-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KCKX5y/I9Vp6EJ1U48L/2Pw5lna9qrNv/RtOGeWnJMOZHulPLfuSlWNjFK79Mu57 heDIumuP5IDacPvhna3cQw== 0000935069-98-000163.txt : 19980907 0000935069-98-000163.hdr.sgml : 19980907 ACCESSION NUMBER: 0000935069-98-000163 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980904 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HSBC MUTUAL FUNDS TRUST CENTRAL INDEX KEY: 0000861106 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-06057 FILM NUMBER: 98704515 BUSINESS ADDRESS: STREET 1: 3435 STELZER ROAD STREET 2: SUITE1000 CITY: COLUMBUS STATE: OH ZIP: 43219-8001 BUSINESS PHONE: 6144708000 MAIL ADDRESS: STREET 1: 3435 STELZER ROAD STREET 2: SUITE 1000 CITY: COLUMBUS STATE: OH ZIP: 43219-8001 FORMER COMPANY: FORMER CONFORMED NAME: MARINER MUTUAL FUNDS TRUST DATE OF NAME CHANGE: 19920703 N-30D 1 HSBC INTERNATIONAL EQUITY FUND - SEMI-ANNUAL HSBC MUTUAL FUNDS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- HSBC Asset Management Americas Inc. [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- International Equity Fund SEMI-ANNUAL REPORT (UNAUDITED) June 30, 1998 Managed by: HSBC ASSET MANAGEMENT AMERICAS INC. Sponsored and distributed by: BISYS FUND SERVICES HSBC MUTUAL FUNDS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- HSBC Asset Management Americas Inc. [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- International Equity Fund - -------------------------------------------------------------------------------- July 13, 1998 Dear Shareholder: The HSBC International Equity Fund returned 20.97% for the 6 months ended June 30, 1998. The first half of 1998 experienced continued financial and economic turbulence in Asia. Japan is struggling with stimulus packages for the economy and clearly more policy initiatives are required. Europe on the other hand enjoyed earnings growth relative to other markets, productivity gains and a low inflationary environment. The portfolio's country allocation continued to favor Europe at the expense of Asia. The portfolio will remain overweight in Europe at the expense of Asia over the near term. What follows is more detail on our views of the regional markets and economies. EXECUTIVE SUMMARY - ----------------- We continue to expect that major OECD (Organization for Economic Co-operation & Development) countries will experience benign economic conditions for the rest of 1998. Indeed, the Asian crisis is anticipated to cause around a 1% deceleration in the OECD real GDP growth. While on the inflation front, price increases in the OECD countries, as a group, remain close to 30 year lows. Going forward, we expect no significant pick up in price pressures at either the retail or the wholesale level. An environment characterized by moderate economic growth, subdued consumer and producer price inflation, and generally improving fiscal positions argues for keeping monetary policy on hold for the time being in many OECD countries. This environment also implies that long term interest rates will remain stable and be generally supportive of equities. In addition, equity markets appear to be fairly priced relative to earnings and interest rates at the global level. Consequently, against this fundamental backdrop, we expect global equities and global bonds to continue to outperform global cash. Within equities, in a global context, we consider Continental Europe to be attractively priced, the UK and the U.S. to be fairly priced, and equity markets in Japan and Asia to be unattractively priced at current levels. The following pages illustrate how our current market views translate into actual average-risk portfolios. The figures shown are weightings relative to the specified benchmark. UNITED KINGDOM - -------------- The recent decision by the Monetary Policy Committee (MPC) to raise interest rates by another quarter point to 7.5% came as a shock to the market. The majority of commentators had assumed that the MPC would keep rates unchanged, bearing in mind the very real slowdown being experienced by manufacturing industry, coupled with the inevitable effects of the Asian financial crisis. The domestic labor market appears to be driving the MPC decision making process, and data released since the 4th of June appears to validate the upward move. The latest average earnings data was poor with growth accelerating to 5.2% and private sector earnings rising by 5.9%. Although the latter figure was boosted by seasonal bonuses, the trend was still sufficient to raise doubts as to the rate that the economy is slowing, and many argue that there is now a case for rates to rise still further. The retail price figures for May saw headline inflation increase to 4.2% while the underlying rate increased to 3.2%, well above the Government's target of 2.5%. The economy is not slowing as quickly as expected, mainly because consumer incomes are still growing strongly while export demand from both the U.S. and Europe is good. However, profits will be hit across the board as a result of this recent move in rates. Higher financing costs plus higher labor costs will lead to a squeeze on margins unless productivity can be dramatically improved. The overall direction of the UK equity market is now more uncertain. The market will be concerned by the potential for further interest rate rises and potentially a 'hard landing' for the economy and a more dramatic slowdown in growth than had been forecast. In addition, the indirect effect of the Asian slowdown has yet to be seen in UK corporate earnings, and downgrades are inevitable, leading to further pressure on stock valuations. Overall, therefore, the outlook for UK equities is mixed. The actual direction of UK equities over the next few months will be dominated by global events, but the most resilient areas of the market will be the large relatively defensive sectors. This will continue until there is clearer evidence of a UK slowdown, and the expectation therefore that the next move in interest rates will be down. CONTINENTAL EUROPE - ------------------ The environment for European equities for the remainder of 1998 remains favorable despite continued worries over Asia. We expect economic growth to exceed 3% across Europe and 4% in high growth areas such as Ireland, Netherlands, and Spain. This strong performance is the result of a sustained recovery in domestic demand after nearly a decade of anemic growth. Interest rates are likely to rise slightly ahead of EMU on January 1st 1999 but inflationary pressures remain minimal so the medium term threat to higher rates is small -- as evidenced by the decisive fall in bond yields to below 5%. This benign background means that earnings growth has a high potential to exceed 15% for both 1998 and 1999 -- an impressive performance in a weak global context. There is still room for earnings upgrades as broker analysts have so far failed to pick up the leveraged effect of superior economic growth. The flow of merger and acquisition activity has picked up again as expected with the announcement of some high profile mergers -- the biggest of which was the merger of auto giants Chrysler of the U.S. and Daimler Benz of Germany. A worry as we approach the second half is the marked increase in the supply of liquidity as privatization's, primary issues, and rights issues take advantage of high share prices. The other major risk to the market is the high valuation levels -- despite support from bond markets. The valuations are justified given the impressive outlook for earnings growth. Europe remains our favored equity asset class. Visible earnings growth relative to other markets, continued corporate restructuring, little inflationary pressure, and a low exposure to Asian economies make Europe an attractive area for investment. 2 JAPAN - ----- The news surrounding the Japanese economy, banking system and the Yen has remained negative with obvious implications for sentiment surrounding Japanese financial assets. In particular the weakness of the Yen, reflecting low domestic and foreign confidence in the economy, and risks associated with Japanese assets, has put greater pressure on regional economies in Asia at a time when distress is already considerable. This has resulted in joint intervention to support the Yen, although policy will need to be credible if the currency is to stabilize. The economy is contracting, as evidenced by recent 1st quarter GNP, and the need for greater energy on the restructuring of the banking sector is already evident, at least to the international financial community. Against this background the fiscal package announced recently should support the economy, but more policy initiatives are clearly required. Whilst the Japanese stock market continues to offer stock specific opportunities, we are unlikely to become more positive on Japanese equities overall until macro policy becomes more credible relative to the difficulties facing the economy, and corporate restructuring becomes more pervasive. Until then we will remain both cautious and underweight. ASIA - ---- The rallies seen within the region in the first quarter of 1998, have been replaced by renewed pessimism regarding prospects. The result has been a return to, or through, January lows, although currencies have, for the most part held up reasonably well. Our rationale for caution remains in place. Much of the region will see a contraction of economic activity in 1998, whilst prospects for 1999 are continuing to deteriorate. At the same time a fall in asset prices, and the related need for companies to deleverage is placing additional strains on banking systems, although with varying degrees of magnitude. Exacerbating regional difficulties is the weakness of the Japanese economy, the Yen, and the withdrawal of credit facilities in Asia by financial institutions. The adjustment process in regional economies remains, therefore, very painful with the region experiencing its most hostile environment since the first oil crisis. Whilst economies such as Hong Kong and Singapore remain, in our view, structurally sound part of the economic, adjustment process in the region is accompanied by the need for reform at both the macro and micro level. We remain underweight in Asian markets, although we hope to discuss a more optimistic environment in future reports. We continue to manage the investments of the HSBC International Equity Fund with the objective of delivering solid returns to our shareholders. We would like to take this opportunity to thank you for choosing the HSBC International Equity Fund to help you meet your investment needs. HSBC Asset Management Americas, Inc. The views expressed in this report reflect those of the portfolio manager through the end of the period covered by the report as stated on the cover. The manager's views are subject to change at any time based on the market and other conditions. Past performance is no guarantee of future results. 3 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN INTERNATIONAL EQUITY FUND VS. MSCI-EAFE INDEX - -------------------------------------------------------------------------------- Total Return - Institutional Class Shares Service Class Shares - -------------------------------------------------------------------------------- Inception Inception 1 Year (3/1/95) 1 Year (4/25/94) - -------------------------------------------------------------------------------- Offering Price(1) N/A N/A 3.03% 4.30% NAV(2) 8.27% 11.22% 8.45% 5.60% - -------------------------------------------------------------------------------- With Maximum MSCI- Without Maximum Sales Charge EAFE Sales Charge 4/25/94 9,496.68 10,000 10,000 12/94 9,069.33 9,991 9,550 12/95 9,468.38 11,111 9,970 12/96 10,066.8 11,775 10,600 12/97 9,860.41 11,999 10,383 6/98 11,931 13,910 12,559 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. WITHOUT CERTAIN FEE WAIVERS, THE RETURN WOULD HAVE BEEN LOWER. THE FUND'S INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. (1) INCLUDES THE MAXIMUM SALES CHARGE OF 5.00% (2) EXCLUDES THE MAXIMUM SALES CHARGE OF 5.00% THE ABOVE ILLUSTRATION COMPARES A $10,000 INVESTMENT IN THE SERVICE CLASS SHARES OF THE INTERNATIONAL EQUITY FUND ON APRIL 25, 1994 (DATE OF INCEPTION) TO A $10,000 INVESTMENT IN THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST (MSCI-EAFE) INDEX ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. PLEASE REFER TO THE BOX ABOVE FOR RETURNS ON INSTITUTIONAL CLASS SHARES, WHICH HAVE BEEN OFFERED SINCE MARCH 1, 1995. THE FUND'S PERFORMANCE TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES. THE MSCI-EAFE INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVER 900 SECURITIES LISTED ON THE STOCK EXCHANGES OF THE FOLLOWING COUNTRIES IN EUROPE, AUSTRALIA, AND THE FAR EAST: AUSTRALIA, AUSTRIA, BELGIUM, DENMARK, FINLAND, FRANCE, HONG KONG, IRELAND, ITALY, JAPAN, MALAYSIA, NETHERLANDS, NEW ZEALAND. THIS INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL STOCK MARKET PERFORMANCE, AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. INTERNATIONAL INVESTING INVOLVES INCREASED RISKS AND VOLATILITY. 4 BOARD OF TRUSTEES JOHN P. PFANN* Chairman and President, JPP Equities, Inc. WOLFE J. FRANKL* Former Director, North America, Berlin Economic Development Corporation HARALD PAUMGARTEN President, Paumgarten and Company ROBERT A. ROBINSON* Trustee, Henrietta and B. Frederick H. Bugher Foundation RICHARD J. LOOS Vice Chairman Emeritus *Member of the Audit and Nominating Committees - -------------------------------------------------------------------------------- OFFICERS WALTER B. GRIMM PRESIDENT ERIC F. ALMQUIST SENIOR VICE PRESIDENT ANTHONY J. FISCHER VICE PRESIDENT CHARLES L. BOOTH VICE PRESIDENT PAUL KANE ASSISTANT TREASURER STEVEN R. HOWARD SECRETARY ALAINA V. METZ ASSISTANT SECRETARY ROBERT L. TUCH ASSISTANT SECRETARY 5 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) INTERNATIONAL EQUITY FUND
COUNTRY/ VALUE PERCENT OF INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS - ---------------------------------------------------------------------------------------------------------------------- EQUITIES AUSTRALIA - --------- BANKING 31,426 Australia & New Zealand Banking Group Ltd. .......... $ 216,790 30,300 West-Pac Banking Corp. .............................. 184,818 ---------- ---- 401,608 0.6% ---------- ---- BROADCASTING & PUBLISHING 39,163 News Corp., Ltd. .................................... 319,636 0.5 ---------- ---- BUILDING MATERIALS 42,200 CSR Ltd. ............................................ 121,776 0.2 ---------- ---- DIVERSIFIED 38,040 Southcorp Ltd. ...................................... 110,478 0.2 ---------- ---- INSURANCE 26,576 GIO Australia Holdings Ltd. ......................... 68,198 0.1 ---------- ---- NATURAL RESOURCES EXPLORATION/ PRODUCTION 14,754 Broken Hill Proprietary Co. Ltd. .................... 124,712 0.2 ---------- ---- TELECOMMUNICATIONS 92,100 Telstra Corporation ................................. 236,115 0.4 ---------- ---- TOTAL AUSTRALIA ..................................... 1,382,523 2.2 (COST - $1,391,782) ---------- ---- DENMARK - ------- TELECOMMUNICATIONS 7,295 Tele Danmark AS Class B ............................. 700,115 1.1 ---------- ---- TOTAL DENMARK ....................................... 700,115 1.1 (COST - 654,229) ---------- ---- FINLAND - ------- TELECOMMUNICATIONS 10,241 Nokia Oyj - Class A ................................. 753,168 1.2 ---------- ---- TOTAL FINLAND ....................................... 753,168 1.2 (COST - $446,134) ---------- ---- FRANCE - ------ BANKING 7,872 Banque Nationale De Paris ........................... 643,193 5,325 Compagnie Financiere de Paribas ..................... 569,841 ---------- ---- 1,213,034 1.9 ---------- ---- COMPUTER SOFTWARE 3,534 Cap Gemini SA ....................................... 555,290 0.9 ---------- ---- CONSTRUCTION 2,851 Bouygues SA(b) ...................................... 517,761 0.8 ---------- ---- ELECTRICAL & ELECTRONICS 1,880 Alcatel Alsthom ..................................... 382,777 4,513 Schneider SA(b) ..................................... 359,859 6,047 SGS-Thomson Microelectronics N.V.(b) ................ 428,569 ---------- ---- 1,171,205 1.9 ---------- ----
6 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED) INTERNATIONAL EQUITY FUND
COUNTRY/ VALUE PERCENT OF INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS - ---------------------------------------------------------------------------------------------------------------------- EQUITIES (continued) FRANCE (continued) - ------ FOOD PRODUCTS & SERVICES 1,942 Groupe Danone ........................................ $ 535,445 0.8% ---------- ---- HEALTH & PERSONAL CARE 4,309 ELF Sanofi SA ........................................ 506,729 0.8 ---------- ---- INDUSTRIAL GOODS & SERVICES 2,718 Compagnie de Saint Gobain ............................ 503,947 0.8 ---------- ---- INDUSTRIAL HOLDING COMPANY 3,533 Suez Lyonnaise des Eaux .............................. 581,429 0.9 ---------- ---- INSURANCE 5,331 Axa - UAP ............................................ 599,580 0.9 ---------- ---- OIL CO. - INTEGRATED 4,218 Total SA, Class B .................................... 548,351 0.9 ---------- ---- RETAIL 621 Pinault-Printemps-Redoute SA(b) ...................... 519,723 0.8 ---------- ---- TOTAL FRANCE ......................................... 7,252,494 11.4 (COST - $5,494,835) ---------- ---- GERMANY - ------- APPAREL - FOOTWEAR 2,995 Adidas AG ............................................ 517,686 0.8 ---------- ---- AUTOMOBILES 579 Bayerische Motoren Werke AG(b) ....................... 582,739 5,249 Daimler-Benz AG ...................................... 514,712 2,335 Daimler-Benz AG Rights(b) ............................ 2,587 613 Volkswagen AG ........................................ 589,216 ---------- ---- 1,689,254 2.6 ---------- ---- BANKING 6,475 Bayerische Vereinsbank AG 550,634 15,186 Commerzbank AG ....................................... 580,506 ---------- ---- 1,131,140 1.8 ---------- ---- CHEMICALS 11,372 BASF AG .............................................. 538,664 0.8 ---------- ---- COMPUTER SOFTWARE 751 SAP AG, Vorzug (Preferred) ........................... 510,504 0.8 ---------- ---- CONGLOMERATES 1,004 VIAG AG(b) ........................................... 678,591 1.1 ---------- ---- INDUSTRIAL GOODS & SERVICES 6,861 Mannesmann AG ........................................ 695,970 2,057 Thyssen AG ........................................... 520,793 ---------- ---- 1,216,763 1.9 ---------- ----
7 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED) INTERNATIONAL EQUITY FUND
COUNTRY/ VALUE PERCENT OF INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS - ---------------------------------------------------------------------------------------------------------------------- EQUITIES (continued) GERMANY (continued) - ------- INSURANCE 3,462 Allianz AG ......................................... $ 1,141,191 3,774 Ergo Versicherungs Gruppe AG(b) .................... 677,425 ----------- ---- 1,818,616 2.9% ----------- ---- TOTAL GERMANY ...................................... 8,101,218 12.7 (COST - $5,911,865) ----------- ---- IRELAND - ------- BANKING 28,422 Bank of Ireland .................................... 580,784 0.9 ----------- ---- TOTAL IRELAND ...................................... 580,784 0.9 (COST - $472,006) ----------- ---- ITALY - ----- BANKING 26,100 Banca Popolare di Brescia .......................... 493,353 32,726 Istituto Bancario San Paolo di Torino .............. 472,235 ----------- ---- 965,588 1.6 ----------- ---- INSURANCE 23,686 Assicurazioni Generali SpA(b) ...................... 770,190 1.2 ----------- ---- OIL & GAS EXPLORATION, PRODUCTION & SERVICES 82,613 Ente Nozionale Idrocarburi SpA ..................... 541,443 0.8 ----------- ---- TELECOMMUNICATIONS 108,269 Telecom Italia SpA ................................. 796,996 1.2 ----------- ---- TOTAL ITALY ........................................ 3,074,217 4.8 (COST - $2,519,921) ----------- ---- JAPAN - ----- BANKING 16,000 Bank of Tokyo - Mitsubishi Ltd. .................... 169,355 23,000 Sumitomo Bank Ltd. ................................. 223,728 33,000 Sumitomo Trust & Banking Corp. ..................... 147,422 ----------- ---- 540,505 0.8 ----------- ---- BROKERAGE SERVICES 21,000 Nomura Securities Co. Ltd. ......................... 244,371 0.4 ----------- ---- BUILDING MATERIALS 57,000 Juken Sangyo Co. Ltd. .............................. 135,533 0.2 ----------- ---- CHEMICALS 84,000 Asahi Chemical Industry Co. Ltd. ................... 302,626 0.5 ----------- ---- COMMERCIAL SERVICES 26,000 Yamato Transport Co. Ltd. .......................... 291,314 0.5 ----------- ---- CONSTRUCTION 42,000 Obayashi Corp. ..................................... 177,944 0.3 ----------- ----
8 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED) INTERNATIONAL EQUITY FUND
COUNTRY/ VALUE PERCENT OF INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS - ---------------------------------------------------------------------------------------------------------------------- EQUITIES (continued) JAPAN (continued) - ----- DATA PROCESSING & REPRODUCTION 5 NTT Data Corp ....................................... $ 180,495 0.3% ----------- ---- ELECTRICAL & ELECTRONICS 47,000 Hitachi Ltd. ........................................ 306,481 13,000 Murata Manufacturing Co. Ltd. ....................... 421,515 5,000 Rohm Co. Ltd. ....................................... 513,384 3,500 Sony Corp. .......................................... 301,365 ----------- ---- 1,542,745 2.3 ----------- ---- FINANCIAL SERVICES 10,500 Credit Saison Co. Ltd. .............................. 208,056 0.3 ----------- ---- FOOD & HOUSEHOLD PRODUCTS 22,000 Kao Corp. ........................................... 339,230 0.5 ----------- ---- INDUSTRIAL GOODS & SERVICES 11,000 Fuji Machine Manufacturing Co. Ltd. ................. 291,674 0.5 ----------- ---- LEISURE, RECREATION & GAMING 12,600 NAMCO Ltd. .......................................... 294,153 0.5 ----------- ---- OFFICE EQUIPMENT & SUPPLIES 23,000 Ricoh Co. Ltd. ...................................... 242,123 0.4 ----------- ---- PAPER & RELATED PRODUCTS 62,000 Nippon Paper Industries Co. ......................... 258,212 0.4 ----------- ---- PHARMACEUTICALS 14,000 Sankyo Co. Ltd. ..................................... 318,766 0.5 ----------- ---- PHOTOGRAPHY 11,000 Fuji Photo Film Co. ................................. 382,823 8,400 Noritsu Koki Co. Ltd. ............................... 187,628 ----------- ---- 570,451 0.9 ----------- ---- REAL ESTATE 27,000 Mitsubishi Estate Co. Ltd. .......................... 237,346 0.4 ----------- ---- RETAIL 7,500 Family Mart Co. Ltd. ................................ 285,333 5,000 Ito Yokado Co. Ltd. ................................. 235,256 ----------- ---- 520,589 0.8 ----------- ---- STEEL 159,000 Nippon Steel Corp. .................................. 279,540 0.4 ----------- ---- TELECOMMUNICATIONS 33 Nippon Telegraph & Telephone Corp. .................. 273,445 0.4 ----------- ----
9 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED) INTERNATIONAL EQUITY FUND
COUNTRY/ VALUE PERCENT OF INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS - ---------------------------------------------------------------------------------------------------------------------- EQUITIES (continued) JAPAN (continued) - ----- TRANSPORTATION 161,000 Mitsui O.S.K. Lines, Ltd. ......................... $ 273,776 0.4% ----------- ---- WHOLESALE & INTERNATIONAL TRADE 42,000 Mitsui & Co. ...................................... 226,970 0.4 ----------- ---- TOTAL JAPAN ....................................... 7,749,864 12.1 (COST - $10,321,268) ----------- ---- NETHERLANDS - ----------- BANKING 10,868 ING Groep N.V. .................................... 711,632 1.1 ----------- ---- COMPUTER SOFTWARE 11,411 Baan Company N.V.(b) .............................. 410,056 0.6 ----------- ---- INDUSTRIAL GOODS & SERVICES 11,994 Benckiser N.V. Class B(b) ......................... 737,604 1.2 ----------- ---- OIL CO. - INTEGRATED 22,754 Royal Dutch Petroleum Co. ......................... 1,261,736 1.9 ----------- ---- PRINTING & PUBLISHING 17,621 nv Verenigd Bezit VNU ............................. 640,142 1.0 ----------- ---- RETAIL 16,985 Koninklijke Ahold N.V. ............................ 545,231 0.9 ----------- ---- TOTAL NETHERLANDS ................................. 4,306,401 6.7 (COST - $3,884,266) ----------- ---- NORWAY - ------ MANUFACTURING - CONSUMER GOODS 16,976 Orkla ASA Class A ................................. 394,892 0.6 ----------- ---- OILFIELD EQUIPMENT & SERVICES 11,261 Transocean Offshore Inc. .......................... 498,953 0.8 ----------- ---- TOTAL NORWAY ...................................... 893,845 1.4 (COST - $1,051,477) ----------- ---- PORTUGAL - -------- BANKING 20,667 Banco Commercial Portuguese ....................... 586,825 22,082 Electricidade De Portugal ......................... 513,318 ----------- ---- TOTAL PORTUGAL .................................... 1,100,143 1.7 (COST - $1,167,159) ----------- ---- SPAIN - ----- BANKING 15,440 Banco Bilbao Vizcaya SA(b) ........................ 793,734 23,914 Banco Central Hispanoamer SA ...................... 752,926 ----------- ---- 1,546,660 2.5 ----------- ----
10 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED) INTERNATIONAL EQUITY FUND
COUNTRY/ VALUE PERCENT OF INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS - ---------------------------------------------------------------------------------------------------------------------- EQUITIES (continued) SPAIN (continued) TELECOMMUNICATIONS 17,029 Telefonica SA ..................................... $ 788,658 1.2% ----------- ---- TOTAL SPAIN ....................................... 2,335,318 3.7 (COST - $1,840,698) ----------- ---- SWEDEN - ------ BANKING 75,333 Nordbanken Holding AB ............................. 552,603 0.9 ----------- ---- FOREST PRODUCTS 30,227 Stora Kopparbergs Bergslags Aktiebolag, Class B ... 477,571 0.7 ----------- ---- INSURANCE 48,363 Skandia Forsakrings AB ............................ 691,338 1.1 ----------- ---- RETAIL 12,576 Hennes & Mauritz AB, Class B ...................... 802,662 1.3 ----------- ---- TELECOMMUNICATIONS 27,566 Telelfonaktiebolaget L.M. Ericsson ................ 805,381 1.2 ----------- ---- TOTAL SWEDEN ...................................... 3,329,555 5.2 (COST - $2,295,768) ----------- ---- SWITZERLAND - ----------- BANKING 3,242 Credit Suisse Group ............................... 721,365 2,515 Union Bank of Switzerland AG-Registered ........... 935,160 ----------- ---- 1,656,525 2.6 ----------- ---- CHEMICALS 3,892 Ciba Specialty Chemicals AG ....................... 499,711 0.8 ----------- ---- COMMERCIAL SERVICES 1,177 Adecco SA ......................................... 530,764 0.8 ----------- ---- FOOD PRODUCTS & SERVICES 262 Nestle SA, Registered Shares ...................... 560,684 0.9 ----------- ---- INSURANCE 1,254 Zuerich Verichrng Gesellschft-Registered .......... 800,279 1.3 ----------- ---- PHARMACEUTICALS 270 Ares - Serono Group SA ............................ 375,591 860 Novartis AG, Registered Shares .................... 1,431,054 112 Roche Holdings AG ................................. 1,099,834 ----------- ---- 2,906,479 4.5 ----------- ---- TOTAL SWITZERLAND ................................. 6,954,442 10.9 (COST - $5,714,375) ----------- ---- UNITED KINGDOM - -------------- BANKING 48,171 Standard Chartered PLC ............................ 546,941 0.9 ----------- ---- BEVERAGES 83,912 Diageo PLC ........................................ 998,953 58,675 Scottish & Newcastle PLC .......................... 825,781 ----------- ---- 1,824,734 2.9 ----------- ----
11 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED) INTERNATIONAL EQUITY FUND
COUNTRY/ VALUE PERCENT OF INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS - ---------------------------------------------------------------------------------------------------------------------- EQUITIES (continued) UNITED KINGDOM (continued) - -------------- DIVERSIFIED 91,333 General Electric Co. PLC ........................... $ 787,091 1.2% ----------- ---- ELECTRIC UTILITY 72,609 Southern Electric PLC .............................. 670,556 1.0 ----------- ---- FINANCIAL SERVICES 59,442 Lloyds TSB Group PLC ............................... 830,129 1.3 ----------- ---- FOOD & HOUSEHOLD PRODUCTS 69,761 Cadbury Schweppes PLC .............................. 1,080,158 1.7 ----------- ---- HEALTH & PERSONAL CARE 23,680 Glaxo Holdings PLC ................................. 712,763 1.1 ----------- ---- INSURANCE 50,748 Commercial Union PLC ............................... 947,492 1.5 ----------- ---- MACHINERY & EQUIPMENT 51,620 GKN PLC ............................................ 653,712 1.0 ----------- ---- OIL CO. - INTEGRATED 112,274 British Petroleum Co. PLC .......................... 1,634,450 2.6 ----------- ---- PHARMACEUTICALS 122,559 Smithkline Beecham PLC ............................. 1,491,754 2.3 ----------- ---- PRINTING & PUBLISHING 59,133 United News & Media PLC ............................ 826,800 1.3 ----------- ---- TELECOMMUNICATIONS 41,993 British Telecommunications PLC ..................... 516,732 111,428 Vodafone Group PLC ................................. 1,414,836 ----------- ---- 1,931,568 3.0 ----------- ---- TOBACCO 139,627 Gallaher Group PLC ................................. 771,706 1.2 ----------- ---- TRANSPORTATION 46,605 British Airways PLC ................................ 501,944 0.8 ----------- ---- TOTAL UNITED KINGDOM ............................... 15,211,798 23.8 (COST - $12,082,674) ----------- ---- TOTAL EQUITIES ..................................... 63,725,885 99.8 (COST - $55,248,457) ----------- ----
12 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED) INTERNATIONAL EQUITY FUND
VALUE PERCENT OF SECURITY (NOTE 2) NET ASSETS - ---------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS ................................. $63,725,885 99.8% (COST - $55,248,457)(a) ----------- ----- OTHER ASSETS IN EXCESS OF LIABILITIES ............. 138,978 0.2 ----------- ----- TOTAL NET ASSETS .................................. $63,864,863 100% =========== ===== - ----------- (a) Represent costs for federal income tax purposes and differs from value by net unrealized appreciation of securities as follows: Unrealized appreciation ............................................................ $12,097,633 Unrealized depreciation ............................................................ $ 3,620,205 ----------- Net unrealized appreciation ........................................................ $ 8,477,428 ----------- (b) Non-income producing securities. PLC - Public Limited Company
SEE NOTES TO FINANCIAL STATEMENTS. 13 STATEMENT OF ASSETS AND LIABILITIES AS OF JUNE 30, 1998 (UNAUDITED) INTERNATIONAL EQUITY FUND ASSETS: Investments in securities, at value (cost $55,248,457) ........ $63,725,885 Cash .......................................................... 170,011 Receivable from investment securities sold .................... 496,201 Interest and dividends receivable ............................. 75,011 Foreign tax receivable ........................................ 57,066 Unrealized appreciation on forward contracts .................. 161 Deferred organization cost .................................... 8,077 Prepaid expenses .............................................. 2,744 ----------- Total Assets ............................................. 64,535,156 ----------- LIABILITIES: Payable to brokers for investments purchased .................. 535,342 Unrealized depreciation on forward contracts .................. 149 Accrued expenses and other payables: Investment advisory fees .................................... 26,189 Administration fees ......................................... 5,238 Custodian fees .............................................. 51,927 Legal and audit fees ........................................ 5,293 Accounting and transfer agent fees .......................... 22,626 Deferred trustees payable ................................... 5,650 Other liabilities ........................................... 17,879 ----------- Total Liabilities ........................................ 670,293 ----------- Net Assets ....................................................... $63,864,863 =========== COMPUTATION OF NET ASSET VALUE: Net Assets: Institutional Class ......................................... $63,562,275 Service Class ............................................... 302,588 ----------- Total .................................................... $63,864,863 ----------- Shares of beneficial interest issued and outstanding: ($0.001 par value per share, unlimited number of shares authorized) Institutional Class ......................................... 5,078,277 Service Class ............................................... 24,173 ----------- Total .................................................... 5,102,450 =========== Net Asset Value: Institutional Class - offering and redemption price per share ................................................ $ 12.52 =========== Service Class - redemption price per share .................. $ 12.52 Maximum sales charge 5.00% Maximum offering price (Service Class) (Net asset value of Service Class / (100% - Maximum Sales Charge) ............ $ 13.18 =========== COMPOSITION OF NET ASSETS: Paid-in capital ............................................. $50,230,758 Accumulated undistributed (distribution in excess of) net investment income ..................................... (33,592) Accumulated undistributed net realized gains (losses) from investment and foreign currency transactions ........ 5,191,765 Net unrealized appreciation (depreciation) from investments and translation of assets and liabilities denominated in foreign currencies .................................... 8,475,932 ----------- Net Assets .................................................... $63,864,863 =========== SEE NOTES TO FINANCIAL STATEMENTS. 14 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) INTERNATIONAL EQUITY FUND INVESTMENT INCOME: Dividends (net of foreign withholding tax of $120,111) ........ $ 655,571 Interest ...................................................... 39,001 ----------- Total Income ................................................ 694,572 ----------- EXPENSES: Advisory fees ................................................. 280,894 Administration fees ........................................... 46,816 Co-administration and shareholder servicer assistance fees .... 9,423 Distribution fees (Service Class) ............................. 528 Audit fees .................................................... 8,360 Fund accounting fees .......................................... 5,319 Transfer agent fees ........................................... 46,330 Legal fees .................................................... 37,719 Other expenses ................................................ 20,699 ----------- Gross Expenses ................................................... 456,088 Less: Fee waivers ............................................. (150,399) ----------- Total Net Expenses ............................................... 305,689 ----------- Net Investment Income ............................................ 388,883 ----------- NET REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS: Net realized gains (losses) from investments and foreign currency transactions ................................. 6,371,861 Net change in unrealized appreciation (depreciation) from investments and assets and liabilities denominated in foreign currencies ......................................... 4,781,145 ----------- Net Realized/Unrealized Gains from Investments and Foreign Currencies ........................................ 11,153,006 ----------- Change in Net Assets Resulting from Operations ................... $11,541,889 =========== SEE NOTES TO FINANCIAL STATEMENTS. 15 STATEMENT OF CHANGES IN NET ASSETS INTERNATIONAL EQUITY FUND
FOR THE SIX MONTHS ENDED FOR THE JUNE 30, 1998 YEAR ENDED (UNAUDITED) DECEMBER 31, 1997 ------------- ----------------- From Investment Activities: OPERATIONS: Net investment income ........................................... $ 388,883 $ 157,541 Net realized gains (losses) from investments and foreign currency transactions ................................. 6,371,861 (1,197,928) Net change in unrealized appreciation (depreciation) from investments and translation of assets and liabilities denominated in foreign currencies ................. 4,781,145 (1,687,823) ------------ ------------ Change in net assets resulting from operations .................. 11,541,889 (2,728,210) ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: Institutional Class From net investment income .................................... -- (156,823) In excess of net investment income ............................ -- (52,622) Service Class From net investment income .................................... -- (718) In excess of net investment income ............................ -- (241) ------------ ------------ Change in net assets from shareholder distributions ............. -- (210,404) ------------ ------------ CAPITAL SHARE TRANSACTIONS: Proceeds from shares issued ..................................... 5,317,248 22,751,521 Dividends reinvested ............................................ -- 41,892,562 Cost of shares redeemed ......................................... (20,761,644) (15,447,327) ------------ ------------ Change in net assets from share transactions .................... (15,444,396) 49,196,756 ------------ ------------ Change in net assets ............................................ (3,902,507) 46,258,142 NET ASSETS: Beginning of period ............................................. 67,767,370 21,509,228 ------------ ------------ End of period (including distribution in excess of net investment income of ($33,592) and ($422,475) respectively) .............. $ 63,864,863 $ 67,767,370 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS. 16 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION HSBC Mutual Funds Trust, (the "Trust") was organized in Massachusetts on November 1, 1989 as a Massachusetts business trust, and is registered under the Investment Company Act of 1940, as amended ("1940 Act"), as a diversified, open-end management investment company with multiple investment portfolios. The accompanying financial statements and notes relate only to the International Equity Fund ("the Fund"). The Fund offers two classes of shares: Service Shares and Institutional Shares. The Institutional Class is available to customers of financial institutions or corporations on behalf of their customers or employees, or on behalf of any trust, pension, profit-sharing or other benefit plan for such customers or employees. The Service Class is available to all other investors. The Service Class Shares and Institutional Class Shares are identical in all respects except that Institutional Class Shares are not subject to a sales load or the imposition of any shareholder servicing fees or Rule 12b-1 fees. The Fund's investment objective is to seek to provide investors with long-term capital appreciation by investing at least 80% of its total assets in equity securities (including American and European Depositary Receipts) issued by companies based outside of the United States. The balance of the Fund's assets will be invested in equity and debt securities of companies based in the United States and outside of the United States including bonds and money market instruments. The Fund may also use other investment practices to enhance return or to hedge against fluctuations in the value of portfolio securities. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. SECURITIES VALUATION: Investments in securities are valued at the last quoted sale price as of the close of business on the day the valuation is made, or if a sale is not reported for that day, at the mean between closing bid and asked prices. Price information for listed securities is taken from the exchange where the securities are primarily traded. Investments in futures and related options, which are traded on commodities exchanges, are valued at their last sale price as of the close of such exchanges. Other securities for which no quotations are readily available are valued at fair value as determined in good faith by or under the direction of the Board of Trustees. Short-term investments having maturities of 60 days or less are valued at amortized cost, which approximates market value. All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at the bid price of such currencies against the U.S. dollar's last quoted price by a major bank or broker. If such quotations are not available as of the close of the New York Stock Exchange, the rate of exchange will be determined in accordance with policies established in good faith by the Board of Trustees. FOREIGN CURRENCIES: Transactions denominated in foreign currencies are recorded at the prevailing rate of exchange as incurred or earned. Asset and liability accounts are adjusted to reflect the current rate at the end of each period. Such adjustments are recorded in net unrealized appreciation of other assets and liabilities denominated in foreign currencies. Net realized foreign currency gains or losses include exchange rate 17 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) differences between trade date and settlement date for security purchases and sales, and between the date the Fund records income, expenses and other assets and liabilities and the date such assets and liabilities are received or paid. The portion of both realized and unrealized gains and losses on investments that result from fluctuations in foreign currency exchange rates is not separately disclosed. The Fund may enter into forward foreign currency exchange contracts for investment purposes and to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings and to hedge certain firm purchase and sales commitments denominated in foreign currencies. A forward foreign currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated rate. The gain or loss arising from the difference between the original contracts and the closing of such contracts is included in realized gains or losses from foreign currency transactions. Fluctuations in the value of forward foreign currency exchange contracts are recorded for financial reporting purposes as unrealized gains or losses by the Fund until settlement date. The Fund's custodian will place cash or liquid high grade debt securities into a segregated account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of forward foreign exchange contracts requiring the Fund to purchase foreign currency of foreign exchange contracts entered into for non-hedging purposes. If the value of the securities placed in the segregated account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund's commitments with respect to such contracts. Risks may arise from the potential inability of a counter party to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars reflects the total exposure the Fund has in that particular currency contract. The fund had the following outstanding forward foreign currency exchange contracts as of June 30, 1998. FOREIGN SETTLEMENT VALUE AT CURRENT UNREALIZED CURRENCY CONTRACTS DATE SETTLEMENT DATE VALUE GAIN/(LOSS) -------------------- --------- --------------- ------- ----------- PURCHASE CONTRACTS: British Pound 7/02/98 $535,181 $535,342 $ 161 -------- -------- ----- SALE CONTRACTS: British Pound 7/02/98 $496,052 $496,201 $(149) -------- -------- ----- TAXES: It is the Fund's policy to comply with the requirements of the Internal Revenue Code, as amended, applicable to regulated investment companies, and to distribute substantially all of its taxable income, and net realized capital gains, if any, to its shareholders. Therefore, no provision is required for federal income tax. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains earned on foreign investments at various rates. Where available, the Fund will file for claims on foreign taxes withheld. 18 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DIVIDENDS AND DISTRIBUTIONS: The Fund intends to distribute substantially all of its net investment income and net realized capital gains, if any, annually in the form of dividends. The amounts of dividends from net investment income and of distributions from net realized gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions to shareholders which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment income or distributions in excess of net realized gains. To the extent they exceed net investment income and net realized gains for tax purposes, they are reported as distributions of capital. SECURITY TRANSACTIONS AND RELATED INCOME: Security transactions are recorded on trade date. Identified cost of investments sold is used for both financial statement and federal income tax purposes. Dividend income is recorded on the ex-dividend date. Interest income is recorded as earned. EXPENSE ALLOCATION: Expenses directly attributed to each Fund in the Trust are charged to that Fund's operations; expenses which are applicable to all Funds are allocated among them on the basis of relative net assets or another appropriate basis. ORGANIZATIONAL COSTS: Costs incurred in connection with the organization of the Fund have been deferred and are being amortized on a straight-line basis over a five year period beginning on the date operations commenced. 3. PORTFOLIO SECURITIES Purchases and sales of securities (excluding short-term securities) for the six months ended June 30, 1998 were $60,887,083 and $72,802,246, respectively. 4. RELATED PARTY TRANSACTIONS The Trust retains HSBC Asset Management Americas Inc. to act as Investment Adviser for the Fund. HSBC Asset Management Americas Inc. is the North American investment affiliate of HSBC Holdings plc (Hong Kong and Shanghai Banking Corporation). As Investment Adviser, HSBC Asset Management Americas Inc. furnishes investment guidance and policy direction in connection with the management of the portfolio of the Fund, subject to policies established by the Board of Trustees. As compensation for its services, HSBC Asset Management Americas Inc. is paid a monthly advisory fee at an annual rate of 0.90% of the Fund's average daily net assets. For the six months ended June 30, 1998, HSBC Asset Management Americas Inc. waived $124,842 in advisory fees. 19 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. RELATED PARTY TRANSACTIONS (CONTINUED) The Adviser retains HSBC Asset Management Europe Ltd., HSBC Asset Management Hong Kong Ltd., HSBC Asset Management (Japan) and HSBC Asset Management Australia Ltd. to act as sub-advisers (the "Sub-Advisers") to the Fund. HSBC Asset Management Europe Ltd., HSBC Asset Management Hong Kong Ltd., HSBC Asset Management (Japan) and HSBC Asset Management Australia Ltd. are all investment advisory affiliates of HSBC Asset Management Americas Inc. Under its Sub-Advisory Contract with HSBC Asset Management Americas Inc., each Sub-Advisor will undertake at its own expense to furnish the Fund and HSBC Asset Management Americas Inc. with micro- and macroeconomics; research, advice and recommendations; and economic and statistical data with respect to the Fund's investments, subject to the overall review by HSBC Asset Management Americas Inc. and the Board of Trustees. BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"), an Ohio limited partnership is a subsidiary of The BISYS Group, Inc. BISYS, with whom certain officers of the Trust are affiliated, serves the Trust as distributor, administrator, fund accountant and transfer agent. Such officers are not paid any fees directly by the Funds for serving as officers of the Trust. In accordance with the terms of the Management and Administration and Fund Accounting Agreements, BISYS is paid a monthly fee equal to an annual rate of 0.15% of the Fund's average daily net assets. For the six months ended June 30, 1998, BISYS waived $15,606 in administrative services fees. HSBC Asset Management Americas Inc. earned co-administration/shareholder servicer assistance fees of up to 0.07% of the Fund's average net assets totaling $9,423 from the Fund for the six months ended June 30, 1998, all of which was waived. The Fund has adopted a Distribution Plan and Agreement (the "Plan") pursuant to Rule 12b-1 of the 1940 Act with respect to Service Shares of the Fund. The Service Class Plan provides for a monthly payment by the Fund to BISYS for expenses incurred in connection with distribution services provided to the Fund not to exceed an annual rate of 0.35% of the Fund's average net assets. The Fund incurred expenses totaling $528 with regard to the Plan for the six months ended June 30, 1998, all of which was waived. As distributor, BISYS is entitled to receive commissions on sales of shares of the variable net asset value funds. For the six months ended June 30, 1998, BISYS received $30 from commissions earned on sales of shares of the Fund, $27 of which was reallowed to affiliated broker/dealers of the Fund, $3 of which was retained by BISYS. The Fund may enter into agreements (the "Service Agreements") with certain banks, financial institutions and corporations ("Service Organizations") whereby each Service Organization handles record-keeping and provides certain administration services for its customers who invest in the Fund through accounts maintained at that Service Organization. Each Service Organization will receive monthly payments for the performance of its service under the Service Agreement. The payments from the Fund on an annual basis will not exceed 0.35% of the average value of the Funds' shares held in the subaccounts of the Service Organizations. For the six months ended June 30, 1998, the Fund did not participate in any Service Agreements. A partner of the Trust's legal counsel served as Secretary of the Trust. Baker and McKenzie served as legal counsel until April 2, 1998. Paul, Weiss, Rifkino, Wharton and Garrison assumed the role of legal counsel as of April 3, 1998. For the six months ended June 30, 1998 the Fund incurred legal fees of $37,719. 20 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. CAPITAL SHARE TRANSACTIONS Transactions in capital shares for the Fund were as follows:
FOR THE SIX MONTHS ENDED JUNE 30, 1998 FOR THE YEAR ENDED (UNAUDITED) DECEMBER 31, 1997 -------------------------- --------------------------- AMOUNT SHARES AMOUNT SHARES ------------ ---------- ------------ ---------- INSTITUTIONAL CLASS SHARES: Shares issued $ 5,314,446 444,010 $ 22,732,764 2,100,838 Shares issued in common trust fund conversion -- -- 41,892,562 3,815,352 Shares redeemed (20,694,526) (1,885,788) (15,334,320) (1,384,639) ------------ ---------- ------------ ---------- Net increase $(15,380,080) (1,441,778) $ 49,291,006 4,531,551 ============ ========== ============ ========== SERVICE CLASS SHARES: Shares issued $ 2,802 260 $ 18,757 1,663 Shares redeemed (67,118) (5,955) (113,007) (10,373) ------------ ---------- ------------ ---------- Net decrease $ (64,316) (5,695) $ (94,250) (8,710) ============ ========== ============ ==========
21 FINANCIAL HIGHLIGHTS HSBC INTERNATIONAL EQUITY FUND
INSTITUTIONAL CLASS SHARES ------------------------------------------------------------------------ FOR THE SIX MONTHS ENDED FOR THE FOR THE FOR THE PERIOD JUNE 30, 1998 YEAR ENDED YEAR ENDED MARCH 1, 1995(c) TO (UNAUDITED) DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 ------------- ----------------- ----------------- ------------------- Net Asset Value, Beginning of Period ................. $ 10.35 $ 10.61 $ 9.98 $ 8.81 ------- ------- ------- ------ Investment Activities Net investment income ............... 0.06 0.04 (0.01) (0.03) Net realized and unrealized gains from investment transactions ...... 2.11 (0.27) 0.64 1.20 ------- ------- ------- ------ Total from Investment Activities .... 2.17 (0.23) 0.63 1.17 ------- ------- ------- ------ Distributions From net investment income .......... -- (0.02) -- -- In excess of net investment income .. -- (0.01) -- -- ------- ------- ------- ------ Total Distributions .................... -- (0.03) -- -- ------- ------- ------- ------ Net Asset Value, End of Period ......... $ 12.52 $ 10.35 $ 10.61 $ 9.98 ======= ======= ======= ====== Total Return (excludes sales or redemption charges) ................. 20.97%(a) (2.15)% 6.31% 13.28%(a) Ratios/Supplemental Data: Net Assets at end of period (000) ... $63,562 $67,458 $21,100 $15,253 Ratio of expenses to average net assets ........................ 0.98%(b) 1.12% 2.04% 2.62%(b) Ratio of net investment income to average net assets ................ 1.25%(b) 0.35% (0.10)% (0.34)%(b) Ratio of expenses to average net assets* ....................... 1.46%(b) 1.91% 2.89% 3.12%(b) Ratio of net investment income to average net assets* ............ 0.77%(b) (0.44)% (0.95)% (0.84)%(b) Portfolio turnover rate*** .......... 101.02% 112.54% 77.91% 90.31%(a)
SERVICE CLASS SHARES --------------------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED FOR THE FOR THE FOR THE FOR THE PERIOD JUNE 30, 1998 YEAR ENDED YEAR ENDED YEAR ENDED APRIL 25, 1994(c) TO (UNAUDITED) DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 ------------- ----------------- ----------------- ----------------- -------------------- Net Asset Value, Beginning of Period ................ $ 10.35 $ 10.60 $ 9.97 $9.55 $ 10.00 ------- ------- -------- ----- ------- Investment Activities Net investment income .............. 0.06 0.06** (0.02) (0.07) -- Net realized and unrealized gains from investment transactions ..... 2.11 (0.28) 0.65 0.49 (0.43) ------- ------- -------- ----- ------- Total from Investment Activities ... 2.17 (0.22) 0.63 0.42 (0.43) ------- ------- -------- ----- ------- Distributions From net investment income ......... -- (0.03) -- -- -- In excess of net investment income . -- -- -- -- (0.02) ------- ------- -------- ----- ------- Total Distributions ................... -- (0.03) -- -- (0.02) ------- ------- -------- ----- ------- Net Asset Value, End of Period ........ $ 12.52 $ 10.35 $ 10.60 $9.97 $ 9.55 ======= ======= ======== ===== ======= Total Return (excludes sales or redemption charges) ................ 20.97%(a) (2.06)% 6.32% 4.40% (4.30)%(a) Ratios/Supplemental Data: Net Assets at end of period (000) .. $ 303 $ 309 $ 409 $658 $16,819 Ratio of expenses to average net assets ....................... 0.98%(b) 1.17% 2.10% 1.98% 2.16%(b) Ratio of net investment income to average net assets ............... 1.23%(b) 0.54% (0.19)% (1.01)% (0.04)%(b) Ratio of expenses to average net assets* ...................... 1.46%(b) 2.19% 2.94% 3.66% 2.50%(b) Ratio of net investment income to average net assets* ........... 0.75%(b) (0.48)% (1.03)% (2.69)% (0.39)%(b) Portfolio turnover rate*** ......... 101.02% 112.54% 77.91% 90.31% 29.37%(a) - ------------- * During the period, certain fees were voluntarily reduced and/or reimbursed. If such voluntary fee reductins and/or reimbursements had not occurred, the ratios would have been as indicated. ** Based on average shares outstanding. *** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) Not annualized. (b) Annualized. (c) Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS. 22-23 HSBC(SERVICE MARK) MUTUAL FUNDS TRUST 3435 Stelzer Road Columbus, Ohio 43219 INFORMATION: (800) 634-2536 INVESTMENT ADVISER HSBC Asset Management Americas Inc. 140 Broadway (6th Floor) New York, New York 10005-1180 DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT BISYS Fund Services 3435 Stelzer Road Columbus, Ohio 43219 CUSTODIAN The Bank of New York 90 Washington Street New York, New York 10286 INDEPENDENT AUDITORS Ernst & Young LLP 787 Seventh Avenue New York, New York 10019 LEGAL COUNSEL Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of Americas New York, New York 10019 This report is for the information of the shareholders of HSBC Mutual Funds Trust. Its use in connection with any offering of the Trust's shares is authorized only in the case of a concurrent or prior delivery of the Trust's current prospectus. Shares of the Fund are not an obligation of or guaranteed or endorsed by HSBC Holdings plc or its affiliates. In addition, such shares are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency and may involve investment risks, including the possible loss of principal. 8/98 -----END PRIVACY-ENHANCED MESSAGE-----