
FUNDS
13
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FOR MORE INFORMATION
Statement of Additional Information (SAI)
The SAI contains more detailed disclosure on features and policies of the Fund.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into this document (that is, it is legally a part of
this prospectus).
You can obtain the SAI free of charge, make inquiries or request other
information about the Fund by contacting your dealer or:
BNY Hamilton Funds
P.O. Box 163310
Columbus, OH 43216-3310
800-426-9363 (800-4BNY-FND)
Information is also available from the SEC:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
www.sec.gov
For information on the operation of the SEC's public reference room, where
documents may be viewed and copied, call:
1-800-SEC-0330
Note: The SEC requires a duplicating fee for paper copies.
SEC File Number: 811-6654
BNY
HAMILTON
FUNDS
BNY-0090 4/99 [Need inventory number assigned]
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SUBJECT TO COMPLETION: DATED _______, 2000
BNY
HAMILTON
[GRAPHIC]
PROSPECTUS
BNY HAMILTON S&P 500 INDEX FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or said whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a crime.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
___________________________, 2000
BNY
HAMILTON
FUNDS
<PAGE>
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ABOUT THE FUND
4 BNY Hamilton S&P 500 Index Fund
ACCOUNT POLICIES
7 Daily NAV Calculation
7 Distribution (12b-1) Plan
8 Opening an Account/Purchasing Shares
9 Exchanging and Redeeming Shares
10 Distributions and Tax Considerations
11 Investment Adviser
11 Portfolio Managers
11 Year 2000 (Y2K) Compliance
For More Information
Back Cover
2
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DRAFT
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ABOUT THE FUND
AN INTRODUCTION TO BNY HAMILTON FUNDS
The BNY Hamilton Funds aim for high investment returns with consistent
performance over many market cycles.
RISKS OF MUTUAL FUND INVESTING
Investments in mutual funds are not bank deposits, nor are they guaranteed by
the Federal Deposit Insurance Corporation or any other government agency. It is
important to read all the disclosure information provided and to understand that
you could lose money by investing in the Fund.
3
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BNY HAMILTON S&P 500 INDEX FUND
CUSIP Numbers:
Institutional Shares _____________ [GRAPHIC]
Investor Shares ________________
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of the Standard & Poor's 500 Composite
Stock Index (the "S&P 500"). The S&P 500 is a market-weighted index composed of
approximately 500 common stocks chosen by Standard & Poor's based on a number of
factors including industry group representation, market value, economic sector
and operating/financial condition.
MANAGEMENT STRATEGY
The Fund pursues its objective by employing a passive management strategy
designed to track the performance of the S&P 500. The Fund invests in stocks
that comprise the S&P 500. The Adviser uses a full replication approach, in
which all stocks in the S&P 500 are held by the Fund in proportion to their
index weights.
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MAIN INVESTMENT RISKS
The value of your investment in the Fund generally will fluctuate with stock
market movements. As a group, the large-capitalization stocks included in the
S&P 500 could fall out of favor with the market, particularly in comparison with
small- or medium-capitalization stocks.
If stocks in the portfolio reduce or eliminate their dividend payments, the Fund
will generate less income.
5
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PAST PERFORMANCE
Because the Fund commenced operations on the date of this Prospectus, it has no
prior history to report.
FEES AND EXPENSES
The table below outlines the fees and expenses you could expect to pay as an
investor in the Fund. "Annual Operating Expenses" are deducted from Fund assets,
and are reflected in the total return. Since the Fund is "no-load," shareholders
pay no fees or out-of-pocket expenses.
Fee table (% of average net assets)
Institutional Investor
Shares Shares
Shareholder Fees _____ _____
Annual Operating Expenses
Management fee _____ _____
Distribution (12b-1) fees None _____
Other expenses (a) _____ _____
Total annual operating expenses _____ _____
- -----------------------------
(a) This is an estimate because the Fund has no prior operating history.
The table below shows the anticipated expenses on a $10,000 investment in the
Fund over the indicated periods. All mutual Fund present this information so
that you can make comparisons. Your actual costs could be higher or lower than
this example.
Expenses on a $10,000 investment* ($)
1 Year 3 Years
------ -------
Institutional Shares _____ _____
Investor Shares _____ _____
* Assumptions: $10,000 original investment, all dividends and distributions
reinvested, 5% annual returns and no changes in the Fund's operating expenses
from those indicated for Year 1.
6
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ACCOUNT POLICIES
The Fund in this prospectus is offered in two share classes -- Institutional and
Investor. Institutional Shares do not have 12b-1 fees and have generally lower
operating expenses, which improves investment performance. Institutional Shares
are available only to direct investments over $100,000 or to investors who have
specific asset management relationships with the Adviser.
All other investors may purchase Investor Shares. The information below on Daily
NAV Calculation and Distributions and Tax Considerations applies to both share
classes. The other account policies apply to Investor Shares only. If you want
to purchase, exchange or redeem Institutional Shares, contact your Bank of New
York representative.
DAILY NAV CALCULATION
The Fund calculates its net asset value per share (NAV) at the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. eastern time) each
day that the exchange is open. When market prices are not available, the Fund
will use fair value prices as determined by the board of directors.
Purchase orders received before the regular close of the New York Stock Exchange
will be executed at the NAV calculated at that day's close.
DISTRIBUTION (12B-1) PLAN
The directors have adopted a 12b-1 distribution plan with respect to the
Investor Shares of the Fund in this prospectus. The plan permits the Fund to
reimburse the Distributor for distribution expenses in an amount up to 0.25% of
the annual average daily net assets of Investor Shares. These fees are paid out
of Fund assets on an ongoing basis, and over time, they could cost you more than
paying other types of sales charges.
OPENING AN ACCOUNT
Minimum investment requirements
Minimum initial Minimum continuing
Account Type investment investments Minimum balance
- --------------------------------------------------------------------------------
IRA $250 $25 N/A
Regular Account $2,000* $100* $500
Automatic Investment
Program $500 $50 N/A
* Employees and retirees of The Bank of the New York and its affiliates, and
employees of the administrator, distributor and their affiliates may open a
regular account with $100 and make continuing investments of $25. Employees and
retirees of The Bank of New York and its affiliates may also invest through
payroll deduction. Call 800-4BNY-FND (800-426-9363) for details.
OPENING AN ACCOUNT/PURCHASING SHARES
7
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Open an account Add to your investment
Mail
- --------------------------------------------------------------------------------
Send completed new account Send a check payable directly to the
application and a check payable Fund to:
directly to the Fund to:
BNY Hamilton Funds Inc.
BNY Hamilton Funds P.O. Box 806
P.O. Box 163310 Newark, NJ 07101-0806
Columbus, OH 43216-3310
If possible, include a tear-off
For all enrollment forms, call payment stub from one of your
800-426-9363. transaction confirmation statements.
Wire
- --------------------------------------------------------------------------------
The Fund does not charge a fee for
wire transactions, but your bank may.
Mail your completed new account
application to the Ohio address
above. Call the transfer agent at
800-426-9363 for an account number.
Instruct your bank to wire funds to a Instruct your bank to wire funds to:
new account at:
The Bank of New York The Bank of New York
New York, NY 10286 New York, NY 10286
ABA: 021000018 ABA: 021000018
BNY Hamilton Funds BNY Hamilton Funds
DDA 8900275847 DDA 8900275847
Attn: BNY Hamilton S & P 500 Index Attn: BNY Hamilton S & P 500 Index
Fund Fund
Ref: [your name, account number and Ref: [your name, account number and
taxpayer ID] taxpayer ID]
Dealer
- --------------------------------------------------------------------------------
Note: a broker-dealer may charge a fee.
Contact your broker-dealer. Contact your broker-dealer.
Automatic Investment Program
- --------------------------------------------------------------------------------
Automatic investments are withdrawn
from your bank Account on a monthly
or biweekly basis.
Make an initial investment of at Once you specify a dollar amount
least $500 by whatever method you (minimum $50), investments are
choose. Be sure to fill in the automatic.
information required in section 7 of
your new account application. You can modify or terminate this
service at any time by mailing a
Your bank must be a member of the ACH notice to:
(Automated Clearing House) system.
BNY Hamilton Funds
P.O. Box 163310
Columbus, OH 43216-3310
Purchases by personal checks or money orders should be in U.S. dollars and
payable to the Fund. Third-party checks are not accepted. In addition, you may
not redeem shares purchased by check until your original purchase clears, which
may take up to ten business days.
Wire transactions. The Adviser does not charge a fee for wire transfers from
your bank to the Fund. However, your bank may charge a service fee for wiring
funds.
8
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DRAFT
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MAKING EXCHANGES/REDEEMING SHARES
To exchange shares between mutual To redeem shares
funds (minimum $500)
Phone
- --------------------------------------------------------------------------------
Call 800-426-9363. Call 800-426-9363.
The proceeds can be wired to your
bank account two business days after
your redemption request, or a check
can be mailed to you at the address
of record on the following business
day.
Mail
- --------------------------------------------------------------------------------
Your instructions should include: Your instructions should include:
o your account number o your account number
o names of the Funds and number of o names of the Funds and number of
shares or dollar amount you want shares or dollar amount you want
to exchange. to exchange.
A signature guarantee is required
whenever:
o you redeem more than $50,000
o you want to send the proceeds to a
different address
o you have changed your account
address within the last 60 days
Dealer
- --------------------------------------------------------------------------------
Contact your broker-dealer. Contact your broker-dealer.
Systematic Withdrawal
- --------------------------------------------------------------------------------
Requires $10,000 minimum fund balance
You can choose from several options
for monthly, quarterly, semi-annual
or annual withdrawals:
o declining balance
o fixed dollar amount
o fixed share quantity
o fixed percentage of your account
Call 800-426-9363 for details.
9
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DRAFT
01/18/00
MAKING EXCHANGES/ REDEEMING SHARES
As with purchase orders, redemption requests received before the regular close
of the New York Stock Exchange will be executed at the offering price calculated
at that day's close.
Minimum account balances. If your account balance falls below $500 due to
redemptions, rather than market movements, the Fund may give you 60 days to
bring the balance back up. If you do not increase your balance, the Fund may
close your account and send you the proceeds.
Exchange minimums. You may exchange shares of the same class between funds. From
the perspective of tax liability, an exchange is the same as a redemption from
one fund and purchase of another, meaning that you are likely to generate a
capital gain or loss when you make an exchange. Shares to be exchanged must have
a value of at least $500. If you will be investing in a new fund, you must also
exchange enough shares to meet the minimum balance requirement.
Signature guarantees. You can get a signature guarantee from many brokers and
from some banks, savings institutions and credit unions. A notary public cannot
provide a signature guarantee.
[Redemptions In-Kind?]
DISTRIBUTIONS AND TAX CONSIDERATIONS
The Fund pays quarterly dividends, if any, and an annual capital gains
distribution, if any, approximately 10 calendar days before the end of the
quarter or the year, as the case may be. Distributions are automatically paid in
the form of additional Fund shares.
Notify the transfer agent in writing to:
o choose to receive dividends or distributions (or both) in cash
o change the way you currently receive distributions
Your taxable income is the same regardless of which option you choose.
Type of Distribution Federal Tax Status
Dividends from net investment income ordinary income
Short-term capital gains ordinary income
Long-term capital gains capital gain
Tax-free dividends tax-free
Distributions from the Fund are expected to be primarily ordinary income and
capital gains.
The Fund issues detailed annual tax information statements for each investor,
recording all distributions and redemptions for the preceding year. Any investor
who does not provide a valid Social Security or taxpayer identification number
to the Fund may be subject to federal backup withholding tax.
Whenever you redeem or exchange shares, you are likely to generate a capital
gain or loss, which will be short- or long-term depending on how long you held
the shares.
If you invest in the Fund shortly before an expected taxable dividend or capital
gain distribution, you may end up getting part of your investment back right
away in the form of taxable income.
You should consult your tax adviser about your own particular tax situation.
10
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INVESTMENT ADVISER
The Bank of New York, located at One Wall Street, New York, NY 10286 is the
Adviser of the Fund. Founded by Alexander Hamilton in 1784 , it is one of the
largest commercial banks in the United States, with over $66.6 billion in
assets. The Bank of New York began offering investment services in the 1830s and
today manages more than $48.4 billion in investments for institutions and
individuals.
Adviser compensation. The Adviser is responsible for all business activities and
investment decisions for the Fund. In return for these services, the Fund pays
the Adviser an annual fee.
Fund Fee
as a % of
average daily
net assets
BNY Hamilton S&P 500 Index Fund ___________
PORTFOLIO MANAGERS
The day-to-day management of the Fund is handled by a team of investment
professionals under the leadership of the portfolio managers, who are described
below.
BNY Hamilton S&P 500 Index Fund is managed by Kurt Zyla. Mr. Zyla is a portfolio
manager and Vice-President of the Adviser. He has managed the Passive Investment
Management Group of the Adviser since 1996, and currently manages $6.5 billion
in assets. He joined the Adviser in 1989. Prior to his current position, he was
employed by the Adviser in a number of capacities.
PAST PERFORMANCE OF THE S&P 500 COMPOSITE INDEX
1 YEAR 3 YEAR 5 YEAR 10 YEAR
------ ------ ------ -------
20.98 27.57 28.56 18.21
* Returns are annualized and do not incorporate any fees which would be
charged by the Fund.
11
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NOTES
_____ Notes
12
<PAGE>
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BNY
HAMILTON
FUNDS
13
<PAGE>
S&C
DRAFT
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FOR MORE INFORMATION
Statement of Additional Information (SAI)
The SAI contains more detailed disclosure on features and policies of the Fund.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into this document (that is, it is legally a part of
this prospectus).
You can obtain the SAI free of charge, make inquiries or request other
information about the Fund by contacting your dealer or:
BNY Hamilton Funds
P.O. Box 163310
Columbus, OH 43216-3310
800-426-9363 (800-4BNY-FND)
Information is also available from the SEC:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
www.sec.gov
For information on the operation of the SEC's public reference room, where
documents may be viewed and copied, call:
1-800-SEC-0330
Note: The SEC requires a duplicating fee for paper copies.
SEC File Number: 811-6654
BNY
HAMILTON
FUNDS
BNY-0090 4/99 [Need inventory number assigned]
14
<PAGE>
S&C
DRAFT
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BNY
HAMILTON
[GRAPHIC]
PROSPECTUS
BNY HAMILTON LARGE CAP VALUE FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or said whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a crime.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
_______________,2000
BNY
HAMILTON
FUNDS
<PAGE>
S&C
DRAFT
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ABOUT THE FUNDS
4 BNY Hamilton Large Cap Value Fund
ACCOUNT POLICIES
7 Daily NAV Calculation
7 Distribution (12b-1) Plan
8 Opening an Account/Purchasing Shares
9 Exchanging and Redeeming Shares
10 Distributions and Tax Considerations
11 Investment Adviser
11 Portfolio Managers
11 Year 2000 (Y2K) Compliance
For More Information
Back Cover
2
<PAGE>
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DRAFT
01/18/00
ABOUT THE FUNDS
AN INTRODUCTION TO BNY HAMILTON FUNDS
The BNY Hamilton Funds aim for high investment returns with consistent
performance over many market cycles.
RISKS OF MUTUAL FUND INVESTING
Investments in mutual funds are not bank deposits, nor are they guaranteed by
the Federal Deposit Insurance Corporation or any other government agency. It is
important to read all the disclosure information provided and to understand that
you could lose money by investing in any of these funds.
3
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BNY HAMILTON LARGE CAP VALUE FUND
CUSIP Numbers:
Institutional Shares __________ [GRAPHIC]
Investor Shares __________
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term capital appreciation by investing primarily
in common stocks and securities convertible into common stocks ("equity
securities") of domestic and foreign companies; current income is a secondary
consideration.
MANAGEMENT STRATEGY
The Fund's Adviser's strategy is to use a bottom-up value-oriented approach to
choosing stocks. The Adviser identifies large capitalization stocks that are
undervalued in terms of price or other financial measurements with above-average
growth potential. The bottom-up approach looks primarily at individual issuers
against the context of broader market factors. Some of the factors which the
Adviser uses when analyzing individual issuers include:
o relative earnings growth
o profitability trends
o relatively low price-to-earnings and price-to-book ratios
o issuer's financial strength
o valuation analysis and strength of management
o risk-adjusted growth combined with dividend yield
The Adviser uses this selection analysis to identify those issuers that exhibit
one or more of the following criteria: below-average valuation multiples;
improving financial strength; and a catalyst which will allow the stock to reach
what the Adviser believes to be the stock's intrinsic value, generally within a
year. Catalysts considered by the Adviser in selecting securities include:
o near-term catalysts, such as product introductions, cost-cutting
initiatives, a cyclical surge in profits or a change in management
o a management team committed to its shareholders' interests
The Fund's portfolio generally includes large-capitalization stocks companies
whose market capitalization is $3 billion or more. The Fund may also invest up
to 30% of its overall portfolio in companies with a market capitalization of
less than $3 billion. However, such companies will have a market capitalization
of at least $100 million at the time of purchase.
Although the Fund intends to invest primarily in equity securities of U.S.
issuers, it may invest without limit in equity securities of foreign issuers,
including those in emerging markets. Within limits, the Fund also may use
certain derivatives, which are investments whose value is determined by
underlying securities or indices.
Under normal circumstances, the Fund will invest at least 60% of its assets in
equity securities of large-capitalization issuers and will maintain a weighted
market capitalization of $3 billion. As a temporary defensive measure, the Fund
may invest more than 35% of its assets in cash or cash equivalents. Under such
circumstances, the Fund would not be pursuing its investment objective.
4
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MAIN INVESTMENT RISKS
The value of your investment in the Fund generally will fluctuate with stock
market movements. Large-capitalization stocks could fall out of favor with the
market, particularly in comparison with small- or medium-capitalization stocks.
In addition, prices of small-capitalization stock have historically been more
volatile than those of larger companies. Investments in value stocks are subject
to the risk that their intrinsic values may never be realized by the market,
that a stock judged to be undervalued may actually be appropriately priced, or
that their prices may go down. While the Fund's investments in value stocks may
limit downside risk over time, the Fund may, as a trade-off, produce more modest
gains than riskier stock funds.
Small companies tend to grow or fade quickly by their nature. Their market
valuations are often based more on investors' belief in their future potential
than on their current balance sheets. Since market sentiment can change from one
day to the next, small-cap stock prices have historically been more volatile
than those of large-cap stocks. Investors are often attracted to small companies
for their specialization and innovation.
The portfolio manager's investment strategies may not work out as planned, and
the Fund's performance could suffer. You may, therefore, lose money.
Investments in derivative instruments, or the failure to utilize them, could
limit profits or increase losses in comparison with the performance of the
underlying securities.
Investments in foreign securities involve additional risks, including
potentially unfavorable currency exchange rates, limited or misleading financial
information, generally higher transaction costs and political and economic
disturbances ranging from tax legislation to military coups. These risks are
magnified in emerging markets.
CHARACTERISTICS OF LARGE-CAP COMPANIES
The largest U.S. companies, those with market capitalization over $3 billion,
are a relatively select group that nonetheless covers all industries and
geographies. These companies are typically well-established businesses with
broad product lines and customers in many markets. Their diversification and
usually substantial cash reserves enable them to weather economic downturns. The
dividends they pay can also cushion the effects of market volatility, since
their stocks generate steady income even while their price may be depressed.
As a group, small companies are usually relatively young, and their short track
records make it difficult to build a case for sustainable long-term growth.
Limited product lines, niche markets and small capital reserves may not allow
small companies to survive temporary setbacks. In a declining market, these
stocks can be hard to sell at a price that is beneficial to the Fund.
The long-term capital appreciation of large-cap stocks has historically lagged
smaller companies.
5
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PAST PERFORMANCE
Because the Fund commenced operations on the date of this Prospectus, it has no
prior performance history to report.
FEES AND EXPENSES
The table below outlines the fees and expenses you could expect to pay as an
investor in the Fund. "Annual Operating Expenses" are deducted from Fund assets,
and are reflected in the total return. Shareholders pay no sales charge (load)
or out-of-pocket expenses.
Fee table (% of average net assets)
Institutional Investor
Shares Shares
Shareholder Fees None None
Annual Operating Expenses
Management fee .60% .60%
Distribution (12b-1) fees None .25%
Other expenses .31% .32%
*Total annual operating expenses .91% 1.16%
- -----------------------------
(a) This is an estimate because the Fund has no prior operating history.
*The adviser has agreed to limit the expenses of the Fund to .80% and 1.05%, the
for Institutional Shares and the Investor Shares respectively, of its average
daily net assets. The adviser will waive management fees and, if necessary,
reimburse expenses of the Fund, to the extent, total annual operating expenses
are greater than .80% and 1.05% of its average daily net assets. Management
reserves the right to implement and discontinue expense limitations at any time.
The table below shows the anticipated expenses on a $10,000 investment in the
Fund over the indicated periods. All mutual funds present this information so
that you can make comparisons. Your actual costs could be higher or lower than
this example.
Expenses on a $10,000 investment* ($)
1 Year 3 Years
------ -------
Institutional Shares 93 291
Investor Shares 119 374
* Assumptions: $10,000 original investment, all dividends and distributions
reinvested, 5% annual returns, and no changes in the Fund's net expenses for
Year 1 and total Fund operating expenses from those indicated for Year 1.
6
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ACCOUNT POLICIES
The Fund is offered in two share classes -- Institutional and Investor.
Institutional Shares do not have 12b-1 fees and have generally lower operating
expenses, which improves investment performance. Institutional Shares are
available only to direct investments over $100,000 or to investors who have
specific asset management relationships with the Adviser.
All other investors may purchase Investor Shares. The information below on Daily
NAV Calculation and Distributions and Tax Considerations applies to both share
classes. The other account policies apply to Investor Shares only. If you want
to purchase, exchange or redeem Institutional Shares, contact your Bank of New
York representative.
DAILY NAV CALCULATION
The Fund calculates its net asset value per share (NAV) at the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. eastern time) each
day that the exchange is open. When market prices are not available, the Fund
will use fair value prices as determined by the board of directors.
Purchase orders received before the close of the New York Stock Exchange will be
executed at the NAV calculated at that day's close.
The Fund invests, or may invest, in securities that are traded on foreign
exchanges, which may be open when the New York Stock Exchange is closed. The
value of your investment in the Fund may change on days when you will be unable
to purchase or redeem shares.
DISTRIBUTION (12B-1) PLAN
The directors have adopted 12b-1 distribution plans with respect to the Investor
Shares of the Fund in this prospectus. The plans permit the Fund to reimburse
the Distributor for distribution expenses in an amount up to 0.25% of the annual
average daily net assets of Investor Shares. These fees are paid out of Fund
assets on an ongoing basis, and over time, they could cost you more than paying
other types of sales charges.
OPENING AN ACCOUNT/PURCHASING SHARES
Minimum investment requirements
Minimum initial Minimum continuing
Account Type investment investments Minimum balance
- --------------------------------------------------------------------------------
IRA $250 $25 N/A
Regular Account $2,000* $100* $500
Automatic Investment
Program $500 $50 N/A
* Employees and retirees of The Bank of the New York and its affiliates, and
employees of the administrator, distributor and their affiliates may open a
regular account with $100 and make continuing investments of $25. Employees and
retirees of The Bank of New York and its affiliates may also invest through
payroll deduction. Call 800-4BNY-FND (800-426-9363) for details.
7
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Open an account Add to your investment
Mail
- --------------------------------------------------------------------------------
Send completed new account Send a check payable directly to the
application and a check payable Fund to:
directly to the Fund to: BNY Hamilton Funds, Inc.
P.O. Box 806
BNY Hamilton Funds Newark, NJ 07101-0806
P.O. Box 163310
Columbus, OH 43216-3310 If possible, include a tear-off
payment stub from one of your
For all enrollment forms, call transaction confirmation [or
800-426-9363. account?] statements.
Wire
- --------------------------------------------------------------------------------
The Fund does not charge a fee for
wire transactions, but your bank may.
Mail your completed new account
application to the Ohio address
above. Call the transfer agent at
800-426-9363 for an account number.
Instruct your bank to wire funds to a Instruct your bank to wire funds to:
new account at:
The Bank of New York The Bank of New York
New York, NY 10286 New York, NY 10286
ABA: 021000018 ABA: 021000018
BNY Hamilton Funds BNY Hamilton Funds
DDA 8900275847 DDA 8900275847
Attn: [your fund] Attn: [your fund]
Ref: [your name, account number and Ref: [your name, account number and
taxpayer ID] taxpayer ID]
Dealer
- --------------------------------------------------------------------------------
Note: a broker-dealer may charge a fee.
Contact your broker-dealer. Contact your broker-dealer.
Automatic Investment Program
- --------------------------------------------------------------------------------
Automatic investments are withdrawn
from your bank Account on a monthly
or biweekly basis.
Make an initial investment of at Once you specify a dollar amount
least $500 by whatever method you (minimum $50), investments are
choose. Be sure to fill in the automatic.
information required in section 7 of
your new account application. You can modify or terminate this
service at any time by mailing a
Your bank must be a member of the ACH notice to:
(Automated Clearing House) system.
BNY Hamilton Funds
P.O. Box 163310
Columbus, OH 43216-3310
Purchases by personal check: Checks or money orders should be in U.S. dollars
and payable to the Fund. The Fund does not accept third-party checks. In
addition, you may not redeem shares purchased by check until your original
purchase clears, which may take up to ten business days.
Wire transactions: The Fund does not charge a fee for wire transfers from your
bank to the Fund. However, your bank may charge a service fee for wiring funds.
8
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MAKING EXCHANGES/REDEEMING SHARES
To exchange shares between mutual To redeem shares
funds (minimum $500)
Phone
- --------------------------------------------------------------------------------
Call 800-426-9363. Call 800-426-9363.
The proceeds can be wired to your
bank account two business days after
your redemption request, or a check
can be mailed to you at the address
of record on the following business
day.
Mail
- --------------------------------------------------------------------------------
Your instructions should include: Your instructions should include:
o your account number
o names of the Funds and number of o your account number
shares or dollar amount you want o names of the Funds and number of
to exchange. shares or dollar amount you want
to exchange.
A signature guarantee is required
whenever:
o you redeem more than $50,000
o you want to send the proceeds to a
different address
o you have changed your account
address within the last 60 days
Dealer
- --------------------------------------------------------------------------------
Contact your broker-dealer. Contact your broker-dealer.
Systematic Withdrawal
- --------------------------------------------------------------------------------
Requires $10,000 minimum fund balance
You can choose from several options
for monthly, quarterly, semi-annual
or annual withdrawals:
o declining balance
o fixed dollar amount
o fixed share quantity
o fixed percentage of your account
Call 800-426-9363 for details.
As with purchase orders, redemption requests received before the regular close
of the New York Stock Exchange will be executed at the offering price calculated
at that day's close.
Minimum account balances: If your account balance falls below $500 due to
redemptions, rather than market movements, the Fund may give you 60 days to
bring the balance back up. If you do not increase your balance, the Fund may
close your account and send you the proceeds.
Exchange minimums: You may exchange shares of the same class between Funds. From
the perspective of tax liability, an exchange is the same as a redemption from
one fund and purchase of another, meaning that you are likely to generate a
capital gain or loss when you make an exchange. Shares to be exchanged must have
a value of at least $500. If you will be investing in a new fund, you must also
exchange enough shares to meet the minimum balance requirement.
Signature guarantees: You can get a signature guarantee from many brokers and
from some banks, savings institutions and credit unions. A notary public cannot
provide a signature guarantee.
[Redemptions In-Kind?]
[Reserved Rights?]
9
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DISTRIBUTIONS AND TAX CONSIDERATIONS
The Fund pays quarterly dividends, if any, and an annual capital gains
distribution, if any, approximately 10 calendar days before the end of the
quarter or the year, as the case may be. Distributions are automatically paid in
the form of additional Fund shares. Notify the transfer agent in writing to:
o choose to receive dividends or distributions (or both) in cash
o change the way you currently receive distributions
Your taxable income is the same regardless of which option you choose.
Type of Distribution Federal Tax Status
Dividends from net ordinary income
investment income
Short-term capital gains ordinary income
Long-term capital gains capital gain
The Fund issues detailed annual tax information statements for each investor,
recording all distributions and redemptions for the preceding year. Any investor
who does not provide a valid Social Security or taxpayer identification number
to the Fund may be subject to federal backup withholding tax.
Whenever you redeem or exchange shares, you are likely to generate a capital
gain or loss, which will be short- or long-term depending on how long you held
the shares.
If you invest in the Fund shortly before an expected taxable dividend or capital
gain distribution, you may end up getting part of your investment back right
away in the form of taxable income.
You should consult your tax adviser about your own particular tax situation.
10
<PAGE>
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DRAFT
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INVESTMENT ADVISER
The Bank of New York, located at One Wall Street, New York, NY 10286 is the
Adviser of the Funds. Founded by Alexander Hamilton in 1784, it is one of the
largest commercial banks in the United States, with over $66.6 billion in
assets. The Bank of New York began offering investment services in the 1830s and
today manages more than $48.4 billion in investments for institutions and
individuals.
Estabrook Capital Management, LLC, located at 430 Park Avenue, New York, NY
10022, is a wholly-owned subsidiary of the Bank of New York. Estabrook Capital
Management, LLC has been managing individual portfolios for over sixty years and
currently has assets under management exceeding $2 billion.
Adviser compensation: The Adviser is responsible for all business activities and
investment decisions for the Funds. In return for these services, each Fund pays
the Adviser an annual fee.
Fund Fee
as a % of
average daily
net assets
BNY Hamilton Large Cap Value Fund .60%
PORTFOLIO MANAGERS
Day-to-day management of the Funds is handled by a team of investment
professionals under the leadership of a portfolio manager, described below.
The Fund is advised by the Bank of New York and sub-advised by Estabrook Capital
Management, LLC, a wholly-owned subsidiary of the Bank of New York.
The Fund is managed by Charles T. Foley, and George D. Baker.
Mr. Foley is a portfolio manager of the Sub-Adviser and Managing Director. He
has been with the Sub-Adviser since 1970 and currently manages over 100
relationships totaling over $380 million in assets.
Mr. Baker is a portfolio manager of the Sub-Adviser since 1996 where he is also
the Director of Research. He currently manages over 200 accounts with assets
over $230 million. Prior to joining the Sub-Adviser, Mr. Baker was employed by
Merrill Lynch since 1986 where he served as a Managing Director and Senior
Energy Industry Specialist.
11
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NOTES
12
<PAGE>
S&C
DRAFT
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BNY
HAMILTON
FUNDS
13
<PAGE>
S&C
DRAFT
01/18/00
FOR MORE INFORMATION
Statement of Additional Information (SAI)
The SAI contains more detailed disclosure on features and policies of the Fund.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into this document (that is, it is legally a part of
this prospectus).
You can obtain the SAI free of charge, make inquiries or request other
information about the Funds by contacting your dealer or:
BNY Hamilton Funds
P.O. Box 163310
Columbus, OH 43216-3310
800-426-9363 (800-4BNY-FND)
Information is also available from the SEC:
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-6009
www.sec.gov
For information on the operation of the SEC's public reference room, where
documents may be viewed and copied, call:
1-800-SEC-0330
Note: The SEC requires a duplicating fee for paper copies.
SEC File Number: 811-6654
BNY
HAMILTON
FUNDS
BNY-0090 4/99 [need inventory # assigned]
14
<PAGE>
S&C Draft of January 13, 2000
BNY HAMILTON FUNDS, INC.
Statement of Additional Information
BNY Hamilton Money Fund
BNY Hamilton Treasury Money Fund
BNY Hamilton Equity Income Fund
BNY Hamilton Large Cap Growth Fund
BNY Hamilton Small Cap Growth Fund
BNY Hamilton International Equity Fund
BNY Hamilton Intermediate Government Fund
BNY Hamilton Intermediate Investment Grade Fund
BNY Hamilton Intermediate New York Tax-Exempt Fund
BNY Hamilton Intermediate Tax-Exempt Fund
BNY Hamilton S&P 500 Index Fund
BNY Hamilton U.S. Bond Market Index Fund
BNY Hamilton Large Cap Value Fund
o, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION ABOUT THE FUNDS LISTED ABOVE WHICH SHOULD BE READ IN
CONJUNCTION WITH THE RELEVANT PROSPECTUS, EACH DATED o, 2000, AS SUPPLEMENTED
FROM TIME TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM BNY HAMILTON
DISTRIBUTORS, INC., 90 PARK AVENUE, NEW YORK, NEW YORK 10956 ATTENTION: BNY
HAMILTON FUNDS, INC., 1-800-426-9363.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
Money Market Funds
Hamilton Hamilton
Hamilton Premier Classic
Shares Shares Shares
Prospectus Prospectus Prospectus
-------------------------------------------------------------
<S> <C> <C> <C> <C>
General................................................. 3
Investment Objectives and Policies...................... 3 5 5 3
Investment Restrictions................................. 28 10 10 8
Directors and Officers.................................. 36 11 11 9
Investment Adviser...................................... 40 11 11 10
Administrator........................................... 43 11 11 10
Distributor............................................. 44 12 12 11
Fee Waivers............................................. 13 14 13
Fund, Shareholder and Other Services.................... 46 12 12 11
Purchase of Shares...................................... 46 13 15 18
Redemption of Shares.................................... 47 15 16 19
Exchange of Shares...................................... 48 16 17 20
Dividends and Distributions............................. 48 17 18 21
Net Asset Value......................................... 49 18 19 21
Performance Data ................................... 51
Portfolio Transactions and Brokerage.................... 55
Description of Shares................................... 58 18 20 22
Taxes................................................... 61 19 20 22
Special Considerations Relating to Investments in
New York Municipal Obligations....................... 66
Additional Information.................................. 83 20 21 23
Financial Statements.................................... 84
Appendix A -- Description of Securities Ratings.........
85
</TABLE>
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
Equity Funds
Equity Income Fund,
Large Cap Growth Fund,
Small Cap Growth Fund
and International Equity S&P 500 Fund Large Cap Value
Fund Prospectus Prospectus Fund Prospectus
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General........................................ 3
Investment Objectives and Policies............. 3 9 5 5
Investment Restrictions........................ 28 20 14 17
Directors and Officers......................... 36 21 15 18
Investment Adviser ................ 40 21 15 18
Administrator.................................. 43 22 15 18
Distributor.................................... 44 23 16 19
Fee Waivers.................................... 25 19 21
Fund, Shareholder and Other Services........... 46 24 17 20
Purchase of Shares............................. 46 26 19 22
Redemption of Shares........................... 47 30 23 26
Exchange of Shares............................. 48 32 26 28
Dividends and Distributions.................... 48 32 26 29
Net Asset Value................................ 49 33 27 29
Performance Data............................... 51
Portfolio Transactions and Brokerage........... 55
Description of Shares.......................... 58 34 28 30
Taxes.......................................... 61 35 28 31
Special Considerations Relating to 7
Investments in New York Municipal 66
Obligations.................................
Additional Information......................... 83 36 29 32
Financial Statements........................... 84
Appendix A - Description of Securities
Ratings..................................... 85
</TABLE>
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
Taxable Income Funds
Intermediate Government
Fund and Intermediate
Investment Grade Fund Bond Index Fund
Prospectus Prospectus
------------------------------------------------------
<S> <C> <C> <C>
General................................................. 3
Investment Objectives and Policies...................... 3 5 5
Investment Restrictions................................. 28 10 10
Directors and Officers.................................. 36 11 11
Investment Adviser...................................... 40 11 11
Administrator........................................... 43 11 11
Distributor............................................. 44 12 12
Fee Waivers............................................. 13 14
Fund, Shareholder and Other Services.................... 46 12 12
Purchase of Shares...................................... 46 13 15
Redemption of Shares.................................... 47 15 16
Exchange of Shares...................................... 48 16 17
Dividends and Distributions............................. 48 17 18
Net Asset Value......................................... 49 18 19
Performance Data ................................... 51
Portfolio Transactions and Brokerage.................... 55
Description of Shares................................... 58 18 20
Taxes................................................... 61 19 20
Special Considerations Relating to Investments in
New York Municipal Obligations....................... 66
Additional Information.................................. 83 20 21
Financial Statements.................................... 84
Appendix A -- Description of Securities Ratings.........
85
</TABLE>
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
Tax-Exempt
Income Fixed
Income Funds
Prospectus
-----------------------
<S> <C> <C>
General................................................. 3
Investment Objectives and Policies...................... 3 5
Investment Restrictions................................. 28 10
Directors and Officers.................................. 36 11
Investment Adviser...................................... 40 11
Administrator........................................... 43 11
Distributor............................................. 44 12
Fee Waivers............................................. 13
Fund, Shareholder and Other Services.................... 46 12
Purchase of Shares...................................... 46 13
Redemption of Shares.................................... 47 15
Exchange of Shares...................................... 48 16
Dividends and Distributions............................. 48 17
Net Asset Value......................................... 49 18
Performance Data ................................... 51
Portfolio Transactions and Brokerage.................... 55
Description of Shares................................... 58 18
Taxes................................................... 61 19
Special Considerations Relating to Investments in
New York Municipal Obligations....................... 66
Additional Information.................................. 83 20
Financial Statements.................................... 84
Appendix A -- Description of Securities Ratings.........
85
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GENERAL
BNY Hamilton Funds, Inc. ("BNY Hamilton") is an open-end investment company,
currently consisting of sixteen series: BNY Hamilton Money Fund, BNY Hamilton
Treasury Money Fund, BNY Hamilton Equity Income Fund, BNY Hamilton Large Cap
Growth Fund, BNY Hamilton Small Cap Growth Fund, BNY Hamilton International
Equity Fund, BNY Hamilton Intermediate Government Fund, BNY Hamilton
Intermediate Investment Grade Fund, BNY Hamilton Intermediate New York
Tax-Exempt Fund ("BNY Hamilton"), BNY Hamilton Tax-Exempt Fund, BNY Hamilton
Large Cap CRT Fund, BNY Hamilton Small Cap CRT Fund, BNY Hamilton International
Equity CRT Fund, BNY Hamilton S&P 500 Index Fund, BNY Hamilton U.S. Bond Market
Index Fund and BNY Hamilton Large Cap Value Fund. Each of the BNY Hamilton Large
Cap CRT Fund, BNY Hamilton Small Cap CRT Fund and BNY Hamilton International
Equity CRT Fund is referred to as an "CRT Fund" and each of the other series of
BNY Hamilton is referred to as a "Fund" and collectively as the "Funds". The
Bank of New York (the "Adviser") will serve as investment adviser to each of the
Funds and Indocam (the "Sub-Adviser") is the sub-adviser for the BNY Hamilton
International Equity Fund. This Statement of Additional Information provides
additional information only with respect to the Funds and should be read in
conjunction with the current Prospectus relating to each Fund. For additional
information with respect to the CRT Funds, please read the prospectus, and the
Statement of Additional Information dated o, 1999, relating to the CRT Funds.
BNY Hamilton's executive offices are located at 3435 Stelzer Road, Columbus,
Ohio 43219-3035.
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INVESTMENT OBJECTIVES AND POLICIES
BNY Hamilton Money Fund (the "Money Fund") is designed to be an economical and
convenient means of making substantial investments in money market instruments.
The Fund's investment objective is to earn as high a level of current income as
is consistent with preservation of capital and maintenance of liquidity by
investing in high quality money market instruments. The Fund will attempt to
accomplish this objective by maintaining a dollar-weighted average portfolio
maturity of not more than 90 days and by investing in United States
dollar-denominated securities described in each Prospectus for each class of
shares of BNY Hamilton Money Fund and in this Statement of Additional
Information that meet certain rating criteria, present minimal credit risks and
have remaining maturities of 397 days or less. See "Quality and Diversification
Requirements".
BNY Hamilton Treasury Money Fund (the "Treasury Money Fund") is designed to be
an economical and convenient means of investing in securities issued or
guaranteed by the United States Government and in securities fully
collateralized by issues of the United States Government. The Fund's investment
objective is to earn as high a level of current income as
<PAGE>
is consistent with preservation of capital and maintenance of liquidity by
investing solely in short-term obligations of the United States Treasury and
repurchase agreements fully collateralized by obligations of the United States
Treasury. The Fund will only invest in money market securities issued or
guaranteed by the U.S. Government, including but not limited to securities
subject to repurchase agreements secured by U.S. Government obligations.
Securities issued or guaranteed by the U.S. Government include U.S. Treasury
securities which differ in their interest rates, maturities, and times of
issuance. In accordance with Rule 2a-7 under the Investment Company Act of 1940,
the Fund will maintain a dollar-weighted average maturity of 90 days or less and
will only purchase securities having remaining maturity of 397 days or less. See
"Quality and Diversification Requirements".
BNY Hamilton Equity Income Fund (the "Equity Income Fund") is designed for
conservative investors who are interested in participating in the equity markets
while receiving current income greater than the yield of the Standard & Poor's
500 Index. The Fund's investment objective is to provide long-term capital
appreciation with a yield greater than the yield of the Standard & Poor's 500
Index. The Fund will invest primarily in common stock and convertible securities
of domestic and foreign corporations. In connection with its investment
objectives, the Fund seeks to achieve capital appreciation in excess of the
market average represented by the Standard & Poor's 500 Index. During periods of
rapid market capital appreciation, the effect of the Fund's dual investment
objectives will likely be that the net asset value of the Fund will not rise as
rapidly as the market generally. Conversely, during periods of rapid market
depreciation, the Fund's net asset value would not be expected to decline as
rapidly as the market.
BNY Hamilton Large Cap Growth Fund (the "Large Cap Growth Fund") is designed as
an economical and convenient means of investing primarily in the stocks of
domestic and foreign institutions. The Fund's investment objective is to provide
long-term capital appreciation by investing primarily in common stocks and
securities convertible to common stocks; current income is a secondary
objective. During times of adverse market and/or economic conditions the Fund
may invest in securities with a high enough yield to offer possible resistance
to downward market and/or economic pressure. In selecting securities for the
Fund, a focus will be given to securities of corporations perceived to have a
relatively high potential for growth of earnings and/or revenues. The Fund
currently considers large cap corporations to be those with market
capitalization of $3 billion or greater. In normal circumstances the Fund will
invest at least 65% of its assets in such equity securities.
BNY Hamilton Small Cap Growth Fund (the "Small Cap Growth Fund") is designed for
investors who are interested in obtaining capital growth by investing in stocks
of smaller corporations. The Small Cap Growth Fund's investment objective is to
provide long-term capital appreciation by investing primarily in equity
securities of small domestic and foreign corporations. In selecting securities
for the Small Cap Growth Fund a focus will be given to securities of
corporations perceived as having potential for rapid growth in earnings or
revenues due to expanded operations, new products, new technologies, new
channels of
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distribution, revitalized management, general industry condition or other
similar advantageous circumstances. Current income will not be a consideration.
The Fund currently considers small corporations to be those with market
capitalization of $1.5 billion or less. In normal circumstances the Small Cap
Growth Fund will invest at least 65% of the value of its total assets in such
equity securities.
BNY Hamilton International Equity Fund (the "International Equity Fund") is
designed for more aggressive investors who wish to participate in foreign
markets. The Fund's investment objective is to provide long-term capital
appreciation through investing primarily in equity securities of non-U.S.
issuers. In normal circumstances, the Fund will invest in securities principally
traded in countries outside the United States. The Fund may at any time include
American Depository Receipts which are United States securities representing
foreign securities that are deposited with foreign custodians or foreign
branches of U.S. commercial banks; American Depository Receipts are traded in
U.S. dollars on national exchanges and in over-the-counter markets. At any given
time the Fund may invest 50% of its assets in the securities principally traded
in any one country, although the Fund will ordinarily invest at least 65% of its
total assets in at least three (3) countries.
BNY Hamilton Intermediate Government Fund (the "Intermediate Government Fund")
is designed for conservative bond investors looking for a relatively stable,
high quality investment. See "Quality and Diversification Requirements". The
Fund's investment objective is to earn as high a level of current income as is
consistent with the preservation of capital, moderate stability in net asset
value and minimal credit risk. The Fund will invest in obligations issued or
guaranteed by the United States Government and backed by the full faith and
credit of the United States. The Fund may also invest in obligations issued or
guaranteed by United States Government agencies or instrumentalities, where the
Fund must look principally to the issuing or guaranteeing agency for ultimate
repayment. The Fund may purchase or sell financial futures contracts and options
in an effort to reduce the volatility of its portfolio, moderate market risk and
minimize fluctuations in net asset value. For a discussion of these investments,
see "Hedging Activities".
BNY Hamilton Intermediate Investment Grade Fund (the "Intermediate Investment
Grade Fund") is designed for bond investors who wish to invest in debt
obligations of both domestic and foreign corporations and governments. The
Intermediate Investment Grade Fund's investment objective is to earn as high a
level of current income as is consistent with preservation of capital, moderate
stability in net asset value and maintenance of liquidity. In an effort to
attain its investment objective, the Fund will invest primarily in debt
obligations of domestic corporations, foreign corporations and foreign
governments, as well as obligations issued or guaranteed by the United States
Government and its agencies and instrumentalities. The debt securities the Fund
invests in will have ratings of at least investment grade quality, which would
be a rating no lower than BBB by Standard & Poor's Ratings Group ("S&P") and Baa
by Moody's Investors Services, Inc. ("Moody's"), or, if not rated, such
determined by the Adviser. In normal circumstances, the Fund will invest at
least 65% of its net assets in debt
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obligations of the above-mentioned entities, but may at any time as determined
appropriate by the Adviser invest a substantial portion of the net assets in
cash or cash equivalents.
BNY Hamilton Intermediate New York Tax-Exempt Fund (the "Intermediate New York
Tax-Exempt Fund") is designed to be an economical and convenient means of making
substantial investments in debt obligations that are exempt from federal, New
York State and New York City income tax. The Fund's investment objective is to
provide investors with income that is exempt from federal, New York State and
New York City income taxes while maintaining relative stability of principal.
The Fund will invest primarily in bonds issued by the State of New York and its
political subdivisions and by Puerto Rico and its political subdivisions. During
normal market conditions, the Adviser will attempt to invest 100%, and as a
fundamental policy at least 80%, of the Fund's total assets in bonds and notes
that are exempt from federal, New York State and New York City income taxes.
There may be occasions, due to market conditions or supply limitations, when
such securities are not available. In these situations, the Adviser may invest
in other fixed income securities that may be subject to federal, New York State
or New York City income taxes. Such investments would be considered temporary.
The Adviser will invest a portion of the Fund's assets in short-term investments
to provide liquidity. Investments in short-term investments may be increased for
defensive purposes if, in the opinion of the Adviser, market conditions so
warrant. The Fund seeks to maintain a current yield that is greater than that
obtainable from a portfolio of short-term tax-exempt obligations, subject to
certain quality restrictions. See "Quality and Diversification Requirements".
The Fund may seek to moderate market risk and minimize fluctuations in its net
asset value per share through the use of financial futures contracts and
options. See "Hedging Activities".
BNY Hamilton Intermediate Tax-Exempt Fund (the "Intermediate Tax-Exempt Fund")
is designed to be an economical and convenient means of making substantial
investments in debt obligations that are exempt from federal income tax. A
portion of the income recognized by the Intermediate Tax-Exempt Fund may be
exempt from state or local income tax as well; consult with your tax adviser for
details. The Intermediate Tax-Exempt Fund's investment objective is to provide
income that is exempt from federal income taxes while maintaining relative
stability of principal. The Fund will attempt to invest 100%, and as a
fundamental policy will invest at least 80%, of its net assets in such
investments. The securities purchased by the Fund will be limited to be
investment grade, which means that investments cannot be rated lower than BBB by
S&P and Baa by Moody's. If the securities are not rated, the investment adviser
is to determine whether they are equivalent to investment grade securities at
the time of purchase. At any time, as deemed appropriate by the Adviser, the
Fund may hold a substantial portion of its net assets in cash. The Fund may seek
to moderate market risk and minimize fluctuations in its net asset value per
share through the use of financial futures and options. See "Hedging
Activities".
BNY Hamilton S&P 500 Index Fund (the "S&P 500 Index Fund") is designed to match
the performance of the Standard & Poor's 500 Composite Index (the "S&P 500") .
The S&P 500
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is a market-weighted index composed of approximately 500 common stocks chosen by
Standard & Poor's based on a number of factors including industry group
representation, market value, economic sector and operating/financial condition.
BNY Hamilton U.S. Bond Market Index Fund (the "Bond Index Fund") is designed to
track the total rate of return of the Lehman Brothers Aggregate Bond Index (the
"Lehman Bond Index"). The Lehman Bond Index is a broad-based, unmanaged index
that covers the U.S. investment-grade, fixed-rate bond market and is comprised
of investment-grade government, corporate, mortgage- and asset-backed bonds that
are denominated in U.S. dollars, all with maturities longer than one year.
Investment-grade securities are rated in the four highest rating categories by a
nationally-recognized rating agency. Bonds are represented in the Lehman Bond
Index in proportion to their market value.
BNY Hamilton Large Cap Value Fund (the "Large Cap Value Fund") is designed for
conservative investors who are interested in participating in the equity
markets. The Fund's investment objective is to provide long-term capital
appreciation; current income is a secondary objective. The Fund will invest
primarily in common stock and convertible securities of large-capitalization
companies (i.e., companies whose market capitalization is $3 billion or more)
and will seek to maintain a weighted market capitalization of $3 billion. The
Fund may also invest up to 30% of its overall portfolio in companies with a
market capitalization of less than $3 billion.
Throughout this Statement of Additional Information, the Money Fund and the
Treasury Money Fund are collectively referred to as the "Money Market Funds";
the Equity Income Fund, the Large Cap Growth Fund, the Small Cap Growth Fund,
the International Equity Fund, the S&P 500 Index Fund and the Large Cap Value
Fund are collectively referred to as the "Equity Funds"; the Intermediate
Government Fund, the Intermediate Investment Grade Fund and the Bond Index Fund
are collectively referred to as the "Taxable Fixed Income Funds"; and the
Intermediate New York Tax-Exempt Fund and the Intermediate Tax-Exempt Fund are
collectively referred to as the "Tax-Exempt Fixed Income Funds".
The following discussion supplements the information regarding investment
objectives and policies of the respective Funds as set forth above and in their
respective prospectuses.
Government and Money Market Instruments
As discussed in the Prospectuses, each Fund may invest in cash equivalents to
the extent consistent with its investment objectives and policies. A description
of the various types of cash equivalents that may be purchased by the Funds
appears below. See "Quality and Diversification Requirements".
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<PAGE>
United States Government Obligations. Each of the Funds, subject to its
applicable investment policies, may invest in obligations issued or guaranteed
by the United States Government or by its agencies or instrumentalities.
Obligations issued or guaranteed by federal agencies or instrumentalities may or
may not be backed by the "full faith and credit" of the United States.
Securities that are backed by the full faith and credit of the United States
include Treasury bills, Treasury notes, Treasury bonds, and obligations of the
Government National Mortgage Association, the Farmers Home Administration, and
the Export-Import Bank. In the case of securities not backed by the full faith
and credit of the United States, each Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the United States itself in the event the agency
or instrumentality does not meet its commitments. Securities in which each Fund
may invest that are not backed by the full faith and credit of the United States
include, but are not limited to, obligations of the Tennessee Valley Authority,
the Federal National Mortgage Association and the United States Postal Service,
each of which has the right to borrow from the United States Treasury to meet
its obligations, and obligations of the Federal Farm Credit System and the
Federal Home Loan Banks, both of whose obligations may be satisfied only by the
individual credits of each issuing agency.
Foreign Government Obligations. Except for the Treasury Money Fund, each of the
Funds, subject to its applicable investment policies, may also invest in
short-term obligations of foreign sovereign governments or of their agencies,
instrumentalities, authorities or political subdivisions. These securities may
be denominated in United States dollars or, in the case of the Equity Funds and
Intermediate Investment Grade Fund, in another currency. See "Foreign
Investments".
Bank Obligations. Except for the Treasury Money Fund, each of the Funds, unless
otherwise noted in its relevant Prospectus or below, may invest in negotiable
certificates of deposit, time deposits and bankers' acceptances of (i) banks,
savings and loan associations and savings banks that have more than $2 billion
in total assets and are organized under the laws of the United States or any
state, (ii) foreign branches of these banks or of foreign banks of equivalent
size ("Euros") and (iii) United States branches of foreign banks of equivalent
size ("Yankees"). The Funds will not invest in obligations for which the
Adviser, or any of its affiliated persons, is the ultimate obligor or accepting
bank. Each of the Funds, other than the Tax-Exempt Fixed Income Funds, may also
invest in obligations of international banking institutions designated or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank).
Commercial Paper. Except for the Treasury Money Fund, each of the Funds may
invest in commercial paper, including Master Notes. Master Notes are obligations
that provide for a periodic adjustment in the interest rate paid and permit
periodic changes in the amount borrowed. Master Notes are governed by agreements
between the issuer and the Adviser acting as agent, for no additional fee, in
its capacity as investment adviser to the Funds and as
-8-
<PAGE>
fiduciary for other clients for whom it exercises investment discretion. The
monies loaned to the borrower come from accounts maintained with or managed by
the Adviser or its affiliates pursuant to arrangements with such accounts.
Interest and principal payments are credited to such accounts. The Adviser,
acting as a fiduciary on behalf of its clients, has the right to increase or
decrease the amount provided to the borrower under such Master Notes. The
borrower has the right to pay without penalty all or any part of the principal
amount then outstanding on an obligation together with interest to the date of
payment.
Since these obligations typically provide that the interest rate is tied to the
Treasury bill auction rate, the rate on Master Notes is subject to change.
Repayment of Master Notes to participating accounts depends on the ability of
the borrower to pay the accrued interest and principal of the obligation on
demand which is continuously monitored by the Adviser. Since Master Notes
typically are not rated by credit rating agencies, the Funds may invest in such
unrated obligations only if at the time of an investment the obligation is
determined by the Adviser to have a credit quality that satisfies such Fund's
quality restrictions. See "Quality and Diversification Requirements". Although
there is no secondary market for Master Notes, such obligations are considered
by the Funds to be liquid because they are payable within seven days of demand.
The Funds do not have any specific percentage limitation on investments in
Master Notes.
Repurchase Agreements. Each of the Funds may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Board of Directors of BNY Hamilton (the "Directors"). In a repurchase agreement,
a Fund buys a security from a seller that has agreed to repurchase the same
security at a mutually agreed upon date and price. The resale price is normally
in excess of the purchase price, reflecting an agreed upon interest rate. This
interest rate is effective for the duration of the agreement and is not related
to the coupon rate on the underlying security. A repurchase agreement may also
be viewed as a fully collateralized loan of money by a Fund to the seller. The
duration of these repurchase agreements will usually be short, from overnight to
one week, and at no time will the Funds invest in repurchase agreements for more
than one year. The securities that are subject to repurchase agreements,
however, may have durations in excess of one year from the effective date of the
repurchase agreement. The Fund will always receive securities as collateral
securities whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Fund in
each agreement plus accrued interest, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the Fund's custodian. If the seller defaults, a Fund might
incur a loss if the value of the collateral securing the repurchase agreement
declines, and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect to
the seller of the security, liquidation of the collateral by the Fund may be
delayed or limited. See "Investment Restrictions".
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Corporate Bonds and Other Debt Securities
As discussed in their respective Prospectuses, the Taxable Fixed Income Funds
may invest in bonds and other debt securities of domestic issuers to the extent
consistent with their investment objectives and policies. A description of these
investments appears in the Prospectuses for the Taxable Fixed Income Funds and
below. See "Quality and Diversification Requirements". For information on
short-term investments in these securities, see "Money Market Instruments".
Asset-Backed Securities. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Payments of principal and interest may be guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the entities issuing the securities.
The asset-backed securities in which a Fund may invest are subject to the Fund's
overall credit requirements. Asset-backed securities in general, however, are
subject to certain risks. Most of these risks are related to limited interests
in applicable collateral. For example, credit card debt receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts on credit card debt, thereby reducing the
balance due. Additionally, if the letter of credit is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on underlying sales contracts are not realized.
Mortgage-Backed Securities. Mortgage-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result of
the pass-through of prepayments of principal on the underlying mortgage
obligations. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate.
Accordingly, a Fund's ability to maintain positions in mortgage-backed
securities will be affected by reductions in the principal amount of such
securities resulting from such prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at that time. A Fund's net asset value per share for each class
will vary with changes in the values of its portfolio securities. To the extent
that a Fund invests in mortgage-backed securities, such values will vary with
changes in market interest rates generally and the differentials in yields among
various kinds of mortgage-backed securities.
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<PAGE>
Tax-Exempt Obligations
As discussed in the Prospectus for the Tax-Exempt Fixed Income Funds, the
Intermediate New York Tax-Exempt Fund and the Intermediate Tax-Exempt Fund may
invest in tax-exempt obligations to the extent consistent with the Fund's
investment objective and policies. A description of the various types of
tax-exempt obligations that the Tax-Exempt Fixed Income Funds may purchase
appears below. See "Quality and Diversification Requirements".
Municipal Bonds. Municipal bonds are debt obligations issued by the states,
territories and possessions of the United States and the District of Columbia,
by their political subdivisions and by duly constituted authorities and
corporations. For example, states, territories, possessions and municipalities
may issue municipal bonds to raise funds for various public purposes such as
airports, housing, hospitals, mass transportation, schools, water and sewer
works. They may also issue municipal bonds to refund outstanding obligations and
to meet general operating expenses. Public authorities issue municipal bonds to
obtain funding for privately operated facilities, such as housing and pollution
control facilities, for industrial facilities and for water supply, gas,
electricity and waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General obligation
bonds are secured by the issuer's pledge of its full faith, credit and taxing
power for the payment of principal and interest. Revenue bonds are payable from
revenues derived from particular facilities, from the proceeds of a special
excise tax or from other specific revenue sources. They are not usually payable
from the general taxing power of a municipality.
Municipal Notes. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time of
issuance normally ranging up to one year. The principal types of municipal notes
include tax anticipation notes, bond anticipation notes, revenue anticipation
notes, grant anticipation notes and project notes. Notes sold in anticipation of
collection of taxes, a bond sale, or receipt of other revenues are usually
general obligations of the issuing municipality or agency.
Municipal commercial paper typically consists of very short-term, unsecured,
negotiable promissory notes that are sold to meet the seasonal working capital
or interim construction financing needs of a municipality or agency. While these
obligations are intended to be paid from general revenues or refinanced with
long-term debt, they frequently are backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or institutions.
Municipal demand obligations are subdivided into two types: Variable Rate Demand
Notes and Master Notes.
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<PAGE>
Variable Rate Demand Notes are tax-exempt municipal obligations or participation
interests that provide for a periodic adjustment in the interest rate paid on
the notes. They permit the holder to demand payment of the notes, or to demand
purchase of the notes at a purchase price equal to the unpaid principal balance
plus accrued interest, either directly by the issuer or by drawing on a bank
letter of credit or guaranty issued with respect to such note. The issuer of the
Variable Rate Demand Note may have a corresponding right to prepay at its
discretion the outstanding principal of the note plus accrued interest upon
notice comparable to that required for the holder to demand payment. The
Variable Rate Demand Notes in which each Fund may invest are payable, or are
subject to purchase, on demand usually on notice of seven calendar days or less.
The terms of the notes will provide that interest rates are adjustable at
intervals ranging from daily to six months, and the adjustments are usually
based upon the prime rate of a bank or other appropriate interest rate index
specified in the respective notes.
Master Notes are tax-exempt municipal obligations that provide for a periodic
adjustment in the interest rate paid and permit daily changes in the amount
borrowed. The interest on such obligations is, in the opinion of counsel for the
borrower, exempt from federal income tax. For a description of the attributes of
Master Notes, see "Money Market Instruments" above. Although there is no
secondary market for Master Notes, such obligations are considered by each Fund
to be liquid because they are payable immediately upon demand. The Funds have no
specific percentage limitations on investments in Master Notes.
Puts. The Tax-Exempt Fixed Income Funds may purchase, without limit, municipal
bonds or notes together with the right to resell the bonds or notes to the
seller at an agreed price or yield within a specified period prior to the
maturity date of the bonds or notes. In addition, the Taxable Fixed Income Funds
may purchase notes together with the rights described above. Such a right to
resell is commonly known as a "put". The aggregate price for bonds or notes with
puts may be higher than the price for bonds or notes without puts. Consistent
with a Fund's investment objective and subject to the supervision of the
Directors, the purpose of this practice is to permit a Fund to be fully invested
in securities (tax-exempt securities in the case of the Tax-Exempt Fixed Income
Funds) while preserving the necessary liquidity to purchase securities on a
when-issued basis, to meet unusually large redemptions, and to purchase at a
later date securities other than those subject to the put. The principal risk of
puts is that the writer of the put may default on its obligation to repurchase.
The Adviser will monitor each writer's ability to meet its obligations under
puts.
Puts may be purchased as a feature of the underlying bond or note, or as an
independent security. When a Tax-Exempt Fixed Income Fund or a Taxable Fixed
Income Fund purchases puts as independent securities, it may exercise the puts
prior to their expiration date in order to fund obligations to purchase other
securities or to meet redemption requests. These obligations may arise during
periods in which proceeds from sales of Fund shares and from recent sales of
portfolio securities are insufficient to meet obligations or when the funds
available are otherwise allocated for investment. In addition, puts may be
exercised prior to the expiration date in order to take advantage of alternative
investment opportunities or in the
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event the Adviser revises its evaluation of the creditworthiness of the issuer
of the underlying security. In determining whether to exercise puts prior to
their expiration date and in selecting which puts to exercise, the Adviser will
consider the amount of cash available to the Fund, the expiration dates of the
available puts, any future commitments for securities purchases, alternative
investment opportunities, the desirability of retaining the underlying
securities in the Fund's portfolio and the yield, quality and maturity dates of
the underlying securities.
The Tax-Exempt Fixed Income Funds and the Taxable Fixed Income Funds will value
any securities subject to puts with remaining maturities of less than 60 days by
the amortized cost method. If the Intermediate New York Tax-Exempt Fund invests
in municipal bonds and notes with maturities of 60 days or more that are subject
to puts separate from the underlying securities, the puts and the underlying
securities will be valued at fair value as determined in accordance with
procedures established by the Directors. The Directors will, in connection with
the determination of the value of a put, consider, among other factors, the
creditworthiness of the writer of the put, the duration of the put, the dates on
which or the periods during which the put may be exercised and the applicable
rules and regulations of the Securities and Exchange Commission. Prior to
investing in such securities, a Fund, if deemed necessary based upon the advice
of counsel, will apply to the Securities and Exchange Commission for an
exemptive order, which may not be granted, relating to the valuation of such
securities.
Since the value of a put is partly dependent on the ability of the put writer to
meet its obligation to repurchase, the policy of the Tax-Exempt Fixed Income
Funds and the Taxable Fixed Income Funds is to enter into put transactions only
with securities dealers or issuers who are approved by the Adviser. Each dealer
will be approved on its own merits, and it is a Fund's general policy to enter
into put transactions only with those dealers that are determined to present
minimal credit risks. In connection with such determination, the Directors will
review regularly the Adviser's list of approved dealers, taking into
consideration, among other things, the ratings, if available, of their equity
and debt securities, their reputation in the securities markets, their net
worth, their efficiency in consummating transactions and any collateral
arrangements, such as letters of credit, securing the puts written by them.
Commercial bank dealers normally will be members of the Federal Reserve System,
and other dealers will be members of the National Association of Securities
Dealers, Inc. or members of a national securities exchange. Other put writers
will have outstanding debt rated in the highest rating categories as determined
by a Nationally Recognized Statistical Rating Organization ("NRSRO"). Currently,
there are six NRSROs: Moody's, S&P, Fitch Investors Services, L.P., Duff and
Phelps/MCM, IBCA Limited and its affiliate, IBCA, Inc. and Thomson Bankwatch. If
a put writer is not rated by an NRSRO, it must be of comparable quality in the
Adviser's opinion or such put writers' obligations will be collateralized and of
comparable quality in the Adviser's opinion. The Directors have directed the
Adviser not to enter into put transactions with any dealer that in the judgment
of the Adviser present more than a minimal credit risk. In the event that a
dealer should default on its obligation to
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repurchase an underlying security, a Fund is unable to predict whether all or
any portion of any loss sustained could subsequently be recovered from such
dealer.
BNY Hamilton has been advised by counsel that the Funds should be considered the
owner of the securities subject to the puts so that the interest on the
securities is tax-exempt income to the Tax-Exempt Fixed Income Funds. Such
advice of counsel is based on certain assumptions concerning the terms of the
puts and the attendant circumstances.
Equity Investments
As discussed in their Prospectuses, each of the Equity Funds may invest in
equity securities to the extent consistent with its investment objective and
policies. The securities in which the Equity Funds may invest include those
listed on any domestic or foreign securities exchange or traded in the
over-the-counter market. A discussion of the various types of equity investments
which may be purchased by the Equity Funds appears in the Prospectuses for the
Equity Funds and below. See "Quality and Diversification Requirements".
Equity Securities. The common stocks in which the Equity Funds may invest
includes the common stock of any class or series of domestic or foreign
corporations or any similar equity interest, such as a trust or partnership
interest. These investments may or may not pay dividends or carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
Convertible Securities. The convertible securities in which the Equity Funds may
invest include any debt securities or preferred stock that may be converted into
common stock or that carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time. They also entitle the holder to receive
interest or dividends until the holder elects to exercise the conversion
privilege.
The terms of a convertible security determine its ranking in a company's capital
structure. In the case of subordinated convertible debentures, the holders'
claims on assets and earnings are subordinated to the claims of other creditors
and are senior to the claims of preferred and common shareholders. In the case
of convertible preferred stock, the holders' claims on assets and earnings are
subordinated to the claims of all creditors and are senior to the claims of
common shareholders.
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Foreign Investments
The Money Fund, the Equity Income Fund, the Large Cap Growth Fund, the Small Cap
Growth Fund, the International Equity Fund, the Intermediate Investment Grade
Fund and the Large Cap Value Fund may invest in certain foreign securities. The
Money Fund does not expect to invest more than 65% of its total assets at the
time of purchase in securities of foreign issuers. The Equity Income Fund, the
Large Cap Growth Fund, the Small Cap Growth Fund, the Intermediate Investment
Grade Fund and the Large Cap Value Fund do not expect to invest more than 20% of
their respective total assets at the time of purchase in securities of foreign
issuers. All investments of the Money Fund must be United States
dollar-denominated. The Equity Income Fund, the Large Cap Growth Fund, the Small
Cap Growth Fund, the Intermediate Investment Grade Fund and the Large Cap Value
Fund do not expect more than 15% of their respective foreign investments to be
in securities that are not either listed on a securities exchange or United
States dollar-denominated. In the case of the Money Fund, any foreign commercial
paper must not be subject to foreign withholding tax at the time of purchase.
Foreign investments may be made directly in securities of foreign issuers or in
the form of American Depository Receipts ("ADRs"), European Depositary Receipts
("EDRs") and Global Depository Receipts ("GDRs"). Generally, ADRs, EDRs and GDRs
are receipts issued by a bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation and that are designed for
use in the domestic, in the case of ADRs, or global, in the case of EDRs and
GDRs, securities markets.
Since investments in foreign securities may involve foreign currencies, the
value of a Fund's assets as measured in United States dollars may be affected by
changes in currency rates and in exchange control regulations, including
currency blockage. The Equity Funds may enter into forward commitments for the
purchase or sale of foreign currencies in connection with the settlement of
foreign securities transactions or to hedge the underlying currency exposure
related to foreign investments, but they will not enter into such commitments
for speculative purposes.
To the extent that the Tax-Exempt Fixed Income Funds invest in municipal bonds
and notes backed by credit support arrangements with foreign financial
institutions, the risks associated with investing in foreign securities may be
relevant.
Additional Investments
When-Issued and Delayed Delivery Securities. Each of the Funds may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest accrues to a Fund until settlement takes place. At
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the time a Fund makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction, reflect the value each
day of such securities in determining its net asset value and, if applicable,
calculate the maturity for the purposes of average maturity from that date. At
the time of its acquisition, a when-issued security may be valued at less than
the purchase price. A Fund will make commitments for such when-issued
transactions only when it has the intention of actually acquiring the
securities. To facilitate such acquisitions, each Fund will maintain with the
custodian a segregated account with liquid assets, consisting of cash, U.S.
Government securities or other appropriate securities, in an amount at least
equal to such commitments. On delivery dates for such transactions, each Fund
will meet its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If a Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition, it could, as
with the disposition of any other portfolio obligation, incur a gain or loss due
to market fluctuation. It is the current policy of each Fund not to enter into
when-issued commitments exceeding in the aggregate 25% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
Investment Company Securities. The Equity Funds, the Taxable Fixed Income Funds
and the Tax-Exempt Fixed Income Funds may invest in the securities of other
investment companies within the limits set by the Investment Company Act of 1940
(the "1940 Act"). These limits require that, as determined immediately after a
purchase is made, (i) not more than 5% of the value of the Fund's total assets
will be invested in the securities of any one investment company, (ii) not more
than 10% of the value of the Fund's total assets will be invested in the
aggregate in securities of investment companies as a group and (iii) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund. As a shareholder of another investment company, a Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Fund bears directly in
connection with its own operations.
Reverse Repurchase Agreements. Except for the Treasury Money Fund, each of the
Funds may enter into reverse repurchase agreements. In a reverse repurchase
agreement, a Fund sells a security and agrees to repurchase the same security at
a mutually agreed upon date and price. This may also be viewed as the borrowing
of money by a Fund. The Funds will invest the proceeds of borrowings under
reverse repurchase agreements. In addition, a Fund will enter into a reverse
repurchase agreement only when the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. A Fund will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. A Fund may not enter into reverse repurchase agreements exceeding in
the aggregate one-third of the market value of its total assets, less
liabilities other than the obligations created by reverse repurchase agreements.
Each Fund will establish and maintain with the Custodian a separate account with
a segregated portfolio of securities in an amount at least equal to its purchase
obligations under its reverse repurchase
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agreements. If interest rates rise during the term of a reverse repurchase
agreement, entering into the reverse repurchase agreement may have a negative
impact on the Money Fund's ability to maintain a net asset value of $1.00 per
share. See "Investment Restrictions".
Loans of Portfolio Securities. The Equity Funds, the Taxable Fixed Income Funds
and the Tax-Exempt Fixed Income Funds may lend securities if such loans are
secured continuously by liquid assets consisting of cash, U.S. Government
securities or other appropriate securities or by a letter of credit in favor of
the Fund at least equal at all times to 100% of the market value of the
securities loaned, plus accrued interest. While such securities are on loan, the
borrower will pay the Fund any income accruing thereon. Loans will be subject to
termination by the Fund in the normal settlement time, currently three Business
Days after notice, or by the borrower on one day's notice (as used herein,
"Business Day" shall denote any day on which the New York Stock Exchange and the
custodian are both open for business). Borrowed securities must be returned when
the loan is terminated. Any gain or loss in the market price of the borrowed
securities that occurs during the term of the loan inures to the lending Fund
and its shareholders. The Funds may pay reasonable finders' and custodial fees
in connection with loans. In addition, the Funds will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and the Funds will not make any loans for terms in excess of one
year. The Funds will not lend their securities to any director, officer,
employee, or affiliate of BNY Hamilton, the Adviser, the Administrator or the
Distributor, unless permitted by applicable law.
Privately Placed and Certain Unregistered Securities. All Funds except the
Treasury Money Fund, [the S&P 500 Fund and the Bond Index Fund] may invest in
privately placed, restricted, Rule 144A and other unregistered securities as
described in their respective Prospectuses.
Quality and Diversification Requirements
Each of the Funds except the Intermediate New York Tax-Exempt Fund is classified
as a "diversified" series of a registered investment company under the 1940 Act.
This means that with respect to 75% of its total assets (1) the Fund may not
invest more than 5% of its total assets in the securities of any one issuer,
except obligations of the United States Government, its agencies and
instrumentalities, and (2) the Fund may not own more than 10% of the outstanding
voting securities of any one issuer. As for the remaining 25% of each Fund's
total assets, there is no such limitation on investment of these assets under
the 1940 Act, so that all of such assets may be invested in the securities of
any one issuer, subject to the limitation of any applicable state securities
laws, or, with respect to the Money Market Funds, as described below.
Investments not subject to the limitations described above could involve an
increased risk to a Fund should an issuer, or a state or its related entities,
be unable to make interest or principal payments or should the market value of
such securities decline.
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<PAGE>
The Intermediate New York Tax-Exempt Fund is classified as a non-diversified
series of a registered investment company so that it is not limited by the 1940
Act as to the proportion of its assets that it may invest in the obligations of
a single issuer. However, the Fund will comply with the diversification
requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code"),
and has therefore adopted an investment restriction, which applies to 50% of the
value of the assets of the Fund and which may not be changed without shareholder
vote, prohibiting the Fund from purchasing securities of any issuer if, as a
result, more than 5% of the assets of the Fund would be invested in the
securities of a single issuer. See "Investment Restrictions". The Fund also
intends to comply with the diversification requirements of the Tax Code, for
qualification thereunder as a regulated investment company. See "Taxes". As a
nondiversified series of an investment company, the Intermediate New York
Tax-Exempt Fund may be more susceptible to adverse economic, political or
regulatory developments affecting a single issuer than would be the case if the
Fund were a diversified company.
With respect to the Intermediate New York Tax-Exempt Fund, for purposes of
diversification and concentration under the 1940 Act, identification of the
issuer of municipal bonds or notes depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority, instrumentality
or other political subdivision are separate from those of the government
creating the subdivision and the obligation is backed only by the assets and
revenues of the subdivision, such subdivision is regarded as the sole issuer.
Similarly, in the case of an industrial development revenue bond or pollution
control revenue bond, if the bond is backed only by the assets and revenues of
the non-governmental user, the non-governmental user is regarded as the sole
issuer. If in either case the creating government or another entity guarantees
an obligation, the guaranty is regarded as a separate security and treated as an
issue of such guarantee. Since securities issued or guaranteed by states or
municipalities are not voting securities, there is no limitation on the
percentage of a single issuer's securities that a Fund may own so long as it
does not invest more than 5% of its total assets that are subject to the
diversification limitation in the securities of such issuer, except obligations
issued or guaranteed by the United States Government. Consequently, the Fund may
invest in a greater percentage of the outstanding securities of a single issuer
than would an investment company that invests in voting securities. See
"Investment Restrictions".
Money Market Funds. In order to attain its objective of maintaining a stable net
asset value of $1.00 per share for each of its respective classes, each of the
Money Market Funds will (i) limit its investment in the securities (other than
U.S. Government securities) of any one issuer to no more than 5% of the Fund's
assets, measured at the time of purchase, except for investments held for not
more than three Business Days (subject, however, to each Fund's investment
restriction No. 4 set forth under "Investment Restrictions" below); and (ii)
limit investments to securities that present minimal credit risks.
In order to limit the credit risk of the Money Fund's investments, it will not
purchase any security (other than a United States Government security) unless it
is rated in the highest rating
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category assigned to short-term debt securities (so-called "first tier"
securities) by at least two NRSROs such as Moody's (i.e., P-1 rating) and S&P
(i.e., A-1 rating) or, if not so rated, it is determined to be of comparable
quality. Determinations of comparable quality will be made in accordance with
procedures established by the Directors. These standards must be satisfied at
the time an investment is made. If the quality of the investment later declines,
the Money Fund may continue to hold the investment, subject in certain
circumstances to a finding by the Directors that disposing of the investment
would not be in the Money Fund's best interest.
In addition, the Directors have adopted procedures that (i) require each Money
Market Fund to maintain a dollar-weighted average portfolio maturity of not more
than 90 days and to invest only in securities with a remaining maturity of 397
days or less, and (ii) require each Money Market Fund, in the event of certain
downgradings of or defaults on portfolio holdings, to reassess promptly whether
the security presents minimal credit risks and, in certain circumstances, to
determine whether continuing to hold the security is in the best interests of
each Money Market Fund.
Equity Funds. The Equity Funds, except for the S&P 500 Index Fund, may invest in
convertible debt securities, for which there are no specific quality
requirements [Is this true of the S&P 5 Fund?]. In addition, at the time the
Equity Funds invest in any commercial paper, bank obligation or repurchase
agreement, the issuer must have outstanding debt rated A (or its equivalent) or
higher by an NRSRO; the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-2 (or its equivalent) or better by an
NRSRO; or if no such ratings are available, the investment must be of comparable
quality in the Adviser's opinion. At the time an Equity Fund invests in any
other short-term debt securities, they must be rated A (or its equivalent) or
higher by an NRSRO, or if unrated, the investment must be of comparable quality
in the Adviser's opinion.
Taxable Fixed Income Funds. During normal market conditions, each of the Taxable
Fixed Income Funds' portfolios will have a dollar weighted average maturity of
not less than three nor more than ten years. In addition, the Intermediate
Investment Grade Fund will not purchase a security with a maturity date of
greater than fifteen years at the time of purchase. The Intermediate Government
Fund's portfolio will, and the Intermediate Investment Grade Fund's portfolio
may, include a variety of securities that are issued or guaranteed by the United
States Treasury, by various agencies of the United States Government or by
various instrumentalities that have been established or sponsored by the United
States Government. Under normal market conditions, the Intermediate Government
Fund will invest at least 65% of the value of its total assets in Government
securities.
Tax-Exempt Fixed Income Funds. The Intermediate New York Tax-Exempt Fund invests
principally in a portfolio of "high quality" and "investment grade" New York
municipal bonds. The Intermediate Tax-Exempt Fund invests principally in such
municipal bonds from throughout the United States. For purposes of the
Intermediate New York Tax-Exempt Fund,
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on the date of investment (i) New York municipal bonds must be rated within the
four highest ratings of Moody's, currently Aaa, Aa, A and Baa, or of S&P,
currently AAA, AA, A and BBB, (ii) New York short-term municipal obligations
must be rated MIG-2 or higher by Moody's or SP-1 or higher by S&P and (iii) New
York tax-exempt commercial paper must be rated Prime-1 or higher by Moody's or
A-1 or higher by S&P or, if not rated by either Moody's or S&P, issued by an
issuer either (a) having an outstanding debt issue rated A or higher by Moody's
or S&P or (b) having comparable quality in the opinion of the Adviser. Each Fund
may invest in other tax-exempt securities that are not rated if, in the opinion
of the Adviser, such securities are of comparable quality to securities in the
rating categories discussed above. In addition, at the time a Fund invests in
any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or S&P, the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by S&P, or if no such ratings are available, the investment must
be of comparable quality in the Adviser's opinion.
In determining suitability of investment in a particular unrated security, the
Adviser takes into consideration asset and debt service coverage, the purpose of
the financing, history of the issuer, existence of other rated securities of the
issuer, and other relevant conditions, such as comparability to other issuers.
Hedging Activities
Hedging is a means of transferring risk that an investor does not desire to
assume during an uncertain market environment. In the case of the income funds,
interest rates have become increasingly volatile in recent years, and with the
advent of financial futures contracts, options on financial instruments and
indexes of debt securities, the Adviser believes it is now possible to reduce
the effects of market fluctuations.
Taxable Fixed Income Funds and Tax-Exempt Fixed Income Funds. The Taxable Fixed
Income Funds and the Tax-Exempt Fixed Income Funds may (i) sell futures
contracts on debt securities and indexes of debt securities and (ii) purchase or
write (sell) options on such futures and options on debt securities and on
indexes of debt securities. The Tax-Exempt Fixed Income Funds may also enter
into the above-described transactions with respect to municipal debt securities
and on indexes of municipal debt securities. The purpose of any such transaction
is to hedge against changes in the market value of securities in the Fund's
portfolio caused by fluctuating interest rates, and to close out or offset
existing positions in such futures contracts or options. The Taxable Fixed
Income Funds and the Tax-Exempt Fixed Income Funds will not engage in financial
futures or options transactions for speculation, but only as a hedge against
changes in the market values of securities held by the Funds and where the
transactions are appropriate to reduction of risk. The Taxable Fixed Income
Funds and Tax-Exempt Fixed Income Funds may not enter into futures contracts or
related options if, immediately thereafter, the sum of the amount of initial and
variation margin deposits on
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outstanding futures contracts and premiums paid for related options would exceed
20% of the market value of their respective total assets. In addition, the
Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds may not enter
into futures contracts or purchase or sell related options (other than
offsetting existing positions) if immediately thereafter the sum of the amount
of initial margin deposits on outstanding futures contracts and premiums paid
for related options would exceed 5% of the market value of their respective
total assets.
Special Considerations Relating to Hedging Activities. Each of the Taxable Fixed
Income Funds and the Tax-Exempt Fixed Income Funds may take positions in
financial futures contracts and options traded on registered securities
exchanges and contract markets solely as a hedge. However, for a hedge to be
completely successful, the price changes of the hedging instruments should equal
the price changes of the securities being hedged. To the extent the hedging
instrument utilized does not involve specific securities in the portfolio, such
equal price changes will not always be possible. Thus, hedging activities may
not be completely successful in eliminating market value fluctuations of the
portfolios. When using hedging instruments that do not specifically correlate
with securities in a Fund's portfolio, the Adviser will attempt to create a very
closely correlated hedge. In particular, hedging activities of the Tax-Exempt
Fixed Income Funds based upon non-municipal debt securities or indexes may not
correlate as closely to a Tax-Exempt Fixed Income Fund's portfolio as hedging
activities based upon municipal debt securities or indexes. Nevertheless,
hedging activities may be useful to the Tax-Exempt Fixed Income Funds,
especially where closely correlated hedging activities based upon municipal
securities or indexes are not available. See "Risks Associated with Futures
Contracts" below. Further, the use of options rather than financial futures
contracts to hedge portfolio securities may result in partial hedges because of
the limits inherent in the exercise prices.
Risks in the use of futures contracts result from the possibility that changes
in market interest rates may differ substantially from the changes anticipated
when hedge positions were established. For example, if any of the Funds has
hedged against the possibility of an increase in interest rates and instead
interest rates decline, the value of the Fund's portfolio will increase, but the
Fund will lose at least part of the benefit of that increased value because it
will have losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
maintenance margin requirements resulting from losses in its futures positions.
While the Funds will not ordinarily incur brokerage commissions on the portfolio
securities that they purchase, each Fund will pay brokerage commissions on its
financial futures and options transactions. The Funds will also incur premium
costs for purchasing put and call options. Brokerage commissions and premium
costs may tend to reduce the yield of the Funds.
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Each Fund's ability to engage in hedging activities and certain portfolio
transactions may be further limited by various investment restrictions of a
specific Fund and certain income tax considerations. For example, the amount of
assets that a specific Fund is permitted to invest in option and futures
contracts is limited as described above; furthermore, the limitations on the
percentage of gross income that a specific Fund may realize from transactions in
these securities may restrict its ability to effect transactions in these
securities. See "Taxes".
Financial Futures Contracts. Financial futures obligate the seller to deliver a
specific type of security called for in the contract, at a specified future
time, and for a specified price. Financial futures may be satisfied by actual
delivery of the securities or by entering into an offsetting transaction. In
offsetting or closing out an existing futures position, the seller of the
original contract enters into a futures contract to take delivery of the same
security at the same time as specified in the original futures contract.
Although financial futures contracts, by their terms, call for actual delivery
or acceptance of securities, in most cases the contracts are closed out before
the settlement date without making or taking delivery of the securities. Closing
out is accomplished by an offsetting transaction as described above. If the
price in the offsetting transaction (purchase) varies from the price in the
original futures contract (sale), the seller will realize a gain or loss on the
transaction. That gain or loss will tend to offset in whole or in part the
unrealized loss or gain that the securities held in the Funds' portfolio have
experienced, but may not always do so.
A public market exists in financial futures covering a number of debt
securities, including long-term United States Treasury bonds, ten-year United
States Treasury notes, Government National Mortgage Association modified
pass-through mortgage-backed certificates, three-month United States Treasury
bills, three-month domestic bank certificates of deposit and three-month
Eurodollar certificates of deposit. A public market also exists for futures
contracts on The Bond Buyer Index of forty long-term municipal bonds. In
addition, other financial futures contracts may be developed and traded. The
Funds may utilize any such contracts and associated put and call options for
which there is an active trading market. Financial futures are traded on
contract markets such as the Chicago Board of Trade and the New York Futures
Exchange, which are regulated by the Commodity Futures Trading Commission, a
federal agency.
When futures contracts are entered into, both buyer and seller are required,
under regulations of the applicable contract market, to post good faith deposits
with the brokers handling the trades or with a third party custodian as security
for the performance of their promise to buy or sell securities. This deposit,
the amount of which is determined by the contract market on which the futures
contract is traded, is called "initial margin". Each day, the investor's account
will be credited with any net gains due to favorable price movements during the
day's trading of contracts. Similarly, net losses, due to unfavorable price
movements during the day, will require the investor to make additional deposits
to the account. These daily settlement
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payments are called "variation margin". Initial margin requirements are
established by the contract markets and may be changed, but brokers may require
their customers to maintain margins higher than those established by the
contract markets.
In financial futures trading, margin does not involve any loan or borrowing.
Instead, it is a good faith deposit in the case of initial margin and a daily
settlement of gains and losses in the case of variation margin. Initial margin
deposits are held by the broker or a third party custodian in a segregated
customer account in the name of the investor, with the investor retaining all
rights and claims of ownership pursuant to federal regulation. The initial
margin deposits may be in the form of liquid securities such as Treasury bills
or bonds, the interest on which accrues to the investor, and which are returned
to the investor when it closes out a financial futures position. Variation
margin calls and payments must be made in cash.
The sale of futures contracts is for the purpose of hedging a Fund's securities
portfolio. For example, if interest rates were expected to increase, a Fund
might sell futures contracts. If interest rates did increase, the value of the
securities in the portfolio would decline. The value of a Fund's hedging
instruments would increase at approximately the same rate (depending on the
correlation between value in the futures markets and the prices of the Fund's
portfolio securities and limits, under regulations of the applicable contract
market, on the price movements per day of the hedging instrument), thereby
offsetting all or part of such decline in the value of the underlying portfolio
securities. A Fund could accomplish similar results by selling securities with
long maturities and investing in securities with short maturities when interest
rates are expected to increase or by buying securities with long maturities and
selling securities with short maturities when interest rates are expected to
decline, but might sacrifice some yield by so doing.
Options on Futures Contracts. The Taxable Fixed Income Funds and the Tax-Exempt
Fixed Income Funds may also purchase put options and write call options on
futures contracts that are traded on a United States exchange or board of trade
and enter into closing transactions with respect to such options to terminate an
existing position. The Funds may use their options on futures contracts in
connection with hedging strategies. Generally, these strategies would be
employed under the same market and market sector conditions in which the Funds
use put and call options on debt securities. See "Options" below. The purchase
of put options on futures contracts is analogous to the purchase of puts on debt
securities so as to hedge a Fund's portfolio of debt securities against the risk
of rising interest rates.
The writing of a call option on a futures contract constitutes a partial hedge
against declining prices of the debt securities that are deliverable upon
exercise of the futures contract. If the futures price at expiration is below
the exercise price, the Funds will retain the full amount of the option premium,
which provides a partial hedge against any decline that may have occurred in the
Funds' holdings of debt securities.
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Risks Associated with Futures Contracts. There are risks associated with the use
of futures contracts for hedging purposes. The price of a futures contract will
vary from day to day and should parallel (but not necessarily equal) the changes
in price of the underlying deliverable securities. The difference between these
two price movements is called "basis". There are occasions when basis becomes
distorted. For instance, in a rising interest rate environment, the increase in
value of the hedging instruments may not completely offset the decline in value
of the securities in the portfolio. Conversely, when interest rates decline, the
loss in the hedged position may be greater than the capital appreciation that a
Fund experiences in its securities positions. Distortions in basis are more
likely to occur when the securities hedged are not the security subject to the
futures contract or part of the index covered by the futures contract. Further,
if market values do not fluctuate, a Fund will sustain a loss at least equal to
the commissions on the financial futures transactions.
All investors in the futures market are subject to initial margin and variation
margin requirements. Rather than providing additional variation margin, an
investor may close out a futures position. Changes in the initial and variation
margin requirements may influence an investor's decision to close out the
position. The normal relationship between the securities and futures markets may
become distorted if changing margin requirements do not reflect changes in value
of the securities. The liquidity of the futures market depends on participants
entering into offsetting transactions rather than making or taking delivery of
the underlying securities. In the event investors decide to make or take
delivery (which is unlikely), liquidity in the futures market could be reduced,
thus producing temporary basis distortion. Finally, the margin requirements in
the futures market are substantially lower than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary basis distortion.
In the futures market, it may not always be possible to execute a buy or sell
order at the desired price, or to close out an open position due to market
conditions, limits on open positions, and/or daily price fluctuation limits.
Each market establishes a limit on the amount by which the daily market price of
a futures contract may fluctuate. Once the market price of a futures contract
reaches its daily price fluctuation limit, positions in the commodity can be
neither taken nor liquidated unless traders are willing to effect trades at or
within the limit. The holder of a futures contract (including a Fund) may
therefore be locked into its position by an adverse price movement for several
days or more, which may be to its detriment. If a Fund could not close its open
position during this period it would continue to be required to make daily cash
payments of variation margin. The risk of loss to a Fund is theoretically
unlimited when the Fund writes (sells) an uncovered futures contract because the
Fund is obligated to make delivery unless the contract is closed out, regardless
of fluctuations in the price of the underlying security. When a Fund purchases a
put option or call option, however, the maximum risk of loss to the Fund is the
price of the put option or call option purchased. See "Options".
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Options. In connection with their hedging activities, the Taxable Fixed Income
Funds and the Tax-Exempt Fixed Income Funds may purchase put options or write
(sell) call options on financial futures and debt securities.
The Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds may
purchase put options as a defensive measure to minimize the impact of market
price declines on the value of certain of the securities in each Fund's
portfolio. Each Taxable Fixed Income Fund or Tax-Exempt Fixed Income Fund may,
in addition, write call options only to the extent necessary to neutralize a
Fund's position in portfolio securities, i.e., balance changes in the market
value of the portfolio securities and the changes in the market value of the
call options. The Taxable Fixed Income Funds or the Tax-Exempt Fixed Income
Funds may also purchase call options and sell put options to close out open
positions.
The premium that a Fund receives from writing a call option will reflect, among
other things, the current market price of the underlying security, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security, the option period, supply and demand, and
interest rates.
A put option gives the purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying security at the exercise
price at any time during the option period. The Taxable Fixed Income Funds or
the Tax-Exempt Fixed Income Funds will only purchase put options on securities
that, in the opinion of the Adviser, have investment characteristics similar to
those of securities in each Fund's portfolio. The purchase of a put option would
be intended to protect a Fund from the risk of a decline in the value of a
security below the exercise price of the option. A Fund may ultimately sell the
option in a closing sale transaction, exercise it or permit it to expire. Profit
or loss from such a transaction will depend on whether the sale price is more or
less than the premium paid to purchase the put option plus the related
transaction costs.
A call option gives the purchaser of the option the right to buy, and the writer
of the option the obligation to sell, the underlying security at the exercise
price at any time during the option period, regardless of the market price of
the security. The premium paid to the writer is the consideration for
undertaking the obligations under the option contract. When a call option is
written by any of the Taxable Fixed Income Funds or the Tax Exempt Fixed Income
Funds, the Fund will make arrangements with its custodian to segregate the
related portfolio securities until either the option is exercised or the Fund
closes out the option as described below. A call option sold by a Fund exposes
the Fund during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the related portfolio security or to
possible continued holding of a security which might otherwise have been sold to
protect against depreciation in the market price of the security.
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The Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds will
purchase call options to close out open positions. In order to close out a
position, the Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds
may make a "closing purchase transaction" -- the purchase of a call option on
the same security with the same exercise price and expiration date as the option
which it has previously written on a particular security. The Taxable Fixed
Income Funds and the Tax-Exempt Fixed Income Funds may effect a closing purchase
transaction to realize a profit (or loss) if the amount paid to purchase a call
option is less (or more) than the amount received from the sale thereof, to
prevent an underlying security from being called or, in the case of a call
option, to permit the sale of the underlying security prior to the expiration
date of the option. Furthermore, effecting a closing purchase transaction in the
case of a call option will permit a Fund to write another call option with
either a different exercise price or expiration date or both. If a Fund desires
to sell a particular security from its portfolio on which it has written a call
option, it will effect a closing purchase transaction prior to or concurrently
with the sale of the security.
Because increases in the market price of a call option will generally reflect
increases in the market price of an underlying security, any loss resulting from
the repurchase of a call option is likely to be offset in whole or in part by
unrealized appreciation of the underlying security owned by a Fund. From time to
time, the Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds may
purchase an underlying security in the cash market for delivery in accordance
with an exercise notice of a call option assigned to it, rather than delivering
such security from its portfolio, in which case additional transaction costs
will be incurred.
Options written by the Taxable Fixed Income Funds and the Tax-Exempt Fixed
Income Funds will normally have expiration dates between three and nine months
from the date written. The exercise price of the options may be below
("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the
current market values of the underlying securities at the time the options are
written. The Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds
may engage in buy-and-write transactions in which a Fund simultaneously
purchases a security and writes a call option thereon. Where a call option is
written against a security subsequent to the purchase of that security, the
resulting combined position is also referred to as a buy-and-write. A
buy-and-write transaction using an in-the-money call option may be utilized when
it is expected that the price of the underlying security will remain flat or
decline moderately during the option period. In such a transaction, a Fund's
maximum gain will be the premium received from writing the option reduced by any
excess of the price paid by the Fund for the underlying security over the
exercise price. Buy-and-write transactions using at-the-money call options may
be utilized when it is expected that the price of the underlying security will
remain at or advance moderately during the option period. In such a transaction,
a Fund's gain will be equal to the premium received from writing the option.
Buy-and-write transactions using out-of-the-money call options may be utilized
when it is expected that the premiums received from writing the call option plus
the appreciation in the market price of the underlying security up to the
exercise price will be greater than the appreciation in the price of the
underlying security alone. In any of the foregoing situations, if the market
price of the
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underlying security declines, the Funds may or may not realize a loss, depending
on the extent to which such decline is offset by the premium received.
The Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds may
purchase put options to protect holdings in an underlying security against a
substantial decline in market value. Such hedge protection is provided only
during the life of the put option when a Fund as the holder of the put option is
able to sell the underlying security at the put exercise price regardless of any
decline in the underlying security's market price. By using put options in this
manner, a Fund will reduce any profit it might otherwise have realized in its
underlying security by the premium paid for the put option and by transaction
costs.
The Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds may also
create the effect of a futures contract position by simultaneous purchase of a
put and sale of a call option on the same security. For example, the
simultaneous purchase of a put option and the sale of a call option at the same
price and for the same exercise dates provide the Funds with the same hedged
position as is created by the sale of a futures contract. By varying the price
of the options the Funds are exposed to price changes within the range of the
different option prices.
The Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds will not
invest more than 5% of their respective net assets in premiums on put options.
See "Portfolio Transactions and Brokerage".
Index Transactions. The Taxable Fixed Income Funds and the Tax-Exempt Fixed
Income Funds may utilize futures contracts on bond indexes (municipal bond
indexes in the case of the Tax-Exempt Fixed Income Funds), or related put and
call options on such index contracts, so long as there is an active trading
market for the contracts. These contracts would be utilized as a hedge against
changes in the market value of securities in a Fund's portfolio. Each Fund's
strategy in employing such contracts would be similar to the strategies
discussed above regarding transactions in futures and options contracts
generally.
A bond index or municipal bond index assigns relative values to the bonds
included in the index. The index fluctuates with changes in the market values of
those securities included. For example, the municipal bond index traded on the
Chicago Board of Trade is The Bond Buyer Index, which includes forty tax-exempt
long-term revenue and general obligation bonds.
An index futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to a specified dollar amount
times the difference between the index value at the close of the last trading
day of the contract and the price at which the index contract was originally
written. Thus, the index contract is similar to traditional futures contracts
except that settlement is made in cash. Initial and variation margins are
payable by
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the holders of both long and short positions in the index future. No physical
delivery of the underlying bonds in the index is made.
The Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds may also
buy put options and sell call options on applicable bond, or municipal bond,
index futures or on applicable bond, or municipal bond indexes. Options on index
futures are similar to options on debt instruments except that an option on an
index future gives the purchaser the right, in return for the premium paid, to
assume a position in an index contract rather than to purchase or sell a debt
instrument at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance of the writer's futures margin account which
represents the amount by which the market price of the index futures contract,
at exercise, exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the index future.
Options on indexes are also similar to options on debt instruments, except that
rather than the right to take or make delivery of a debt instrument at a
specified price, an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based is greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the option. Unlike options on
debt instruments, gain or loss depends on the price movements in the securities
included in the index rather than price movements in individual debt
instruments.
Equity Funds
Stock Index Futures, Related Options and Options on Stock Indexes. Each of the
Equity Funds may attempt to reduce the risk of investment in equity securities
by hedging a portion of its portfolio securities through the use of stock index
futures, options on stock index futures traded on a national securities exchange
or board of trade and options on securities and on stock indexes traded on
national securities exchanges. The Equity Funds' policies with respect to
hedging activities are discussed at length in the Prospectuses for the Equity
Funds.
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. Initial and variation margins are payable by the holders of positions in
the stock index future. 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, the option writer delivers to the
option
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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, an Equity
Fund may hedge a portion of its portfolio by selling stock index futures
contracts, purchasing put options on such contracts or purchasing put options on
stock indexes in order to limit exposure to the decline. The Equity Funds may
ultimately sell a put option in a closing sale transaction, exercise it or
permit it to expire. Profit or loss from such a transaction will depend on
whether the sale price is more or less than the premium paid to purchase the put
option plus the related transaction costs. This strategy 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, a Fund may hedge a portion of its portfolio by purchasing stock
index futures contracts, purchasing call options on such contracts or purchasing
call options on stock indexes. This strategy affords a hedge against a Fund's
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. A Fund will sell
options on stock index futures and on stock indexes only to close out existing
hedge positions.
The Equity Funds will not engage in transactions in stock index futures
contracts or related options for speculation. The Equity Funds will use these
instruments only as a hedge against changes resulting from market conditions in
the values of securities held in a Fund's portfolio or which it intends to
purchase and where the transaction is economically appropriate to the reduction
of risks inherent in the ongoing management of a Fund. In addition, a Fund will
sell stock index futures only if the amount resulting from the multiplication of
the then current level of the indexes upon which its futures contracts are based
and the number of futures contracts which would be outstanding do not exceed
one-third of the value of a Fund's net assets. A Fund also may not purchase or
sell stock index futures or purchase options on futures if, immediately
thereafter, the sum of the amount of margin deposits on a Fund's existing
futures positions and premiums paid for such options would exceed 5% of the
market value of a Fund's total assets. When a Fund purchases stock index futures
contracts, it will deposit an amount of cash and cash equivalents equal to the
market value of the futures contracts in a segregated account with the Fund's
custodian.
The Equity Funds' successful use of stock index futures contracts, options on
such contracts and options on indexes depends upon the Adviser's ability to
predict movements in the direction of the market and is subject to various
additional risks. The correlation between movements in the price of the stock
index future and the price of the securities being hedged is imperfect and the
risk from imperfect correlation increases as the composition of the Fund's
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portfolio diverges from the composition of the relevant index. In addition, if
the specific Fund purchases futures to hedge against market advances before it
can invest in common stock in an advantageous manner and the market declines, it
might create a loss on the futures contract. Particularly in the case of options
on stock index futures and on stock indexes, the Fund's ability to establish and
maintain positions will depend on market liquidity.
For a discussion of the risks associated with index futures contracts, see
"Hedging Activities -- Taxable Fixed Income Funds and Tax-Exempt Fixed Income
Funds". See also "Portfolio Transactions and Brokerage".
Options on Securities. The Equity Funds may purchase put options only on equity
securities held in its portfolio and write call options on stocks only if they
are covered, and such call options must remain covered so long as the relevant
Fund is obligated as a writer. The Equity Funds do not presently intend to
purchase put options and write call options on stocks that are not traded on
national securities exchanges or listed on the Nasdaq National Market(R)
("NASDAQ").
The Equity Funds may, from time to time, write call options on its portfolio
securities. The Equity Funds may write only call options that are "covered",
meaning that the writing Fund either owns the underlying security or has an
absolute and immediate right to acquire that security, without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian), upon conversion or exchange of other securities currently
held in its portfolio. In addition, a Fund will not permit the call to become
uncovered prior to the expiration of the option or termination through a closing
purchase transaction as described below. If a Fund writes a call option, the
purchaser of the option has the right to buy (and the Fund has the obligation to
sell) the underlying security at the exercise price throughout the term of the
option. The amount paid to a Fund by the purchaser of the option is the
"premium". A Fund's obligation to deliver the underlying security against
payment of the exercise price would terminate either upon expiration of the
option or earlier if a Fund were to effect a "closing purchase transaction"
through the purchase of an equivalent option on an exchange. There can be no
assurance that a closing purchase transaction can be effected. The Equity Funds
are not able to effect closing purchase transactions after they receive notice
of exercise.
In order to write a call option, a Fund is required to comply with the rules of
The Options Clearing Corporation and the various exchanges with respect to
collateral requirements. A Fund may not purchase call options on individual
stocks except in connection with a closing purchase transaction. It is possible
that the cost of effecting a closing transaction may be greater than the premium
received by a Fund for writing the option.
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An Equity Fund may also purchase listed put options, but only if it owns the
underlying securities. If a Fund purchases a put option, it has the option to
sell a given security at a specified price at any time during the term of the
option.
Purchasing put options may be used as a portfolio investment strategy when the
investment adviser perceives significant short-term risk but substantial
long-term appreciation for the underlying security. The put option acts as an
insurance policy, as it protects against significant downward price movement
while it allows full participation in any upward movement. If a Fund is holding
a stock that it feels has strong fundamentals, but for some reason may be weak
in the near term, it may purchase a listed put on such security, thereby giving
itself the right to sell such security at a certain strike price throughout the
term of the option. Consequently, a Fund will exercise the put only if the price
of such security falls below the strike price of the put. The difference between
the put's strike price and the market price of the underlying security on the
date a Fund exercises the put, less transaction costs, will be the amount by
which the Fund will be able to hedge against a decline in the underlying
security. If during the period of the option the market price for the underlying
security remains at or above the put's strike price, the put will expire
worthless, representing a loss of the price the Fund paid for the put, plus
transaction costs. If the price of the underlying security increases, the profit
a Fund realizes on the sale of the security will be reduced by the premium paid
for the put option less any amount for which the put may be sold.
================================================================================
INVESTMENT RESTRICTIONS
Fundamental Policies
In addition to its investment objectives, each Fund is subject to certain
investment restrictions that are deemed fundamental policies, i.e., policies
that cannot be changed without the approval of the holders of a majority of the
outstanding voting securities of the Fund, as defined under "Additional
Information" below. See "Organization" and "Additional Information". The
investment restrictions of each Fund follow.
The Money Market Funds may not:
1. Acquire illiquid securities, including repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 10% of the market
value of a Fund's net assets would be in investments that are illiquid
(except that the Money Fund may enter into securities as described in
"Privately Placed and Certain Unregistered Securities");
2. Enter into reverse repurchase agreements (although the Money Fund may
enter into reverse repurchase agreements, provided such agreements do not
exceed in the
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aggregate one-third of the market value of the Money Fund's total assets,
less liabilities other than obligations created by reverse repurchase
agreements);
3. Borrow money, except from banks for extraordinary or emergency purposes
and then only in amounts not to exceed one-third of the value of the
relevant Fund's total assets, taken at cost, at the time of such borrowing
and except in connection with permitted reverse repurchase agreements, or
mortgage, pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not to exceed one-third of the value of the
Fund's total assets at the time of such borrowing. Neither Fund will
purchase securities while borrowings (including reverse repurchase
agreements) exceed 5% of its total assets. This borrowing provision is
included to facilitate the orderly sale of portfolio securities, for
example, in the event of abnormally heavy redemption requests, and is not
for investment purposes and, in the case of the Money Fund, will not apply
to reverse repurchase agreements;
4. Purchase the securities or other obligations of any issuer if, immediately
after such purchase, more than 5% of the value of the relevant Fund's
total assets would be invested in securities or other obligations of any
one such issuer. This limitation does not apply to issues of the United
States Government, its agencies or instrumentalities or to permitted
investments of up to 25% of a Fund's total assets;
5. Purchase the securities or other obligations of issuers in the same
industry if, immediately after such purchase, the value of its investment
in such industry would exceed 25% of the value of the relevant Fund's
total assets, except that the Fund may invest more than 25% of its assets
in securities and other instruments issued by banks and bank holding
companies. For purposes of industry concentration, there is no percentage
limitation with respect to investments in securities issued or guaranteed
by the United States Government, its agencies or instrumentalities,
negotiable certificates of deposit, time deposits, and bankers'
acceptances of United States branches of United States banks;
6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities in
accordance with the relevant Fund's investment objective and policies (see
"Investment Objectives and Policies");
7. Purchase or sell puts, calls, straddles, spreads or any combination
thereof; real estate; commodities; or commodity contracts or interests in
oil, gas, or mineral exploration, development or lease programs. However,
the Money Fund may purchase bonds or commercial paper issued by companies
which invest in real estate or interest therein including real estate
investment trusts;
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8. Purchase securities on margin, make short sales of securities or maintain
a short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or of
securities for delivery at a future date;
9. Acquire securities of other investment companies, except as permitted by
the 1940 Act or the rules thereunder;
10. Act as an underwriter of securities; or
11. Issue senior securities as defined in the 1940 Act, except insofar as a
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase agreement or reverse repurchase agreement;
(b) permitted borrowings of money; or (c) purchasing securities on a
when-issued or delayed delivery basis.
In addition to the restrictions listed above, the Treasury Money Fund may not:
1. Invest in structured notes or other instruments commonly known as
derivatives;
2. Invest in any type of variable, adjustable or floating rate securities;
3. Invest in securities issued by agencies or instrumentalities of the United
States Government, such as the Federal National Mortgage Association,
Government National Mortgage Association, Federal Home Loan Mortgage Corp.
or the Small Business Administration; or,
4. Invest in zero coupon bonds, except that the Treasury Money Fund may
invest in zero coupon bonds issued by the United States Government
provided that the bonds mature within 397 days from the date of purchase,
and that the Treasury Money Fund may include zero coupon bonds issued by
the United States Government as collateral for repurchase agreements.
The Equity Funds may not:
1. Acquire illiquid securities, including repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market
value of a Fund's net assets would be in investments that are illiquid;
2. Borrow money, except from banks for extraordinary or emergency purposes
and then only in amounts not to exceed one-third of the value of the
relevant Fund's total assets, taken at cost, at the time of such borrowing
and except in connection with reverse
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repurchase agreements permitted by Investment Restriction 12, or mortgage,
pledge, or hypothecate any assets except in connection with any such
borrowing in amounts not to exceed one-third of the value of the Fund's
net assets at the time of such borrowing. A Fund will not purchase
securities while borrowings exceed 5% of the Fund's total assets. This
borrowing provision is included to facilitate the orderly sale of
portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes. Collateral
arrangements for premium and margin payments in connection with a Fund's
hedging activities are not deemed to be a pledge of assets;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the relevant
Fund's total assets would be invested in securities or other obligations
of any one such issuer. This limitation shall not apply to issues of the
United States Government, its agencies or instrumentalities and to
permitted investments of up to 25% of a Fund's total assets;
4. Purchase the securities or other obligations of issuers in the same
industry if, immediately after such purchase, the value of its investments
in such industry would exceed 25% of the value of a Fund's total assets.
For purposes of industry concentration, there is no percentage limitation
with respect to investments in securities of the United States Government,
its agencies or instrumentalities;
5. Purchase the securities of an issuer if, immediately after such purchase,
the relevant Fund owns more than 10% of the outstanding voting securities
of such issuer;
6. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of
repurchase agreements, or loans of portfolio securities in accordance with
a Fund's investment objectives and policies (see "Investment Objectives
and Policies");
7. Purchase or sell puts, calls, straddles, spreads or any combination
thereof; real estate; commodities or commodity contracts, except for a
Fund's interests in hedging activities as described under "Investment
Objectives and Policies"; or interests in oil, gas or mineral exploration
or development programs. However, a Fund may purchase securities or
commercial paper issued by companies which invest in real estate or
interests therein, including real estate investment trusts;
8. Purchase securities on margin, make short sales of securities, or maintain
a short position, except in the course of a Fund's hedging activities,
provided that this restriction shall not be deemed to be applicable to the
purchase or sale of when-issued securities or delayed delivery securities;
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<PAGE>
9. Invest in fixed time deposits with a duration of from two Business Days to
seven calendar days if more than 10% of the Fund's total assets would be
invested in such deposits;
10. Acquire securities of other investment companies, except as permitted by
the 1940 Act or the rules thereunder;
11. Act as an underwriter of securities; or
12. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which a Fund is permitted to incur
pursuant to Investment Restriction 2 and except that the Fund may enter
into reverse repurchase agreements, provided that the aggregate of senior
securities, including reverse repurchase agreements, shall not exceed
one-third of the market value of its total assets, less liabilities other
than obligations created by reverse repurchase agreements. A Fund's
arrangements in connection with its hedging activities as described in
"Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof.
The Taxable Fixed Income Funds may not:
1. Acquire illiquid securities, including repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market
value of the relevant Fund's net assets would be in investments that are
illiquid;
2. Borrow money, except from banks for extraordinary or emergency purposes
and then only in amounts up to one-third of the value of the relevant
Fund's total assets, taken at cost at the time of such borrowing and
except in connection with reverse repurchase agreements permitted by
Investment Restriction 10, or mortgage, pledge, or hypothecate any assets,
except in connection with any such borrowing in amounts up to one-third of
the value of the Fund's net assets at the time of such borrowing. A Fund
will not purchase securities while borrowings (including reverse
repurchase agreements) exceed 5% of its total assets. This borrowing
provision facilitates the orderly sale of portfolio securities, for
example, in the event of abnormally heavy redemption requests. This
provision is not for investment purposes. Collateral arrangements for
premium and margin payments in connection with a Fund's hedging activities
are not deemed to be a pledge of assets;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the relevant
Fund's total assets would be invested in securities or other obligations
of any one such issuer. This limitation shall
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<PAGE>
not apply to securities issued or guaranteed by the United States
Government, its agencies or instrumentalities and to permitted investments
of up to 25% of a Fund's total assets;
4. Purchase the securities of an issuer if, immediately after such purchase,
the relevant Fund owns more than 10% of the outstanding voting securities
of such issuer. This limitation shall not apply to permitted investments
of up to 25% of a Fund's total assets;
5. Purchase the securities or other obligations of issuers in the same
industry if, immediately after such purchase, the value of its investment
in such industry would exceed 25% of the value of a Fund's total assets,
except that a Fund will invest more than 25% of its assets in securities
issued or guaranteed by the United States Government, its agencies or
instrumentalities;
6. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the
relevant Fund's investment objective and policies;
7. Purchase or sell puts, calls, straddles, spreads or any combination
thereof; real estate; commodities; commodity contracts, except for a
Fund's interest in hedging activities as described under "Investment
Objectives and Policies"; or interest in oil, gas, or mineral exploration
or development programs. However, a Fund may purchase debt obligations
secured by interests in real estate or issued by companies which invest in
real estate or interests therein including real estate investment trusts;
8. Purchase securities on margin, make short sales of securities or maintain
a short position, except in the course of the relevant Fund's hedging
activities, unless at all times when a short position is open the Fund
owns an equal amount of such securities or securities convertible into
such securities or maintains in a segregated account liquid short-term
securities with a market value at all times equal to or greater than the
relevant Fund's purchase obligation or short position; provided that this
restriction shall not be deemed to be applicable to the purchase or sale
of when-issued or delayed delivery securities;
9. Invest in fixed time deposits with a duration of from two Business Days to
seven calendar days if more than 10% of a Fund's total assets would be
invested in such deposits;
10. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which a Fund is permitted to incur
pursuant to
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<PAGE>
Investment Restriction 2 and except that a Fund may enter into reverse
repurchase agreements, provided that the aggregate of senior securities,
including reverse repurchase agreements, shall not exceed one-third of the
market value of the Fund's total assets, less liabilities other than
obligations created by reverse repurchase agreements. A Fund's
arrangements in connection with its hedging activities as described in
"Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof;
11. Acquire securities of other investment companies, except as permitted by
the 1940 Act or the rules thereunder; or
12. Act as an underwriter of securities.
The Tax-Exempt Fixed Income Funds may not:
1. Acquire illiquid securities, including repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market
value of the relevant Fund's net assets would be in investments that are
illiquid;
2 Borrow money, except from banks for extraordinary or emergency purposes
and then only in amounts up to one-third of the value of the relevant
Fund's total assets, taken at cost at the time of such borrowing and
except in connection with reverse repurchase agreements permitted by
Investment Restriction 10, or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing in amounts up to one-third of
the value of the Fund's net assets at the time of such borrowing. A Fund
will not purchase securities while borrowings (including reverse
repurchase agreements) exceed 5% of the Fund's total assets. This
borrowing provision facilitates the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests. This
provision is not for investment purposes. Collateral arrangements for
premium and margin payments in connection with a Fund's hedging activities
are not deemed to be a pledge of assets;
3. Purchase securities or other obligations of any one issuer if, immediately
after such purchase, more than 5% of the value of the relevant Fund's
total assets would be invested in securities or other obligations of any
one such issuer. Each state and political subdivision, agency or
instrumentality of such state and each multi-state agency of which such
state is a member will be a separate issuer if the security is backed only
by the assets and revenue of that issuer. If the security is guaranteed by
another entity, the guarantor will be deemed to be the issuer. This
limitation shall not apply to securities issued or guaranteed by the
United States Government, its agencies or instrumentalities or to
permitted investments of up to 50% of a Fund's total assets;
-37-
<PAGE>
4. Purchase the securities or other obligations of issuers in the same
industry if, immediately after such purchase, the value of the relevant
Fund's investment in such industry would exceed 25% of the value its total
assets, except that a Fund will invest more than 25% of its assets in
securities issued or guaranteed by the United States Government, (and, in
the case of the Intermediate New York Tax-Exempt Fund, New York State, New
York City and the Commonwealth of Puerto Rico) and their respective
authorities, agencies, instrumentalities and political subdivisions;
5. Purchase industrial revenue bonds if, as a result of such purchase, more
than 5% of the relevant Fund's total assets would be invested in
industrial revenue bonds where payment of principal and interest are the
responsibility of companies with fewer than three years of operating
history (including predecessors);
6. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the
relevant Fund's investment objective and policies (see "Investment
Objectives and Policies");
7. Purchase or sell puts, calls, straddles, spreads or any combination
thereof except to the extent that securities subject to a demand
obligation, stand-by commitments and puts may be purchased (see
"Investment Objectives and Policies"); real estate; commodities; commodity
contracts, except for a Fund's interest in hedging activities as described
under "Investment Objectives and Policies"; or interests in oil, gas, or
mineral exploration or development programs. However, a Fund may purchase
municipal bonds, notes or commercial paper secured by interest in real
estate;
8. Purchase securities on margin, make short sales of securities or maintain
a short position, except in the course of the Fund's hedging activities,
unless at all times when a short position is open the Fund owns an equal
amount of such securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for securities
of the same issue as, and equal in amount to, the securities sold short;
provided that this restriction shall not be deemed to be applicable to the
purchase or sale of when-issued or delayed delivery securities;
9. Invest in fixed time deposits with a duration of from two Business Days to
seven calendar days if more than 5% of the relevant Fund's total assets
would be invested in such deposits;
10. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which a Fund is permitted to incur
pursuant to Investment Restriction 2 and except that a Fund may enter into
reverse repurchase agreements, provided that the aggregate of senior
securities, including reverse
-38-
<PAGE>
repurchase agreements, shall not exceed one-third of the market value of
the relevant Fund's total assets, less liabilities other than obligations
created by reverse repurchase agreements. A Fund's arrangements in
connection with its hedging activities as described in "Investment
Objectives and Policies" shall not be considered senior securities for
purposes hereof;
11. Acquire securities of other investment companies, except as permitted by
the 1940 Act or the rules thereunder; or
12. Act as an underwriter of securities.
Undertaking in Response to State Securities Regulations
In order to satisfy the requirements of certain state securities regulations,
the Equity Income Fund has undertaken not to invest more than 5% of its net
assets in warrants and to further restrict its investment in warrants so that
not more than 2% of net assets will be invested in warrants that are not listed
on the New York Stock Exchange or the American Stock Exchange. This is not,
however, a fundamental policy and may be changed by the Directors at any time
without the approval of the shareholders of the Equity Income Fund.
================================================================================
DIRECTORS AND OFFICERS
The directors and executive officers of BNY Hamilton Funds, Inc., their business
addresses and their principal occupations during the past five years are [BONY
- -- please add information for new director]:
Principal Occupations
Name and Address Position with Funds During Past Five Years
- ---------------- ------------------- ----------------------
Edward L. Gardner Director and Chairman of Chairman of the Board,
411 Theodore Fremd the Board President and Chief
Ave. Executive Officer,
Rye, NY 10580 Industrial Solvents
Age 64 Corporation, 1981 to
Present; Chairman of the
Board, Blue Grass Chemical
Specialties Inc., 1982 to
Present; Chairman of the
Board, Big Brothers/Big
Sisters of New York City,
1992 to Present; National
Vice-Chairman, Big
Brothers/Big Sisters of
America, 1993 to Present;
President, Big Brothers/Big
Sisters of America
Foundation, 1994 to Present;
Vice President of the Board,
The Sherry Netherland Hotel,
1991 to Present; Member,
Points of Light Foundation,
-39-
<PAGE>
Principal Occupations
Name and Address Position with Funds During Past Five Years
- ---------------- ------------------- ----------------------
1995 to Present; Member, The
National Assembly, 1992 to
Present; Member, Alvin Ailey
Dance Theatre Foundation,
Inc., 1989 to Present;
Member, The Institute for
Art and Urban Resources,
Inc. 1985 to 1994; Member,
Mercy College, 1989 to
Present; Member,
Westchester/Putnam Regional
Board of Directors, The Bank
of New York, 1982 to
Present; Member, Westchester
County Association, 1986 to
Present.
Mr. Stephen Stamas Director Chairman, New York
Windcrest Partners Philharmonic, 1989 to
122 E. 42nd Street Present.
49th Floor
New York, NY 10168
Age 68
James E. Quinn Director Member, Board of Directors,
727 Fifth Avenue Tiffany & Co., January 1995
New York, NY 10022 to Present; Executive Vice
Age 47 President of Sales, Tiffany
& Co., March 1992 to
Present.
Karen Osar Director Vice President & Treasurer,
1725 King Street Tenneco Inc., January 1994
Greenwich, CT 06831 to Present; Managing
Age 50 Director of Corporate
Finance Group, J.P. Morgan &
Co., Inc.; held various
other positions at J.P.
Morgan & Co., Inc. from
1975-1994.
Kim Kelly Director Executive Vice President and
Insight Communications Chief Financial Officer,
126 East 56th Street Insight
New York, NY 10022 Communication since 1990 to
Age 42 present, and Chief Operating
Officer, Insight
Communications since January
1998 to present. Marine
Midland Bank from 1982-1990.
Senior Vice President with
primary responsibility for
media lending activities,
Marine Midland Bank 1988.
Held various other positions
at Marine Midland Bank from
1982-1988. Member of the
National Cable Television
Association Subcommittee for
Telecommunications Policy
and National Cable
Television Association
Subcommittee for Accounting.
Board member of Community
Antenna Television
Association, Cable in the
Classroom and Cable
Advertising Bureau.
J. David Huber Chief Executive Officer Employee, BISYS Fund
3435 Stelzer Road Services, Inc., June 1987 to
Columbus, OH 43219 Present
Age 52
William J. Tomko President Vice President, BISYS Fund
3435 Stelzer Road Services, Inc., 1989 to
Columbus, OH 43219 Present
Age 40
-40-
<PAGE>
Principal Occupations
Name and Address Position with Funds During Past Five Years
- ---------------- ------------------- ----------------------
Richard Baxt Vice President Senior Vice President,
90 Park Avenue Client Services, BISYS Fund
10th Floor Services, Inc., 1997 to
New York, NY 10956 Present; General Manager of
Age 45 Investment and Insurance,
First Fidelity Bank;
President, First Fidelity
Brokers; President, Citicorp
Investment Services.
Michael A. Grunewald Vice President Manager, Client Services,
3435 Stelzer Road BISYS Fund Services, Inc.,
Columbus, OH 43219 1993 to Present.
Age 29
Nimish Bhatt Treasurer Vice President, Tax and
3435 Stelzer Road Financial Services, BISYS
Columbus, OH 43219 Fund Services, Inc., June
Age 36 1996-Present; Assistant Vice
President, Evergreen
Funds/First Union Bank, 1995
to July 1996; Senior Tax
Consultant, Price Waterhouse
LLP, 1990 to December 1994.
Lisa Hurley Secretary [Vice President, Legal
90 Park Avenue Services, BISYS Fund
10th Floor Services, Inc.,
New York, NY 10956 1995-Present; Attorney,
Age 29 private practice, 1990 to
1995.]
Alaina V. Metz Assistant Secretary Chief Administrator,
3435 Stelzer Road Administration Services of
Columbus, OH 43219 BISYS Fund Services, Inc.,
Age 31 June 1995 to Present;
Supervisor of Mutual Fund
Legal Department, Alliance
Capital Management, May 1989
to June 1995.
================================================================================
*Interested person
In 1999, the Directors will be paid an annual fee of $15,000 and an additional
$1,200 for each meeting of the Board of Directors that they attend, plus
out-of-pocket expenses. The Directors are not paid any pension or retirement
benefits. The Directors may hold various other directorships unrelated to the
Funds.
-41-
<PAGE>
The following chart describes the compensation paid to Directors by BNY Hamilton
Funds, Inc. for the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Total
Compensation Benefits Accrued Estimated Annual Compensation
Name of Person, Paid by the as Part of Fund Benefits Upon Paid by the Funds
Position Funds Expenses Retirement to Directors
- --------------- ------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Edward L. Gardner
Director and Chairman of
the Board $21,000 $0 $0 $21,000
Peter Herrick
Director $19,800 $0 $0 $19,800
Leif H. Olsen
Director $19,800 $0 $0 $19,800
Stephen Stamas
Director $19,800 $0 $0 $19,800
James E. Quinn
Director $19,800 $0 $0 $19,800
Karen Osar
Director $14,850 $0 $0 $14,850
</TABLE>
The above compensation, which is expected to total approximately $99,000 plus
out-of-pocket costs for 1999, will be allocated to all series of BNY Hamilton
Funds, Inc.
By virtue of the responsibilities assumed by the Adviser and the Administrator
(see "Investment Adviser", "Administrator" and "Distributor") and the services
provided by BNY Hamilton, the Funds have no employees; their officers are
provided and compensated by BNY Hamilton Distributors, Inc. BNY Hamilton's
officers conduct and supervise the business operations of the Funds.
================================================================================
INVESTMENT ADVISER
The investment adviser to the Funds is The Bank of New York, a bank organized
under the laws of the State of New York with its principal offices at One Wall
Street, New York, New York 10286. The Bank of New York is subject to regulation
by the New York State Banking Department and is a member bank of the Federal
Reserve System. Through offices in New York City and abroad, The Bank of New
York offers a wide range of services, primarily to governmental, institutional,
corporate and individual customers in the United States and throughout the
world.
The International Equity Fund is sub-advised by Indocam, a subsidiary of Credit
Agricole. The Bank of New York pays Indocam a fee equal to .425% of the average
daily net assets of the International Equity Fund.
-42-
<PAGE>
Under the terms of the Advisory Agreements, the investment advisory services The
Bank of New York provides to BNY Hamilton Funds, Inc. are not exclusive. The
Bank of New York is free to and does render similar investment advisory services
to others. The Bank of New York serves as investment adviser to personal
investors and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which The Bank of New York serves as trustee. The
accounts managed or advised by The Bank of New York have varying investment
objectives and The Bank of New York invests assets of such accounts in
investments substantially similar to, or the same as, those that are expected to
constitute the principal investments of the Funds. Such accounts are supervised
by officers and employees of The Bank of New York who may also be acting in
similar capacities for the Funds. See "Portfolio Transactions and Brokerage".
Because the S&P 500 Index Fund, the Bond Index Fund and the Large Cap Value Fund
commenced operations on the date hereof, they have no prior advisory fees to
report. The Adviser's fee will accrue daily and be payable at the annual rate of
o% of average daily net assets for the S&P 500 Index Fund, o% of daily average
net assets for the Bond Index Fund and o% of average daily net assets for the
Large Cap Value Fund. [BONY - Any fee waivers to be disclosed?]
As of April 1, 1999, the Bank of New York has voluntarily agreed to limit the
expenses of the Funds listed in the chart below. The limitation will be
accomplished by waiving all or a portion of its advisory, accounting, custodial
and certain other service fees and, if necessary, reimbursing expenses. This
voluntary limitation of expenses may be modified or terminated at any time.
INSTITUTIONAL INVESTOR
SHARES SHARES
------------------- ------------------
Small Cap Growth Fund 1.11% 1.36%
Intermediate Government Fund .79% 1.04%
Intermediate Investment Grade Fund .79% 1.04%
Intermediate New York Tax-Exempt Fund .79% 1.04%
Intermediate Tax-Exempt Fund .79% 1.04%
For the fiscal years ended December 31, 1996, 1997, and 1998 [update?], The Bank
of New York received advisory fees from the Funds as follows:
1996 1997 1998
---- ---- ----
Money Fund $1,128,699 $1,364,166 $2,007,951
Treasury Money Fund N/A $28,637 $460,338
Intermediate Government Fund $321,787 $290,842 $329,433
Intermediate Investment Grade Fund N/A $1,326,324 $1,873,230
Intermediate New York Tax-Exempt Fund $193,702 $117,747 $140,654
Intermediate Tax-Exempt Fund N/A $1,013,662 $1,359,116
Equity Income Fund $1,211,813 $2,765,841 $3,339,410
Large Cap Growth Fund N/A $1,419,944 $2,096,762
-43-
<PAGE>
Small Cap Growth Fund N/A $547,464 $948,526
International Equity Fund N/A $329,170 $537,436
The above chart reflects advisory fee waivers by The Bank of New York as
follows:
1996 1997 1998
---- ---- ----
Treasury Money Fund N/A $61,996 $48,202
Intermediate Government Fund $0 $47,715 $47,060
Intermediate New York Tax-Exempt Fund $0 $75,480 $72,704
Large Cap Growth Fund N/A $177,856 $383,778
Small Cap Growth Fund N/A $116,936 $249,498
International Equity Fund N/A $116,797 $79,747
The Advisory Agreement for each Fund must be specifically approved at least
annually (i) by a vote of the holders of a majority of the Fund's outstanding
shares or by its Directors and (ii) by a vote of a majority of the Directors of
the Fund who are not "interested persons" as defined by the 1940 Act cast in
person at a meeting called for the purpose of voting on such approval. See
"Directors and Officers". Each of the Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Directors or by a vote of the holders of a majority of
a Fund's outstanding shares on 60 days' written notice to the Adviser and by the
Adviser on 90 days' written notice to BNY Hamilton Funds, Inc. See "Additional
Information".
[Is this disclosure still necessary?] The Bank Holding Company Act of 1956 and
the Glass-Steagall Act, as interpreted by the Board of Governors of the Federal
Reserve System, generally prohibit The Bank of New York Company, Inc. and its
subsidiaries, including The Bank of New York, from sponsoring, organizing or
controlling a registered open-end investment company continuously engaged in the
issuance of its shares, such as BNY Hamilton. This prohibition does not extend
to providing investment advice, custodial and certain other services. The Bank
of New York believes that it may perform the services for the Funds contemplated
by the Advisory Agreement without violating the Glass-Steagall Act or other
applicable banking laws or regulations. It is, however, possible that future
changes in either federal or state statutes and regulations concerning the
permissible activities of banks or trust companies, as well as further judicial
or administrative decisions and interpretations of present and future statutes
and regulations, might prevent The Bank of New York from continuing to perform
such services for the Funds.
If The Bank of New York were prohibited from acting as investment adviser to the
Funds, it is expected that the Directors would recommend to the Funds'
shareholders that they approve the Funds' entering into new investment advisory
agreements with another qualified adviser selected by the Directors.
-44-
<PAGE>
================================================================================
ADMINISTRATOR
BNY Hamilton Distributors, Inc. serves as the Funds' administrator (the
"Administrator") and will assist generally in supervising the operations of the
Funds. The Administrator is a Delaware corporation organized to administer and
distribute mutual funds; its offices are located at 90 Park Avenue, New York New
York 10956.
The Administrator has agreed to provide facilities, equipment and personnel to
carry out administrative services for the Funds, including, among other things,
providing the services of persons who may be appointed as officers and directors
of BNY Hamilton Funds, Inc., overseeing the performance of the transfer agent
for each Fund, supervising purchase and redemption orders (made via telephone
and mail) and monitoring the Distributor's compliance with the National
Association of Securities Dealers, federal and state securities laws. The
Administrator will also be responsible for coordinating and overseeing
compliance by the Directors with Maryland corporate procedural requirements as
the Funds are series of a Maryland corporation. See "Description of Shares". The
Administrator is also responsible for updating and printing the Funds'
prospectuses and statements of additional information, administering shareholder
meetings, producing proxy statements and annual and semi-annual reports,
monitoring the Adviser's compliance with the stated investment objectives and
restrictions of each Fund and ensuring that custodian, Fund accounting, transfer
agency, administration, distribution, advisory and legal services are provided
to the Funds in accordance with the respective agreements governing each
relationship.
The Administration Agreement permits the Administrator to delegate certain of
its responsibilities to other service providers. Pursuant to this authority, The
Bank of New York will perform certain administrative functions for the
Administrator. The Bank of New York is not an otherwise affiliated person of the
Administrator.
The Money Market Funds will pay the Administrator an annual fee, accrued daily
and payable monthly, of .10% of their respective average daily net assets. All
other Funds will each pay the Administrator an annual fee, accrued daily and
payable monthly, of .20% of their respective average daily net assets.
As discussed above under "Investment Adviser", the S&P 500 Index Fund, the Bond
Index Fund and the Large Cap Value Fund commenced operations on the date hereof
and thus have no administration fees to report. For the fiscal years ended
December 31, 1996, 1997, and 1998 [update?], the other Funds paid administration
fees as follows:
1996 1997 1998
---- ---- ----
Money Fund $1,128,699 $1,364,166 $2,007,951
Treasury Money Fund N/A $90,633 $508,540
Intermediate Government Fund $128,631 $135,423 $150,597
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<PAGE>
1996 1997 1998
---- ---- ----
Intermediate Investment Grade Fund N/A $530,532 $749,295
Intermediate New York Tax-Exempt Fund $49,111 $64,296 $85,343
Intermediate Tax-Exempt Fund N/A $405,467 $543,649
Equity Income Fund $403,939 $871,405 $1,084,161
Large Cap Growth Fund N/A $532,600 $826,841
Small Cap Growth Fund N/A $177,174 $319,474
International Equity Fund N/A $104,935 $290,440
The above chart reflects administration fee waivers from the Intermediate New
York Tax-Exempt Fund of $28,176 and $12,990 for the fiscal years ended December
31, 1996 and 1997, respectively. There were no waivers of administration fees
from this Fund during fiscal year 1998, nor were there any waivers of
administration fees from any other Fund during the last three fiscal years.
The Administration Agreement between BNY Hamilton Funds, Inc. and the
Administrator may be renewed or amended by the Directors without a shareholder
vote.
================================================================================
DISTRIBUTOR
In addition to acting as the Administrator, BNY Hamilton Distributors, Inc. acts
as each Fund's exclusive Distributor and will hold itself available to receive
purchase orders for Fund shares. The Distribution Agreements for each Fund must
be approved in the same manner as the Advisory Agreements described above under
"Investment Adviser". Each Distribution Agreement will terminate automatically
if assigned by either party thereto and is terminable at any time without
penalty by a vote of a majority of the Directors or by a vote of the holders of
a majority of a Fund's outstanding shares as defined under "Additional
Information".
The Directors have adopted distribution plans ("12b-1 Plans") with respect to
Hamilton Classic Shares of the Money Fund, and the Investor Shares of each of
the Equity Funds, the Taxable Fixed Income Funds, and the Tax-Exempt Fixed
Income Funds, which will permit the respective Funds to reimburse the
Distributor for distribution expenses in an amount up to .25% per annum of
average daily net assets of Hamilton Classic Shares or Investor Shares, as
applicable. These expenses include, but are not limited to, fees paid to
broker-dealers, telemarketing expenses, advertising costs, printing costs, and
the cost of distributing materials borne by the Distributor in connection with
sales or selling efforts on behalf of Hamilton Classic Shares or Investor
Shares, as applicable. The Hamilton Classic Shares or Investor Shares of each
Fund also bear the costs associated with implementing and operating the related
12b-1 Plan (such as costs of printing and mailing service agreements). Each item
for which a payment may be made under the 12b-1 Plan may constitute an expense
of distributing Hamilton Classic Shares or Investor Shares of the related Fund
as the Securities and Exchange Commission construes such term under Rule 12b-1
of the 1940 Act. If expenses reimbursable
-46-
<PAGE>
under the 12b-1 Plan exceed .25% per annum of average daily net assets, they
will be carried forward from month to month to the extent they remain unpaid.
All or a part of any such amount carried forward will be paid at such time, if
ever, as the Directors determine. The Hamilton Classic Shares or Investor Shares
of each Fund will not be charged for interest, carrying or other finance charges
on any reimbursed distribution or other expense incurred and not paid, nor will
any expense be carried forward past the fiscal year in which it is incurred.
As discussed above under "Investment Adviser", the S&P 500 Index Fund, the Bond
Index Fund and the Large Cap Value Fund commenced operations on the date hereof
and thus have no administration fees to report. For the fiscal year ended
December 31, 1998 [update?], the other Funds paid the following amounts for
services related to their respective 12b-1 Plans. In each Fund, approximately
60% of the amount shown represents compensation to dealers and 40% represents
payments to banks.
Money Fund $48,077
Intermediate Government Fund $29,270
Intermediate Investment Grade Fund $9,122
Intermediate New York Tax-Exempt Fund $26,330
Intermediate Tax-Exempt Fund $819
Equity Income Fund $88,873
Large Cap Growth Fund $25,886
Small Cap Growth Fund $11,881
International Equity Fund $10,675
There was no 12b-1 Plan in effect for the Treasury Money Fund as of December 31,
1998.
Payments for distribution expenses under the 12b-1 Plans are subject to Rule
12b-1 (the "Rule") under the 1940 Act. Payments under the 12b-1 Plans are also
subject to the conditions imposed by Rule 18f-3 under the 1940 Act and a Rule
18f-3 Multiple Class Plan which has been adopted by the Directors for the
benefit of the Funds. The Rule defines distribution expenses to include the cost
of "any activity which is primarily intended to result in the sales of shares".
The Rule provides, among other things, that a Fund may bear such expenses only
pursuant to a plan adopted in accordance with the Rule. In accordance with the
Rule, each 12b-1 Plan provides that a report of the amounts expensed under the
Plan, and the purposes for which such expenditures were incurred, will be made
to the Directors for their review at least quarterly. Each 12b-1 Plan provides
that it may not be amended to increase materially the costs which the related
Fund may bear for distribution pursuant to the 12b-1 Plan without shareholder
approval, and each 12b-1 Plan provides that any other type of material amendment
must be approved by a majority of the Directors, and by a majority of the
Directors who are neither "interested persons" (as defined in the 1940 Act) of
BNY Hamilton Funds, Inc. nor have any direct or indirect financial interest in
the operation of the 12b-1 Plan being amended or in any related agreements, by
vote cast in person at a meeting called for the purpose of
-47-
<PAGE>
considering such amendments. In addition, as long as the 12b-1 Plans are in
effect, the nomination of the Directors who are not interested persons of BNY
Hamilton Funds, Inc. (as defined in the 1940 Act) must be committed to the
non-interested Directors.
================================================================================
FUND, SHAREHOLDER AND OTHER SERVICES
BISYS Fund Services, Inc. ("BISYS"), P.O. Box 163310, Columbus, Ohio,
43216-3310, serves as the transfer agent for the Funds. As transfer agent, BISYS
is responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to investors' accounts. BISYS is also the dividend disbursing agent
for all Funds.
The Directors, in addition to reviewing actions of the Funds' investment
adviser, administrator and distributor, as set forth below, decide upon matters
of general policy. The Money Fund and Treasury Money Fund have entered into
Shareholder Servicing Agreements with respect to Hamilton Premier Shares and
Hamilton Classic Shares of each Fund with The Bank of New York. The Bank of New
York (as a "Shareholder Servicing Agent") will perform certain shareholder
support services to include: (i) aggregating and processing purchase and
redemption orders; (ii) placing purchase and redemption orders with the
Distributor; (iii) providing necessary personnel and facilities to establish and
maintain customer accounts and records; (iv) processing dividend payments; and
(v) providing periodic information to beneficial owners showing their positions
in Hamilton Premier Shares of each Fund. Pursuant to the Shareholder Servicing
Agreement, the Hamilton Premier Shares of each Money Market Fund and the
Hamilton Classic Shares of the Money Fund will pay The Bank of New York (and any
other Shareholder Servicing Agent) an annual shareholder servicing fee of .25%,
to be accrued daily and payable monthly, of the average net assets of each such
class represented by such Shareholder Servicing Agent's participation in each
Fund.
The Bank of New York, 90 Washington Street, New York, New York 10286, serves as
the custodian and fund accounting agent for each Fund.
Ernst & Young LLP 787 Seventh Ave., New York, NY 10019 are the independent
auditors of the Funds and must be approved at least annually by the Directors to
continue in such capacity. They will perform audit services for the Funds
including the examination of financial statements included in the annual report
to shareholders.
-48-
<PAGE>
================================================================================
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in each
Prospectus under "Purchase of Shares".
Each Fund may accept securities in payment for Fund shares sold at the
applicable public offering price (net asset value) at the discretion of the
Fund, although the Fund would expect to accept securities in payment for Fund
shares only infrequently. Generally, a Fund will only consider accepting
securities (i) to increase its holdings in one or more portfolio securities or
(ii) if the Adviser determines that the offered securities are a suitable
investment for the Fund and in a sufficient amount for efficient management.
Although no minimum has been established, it is expected that a Fund would not
accept securities with a value of less than $100,000 per issue in payment for
shares. A Fund may reject in whole or in part offers to pay for Fund shares with
securities and may discontinue its practice of accepting securities as payment
for Fund shares at any time without notice. An Equity Fund will not accept
restricted securities in payment for shares. The Fund will value accepted
securities in the manner provided for valuing portfolio securities of the Fund.
See "Net Asset Value--Equity Funds".
================================================================================
REDEMPTION OF SHARES
Investors may redeem shares as described in each Prospectus under "Redemption of
Shares." Shareholders redeeming shares of either Money Market Fund should be
aware that both Funds attempt to maintain a stable net asset value of $1.00 per
share for each class; however, there can be no assurance that either Fund will
be able to continue to do so and, in that case, the net asset value of either
Fund's shares might deviate from $1.00 per share. Accordingly, a redemption
request might result in payment of a dollar amount that differs from the number
of shares redeemed. In the case of the other Funds, the principal value
fluctuates so that the proceeds of an investor's shares when redeemed may be
more or less than their original cost. See "Net Asset Value" in the Money Market
Fund Prospectus and below.
Shareholders redeeming their shares by telephone should be aware that neither
the Funds nor any of their service contractors will be liable for any loss or
expense for acting upon any telephone instructions that are reasonably believed
to be genuine. In attempting to confirm that telephone instructions are genuine,
the Funds will use such procedures as are considered reasonable, including
recording those instructions and requesting information as to account
registration (such as the name in which an account is registered, the account
number, recent transactions in the account, and the account holder's social
security or taxpayer's identification number, address and/or bank). To the
extent a Fund fails to use reasonable procedures as a basis for its belief, it
and/or its service contractors may be liable for instructions that prove to be
fraudulent or unauthorized.
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<PAGE>
If a Fund determines that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment wholly or partly in cash, the
Fund may pay the redemption price, in lieu of cash, in whole or in part by a
distribution in kind of securities from the portfolio of the Fund in conformity
with the applicable rules of the Securities and Exchange Commission. If shares
are redeemed in kind, the redeeming shareholder may incur transaction costs in
converting the assets into cash. The method of valuing portfolio securities is
described under "Net Asset Value", and such valuation will be made as of the
same time the redemption price is determined.
Further Redemption Information. The Funds reserve the right to suspend the right
of redemption and to postpone the date of payment upon redemption as follows:
(i) during periods when the New York Stock Exchange is closed for other than
weekends and holidays or when trading on such Exchange is restricted, (ii)
during periods in which, as a result of an emergency, disposal, or evaluation of
the net asset value, of the portfolio securities is not reasonably practicable
or (iii) for such other periods as the Securities and Exchange Commission may
permit.
================================================================================
EXCHANGE OF SHARES
Shareholders purchasing shares directly from a Fund may exchange those shares at
the current net asset value per share for other BNY Hamilton Funds which have a
similar class of shares, in accordance with the terms of the current prospectus
of the Fund being acquired. Requests for exchange are made in the same manner as
requests for redemptions. See "Redemption of Shares". Shares of the Fund to be
acquired are purchased for settlement when the proceeds from redemption become
available. In the case of investors in certain states, state securities laws may
restrict the availability of the exchange privilege.
================================================================================
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described under
"Dividends and Distributions" in such Fund's Prospectus.
Net investment income of each class of shares in the Money Fund and the Treasury
Money Fund consists of accrued interest or discount and amortized premium
applicable to the specific class, less the accrued expenses of the relevant Fund
applicable to the specific class during that dividend period, including the fees
payable to the Administrator, allocated to each class of shares. See "Net Asset
Value". Determination of the net investment income for each class of shares for
each Money Market Fund will be made immediately prior to the determination of
net asset value at 4:30 P.M., Eastern time, on each Business Day.
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Dividends on each Hamilton Share and Hamilton Premier Share of the Money Fund
and the Treasury Money Fund and Hamilton Classic Share of the Money Fund are
determined in the same manner and are paid in the same amount regardless of
class, except that Hamilton Premier Shares and Hamilton Classic Shares bear the
fees paid to Shareholder Organizations on their behalf for those general
services described under "Fund and Other Shareholder Services--Shareholder
Servicing Plan" in the Prospectus for the Money Market Funds, and Hamilton
Classic Shares bear 12b-1 fees. In addition, each class of shares of the Money
Fund and the Treasury Money Fund bears certain other miscellaneous expenses
specific to that class (i.e., certain cash management, registration and transfer
agency expenses).
Determination of the net investment income for the Taxable Fixed Income Funds
and the Tax-Exempt Fixed Income Funds will be made immediately prior to the
determination of net asset value at 4:00 P.M., Eastern time, on each Business
Day. Net investment income for days other than Business Days is determined as of
4:00 P.M., Eastern time, on the preceding Business Day. See "Purchase of Shares"
in the relevant Prospectus and this Statement of Additional Information. Shares
redeemed earn a dividend on the Business Day that the redemption becomes
effective. See "Redemption of Shares" in each Prospectus.
================================================================================
NET ASSET VALUE
Each of the Funds will compute its net asset value per share for each of its
classes once daily on Monday through Friday as described under "Net Asset Value"
in the relevant Prospectus, except that net asset value of any class need not be
computed on a day in which no orders to purchase or redeem shares of such class
have been received or on the following holidays: New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day
(observed), Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and
Christmas Day. In addition, net asset value need not be computed on any other
day that the New York Stock Exchange is closed for business.
Money Market Funds. In the case of the Money Market Funds, all portfolio
securities for each Fund will be valued by the amortized cost method. The
purpose of this method of calculation is to attempt to maintain a constant net
asset value of $1.00 per share for each class of shares. No assurances can be
given that this goal will be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than .5% occurs between valuation based on the amortized cost
method and valuation based on market value, the Directors will take steps
necessary to reduce such deviation, such as changing dividend policy, shortening
the average portfolio maturity or realizing gains or losses. See "Taxes".
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Valuing the Money Fund's and the Treasury Money Fund's instruments on the basis
of amortized cost and use of the term "money market fund" are permitted by Rule
2a-7 of the 1940 Act. Rule 2a-7 prohibits money market funds that use the
amortized cost method to value assets from investing more than 5% of their total
assets in the securities of any single issuer, except obligations of the United
States government and its agencies and instrumentalities. Each of the Money
Market Funds intend to conduct their investment activities in a manner
consistent with the requirements of Rule 2a-7. This is not, however, a
fundamental policy and may be changed by the Directors at any time without the
approval of the shareholders of either of the Money Market Funds.
The Directors oversee the Adviser's adherence to the Securities and Exchange
Commission's rules, and have established procedures designed to stabilize net
asset value of each class of shares of the Money Fund and the Treasury Money
Fund at $1.00. Each day net asset value is computed, each class of shares of the
Money Fund and the Treasury Money Fund will calculate the net asset value of
each class of their respective shares by using both the amortized cost method
and market valuations. At such intervals as they deem appropriate, the Directors
consider the extent to which net asset value as calculated by using market
valuations would deviate from $1.00 per share. Immediate action will be taken by
the Directors if the variance between market value and amortized cost exceeds
.5%.
If the Directors believe that a deviation from the Money Fund's or Treasury
Money Fund's amortized cost per share may result in material dilution or other
unfair results to shareholders, the Directors have agreed to take such
corrective action, if any, as they deem appropriate to eliminate or reduce, to
the extent reasonably practicable, the dilution or unfair results. Such
corrective action could include selling portfolio instruments before maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind; establishing net asset value by
using available market quotations; and such other measures as the Directors may
deem appropriate.
During periods of declining interest rates, the Money Fund's and the Treasury
Money Fund's yield based on amortized cost may be higher than the corresponding
yields based on market valuations. Under these circumstances, a shareholder of
any class of shares of the Money Fund or the Treasury Money Fund would be able
to obtain a somewhat higher yield than would result if that Fund used market
valuations to determine its net asset value. The converse would apply in a
period of rising interest rates.
Taxable Fixed Income and Tax-Exempt Fixed Income Funds. In the case of the
Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds, portfolio
securities with a maturity of 60 days or more, including securities listed on an
exchange or traded over the counter, will be valued using prices supplied daily
by an independent pricing service or services that (i) are based on the last
sale price on a national securities exchange, or in the absence of recorded
sales, at the readily available closing bid price on such exchange or at the
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<PAGE>
quoted bid price in the over-the-counter market, if such exchange or market
constitutes the broadest and most representative market for the security, and
(ii) in other cases, take into account various factors affecting market value,
including yields and prices of comparable securities, indication as to value
from dealers and general market conditions. If such prices are not supplied by
the Funds' independent pricing service, such securities will be priced in
accordance with procedures adopted by the Directors. All portfolio securities
with a remaining maturity of less than 60 days are valued by the amortized cost
method, because the Directors have determined that this method will approximate
market value. Because of the large number of municipal bond issues outstanding
and the varying maturity dates, coupons and risk factors applicable to each
issuer's books, no readily available market quotations exist for most municipal
securities.
Equity Funds. In the case of the Equity Funds, the value of investments listed
on a domestic securities exchange, other than options on stock indexes, is based
on the last sale price as of the close of regular trading hours on the New York
Stock Exchange or, in the absence of recorded sales, at the average of readily
available closing bid and asked prices on such exchange. Securities listed on a
foreign exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the average
of the quoted bid and asked prices in the over-the-counter market. The value of
each security for which readily available market quotations exist is based on a
decision as to the broadest and most representative market for such security.
Equity Funds and Intermediate Investment Grade Fund. For purposes of calculating
net asset value per share for each class of shares in each of the Equity Funds
and the Intermediate Investment Grade Fund, all assets and liabilities initially
expressed in foreign currencies will be converted into United States dollars at
the prevailing market rates available at the time of valuation.
All Funds (except Money Market Funds). Options on stock indexes traded on
national securities exchanges are valued at the close of options trading on such
exchanges, which is currently 4:10 P.M., New York City time. Stock index futures
and related options, which are traded on commodities exchanges, are valued at
their last sales price as of the close of such commodities exchanges, which is
currently 4:15 P.M., New York City time. Securities or other assets for which
market quotations are not readily available are valued at fair value in
accordance with procedures established by and under the general supervision and
responsibility of the Fund's Directors. Such procedures include the use of
independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments,
which mature in 60 days or less, are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by a Fund was more than 60
days, unless this is determined not to represent fair value by the Directors.
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<PAGE>
Trading in securities on most foreign exchanges and over-the-counter markets is
normally completed before the close of the New York Stock Exchange and may also
take place on days on which the New York Stock Exchange is closed. If events
materially affecting the value of foreign securities occur between the time when
the exchange on which they are traded closes and the time when a Fund's net
asset value is calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general supervision of
the Funds' Directors.
================================================================================
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield, actual
distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Funds. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information.
Yield Quotations. As required by regulations of the Securities and Exchange
Commission, current yield for each class of shares of the Money Fund and the
Treasury Money Fund is computed by determining the net change exclusive of
capital changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven-day calendar period, dividing
the net change in account by the value of the account at the beginning of the
period, and multiplying the return over the seven-day period by 365/7. For
purposes of the calculation, net change in account value reflects the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, but does not
reflect realized gains or losses or unrealized appreciation or depreciation.
Effective yield for each class of shares of the Money Fund and the Treasury
Money Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares.
The current and effective seven-day yields for the Money Market Funds as of
December 31, 1998 [update?] were as follows:
<TABLE>
<CAPTION>
Current 7 Effective 7
Day Yield Day Yield
------------------------- --------------------------
<S> <C> <C>
Money Fund - Hamilton Shares 4.95% 5.07%
Money Fund - Hamilton Premier Shares 4.70% 4.81%
Money Fund - Hamilton Classic Shares 4.39% 4.48%
Treasury Money Fund - Hamilton Shares 4.64% 4.75%
Treasury Money Fund - Hamilton Premier Shares 4.39% 4.49%
</TABLE>
As required by regulations of the Securities and Exchange Commission, the
annualized yield for each of the Taxable Fixed Income Funds, the Tax-Exempt
Fixed Income Funds and the
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<PAGE>
Equity Income Fund is computed by dividing the Fund's net investment income per
share for each class earned during a 30-day period by the net asset value on the
last day of the period. The average daily number of shares outstanding during
the period that are eligible to receive dividends will be used in determining
the net investment income per share. Income will be computed by totaling the
interest earned on all debt obligations, and in the case of the Equity Income
Fund, dividends earned on all equity securities, during the period and
subtracting from that amount the total of all recurring expenses incurred during
the period. The 30-day yield will then be annualized on a bond-equivalent basis
assuming semi-annual reinvestment and compounding of net investment income, as
described under "Additional Information" in the Prospectuses for the Equity
Funds, the Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds.
As discussed above, the Bond Index Fund commenced operations on the date hereof
and thus has no performance history to report. The 30-day yields for the other
Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds are as follows
[update?]:
<TABLE>
<CAPTION>
With Without
Reimbursement Reimbursement
--------------------------- -------------------------
<S> <C> <C>
Intermediate Government Fund - Institutional Shares 5.04% 5.00%
Intermediate Government Fund - Investor Shares 4.79% 4.69%
Intermediate Investment Grade Fund - Institutional
Shares 5.06% 5.06%
Intermediate Investment Grade Fund - Investor Shares 4.74% 4.74%
Intermediate New York Tax-Exempt Fund - Institutional
Shares 3.16% 3.05%
Intermediate New York Tax-Exempt Fund - Investor
Shares 2.92% 2.82%
Intermediate Tax-Exempt Fund - Institutional Shares 3.39% 3.39%
Intermediate Tax-Exempt Fund - Investor Shares 3.10% 3.10%
</TABLE>
Total Return Quotations. As required by regulations of the Securities and
Exchange Commission, the annualized total return of each of the Equity Funds,
the Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds for a
period will be computed by assuming a hypothetical initial payment of $10,000.
It will then be assumed that all of the dividends and distributions over the
period are reinvested and that the entire amount will be redeemed at the end of
the period. The annualized total return will then be calculated by determining
the annual rate required for the initial payment to grow to the amount which
would have been received upon redemption. Aggregate total returns, reflecting
the cumulative percentage change over a measuring period, may also be
calculated.
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<PAGE>
As discussed above, the S&P 500 Index Fund, the Bond Index Fund and the Large
Cap Value Fund commenced operations on the date hereof and thus have no
performance history to report. The total returns for the other Funds are as
follows [update?]:
<TABLE>
<CAPTION>
Average Average
Annual Annual
for the For the
One-Year Five-Year
Period Period
Aggregate Ended Ended
Inception Since December 31, December 31,
Date Inception 1998 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intermediate Government Fund - 04/01/97 16.39% 7.49% N/A
Institutional Shares
Intermediate Government Fund - Investor 08/10/92 41.49% 7.33% 5.44%
Shares
Intermediate Investment Grade Fund - 04/01/97 18.70% 8.56% N/A
Institutional Shares
Intermediate Investment Grade Fund - 05/01/97 18.14% 8.22% N/A
Investor Shares
Intermediate New York Tax-Exempt Fund -
Institutional Shares 04/01/97 12.34% 5.30% N/A
Intermediate New York Tax-Exempt Fund -
Investor 08/10/92 35.95% 5.04% 4.47%
Shares
Intermediate Tax-Exempt Fund - 04/01/97 12.22% 5.37% N/A
Institutional Shares
Intermediate Tax-Exempt Fund - Investor 05/01/97 11.63% 4.95% N/A
Shares
Equity Income Fund - Institutional Shares 04/01/97 41.17% 13.18% N/A
Equity Income Fund - Investor Shares 08/10/92 146.56% 12.82% 15.77%
Large Cap Growth Fund - Institutional 04/01/97 59.45% 23.49% N/A
Shares
Large Cap Growth Fund - Investor Shares 05/01/97 58.90% 23.26% N/A
Small Cap Growth Fund - Institutional 04/01/97 39.89% 7.89% N/A
Shares
Small Cap Growth Fund - Investor Shares 05/01/97 37.56% 7.55% N/A
International Equity Fund - Institutional 04/01/97 29.17% 20.84% N/A
Shares
International Equity Fund - Investor Shares 05/01/97 28.57% 20.61% N/A
</TABLE>
General. A Fund's performance will vary from time to time depending upon market
conditions, the composition of its portfolio, and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
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<PAGE>
From time to time, the yields and the total returns of each class of shares of
the Funds may be quoted in and compared to other mutual funds with similar
investment objectives in advertisements, shareholder reports or other
communications to shareholders. The Funds may also include calculations in such
communications that describe hypothetical investment results. (Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any Fund.) Such calculations may from time to time include
discussions or illustrations of the effects of compounding in advertisements.
"Compounding" refers to the fact that, if dividends or other distributions on a
Fund investment are reinvested by being paid in additional Fund shares, any
future income or capital appreciation of a Fund would increase the value, not
only of the original Fund investment, but also of the additional Fund shares
received through reinvestment. As a result, the value of the Fund investment
would increase more quickly than if dividends or other distributions had been
paid in cash. The Funds may also include discussions or illustrations of the
potential investment goals of a prospective investor (including but not limited
to tax and/or retirement planning), investment management techniques, policies
or investment suitability of a Fund, economic conditions, legislative
developments (including pending legislation), the effects of inflation and
historical performance of various asset classes, including but not limited to
stocks, bonds and Treasury bills. From time to time, advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund), as well as, the views of the investment adviser as to current market,
economic trade and interest rate trends, legislative, regulatory and monetary
developments, investments strategies and related matters believed to be of
relevance to a Fund. The Funds may also include in advertisements charts, graphs
or drawings which illustrate the potential risks and rewards of investment in
various investment vehicles, including but not limited to stocks, bonds,
Treasury bills and shares of a Fund. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund. Such advertisements or communications may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein. With proper authorization, a Fund
may reprint articles (or excerpts) written regarding the Fund and provide them
to prospective shareholders. Performance information with respect to the Funds
is generally available by calling 1-800-4BNY-FND (1-800-426-9363).
Comparative performance information may be used from time to time in advertising
the Funds' shares, including, but not limited to, data from Lipper Analytical
Services, Inc., the S&P 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Lehman Brothers indexes, the Frank Russell Indexes and
other industry publications. Each of the Money Market Funds may compare the
performance of each class of shares to Money Fund Report, a service of IBC
Financial Data, Inc. as well as yield data reported in other national financial
publications.
From time to time, the Funds may include in advertisements, sales literature and
reports to shareholders general comparative information such as statistical data
regarding
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<PAGE>
inflation, securities indices or the features of performance of alternative
investments. The Funds may also include calculations, such as hypothetical
compounding examples, which describe hypothetical investment results in such
communications. Such performance examples will be based on an express set of
assumptions and are not indicative of the performance of any Fund. In addition,
in such communications, the Adviser may offer opinions on current economic
conditions.
================================================================================
PORTFOLIO TRANSACTIONS AND BROKERAGE
Securities of a Fund typically are purchased via a domestic or foreign
securities exchange, in the over-the-counter market or pursuant to an
underwritten offering. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
Portfolio Turnover. A Fund's investment policies may lead to frequent changes in
investments, particularly in periods of rapidly fluctuating interest rates. A
change in securities held by a Fund is known as "portfolio turnover" and may
involve the payment by the Fund of dealer spreads or underwriting commissions,
and other transaction costs, on the sale of securities, as well as on the
reinvestment of the proceeds in other securities. A Fund's portfolio turnover
rate is calculated by dividing the lesser of purchases or sales of portfolio
securities for the fiscal year by the monthly average of the value of the
portfolio securities owned during the year. Securities whose maturity or
expiration date at the time of acquisition were one year or less are excluded
from the calculation. For the fiscal years ended December 31, 1996, 1997, and
1998 [update?], the portfolio turnover rates for the Intermediate New York
Tax-Exempt Fund and the Equity Income Fund were 22%, 21% and 24%; 58%, 65% and
39%, respectively. It is anticipated that the Intermediate New York Tax-Exempt
Fund and the Equity Income Fund will continue to have a portfolio turnover rate
of less than 100%.
For the period April 1, 1997 (commencement of operations) to December 31, 1997,
and for the fiscal year ended December 31, 1998 [update?], the portfolio
turnover rates for the Intermediate Investment Grade Fund, Intermediate
Tax-Exempt Fund, Large Cap Growth Fund, Small Cap Growth Fund and International
Equity Fund were 81% and 53%; 30% and 37%; 37% and 26%; 68% and 84%; and 36% and
75%, respectively. It is anticipated that the Intermediate Investment Grade
Fund, Intermediate Tax-Exempt Fund, Large Cap Growth Fund, Small Cap Growth Fund
and International Equity Fund will continue to have a portfolio turnover rate of
less than 100%.
For the fiscal years ended December 31, 1996, 1997, and 1998 [update?], the
portfolio turnover rates for the Intermediate Government Fund were 57%, 41% and
61%, respectively.
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<PAGE>
It is anticipated that the Intermediate Government Fund will continue to have a
portfolio turnover rate of not greater than 200%. The fixed income securities in
which the Fund will invest are generally traded at a net price with dealers
acting as principal for their own accounts and without brokerage commissions.
However, other expenses, such as custodial fees and wire charges may be higher
during periods of higher turnover.
Money Market Funds, Taxable Fixed Income Funds and Tax-Exempt Fixed Income
Funds. Portfolio transactions for each of the Money Market Funds, the Taxable
Fixed Income Funds and the Tax-Exempt Fixed Income Funds will be undertaken
principally to accomplish a Fund's objective in relation to expected movements
in the general level of interest rates. Each of the Money Market Funds, the
Taxable Fixed Income Funds and the Tax-Exempt Fixed Income Funds may engage in
short-term trading consistent with their objectives.
Each of the Money Market Funds' policy of investing only in securities with
maturities of less than 397 days will result in high portfolio turnover. Since
brokerage commissions are not normally paid on investments that the Money Market
Funds make, turnover resulting from such investments should not adversely affect
the net asset value or net income of the Fund.
Equity Funds. In connection with portfolio transactions for the Equity Funds,
the overriding objective is to obtain the best possible execution of purchase
and sale orders. In selecting a broker, the Adviser (and, in the case of the
International Equity Fund, the Sub-Adviser) considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Adviser or the Sub-Adviser decides that the broker chosen will provide the
best possible execution. The Adviser or the Sub-Adviser will monitor the
reasonableness of the brokerage commissions paid in light of the execution
received. The Directors will review regularly the reasonableness of commissions
and other transaction costs incurred by the Equity Funds in light of facts and
circumstances deemed relevant from time to time, and, in that connection,
receive reports from the Adviser or the Sub-Adviser and published data
concerning transaction costs incurred by institutional investors generally.
Research services provided by brokers to which the Adviser or the Sub-Adviser
has allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Adviser's or the Sub-Adviser's clients and not solely or
necessarily for the benefit of an individual Fund. The Adviser and the
Sub-Adviser believe that the value of research services received is not
determinable and does not significantly reduce their respective expenses. The
Equity Funds will not reduce their respective fees paid to the Adviser or the
Sub-Adviser by any amount that might be attributable to the value of such
services.
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<PAGE>
For the fiscal years ended December 31, 1996, 1997, and 1998 [update?], the
Equity Income Fund paid aggregate broker commissions of $129,028, $481,922 and
$500,347, respectively.
For the period April 1, 1997 (commencement of operations) to December 31, 1997,
and for the fiscal year ended December 31, 1998 [update?], the Large Cap Growth
Fund paid aggregate broker commissions of $177,684 and $226,702, respectively.
Of the aggregate commissions paid during the fiscal year ended December 31, 1998
[update?], the Large Cap Growth Fund paid broker commissions of $5,295 to BNY
ESI & Co., Inc., a wholly owned non-bank subsidiary of The Bank of New York
Company, Inc. a separate brokerage affiliate of The Bank of New York, and a
member of the New York Stock Exchange and other principal exchanges, and SIPC.
This amounted to 2.3% of the aggregate commissions paid by the Fund and 4.8% of
the aggregate dollar amount of principal transactions.
For the period April 1, 1997 (commencement of operations) to December 31, 1997,
and for the fiscal year ended December 31, 1998 [update?], the Small Cap Growth
Fund paid aggregate broker commissions of $120,938 and $279,344, respectively.
For the period April 1, 1997 (commencement of operations) to December 31, 1997,
and for the fiscal year ended December 31, 1998 [update?], the International
Equity Fund paid aggregate broker commissions of $530,331 and $876,134,
respectively.
Subject to the overriding objective of obtaining the best possible execution of
orders, the Adviser or the Sub-Adviser may allocate a portion of any or all of
the Equity Funds' portfolio brokerage transactions to affiliates of the Adviser
or the Sub-Adviser. In order for affiliates of the Adviser or the Sub-Adviser to
effect any portfolio transactions for the Equity Funds, the commissions, fees or
other remuneration received by such affiliates must be reasonable and fair
compared to the commissions, fees, or other remuneration paid to other brokers
in connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
Furthermore, the Directors, including a majority of the Directors who are not
"interested persons", have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to or through
the Funds' Administrator, Distributor, Adviser (or the Sub-Adviser) or any
"affiliated person", as defined in the 1940 Act, of the Co-Administrators,
Distributor or Adviser (or the Sub-Adviser) when such entities are acting as
principals, except to the extent permitted by law. In addition, the Funds will
not purchase securities during the existence of any underwriting group (or the
Sub-Advisers) relating thereto of which the Adviser, the Sub-Adviser or any of
their respective affiliates of the Adviser is a member, except to the extent
permitted by law.
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On those occasions when the Adviser (or the Sub-Adviser) deems the purchase or
sale of a security to be in the best interests of a Fund as well as other
customers, including the other Funds, to the extent permitted by applicable laws
and regulations, the Adviser (or the Sub-Adviser) may, but is not obligated to,
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other customers in order to obtain best execution,
including lower brokerage commissions if appropriate. In such event, allocation
of the securities so purchased or sold as well as any expenses incurred in the
transaction will be made by the Adviser (or the Sub-Adviser), in the manner it
considers to be most equitable and consistent with the Adviser's (or the
Sub-Adviser's) fiduciary obligations to the Fund. In some instances, this
procedure might adversely affect a Fund.
If a Fund effects a closing purchase transaction with respect to an option
written by it, normally such transaction will be executed by the same
broker-dealer who executed the sale of the option. The writing of options by a
Fund will be subject to limitations established by each of the exchanges
governing the maximum number of options in each class which may be written by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges or are held or
written in one or more accounts or through one or more brokers. The number of
options which a Fund may write may be affected by options written by the Adviser
(or the Sub-Adviser) for other investment advisory clients. An exchange may
order the liquidation of positions found to be in excess of these limits, and it
may impose certain other sanctions.
================================================================================
DESCRIPTION OF SHARES
BNY Hamilton is a registered, open-end investment company organized under the
laws of the State of Maryland. The Articles of Incorporation of currently permit
the Corporation to issue 20,000,000,000 shares of common stock, par value $.001
per share, of which shares have been classified as follows:
Number of Shares of
Name of Series and Classes Thereof Common Allocated
- --------------------------------------- --------------------------------
BNY Hamilton Money Fund
- Hamilton Shares 3,000,000,000
- Hamilton Premier Shares 3,000,000,000
- Hamilton Classic Shares 3,000,000,000
BNY Hamilton Treasury Money Fund
- Hamilton Shares 2,000,000,000
- Hamilton Premier Shares 2,000,000,000
- Hamilton Classic Shares 2,000,000,000
BNY Hamilton Equity Income Fund
- Institutional Shares 200,000,000
- Investor Shares 200,000,000
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BNY Hamilton Large Cap Growth Fund
- Institutional Shares 200,000,000
- Investor Shares 200,000,000
BNY Hamilton Small Cap Growth Fund
- Institutional Shares 200,000,000
- Investor Shares 200,000,000
BNY Hamilton International Equity Fund
- Institutional Shares 200,000,000
- Investor Shares 200,000,000
BNY Hamilton Intermediate Government Fund
- Institutional Shares 200,000,000
- Investor Shares 200,000,000
BNY Hamilton Intermediate Investment Grade Fund
- Institutional Shares 200,000,000
- Investor Shares 200,000,000
BNY Hamilton Intermediate New York Tax-Exempt Fund
- Institutional Shares 200,000,000
- Investor Shares 200,000,000
BNY Hamilton Intermediate Tax-Exempt Fund
- Institutional Shares 200,000,000
- Investor Shares 200,000,000
BNY Hamilton Large Cap CRT Fund 200,000,000
BNY Hamilton International Equity CRT Fund 200,000,000
BNY Hamilton Small Cap CRT Fund 200,000,000
BNY Hamilton Large Cap Value Fund
- Institutional Class 200,000,000
- Investor Class 200,000,000
BNY Hamilton S&P 500 Fund
- Institutional Class [___]
- Investor Class [___]
BNY Hamilton U.S. Bond Market Index Fund
- Institutional Class [___]
- Investor Class [___]
Undesignated Common Stock [___],000,000
Shares of BNY Hamilton do not have preemptive or conversion rights and are fully
paid and nonassessable by BNY Hamilton. The rights of redemption and exchange
are described in the appropriate Prospectus and elsewhere in this Statement of
Additional Information.
The shareholders of each Fund are entitled to a full vote for each full share
held and to a fractional vote for each fractional share. Subject to the 1940 Act
and Maryland law, the Directors themselves have the power to alter the number
and the terms of office of the Directors, to lengthen their own terms, or to
make their terms of unlimited duration subject to certain removal procedures,
and appoint their own successor; provided, however, that immediately after such
appointment the requisite majority of the Directors have been elected by the
shareholders of the Funds. The voting rights of shareholders are not cumulative
so that holders of more than 50% of the shares voting can, if they choose, elect
all Directors being selected while the holders of the remaining shares would be
unable to elect any Directors. It
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is the intention of BNY Hamilton not to hold annual shareholder meetings. The
Directors may call shareholder meetings for action by shareholder vote as may be
required by either the 1940 Act or the Articles of Incorporation.
BNY Hamilton, if requested to do so by the holders of at least 10% of
shareholders of all series aggregated as a class, will call a meeting of
shareholders for the purpose of voting upon the question of the removal of a
director or directors and will assist in communications with other shareholders
as required by Section 16(c) of the 1940 Act.
The Articles of Incorporation contain a provision permitted under the Maryland
General Corporation Law that under certain circumstances eliminates the personal
liability of the Directors to BNY Hamilton or its shareholders. The Articles of
Incorporation and the Bylaws of BNY Hamilton provide that BNY Hamilton will
indemnify the Directors, officers and employees of the Funds to the full extent
permitted by the Maryland General Corporation Law, which permits indemnification
of such persons against liabilities and expenses incurred in connection with
proceedings in which they may be involved because of their offices or employment
with BNY Hamilton. However, nothing in the Articles of Incorporation or the
Bylaws of BNY Hamilton protects or indemnifies a Director, officer or employee
against any liability to BNY Hamilton or its shareholders to which he or she
would otherwise be subject by reason of willful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
For information relating to mandatory redemption of Fund shares or, under
certain circumstances, their redemption at the option of the Funds, see
"Redemption of Shares" in the Prospectuses.
No single person beneficially owns 25% or more of the Corporation's voting
securities. BNY Hamilton expects that immediately prior to the commencement of
the public offering of shares of the S&P 500 Fund, the Bond Index Fund and the
Large Cap Value Fund, each such Fund will have one stockholder, BNY Hamilton
Distributors, Inc., who will hold more than 5% of the outstanding shares of such
Fund. BNY Hamilton cannot predict the length of time that such person will
remain a control person of such Funds. The following table sets forth the name,
address and percentage of ownership of each person who is known by the
Registrant to own, of record or beneficially, 5% or more of any class of BNY
Hamilton's outstanding equity securities as of April 1, 1999 [update?]:
<TABLE>
<CAPTION>
Fund Of Record % Beneficial Owner %
- ---- --------- - ---------------- -
<S> <C> <C> <C> <C>
Money Hare & Co. 9.5% The Keyspan Foundation 9.5%
One Wall Street One Metrotech Center
New York, NY 10286 Brooklyn, NY 11201
Intermediate Wendel & Co. 37.7% The Bank of New York 31.9%
Government One Wall Street Profit Sharing Plan B
New York, NY 10286 One Wall Street
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
New York, NY 10286
The Bank of New York 5.8%
Long-Term Disability Plan
One Wall Street
New York, NY 10086
Equity Wendel & Co. 21.6% The Bank of New York 21.6%
Income One Wall Street Profit Sharing Plan A
New York, NY 10286 One Wall Street
New York, NY 10286
Small Cap Wendel & Co. 11.8% The Bank of New York 5.9%
Growth One Wall Street Profit Sharing Plan A
New York, NY 10286 One Wall Street
New York, NY 10286
Trust Company of America 5.9%
AAM
7103 South Revere Parkway
Englewood, NJ 80112
Treasury Hare & Co. 10.3% F W Olin Foundation 5.3%
Money One Wall Street 780 Third Avenue
New York, NY 10286 New York, NY 10017
PYSCA Panama - 1997 Project Acct.
Reforma 10 Torre Caballito, Piso 30
Co Tabacalera 06030 Mexico Dist
Fed
</TABLE>
BNY Hamilton's officers and directors, taken as a group, own less than 1% of the
shares of each of the Funds.
================================================================================
TAXES
Each Fund generally will be treated as a separate corporation for federal income
tax purposes, and thus the provisions of the Internal Revenue Code of 1986, as
amended (the "Tax Code") generally will be applied to each Fund separately,
rather than BNY Hamilton as a whole. Net long-term and short-term capital gains,
net income, and operating expenses therefore will be determined separately for
each Fund.
Each Fund intends to qualify as a regulated investment company under Subchapter
M of the Tax Code. Accordingly, each Fund must, among other things, (a) derive
at least 90% of its gross income from dividends, interest, payments with respect
to loans of stock and securities, gains from the sale or other disposition of
stock, securities or foreign currency and other income (including but not
limited to gains from options, futures, and forward contracts) derived with
respect to its business of investing in such stock, securities or foreign
currency; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the
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value of the Fund's assets is represented by cash, United States Government
securities and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the Fund's assets, and
10% of the outstanding voting securities of such issuer and (ii) not more than
25% of the value of its assets is invested in the securities of any one issuer
(other than United States Government securities). As a regulated investment
company, a Fund (as opposed to its shareholders) will not be subject to federal
income taxes on the net investment income and capital gains that it distributes
to its shareholders, provided that at least 90% of its net investment income and
realized net short-term capital gains in excess of net long-term capital losses
for the taxable year is distributed at least annually.
Under the Tax Code, a Fund will be subject to a 4% excise tax on a portion of
its undistributed income if it fails to meet certain distribution requirements
by the end of the calendar year. Each Fund intends to make distributions in a
timely manner and accordingly does not expect to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund in
October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will generally be
taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income and realized net short-term capital gains
in excess of net long-term capital losses (other than exempt-interest dividends
distributed by either of the Tax-Exempt Fixed Income Funds, as described below)
are generally taxable to shareholders of the Funds as ordinary income whether
such distributions are taken in cash or reinvested in additional shares. Each of
the Equity Funds (other than the International Equity Fund) expects that a
portion of these distributions to their respective corporate shareholders will
be eligible for the 70% dividends-received deduction. These distributions from
all other Funds will not be eligible for the dividends-received deduction.
Distributions of net long-term capital gains (i.e., net long-term capital gains
in excess of net short-term capital losses) are taxable to shareholders of a
Fund as long-term capital gains, regardless of whether such distributions are
taken in cash or reinvested in additional shares and regardless of how long a
shareholder has held shares in the Fund, and are not eligible for the
dividends-received deduction. Individual shareholders will be subject to federal
income tax on distributions of net long-term capital gains at a maximum rate of
20% if designated as derived from a Fund's capital gains from property held for
more than one year.
A gain or loss realized by a shareholder on the redemption, sale or exchange of
shares held as a capital asset will be capital gain or loss and such gain or
loss will be long-term if the holding period for the shares exceeds one year,
and otherwise will be short-term. Individual shareholders will be subject to
federal income tax on long-term capital gain at a maximum rate of 20% in respect
of shares held for more than one year. Capital gain of a corporate
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shareholder is taxed at the same rate as ordinary income. Any loss realized by a
shareholder on the disposition of shares held six months or less will be treated
as a long-term capital loss to the extent of any distributions of net long-term
capital gains received by the shareholder with respect to such shares. Any such
loss may be disallowed in the case of either of the Tax-Exempt Fixed Income
Funds. See "Tax-Exempt Fixed Income Funds" below. Additionally, any loss
realized on a redemption or exchange of shares of a Fund will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before such disposition, such as pursuant to reinvestment of a
dividend in shares of the Fund.
Prospective investors in any of the Equity Funds, the Taxable Fixed Income Funds
and the Tax-Exempt Fixed Income Funds should be aware that distributions of net
investment income or net long-term capital gains from these Funds will have the
effect of reducing the net asset value of each class of each Funds' shares by
the amount of the distribution. If the net asset value is reduced below a
shareholder's cost, the distribution will nonetheless be taxable as described
above, even if the distribution represents a return of invested capital.
Investors should consider the tax implications of buying shares in these Funds
just prior to a distribution, when the price of shares may reflect the amount of
the forthcoming distribution.
Gains or losses on sales of securities by a Fund will be treated as long-term
capital gains or losses if the securities have been held by it for more than one
year except in certain cases where, if applicable, a Fund acquires a put or
writes a call thereon. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by a Fund lapses or is terminated
through a closing transaction, such as a repurchase by the Fund of the option
from its holder, the Fund will realize a short-term capital gain or loss,
depending on whether the premium income is greater or less than the amount paid
by the Fund in the closing transaction. If securities are purchased by the Fund
pursuant to the exercise of a put option written by it, the Fund will subtract
the premium received from its cost basis in the securities purchased. If
securities are sold by the Fund pursuant to the exercise of a call option
written by it, the Fund will include the premium received in the sale price for
the securities sold.
Under the Tax Code, gains or losses attributable to dispositions of foreign
currency or to foreign currency contracts, or to fluctuations in exchange rates
between the time a Fund accrues income or receivables or expenses or other
liabilities denominated in a foreign currency and the time a Fund actually
collects such income or pays such liabilities, are treated as ordinary income or
ordinary loss. Similarly, gains or losses on the disposition of debt securities
held by a Fund, if any, denominated in foreign currency, to the extent
attributable to fluctuations in exchange rates between the acquisition and
disposition dates, are also treated as ordinary income or loss.
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Forward currency contracts, options and futures contracts entered into by a Fund
may create "straddles" for federal income tax purposes and this may affect the
character and timing of gains or losses realized by a Fund on forward currency
contracts, options and futures contracts or on the underlying securities.
Certain options, futures and foreign currency contracts held by a Fund at the
end of each fiscal year will be required to be "marked-to-market" for federal
income tax purposes -- i.e., treated as having been sold at market value. For
options and futures contracts, sixty percent of any gain or loss recognized on
these deemed sales and on actual dispositions will be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss, regardless of how long the Fund has held such options or futures.
Any gain or loss recognized on foreign currency contracts will be treated as
ordinary income, unless an election under Section 988 (a) (1) (B) of the Tax
Code is made, in which case the rule for options and futures contracts will
apply.
The International Equity Fund will, and the Equity Income Fund, the Large Cap
Growth Fund, the Small Cap Growth Fund and the Large Cap Value Fund may, invest
in equity securities of foreign issuers. If these Funds purchase shares in
certain foreign investment companies, known as "passive foreign investment
companies", they may be subject to federal income tax on a portion of an "excess
distribution" from such passive foreign investment companies or gain from the
disposition of such shares, even though such income may have to be distributed
as a taxable dividend by a Fund to its respective shareholders. In addition,
certain interest charges may be imposed on the Equity Funds or its respective
shareholders in respect of unpaid taxes arising from such distributions or
gains. Alternatively, the Equity Funds would be required each year to include in
its income and distribute to shareholders a pro rata portion of the foreign
investment company's income, whether or not distributed to the Fund. For each
taxable year, the Equity Funds will be permitted to "mark-to-market" any
marketable stock held by a Fund in a passive foreign investment company. If a
Fund made such an election, each investor in the Fund would include in income in
each year an amount equal to its share of the excess, if any, of the fair market
value of the stock in such passive foreign investment company as of the close of
the taxable year over the adjusted basis of such stock. The investor would be
allowed a deduction for its share of the excess, if any, of the adjusted basis
of the stock in such passive foreign investment company over the fair market
value of such stock as of the close of the taxable year, but only to the extent
of any net mark-to-market gains with respect to the stock included by the
investor for prior taxable years.
It is expected that the Money Fund, the Equity Income Fund, the Large Cap Growth
Fund, the Small Cap Growth Fund, the International Equity Fund, the Intermediate
Investment Grade Fund and the Large Cap Value Fund may be subject to foreign
withholding taxes with respect to income received from sources within foreign
countries. The International Equity Fund intends to elect to "pass through" to
its investors the amount of foreign income taxes paid by the Fund, with the
result that each shareholder will (i) include in gross income, even though not
actually received, the pro rata share of the Fund's foreign income taxes, and
(ii) either
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deduct (in calculating U.S. taxable income) or credit (in calculating U.S.
federal income tax) the pro rata share of the Fund's foreign income taxes. A
foreign tax credit may not exceed the U.S. federal income tax otherwise payable
with respect to the foreign source income. For this purpose, each shareholder
must treat as foreign source gross income (i) his proportionate share of foreign
taxes paid by the Fund and (ii) the portion of any dividend paid by the Fund
which represents income derived from foreign sources; the gain from the sale of
securities will generally be treated as U.S. source income. This foreign tax
credit limitation is, with certain exceptions, applied separately to separate
categories of income; dividends from the will be treated as "passive" or
"financial services" income for this purpose. The effect of this limitation may
be to prevent from claiming as a credit the full amount of their pro rate share
of the Fund's foreign income taxes. In addition, shareholders will not be
eligible to claim a foreign tax credit with respect to foreign income taxes paid
by the Fund unless certain holding period requirements are met.
Each Fund may be subject to state or local taxes in jurisdictions in which the
Fund is deemed to be doing business. In addition, the treatment of a Fund and
its shareholders in those states that have income tax laws might differ from
treatment under the federal income tax laws. Shareholders should consult their
own tax advisors with respect to any state or local taxes.
Foreign Shareholders. Dividends of net investment income and distributions of
realized net short-term gains in excess of net long-term losses to a shareholder
who, as to the United States, is a non-resident alien individual, fiduciary of a
foreign trust or estate, foreign corporation or foreign partnership (a "foreign
shareholder") will be subject to United States withholding tax at the rate of
30% (or lower treaty rate) unless the dividends are effectively connected with a
United States trade or business of the shareholder, in which case the dividends
will be subject to tax on a net income basis at the graduated rates applicable
to United States individuals or domestic corporations. Distributions of net
long-term capital gains to foreign shareholders will not be subject to United
States tax unless the distributions are effectively connected with the
shareholder's trade or business in the United States or, in the case of a
foreign shareholder who is a non-resident alien individual, the shareholder was
present in the United States for more than 182 days during the taxable year and
certain other conditions are met.
In the case of a foreign shareholder who is a non-resident alien individual and
who is not otherwise subject to withholding as described above, a Fund may be
required to withhold United States federal income tax at the rate of 31% unless
IRS Form W-8 is provided.
Transfers by gift of shares of a Fund by a foreign shareholder who is a
non-resident alien individual will not be subject to United States federal gift
tax, but the value of shares of the Fund held by such a shareholder at his or
her death will be includible in his or her gross estate for United States
federal estate tax purposes.
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Tax-Exempt Fixed Income Funds. Both of the Tax-Exempt Fixed Income Funds intend
to qualify to pay exempt-interest dividends to its respective shareholders by
having, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets consist of tax-exempt securities. An exempt-interest
dividend is that part of dividend distributions made by such Tax-Exempt Fixed
Income Fund that consists of interest received by the Fund on tax-exempt
securities. Shareholders will not incur any federal income tax on the amount of
exempt-interest dividends received by them from such Tax-Exempt Fixed Income
Fund. In view of each Tax-Exempt Fixed Income Fund's investment policies, it is
expected that substantially all dividends will be exempt-interest dividends,
although each Tax-Exempt Fixed Income Fund may from time to time realize and
distribute net short-term capital gains or other minor amounts of taxable
income.
Interest on indebtedness incurred or continued by a shareholder, whether a
corporation or an individual, to purchase or carry shares of either Tax-Exempt
Fixed Income Fund is not deductible to the extent it relates to exempt-interest
dividends received by the shareholder. Any loss incurred on the sale or
redemption of either Fund's shares held six months or less will be disallowed to
the extent of exempt-interest dividends received with respect to such shares.
Interest on certain tax-exempt bonds that are private activity bonds within the
meaning of the Tax Code is treated as a tax preference item for purposes of the
alternative minimum tax, and any such interest received by a Tax-Exempt Fixed
Income Fund and distributed to shareholders will be so treated for purposes of
any alternative minimum tax liability of shareholders. The Tax-Exempt Fixed
Income Funds are permitted to invest up to 20% of their respective assets in
private activity bonds the interest from which is a preference item for purposes
of alternative minimum tax. Moreover, exempt-interest dividends paid to a
corporate shareholder by a Tax-Exempt Fixed Income Fund (whether or not from
interest on private activity bonds) will be taken into account (i) in
determining the alternative minimum tax imposed on 75% of the excess of adjusted
current earnings over alternative minimum taxable income, (ii) in calculating
the environmental tax equal to .12% of a corporation's modified alternative
taxable income in excess of $2 million, and (iii) in determining the foreign
branch profits tax imposed on effectively connected earnings and profits (with
adjustments) of United States branches of foreign corporations.
Holders of shares of either class of either Tax-Exempt Fixed Income Fund who are
subject to New York State and New York City personal income taxes on dividends
will not be subject to such tax on distributions from the respective Tax-Exempt
Fixed Income Fund to the extent that the distributions qualify as
exempt-interest dividends and represent income attributable to federally
tax-exempt obligations of the State of New York and its subdivisions, agencies
and instrumentalities (as well as certain other federally tax-exempt obligations
the interest on which is exempt from New York State and New York City personal
income taxes, such as, for example, certain obligations of Puerto Rico). To the
extent that distributions from either class of either Tax-Exempt Fixed Income
Fund are derived from other income, including long- and
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short-term capital gains and income from securities lending, such distributions
will not be exempt from New York State or New York City personal income taxes.
Distributions from either Tax-Exempt Fixed Income Fund are not excluded in
determining New York State or City franchise taxes on corporations and financial
institutions.
Annual statements as to the portion of distributions of both Tax-Exempt Fixed
Income Funds that is attributable to interest that is exempt from federal income
tax and, in the case of the Intermediate New York Tax-Exempt Fund, New York
State and City personal income tax will be provided to shareholders shortly
after the end of the taxable year.
================================================================================
SPECIAL CONSIDERATIONS RELATING TO INVESTMENTS IN NEW YORK
MUNICIPAL OBLIGATIONS [TO BE UPDATED]
The following information is a summary of special factors affecting the
Intermediate New York Tax-Exempt Fund. It does not purport to be a complete
description and is based on information from official statements relating to
securities offerings of New York issuers and, with respect to information about
credit ratings, from newspaper reports.
Economic Outlook
New York ("the State") is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State's location, air transport facilities and
natural harbors have made it an important link in international commerce. Travel
and tourism constitute an important part of the economy. Like the rest of the
nation, New York has a declining proportion of its workforce engaged in
manufacturing and an increasing proportion engaged in service industries.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, may vary from fiscal year to fiscal year, and are frequently the result
of actions taken not only by the State and its agencies and instrumentalities,
but also by entities, such as the federal government, that are not under the
control of the State. The state financial plan is based upon forecasts of
national and State economic activity. Economic forecasts have at times failed to
predict precisely the timing and magnitude of changes in the national and the
State economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurance that the State
economy
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will not experience results in the current fiscal year that are worse than
predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The national economy has maintained a robust rate of growth during the past six
quarters, as its seven-year expansion continues. Approximately 16 1/2 million
jobs have been added nationally since early 1992. The State economy has
continued to expand, but growth remains somewhat slower than in the nation.
Although the State has added over 400,000 jobs since late 1992, employment
growth in the State has been hindered during recent years by significant
cutbacks in the computer and instrument manufacturing, utility, defense, and
banking industries. Government downsizing has also moderated these job gains.
Nationally, the annual growth rate is expected to be significantly lower in 1999
than had been predicted, and it is expected to be slower than during 1997. U.S.
trade balances are expected to continue to be negatively affected in 1999 by the
financial and economic turmoil that began in Asia and spread to other parts of
the world. Growth in domestic consumption, which has helped fuel the nation's
strong economic performance in recent years, is also expected to ebb in 1999, as
there likely will be a drop in consumer confidence from recent historic highs
and the stock market may cease to provide consumers with large amounts of
disposable income. Lower short-term interest rates, however, which are expected
to continue through 1999, should help prevent a national recession. Real GDP
grew roughly 3.4 percent in 1998, which was moderately below the 1997 rate. It
is expected to fall further to 1.6 percent in 1999. Growth of nominal GDP fell
from 5.9 percent in 1997 to 4.6 percent in 1998, and is expected to drop to 3.7
percent in 1999. Inflation, which fell to 1.7 percent in 1998, is predicted to
rise to 2.7 percent in 1999. The annual rate of job growth was approximately 2.5
percent in 1998, but it is forecasted to slow to 1.9 percent in 1999. Growth in
personal income and wages is expected to continue to slow in 1999.
At the State level, continued growth is projected in 1999 for employment, wages
and personal income, although a significant slowdown in the growth rates of
personal income and wages is expected. Personal income growth is expected to
fall from roughly 5.0 percent in 1998 to 3.4 percent in 1999, partly because
growth in bonus payments is expected to slow significantly, which would be a
marked shift from the unusually high increases of the past few years. Overall
employment growth is expected to drop from approximately 2.0 percent in 1998 to
1.0 percent in 1999 because of the slow growth of the national economy,
continued spending restraint in government, lower profitability in the financial
sector and continued restructuring in the manufacturing, health care and banking
sectors.
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Current Fiscal Year
Overview
The State's current fiscal year commenced on April 1, 1998, and ends on March
31, 1999, and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. For the period before adoption of the budget for the current fiscal
year, the Legislature enacted appropriations to permit the State to continue its
operations and provide for other purposes. On April 25, 1998, the Governor
vetoed certain items that the Legislature added to the Executive Budget, which
the Legislature had not overridden by the start of the legislative recess on
June 19, 1998.
General Fund disbursements in 1998-99 are now projected to grow by $2.43 billion
over 1997-98 levels, or $690 million more than proposed in the Governor's
Executive Budget, as amended. The change in General Fund disbursements from the
Executive Budget to the enacted budget reflects legislative additions (net of
the value of the Governor's vetoes), actions taken at the end of the regular
legislative session, and spending that was originally anticipated to occur in
1997-98 but is now expected to occur in 1998-99. The State projects that the
1998-99 State Financial Plan is balanced on a cash basis, with an estimated
reserve for future needs of $761 million.
The State's enacted budget includes several new multi-year tax reduction
initiatives, including acceleration of State-funded property and local income
tax relief for senior citizens under the School Tax Relief Program (STAR),
expansion of the child care income-tax credit for middle-income families, a
phased-in reduction of the general business tax, and reduction of several other
taxes and fees, including an accelerated phase-out of assessments on medical
providers. The enacted budget also provides for significant increases in
spending for public schools, special education programs, and for the State and
City university systems. It also allocates $50 million for a new Debt Reduction
Reserve Fund (DRRF) that may eventually be used to pay debt service costs on or
to prepay outstanding State-supported bonds.
The 1998-99 State Financial Plan projects a closing balance in the General Fund
of $1.7 billion, which is comprised of a reserve of $1.04 billion available for
future needs, a balance of $400 million in the Tax Stabilization Reserve Fund
(TSRF), a balance of $158 million in the Community Projects Fund (CPF), and a
balance of $100 million in the Contingency Reserve Fund (CRF). The TSRF can be
used in the event of an unanticipated General Fund cash operating deficit, as
provided under the State Constitution and State Financial Law. The CPF is used
to finance various legislative and executive initiatives. The CRF provides
resources to help finance any extraordinary litigation costs during the fiscal
year.
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The four governmental fund types that comprise the State Financial Plan are the
General Fund, the Special Revenue Funds, the Capital Projects Funds and the Debt
Service Funds. This fund structure adheres to accounting standards of the
Governmental Accounting Standards Board. The General Fund is the principal
operating fund of the State and is used to account for all financial
transactions, except those required to be accounted for in another fund. It is
the State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes. The General Fund is expected to account
for approximately 47.6 percent of all Governmental Funds disbursements and 70.1
percent of total State Funds disbursements in the State's 1998-99 fiscal year.
General Fund moneys are also transferred to other funds, primarily to support
certain capital projects and debt service payments in other fund types.
General Fund Receipts
Total General Fund receipts and transfers from other funds in the 1998-99 fiscal
year are projected to reach $37.84 billion, an increase of over $3 billion from
the 1997-98 fiscal year. This total includes $34.50 billion in tax receipts,
$1.47 billion in miscellaneous receipts and $1.86 billion in transfers from
other funds. The transfer of a portion of the surplus recorded in 1997-98 to
1998-99 exaggerates the "real" growth in State receipts from year to year by
depressing reported 1997-98 figures and inflating 1998-99 projections.
Conversely, the incremental cost of tax reductions newly effective in 1998-99
and the impact of statutes earmarking certain tax receipts to other funds
depress apparent growth below the underlying growth in receipts attributable to
expansion of the State's economy. On an adjusted basis, State tax revenues in
the 1998-99 fiscal year are projected to grow approximately 7.5 percent,
following an adjusted growth of roughly 9.0 percent in the 1997-98 fiscal year.
The Personal Income Tax is imposed on the income of individuals, estates and
trusts and is based, with certain modifications, on federal definitions of
income and deductions. This tax continues to account for over half of the
State's General Fund receipts base. Net personal income tax collections are
projected to reach $21.44 billion, nearly $3.7 billion above the reported
1997-98 collection total. Since 1997 represented the completion of the 20
percent income tax reduction program enacted in 1995, growth from 1998 to 1999
will be unaffected by major income tax reductions. Adding to the projected
annual growth is the net impact of the transfer of the surplus from 1997-98 to
the current year, which affects reported collections by over $2.4 billion on a
year-over-year basis, as partially offset by the diversion of slightly over $700
million in income tax receipts to the STAR fund to finance the initial year of
the school tax reduction program.
User taxes and fees are comprised of three-quarters of the State four percent
sales and use tax (the balance, one percent, flows to support the Local
Government Assistance Corporation (LGAC) debt service requirements), cigarette,
alcoholic beverage, container, and auto rental taxes, and a portion of the motor
fuel excise levies. Also included in this category are receipts from the motor
vehicle registration fees and alcoholic beverage license fees.
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Receipts from user taxes and fees in 1998-99 are projected to be $7.21 billion,
an increase of $170 million from the prior year. The sales tax component of this
category accounts for all of the 1998-99 growth, as receipts for all other
sources declined by $100 million. The growth in yield of the sales tax in
1998-99, after adjusting for tax law and other changes, is projected at 4.7
percent. The yields of most of the excise taxes in this category show a
long-term declining trend, particularly cigarette and alcoholic beverage taxes.
These General Fund declines are exacerbated in 1998-99 by revenue losses from
scheduled and newly enacted tax reductions, and by an increase in earmarking of
motor vehicle registration fees to the Dedicated Highway and Bridge Trust Fund.
Business taxes include franchise taxes based generally on net income of general
business, bank and insurance corporations, as well as gross-receipts-based taxes
on utilities and gallonage-based petroleum business taxes. Beginning in 1994, a
15 percent surcharge on these levies began to be phased out and, for most
taxpayers, there is no surcharge liability for taxable periods ending in 1997
and thereafter.
Total business tax collections in 1998-99 are projected at $4.79 billion, $257
million less than the prior fiscal year. The year-over-year decline in projected
receipts in this category is a function of statutory changes between the two
years. These include the first year of utility-tax rate cuts and the Power for
Jobs tax reduction program for energy providers, and the scheduled additional
diversion of General Fund petroleum business and utility tax receipts to other
funds.
Other taxes include estate, gift and real estate transfer taxes, a pari-mutuel
tax and other minor levies. They are now projected to total $1.02 billion -- $75
million below last year's amount. Two factors account for a significant part of
the expected decline in collections from this category: (i) the effects of the
elimination of the real property gains tax collections and (ii) a decline in
estate tax receipts, which follows the explosive growth recorded in 1997-98,
when receipts expanded by over 16 percent.
Miscellaneous receipts include investment income, abandoned property receipts,
medical provider assessments, minor federal grants, receipts from public
authorities and certain other license and fee revenues. Total miscellaneous
receipts are projected to reach $147 billion, down almost $200 million from the
prior year. Transfers from other funds to the General Fund consist primarily of
tax revenues in excess of debt service requirements, particularly the one
percent sales tax used to support payments to LGAC. Miscellaneous receipts and
transfers from other funds are projected to reach $3.33 billion for the fiscal
year.
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General Fund Disbursements
General Fund disbursements and transfers to capital, debt service and other
funds are projected at $36.78 billion, an increase of $2.43 billion (7.1
percent) from 1997-98. Nearly one-half of the growth is for educational
purposes, reflecting increased support for public schools, special education
programs and the State and City university systems. The remaining increase is
primarily for Medicaid, mental hygiene, and other health and social welfare
programs, including children and family services. The 1998-99 Financial Plan
also includes funds for negotiated salary increases for State employees and
increased transfers for debt service.
Grants to Local Governments, which is the largest category of General Fund
disbursements, includes financial assistance to local governments and
not-for-profit corporations and entitlement benefits to individuals. The 1998-99
Financial Plan projects spending of $25.14 billion in this category, an increase
of $1.88 billion, or 8.1, percent over the prior year. The largest annual
increases are for educational programs, Medicaid, other health and social
welfare programs and community projects grants.
The 1998-99 budget provides $9.7 billion in support for public schools. The
year-to-year increase of $769 million is comprised of partial funding for a
1998-99 school year increase of $847 million and the remainder of the 1997-98
school year increase that occurs in State fiscal year 1998-99. Spending for all
other educational programs, including the State and City university systems, the
Tuition Assistance Program and handicapped programs, is estimated at $3.00
billion, an increase of $270 million over 1997-98 levels.
Medicaid costs are estimated at $5.60 billion, an increase of $144 million from
the prior year. After adjusting 1997-98 for the $116 million prepayment of an
additional Medicaid cycle, Medicaid spending is projected to increase $260
million, or 4.9 percent. Disbursements for all other health and social welfare
programs are projected to total $3.63 billion, an increase of $131 million from
1997-98. This includes an increase in support for children and families and
local public health programs, offset by a decline in welfare spending of $75
million that reflects continuing State and local efforts to reduce welfare
fraud, declining caseloads, and the impact of State and federal welfare reform
legislation.
Remaining disbursements primarily support community based mental hygiene
programs, community and public health programs, local transportation programs
and revenue sharing payments to local governments. Revenue sharing and other
general purpose aid is projected at $837 million, an increase of approximately
$37 million from 1996-97.
State operations spending reflects the administrative costs of operating the
State's agencies, including the prison system, mental hygiene institutions, the
State University system (SUNY), the Legislature and the court system. Personal
service costs account for approximately 73 percent of this category.
Disbursements for State operations are projected at $6.7 billion, an
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increase of $511 million, or 8.3 percent, over the 1997-98 fiscal year. This
year-to-year growth reflects the continuing phase-in of wage increases under
existing collective bargaining agreements, the impact of binding arbitration
settlements and the costs of funding an additional payroll cycle in 1998-99.
General State charges account primarily for the costs of providing fringe
benefits for State employees, including contributions to pension systems, the
employer's share of social security contributions, employer contributions toward
the cost of health insurance and the costs of providing worker's compensation
and unemployment insurance benefits. This category also reflects certain fixed
costs such as payments in lieu of taxes and payments of judgments against the
State or its public officers.
Disbursements in this category are estimated at $2.22 billion, a decrease of $50
million from the prior year. This decline reflects projected decreases in
pension costs and Court of Claims payments, offset by modest projected increases
for health insurance contributions, social security costs and the loss of
reimbursements due to a reduction in the fringe benefit rate charged to
positions financed by non-General Fund sources.
Debt service paid from the General Fund reflects debt service on short-term
obligations of the State and includes only the interest cost of the State's
commercial paper program. The 1998-99 debt service estimate is $11 million,
which reflects relative stability in short-term interest rates. The State's
annual tax and revenue anticipation note (TRAN) borrowing has been eliminated.
Transfers to other funds from the General Fund are made primarily to finance
certain portions of State capital project spending and debt service on long-term
bonds, where these costs are not funded from other sources. Transfers in support
of debt service are projected at $2.14 billion in 1998-99, an increase of $111
million from 1997-98. The increase reflects the impact of certain prior year
bond sales (net of refunding savings) and certain bond sales planned to occur
during the 1998-99 fiscal year. The State Financial Plan also establishes a
transfer of $50 million to the new Debt Reduction Reserve Fund. The Fund may be
used, subject to enactment of new appropriations, to pay the debt service costs
on or to prepay State-supported bonds. Transfers in support of capital projects
provide General Fund support for projects not otherwise financed through bond
proceeds, dedicated taxes and other revenues or federal grants. These transfers
are projected at $200 million for 1998-99, comparable to last year. Remaining
transfers from the General Fund to other funds are estimated to decline $59
million in 1998-99 to $327 million. This decline is primarily the net impact of
one-time transfers in 1997-98 to the State University Tuition Stabilization Fund
and to the Lottery Fund to support school aid, offset by a 1998-99 increase in
the State subsidy to the Roswell Park Cancer Research Institute.
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General Fund Balance
The Financial Plan projects a closing balance in the General Fund of $1.7
billion. The balance is comprised of the $1.04 billion reserve for future needs,
$400 million in the Tax Stabilization Reserve Fund, $100 million in the
Contingency Reserve Fund (after a planned deposit of $32 million in 1998-99) and
$158 million in the Community Projects Fund.
Special Revenue Funds
Special Revenue Funds are used to account for the proceeds of specific revenue
sources, such as federal grants, that are legally restricted, either by the
Legislature or outside parties, to expenditures for specified purposes. Although
activity in this fund type is expected to comprise approximately 41 percent of
total government funds receipts in the 1998-99 fiscal year, three-quarters of
that activity relates to federally-funded programs. Projected disbursements in
this fund type total $29.98 billion, an increase of $2.33 billion (8.4 percent)
over 1997-98 levels. Disbursements from federal funds, primarily the federal
share of Medicaid and other social services programs, are projected to total
$21.78 billion in the 1998-99 fiscal year. Remaining growth in federal funds is
primarily due to the new Child Health Plus program, estimated at $197 million.
This program will expand health insurance coverage to children of indigent
families. State special revenue spending is projected to be $8.19 billion, an
increase of $1.20 billion from last year's levels.
Capital Project Funds
Capital Projects Funds account for the financial resources used for the
acquisition, construction, or rehabilitation of major State capital facilities
and for capital assistance grants to certain local governments or public
authorities. This fund type consists of the Capital Projects Fund, which is
supported by tax receipts transferred from the General Fund, and various other
capital funds established to distinguish specific capital construction purposes
supported by other revenues. In the 1998-99 fiscal year, activity in these funds
is expected to comprise 5.5 percent of total governmental receipts.
Capital Projects Funds spending in fiscal year 1998-99 is projected to be $4.14
billion, an increase of $575 million, or 16.1 percent, from last year. The major
components of this expected growth are transportation and environmental
programs, including continued increased spending for 1996 Clean Water/Clean Air
Bond Act projects and higher projected disbursements from the Environmental
Protection Fund (EPF). Another significant component of this projected increase
is in the area of public protection, primarily for facility rehabilitation and
construction of additional prison capacity.
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Debt Service Funds
Debt Service Funds are used to account for the payment of principal and interest
on long-term debt of the State and to meet commitments under lease-purchase and
other contractual-obligation financing arrangements. This fund type is expected
to comprise 3.8 percent of total governmental fund receipts in the 1998-99
fiscal year. Receipts in these funds in excess of debt service requirements may
be transferred to the General Fund and Special Revenue Funds, pursuant to law.
Total disbursements from the Debt Service Fund type are estimated at $3.36
billion in 1998-99, an increase of $275 million or 8.9 percent from 1997-98
levels. Of the increase, $102 million is for transportation purposes, including
debt service on bonds issued for State and local highway and bridge programs
financed through the New York State Thruway Authority and supported by the
Dedicated Highway and Bridge Trust Fund. Another $45 million is for education
purposes, including State and City University programs financed through the
Dormitory Authority of the State of New York (DASNY). The remainder is for a
variety of programs in such areas as mental health and corrections, and for
general obligation financings.
Out-Year Projections of Receipts and Disbursements
State law requires the Governor to propose a balanced budget each year. In
recent years, the State has closed projected budget gaps of $5.0 billion
(1996-97), $2.3 billion (1997-98) and less than $1 billion (1998-99). The State,
as part of the 1998-99 Executive Budget projections submitted to the Legislature
in February 1998, projected a 1999-00 General Fund budget gap of approximately
$1.7 billion and a 2000-01 gap of $3.7 billion. As a result of changes made in
the 1998-99 enacted budget, the 1999-00 gap is now expected to be roughly $1.3
billion, or about $400 million less than previously projected, after application
of reserves created as part of the 1998-99 budget process. Such reserves would
not be available against subsequent year imbalances.
Sustained growth in the State's economy could contribute to closing projected
budget gaps over the next several years, both in terms of higher-than-projected
tax receipts and in lower-than-expected entitlement spending. However, the
State's projections in 1999-00 currently assume actions to achieve $600 million
in lower disbursements and $250 million in additional receipts from the
settlement of State claims against the tobacco industry. Consistent with past
practice, the projections do not include any costs associated with new
collective bargaining agreements after the expiration of the current round of
contracts at the end of the 1998-99 fiscal year. The State expects that the
1999-00 Financial Plan will achieve savings from initiatives by State agencies
to deliver services more efficiently, workforce management efforts, maximization
of federal and non-general Fund spending offsets and other actions necessary to
bring projected disbursements and receipts into balance.
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The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years, as well as new 1999-00
Executive Budget recommendations. The STAR program, which dedicates a portion of
personal income tax receipts to fund school tax reductions, has a significant
impact on General Fund receipts. STAR is projected to reduce personal income tax
revenues available to the General Fund by an estimated $1.3 billion in 2000-01.
Measured from the 1998-99 base, scheduled reductions to estate and gift, sales
and other taxes, reflecting tax cuts enacted in 1997-98 and 1998-99, will lower
General Fund taxes and fees by an estimated $1.8 billion in 2000-01.
Disbursement projections for the outyears currently assume additional outlays
for school aid, Medicaid, welfare reform, mental health community reinvestment
and other multi-year spending commitments in law.
Prior Fiscal Years
New York State's financial operations have improved during recent fiscal years.
During the period 1989-90 through 1991-92, the State incurred General Fund
operating deficits that were closed with receipts from the issuance of TRANs. A
national recession, followed by the lingering economic slowdown in the New York
and the regional economy, resulted in repeated shortfalls in receipts and three
budget deficits during those years. During its last six fiscal years, the State
has recorded balanced budgets on a cash basis, with positive fund balances as
described below.
1997-98 Fiscal Year
The State ended its 1997-98 fiscal year in balance on a cash basis, with a
General Fund operating surplus of $1.56 billion. As a result, the State reported
an accumulated surplus of $567 million in the General Fund for the first time
since it began reporting its operations on a generally accepted accounting
principals (GAAP) basis. The 1997-98 fiscal year operating surplus resulted in
part from higher-than-anticipated personal income tax receipts, an increase in
taxes receivable of $681 million, an increase in other assets of $195 million
and a decrease in pension liabilities of $144 million. These gains were
partially offset by an increase in payables to local governments of $270 million
and tax refunds payable of $147 million.
The General Fund had a closing balance of $638 million, an increase of $205
million from the prior fiscal year. The balance is held in three accounts within
the General Fund: the Tax Stabilization Reserve Fund (TSRF), the Contingency
Reserve Fund (CRF) and the Community Projects Fund (CPF). The TSRF closing
balance was $400 million, following a required deposit of $15 million (repaying
a transfer made in 1991-92) and an extraordinary deposit of $68 million made
from the 1997-98 surplus. The CRF closing balance was $68 million, following a
$27 million deposit from the surplus. The CPF, which finances legislative
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initiatives, closed the fiscal year with a balance of $170 million, an increase
of $95 million. The General Fund closing balance did not include $2.39 billion
in the tax refund reserve account, of which $521 million was made available as a
result of the Local Government Assistance Corporation (LGAC) financing program
and was required to be on deposit on March 31, 1998.
General Fund receipts and transfers from other funds for the 1997-98 fiscal year
(including net tax refund reserve account activity) totaled $34.55 billion, an
annual increase of $1.51 billion, or 4.57 percent, over 1996-97. General Fund
disbursements and transfers to other funds were $34.35 billion, an annual
increase of $1.45 billion or 4.41 percent.
1996-97 Fiscal Year
The State ended its 1996-97 fiscal year on March 31, 1997 in balance on a cash
basis, with a General Fund cash surplus as reported by DOB of approximately
$1.42 billion. The cash surplus was derived primarily from higher-than-expected
receipts and lower-than-expected spending for social services programs.
The General Fund closing balance was $433 million, an increase of $146 million
from the 1995-96 fiscal year. The balance included $317 million in the TSRF,
after a required deposit of $15 million and an additional deposit of $65 million
in 1996-97. In addition, $41 million remained on deposit in the CRF. The
remaining $75 million reflected amounts then on deposit in the Community
Projects Fund. The General Fund closing balance did not include $1.86 billion in
the tax refund reserve account, of which $521 million was made available as a
result of the LGAC financing program and was required to be on deposit as of
March 31, 1997.
General Fund receipts and transfers from other funds for the 1996-97 fiscal year
totaled $33.04 billion, an increase of 0.7 percent from the previous fiscal year
(including net tax refund reserve account activity). General Fund disbursements
and transfers to other funds totaled $32.90 billion for the 1996-97 fiscal year,
an increase of 0.7 percent from the 1995-96 fiscal year.
1995-96 Fiscal Year
The State ended its 1995-96 fiscal year on March 31, 1996 with a General Fund
cash surplus, as reported by DOB, of $445 million. The cash surplus was derived
from higher-than-expected receipts, savings generated through agency cost
controls, and lower-than-expected welfare spending.
The General Fund closing fund balance was $287 million, an increase of $129
million from 1994-95 levels. The 129 million change in fund balance is
attributable to a $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million
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deposit to the CRF, and a $9 million deposit to the Revenue Accumulation Fund.
The closing fund balance included $237 million on deposit in the TSRF. In
addition, $41 million was on deposit in the CRF. The remaining $9 million
reflected amounts then on deposit in the Revenue Accumulation Fund. The General
Fund closing balance did not include $678 million in the tax refund reserve
account, of which $521 million was made available as a result of the LGAC
financing program and was required to be on deposit as of March 31, 1996.
General Fund receipts and transfers from other funds (including net refund
reserve account activity) totaled $32.81 billion, a decrease of 1.1 percent from
1994-95 levels. General Fund disbursements and transfers to other funds totaled
$32.68 billion for the 1995-96 fiscal year, a decrease of 2.2 percent from
1994-95 levels.
Year 2000 Compliance
New York State is currently addressing "Year 2000" data processing compliance
issues. The Year 2000 compliance issue ("Y2K") arises because most computer
software programs allocate two digits to the data field for "year" on the
assumption that the first two digits will be "19". Absent reprogramming, such
programs will interpret the year 2000 as the year 1900. Y2K could impact both
the entering of data into computer programs and the ability of such programs to
correctly process data.
The State created the Office for Technology (OFT) in 1996 to help address
statewide technology issues, including Y2K. OFT has estimated that investments
of at least $140 million will be required to bring approximately 350 State
mission-critical and high-priority computer systems not otherwise scheduled for
replacement into Year 2000 compliance, and the State is planning to spend $100
million in the 1998-99 fiscal year for this purpose. Mission-critical computer
applications are those which impact the health, safety and welfare of the State
and its citizens, and for which failure to be in Y2K compliance could have a
material and adverse impact upon State operations. High-priority computer
applications are those that are critical for a State agency to fulfill its
mission and deliver services, but for which there are manual alternatives. Work
has been completed on roughly 20 percent of these systems. All remaining
unfinished mission-critical and high-priority systems have at least 40 percent
or more of the work completed. Contingency planning is underway for those
systems which may be non-compliant prior to failure dates. The enacted budget
also continues funding for major systems scheduled for replacement, including
the State payroll, civil service, tax and finance and welfare management
systems, for which Year 2000 compliance is included as a part of the Project.
OTF is monitoring compliance on a quarterly basis and is providing assistance
and assigning resources to accelerate compliance for mission-critical systems,
with most compliance testing expected to be completed by mid-1999. There can be
no guarantee, however, that all of the
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State's mission-critical and high-priority computer systems will be Year 2000
complaint, or that there will not be an adverse impact upon State operations or
State Finances as a result.
Certain Litigation
The legal proceedings noted below involve State finances and programs and
miscellaneous civil rights, real property, contract and other tort claims in
which the State is a defendant and the potential monetary claims sought against
the State are substantial, generally in excess of $100 million. These
proceedings could adversely affect the financial condition of the State in the
1998-99 fiscal year or thereafter.
Among the more significant of these cases are those that involve: (i) the
validity of agreements and treaties by which various Indian tribes transferred
to New York title to certain land in New York; (ii) certain aspects of New
York's Medicaid rates and regulations, including reimbursements to providers of
mandatory and optional Medicaid services and the eligibility for and nature of
home care services; (iii) challenges to provisions of Section 2807-d of the
Public Health Law, which impose a tax on the gross receipts hospitals and
residential health care facilities receive from all patient care services; (iv)
alleged responsibility of New York officials to assist in remedying racial
segregation in the City of Yonkers; (v) challenges to the regulations
promulgated by the Superintendent of Insurance that established excess medical
malpractice premium rates; (vi) a case challenging the shelter allowance granted
to recipients of public assistance as insufficient for proper housing; (vii) an
action against the Governor of the State of New York challenging the Governor's
application of his constitutional line item veto authority to certain portions
of budget bills; and (viii) a case calling for the enforcement of the provisions
of Articles 12-A, 20 and 28 as applicable to taxation on motor fuel and tobacco
products sold to non-Indian consumers on Indian reservations. In addition,
aspects of petroleum business taxes are the subject of administrative claims and
litigation.
The City of New York
The fiscal health of the State may be affected by the fiscal health of New York
City ("the City"), which continues to receive significant financial assistance
from the State. The City depends on State aid both to enable the City to balance
its budget and to meet its cash requirements. The State may also be affected by
the ability of the City and certain entities issuing debt for the benefit of the
City to market their securities successfully in the public credit markets.
The City has achieved balanced operating results for each of its fiscal years
since 1981 as measured by the GAAP standards in force at that time. The City
prepares a four-year financial plan ("Financial Plan") annually and updates it
periodically, and prepares a comprehensive annual financial report each October
describing its most recent fiscal year. For current
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information on the City's Financial Plan and its most recent financial
disclosure, contact the Office of the Comptroller, Municipal Building, Room 517,
One Centre Street, New York, NY 10007, Attention: Deputy Comptroller for Public
Finance.
In response to the City's fiscal crisis in 1975, the State took action to assist
the City in returning to fiscal stability. Among those actions, the State
established NYC MAC to provide financing assistance to the City; the New York
State Financial Control Board (the "Control Board") to oversee the City's
financial affairs; and the Office of the State Deputy Comptroller for the City
of New York ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. A "control period" existed from 1975 to 1986 during which the
City was subject to certain statutorily-prescribed fiscal controls. Although the
Control Board terminated the Control Period in 1986 when certain statutory
conditions were met and suspended certain Control Board powers, upon the
occurrence or "substantial likelihood and imminence" of the occurrence of
certain events, including (but not limited to) a City operating budget deficit
of more than $100 million or impaired access to the public credit markets, the
Control Board is required by law to reimpose a Control Period.
Currently, the City and its Covered Organizations (i.e., those organizations
which receive or may receive moneys from the City directly, indirectly or
contingently) operate under the Financial Plan. The City's Financial Plan
summarizes its capital, revenue and expense projections and outlines proposed
gap-closing programs for years with projected budget gaps. The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies, some of which are uncertain and may not materialize. Unforeseen
developments and changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and meet its
annual cash flow and financing requirements.
Implementation of the Financial Plan is also dependent upon the ability of the
City and certain Covered Organizations to market their securities successfully.
The City issues securities to finance, refinance and rehabilitate infrastructure
and other capital needs, as well as for seasonal financing needs. In 1997, the
State created the New York City Transitional Finance Authority (TFA) to finance
a portion of he City's capital program because the City was approaching its
State Constitutional general debt limit. Without the additional financing
capacity of the TFA, projected contracts for City capital projects would have
exceeded the City's debt limit during City fiscal year 1997-98. Despite this
additional financing mechanism, the City currently projects that it will reach
its debt limit in City fiscal year 1999-2000 if no further action is taken. On
June 2, 1997, an action was commenced seeking a declaratory judgment declaring
the legislation establishing the TFA to be unconstitutional. On November 25,
1997 the State Supreme Court found the legislation establishing the TFA to be
constitutional and granted the defendants' motion for summary judgment. The
plaintiffs have appealed that decision. Future developments concerning the City
or entities issuing debt for the benefit of the City, public discussion of such
developments and prevailing market conditions and securities credit ratings
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<PAGE>
may affect the ability or cost to sell securities issued by the City or such
entities and may also affect the market for their outstanding securities.
Other Localities
Certain localities outside New York City have experienced financial problems and
have requested and received additional State assistance during the last several
State fiscal years. The cities of Yonkers and Troy continue to operate under
State-ordered control agencies. The potential impact on the State of any future
requests by localities for additional oversight or financial assistance is not
included in the projections of the State's receipts and disbursements for the
State's 1998-99 fiscal year.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and twenty-eight municipalities received more than $32
million in targeted unrestricted aid in the 1997-98 budget. Both of these
emergency aid packages were largely continued through the 1998-99 budget. The
State also dispersed an additional $21 million among all cities, towns and
villages after enacting a 3.9 percent increase in General Purpose State Aid in
1997-98, and continued this increase in 1998-99.
The 1998-99 budget includes an additional $29.4 million in unrestricted aid
targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.
The appropriation and allocation of general purpose local government aid among
localities, including New York City, is currently the subject of investigation
by a State commission. While the distribution of general purpose local
government aid was originally based on a statutory formula, in recent years both
the total amount appropriated and the amounts appropriated to localities have
been determined by the Legislature. A State commission was established to study
the distribution and amounts of general purpose local government aid and
recommend a new formula by June 30, 1999, which may change the way aid is
allocated.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1996, the total indebtedness of all localities in the
State other than New York City was approximately $20.0 billion. A small portion
(approximately $77.2 million) of that indebtedness represented borrowing to
finance budgetary deficits and was issued pursuant to State enabling
legislation. State law requires the Comptroller to review and make recom
mendations concerning the budgets of those local government units other than New
York City that are authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Twenty-one
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1996.
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<PAGE>
Like the State, local governments must respond to changing political, economic
and financial influences over which they have little or no control. Such changes
may adversely affect the financial condition of certain local governments. For
example, the federal government may reduce (or in some cases eliminate) federal
funding of some local programs which, in turn, may require local governments to
fund these expenditures from their own resources. It is also possible that the
State, New York City, or any of their respective public authorities may suffer
serious financial difficulties that could jeopardize local access to the public
credit markets, which may adversely affect the marketability of notes and bonds
issued by localities within the State. Localities may also face unanticipated
problems resulting from certain pending litigation, judicial decisions and
long-range economic trends. Other large-scale potential problems, such as
declining urban populations, increasing expenditures, and the loss of skilled
manufacturing jobs, may also adversely affect localities and necessitate State
assistance.
Authorities
The fiscal stability of the State is related in part to the fiscal stability of
its public authorities. Public authorities are not subject to the constitutional
restrictions on the incurrence of debt that apply to the State itself and may
issue bonds and notes within the amounts and restrictions set forth in
legislative authorization. The State's access to the public credit markets could
be impaired and the market price of its outstanding debt may be materially and
adversely affected if any of its public authorities default on their respective
obligations, particularly those using the financing techniques referred to as
State-supported or State-related debt. As of December 31, 1997, there were 17
public authorities that had outstanding debt of $100 million or more, and the
aggregate outstanding debt, including refunding bonds, of all State Public
Authorities was $84 billion, only a portion of which constitutes State-supported
or State-related debt.
Beginning in 1998, the Long Island Power Authority (the "LIPA") assumed
responsibility for the provision of electric utility services previously
provided by Long Island Lighting Company for Nassau, Suffolk and a portion of
Queen Counties, as part of an estimated $7 billion financing plan. As of the
date of this AIS, LIPA has issued over $5 billion in bonds secured solely by
ratepayer charges. LIPA's debt is not considered either State-supported or
State-related debt.
The Metropolitan Transit Authority (the "MTA") oversees the operation of subway
and bus lines in New York City by its affiliates, the New York City Transit
Authority and Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). The MTA operates certain commuter rail and bus
services in the New York Metropolitan area through MTA's subsidiaries, the Long
Island Rail Road Company, the Metro-North Commuter Railroad Company and the
Metropolitan Suburban Bus Authority. In addition, the Staten Island Rapid
Transit Operating Authority, an MTA subsidiary, operates a rapid transit line on
Staten Island. Through its affiliated agency, the Triborough Bridge and Tunnel
Authority (the "TBTA"), the
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<PAGE>
MTA operates certain intrastate toll bridges and tunnels. Because fare revenues
are not sufficient to finance the mass transit portion of these operations, the
MTA has depended on, and will continue to depend on, operating support from the
State, local governments and TBTA, including loans, grants and subsidies. If
current revenue projections are not realized and/or operating expenses exceed
current projections, the TA or commuter railroads may be required to seek
additional State assistance, raise fares or take other actions.
Since 1980, the State has enacted several taxes, including a surcharge on the
profits of banks, insurance corporations and general business corporations doing
business in the 12-county Metropolitan Transportation Region served by the MTA
and a special one-quarter of 1 percent regional sales and use tax, that provide
revenue for mass transit purposes, including assistance to the MTA. Since 1987,
State law has required that the proceeds of a one-quarter of 1 percent mortgage
recording tax paid on certain mortgages in the Metropolitan Transportation
Region be deposited in a special MTA fund for operating or capital expenses. In
1993, the State dedicated a portion of certain additional State petroleum
business tax receipts to fund operating or capital assistance to the MTA. For
the 1998-99 State fiscal year, total State assistance to the MTA is projected to
total approximately $1.3 billion, an increase of $133 million over the 1997-98
fiscal year.
State legislation accompanying the 1996-97 State budget authorized the MTA, TBTA
and TA to issue an aggregate of $6.5 billion in bonds to finance a portion of a
new $12.17 billion MTA capital plan for the 1995 through 1999 calendar years
(the "1995-99 Capital Program"). In July 1997, the Capital Program Review Board
(the "CPRB") approved the 1995-99 Capital Program (subsequently amended in
August 1997), which supercedes the overlapping portion of the MTA's 1992-96
Capital Program. This is the fourth capital plan since the Legislature
authorized procedures for the adoption, approval and amendment of MTA capital
programs, and is designed to upgrade the performance of the MTA's transportation
systems by investing in new rolling stock, maintaining replacement schedules for
existing assets and bringing the MTA system into a state of good repair. The
1995-99 Capital Program assumes the issuance of an estimated $5.2 billion in
bonds under this $6.5 billion aggregate bonding authority. The remainder of the
plan is projected to be financed through assistance from the State, the federal
government and the City of New York, and from various other revenues generated
from actions taken by the MTA.
There can be no assurance that all the necessary governmental actions for future
capital programs will be taken, that funding sources currently identified will
not be decreased or eliminated, or that the 1995-99 Capital Program, or parts
thereof, will not be delayed or reduced. Should funding levels fall below
current projections, the MTA would have to revise its 1995-99 Capital Program
accordingly. If the 1995-99 Capital Program is delayed or reduced ridership
causes fare revenues to decline, the MTA's ability to meet its operating
expenses without additional assistance could be impaired.
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<PAGE>
================================================================================
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectuses, the
term "majority of a Fund's outstanding shares" (of a series, if applicable)
means the vote of (i) 67% or more of the Fund's shares (of the series, if
applicable) present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares (of the series, if applicable) are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares (of the series, if
applicable), whichever is less.
Telephone calls to the Funds and The Bank of New York as shareholder servicing
agent may be tape recorded.
With respect to the securities offered hereby, this Statement of Additional
Information and the Prospectuses do not contain all the information included in
the Funds' Registration Statement filed with the Securities and Exchange
Commission under the Securities Act. Pursuant to the rules and regulations of
the Securities and Exchange Commission, certain portions have been omitted. The
Registration Statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained in this Statement of Additional Information and the
Prospectuses concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statements. Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectuses and this Statement of Additional Information, in connection with
the offer contained in the Prospectuses and this Statement of Additional
Information and, if given or made, such other information or representations
must not be relied upon as having been authorized by any of the Funds or the
Distributor. The Prospectuses and this Statement of Additional Information do
not constitute an offer by any Fund or by the Distributor to sell or
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Funds or the
Distributor to make such offer in such jurisdictions.
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<PAGE>
================================================================================
FINANCIAL STATEMENTS
The following financial information is hereby incorporated by reference to the
indicated pages of the Funds' Annual Report to shareholders dated December 31,
1998.
<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
QUESTIONS & ANSWERS 1 BNY HAMILTON INTERMEDIATE
INVESTMENT GRADE FUND
bny hamilton equity income fund schedule of investments 59
Schedule of Investments 19 Statement of Assets and Liabilities 64
Statement of Assets and Liabilities 23 Statement of Operations 64
Statement of Operations 23 Statement of Changes in Net Assets 65
Statements of Changes in Net Assets 24 Financial Highlights 66
Financial Highlights 25
BNY HAMILTON INTERMEDIATE NEW
BNY HAMILTON LARGE CAP GROWTH YORK TAX-EXEMPT FUND
FUND Schedule of Investments 67
Schedule of Investments 27 Statement of Assets and Liabilities 73
Statement of Assets and Liabilities 31 Statement of Operations 73
Statement of Operations 31 Statements of Changes in Net Assets 74
Statement of Changes in Net Assets 32 Financial Highlights 75
Financial Highlights 33
BNY HAMILTON INTERMEDIATE TAX-
BNY HAMILTON SMALL CAP GROWTH EXEMPT FUND
FUND Schedule of Investments 77
Schedule of Investments 34 Diversification by State 86
Statement of Assets and Liabilities 38 Statement of Assets and Liabilities 87
Statement of Operations 38 Statement of Operations 87
Statement of Changes in Net Assets 39 Statement of Changes in Net Assets 88
Financial Highlights 40 Financial Highlights 89
BNY HAMILTON INTERNATIONAL EQUITY BNY HAMILTON MONEY FUND
FUND Schedule of Investments 90
Schedule of Investments 41 Statement of Assets and Liabilities 98
Industry Diversification 46 Statement of Operations 98
Statement of Assets and Liabilities 48 Statements of Changes in Net Assets 99
Statement of Operations 48 Financial Highlights 100
Statement of Changes in Net Assets 49
Financial Highlights 50
</TABLE>
-88-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BNY HAMILTON INTERMEDIATE BNY HAMILTON TREASURY MONEY
GOVERNMENT FUND FUND
Schedule of Investments 51 Schedule of Investments 103
Statement of Assets and Liabilities 55 Statement of Assets and Liabilities 105
Statement of Operations 55 Statement of Operations 105
Statements of Changes in Net Assets 56 Statement of Changes in Net Assets 106
Financial Highlights 57 Financial Highlights 107
NOTES TO FINANCIAL STATEMENTS 108
REPORT OF INDEPENDENT AUDITORS 117
FEDERAL INCOME TAX INFORMATION 118
DIRECTORS AND OFFICERS 119
</TABLE>
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<PAGE>
APPENDIX A
Description of Security Ratings
S&P
Corporate and Municipal Bonds
AAA Debt obligations rated AAA have the highest ratings assigned by S&P to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA Debt obligations rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in a small
degree.
A Debt obligations rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debts in
higher rated categories.
BBB Debt obligations rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debts in this category than for debts in
higher rated categories.
BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments.
B Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC Debt rated CCC has a currently indefinable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal.
CC The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating.
NR No public rating has been requested, there may be insufficient information
on which to base a rating, or that S&P does not rate a particular type of
obligation as a matter of policy.
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<PAGE>
Commercial Paper, Including Tax-Exempt Commercial Paper
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designations 1, 2, and 3 to indicate the relative degree of
safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is very strong.
MOODY'S
Corporate and Municipal Bonds
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds that are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be presented elements of danger with respect to
principal or interest.
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<PAGE>
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issue so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NR No public rating has been requested, there may be insufficient information
on which to base a rating, or that Moody's does not rate a particular type
of obligation as a matter of policy.
Commercial Paper, Including Tax-Exempt Commercial Paper
Prime-1 Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by
the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Short-Term Tax-Exempt Notes
MIG-1 The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best quality.
Notes with this rating enjoy strong protection from established cash
flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG-2 MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
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<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits.
Exhibit Number Description
-------------- -----------
(1) (a) Articles of Incorporation of Registrant.*
(b) Articles of Amendment, dated June 29, 1992.*
(c) Articles of Supplementary, dated June 29, 1994.*
(d) Articles of Supplementary, dated August 15, 1995.*
(e) Articles of Amendment, dated January 22, 1997*
(f) Articles Supplementary, dated January 22, 1997.*
(g) Articles Supplementary, dated April 28, 1999.*
(h) Form of Articles Supplementary, dated September 17,
1999*
(2) Bylaws of Registrant.*
(3) Not Applicable.
(4) (a) Form of Specimen stock certificate of common stock of
BNY Hamilton Money Fund.*
(b) Form of Specimen stock certificate of common stock of
BNY Hamilton Intermediate Government Fund.*
(c) Form of specimen stock certificate of common stock of
BNY Hamilton Intermediate New York Tax-Exempt Fund.*
(d) Form of specimen stock certificate of common stock of
BNY Hamilton Equity Income Fund.*
(5) (a) Investment Advisory Agreement between BNY Hamilton
Money Fund and The Bank of New York.*
(b) Investment Advisory Agreement between BNY Hamilton
Intermediate Government Fund and The Bank of New
York.*
(c) Investment Advisory Agreement between BNY Hamilton
Intermediate New York Tax-Exempt Fund and The Bank of
New York.*
(d) Investment Advisory Agreement between BNY Hamilton
Equity Income Fund and The Bank of New York.*
(e) Investment Advisory Agreement between BNY Hamilton
Treasury Money Fund and The Bank of New York.*
(f) Investment Advisory Agreement between BNY Hamilton
Large Cap Growth Fund and The Bank of New York.*
<PAGE>
(g) Investment Advisory Agreement between BNY Hamilton
Small Cap Growth Fund and The Bank of New York.*
(h) Investment Advisory Agreement between BNY Hamilton
International Equity Fund and The Bank of New York.*
(i) Investment Advisory Agreement between BNY Hamilton
Intermediate Investment Grade Fund and The Bank of
New York.*
(j) Investment Advisory Agreement between BNY Hamilton
Intermediate Tax-Exempt Fund and The Bank of New
York.*
(k) Sub-advisory agreement between BNY Hamilton
International Equity Fund and Indosuez Asset
Management.*
(l) Investment Advisory Agreement between BNY Hamilton
Large Cap Growth CRT Fund and The Bank of New York.*
(m) Investment Advisory Agreement between BNY Hamilton
Small Cap Growth CRT Fund and The Bank of New York.*
(n) Investment Advisory Agreement between BNY Hamilton
International Equity CRT Fund and The Bank of New
York.*
(o) Sub-advisory agreement between BNY Hamilton
International Equity Fund and Indocam, a subsidiary
of Credit Agricole.*
(p) Investment Advisory Agreement between BNY Hamilton
U.S. Bond Market Index Fund and the Bank of New York.
(to be filed at a later date)
(q) Investment Advisory Agreement between BNY Hamilton
S&P 500 Index Fund and the Bank of New York. (to be
filed at a later date)
(r) Investment Advisory Agreement between BNY Hamilton
Large Cap Value Fund and the Bank of New York. (to be
filed at a later date)
(6) (a) Distribution Agreements between Registrant and BNY
Hamilton Distributors, Inc.*
(b) Supplement to Distribution Agreements between
Registrant and BNY Hamilton Distributors, Inc.*
(7) Not Applicable.
(8) (a) Custody Agreement between Registrant and The Bank of
New York.*
(b) Cash Management and Related Services Agreement
between each series of Registrant and The Bank of New
York.*
(c) Supplement to Custody Agreement between Registrant
and The Bank of New York.*
(d) Supplement to Cash Management and Related Services
Agreement between Registrant and The Bank of New
York.*
(e) Additional Supplement to Custody Agreement between
Registrant and The Bank of New York.*
(f) Additional Supplement to Cash Management and
Related Services Agreement between Registrant and
The Bank of New York.*
(9) (a) Administration Agreement between Registrant and BNY
Hamilton Distributors, Inc.*
(b) Fund Accounting Services Agreement between Registrant
and The Bank of New York.*
<PAGE>
(c) Form of Transfer Agency Agreement between Registrant
and BISYS Fund Services, Inc.*
(d) Form of Shareholder Servicing Agreement.*
(e) Form of Sub-Administration Agreement between BNY
Hamilton Distributors, Inc. and The Bank of New
York.*
(f) Shareholder Servicing Plan of BNY Hamilton Money Fund
(Hamilton Premier Shares).*
(g) No longer applicable.
(h) Shareholder Servicing Plan of BNY Hamilton Money Fund
(Hamilton Classic Shares).*
(i) Rule 18f-3 Plan of BNY Hamilton Money Fund.*
(j) Supplement to Administration Agreement between
Registrant and BNY Hamilton Distributors, Inc.*
(k) Supplement to Fund Accounting Services Agreement
between Registrant and The Bank of New York.*
(l) Updated Transfer Agency Agreement between Registrant
and BISYS Fund Services, Inc.*
(m) Shareholder Servicing Plan of BNY Hamilton Treasury
Money Fund (Hamilton Premier Shares).*
(n) Revised Rule 18f-3 Plan of BNY Hamilton Funds, Inc.*
(o) Supplement to Form of Sub-Administration Agreement
between BNY Hamilton Distributors, Inc. and The Bank
of New York.*
(p) Revised Fund Accounting Services Agreement between
BNY Hamilton International Equity Fund and The Bank
of New York.*
(q) Form of Shareholder Servicing Plan of BNY Hamilton
Treasury Money Fund - Hamilton Classic Shares.*
(r) Form of Revised Rule 18f-3 Plan of BNY Hamilton
Treasury Money Fund - Hamilton Classic Shares.*
(10) Opinion of Sullivan & Cromwell.*
(11) Not Applicable.
(12) Not Applicable.
(13) Form of Seed Capital Agreement between Registrant and
BNY Hamilton Distributors, Inc.*
(14) Not Applicable.
(15) (a) Rule 12b-1 Plan of BNY Hamilton Intermediate
Government Fund.*
(b) Rule 12b-1 Plan of BNY Hamilton Intermediate New York
<PAGE>
Tax-Exempt Fund.*
(c) Rule 12b-1 Plan of BNY Hamilton Equity Income Fund.*
(d) Rule 12b-1 Plan of BNY Hamilton Money Fund - Hamilton
Classic Shares.*
(e) Rule 12b-1 Plan of BNY Hamilton Large Cap Growth Fund
- Investor Shares.*
(f) Rule 12b-1 Plan of BNY Hamilton Small Cap Growth Fund
- Investor Shares.*
(g) Rule 12b-1 Plan of BNY Hamilton International Equity
Fund - Investor Shares.*
(h) Rule 12b-1 Plan of BNY Hamilton Intermediate
Investment Grade Fund - Investor Shares.*
(i) Rule 12b-1 Plan of BNY Hamilton Intermediate
Tax-Exempt Fund - Investor Shares.*
Money Fund - Hamilton Classic Shares.*
(j) Rule 12b-1 Plan of BNY Hamilton Intermediate Treasury
Money Fund - Hamilton Classic Shares.*
(k) Rule 12b-1 Plan of BNY Hamilton U.S. Bond Market
Index Fund - Investor Shares. (to be filed at a later
date)
(l) Rule 12b-1 Plan of BNY Hamilton S&P 500 Index Fund -
Investor Shares. (to be filed at a later date)
(m) Rule 12b-1 Plan of BNY Hamilton Large Cap Value Fund
- Investor Shares. (to be filed at a later date)
(16) Schedule for computation of performance quotations.
(17) Not Applicable.
- ------------------------------------------
* Previously filed.
Item 24. Persons Controlled by or under Common Control with Registrant.
No person is controlled by or under common control with the Registrant.
Item 25. Indemnification.
Reference is made to Article VI of Registrant's Bylaws and the
Distribution Agreement each filed as exhibits hereto.
Registrant, its Directors and officers, the other investment companies
administered by the Administrator, and persons affiliated with them are
insured against certain expenses in connection with the defense of
actions, suits, or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, officers and controlling
persons of the Registrant and the principal underwriter pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer, or
controlling person of the Registrant and the principal underwriter in
<PAGE>
connection with the successful defense of any action, suit or
proceeding) is asserted against the Registrant by such Director,
officers or controlling person or principal underwriter in connection
with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
Item 26. Business and Other Connections of Investment Adviser.
The Registrant's investment adviser, The Bank of New York, is a New
York trust company. The Bank of New York conducts a general banking and
trust business. The Bank of New York is not affiliated with BNY
Hamilton Distributors, Inc.
To the knowledge of the Registrant, none of the directors or officers
of The Bank of New York, except those set forth below, is engaged in
any other business, profession, vocation or employment of a substantial
nature. Set forth below are the names and principal businesses of each
director of The Bank of New York who is engaged in another business,
profession, vocation or employment of a substantial nature:
<TABLE>
<CAPTION>
Name Title/Company
---- -------------
<S> <C>
Richard Barth..................................... Retired; Formerly Chairman and Chief Executive
Officer of Ciba-Geigy Corporation (diversified
chemical products)
Frank J. Biondi, Jr............................... Chairman and Chief Executive Office of Universal
Studios (diversified entertainment operator)
Harold E. Sells................................... Retired; Formerly Chairman and Chief Executive
Office of Woolworth Corporation (retailing)
William R. Chaney................................. Chairman and Chief Executive Officer of Tiffany &
Co., (international designers, manufacturers and
distributors of jewelry and fine goods)
Ralph E. Gomory................................... President of Alfred P. Sloan Foundation, Inc.
(private foundation)
Richard J. Kogan.................................. President and Chief Executive Officer of
Schering-Plough Corporation
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(manufacturer of pharmaceutical and consumer products)
John A. Luke, Jr.................................. Chairman, President and Chief Executive Officer of
Westvaco Corporation (manufacturer of paper,
packaging, and specialty chemicals)
John C. Malone.................................... President and Chief Executive Officer of Tele-Communications,
Inc., (cable television multiple system operator)
Donald L. Miller.................................. Chief Executive Officer and Publisher of Our World
News, LLC (media)
H. Barclay Morley................................. Retired; Formerly Chairman and Chief Executive Officer of
Stauffer Chemical Company (chemicals)
Catherine A. Rein................................. Senior Executive Vice President of Metropolitan Life
Insurance Company (insurance and financial services)
</TABLE>
Item 27. Principal Underwriters.
(a) BNY Hamilton Distributors, Inc., which is located at 125 West
55th Street, New York, New York 10019, will act as exclusive
distributor for the Registrant. The distributor is registered
with the Securities and Exchange Commission as a broker-dealer
and is a member of the National Association of Securities
Dealers.
(b) The information required by this Item 29 with respect to each
director, officer or partner of the Distributor is
incorporated by reference to Schedule A of Form BD filed by
the Distributor pursuant to the Securities Exchange Act of
1934.
(c) Not Applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder will be maintained at the offices of BISYS Fund Services,
Inc., 3435 Stelzer Road, Columbus, Ohio 43219-3035.
Item 29. Management Services.
<PAGE>
Not Applicable.
Item 30. Undertakings.
The Registrant undertakes that, if requested to do so by 10% of its
outstanding shares, the Registrant will promptly call a meeting of
shareholders for the purpose of voting on the removal of a director or
directors and Registrant will assist with shareholder communications as
required by Section 16(c) of the Investment Company Act of 1940.
The Registrant hereby also undertakes that so long as the information
required by Item 5 of Form N-1A is contained in the latest annual
report to shareholders and not in the prospectuses of each Fund (other
than BNY Hamilton Money Fund and BNY Hamilton Treasury Money Fund), the
Registrant will furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the registrant certifies that it meets all of the
requirements for effectiveness of this registration statement pursuant to Rule
485(A) under the Securities Act of 1933 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereto duly authorized
in the City of New York, and the State of New York on the 19th day of January,
2000.
BNY HAMILTON FUNDS, INC.
By /s/ William J. Tomko
----------------------
William J. Tomko
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on the 19th day of January, 2000.
<TABLE>
<CAPTION>
Name Title
- ---- -----
<S> <C>
/s/ Edward L. Gardner Director and Chairman of the Board of Directors
- ----------------------------------------------
(Edward L. Gardner)
/s/ Peter Herrick Director
- ----------------------------------------------
(Peter Herrick)
/s/ Stephen Stamas Director
- ----------------------------------------------
(Stephen Stamas)
/s/ James E. Quinn Director
- ----------------------------------------------
(James E. Quinn)
/s/ Karen Osar Director
- ----------------------------------------------
(Karen Osar)
/s/ Kim Kelly Director
- ----------------------------------------------
(Kim Kelly)
/s/ J. David Huber Chief Executive Officer
- ----------------------------------------------
(J. David Huber)
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Page
- -------------- ----------- ----
<S> <C>
(1) (a) Articles of Incorporation of Registrant.*
(b) Articles of Amendment, dated June 29, 1992.*
(c) Articles of Supplementary, dated June 29, 1994.*
(d) Articles of Supplementary, dated August 15, 1995.*
(e) Articles of Amendment, dated January 22, 1997*
(f) Articles Supplementary, dated January 22, 1997.*
(g) Articles Supplementary, dated April 28, 1999.*
(h) Form of Articles Supplementary, dated September 17,
1999.*
(2) Bylaws of Registrant.*
(3) Not Applicable.
(4) (a) Form of Specimen stock certificate of common stock of
BNY Hamilton Money Fund.*
(b) Form of Specimen stock certificate of common stock of
BNY Hamilton Intermediate Government Fund.*
(c) Form of specimen stock certificate of common stock of
BNY Hamilton Intermediate New York Tax-Exempt Fund.*
(d) Form of specimen stock certificate of common stock of
BNY Hamilton Equity Income Fund.*
(5) (a) Investment Advisory Agreement between BNY Hamilton
Money Fund and The Bank of New York.*
(b) Investment Advisory Agreement between BNY Hamilton
Intermediate Government Fund and The Bank of New
York.*
(c) Investment Advisory Agreement between BNY Hamilton
Intermediate New York Tax-Exempt Fund and The Bank of
New York.*
(d) Investment Advisory Agreement between BNY Hamilton
Equity Income Fund and The Bank of New York.*
(e) Investment Advisory Agreement between BNY Hamilton
Treasury Money Fund and The Bank of New York.*
(f) Investment Advisory Agreement between BNY Hamilton
Large Cap Growth Fund and The Bank of New York.*
(g) Investment Advisory Agreement between BNY Hamilton
Small Cap Growth Fund and The Bank of New York.*
(h) Investment Advisory Agreement between BNY Hamilton
International Equity Fund and The Bank of New York.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(i) Investment Advisory Agreement between BNY Hamilton
Intermediate Investment Grade Fund and The Bank of
New York.*
(j) Investment Advisory Agreement between BNY Hamilton
Intermediate Tax-Exempt Fund and The Bank of New
York.*
(k) Sub-advisory agreement between BNY Hamilton
International Equity Fund and Indosuez Asset
Management.*
(l) Investment Advisory Agreement between BNY Hamilton
Large Cap Growth CRT Fund and The Bank of New York.*
(m) Investment Advisory Agreement between BNY Hamilton
Small Cap Growth CRT Fund and The Bank of New York.*
(n) Investment Advisory Agreement between BNY Hamilton
International Equity CRT Fund and The Bank of New
York. *
(o) Sub-advisory agreement between BNY Hamilton
International Equity Fund and Indocam, a subsidiary
of Credit Agricole.*
(p) Investment Advisory Agreement between BNY Hamilton
U.S. Bond Market Index Fund and the Bank of New York.
(to be filed at a later date)
(q) Investment Advisory Agreement between BNY Hamilton
S&P 500 Index Fund and the Bank of New York. (to be
filed at a later date)
(r) Investment Advisory Agreement between BNY Hamilton
Large Cap Value Fund and the Bank of New York. (to be
filed at a later date)
(6) (a) Distribution Agreements between Registrant and BNY
Hamilton Distributors, Inc.*
(b) Supplement to Distribution Agreements between
Registrant and BNY Hamilton Distributors, Inc.*
(7) Not Applicable.
(8) (a) Custody Agreement between Registrant and The Bank of
New York.*
(b) Cash Management and Related Services Agreement
between each series of Registrant and The Bank of New
York.*
(c) Supplement to Custody Agreement between Registrant
and The Bank of New York.*
(d) Supplement to Cash Management and Related Services
Agreement between Registrant and The Bank of New
York.*
(e) Additional Supplement to Custody Agreement between
Registrant and The Bank of New York.*
(f) Additional Supplement to Cash Management and
Related Services Agreement between Registrant and
The Bank of New York.*
(9) (a) Administration Agreement between Registrant and BNY
Hamilton Distributors, Inc.*
(b) Fund Accounting Services Agreement between Registrant
and The Bank of New York.*
(c) Form of Transfer Agency Agreement between Registrant
and BISYS Fund Services, Inc.*
(d) Form of Shareholder Servicing Agreement.*
(e) Form of Sub-Administration Agreement between BNY
Hamilton Distributors, Inc. and The Bank of New
York.*
(f) Shareholder Servicing Plan of BNY Hamilton Money Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(Hamilton Premier Shares).*
(g) No longer applicable.
(h) Shareholder Servicing Plan of BNY Hamilton Money Fund
(Hamilton Classic Shares).*
(i) Rule 18f-3 Plan of BNY Hamilton Money Fund.*
(j) Supplement to Administration Agreement between
Registrant and BNY Hamilton Distributors, Inc.*
(k) Supplement to Fund Accounting Services Agreement
between Registrant and The Bank of New York.*
(l) Updated Transfer Agency Agreement between Registrant
and BISYS Fund Services, Inc.*
(m) Shareholder Servicing Plan of BNY Hamilton Treasury
Money Fund (Hamilton Premier Shares).*
(n) Revised Rule 18f-3 Plan of BNY Hamilton Funds, Inc.*
(o) Supplement to Form of Sub-Administration Agreement
between BNY Hamilton Distributors, Inc. and The Bank
of New York.*
(p) Revised Fund Accounting Services Agreement between
BNY Hamilton International Equity Fund and The Bank
of New York.*
(q) Form of Shareholder Servicing Plan of BNY Hamilton
Treasury Money Fund - Hamilton Classic Shares.*
(r) Form of Revised Rule 18f-3 Plan of BNY Hamilton
Treasury Money Fund - Hamilton Classic Shares.*
(10) Opinion of Sullivan & Cromwell.*
(11) Not Applicable.
(12) Not Applicable.
(13) Form of Seed Capital Agreement between Registrant and
BNY Hamilton Distributors, Inc.*
(14) Not Applicable.
(15) (a) Rule 12b-1 Plan of BNY Hamilton Intermediate
Government Fund.*
(b) Rule 12b-1 Plan of BNY Hamilton Intermediate New York
Tax-Exempt Fund.*
(c) Rule 12b-1 Plan of BNY Hamilton Equity Income Fund.*
(d) Rule 12b-1 Plan of BNY Hamilton Money Fund - Hamilton
Classic Shares.*
(e) Rule 12b-1 Plan of BNY Hamilton Large Cap Growth Fund
- Investor Shares.*
(f) Rule 12b-1 Plan of BNY Hamilton Small Cap Growth Fund
- Investor Shares.*
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(g) Rule 12b-1 Plan of BNY Hamilton International Equity
Fund - Investor Shares.*
(h) Rule 12b-1 Plan of BNY Hamilton Intermediate
Investment Grade Fund - Investor Shares.*
(i) Rule 12b-1 Plan of BNY Hamilton Intermediate
Tax-Exempt Fund - Investor Shares.*
(j) Rule 12b-1 Plan of BNY Hamilton Treasury Money Fund -
Hamilton Shares.*
(k) Rule 12b-1 Plan of BNY Hamilton U.S. Bond Market
Index Fund - Investor Shares. (to be filed at a later
date)
(l) Rule 12b-1 Plan of BNY Hamilton S&P 500 Index Fund -
Investor Shares. (to be filed at a later date)
(m) Rule 12b-1 Plan of BNY Hamilton Large Cap Value Fund
- Investor Shares. (to be filed at a later date)
(16) Schedule for computation of performance quotations.
(17) Not Applicable.
</TABLE>
- --------------------------
* Previously filed.
