-----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, WTUnu+FMyeVd17KRBu/ubQpY9Tu1uNSV/MH3iJdF1wgK3FaIcF+Em08D+pB4hU4a 3UHGkcP8ceOfnkm+06ZwTQ== 0000935069-98-000043.txt : 19980309 0000935069-98-000043.hdr.sgml : 19980309 ACCESSION NUMBER: 0000935069-98-000043 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980306 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: 98558832 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 FIXED INCOME FUNDS ANNUAL REPORT HSBC MUTUAL FUNDS TRUST - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- HSBC Asset Management Americas Inc. [LOGO OMITTED] Fixed Income Fund New York Tax-Free Bond Fund ANNUAL REPORT December 31, 1997 Managed by: HSBC ASSET MANAGEMENT AMERICAS INC. Sponsored and distributed by: BISYS FUND SERVICES HSBC MUTUAL FUNDS TRUST - -------------------------------------------------------------------------------- FIXED INCOME FUNDS - -------------------------------------------------------------------------------- HSBC Asset Management Americas Inc. [LOGO OMITTED] FIXED INCOME FUND - -------------------------------------------------------------------------------- January 15, 1998 Dear Shareholder: 1997 turned out to be a fairly good year for the U.S. bond market. The investment grade market as a whole finished the year slightly above it's ten year average total return. Naturally, there was plenty of volatility. The first half of the year was disappointing as a Fed rate hike led to higher yields. In the second half, good news on inflation coupled with trouble in Asia produced a one two punch that pushed interest rates lower even though economic growth remained strong. The yield on the long bond dropped 72 basis points over the period while the yield on the two year treasury fell only 22 basis points. This flattening of the yield curve was in part due to yields on shorter securities bumping up against the 5.5% Fed Funds level. In terms of sector performance, mortgages outperformed similar duration treasuries by 121 basis points for the year. In contrast, the corporate sector was negatively impacted by the Asian crisis which produced a renewed appreciation for credit risk in general while hitting any Asian related debt directly. The corporate sector underperformed treasuries by 28 basis points on a duration adjusted basis. This was primarily due to the Yankee sub-sector which encompasses the affected Asian issuers which underperformed severely as many Asian credits were downgraded to junk status. The fund returned 8.62% for the year on a net basis compared to 9.65% for the Lehman Aggregate Bond Index, a proxy for the investment grade market. We were not initially positioned for the second half rally as concern with wage inflation had our duration position shorter than benchmark, and this hurt relative performance. As the Asian crisis unfolded, we moved to a more constructive view on the market. We were fortunate not to have had any Asian related debt, but we were marginally overweight on the corporate sector which was a mild negative. Sincerely, /S/ SIGNATURE James Lark Director, Fixed Income The views expressed in this letter reflect those of the portfolio manager through the end of the period covered by the report as stated on the cover. COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN FIXED INCOME FUND VS. LEHMAN AGGREGATE BOND INDEX - -------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN - -------------------------------------------------- INCEPTION 1 YEAR (1/15/93) - -------------------------------------------------- OFFERING PRICE(1) 3.49% 5.64% NAV(2) 8.62% 6.69% - -------------------------------------------------- [LINE GRAPH OMITTED] FUND(1) LEHMAN AGGREGATE FUND(2) 1/93 10,000 10,000 10,000 3/93 9,788 10,315 10,277 6/93 10,053 10,589 10,555 9/93 10,343 10,865 10,860 12/93 10,340 10,870 10,857 3/94 10,164 10,558 10,672 6/94 10,073 10,450 10,576 9/94 10,112 10,514 10,618 12/94 10,145 10,554 10,651 3/95 10,580 11,086 11,108 6/95 11,218 11,761 11,778 9/95 11,374 11,993 11,941 12/95 11,842 12,504 12,433 3/96 11,548 12,281 12,123 6/96 11,579 12,351 12,158 9/96 11,768 12,578 12,356 12/96 12,093 12,956 12,698 3/97 11,995 12,883 12,595 6/97 12,419 13,356 13,040 9/97 12,795 13,801 13,435 12/97 13,136 14,206 13,793 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 4.75% (2) EXCLUDES THE MAXIMUM SALES CHARGE OF 4.75% THE ABOVE ILLUSTRATION COMPARES A $10,000 INVESTMENT IN THE FIXED INCOME FUND ON JANUARY 15, 1993 (DATE OF INCEPTION), TO A $10,000 INVESTMENT IN THE LEHMAN AGGREGATE BOND 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 LEHMAN AGGREGATE BOND INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL GOVERNMENT CORPORATE/MORTGAGE BOND MARKET PERFORMANCE AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. 2 NEW YORK TAX-FREE BOND FUND - -------------------------------------------------------------------------------- January 15, 1998 Dear Shareholder: During 1997, municipals underperformed taxables on a pretax total return basis. The one year total return on the Lehman Municipal Bond Index was 9.19%. By comparison, the Lehman Aggregate Bond Index posted a one year return of 9.65%. This reflected the fact that yields across the municipal yield curve declined by approximately 20-40 basis points while yields along the treasury curve declined by approximately 20-70 basis points. The Fund's total return for the year was 8.97%. The Fund slightly underperformed the average of Lipper's New York Municipal Debt Funds which stood at 8.99%. As of December 31, 1997, the Fund's duration which takes into account interim principal and income payments as well as maturity levels was 7.07 which represented a 10% longer duration positioning than the index and an overall constructive view of the fixed income markets. The average maturity of the Fund was 8.98 years. In terms of sector diversification, the largest sectors consisted of general obligations (22.7%), higher education (14.1%), and medical revenue (11.8%). Once again, the credit outlook continued to improve throughout the state. This was a strong reason why the New York market outperformed the national market as a whole for the year as measured by the returns of the Lehman New York State Exempt Index versus the Lehman Municipal Bond Index (9.84% versus 9.19%). Surpluses in the state's general fund led to an upgrade in the credit rating of the state by the credit agencies of both New York State general obligation debt as well as appropriation debt. Once again, New York City debt turned in strong performance as its economic condition continued to improve while the city recorded back to back years of surpluses. Going forward, the credit issue within the state will be whether the surplus will be spent in a prudent and fiscally conservative manner or whether the coming gubernatorial elections bring increased spending. In terms of New York City, the issue will be sustainability of record earnings in the financial services industry which is the source of approximately 25% of the City's revenue. Sincerely, /S/ SIGNATURE Jerry Samet Municipal Portfolio Manager The views expressed in this letter reflect those of the portfolio manager through the end of the period covered by the report as stated on the cover. 3 COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN NEW YORK TAX-FREE BOND FUND VS. LEHMAN MUNICIPAL BOND INDEX - -------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN - -------------------------------------------------------------- INCEPTION 1 YEAR 5 YEARS (3/21/89) - -------------------------------------------------------------- OFFERING PRICE(1) 3.80% 5.46% 7.24% NAV(2) 8.97% 6.50% 7.83% - -------------------------------------------------------------- [LINE GRAPH OMITTED] FUND(1) LEHMAN MUNI BOND INDEX FUND(2) 3/89 10,000 10,000 10,000 12/89 10,203 11,005 10,713 12/90 10,829 11,807 11,370 12/91 12,192 13,242 12,802 12/92 13,492 14,409 14,167 12/93 15,417 16,178 16,188 12/94 14,161 15,340 14,869 12/95 16,310 18,018 17,125 12/96 16,960 18,817 17,808 12/97 18,481 20,551 19,404 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 4.75% (2) EXCLUDES THE MAXIMUM SALES CHARGE OF 4.75% THE ABOVE ILLUSTRATION COMPARES A $10,000 INVESTMENT IN THE NEW YORK TAX-FREE BOND FUND ON MARCH 21, 1989 (DATE OF INCEPTION), TO A $10,000 INVESTMENT IN THE LEHMAN MUNICIPAL BOND 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 LEHMAN MUNICIPAL BOND INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL MUNICIPAL BOND MARKET PERFORMANCE AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES. 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 *Member of the Audit and Nominating Committees - -------------------------------------------------------------------------------- OFFICERS WALTER B. GRIMM PRESIDENT ERIC F. ALMQUIST SENIOR VICE PRESIDENT KAREN DOYLE VICE PRESIDENT CHARLES L. BOOTH VICE PRESIDENT THOMAS LINE TREASURER STEVEN R. HOWARD SECRETARY ALAINA V. METZ ASSISTANT SECRETARY ROBERT L. TUCH ASSISTANT SECRETARY 5 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 FIXED INCOME FUND
INTEREST MATURITY PRINCIPAL VALUE RATE DATE AMOUNT (NOTE 2) -------- -------- --------- ----------- CORPORATE BONDS (28.8%): AEROSPACE & DEFENSE EQUIPMENT (4.2%): Lockheed Martin Corp. (Guaranteed by Lockheed Martin Tactical Systems, Inc.) ................ 6.85% 5/15/01 $2,500,000 $ 2,539,865 ----------- BANKING (13.5%): ABN Amro Bank N.V. ........................................ 7.13 6/18/07 3,000,000 3,143,160 BankAmerica Corp. ......................................... 7.88 12/1/02 2,500,000 2,667,853 Provident Bank ............................................ 6.13 12/15/00 2,500,000 2,493,808 ----------- 8,304,821 ----------- ENTERTAINMENT (0.8%): Walt Disney Co., Series A ................................. 6.38 3/30/01 500,000 504,401 ----------- FINANCIAL SERVICES (7.0%): American Express Credit Corp. ............................. 6.13 6/15/00 2,000,000 2,003,850 Chase Manhattan Grantor Trust, Series 1996-A, Class A, ABS ........................................... 5.20 2/15/02 1,176,668 1,167,914 Travelers Property Casualty Corp. ......................... 7.75 4/15/26 1,000,000 1,095,898 ----------- 4,267,662 ----------- TELECOMMUNICATIONS (3.3%): Lucent Technologies, Inc. ................................. 6.90 7/15/01 2,000,000 2,046,630 ----------- Total Corporate Bonds (Cost - $17,289,662) ................................................... 17,663,379 ----------- CANADIAN GOVERNMENT AGENCY OBLIGATIONS (0.6%): Export Development Corp., Debenture ....................... 8.13 8/10/99 380,000 392,762 ----------- Total Canadian Government Agency Obligations (Cost - $409,218) ............................... 392,762 ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS (34.5%): Federal Home Loan Mortgage Corp., Pool #220019 ............ 7.75 1/1/02 100,036 102,640 Federal Home Loan Mortgage Corp., Debenture, (Called 1/23/98 @ 100) ................................. 6.71 1/23/01 5,000,000 5,003,790 Federal Home Loan Mortgage Corp., Gold Pool #D62926 ...................................... 6.50 8/1/25 2,665,653 2,633,999 Federal National Mortgage Association, Pool #250414 ....... 7.00 12/1/25 4,447,694 4,478,272 Federal National Mortgage Association, Pool #310001 ....... 6.00 9/1/00 1,362,648 1,355,249 Federal National Mortgage Association, Pool #343195 ....... 7.50 5/1/26 1,895,444 1,938,684 Federal National Mortgage Association, Pool #343812 ....... 7.50 5/1/26 437,246 447,221 Federal National Mortgage Association, Series 1993-104, Class C, REMIC ........................ 6.50 3/25/21 2,000,000 1,970,744 Government National Mortgage Association, Pool #356578 ........................................... 7.50 6/15/23 3,172,896 3,261,102 ----------- Total U.S. Government Agency Obligations (Cost - $20,598,260) ................................ 21,191,701 -----------
6 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED) FIXED INCOME FUND
SHARES OR INTEREST MATURITY PRINCIPAL VALUE RATE DATE AMOUNT (NOTE 2) -------- -------- --------- ----------- U.S. GOVERNMENT OBLIGATIONS (30.0%): U.S. TREASURY BONDS (13.1%): U.S. Treasury Bonds ......................................... 8.75% 8/15/20 $2,280,000 $ 3,040,239 U.S. Treasury Bonds ......................................... 7.88 2/15/21 1,000,000 1,227,813 U.S. Treasury Bonds ......................................... 6.63 2/15/27 3,500,000 3,798,596 ----------- 8,066,648 ----------- U.S. TREASURY NOTES (16.9%): U.S. Treasury Notes ......................................... 7.88 11/15/04 4,250,000 4,750,705 U.S. Treasury Notes ......................................... 6.88 5/15/06 1,000,000 1,070,313 U.S. Treasury Notes ......................................... 6.88 7/31/99 4,450,000 4,527,875 ----------- 10,348,893 ----------- Total U.S. Government Obligations (Cost - $17,382,898) ....................................... 18,415,541 ----------- MUNICIPAL OBLIGATIONS (3.4%): Oakland, California Pension Obligation, Subseries A (MBIA Insured) ............................... 6.91 12/15/07 2,000,000 2,096,668 ----------- Total Municipal Obligations (Cost - $2,000,000) .............................................. 2,096,668 ----------- OPEN END INVESTMENT COMPANIES (2.0%): Provident Institutional Temporary Investment Fund 1,232,000 1,232,000 ----------- Total Open-End Investment Companies (Cost - $1,232,000) ...................................... 1,232,000 ----------- TOTAL INVESTMENTS (99.3%) (Cost - $58,912,038)(a) ............................................ 60,992,051 ----------- OTHER ASSETS IN EXCESS OF LIABILITIES (0.7%) ................................................. 410,227 ----------- NET ASSETS (100.0%) .......................................................................... $61,402,278 =========== - --------------- (a) Represents cost for financial reporting purposes and federal income tax purposes and differs from value by net unrealized appreciation of securities as follows: Unrealized appreciation ...................................................................... $2,138,992 Unrealized depreciation ...................................................................... (58,979) ----------- Net unrealized appreciation .................................................................. $2,080,013 =========== ABS - Asset Backed Security MBIA - Municipal Bond Insurance Association REMIC - Real Estate Mortgage Investment Conduit
SEE NOTES TO FINANCIAL STATEMENTS. 7 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 NEW YORK TAX-FREE BOND FUND
INTEREST MATURITY PRINCIPAL VALUE RATE DATE AMOUNT (NOTE 2) -------- -------- --------- ----------- MUNICIPAL BONDS (104.4%): NEW YORK (101.8%): Albany County Airport Authority, Airport Revenue, AMT (FSA Insured), Callable 12/15/07 @ 102 ................... 5.50% 12/15/19 $ 750,000 $ 769,687 Bethlehem Central School District, GO (AMBAC Insured) .......................................... 7.10 11/1/07 200,000 245,250 Metropolitan Transportation Authority, Transportation Facilities Revenue, Series A (MBIA Insured), Callable 7/1/07 @ 101.5 .................................. 5.63 7/1/25 1,200,000 1,255,500 Monroe County Water Authority, Water Revenue** .............. 5.00 8/1/08 1,000,000 1,040,000 Monroe County, Series B, GO, Callable 6/1/98 @102 ..................................... 7.00 6/1/04 10,000 10,329 Monroe County, Series B, GO, Prerefunded 6/1/98 @102 .................................. 7.00 6/1/04 40,000 41,316 New York City, Series A, GO, Callable 8/15/01 @ 101.5 ................................. 7.75 8/15/04 125,000 140,625 New York City, Series A, GO, Callable 8/15/01 @ 101.5 ................................. 7.75 8/15/07 355,000 398,487 New York City, Series A, GO, Prerefunded 8/15/01 @ 101.5 .............................. 7.75 8/15/04 475,000 537,675 New York City, Series B, GO, ................................ 6.10 8/15/05 2,000,000 2,167,500 New York City, Series B, GO, (FGIC Insured)* ................ 4.15 10/1/20 900,000 900,000 New York City, Series B, GO, Callable 2/1/02 @ 101.5 .................................. 7.50 2/1/07 1,000,000 1,121,250 New York City, Series E, GO, ................................ 6.50 2/15/06 2,000,000 2,225,000 New York City, Series F, GO, Callable 11/15/01 @ 101.5 ................................ 8.40 11/15/05 45,000 51,806 New York City, Series F, GO, Prerefunded 11/15/01 @ 101.5 ............................. 8.40 11/15/05 105,000 122,325 New York City, Series G, GO, ................................ 6.75 2/1/09 1,000,000 1,142,500 New York City, Sub-Series B-4, GO, (LOC Union Bank of Switzerland)* ......................... 4.15 8/15/21 1,000,000 1,000,000 New York City, Municipal Water Finance Authority, Water & Sewer System Revenue, Series A, Callable 6/15/06 @ 101 ................................... 5.50 6/15/24 1,800,000 1,854,000 New York City, Transitional Finance Authority, Future Tax Secured, Series A, Callable 8/15/07 @ 101 ................................... 5.00 8/15/17 1,800,000 1,795,500 New York City, Trust for Cultural Resources, Museum of Modern Art (AMBAC Insured) Prerefunded 1/1/02 @ 102 ................................. 6.40 1/1/04 350,000 384,125 New York State, Dormitory Authority, City University System Revenue, Series A (FGIC-TCRS Insured) ............. 5.75 7/1/18 2,370,000 2,612,925 New York State, Dormitory Authority, State Service Contract, Albany County** .................. 5.50 4/1/08 1,000,000 1,042,500 New York State, Dormitory Authority, State University Educational Facilities Revenue, Series A ................. 5.88 5/15/11 1,500,000 1,651,875
8 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED) NEW YORK TAX-FREE BOND FUND
INTEREST MATURITY PRINCIPAL VALUE RATE DATE AMOUNT (NOTE 2) -------- -------- --------- ----------- MUNICIPAL BONDS (CONTINUED) New York State, Energy, Research & Development Authority, Pollution Control Revenue, Niagara Mohawk Power Corp. Project, AMT (LOC - Morgan Guaranty Trust)* ......................................... 4.55% 12/1/23 $1,500,000 $ 1,500,000 New York State, Environmental Facilities Corp., Pollution Control Revenue, State Water, Series A, Prerefunded 6/15/01 @ 102 ................................ 7.00 6/15/12 150,000 166,500 New York State, Environmental Facilities Corp., Pollution Control Revenue, State Water, Series A, Callable 6/15/01 @ 102 ................................... 7.00 6/15/12 150,000 165,937 New York State, Environmental Facilities Corp., Pollution Control Revenue, State Water, Series B, Callable 3/15/99 @ 102 ................................... 7.50 3/15/11 250,000 265,313 New York State, Environmental Facilities Corp., Pollution Control Revenue, State Water, Series C, Callable 3/15/00 @ 102 ................................... 7.20 3/15/11 200,000 216,500 New York State, Housing Finance Agency, Multifamily Mortgage Housing Revenue, Series A (FHA Insured) Callable 8/15/02 @ 102 ................................... 7.00 8/15/22 900,000 968,625 New York State, Medical Care Facilities Finance Agency, Adult Day Care Facility, Series A (SONYMA Insured) Callable 11/15/05 @ 102 .................................. 6.38 11/15/20 1,990,000 2,181,538 New York State, Medical Care Facilities Finance Agency, Mental Health Services, Series F ......................... 6.00 8/15/03 1,900,000 2,049,625 New York State, Medical Care Facilities Finance Agency, Series A (FSA Insured) Callable 2/15/98 @ 102 ............ 7.70 2/15/18 80,000 81,917 New York State, Medical Care Facilities Finance Agency, Series A (FSA Insured) Prerefunded 2/15/98 @ 102 ......... 7.70 2/15/18 35,000 35,848 New York State, Power Authority & General Purpose Revenue (MBIA Insured) Callable 1/1/03 @ 102 ............. 5.00 1/1/14 1,550,000 1,544,188 New York State, Urban Development Corp., Senior Lien, Corporate Purpose, Callable 7/1/06 @ 102 ................. 5.50 7/1/16 2,000,000 2,080,000 Niagara Frontier Transportation Authority, Greater Buffalo International Airport Revenue, Series A, AMT (AMBAC Insured) Callable 4/1/04 @ 102 .................... 6.13 4/1/14 2,400,000 2,589,000 Port Authority of New York & New Jersey, Series 109 (FSA Insured) Callable 1/15/07 @ 101 ..................... 5.38 7/15/27 1,000,000 1,017,500 Syracuse, GO, Prerefunded 2/15/01 @ 102 ..................... 6.70 2/15/07 300,000 327,750 Triborough Bridge & Tunnel Authority, General Purpose Revenue, Series A, GO, Callable 1/1/07 @ 101 ............. 5.25 1/1/28 500,000 500,625 ----------- 38,201,041 ----------- PUERTO RICO (2.6%): Puerto Rico Commonwealth, Infrastructure Financing Authority, Series A (AMBAC Insured), Callable 1/1/08 @ 101 .................................... 5.00 7/1/21 1,000,000 986,250 ----------- Total Municipal Bonds (Cost - $36,665,216) ................................................... 39,187,291 -----------
9 SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED) NEW YORK TAX-FREE BOND FUND
VALUE SHARES (NOTE 2) --------- ----------- OPEN-END INVESTMENT COMPANIES (0.1%): New York Money Fund .............................................................. 39,000 $ 39,000 ----------- Total Open-End Investment Companies (Cost - $39,000) ........................................ 39,000 ----------- TOTAL INVESTMENTS (104.5%) (Cost - $36,704,216)(a) ...................................................................... 39,226,291 ----------- LIABILITIES IN EXCESS OF OTHERASSETS (-4.5%) ................................................. (1,702,317) ----------- NET ASSETS (100.0%) .......................................................................... $37,523,974 =========== - ------------------ (a) Represents cost for financial reporting purposes and federal income tax purposes and differs from value by net unrealized appreciation of securities as follows: Unrealized appreciation ...................................................................... $2,522,075 Unrealized depreciation ...................................................................... -0- ----------- Net unrealized appreciation .................................................................. $2,522,075 =========== * Variable rate security. Rate presented represents rate in effect at December 31, 1997. ** Security purchased on a delayed delivery basis. AMBAC - American Municipal Bond Assurance Corp. AMT - Alternative Minimum Taxable Paper FGIC - Financial Guaranty Insurance Corp. FHA - Federal Housing Administration FSA - Financial Security Assurance GO - General Obligation LOC - Letter of Credit MBIA - Municipal Bond Insurance Association SONYMA - State of New York Mortgage Agency TCRS - Transferable Custodial Receipts
SEE NOTES TO FINANCIAL STATEMENTS. 10 STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1997
FIXED NEW YORK INCOME TAX-FREE FUND BOND FUND ------------ ----------- ASSETS: Investments in securities, at value (cost $58,912,038, and $36,704,216, respectively) ............................................................ $60,992,051 $39,226,291 Cash ....................................................................... 877 856 Interest and dividends receivable .......................................... 786,393 633,483 Prepaid expenses ........................................................... 14,016 11,376 ----------- ----------- Total Assets .................................................................. 61,793,337 39,872,006 ----------- ----------- LIABILITIES: Dividends payable .......................................................... 296,064 144,564 Payable for investment securities purchased ................................ 3,571 2,072,730 Payable for capital shares redeemed ........................................ -- 40,110 Accrued expenses and other payables: Investment advisory fees ................................................. 28,594 8,126 Administration fees ...................................................... 5,338 3,306 Distribution fees ........................................................ -- 10,824 Custodian fees ........................................................... 3,660 2,757 Legal and audit fees ..................................................... 23,390 14,637 Fund accounting and transfer agent fees .................................. 9,223 15,477 Deferred trustees fees payable ........................................... 11,506 20,890 Other .................................................................... 9,713 14,611 ----------- ----------- Total Liabilities ............................................................. 391,059 2,348,032 ----------- ----------- Net Assets .................................................................... $61,402,278 $37,523,974 =========== =========== COMPUTATION OF NET ASSET VALUE: Net assets ................................................................. $61,402,278 $37,523,974 Shares of beneficial interest issued and outstanding ($0.001 par value per share, unlimited number of shares authorized) ...... 6,067,976 3,269,573 ----------- ----------- Net asset value ............................................................ $ 10.12 $ 11.48 Maximum sales charge ....................................................... 4.75% 4.75% Maximum offering price (Net Asset Value / (100% - Maximum Sales Charge)) ........................ $ 10.62 $ 12.05 =========== =========== COMPOSITION OF NET ASSETS: Paid-in Capital ............................................................ $62,304,706 $36,299,018 Accumulated undistributed net investment income ............................ 14,033 -- Accumulated undistributed net realized losses from investment transactions ...................................... (2,996,474) (1,297,119) Net unrealized appreciation from investments ............................... 2,080,013 2,522,075 ----------- ----------- Net Assets, December 31, 1997 ................................................. $61,402,278 $37,523,974 =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS. 11 STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
FIXED NEW YORK INCOME TAX-FREE FUND BOND FUND ------------ ------------ INVESTMENT INCOME: Interest ....................................................................... $4,290,851 $2,219,042 Dividends ...................................................................... 141,530 29,715 ---------- ---------- Total Income ...................................................................... 4,432,381 2,248,757 ---------- ---------- EXPENSES: Advisory fees .................................................................. 354,982 177,118 Administration fees ............................................................ 96,813 59,039 Co-administration and shareholder servicing fees ............................... 45,179 27,551 Distribution fees .............................................................. -- 69,731 Organizational costs ........................................................... 11,704 -- Audit fees ..................................................................... 6,579 8,426 Fund accounting fees ........................................................... 4,194 5,209 Transfer agent fees ............................................................ 37,587 92,884 Custodian fees ................................................................. 9,647 5,586 Printing costs ................................................................. 28,819 17,050 Registration fees .............................................................. 5,607 1,041 Legal fees ..................................................................... 23,210 15,285 Trustee fees ................................................................... 5,459 3,671 Other expenses ................................................................. 13,815 7,136 ---------- ---------- Gross Expenses .................................................................... 643,595 489,727 Less: Fee waivers .............................................................. (77,515) (125,990) ---------- ---------- Net Expenses ...................................................................... 566,080 363,737 ---------- ---------- Net Investment Income ............................................................. 3,866,301 1,885,020 ---------- ---------- REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS: Net realized gains / (losses) from investment transactions ..................... (421,712) 613,728 Net change in unrealized appreciation from investments ......................... 1,841,223 850,123 ---------- ---------- Net realized and unrealized gains from investments ................................ 1,419,511 1,463,851 ---------- ---------- Net Increase in Net Assets Resulting from Operations .............................. $5,285,812 $3,348,871 ========== ==========
SEE NOTES TO FINANCIAL STATEMENTS. 12 STATEMENTS OF CHANGES IN NET ASSETS
FIXED INCOME FUND NEW YORK TAX-FREE BOND FUND ------------------------------------ ------------------------------------ FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1996 ----------------- ----------------- ----------------- ----------------- From Investment Activities: OPERATIONS: Net investment income ....................... $ 3,866,301 $ 6,073,106 $ 1,885,020 $ 2,257,044 Net realized gains (losses) from investment transactions .............................. (421,712) (1,449,259) 613,728 1,168,816 Net change in unrealized appreciation (depreciation) from investments ........... 1,841,223 (2,191,530) 850,123 (1,819,652) ------------ ------------ ----------- ------------ Change in net assets resulting from operations .................................. 5,285,812 2,432,317 3,348,871 1,606,208 ------------ ------------ ----------- ------------ DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: From net investment income .................. (3,866,301) (6,073,106) (1,885,020) (2,257,044) In excess of net investment income .......... -- (1,496) -- -- ------------ ------------ ----------- ------------ Change in net assets from shareholder distributions ................. (3,866,301) (6,074,602) (1,885,020) (2,257,044) ------------ ------------ ----------- ------------ CAPITAL TRANSACTIONS: Proceeds from shares issued ................. 10,843,888 35,631,687 2,112,149 1,426,786 Dividends reinvested ........................ 68,234 76,121 1,114,438 1,243,334 Cost of shares redeemed ..................... (55,804,404) (27,132,519) (9,141,149) (10,721,363) ------------ ------------ ----------- ------------ Change in net assets from capital transactions ................................ (44,892,282) 8,575,289 (5,914,562) (8,051,243) ------------ ------------ ----------- ------------ Change in net assets ........................... (43,472,771) 4,933,004 (4,450,711) (8,702,079) ------------ ------------ ----------- ------------ NET ASSETS: Beginning of year ........................... 104,875,049 99,942,045 41,974,685 50,676,764 ------------ ------------ ----------- ------------ End of year ................................. $ 61,402,278 $104,875,049 $37,523,974 $ 41,974,685 ============ ============ =========== ============ Accumulated net investment income included in net assets, end of year ......... $ 14,033 $ 10,321 $ 0 $ 0 ------------ ------------ ----------- ------------ SHARE TRANSACTIONS: Issued ...................................... 1,101,997 3,608,906 188,254 130,184 Reinvested .................................. 6,909 7,721 100,156 114,042 Redeemed .................................... (5,649,518) (2,726,104) (818,395) (983,166) ------------ ------------ ----------- ------------ Change in shares ............................... (4,540,612) 890,523 (529,985) (738,940) ============ ============ =========== ============
SEE NOTES TO FINANCIAL STATEMENTS. 13 NOTES TO FINANCIAL STATEMENTS 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 Fixed Income Fund and the New York Tax-Free Bond Fund (herein referred to individually as a "Fund" and collectively as the "Funds"). The investment objective of the Fixed Income Fund is generation of high current income consistent with appreciation of capital. The investment objective of the New York Tax-Free Bond Fund is to provide its investors with as high a level of current income exempt from federal, New York State and New York City income taxes as is consistent with relative stability of capital. Economic changes affecting the state and certain of its public bodies and municipalities may affect the ability of issuers within the state to pay interest on, or repay principal of, municipal obligations held by the Fund. 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: Portfolio securities for which market quotations are readily available are valued at the quoted bid price. Securities for which market quotations are not readily available are valued at fair value as determined in good faith by or under the supervision of the Trust's officers in accordance with guidelines which have been adopted by the Board of Trustees. Such procedures include the use of independent pricing services which use prices based on yields or prices of securities of comparable quality, coupon, maturity and type, indicators as to value from dealers and general market conditions. 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 their taxable income and net realized capital gains to their shareholders for each taxable year. Therefore, no provision is required for federal income tax. At December 31, 1997, the Fixed Income Fund had available $2,888,261 of capital loss carryforwards which, if not utilized, $1,082,278, $1,442,234 and $363,749 will expire in the years 2003, 2004 and 2005, respectively. At December 31, 1997, the New York Tax-Free Bond Fund had available $1,297,119 of capital loss carryforwards which, if not utilized, $647,384, $644,055 and $5,680 will expire in the years 2002, 2003 and 2005, respectively. 14 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Capital losses incurred after October 31 for the Funds are deemed to arise on the first business day of the following fiscal year for tax purposes. The Fixed Income Fund has incurred and will elect to defer such capital losses of $108,213 after October 31, 1997. DIVIDENDS AND DISTRIBUTIONS: The Funds intend to declare as a dividend substantially all of their net investment income at the end of each business day and to pay within five business days after the end of each month. 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 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. As of December 31, 1997, the following reclassifications have been made to increase (decrease) the indicated accounts with offsetting adjustments made to paid-in-capital:
ACCUMULATED NET REALIZED GAINS ACCUMULATED NET INVESTMENT INCOME (LOSSES) ON INVESTMENTS --------------------------------- ------------------------------ Fixed Income Fund ............... $3,712 ($3,712)
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. Interest income, including amortization of discount and premium, 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 are being amortized on a straight-line basis over a five-year period from the date operations commenced. 3. PORTFOLIO SECURITIES Purchases and sales of securities (excluding short-term securities) for the year ended December 31, 1997 were as follows:
PURCHASES SALES ----------- ----------- Fixed Income Fund ..................................... $33,257,790 $38,261,580 New York Tax-Free Bond Fund ........................... $13,252,157 $20,081,760
15 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 investment portfolios of the Funds, subject to policies established by the Board of Trustees. As compensation for its services, HSBC Asset Management Americas Inc. is paid monthly advisory fees at the following annual rates:
ADVISORY FEE RATE ----------------- FIXED INCOME PORTIONS OF THE FUND'S AVERAGE DAILY NET ASSETS FUND ------------------------------------------------------------ ----------------- Up to $400 million ......................................... 0.550% In excess of $400 million but not exceeding $800 million ... 0.505% In excess of $800 million but not exceeding $1.2 billion ... 0.460% In excess of $1.2 billion but not exceeding $1.6 billion ... 0.415% In excess of $1.6 billion but not exceeding $2.0 billion ... 0.370% In excess of $2.0 billion .................................. 0.315%
ADVISORY FEE RATE ----------------- NEW YORK TAX-FREE BOND PORTIONS OF THE FUND'S AVERAGE DAILY NET ASSETS FUND ------------------------------------------------------------ ----------------- Up to $300 million ......................................... 0.450% In excess of $300 million but not exceeding $600 million ... 0.420% In excess of $600 million but not exceeding $1.0 billion ... 0.385% In excess of $1.0 billion but not exceeding $1.5 billion ... 0.350% In excess of $1.5 billion but not exceeding $2.0 billion ... 0.315% In excess of $2.0 billion .................................. 0.280%
For the year ended December 31, 1997, HSBC Asset Management Americas Inc. earned advisory fees of $354,982 from the Fixed Income Fund and $98,398 from the New York Tax-Free Bond Fund, net of fee waivers of $0 and $78,720, respectively. 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. 16 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. RELATED PARTY TRANSACTIONS (CONTINUED) In accordance with the terms of the Management and Administration Agreement and the Fund Accounting Agreement, BISYS is paid a monthly asset-based fee of 0.15% (annualized) of the 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 year ended December 31, 1997, BISYS earned administrative services fees of $64,477 from the Fixed Income Fund, and $39,320 from the New York Tax-Free Bond Fund, net of fee waivers of $32,336 and $19,719, respectively. HSBC Asset Management Americas Inc. is paid a co-administration/shareholder servicer assistance fee of 0.07% of each Fund's average daily net assets. For the year ended December 31, 1997, HSBC Asset Management Americas Inc. waived all of their co-administration/shareholder servicer assistance fees. These waivers totaled $45,179 for the Fixed Income Fund and $27,551 for the New York Tax-Free 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 Fund to BISYS Fund Services for expenses incurred in connection with distribution services provided to the Fund not to exceed an annual rate of 0.35% of each Fund's average net assets during the preceding month. The expenses incurred as a result of these agreements totaled $0 from the Fixed Income Fund and $69,731 from the New York Tax-Free Bond Fund. As distributor, BISYS is entitled to receive commissions on sales of shares of the variable net asset value funds. For the year ended December 31, 1997, BISYS received $32,109 from commissions earned on sales of shares of the Fund, $27,415 of which was reallowed to affiliated broker/dealers of the Funds. 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 the Funds' shares held in the subaccounts of the Service Organizations. During the year ended December 31, 1997, the Funds did not enter into any service agreements. A partner of Baker & McKenzie, legal counsel to the Trust, serves as Secretary of the Trust. For the year ended December 31, 1997 the Funds incurred legal fees of $23,210 for the Fixed Income Fund, and $15,285 for the New York Tax-Free Bond Fund. 5. CONCENTRATION OF CREDIT The New York Tax-Free Bond Fund invests primarily in debt obligations issued by the State of New York and its respective political subdivisions, agencies and public authorities to obtain funds for various public purposes. The Fund is more susceptible to economic and political factors adversely affecting issuers of New York specific municipal securities than is a municipal bond fund that is not concentrated in these issuers to the same extent. 6. FEDERAL INCOME TAX INFORMATION (UNAUDITED) During the year ended December 31, 1997, the New York Tax-Free Bond Fund declared tax-exempt income distributions of $1,864,367. 17 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR FIXED INCOME FUND
FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD ----------------------------------------- ---------------------- JANUARY 15, 1993(A) TO 1997 1996 1995 1994 DECEMBER 31, 1993 ------- ------- ------- ------- ---------------------- Net Asset Value, Beginning of Period .............. $ 9.89 $10.28 $ 9.35 $10.13 $ 10.00 ------- ------ ------- ------ ------- Investment Activities Net investment income ........................ 0.59 0.59 0.59 0.59 0.63 Net realized and unrealized gains (losses) from investments ................. 0.23 (0.39) 0.93 (0.78) 0.21 ------- ------ ------- ------ ------- Total from Investment Activities ............. 0.82 0.20 1.52 (0.19) 0.84 ------- ------ ------- ------ ------- Distributions From net investment income ................... (0.59) (0.59) (0.59) (0.59) (0.63) From net realized gains ...................... -- -- -- -- (0.08) ------- ------ ------- ------ ------- Total Distributions .......................... (0.59) (0.59) (0.59) (0.59) (0.71) ------- ------ ------- ------ ------- Net Asset Value, End of Period .................... $ 10.12 $ 9.89 $ 10.28 $ 9.35 $ 10.13 ======= ====== ======= ====== ======= Total Return(b) ................................... 8.62% 2.11% 16.73% (1.89)% 8.57%(d) Ratios/Supplemental Data: Net Assets at end of period (000) ............ $61,402 $104,875 $99,942 $84,774 $90,907 Ratio of expenses to average net assets ...... 0.88% 0.88% 0.93% 0.77% 0.22%(c) Ratio of net investment income to average net assets ........................ 6.00% 5.94% 6.03% 6.10% 6.40%(c) Ratio of expenses to average net assets* ..... 1.00% 0.98% 0.96% 0.86% 0.87%(c) Ratio of net investment income to average net assets* ....................... 5.88% 5.84% 6.00% 6.01% 5.75%(c) Portfolio Turnover Rate ...................... 60.98% 156.05% 41.58% 63.96% 107.34%(d) - ------------ * During the period, certain fees were voluntarily reduced and/or reimbursed. If such voluntary fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated. (a) Commencement of operations. (b) Excludes sales charge. (c) Annualized. (d) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS. 18 FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR NEW YORK TAX-FREE BOND FUND
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------- 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- Net Asset Value, Beginning of Year ............................. $ 11.05 $ 11.17 $ 10.20 $ 11.70 $ 11.01 ------- ------- ------- ------- ------- Investment Activities Net investment income ..................................... 0.53 0.55 0.54 0.53 0.59 Net realized and unrealized gains (losses) from investments ....................................... 0.43 (0.12) 0.97 (1.47) 0.95 ------- ------- ------- ------- ------- Total from Investment Activities .......................... 0.96 0.43 1.51 (0.94) 1.54 ------- ------- ------- ------- ------- Distributions From net investment income ................................ (0.53) (0.55) (0.54) (0.53) (0.59) From net realized gains ................................... -- -- -- (0.03) (0.26) ------- ------- ------- ------- ------- Total distributions ....................................... (0.53) (0.55) (0.54) (0.56) (0.85) ------- ------- ------- ------- ------- Net Asset Value, End of Year ................................... $ 11.48 $ 11.05 $ 11.17 $ 10.20 $ 11.70 ======= ======= ======= ======= ======= Total Return(a) ................................................ 8.97% 3.99% 15.17% (8.13)% 14.27% Ratios/Supplemental Data: Net Assets at end of year (000) ........................... $37,524 $41,975 $50,677 $50,711 $61,740 Ratio of expenses to average net assets ............................................. 0.92% 0.91% 0.99% 0.84% 0.63% Ratio of net investment income to average net assets .................................. 4.79% 5.02% 5.07% 4.93% 4.98% Ratio of expenses to average net assets* ............................................ 1.24% 1.21% 1.20% 1.10% 1.06% Ratio of net investment income to average net assets* .................................... 4.47% 4.72% 4.86% 4.67% 4.55% Portfolio Turnover Rate ................................... 35.64% 87.40% 24.43% 122.43% 70.36% - ------------ * During the year, certain fees were voluntarily reduced and/or reimbursed. If such voluntary fee reductions and/or reimbursements had not occurred, the ratios would have been as indicated. (a) Excludes sales charge.
SEE NOTES TO FINANCIAL STATEMENTS. 19 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Trustees HSBC Mutual Funds Trust We have audited the accompanying statements of assets and liabilities, including the schedules of portfolio investments, of the Fixed Income Fund and the New York Tax-Free Bond Fund (two of the portfolios comprising HSBC Mutual Funds Trust) as of December 31, 1997, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights.Our procedures included confirmation of securities owned as of December 31, 1997, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fixed Income Fund and the New York Tax-Free Bond Fund at December 31, 1997, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and their financial highlights for each of the indicated periods, in conformity with generally accepted accounting principles. /S/ ERNEST & YOUNG LLP New York, New York February 13, 1998 20 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] 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 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. Shares of the Funds 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. 2/98 -----END PRIVACY-ENHANCED MESSAGE-----