-----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, UwyUTKJ7rzXcECePeoV+BpTKEL8F2m5QWIjnrAtXeUIVhBnEFN7edqA2RJBCd0ya qbXHGvFEQhTPJbUgni9E+w== 0000935069-97-000135.txt : 19970912 0000935069-97-000135.hdr.sgml : 19970912 ACCESSION NUMBER: 0000935069-97-000135 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970905 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: 97675807 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 EQUITY SEMI-ANNUAL REPORT HSBC MUTUAL FUNDS TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- HSBC Asset Management Americas Inc. [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- Small Cap Fund Growth & Income Fund SEMI-ANNUAL REPORT (UNAUDITED) June 30, 1997 Managed by: HSBC ASSET MANAGEMENT AMERICAS INC. Sponsored and distributed by: BISYS FUND SERVICES HSBC MUTUAL FUNDS TRUST - -------------------------------------------------------------------------------- EQUITY FUNDS - -------------------------------------------------------------------------------- HSBC Asset Management Americas Inc. [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- SMALL CAP FUND - -------------------------------------------------------------------------------- July 11, 1997 Dear Shareholder: The second quarter of 1997 gave small cap investors something to cheer about for the first time in several quarters. Even though the Russell 2000 Index slightly underperformed the S&P 500 Index for the quarter, the gains were very respectable. However, despite the strong showing by small caps in the second quarter, they continued to severely underperform in the last six and twelve months. As had been the case for some time, the NASDAQ Composite Index (with its heavy weighting towards larger cap technology stocks) lead the pack with an 18.0% return for the quarter. - --------------------------------------------------------------------- RETURNS - --------------------------------------------------------------------- RUSSELL NASDAQ S&P DOW PERIOD 2000 COMPOSITE 500 JONES - --------------------------------------------------------------------- 1st Quarter 1996 5.1% 4.7% 5.4% 9.8% 2nd Quarter 1996 5.0 7.6 4.4 1.8 3rd Quarter 1996 0.3 3.5 3.1 4.6 4th Quarter 1996 5.2 5.2 8.4 10.2 1st Quarter 1997 (5.2) (5.4) 2.7 2.6 2nd Quarter 1997 16.2 18.0 17.4 17.1 - --------------------------------------------------------------------- Small cap GROWTH stocks (as measured by the Russell Small Cap Growth Index)have been on a roller coaster ride during the first half of 1997 -- falling 10.5% in the first quarter of the year and then came roaring back 17.4% in the second quarter. However, on a year-to-date basis, small cap growth stocks are still underperforming small cap value stocks. - -------------------------------------------------------------------------- GROWTH VS. VALUE STOCKS - -------------------------------------------------------------------------- RUSSELL LARGE CAP RUSSELL SMALL CAP ------------------------------------------------------ PERIOD GROWTH 1 VALUE 2 GROWTH 3 VALUE 4 - -------------------------------------------------------------------------- 1st Quarter 1996 5.0% 4.9% 5.6% 3.8% 2nd Quarter 1996 6.0 1.0 5.7 3.5 3rd Quarter 1996 3.2 2.1 (1.0) 0.8 4th Quarter 1996 5.7 9.2 0.1 9.3 1st Quarter 1997 0.3 2.0 (10.5) (0.3) 2nd Quarter 1997 18.6 14.0 17.4 14.3 - -------------------------------------------------------------------------- SOURCE: FRANK RUSSELL COMPANY MONTGOMERY SECURITIES 1The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. 2The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. 3The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. 4The Russell 2000 ValueIndex measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. Some of the reasons for the good performance by small caps in the second quarter were: (BULLET) Coming into the quarter valuations for small caps were very low on both an absolute and relative basis. (BULLET) Possibility of a capital gains tax cut (which is now a reality). (BULLET) Unlike the first quarter, interest rates declined in the second quarter. Generally, the discount factors of future earnings streams make interest rate increases unfriendly for small stocks, as was the case in the first quarter. (BULLET) Entering the quarter, investor sentiment was quite depressed. From such negative investor attitude, strong gains can be realized. We believe that ultimately value is realized in the marketplace over time. The question is one of timing. So far small caps continue to underperform. It appears that some of the factors that normally caused small caps to outperform in the past have not helped this time around. A good economy has helped the larger caps more and the rising dollar hasn't hurt them, at least not yet. Even though small caps are attractively valued and should be rewarding long term, we believe the short-term outlook remains discouraging. Investors are continuing to seek the relative safety, liquidity and comfort of large cap stocks. At some point, investors will accept the trade-off in liquidity and less volatility in the large caps for the more attractive valuations of small caps. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE - ------------------------------------------- The HSBC Small Cap Fund outperformed the Russell 2000 Index in the second quarter but underperformed in the first half of 1997. - -------------------------------------------------------------------------------- 2ND QTR. 1/1/97 TO LAST LAST SINCE 1997 6/30/97 12 MONTHS 3 YEARS INCEPTION - -------------------------------------------------------------------------------- HSBC Small Cap Fund (no load) 19.77% 2.65% (0.50)% 19.06% 13.84% Russell 2000 Index 16.21% 10.20% 16.33% 20.05% 15.66% - -------------------------------------------------------------------------------- During the first six months of 1996, the Fund was positively influenced by the financial sector of the portfolio. Conversely, the Fund was hindered by the underperformance of the healthcare and technology stocks. As you are probably aware, the HSBC Small Cap Fund was terminated as of July 31, 1997. We wish to thank you for your past support and participation in the Fund. Sincerely, [/S/ JOEP. SING,JR.] Joe P.Sing, Jr. 2 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SMALL CAP FUND VS. RUSSELL 2000 - --------------------------------------------- Average Annual Total Return - --------------------------------------------- Inception 1 Year (1/4/93) - --------------------------------------------- Offering Price(1) (5.50%) 12.53% NAV(2) (0.50%) 13.84% - --------------------------------------------- CHART [GRAPHIC OMITTED] Plot Points for Chart are as follows: FUND(1) RUSSELL 2000 FUND(2) 1/93 10,000 10,000 10,000 3/93 9,601 10,426 10,110 6/93 10,551 10,653 11,110 9/93 11,444 11,585 12,050 12/93 11,752 11,889 12,374 3/94 11,226 11,574 11,821 6/94 10,068 11,122 10,602 9/94 11,140 11,894 11,790 12/94 11,378 11,673 11,981 3/95 11,780 12,211 12,405 6/95 13,473 13,355 14,187 9/95 15,739 14,675 16,573 12/95 14,360 14,993 15,121 3/96 16,157 15,764 17,014 6/96 17,081 16,552 17,986 9/96 16,662 16,610 17,546 12/96 16,554 17,474 17,432 3/97 14,188 16,570 14,940 6/97 16,993 19,256 17,894 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR 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 SMALL CAP FUND ON JANUARY 4, 1993 (DATE OF INCEPTION), TO A $10,000 INVESTMENT IN THE RUSSELL 2000 INDEX ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE FUND'S PERFORMANCE TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES AND WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED. THE RUSSELL 2000 INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL MARKET PERFORMANCE OF MANY OF THE SMALLEST PUBLICLY TRADED COMPANIES IN THE U.S. AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. SMALL CAPITAL FUNDS TYPICALLY CARRY ADDITIONAL RISKS SINCE SMALLER COMPANIES GENERALLY HAVE A HIGHER RISK OF FAILURE. HISTORICALLY, SMALLER COMPANIES' STOCKS HAVE EXPERIENCED A GREATER DEGREE OF MARKET VOLATILITY THAN AVERAGE. 3 GROWTH & INCOME FUND - -------------------------------------------------------------------------------- July 11, 1997 Dear Shareholder: REVIEW: - ------- During the first six months of 1997, the S&P 500 gained 20.6%, despite a 25 basis point tightening by the Federal Reserve in late March and generally rising long rates, as the economy continued to show surprisingly strong albeit non-inflationary growth. In fact, for the first half of the year, the inflation rate (Consumer Price Index) posted growth of a mere 1.4%, the lowest level in 11 years. Volatility remained a prominent feature of the investment landscape thus far in 1997, with radical swings in day to day performance, seemingly triggered by each and every economic release, Mr. Greenspan's remark, and gyration of the dollar. The valuation of the equity market was supported by fourth quarter 1996 and first quarter 1997 earnings, reported in January and April, respectively. First quarter results -- up over 15% on a weighted basis for the S&P 500 stocks -- were notably strong, as the strength of the U.S. dollar appeared to do little to dampen corporate profits as some had forecast. This continued into the second quarter, as there were few negative pre-announcements to derail stocks. Liquidity has also fueled the market rise with mutual fund inflows as approximately $54 billion came into stock funds in the second quarter alone. Sectorally, Healthcare, Financials and Technology stocks led the market while Utilities, Communication Services and Basic Materials were the weakest areas. Small and mid-cap stocks well underperformed larger caps in the first six months of 1997, although they have more recently shown signs of recovery. While it is easy to pin this lagging performance on investors preference for quality and liquidity, it is interesting to note that the earnings growth of smaller capitalization stocks has been atypically inferior to that of the Blue Chips. Further, earnings growth within this sector has actually been slower than top line growth, the reverse of the big caps where bottom line growth is well in excess of revenues. OUTLOOK: - -------- Over the next quarter, we expect that the equity market will very much take its cue from interest rates, barring any exogenous event. We have seen few second quarter earnings pre-announcements to date and we expect results to be reported in July and August, to come in at a mid to high single digits above prior year. Strong mutual fund inflows, a fairly quiet offering calendar and ongoing share repurchases should provide a positive supply/demand backdrop and the needed liquidity to allow the equity market to follow the `path of the upward drift' through the languid summer months. 4 MANAGER'S DISCUSSION OF PERFORMANCE - ----------------------------------- For the first six months of 1997, the HSBC Growth & Income Fund returned 18.67% (no load). Results lagged the S&P 500 Composite Index return of 20.60% but far outpaced the Lipper Growth & Income Index return of 15.93%. After a relatively weak first quarter, the Fund posted a spectacular second quarter performance and gained 18.31% during the latest three month period. The bulk of the second quarter outperformance was derived from stock selection decisions with superior results posted in 8 of the 11 economic sectors. Sector weighting decisions also contributed to relative results though to a lesser degree. Individual performers which contributed to superior relative results included Worldcom (1.16% of net assets), Computer Associates (0.31%), Pfizer (1.66%) and Ingersoll Rand (1.49%), all up in excess of 40% for the three-month period. After significant restructuring in the first quarter of the year, aimed primarily at diversifying the Fund and overall risk reduction during the second quarter, there was quite a bit of activity in the HSBC Growth & Income Fund as well. These moves in the latest period included reducing the substantial overweight in Basic Materials given our view that commodity prices were not rising and the economy was likely to slow. Same for Energy stocks, where the upward move in the stocks and oil prices appeared to be played out. Conversely, Financials were increased to a market neutral position as rates stabilized and the low inflation data supported the thesis that the Federal Reserve was likely on hold at least near term. Technology was also increased from a significant underweight as the product transition issues affecting many companies in our coverage waned and the European and Asian sales weakness bottomed. Toward the end of the first half of 1997, the Fund took some profits from the Healthcare sector, notably through reductions in Johnson & Johnson and Bristol Myers, where valuations had become quite inflated. The Communications Services sector was restructured with the sharp reduction in the holding of GTE and AT&T in favor of two recently merged regional Bell operating companies, SBC/PacTel and BellAtlantic/NYNEX. Other stocks added to the Fund more recently included Fluor, Tenet Healthcare, Toys 'R' Us, Safeway, Nike, among others. HSBC Asset Management Americas Inc. 5 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN GROWTH & INCOME FUND VS. S&P 500 - --------------------------------------------------- Average Annual Total Return - --------------------------------------------------- Inception 1 Year 5 Years (6/2/86) - --------------------------------------------------- Offering Price(1) 23.23% 15.75% 13.00% NAV(2) 29.73% 16.91% 13.53% - --------------------------------------------------- CHART [GRAPHIC OMITTED] Plot Points for Chart are as follows: FUND(1) S&P 500 LIPPER FUND(2) 6/86 10,000 10,000 10,000 10,000 12/86 9,860 10,049 10,134 10,320 12/87 9,780 10,578 10,400 10,300 12/88 11,300 12,334 12,310 11,900 12/89 14,190 16,241 15,236 14,940 12/90 13,560 15,737 14,322 14,280 12/91 17,890 20,532 18,277 18,840 12/92 19,280 22,097 20,038 20,300 12/93 21,440 24,322 22,967 22,580 12/94 20,439 24,643 22,811 21,523 12/95 27,696 33,901 29,882 29,165 12/96 32,656 40,518 36,082 34,387 6/97 38,754 48,867 41,708 40,808 PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR 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 GROWTH & INCOME FUND ON JUNE 2, 1986 (DATE OF INCEPTION), TO A $10,000 INVESTMENT IN THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX AND THE LIPPER GROWTH AND INCOME FUND INDEX ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED. THE FUND'S PERFORMANCE TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES AND WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED. THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL STOCK MARKET PERFORMANCE AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. THE LIPPER GROWTH AND INCOME FUNDINDEX IS AN INDEX BASED ON THIRTY LARGEST GROWTH AND INCOME MUTUAL FUNDS (EQUALLY WEIGHTED) TRACKED BY LIPPER ANALYTICAL SERVICESINCORPORATED. 6 [THIS PAGE INTENTIONALLY LEFT BLANK.] 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 *Member of the Audit and Nominating Committees - -------------------------------------------------------------------------------- OFFICERS MICHAEL J. KANE PRESIDENT ERIC F. ALMQUIST VICE PRESIDENT KAREN DOYLE VICE PRESIDENT KEVIN MARTIN TREASURER STEVEN R. HOWARD SECRETARY CURTIS BARNES ASSISTANT SECRETARY ALAINA V. METZ ASSISTANT SECRETARY ROBERT L. TUCH ASSISTANT SECRETARY 8 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) SMALL CAP FUND SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE - ----------- ----------- ----------- COMMON STOCKS (89.4%): AUTO PARTS (1.8%): 59,600 Keystone Automotive Industries, Inc.(b)............. $ 1,013,200 ----------- BROADCASTING (2.8%): 45,100 International Family Entertainment, Inc.(b)......... 1,550,312 ----------- BUSINESS SERVICES (3.1%): 55,200 Imnet Systems, Inc.(b).............................. 1,714,650 ----------- COMMERCIAL SERVICES (3.5%): 27,800 BDM International, Inc.(b).......................... 639,400 44,700 Personnel Group of America, Inc.(b)................. 1,287,919 ----------- 1,927,319 ----------- COMPUTER & PERIPHERALS (1.4%): 11,900 Cisco Systems, Inc.(b).............................. 798,787 ----------- COMPUTER SOFTWARE (2.0%): 73,900 Network General Corp.(b)............................ 1,099,262 ----------- CONSUMER GOODS & SERVICES (1.4%): 23,700 Blyth Industries, Inc.(b)........................... 799,875 ----------- DEPARTMENT STORES (2.0%): 24,800 Proffitt's, Inc.(b)................................. 1,088,100 ----------- ELECTRICAL & ELECTRONIC (4.2%): 23,245 Harman International Industries, Inc................ 979,196 52,900 QLogic Corp.(b)..................................... 1,348,950 ----------- 2,328,146 ----------- ELECTRONIC COMPONENTS/INSTRUMENTS (2.6%): 40,500 Semtech Corp.(b).................................... 1,478,250 ----------- ENTERTAINMENT (1.9%): 105,500 Lodgenet Entertainment Corp.(b)..................... 1,055,000 ----------- FINANCIAL SERVICES (4.5%): 24,700 Amerin Corp.(b)..................................... 598,975 29,035 Resource Bancshares Mortgage Group.................. 573,441 45,987 The Money Store, Inc................................ 1,319,252 ----------- 2,491,668 ----------- HEALTHCARE (1.2%): 38,400 Orthodontic Centers of America, Inc.(b)............. 698,400 ----------- 9 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED) SMALL CAP FUND SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE - ----------- ----------- ----------- COMMON STOCKS (CONTINUED) HOME FURNISHINGS (1.0%): 32,200 O' Sullivan Industries Holdings, Inc.(b) $ 533,312 ----------- MEDICAL SERVICES, HOSPITAL MANAGEMENT, NURSING HOMES (8.4%): 40,500 Emcare Holdings, Inc.(b).......................... 1,483,313 27,432 FPA Medical Management, Inc.(b)................... 649,796 56,400 Occusystems, Inc.(b).............................. 1,635,600 86,500 Prime Medical Services, Inc.(b)................... 935,281 ----------- 4,703,990 ----------- MEDICAL SUPPLIES (1.7%): 35,600 Hologic, Inc.(b).................................. 947,850 ----------- MISC. MATERIALS & COMMODITIES (1.9%): 65,700 Bacou USA, Inc.(b)................................ 1,067,625 ----------- MOBILE HOMES & MANUFACTURING, HOUSING (0.8%): 48,850 Southern Energy Homes, Inc.(b).................... 445,756 ----------- OIL & GAS EXPLORATION PRODUCTS & SERVICES (7.0%): 50,400 American Oilfield Divers, Inc.(b)................. 604,800 27,000 Newfield Exploration Co.(b)....................... 540,000 18,100 Nuevo Energy Co.(b)............................... 742,100 30,400 Pride International Inc.(b)....................... 729,600 64,200 Tuboscope, Inc.(b)................................ 1,275,975 ----------- 3,892,475 ----------- REAL ESTATE (1.0%): 25,400 Alexandria Real Estate Equities, Inc.............. 557,213 ----------- REAL ESTATE INVESTMENT TRUST (0.4%): 6,700 Bay Apartment Communities, Inc.................... 247,900 ----------- RESTAURANTS (2.1%): 30,500 Casa Ole Restaurants, Inc.(b)..................... 282,125 10,200 Lone Star Steakhouse & Saloon, Inc.(b)............ 265,200 67,600 Rock Bottom Restaurants, Inc.(b).................. 642,200 ----------- 1,189,525 ----------- RETAIL - SPECIAL LINE (4.0%): 30,400 Global Directmail Corp.(b)........................ 792,300 45,600 Wet Seal Inc., Class A(b)......................... 1,439,250 ----------- 2,231,550 ----------- 10 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED) SMALL CAP FUND SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE - ----------- ----------- ---------- COMMON STOCKS (CONTINUED) RETAIL STORES/CATALOG (1.2%): 34,300 Gadzooks, Inc.(b) ................................ $ 668,850 ----------- SERVICES (6.0%): 44,000 Childrens Comprehensive Services, Inc.(b) ........ 621,500 34,600 Envoy Corp.(b)*** ................................ 1,150,450 41,780 Paychex, Inc. .................................... 1,587,640 ----------- 3,359,590 ----------- SPECIALTY STORE (9.8%): 43,600 The Finish Line, Inc.(b) ......................... 637,650 46,300 The Men's Wearhouse, Inc.(b) ..................... 1,458,450 68,300 Petco Animal Supplies, Inc.(b) ................... 2,049,000 50,800 Stage Stores, Inc.(b) ............................ 1,327,150 ----------- 5,472,250 ----------- TELECOMMUNICATION EQUIPMENT (2.9%): 103,800 LCC International, Inc., Class A(b) .............. 1,634,850 ----------- TELECOMMUNICATIONS (2.2%): 26,300 Mastec Inc.(b) ................................... 1,244,319 ----------- TELECOMMUNICATIONS - SERVICES AND EQUIPMENT (0.7%): 22,600 Precision Response Corp.(b) ...................... 372,900 ----------- TOBACCO (1.9%): 30,700 Consolidated Cigar Holdings, Inc.(b) ............. 851,925 7,100 General Cigar Holdings, Inc.(b) .................. 209,006 ----------- 1,060,931 ----------- TRANSPORTATION (1.0%): 30,600 Offshore Logistics, Inc.(b) ...................... 577,575 ----------- WHOLESALE DISTRIBUTION (3.0%): 13,787 Cardinal Health, Inc. ............................ 789,306 18,600 Fisher Scientific International .................. 883,500 ----------- 1,672,806 ----------- Total Common Stocks (Cost $45,172,703) ........... 49,924,236 ----------- 11 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED) SMALL CAP FUND
SHARES OR INTEREST/ PRINCIPAL SECURITY DISCOUNT MATURITY MARKET AMOUNT DESCRIPTION RATE DATE VALUE ---------- ----------- --------- -------- ----------- TIME DEPOSITS (4.1%): $2,289,000 Bank of New York, Grand Cayman Branch................. 5.25% 07/01/97 $ 2,289,000 ----------- Total Time Deposits (Cost $2,289,000)............................................ 2,289,000 ----------- CASH SWEEP ACCOUNT (0.0%): 15 Bank of New York**.................................... 4.60 15 ----------- Total Cash Sweep Account (Cost - $15)............................................ 15 ----------- OPEN-END INVESTMENT COMPANIES (6.6%): 2,000,000 Provident Institutional FedFund.................................................. 2,000,000 1,672,000 Provident Institutional Temporary Investment Fund................................ 1,672,000 ----------- Total Open-End Investment Companies (Cost-$3,672,000)............................ 3,672,000 ----------- TOTAL INVESTMENTS (100.1%) (Cost - $51,133,718)(a).......................................................... 55,885,251 LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%).................................... (58,959) ----------- NET ASSETS (100.0%).............................................................. $55,826,292 =========== - ------------- (a) Represents cost for federal income tax purposes and differs from market value by net unrealized appreciation of securities as follows: Unrealized appreciation............................................................... $ 8,282,649 Unrealized depreciation............................................................... (3,531,116) ----------- Net unrealized appreciation $ 4,751,533 =========== (b) Represents non-income producing security. ** Variable rate account. Rate presented represents rate in effect at June 30, 1997. *** The Fund is entitled to contingent value rights attached to this security. Such value rights will allow the purchase of shares of First Data Corp. if certain parameters are met. At June 30, 1997 these rights had no market value.
SEE NOTES TO FINANCIAL STATEMENTS. 12 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) GROWTH & INCOME FUND SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE - -------------- ----------- ---------- COMMON STOCKS (96.5%): AEROSPACE & DEFENSE (1.6%): 40,600 Boeing Co. ..................................... $ 2,154,337 5,300 Lockheed Martin Corp. .......................... 548,881 ----------- 2,703,218 ----------- AUTOMOTIVE (1.9%): 33,570 Ford Motor Co. ................................. 1,267,267 34,500 General Motors Corp. ........................... 1,921,219 ----------- 3,188,486 ----------- BANKING (3.6%): 49,100 Bank of New York Co., Inc. ..................... 2,135,850 17,800 First Union Corp. .............................. 1,646,500 35,600 NationsBank Corp. .............................. 2,296,200 ----------- 6,078,550 ----------- BANKING & FINANCIAL SERVICES (1.4%): 18,600 Citicorp ....................................... 2,242,462 ----------- BREWERY (1.3%): 52,400 Anheuser-Busch Co., Inc. ....................... 2,197,525 ----------- CHEMICALS (3.5%): 6,400 Air Products & Chemicals, Inc. ................. 520,000 7,400 Dow Chemical Co. ............................... 644,725 49,200 E.I. du Pont de Nemours and Co. ................ 3,093,450 24,700 Morton International, Inc. ..................... 745,631 14,300 PPG Industries, Inc. ........................... 831,187 ----------- 5,834,993 ----------- COMPUTER HARDWARE (5.2%): 14,200 Cisco Systems, Inc.(b) ......................... 953,175 6,000 Compaq Computer Corp.(b) ....................... 595,500 27,700 International Business Machines Corp. .......... 2,498,194 21,300 Intel Corp. .................................... 3,020,606 45,700 Sun Microsystems, Inc.(b) ...................... 1,700,897 ----------- 8,768,372 ----------- 13 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED) GROWTH & INCOME FUND SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE - -------------- ----------- ----------- COMMON STOCKS (CONTINUED) COMPUTER SOFTWARE (2.7%): 9,300 Computer Associates International, Inc. ........ $ 517,894 31,700 Microsoft Corp.(b) ............................. 4,006,087 ----------- 4,523,981 ----------- CONSUMER GOODS & SERVICES (5.5%): 27,600 Gillette Co. ................................... 2,615,100 16,300 Nike, Inc., Class B ............................ 951,512 33,000 Philip Morris Co., Inc. ........................ 1,464,375 29,100 Proctor & Gamble Co. ........................... 4,110,375 ----------- 9,141,362 ----------- DIVERSIFIED (1.8%): 36,623 AlliedSignal, Inc. ............................. 3,076,332 ----------- ELECTRIC UTILITY (1.8%): 50,700 Duke Power Co., Inc. ........................... 2,430,431 19,400 Pinnacle West Capital .......................... 583,212 ----------- 3,013,643 ----------- ELECTRICAL & ELECTRONIC (4.1%): 21,800 Emerson Electric Co. ........................... 1,200,362 85,800 General Electric Co. ........................... 5,609,175 ----------- 6,809,537 ----------- ELECTRONIC COMPONENTS/INSTRUMENTS (1.2%): 27,300 Motorola, Inc. ................................. 2,074,800 ----------- ENERGY (1.8%): 8,800 Atlantic Richfield Co. ......................... 620,400 45,200 Royal Dutch Petroleum Co. ...................... 2,457,750 ----------- 3,078,150 ----------- ENTERTAINMENT (1.3%): 26,300 Walt Disney Co. ................................ 2,110,575 ----------- 14 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED) GROWTH & INCOME FUND SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE - -------------- ----------- ----------- COMMON STOCKS (CONTINUED) FINANCIAL SERVICES (7.4%): 22,600 American Express Co. ......................... $ 1,683,700 40,200 BankAmerica Corp. ............................ 2,595,412 22,894 Chase Manhattan Corp. ........................ 2,222,149 57,900 Federal National Mortgage Assoc .............. 2,525,887 13,200 J.P. Morgan & Co. ............................ 1,377,750 33,000 Travelers Group, Inc. ........................ 2,081,063 ----------- 12,485,961 ----------- FOOD PRODUCTS & SERVICES (5.6%): 61,700 Coca-Cola Co. ................................ 4,164,750 60,300 H.J. Heinz Co. ............................... 2,781,338 45,500 PepsiCo, Inc. ................................ 1,709,094 16,000 Safeway, Inc.(b) ............................. 738,000 ----------- 9,393,182 ----------- HEALTHCARE (7.4%): 38,700 American Home Products Corp. ................. 2,960,550 6,300 Baxter International, Inc. ................... 329,175 27,800 Bristol Myers Squibb Co. ..................... 2,251,800 17,550 Columbia/HCA Healthcare Corp. ................ 689,934 59,000 Johnson & Johnson ............................ 3,798,125 23,300 Merck & Co., Inc. ............................ 2,411,550 ----------- 12,441,134 ----------- INDUSTRIAL GOODS & SERVICES (0.4%): 8,100 United Technologies Corp. .................... 672,300 ----------- INSURANCE (3.1%): 26,600 Allstate Corp. ............................... 1,941,800 21,600 American International Group ................. 3,226,500 ----------- 5,168,300 ----------- MACHINERY & EQUIPMENT (1.5%): 40,500 Ingersoll Rand Co. ........................... 2,500,875 ----------- 15 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED) GROWTH & INCOME FUND SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE - -------------- ----------- ----------- COMMON STOCKS (CONTINUED) MEDICAL - HOSPITAL MANAGEMENT & SERVICES (0.3%): 17,900 Tenet Healthcare Corp.(b) .................. $ 529,169 ----------- METALS (0.5%): 11,000 Aluminum Company of America ................ 829,125 ----------- OFFICE EQUIPMENT & SERVICES (1.8%): 36,500 Hewlett-Packard Co. ........................ 2,044,000 12,600 Xerox Corp. ................................ 993,825 ----------- 3,037,825 ----------- OIL & GAS EXPLORATION PRODUCTS & SERVICES (7.3%): 30,000 Chevron Corp. .............................. 2,218,125 25,707 Consolidated Natural Gas Co. ............... 1,383,358 67,888 Exxon Corp. ................................ 4,175,112 20,200 Mobil Corp. ................................ 1,411,475 16,306 Schlumberger Ltd. .......................... 2,038,250 38,200 Union Pacific Resources Group .............. 950,225 ----------- 12,176,545 ----------- PAPER PRODUCTS (0.7%): 22,800 International Paper Co. .................... 1,107,225 ----------- PHARMACEUTICALS (3.0%): 21,000 Eli Lilly & Co. ............................ 2,295,563 23,300 Pfizer, Inc. ............................... 2,784,350 ----------- 5,079,913 ----------- PHOTOGRAPHY (0.4%): 8,800 Eastman Kodak Co. .......................... 675,400 ----------- PRINTING & PUBLISHING (1.1%): 39,400 Tribune Co. ................................ 1,893,663 ----------- RAILROADS (1.3%): 30,215 Union Pacific Corp. ........................ 2,130,158 ----------- RETAIL - GENERAL MERCHANDISE (3.8%): 31,143 Home Depot, Inc. ........................... 2,146,921 31,700 May Department Stores Co. .................. 1,497,825 56,100 Rite Aid Corp. ............................. 2,797,988 ----------- 6,442,734 ----------- 16 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED) GROWTH & INCOME FUND SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE - -------------- ----------- ----------- COMMON STOCKS (CONTINUED) RETAIL STORES/CATALOG (1.8%): 21,100 Toys R Us, Inc.(b) ............................. $ 738,500 68,200 Wal-Mart Stores, Inc. .......................... 2,306,013 ------------ 3,044,513 ------------ STEEL (0.3%): 7,820 Nucor Corp. .................................... 441,830 ------------ TECHNOLOGY (1.1%): 21,300 LSI Logic Corp.(b) ............................. 681,600 11,000 Minnesota Mining & Manufacturing Co. ........... 1,122,000 ------------ 1,803,600 ------------ TELECOMMUNICATIONS (7.4%): 26,700 A T & T Corp. .................................. 936,169 22,000 Bell Atlantic Corp. ............................ 1,669,250 39,118 BellSouth Corp. ................................ 1,814,097 10,400 GTE Corp. ...................................... 456,300 17,600 Lucent Technologies, Inc. ...................... 1,268,300 21,200 Northern Telecom Ltd. .......................... 1,929,200 39,500 SBC Communications, Inc. ....................... 2,444,063 60,600 Worldcom, Inc. ................................. 1,939,200 ------------ 12,456,579 ------------ TIRE & RUBBER (1.1%): 28,972 Goodyear Tire & Rubber Co. ..................... 1,834,290 ------------ TRANSPORTATION (0.5%): 12,000 UAL Corp. ...................................... 858,750 ------------ Total Common Stocks (Cost - $126,432,404) ...... 161,845,057 ------------ 17 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED) GROWTH & INCOME FUND
SHARES OR INTEREST/ PRINCIPAL SECURITY DISCOUNT MARKET AMOUNT DESCRIPTION RATE VALUE ---------- ----------- --------- ------------- CASH SWEEP ACCOUNTS (0.0%): $ 849 Bank of New York**.................................. 4.60% $ 849 ------------ Total Cash Sweep Accounts (Cost - $849)........................... 849 ------------ OPEN-END INVESTMENT COMPANIES (3.5%): 5,926,000 Provident Institutional Temporary Investment Fund.................. 5,926,000 ------------ Total Open-End Investment Companies (Cost - $5,926,000)........... 5,926,000 ------------ TOTAL INVESTMENTS (100.0%) (Cost - $132,359,253)(a)........................................... 167,771,906 OTHER ASSETS IN EXCESS OF LIABILITIES (0.0%)....................... 55,422 ------------ NET ASSETS (100.0%)................................................ $167,827,328 ============ - --------------- (a) Represents cost for federal income tax purposes and differs from market value by net unrealized appreciation of securities as follows: Unrealized appreciation................................................... $36,331,237 Unrealized depreciation................................................... (918,582) ----------- Net unrealized appreciation............................................... $35,412,653 =========== (b) Represents non-income producing security. ** Variable rate account. Rate presented represents rate in effect at June 30, 1997.
SEE NOTES TO FINANCIAL STATEMENTS. 18 STATEMENTS OF ASSETS AND LIABILITIES AS OF JUNE 30, 1997 (UNAUDITED)
SMALL CAP GROWTH & FUND INCOME FUND ------------ ------------ ASSETS: Investment in securities, at value (cost $51,133,718 and $132,359,253, respectively) ........................................................... $55,885,251 $167,771,906 Dividends receivable ..................................................................... 6,247 163,330 Prepaid expenses and other assets ........................................................ 1,193 38,536 ----------- ------------ Total Assets ............................................................................. 55,892,691 167,973,772 ----------- ------------ LIABILITIES: Payable for capital shares redeemed....................................................... -- 7,223 Accrued expenses and other payables: Investment advisory fees ............................................................... 35,559 74,417 Administration fees .................................................................... 5,032 13,719 Transfer agent fees .................................................................... 657 -- Legal and audit fees ................................................................... 6,666 16,350 Deferred trustee fees .................................................................. 7,569 21,658 Custodian fees ......................................................................... 5,459 5,773 Other .................................................................................. 5,457 7,304 ----------- ------------ Total Liabilities ...................................................................... 66,399 146,444 ----------- ------------ Net Assets .................................................................................. $55,826,292 $167,827,328 =========== ============ COMPUTATION OF NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE: Net assets ............................................................................... $55,826,292 $167,827,328 Shares of beneficial interest issued and outstanding ($0.001 par value per share, unlimited number of shares authorized) ...................................... 3,279,107 8,686,015 ----------- ------------ Net asset value and redemption price per share ........................................... $ 17.02 $ 19.32 Maximum sales charge -- 5.00% of offering price .......................................... 0.90 1.02 ----------- ------------ Maximum offering price ................................................................... $ 17.92 $ 20.34 =========== ============ COMPOSITION OF NET ASSETS: Paid-in capital .......................................................................... $47,018,523 $119,720,471 Undistributed net investment income (loss) ............................................... (199,695) 960,416 Accumulated undistributed net realized gains from investment transactions ................................................................ 4,255,931 11,733,788 Net unrealized appreciation from investments ............................................. 4,751,533 35,412,653 ----------- ------------ Net Assets, June 30, 1997 ................................................................... $55,826,292 $167,827,328 =========== ============
SEE NOTES TO FINANCIAL STATEMENTS 19 STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
SMALL CAP GROWTH & FUND INCOME FUND ------------ ------------ INVESTMENT INCOME: Dividends ......................................................................... $ 136,342 $ 1,513,123 Interest .......................................................................... 4,297 -- ------------ ----------- Total Income .................................................................... 140,639 1,513,123 ------------ ----------- EXPENSES: Advisory fees ..................................................................... 228,354 423,924 Administration fees ............................................................... 48,933 115,615 Co-administration fees ............................................................ 22,835 53,954 Audit fees ........................................................................ 7,454 12,117 Transfer agent fees ............................................................... 23,696 20,556 Custodian fees .................................................................... 7,661 7,829 Printing costs .................................................................... 2,003 10,074 Registration fees ................................................................. 12,080 6,582 Amortization of organization costs ................................................ 8,595 -- Legal fees ........................................................................ 14,230 19,349 Trustees' fees .................................................................... 2,395 6,846 Other expenses .................................................................... 4,590 7,974 ------------ ----------- Gross Expenses ....................................................................... 382,826 684,820 Less: Fee waivers ................................................................. (39,179) (92,570) ------------ ----------- Net Expenses ......................................................................... 343,647 592,250 ------------ ----------- Net Investment Income (Loss) ......................................................... (203,008) 920,873 ------------ ----------- REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS: Net realized gains from investment transactions ...................................... 4,088,675 10,504,092 Net change in unrealized appreciation/depreciation from investments .................. (3,857,025) 15,102,169 ------------ ----------- Net Realized and Unrealized Gains from Investments ................................... 231,650 25,606,261 ------------ ----------- Net Increase in Net Assets Resulting from Operations ................................. $ 28,642 $26,527,134 =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS. 20
STATEMENTS OF CHANGES IN NET ASSETS SMALL CAP GROWTH & FUND INCOME FUND ------------------------------------ ------------------------------------ FOR THE FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE JUNE 30, 1997 YEAR ENDED JUNE 30, 1997 YEAR ENDED (UNAUDITED) DECEMBER 31, 1996 (UNAUDITED) DECEMBER 31, 1996 ---------------- ----------------- ---------------- ----------------- From Investment Activities: OPERATIONS: Net investment income (loss) .................... $ (203,008) $ (181,955) $ 920,873 $ 1,555,489 Net realized gains from investment transactions ....................... 4,088,675 902,064 10,504,092 9,426,589 Net change in unrealized appreciation/ depreciation from investments ................. (3,857,025) 907,431 15,102,169 6,757,934 ----------- ----------- ------------ ------------ Change in net assets resulting from operations ..................... 28,642 1,627,540 26,527,134 17,740,012 ----------- ----------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS: From net investment income ...................... -- -- -- (1,555,489) In excess of net investment income .............. -- -- -- (2,224) From net realized gains ......................... -- (420,802) -- (8,195,067) ----------- ----------- ------------ ------------ Change in net assets from distributions to shareholders ................. -- (420,802) -- (9,752,780) ----------- ----------- ------------ ------------ CAPITAL TRANSACTIONS: Proceeds from shares issued ..................... 3,839,808 54,095,662 23,820,988 87,476,893 Dividends reinvested ............................ 8,205 45,253 327,990 304,665 Cost of shares redeemed ......................... (24,718,712) (4,714,996) (23,536,523) (21,143,109) ----------- ----------- ------------ ------------ Change in net assets from share transactions ............................ (20,870,699) 49,425,919 612,455 66,638,449 ----------- ----------- ------------ ------------ Change in net assets ............................... (20,842,057) 50,632,657 27,139,589 74,625,681 NET ASSETS: Beginning of period ................................ 76,668,349 26,035,692 140,687,739 66,062,058 ----------- ----------- ------------ ------------ End of period ...................................... $55,826,292 $76,668,349 $167,827,328 $140,687,739 =========== =========== ============ ============ SHARE TRANSACTIONS: Issued .......................................... 244,125 3,115,471 1,391,681 5,433,181 Reinvested ...................................... 495 3,130 20,147 20,597 Redeemed ........................................ (1,588,581) (296,513) (1,366,098) (1,287,720) ----------- ----------- ------------ ------------ Change in shares ................................... (1,343,961) 2,822,088 45,730 4,166,058 =========== =========== ============ ============
SEE NOTES TO FINANCIAL STATEMENTS 21 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION HSBC Mutual Funds Trust, (the "Trust") was organized 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, including the Small Cap Fund and the Growth & Income Fund (herein referred to individually as a "Fund" and collectively as the "Funds"). The Small Cap Fund seeks as its investment objective to provide investors with long-term capital appreciation and, secondarily, income by investing, under ordinary market conditions, at least 70% of its total assets in a diversified portfolio of common stocks and securities convertible into common stocks of small to medium-size companies. The Growth & Income Fund seeks as its investment objective to provide investors with long-term growth of capital and current income by investing, under ordinary market conditions, at least 65% of its total assets in common stocks, preferred stocks and securities convertible into or with rights to purchase common stocks. The balance of each Fund's assets may be invested in various types of fixed income securities (and preferred stocks with respect to the Small Cap Fund) and in money market instruments. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Funds in the preparation of their 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 traded on an exchange are valued at the last quoted sales price on a given day, or if a sale is not reported for that day, at the mean between the most recent bid and asked prices. The bid price is used when no asked price is available. Investments in mutual funds are valued at their net asset value as reported by such investment companies. Short-term obligations having maturities of 60 days or less are valued at amortized cost which approximates market value. TAXES: It is the Funds' policy to comply with the provisions 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 to its shareholders for each taxable year. Therefore, no provision is required for federal income tax. DIVIDENDS AND DISTRIBUTIONS: The Funds intend to pay, as a semi annual dividend, substantially all of their net investment income. Net capital gains, if any, are distributed at least annually. 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 22 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 statements 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. 3. PORTFOLIO SECURITIES Purchases and sales of securities (excluding short-term securities) for the six months ended June 30, 1997 were as follows: PURCHASES SALES ----------- ----------- Small Cap Fund........................ $19,546,052 $38,699,622 Growth & Income Fund.................. $61,047,227 $66,130,717 4. RELATED PARTY TRANSACTIONS The Trust retains HSBC Asset Management Americas Inc. to act as Investment Adviser for the Funds. 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 portfolios of the Funds, subject to policies established by the Board of Trustees. In addition, HSBC Asset Management Americas Inc. retains Investment Concepts, Inc. ("ICI") to serve as sub-advisor to the Small Cap Fund. ICI is a subsidiary of BancOklahoma Trust Company, which is a subsidiary of Bank of Oklahoma, N.A., which in turn is a subsidiary of Bank of Oklahoma Corporation. Under its sub-advisory contract with HSBC Asset Management Americas Inc., ICI will undertake at its own expense to furnish the Small Cap Fund and HSBC Asset Management Americas Inc. with micro- and macroeconomic research, advice and recommendations, and economic and statistical data, with respect to the Small Cap Fund's investments, subject to the overall review by HSBC Asset Management Americas Inc. and the Board of Trustees. 23 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. RELATED PARTY TRANSACTIONS (CONTINUED) As compensation for its services, HSBC Asset Management Americas Inc. is paid monthly advisory fees at the following annual rates:
ADVISORY FEE RATE ----------------------------- SMALL CAP GROWTH & INCOME PORTION OF EACH FUNDS' AVERAGE DAILY NET ASSETS FUND FUND -------------------------------------------------------- --------- --------------- Up to $400 million.......................................... 0.700% 0.550% In excess of $400 million but not exceeding $800 million.... 0.645% 0.505% In excess of $800 million but not exceeding $1.2 billion.... 0.590% 0.460% In excess of $1.2 billion but not exceeding $1.6 billion.... 0.535% 0.415% In excess of $1.6 billion but not exceeding $2.0 billion.... 0.480% 0.370% In excess of $2.0 billion................................... 0.415% 0.315%
HSBC Asset Management Americas Inc. has agreed to pay ICI a sub-advisory fee at an annual rate of 0.50% of average daily net assets of the Small Cap Fund. For the six months ended June 30, 1997, HSBC Asset Management Americas Inc. earned advisory fees of $65,244 from the Small Cap Fund and $423,924 from the Growth & Income Fund, and ICI earned sub-advisory fees of $163,110 from the Small Cap Fund. 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 are affiliated, serves the Trust as distributor, administrator, transfer agent and fund accountant. 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 Administration and Accounting Service agreement, BISYS is paid a monthly asset-based fee of 0.15% of each Fund's first $200 million of average net assets; 0.125% of the Fund's next $200 million of average net assets; 0.10% of the Fund's next $200 million of average net assets; and 0.08% of the Fund's average net assets in excess of $600 million; exclusive of out-of-pocket expenses. For the six months ended June 30, 1997, BISYS earned administrative fees of $32,589 from the Small Cap Fund and $76,999 from the Growth & Income Fund, net of fee waivers of $16,344 and $38,616, respectively. HSBC Asset Management Americas Inc. is paid a co-administration/shareholder servicing fee of 0.07% of each Fund's average daily net assets. For the six months ended June 30, 1997 HSBC Asset Management Americas Inc. waived all of their co-administration/shareholder servicing fees. These waivers totalled $22,835 for the Small Cap Fund and $53,954 for the Growth and Income Fund. The Funds have adopted a Distribution Plan and Agreement (the "Plan") pursuant to Rule 12b-1 of the 1940 Act. The Plan provides for a monthly payment by the Funds to BISYS Fund Services for expenses incurred in connection with distribution services provided to the Funds not to exceed an annual rate of 0.35% and 0.50% for the Small Cap Fund and Growth & Income Fund, respectively. The Fund did not incur any expenses with regards to the Plan for the six months ended June 30, 1997. 24 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. RELATED PARTY TRANSACTIONS (CONTINUED) The Funds 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 Funds 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 Funds on an annual basis will not exceed 0.35% of the average value of each Fund's shares held in the subaccounts of the Service Organizations. A partner of Baker & McKenzie, legal counsel to the Trust, also serves as Secretary of the Trust. For the six months ended June 30, 1997, the Funds incurred legal fees of $14,230 for the Small Cap Fund and $19,349 for the Growth & Income Fund. 25 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
SMALL CAP FUND FOR THE SIX FOR THE PERIOD MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, JANUARY 4, 1993(a) JUNE 30, 1997 ----------------------------------- TO (UNAUDITED) 1996 1995 1994 DECEMBER 31, 1993 ------------- ------- ------- ------- ------------------ Net Asset Value, Beginning of Period ........ $ 16.58 $ 14.46 $ 11.90 $ 12.29 $ 10.00 ------- ------- ------- ------- ------- Investment Activities Net investment loss ...................... (0.06) (0.04) (0.12) (0.07) (0.05) Net realized and unrealized gains (losses) from investments ........ 0.50 2.25 3.24 (0.32) 2.42 ------- ------- ------- ------- ------- Total from Investment Activities ......... 0.44 2.21 3.12 (0.39) 2.37 ------- ------- ------- ------- ------- Distributions From net realized gains from investment transactions ........................... -- (0.09) (0.56) -- (0.08) ------- ------- ------- ------- ------- Net change in Net Asset Value ............ 0.44 2.12 2.56 (0.39) 2.29 ------- ------- ------- ------- ------- Net Asset Value, End of Period .............. $ 17.02 $ 16.58 $ 14.46 $ 11.90 $ 12.29 ======= ======= ======= ======= ======= Total Return(b) ............................. 2.65%(d) 15.29% 26.20% (3.17)% 23.74%(d) Ratios/Supplemental Data: Net Assets at end of period (000) ........ $55,826 $76,668 $26,036 $24,308 $17,659 Ratio of expenses to average net assets... 1.06%(c) 1.04% 1.33% 1.23% 1.12%(c) Ratio of net investment loss to average net assets ..................... (0.62)%(c) (0.35)% (0.85)% (0.68)% (0.51)%(c) Ratio of expenses to average net assets* 1.18%(c) 1.15% 1.35% 1.38% 1.58%(c) Ratio of net investment loss to average net assets* .................... (0.74)%(c) (0.46)% (0.87)% (0.73)% (0.97)%(c) Portfolio Turnover Rate .................. 32.59% 35.73% 29.86% 20.17% 5.96% Average Commission Rate Paid(e) .......... $0.0587 $0.0635 -- -- -- - -------------- * During the period, certain fees were voluntarily reduced and/or reimbursed. If such voluntary fee reductions and/or expense reimbursements had not occurred, the ratios would have been as indicated. (a) Commencement of operations. (b) Excludes sales charge. (c) Annualized. (d) Not annualized. (e) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. Disclosure is not required for periods prior to September 30, 1996.
SEE NOTES TO FINANCIAL STATEMENTS. 26 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD GROWTH & INCOME FUND
FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, JUNE 30, 1997 --------------------------------------------------------------------- (UNAUDITED) 1996 1995 1994 1993 1992 ---------------- -------- ------- ------- ------- ------ Net Asset Value, Beginning of Period ...... $ 16.28 $ 14.77 $ 11.93 $ 12.87 $ 12.02 $13.12 -------- -------- ------- ------- ------- ------ Investment Activities Net investment income .................. 0.11 0.18 0.30 0.29 0.33 0.15 Net realized and unrealized gains (losses) from investments ...... 2.93 2.46 3.64 (0.67) 1.00 0.80 -------- -------- ------- ------- ------- ------ Total from Investment Activities ....... 3.04 2.64 3.94 (0.38) 1.33 0.95 -------- -------- ------- ------- ------- ------ Distributions From net investment income ............. -- (0.18) (0.30) (0.29) (0.33) (0.15) From net realized gains from investment transactions .............. -- (0.95) (0.80) (0.15) (0.15) (1.90) In excess of realized gains from investment transactions .............. -- -- -- (0.12) -- -- -------- -------- ------- ------- ------- ------ Total distributions .................... -- (1.13) (1.10) (0.56) (0.48) (2.05) -------- -------- ------- ------- ------- ------ Net Change in Net Asset Value .......... 3.04 1.51 2.84 (0.94) 0.85 (1.10) -------- -------- ------- ------- ------- ------ Net Asset Value, End of Period ............ $ 19.32 $ 16.28 $ 14.77 $11.93 $ 12.87 $12.02 ======== ======== ======= ====== ======= ====== Total Return(a)............................ 18.67%(c) 17.90% 33.11% (2.97)% 11.23% 7.74% Ratios/Supplemental Data: Net Assets at end of period (000) ...... $167,827 $140,688 $66,062 $64,999 $77,718 $3,609 Ratio of expenses to average net assets. 0.77%(b) 0.85% 0.94% 0.78% 0.23% 1.68% Ratio of net investment income to average net assets ................... 1.19%(b) 1.43% 2.06% 2.25% 2.95% 1.12% Ratio of expenses to average net assets* 0.89%(b) 0.96% 0.97% 0.86% 0.88% 2.29% Ratio of net investment income to average net assets* .................. 1.07%(b) 1.32% 2.03% 2.17% 2.30% 0.51% Portfolio Turnover Rate ................ 40.06% 61.68% 52.77% 23.31% 14.25% 54.99% Average Commission Rate Paid(d) ........ $0.0595 $ 0.0572 -- -- -- -- - ----------- * During the period, certain fees were voluntarily reduced and/or reimbursed. If such voluntary fee reductions and/or expense reimbursements had not occurred, the ratios would have been as indicated. (a) Excludes sales charge. (b) Annualized. (c) Not annualized. (d) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of port- folio shares purchased and sold for which commissions were charged.Disclosure is not required for periods prior to September 30, 1996.
SEE NOTES TO FINANCIAL STATEMENTS. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- HSBC(SERVICE MARK) MUTUAL FUNDS TRUST 3435 Stelzer Road Columbus, Ohio 43219 INFORMATION: (800) 634-2536 INVESTMENT ADVISER HSBC Asset Management Americas Inc. 250 Park Avenue New York, New York 10177 SUB-ADVISER TO SMALL CAP FUND Investment Concepts, Inc. One Williams Center P.O. Box 2300 Tulsa, Oklahoma 74192 DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT BISYS Fund Services 3435 Stelzer Road Columbus, Ohio 43219 CUSTODIAN The Bank of New York 90 Washington Street New York, New York 10286 INDEPENDENT AUDITORS Ernst & Young LLP 787 Seventh Avenue New York, New York 10019 LEGAL COUNSEL Baker & McKenzie 805 Third Avenue New York, New York 10022 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. 8/97 -----END PRIVACY-ENHANCED MESSAGE-----