-----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, JI4fTSx3HO/HlxJve0GKhJOXnxuINlgsc6gt4sqXQ7o6rgoKHrmDyJwp/PUeJIzi 42mbQbzADi8sfnjfmQsWHA== 0000930413-07-000147.txt : 20070108 0000930413-07-000147.hdr.sgml : 20070108 20070108134922 ACCESSION NUMBER: 0000930413-07-000147 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20061031 FILED AS OF DATE: 20070108 DATE AS OF CHANGE: 20070108 EFFECTIVENESS DATE: 20070108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HSBC INVESTOR PORTFOLIOS CENTRAL INDEX KEY: 0000934882 IRS NUMBER: 000000000 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-08928 FILM NUMBER: 07516989 BUSINESS ADDRESS: STREET 1: C/O BISYS FUND SERVICES (IRELAND) LIMITE STREET 2: BROOKLAWN HOUSE, CRAMPTON AVE/SHELBOURNE CITY: BALLSBRIDGE, DUBLIN4 STATE: L2 ZIP: 00000 BUSINESS PHONE: (617) 470-8000 MAIL ADDRESS: STREET 1: C/O BISYS FUND SERVICES (IRELAND) LIMITE STREET 2: BROOKLAWN HOUSE, CRAMPTON AVE/SHELBOURNE CITY: BALLSBRIDGE, DUBLIN4 STATE: L2 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: REPUBLIC PORTFOLIOS DATE OF NAME CHANGE: 19950104 0000934882 S000009274 Core Plus Fixed Income Portfolio C000025336 Master Portfolio 0000934882 S000009275 International Equity Portfolio C000025337 Master Porfolio 0000934882 S000009276 Intermediate Duration Fixed Income Portfolio C000025338 Master Portfolio 0000934882 S000009277 Small Cap Equity Portfolio C000025339 Master Portfolio 0000934882 S000009296 Value Portfolio C000025370 Master Portfolio 0000934882 S000009297 Growth Portfolio C000025371 Master Portfolio 0000934882 S000010132 High Yield Fixed Income Portfolio C000028129 Master Portfolio N-CSR 1 c44850_ncsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-08928 HSBC INVESTOR PORTFOLIOS (Exact name of registrant as specified in charter) 452 FIFTH AVENUE NEW YORK, NY 10018 (Address of principal executive offices) (Zip code) BISYS FUND SERVICES 3435 STELZER ROAD COLUMBUS, OH 43219 (Name and address of agent for service) Registrant's telephone number, including area code: 1-800-782-8183 Date of fiscal year end: October 31, 2006 Date of reporting period: October 31, 2006 ITEM 1. REPORTS TO STOCKHOLDERS. Annual Report HSBC Investor LIFELine Funds(TM) OCTOBER 31, 2006 HSBC INVESTOR AGGRESSIVE GROWTH STRATEGY FUND LIFELine HSBC INVESTOR GROWTH STRATEGY FUND It's simple. HSBC INVESTOR MODERATE It's easy. GROWTH STRATEGY FUND It's affordable. HSBC INVESTOR CONSERVATIVE GROWTH STRATEGY FUND HSBC INVESTOR CONSERVATIVE INCOME STRATEGY FUND HSBC INVESTOR LIFELINE FUNDS [HSBC LOGO] - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS ANNUAL REPORT - OCTOBER 31, 2006 Chairman's Message ...................................................... 1 Commentary From the Investment Manager .................................. 2 Portfolio Reviews ....................................................... 3 Statements of Assets and Liabilities .................................... 20 Statements of Operations ................................................ 21 Statements of Changes in Net Assets ..................................... 22 Financial Highlights .................................................... 28 Notes to Financial Statements ........................................... 33 Report of Independent Registered Public Accounting Firm ................. 40 Other Federal Income Tax Information .................................... 41 Table of Shareholder Expenses ........................................... 42 HSBC INVESTOR PORTFOLIOS Schedules of Portfolio Investments HSBC Investor Core Plus Fixed Income Portfolio ....................... 44 HSBC Investor High Yield Fixed Income Portfolio ...................... 48 HSBC Investor Intermediate Duration Fixed Income Portfolio ........... 51 HSBC Investor Growth Portfolio ....................................... 54 HSBC Investor International Equity Portfolio ......................... 55 HSBC Investor Small Cap Equity Portfolio ............................. 58 HSBC Investor Value Portfolio ........................................ 59 Statements of Assets and Liabilities .................................... 60 Statements of Operations ................................................ 62 Statements of Changes in Net Assets ..................................... 64 Financial Highlights .................................................... 68 Notes to Financial Statements ........................................... 69 Report of Independent Registered Public Accounting Firm ................. 77 Table of Shareholder Expenses ........................................... 78 Board of Trustees ....................................................... 80 - -------------------------------------------------------------------------------- CHAIRMAN'S MESSAGE - -------------------------------------------------------------------------------- DEAR FELLOW SHAREHOLDERS: In the world of investing, one of the keys to success is finding experienced professionals who are dedicated to the interests of shareholders. To achieve positive results, HSBC Investor Funds embrace the "multi-manager" process for each of their equity funds. These equity funds engage HSBC Investments as advisor to help select sub-advisors who have expertise in specific asset classes of the investment universe. The fixed income and money market funds are managed by HSBC Investments. The Board monitors the results of HSBC Investments and each of the sub-advisors in a variety of ways. The board reviews the investment results of each fund at their quarterly meetings. Importantly, at most quarterly meetings, selected sub-advisors are invited to discuss their investing philosophy, their decision-making process and, of course, their performance. The Board is especially interested in how these sub-advisors monitor their own internal systems and how they communicate with HSBC Investments. The sub-advisors must also establish a code of ethics that complies with SEC regulations. This "hands-on" approach enables the Board to ask probing questions and to hold the Advisor and sub-advisors accountable. The Advisor and sub-advisors appreciate the opportunity to make their case about how they perform for the shareholders. If performance clearly lags over a period of time, the sub-advisors are put on notice; and, if they do not improve, they are replaced. The mutual fund business is sometimes thought of as impersonal and market-driven. While, certainly, the fast pace of investing requires well-thought out and well-managed systems, it is important to understand that people manage money for people. In recognizing their responsibility to shareholders, the HSBC Investor Funds believe in open and personal communication. We encourage you to be part of this communication process. Please feel free to contact us with your observations and concerns. We appreciate the confidence you have shown by investing in the funds, and we want to make sure that your confidence is warranted. Sincerely, /s/ Larry M. Robbins Larry M. Robbins, Chairman, HSBC Investor Funds 1 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- COMMENTARY FROM THE INVESTMENT MANAGER - -------------------------------------------------------------------------------- HSBC INVESTMENTS (USA) INC. U.S. ECONOMIC REVIEW Economic growth moderated during the 12-month period between November 1, 2005 and October 31, 2006, as a slowing housing market and higher interest rates and energy prices combined to restrain the economy. The aftereffects of hurricanes Katrina, Wilma and Rita slowed economic growth during the final months of 2005. The economy rebounded powerfully during the first calendar quarter of 2006, however. Gross domestic product grew by an annualized rate of 5.8% between January and March, due to strong corporate spending and a warm winter, which boosted housing construction. Economic growth subsequently cooled. The once-booming housing market fell sharply, removing what had been the economy's primary source of strength during recent years. High energy costs also weighed on the economy. Oil prices, which hovered around $10 a barrel as recently as 1999, climbed past $70 a barrel in the spring as strong global demand and concerns about supply disruptions fueled speculation. Signs emerged during spring that the high cost of oil and other commodities had begun to push up inflation. The increase in inflation came despite a two-year campaign by the Federal Reserve to forestall rapid price escalation by raising short-term interest rates. All told, the Fed increased its target Federal Funds rate 17 times between June, 2004 and June, 2006, bringing the rate from 1.00% to 5.25%. The persistence of inflationary pressures led to concerns that the Fed, under the guidance of new chairman Ben Bernanke, might raise interest rates far enough to choke off economic growth. More-benign economic and inflationary data emerged during summer, however. Energy prices receded, due to strong levels of oil and gas supplies. The price of a barrel of crude oil fell from more than $78 in July to less than $60 in early fall. Meanwhile the weakening housing market contributed to slower economic growth, productivity remained solid and wage growth stagnated. Those developments removed much of the inflationary pressure on the economy, allowing the Federal Reserve to leave interest rates unchanged at its meetings in August, September and October. The U.S. economy grew at an annualized rate of 1.6% during the third calendar quarter of 2006. MARKET REVIEW Stocks posted strong returns for the 12 months through October. The S&P 500(1) gained 16.33%, while the Russell 2000 Index(1) of small-company stocks gained 19.98% and the MSCI EAFE Index(1) of foreign stocks gained 28.04%. The corporate sector was very healthy during this fiscal year. Corporations enjoyed strong balance sheets, including large cash holdings, and generated powerful profit and cash-flow growth. Many companies used their strong positions to engage in shareholder-friendly activities such as mergers and acquisitions, share repurchases and dividend increases. Market leadership showed signs of shifting during this period. Relatively volatile shares of small caps and foreign stocks had led the bull market that began in 2002, while energy and materials stocks soared in recent years on the strength of rising commodity prices. The dominance of those sections of the market continued during the first half of this period. Stocks experienced a correction between May and July, however, and the former market leaders fell the farthest. Shares of large, high-quality firms held up relatively well during the downturn, and continued to lead the market during the summer. Technology stocks, which had suffered generally poor returns since 2000, generated strong gains between July and October, as investors anticipating a slow-growing economy sought shares of firms that appeared poised to generate good earnings growth. Shares of smaller, weaker firms rallied again late in the period, due largely to investor optimism about the prospects for an interest-rate cut early in 2007. Lower gasoline prices also gave a boost to consumer-oriented stocks late in the fiscal year, by freeing up consumers' income for discretionary spending. The S&P 500 hit its highest level in five and a half years in late September, and the Dow Jones Industrial Average in October passed 12,000 for the first time in its history. The stock market following the run-up between July and October appeared fully valued, potentially providing room for growth over the coming months but leaving little buffer to shield investors in case of negative developments in earnings, economic growth or interest rates (1) STANDARD & POOR'S 500 INDEX ("S&P 500") measures the performance of the stock market as a whole. RUSSELL 2000(R) INDEX measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. The companies which comprise this index have high price-to-book ratios and higher forecasted growth values. MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST ("MSCI EAFE") INDEX measures performance of a diverse range of developed countries in the indicated regions. HSBC INVESTOR FAMILY OF FUNDS 2 - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR AGGRESSIVE GROWTH STRATEGY FUND HSBC INVESTOR GROWTH STRATEGY FUND HSBC INVESTOR MODERATE GROWTH STRATEGY FUND HSBC INVESTOR CONSERVATIVE GROWTH STRATEGY FUND HSBC INVESTOR CONSERVATIVE INCOME STRATEGY FUND INVESTMENT CONCERNS Equity securities (stocks) are more volatile and carry more risk, than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of the Fund will fluctuate as the value of the securities in the portfolio changes. Common stocks, and funds investing in common stocks, generally provide greater return potential when compared with other types of investments. Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value. Small capitalization funds typically carry additional risks, since smaller companies generally have a higher risk of failure and historically have experienced a greater degree of market volatility than average. There are risks associated with investing in a fund that invests in securities of foreign countries, such as erratic market conditions, economic and political instabilities and fluctuations in currency exchanges. AN INVESTMENT IN MONEY MARKET FUNDS IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00. The HSBC Investor Funds feature a number of funds that are structured as "master/feeder" funds. Under this two-tier structure, one fund (the "feeder fund") invests all of its assets in a second fund (the "master fund"). The LifeLine Funds, through this master/feeder structure, provide an asset allocation option to investors who seek to diversify their investment across a variety of asset classes. Each LifeLine Fund provides an asset allocation option corresponding to different investment objectives and risk tolerances. Each LifeLine Fund is a feeder fund. However, unlike most feeder funds, a LifeLine Fund will not direct all of its assets to a single master fund. Instead, the LifeLine Fund will allocate its assets to different master funds in accordance with its asset allocation model. HSBC Investments (USA) Inc. (the "Adviser"), according to specific target allocations, invested each LifeLine Fund's assets in some or all of the following master funds ("underlying Portfolios"): HSBC Investor Growth Portfolio ("Growth Portfolio"); HSBC Investor Value Portfolio ("Value Portfolio"); HSBC Investor Small Cap Equity Portfolio ("Small Cap Equity Portfolio"); HSBC Investor International Equity Portfolio ("International Equity Portfolio"); HSBC Investor Core Plus Fixed Income Portfolio ("Core Plus Fixed Income Portfolio"); HSBC Investor High Yield Fixed Income Portfolio (High Yield Fixed Income Fund); HSBC Investor Intermediate Duration Fixed Income Portfolio ("Intermediate Duration Fixed Income Portfolio"); and the HSBC Investor Money Market Fund ("Money Market Fund"). 3 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- Effective April 28, 2006 the Lifeline Funds began investing in the HSBC Investor High Yield Fixed Income Portfolio. During the last fiscal year, each LifeLine Fund invested in a different combination of the underlying Portfolios according to the various target percentage weightings selected by the Adviser, approximately as set forth in the charts below.
HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR OCTOBER 31, 2006 AGGRESSIVE GROWTH GROWTH MODERATE GROWTH CONSERVATIVE GROWTH CONSERVATIVE INCOME REALLOCATION STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY UNDERLYING PORTFOLIO FUND FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------------ Money Market Fund 1% 1% 6% 21% 30% - ------------------------------------------------------------------------------------------------------------------------------------ Core Plus Fixed Income Portfolio None 15% 26% 25% 15% - ------------------------------------------------------------------------------------------------------------------------------------ High Yield Fixed Income Portfolio None 2% 5% 8% 10% - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Duration Fixed Income Portfolio None None None 3% 25% - ------------------------------------------------------------------------------------------------------------------------------------ Growth Portfolio 21% 21% 19% 15% 8% - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Portfolio 23% 20% 15% 10% 4% - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity Portfolio 34% 20% 11% 4% None - ------------------------------------------------------------------------------------------------------------------------------------ Value Portfolio 21% 21% 18% 14% 8% - ------------------------------------------------------------------------------------------------------------------------------------ Total: 100% 100% 100% 100% 100% ====================================================================================================================================
HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR PRE APRIL 28, 2006 AGGRESSIVE GROWTH GROWTH MODERATE GROWTH CONSERVATIVE GROWTH CONSERVATIVE INCOME REALLOCATION STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY UNDERLYING PORTFOLIO FUND FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------------ Money Market Fund 1% 1% 6% 20% 30% - ------------------------------------------------------------------------------------------------------------------------------------ Core Plus Fixed Income Portfolio None 17% 31% 20% 25% - ------------------------------------------------------------------------------------------------------------------------------------ Intermediate Duration Fixed Income Portfolio None None None 15% 25% - ------------------------------------------------------------------------------------------------------------------------------------ Growth Portfolio 21% 21% 19% 15% 8% - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Portfolio 23% 20% 15% 10% 4% - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Equity Portfolio 34% 20% 11% 5% None - ------------------------------------------------------------------------------------------------------------------------------------ Value Portfolio 21% 21% 18% 15% 8% - ------------------------------------------------------------------------------------------------------------------------------------ Total: 100% 100% 100% 100% 100% ====================================================================================================================================
HSBC INVESTOR FAMILY OF FUNDS 4 - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR AGGRESSIVE GROWTH STRATEGY FUND - -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH]
HSBC Investor Citigroup U.S. Aggressive Growth Domestic Three Strategy Fund Russell 1000(R) Russell 1000(R) Russell 2500(R) Month Treasury (B Shares)(2) Growth Index Value Index Growth Index MSCI EAFE Index Bill Index 2/9/05 10000 10000 10000 10000 10000 10000 9850 9922 10190 9917 10176 10039 10110 10167 10360 10270 10100 10108 10900 10575 10763 10916 11154 10188 12/31/05 11233 10889 10899 11213 11614 10282 12128 11226 11546 12539 12714 10387 11907 10788 11614 11771 12834 10507 12118 11213 12336 11629 13345 10638 10/31/06 12199 11607 12740 12202 13865 10682
- -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH] HSBC Investor Aggressive Growth Aggressive Strategy Fund Growth Blended (B Shares)(2) Portfolio Index(4) 2/9/05 10000 10000 9850 10036 10110 10232 10900 10868 12/31/05 11233 11172 12128 12075 11907 11765 12118 12078 10/31/06 12199 12561 The charts above represent a comparison of a hypothetical $10,000 investment in the indicated share classes versus a similar investment in the Funds' benchmark and represents the reinvestment of dividends and capital gains in the Funds.
- ----------------------------------------------------------------------------------------- FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%) - ----------------------------------------------------------------------------------------- INCEPTION 1 SINCE AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION - ----------------------------------------------------------------------------------------- HSBC Investor Aggressive Growth Strategy Fund Class A(1) 2/14/05 13.17 11.22 - ----------------------------------------------------------------------------------------- HSBC Investor Aggressive Growth Strategy Fund Class B(2) 2/9/05 14.25 12.23 - ----------------------------------------------------------------------------------------- HSBC Investor Aggressive Growth Strategy Fund Class C(3) 6/9/05 18.19 17.15 - ----------------------------------------------------------------------------------------- Aggressive Growth Blended Portfolio Index(4) 18.56 -- - -----------------------------------------------------------------------------------------
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. (1) REFLECTS THE MAXIMUM SALES CHARGE OF 5.00%. (2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 4.00%. (3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 1.00%. (4) THE AGGRESSIVE GROWTH BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY PERCENTAGE OF THE FOLLOWING INDICES. THE CITIGROUP U.S. DOMESTIC 3-MONTH T-BILL (1%); RUSSELL 1000(R) GROWTH INDEX (21%); RUSSELL 1000(R) VALUE INDEX (21%); RUSSELL 2500(R) GROWTH INDEX (34%) AND THE MSCI EAFE INDEX (23%). THE 90-DAY T-BILL IS GOVERNMENT GUARANTEED AND OFFERS A FIXED RATE OF RETURN. RETURN AND PRINCIPAL OF STOCKS AND BONDS WILL VARY WITH MARKET CONDITIONS. TREASURY BILLS ARE LESS VOLATILE THAN LONGER-TERM FIXED-INCOME SECURITIES AND ARE GUARANTEED AS TO TIMELY PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT. THE RUSSELL 1000(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHERFORECASTED GROWTH VALUES. THE RUSSELL 1000(R) VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH A LESS-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE LOW PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS, HIGHER DIVIDEND YIELDS, AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 2500(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE 2500 SECURITIES IN THE RUSSELL UNIVERSE WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED EQUITY INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX. 5 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR GROWTH STRATEGY FUND - -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH]
HSBC Investor Merrill Lynch Citigroup U.S. Growth Strategy High Yield Domestic Three Lehman Brothers Fund Russell 1000(R) Russell 1000(R) Russell 2500(R) MSCI EAFE Master II Month Treasury U.S. Aggregate (B Shares)(2) Growth Index Value Index Growth Index Index Index Bill Index Bond Index 2/1/05 10000 10000 10000 10000 10000 10000 10000 10000 10150 9922 10190 9917 10176 9866 10039 9890 10410 10167 10360 10270 10100 10124 10108 10188 11040 10575 10763 10916 11154 10217 10188 10119 12/31/05 11336 10889 10899 11213 11614 10284 10282 10179 12018 11226 11546 12539 12714 10579 10387 10114 11877 10788 11614 11771 12834 10600 10507 10105 12128 11213 12336 11629 13345 11030 10638 10490 10/31/06 12159 11607 12740 12202 13865 11191 10682 10559
- -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH] HSBC Investor Growth Strategy Growth Blended Fund (B Shares)(2) Portfolio Index(4) 2/1/05 10000 10000 10150 10025 10410 10224 11040 10725 12/31/05 11336 10982 12018 11643 11877 11439 12128 11825 10/31/06 12159 12217 The charts above represent a comparison of a hypothetical $10,000 investment in the indicated share classes versus a similar investment in the Funds' benchmark and represents the reinvestment of dividends and capital gains in the Funds.
- ----------------------------------------------------------------------------------------- FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%) - ----------------------------------------------------------------------------------------- INCEPTION 1 SINCE AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION - ----------------------------------------------------------------------------------------- HSBC Investor Growth Strategy Fund Class A(1) 2/8/05 10.63 10.34 - ----------------------------------------------------------------------------------------- HSBC Investor Growth Strategy Fund Class B(2) 2/1/05 11.57 11.85 - ----------------------------------------------------------------------------------------- HSBC Investor Growth Strategy Fund Class C(3) 4/27/05 14.61 15.95 - ----------------------------------------------------------------------------------------- Growth Blended Portfolio Index(4) 16.37 -- - -----------------------------------------------------------------------------------------
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. (1) REFLECTS THE MAXIMUM SALES CHARGE OF 5.00%. (2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 4.00%. (3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 1.00%. (4) THE GROWTH BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY PERCENTAGE OF THE FOLLOWING INDICES. THE CITIGROUP U.S. DOMESTIC 3-MONTH T-BILL (1%); MERRILL LYNCH HIGH YIELD MASTER II INDEX (2.0%); LEHMAN BROTHERS U.S. AGGREGATE BOND FUND INDEX (15%); RUSSELL 1000(R) GROWTH INDEX (21%); RUSSELL 1000(R) VALUE INDEX (21%); RUSSELL 2500(R) GROWTH INDEX (20%), AND THE MSCI EAFE INDEX (20%). THE 90-DAY T-BILL IS GOVERNMENT GUARANTEED AND OFFERS A FIXED RATE OF RETURN. RETURN AND PRINCIPAL OF STOCKS AND BONDS WILL VARY WITH MARKET CONDITIONS. TREASURY BILLS ARE LESS VOLATILE THAN LONGER-TERM FIXED-INCOME SECURITIES AND ARE GUARANTEED AS TO TIMELY PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT. THE MERRILL LYNCH HIGH YIELD MASTER II INDEX CONSISTS OF U.S. DOLLAR DENOMINATED BONDS THAT ARE ISSUED IN COUNTRIES HAVING A BBB3 OR HIGHER DEBT RATING WITH AT LEAST ONE YEAR REMAINING TILL MATURITY. ALL BONDS MUST HAVE A CREDIT RATING BELOW INVESTMENT GRADE BUT NOT IN DEFAULT. THE LEHMAN BROTHERS U.S. AGGREGATE BOND FUND INDEX IS A MARKET VALUE-WEIGHTED PERFORMANCE BENCHMARK FOR INVESTMENT-GRADE FIXED-RATE DEBT ISSUES, INCLUDING GOVERNMENT, CORPORATE, ASSET-BACKED, AND MORTGAGE-BACKED SECURITIES, WITH MATURITIES OF AT LEAST ONE YEAR. THE RUSSELL 1000(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 1000(R) VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH A LESS-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE LOW PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS, HIGHER DIVIDEND YIELDS, AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 2500(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE 2500 SECURITIES IN THE RUSSELL UNIVERSE WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED EQUITY INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX. HSBC INVESTOR FAMILY OF FUNDS 6 - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR MODERATE GROWTH STRATEGY FUND - -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH]
HSBC Investor Merrill Lynch Citigroup U.S. Moderate Growth High Yield Domestic Three Lehman Brothers Strategy Fund Russell 1000(R) Russell 1000(R) Russell 2500(R) MSCI EAFE Master II Month Treasury U.S. Aggregate (B Shares)(2) Growth Index Value Index Growth Index Index Index Bill Index Bond Index 2/1/05 10000 10000 10000 10000 10000 10000 10000 10000 9866 9922 10190 9917 10176 10032 10039 9890 10124 10167 10360 10270 10100 10263 10108 10188 10217 10575 10763 10916 11154 10693 10188 10119 12/31/05 10284 10889 10899 11213 11614 10935 10282 10179 10579 11226 11546 12539 12714 11391 10387 10114 10600 10788 11614 11771 12834 11302 10507 10105 11030 11213 12336 11629 13345 11553 10638 10490 10/31/06 11191 11607 12740 12202 13865 11510 10682 10559
- -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH] HSBC Investor Moderate Growth Moderate Strategy Fund Growth Blended (B Shares)(2) Portfolio Index(4) 2/1/05 10000 10000 10032 10006 10263 10213 10693 10575 12/31/05 10935 10784 11391 11237 11302 11109 11553 11510 10/31/06 11510 11815 The charts above represent a comparison of a hypothetical $10,000 investment in the indicated share classes versus a similar investment in the Funds' benchmark and represents the reinvestment of dividends and capital gains in the Funds.
- ----------------------------------------------------------------------------------------- FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%) - ----------------------------------------------------------------------------------------- INCEPTION 1 SINCE AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION - ----------------------------------------------------------------------------------------- HSBC Investor Moderate Growth Strategy Fund Class A(1) 2/3/05 7.75 7.29 - ----------------------------------------------------------------------------------------- HSBC Investor Moderate Growth Strategy Fund Class B(2) 2/1/05 8.45 8.39 - ----------------------------------------------------------------------------------------- HSBC Investor Moderate Growth Strategy Fund Class C(3) 6/9/05 11.53 11.01 - ----------------------------------------------------------------------------------------- Moderate Growth Blended Portfolio Index(4) 13.62 -- - -----------------------------------------------------------------------------------------
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. (1) REFLECTS THE MAXIMUM SALES CHARGE OF 5.00%. (2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 4.00%. (3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 1.00%. (4) THE MODERATE GROWTH BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY PERCENTAGE OF THE FOLLOWING INDICES. THE CITIGROUP U.S. DOMESTIC 3-MONTH T-BILL (6%); LEHMAN BROTHERS U.S. AGGREGATE BOND FUND INDEX (26%); MERRILL LYNCH HIGH YIELD MASTER II INDEX (5%); RUSSELL 1000(R) GROWTH INDEX (19%); RUSSELL 1000(R) VALUE INDEX (18%); RUSSELL 2500(R) GROWTH INDEX (11%) AND THE MSCI EAFE INDEX (15%). THE 90-DAY T-BILL IS GOVERNMENT GUARANTEED AND OFFERS A FIXED RATE OF RETURN. RETURN AND PRINCIPAL OF STOCKS AND BONDS WILL VARY WITH MARKET CONDITIONS. TREASURY BILLS ARE LESS VOLATILE THAN LONGER-TERM FIXED-INCOME SECURITIES AND ARE GUARANTEED AS TO TIMELY PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT. THE MERRILL LYNCH HIGH YIELD MASTER II INDEX CONSISTS OF U.S. DOLLAR DENOMINATED BONDS THAT ARE ISSUED IN COUNTRIES HAVING A BBB3 OR HIGHER DEBT RATING WITH AT LEAST ONE YEAR REMAINING TILL MATURITY. ALL BONDS MUST HAVE A CREDIT RATING BELOW INVESTMENT GRADE BUT NOT IN DEFAULT. THE LEHMAN BROTHERS U.S. AGGREGATE BOND FUND INDEX IS A MARKET VALUE-WEIGHTED PERFORMANCE BENCHMARK FOR INVESTMENT-GRADE FIXED-RATE DEBT ISSUES, INCLUDING GOVERNMENT, CORPORATE, ASSET-BACKED, AND MORTGAGE-BACKED SECURITIES, WITH MATURITIES OF AT LEAST ONE YEAR. THE RUSSELL 1000(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 1000(R) VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH A LESS-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE LOW PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS, HIGHER DIVIDEND YIELDS, AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 2500(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE 2500 SECURITIES IN THE RUSSELL UNIVERSE WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED EQUITY INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX. 7 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR CONSERVATIVE GROWTH STRATEGY FUND - -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH]
HSBC Investor Conservative Russell Russell Russell Merrill Lynch Citigroup U.S. Lehman Brothers Growth 1000(R) 1000(R) 2500(R) High Yield Domestic Three Lehman Brothers Intermediate U.S. Strategy Fund Growth Value Growth MSCI EAFE Master II Month Treasury U.S. Aggregate Aggregate (B Shares)(2) Index Index Index Index Index Bill Index Bond Index Bond Index 2/1/05 10000 10000 10000 10000 10000 10000 10000 10000 10000 9866 9922 10190 9917 9872 10176 10039 9910 9890 10124 10167 10360 10270 10032 10100 10108 10150 10188 10217 10575 10763 10916 10312 11154 10188 10110 10119 12/31/05 10284 10889 10899 11213 10530 11614 10282 10166 10179 10579 11226 11546 12539 10809 12714 10387 10140 10114 10600 10788 11614 11771 10766 12834 10507 10153 10105 11030 11213 12336 11629 10998 13345 10638 10499 10490 10/31/06 11191 11607 12740 12202 10876 13865 10682 10563 10559
- -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH] HSBC Investor Conservative Growth Conservative Growth Strategy Fund Blended Portfolio (B Shares)(2) Index(4) 2/1/05 10000 10000 9872 10004 10032 10189 10312 10444 12/31/05 10530 10611 10809 10918 10766 10873 10998 11249 10/31/06 10876 11470 The charts above represent a comparison of a hypothetical $10,000 investment in the indicated share classes versus a similar investment in the Funds' benchmark and represents the reinvestment of dividends and capital gains in the Funds.
- ------------------------------------------------------------------------------------------ FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%) - ------------------------------------------------------------------------------------------ INCEPTION 1 SINCE AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION - ------------------------------------------------------------------------------------------ HSBC Investor Conservative Growth Strategy Fund Class A(1) 2/23/05 4.97 4.69 - ------------------------------------------------------------------------------------------ HSBC Investor Conservative Growth Strategy Fund Class B(2) 2/17/05 5.65 5.06 - ------------------------------------------------------------------------------------------ HSBC Investor Conservative Growth Strategy Fund Class C(3) 4/19/05 8.66 9.01 - ------------------------------------------------------------------------------------------ Conservative Growth Blended Portfolio Index(4) 11.12 -- - ------------------------------------------------------------------------------------------
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. (1) REFLECTS THE MAXIMUM SALES CHARGE OF 5.00%. (2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 4.00%. (3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 1.00%. (4) THE CONSERVATIVE GROWTH BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY PERCENTAGE OF THE FOLLOWING INDICES. THE CITIGROUP U.S. DOMESTIC 3-MONTH T-BILL (21%); MERRILL LYNCH HIGH YIELD MASTER II INDEX (8%); LEHMAN BROTHERS U.S. AGGREGATE BOND FUND INDEX (25%); LEHMAN BROTHERS U.S. INTERM. AGGREGATE BOND INDEX (3%); RUSSELL 1000(R) GROWTH INDEX (15%); RUSSELL 1000(R) VALUE INDEX (14%); RUSSELL 2500(R) GROWTH INDEX (4%) AND THE MSCI EAFE INDEX (10%). THE 90-DAY T-BILL IS GOV'T. GUARANTEED AND OFFERS A FIXED RATE OF RETURN. RETURN AND PRINCIPAL OF STOCKS AND BONDS WILL VARY WITH MARKET CONDITIONS. TREASURY BILLS ARE LESS VOLATILE THAN LONGER-TERM FIXED-INCOME SECURITIES AND ARE GUARANTEED AS TO TIMELY PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT. THE MERRILL LYNCH HIGH YIELD MASTER II INDEX CONSISTS OF U.S. DOLLAR DENOMINATED BONDS THAT ARE ISSUED IN COUNTRIES HAVING A BBB3 OR HIGHER DEBT RATING WITH AT LEAST ONE YEAR REMAINING TILL MATURITY. ALL BONDS MUST HAVE A CREDIT RATING BELOW INVESTMENT GRADE BUT NOT IN DEFAULT. THE LEHMAN BROS. U.S. AGGREGATE BOND FUND INDEX IS A MARKET VALUE-WEIGHTED PERFORMANCE BENCHMARK FOR INVESTMENT-GRADE FIXED-RATE DEBT ISSUES, INCLUDING GOV'T, CORPORATE, ASSET-BACKED, AND MORTGAGE-BACKED SECURITIES, WITH MATURITIES OF AT LEAST ONE YEAR. THE LEHMAN BROS. INTERMEDIATE U.S. AGGREGATE INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF INVESTMENT-GRADE DEBT ISSUES WITH MATURITIES BETWEEN THREE AND TEN YEARS. THE RUSSELL 1000(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 1000(R) VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH A LESS-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE LOW PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS, HIGHER DIVIDEND YIELDS, AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 2500(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE 2500 SECURITIES IN THE RUSSELL UNIVERSE WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED EQUITY INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX. HSBC INVESTOR FAMILY OF FUNDS 8 - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR CONSERVATIVE INCOME STRATEGY FUND - -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH]
HSBC Investor Russell Russell Merrill Lynch Citigroup U.S. Lehman Brothers Conservative Income 1000(R) 1000(R) High Yield Domestic Three Lehman Brothers Intermediate U.S. Strategy Fund Growth Value MSCI EAFE Master II Month Treasury U.S. Aggregate Aggregate (A Shares)(1) Index Index Index Index Bill Index Bond Index Bond Index 2/1/05 9524 10000 10000 10000 10000 10000 10000 10000 9444 9922 10190 10176 9866 10039 9910 9890 9588 10167 10360 10100 10124 10108 10150 10188 9694 10575 10763 11154 10217 10188 10110 10119 12/31/05 9798 10889 10899 11614 10284 10282 10166 10179 9911 11226 11546 12714 10579 10387 10140 10114 9904 10788 11614 12834 10600 10507 10153 10105 10123 11213 12336 13345 11030 10638 10499 10490 10/31/06 10233 11607 12740 13865 11191 10682 10563 10559
- -------------------------------------------------------------------------------- VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [LINE GRAPH] HSBC Investor Conservative Income Conservative Income Strategy Fund Blended Portfolio (A Shares)(1) Index(4) 2/1/05 9524 10000 9444 9978 9588 10165 9694 10269 12/31/05 9798 10380 9911 10501 9904 10510 10123 10843 10/31/06 10233 10976 The charts above represent a comparison of a hypothetical $10,000 investment in the indicated share classes versus a similar investment in the Funds' benchmark and represents the reinvestment of dividends and capital gains in the Funds.
- ------------------------------------------------------------------------------------------ FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%) - ------------------------------------------------------------------------------------------ INCEPTION 1 SINCE AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION - ------------------------------------------------------------------------------------------ HSBC Investor Conservative Income Strategy Fund Class A(1) 2/8/05 1.14 1.34 - ------------------------------------------------------------------------------------------ HSBC Investor Conservative Income Strategy Fund Class B(2) 2/14/05 1.40 1.81 - ------------------------------------------------------------------------------------------ HSBC Investor Conservative Income Strategy Fund Class C(3) 5/3/05 3.92 4.23 - ------------------------------------------------------------------------------------------ Conservative Income Blended Portfolio Index(4) 7.60 -- - ------------------------------------------------------------------------------------------
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. (1) REFLECTS THE MAXIMUM SALES CHARGE OF 4.75%. (2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 4.00%. (3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF 1.00%. (4) THE CONSERVATIVE INCOME BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY PERCENTAGE OF THE FOLLOWING INDICES. THE CITIGROUP 3-MONTH T-BILL (30%); LEHMAN BROS. U.S. AGGREGATE BOND FUND INDEX (15%); MERRILL LYNCH HIGH YIELD MASTER II INDEX (10%); LEHMAN BROS. U.S. INTERM. AGGREGATE BOND INDEX (25%); RUSSELL 1000(R) GROWTH INDEX (8%); RUSSELL 1000(R) VALUE INDEX (8%) AND THE MSCI EAFE INDEX (4%). THE 90-DAY T-BILL IS GOV'T. GUARANTEED AND OFFERS A FIXED RATE OF RETURN. RETURN AND PRINCIPAL OF STOCKS AND BONDS WILL VARY WITH MARKET CONDITIONS. TREASURY BILLS ARE LESS VOLATILE THAN LONGER-TERM FIXED-INCOME SECURITIES AND ARE GUARANTEED AS TO TIMELY PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT. THE MERRILL LYNCH HIGH YIELD MASTER II INDEX CONSISTS OF U.S. DOLLAR DENOMINATED BONDS THAT ARE ISSUED IN COUNTRIES HAVING A BBB3 OR HIGHER DEBT RATING WITH AT LEAST ONE YEAR REMAINING TILL MATURITY. ALL BONDS MUST HAVE A CREDIT RATING BELOW INVESTMENT GRADE BUT NOT IN DEFAULT. THE LEHMAN BROS. U.S. AGGREGATE BOND FUND INDEX IS A MARKET VALUE-WEIGHTED PERFORMANCE BENCHMARK FOR INVESTMENT-GRADE FIXED-RATE DEBT ISSUES, INCLUDING GOV'T., CORPORATE, ASSET-BACKED, AND MORTGAGE-BACKED SECURITIES, WITH MATURITIES OF AT LEAST ONE YEAR. THE LEHMAN BROS. INTERM. U.S. AGGREGATE INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF INVESTMENT-GRADE DEBT ISSUES WITH MATURITIES BETWEEN THREE AND TEN YEARS. THE RUSSELL 1000(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 1000(R) VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH A LESS-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE LOW PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS, HIGHER DIVIDEND YIELDS, AND LOWER FORECASTED GROWTH VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED EQUITY INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX. 9 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- AGGRESSIVE GROWTH BLENDED PORTFOLIO INDEX [PIE CHART] 34.0% Russell 2500(R) Growth Index 23.0% MSCI EAFE Index 21.0% Russell 1000(R) Value Index 21.0% Russell 1000(R) Growth Index 1.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index GROWTH BLENDED PORTFOLIO INDEX [PIE CHART] 21.0% Russell 1000(R) Value Index 21.0% Russell 1000(R) Growth Index 20.0% Russell 2500(R) Growth Index 20.0% MSCI EAFE Index 15.0% Lehman Brothers U.S. Aggregate Bond Index 2.0% Merrill Lynch High Yield Master II Index 1.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index MODERATE GROWTH BLENDED PORTFOLIO INDEX [PIE CHART] 26.0% Lehman Brothers U.S. Aggregate Bond Index 19.0% Russell 1000(R) Growth Index 18.0% Russell 1000(R) Value Index 15.0% MSCI EAFE Index 11.0% Russell 2500(R) Growth Index 6.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index 5.0% Merrill Lynch High Yield Master II Index CONSERVATIVE GROWTH BLENDED PORTFOLIO INDEX [PIE CHART] 25.0% Lehman Brothers U.S. Aggregate Bond Index 21.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index 15.0% Russell 1000(R) Growth Index 14.0% Russell 1000(R) Value Index 10.0% MSCI EAFE Index 8.0% Merrill Lynch High Yield Master II Index 4.0% Russell 2500(R) Growth Index 3.0% Lehman Brothers Intermediate U.S. Aggregate Bond Index CONSERVATIVE INCOME BLENDED PORTFOLIO INDEX [PIE CHART] 30.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index 25.0% Lehman Brothers Intermediate U.S. Aggregate Bond Index 15.0% Lehman Brothers U.S. Aggregate Bond Index 10.0% Merrill Lynch High Yield Master II Index 8.0% Russell 1000(R) Growth Index 8.0% Russell 1000(R) Value Index 4.0% MSCI EAFE Index - -------------------------------------------------------------------------------- STANDARDIZED PERFORMANCE BENCHMARK INDICES FOR THE 1 PERIOD ENDED OCTOBER 31, 2006 YEAR (%) - -------------------------------------------------------------------------------- Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index 4.54 Lehman Brothers U.S. Aggregate Bond Index 5.19 Lehman Brothers Intermediate U.S. Aggregate Bond Index 5.12 Merrill Lynch High Yield Master II Index 10.34 MSCI EAFE Index 28.04 Russell 1000(R) Growth Index 10.84 Russell 1000(R) Value Index 21.46 Russell 2500(R) Growth Index 15.56 CITIGROUP U.S. DOMESTIC 3-MONTH U.S. TREASURY BILL INDEX reflects monthly return equivalents of yield averages that are not marked to the market. The Index is an average of the last three -month Treasury Bill issues. The three-month Treasury Bills are the short-term debt obligations of the U.S. government. LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX is a market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. LEHMAN BROTHERS INTERMEDIATE U.S. AGGREGATE BOND INDEX is generally representative of investment-grade debt issues with maturities between three and ten years. THE MERRILL LYNCH HIGH YIELD MASTER II INDEX consists of U.S. dollar denominated bonds that are issued in countries having a BBB3 or higher debt rating with at least one year remaining till maturity. All bonds must have a credit rating below investment grade but not in default. MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST INDEX (MSCI EAFE) is a market capitalization-weighted equity index comprising 20 of the 48 countries in the MSCI universe and representing the developed world outside of North America. Each MSCI country index is created separately, then aggregated, without change, into regional MSCI indices. EAFE performance data is calculated in U.S. dollars and in local currency. RUSSELL 1000(R) GROWTH INDEX measures the performance of 1000 securities in the Russell Universe with higher price-to-book ratios and higher forecasted growth values. RUSSELL 1000(R) VALUE INDEX measures the performance of 1000 securities in the Russell Universe with a less-than-average growth orientation. Companies in this index generally have low price-to-book and price-to-earnings ratios, higher dividend yields, and lower forecasted growth values. Investors cannot invest directly in an index. RUSSELL 2500(R) GROWTH INDEX measures the performance of those 2500 securities in the Russell universe with higher price-to-book ratios and higher forecasted growth values. Investors cannot invest directly in an index, although they can invest in the underlying securities. HSBC INVESTOR FAMILY OF FUNDS 10 - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- ----------------------------- HSBC INVESTOR MONEY MARKET FUND MOODY'S HAS ASSIGNED AN "Aaa" RATING TO THE HSBC INVESTOR BY THOMAS RIORDAN MONEY MARKET FUND.(1) SENIOR FIXED INCOME PORTFOLIO MANAGER ----------------------------- INVESTMENT CONCERNS AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. During the third quarter of 2006 there has been a dramatic change in the outlook for the U.S. economy. After increasing the target federal funds rate from a low on 1.00% in June 2004 to its current level of 5.25%, the economy as measured by GDP(2) has slowed from an unsustainably high growth rate of 5.6% in the 1st quarter to its current rate of 2.2%. There remain several conflicting issues facing the economy. The housing market has slowed significantly with both new and existing sales data falling well below prior years levels. Inflation, however, remains above Federal Reserve Chairman Bernanke's comfort range of 1 to 2%. While core PPI(1) measured on a year to year basis has moderated as oil prices have fallen, CPI(2) remains stubbornly above 2%. On a year over year basis core CPI has increased from 2.3% in April to 2.9% in September. Although many market participants expect those pressures to recede as the economy slows, Federal Reserve members continue to express concern over the level of inflation. The Federal Open Market Committee ("FOMC") decided not to raise the federal funds rate at both the August and September FOMC meetings in order to assess the effect of previous rate hikes. Their patience has been rewarded as the economy has cooled. It remains to be seen whether the slowing economy will bring about the desired effect of lower inflation. The housing market has changed from a source of strength to a drag on the overall U.S. economy. Recent indicators of the health of the housing market have all been negative. New and existing home sales have been declining for much of the year and the NAHB Housing Market Confidence Index has dropped to its lowest level in years. It remains uncertain whether this weakness will in turn cause the U.S. consumer to reduce their spending. Should that happen the Fed would likely reduce the target federal funds rate in an attempt to restart the economy. Trading activity the past year has adjusted to the changes in the economy and resulting changes in expectations of future activity from the Federal Reserve Bank. As it became clear that the tightening cycle was approaching the end, we lengthened the average maturity of the portfolio in order to capture higher yields. We achieved this by purchasing securities in the 3 to 6 month period and adding to our holdings of floating rate notes indexed to 3 month Libor(3). As we approach the end of 2006, the short term markets are adjusting to the slowing economy and the possibility of a cut in the target federal funds rate. Market participants are concerned that the dramatic slowdown in the housing market may drag the broader economy into a recession. They also believe that the slowing economy to help ease the inflationary pressures and allow the Fed to lower the federal funds rate. The FOMC has expressed the contrary opinion, that the damage to the economy will be limited and that their primary concern remains stubbornly high inflation. Our longer average maturity allows us to enhance yield over the federal funds rate while maintaining the flexibility to alter strategy should either the economy regain momentum or inflation not decline as expected.* (1) The "Aaa" money market fund rating is historical and reflects the superior quality of the Fund's investments, sound liquidity management, and strong operations and trading support. Periodic reviews are conducted to ensure a secure operations environment. Moody's rating represents an opinion only, not a recommendation to buy or sell. (2) CONSUMER PRICE INDEX ("CPI") a measure of price changes in consumer goods and services such as gasoline, food, and automobiles. Sometimes referred to as "headline inflation." PRODUCER PRICE INDEX ("PPI") a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. (3) The London Inter-Bank Offer Rate (LIBOR) is the interest rate that the largest international banks charge each other for loans. * Portfolio composition is subject to change. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. 11 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO BY HSBC INVESTMENTS (USA) INC. U.S. CORE FIXED INCOME TEAM The HSBC Investor Core Plus Fixed Income Portfolio (the "Portfolio") seeks to provide investors with above-average total return, consistent with reasonable risk, through investments in a diversified portfolio of fixed-income securities. INVESTMENT CONCERNS Bonds offer a relatively stable level of income, although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate-term, higher-quality bonds generally offer less risk than longer-term bonds and a lower rate of return. MARKET COMMENTARY GDP(1) growth fell significantly in the 4th quarter of 2005, but rebounded dramatically in the first half of 2006. The economy continued to strengthen in the third quarter of 2006 with GDP growth of 1.6%, albeit at a markedly slower pace than the first half of the year. Energy prices rose through most of the year, but they began to fall in the second half of 2006. Oil prices eased substantially during the third quarter, even dipping below $60 and touching a six-month low. Citing slower economic growth and falling energy prices despite elevated core inflation, the Federal Reserve Open Market Committee kept rates at 5.25% during its last two sessions. This came on the heels of 17 straight increases. Perhaps the most significant data pertains to the housing market, which slowed amid rising inventories and higher mortgage rates. Home sales and construction data came in well below expectations over the last part of the period, indicating the housing slow down may prove to be a substantial drag on the economy going forward. Thus far, the slowdown in the housing sector does not appear to have spilled over into the broader economy as business and consumer spending remain relatively healthy. During the period interest rates were somewhat volatile, but the 10-year Treasury rate ended (4.59%) the period at almost the point it began (4.56%). Short-term rates rose with the Fed hikes, as the 2-year rose from 4.30% to 4.69%. This rise in rates caused a bearish flattening of the yield curve, and created a somewhat difficult period of performance for much of the period under review. However, a rally in rates in the third quarter helped the U.S. fixed income market register its best quarter since the 3rd quarter of 2002, with the Lehman Aggregate Index returning 3.81 percent. For the year, the Lehman Aggregate Index returned 5.19%. Spreads tightened in most sectors over the period, and all spread sectors had excess returns versus Treasury securities of similar duration. Mortgages were the best performing sector within the Aggregate Index, outperforming Treasuries of comparable duration by 1.01%. Lower quality sectors performed even better, with High Yield and Emerging Market Debt beating comparable duration Treasuries by 5.57% and 7.16% respectively. PORTFOLIO PERFORMANCE The key component of the Portfolio's positive performance was select, off-benchmark holdings in high yield and emerging market debt. A position in spread sectors particularly asset backed securities and collateralized mortgage backed securities and individual security selection in corporate credit also had a positive impact on performance. Our short, defensive positioning for most of the period helped performance, as did our yield curve positioning.* Going forward, we will maintain duration that approximates that of the Lehman Brothers U.S. Aggregate Bond Index. We continue to analyze the yield curve for pricing anomalies and subject to portfolio restrictions, we will attempt to add high quality securitized debt issues that offer attractive yields without the issuer specific risk of corporate bonds. Within corporates, we will continue our focus on security selection, including select off-benchmark names that we think in a relatively homogenized credit environment, may offer greater opportunities for value.* (1) Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced by labor and property in the United States. * Portfolio composition is subject to change. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. HSBC INVESTOR FAMILY OF FUNDS 12 - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO BY HSBC INVESTMENTS (USA) INC. HIGH YIELD TEAM HSBC Investments (USA) Inc. serves as investment adviser to the Fund. The HSBC High Yield Team provides the day to day management of the portfolio. The Team's philosophy is focused on delivering sustainable value added performance in the high yield fixed income market. The investment approach is a combination of top-down sector/industry selection and bottom-up security/quality selection. The team rotates sectors and themes within the high yield universe during different market environments seeking to add value, endeavoring to take advantage of market inefficiencies in order to outperform in both up and down markets. INVESTMENT CONCERNS Bond funds will tend to experience smaller fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates. High yield bonds are subject to greater risks than investment grade bonds, such as the increased risk of default because of the lower credit quality of the issues. MARKET COMMENTARY GDP(1) growth fell significantly in the 4th quarter of 2005, but rebounded dramatically in the first half of 2006. The economy continued to strengthen in the third quarter of 2006 with GDP growth of 1.6%, albeit at a markedly slower pace than the first half of the year. Energy prices rose through most of the year, but they began to fall in the second half of 2006. Oil prices eased substantially during the third quarter, even dipping below $60 and touching a six-month low. Citing slower economic growth and falling energy prices despite elevated core inflation, the Federal Reserve Open Market Committee kept rates at 5.25% during its last two sessions. This came on the heels of 17 straight increases. Perhaps the most significant data pertains to the housing market, which slowed amid rising inventories and higher mortgage rates. Home sales and construction data came in well below expectations over the last part of the period, indicating the housing slow down may prove to be a substantial drag on the economy going forward. Thus far, the slowdown in the housing sector does not appear to have spilled over into the broader economy as business and consumer spending remain relatively healthy. During the past 12-months, a decline in Treasury yields and the failure of issuance volumes to match market expectations drove high yield spreads tighter. With Fed policy now seemingly on extended pause, probability of a rise on volatility by year-end has decreased. Strong equity market performance - coupled with low volatility - have led to solid returns for the high yield asset class. From an industry perspective, strength in the market has been broad based over the past 12-months. The Airline (+44.46%), Broadband (+43.98%) and Cable (+13.95%) industries posted the strongest returns. With regard to high yield issuance, primary market activity continues to accelerate. Notably, acquisition-related volumes accounted for more than two-thirds of proceeds during the month. 24 new issues were priced during October for a total of $12.9 billion, compared with 22 issues for $7.8 billion in September. Year-to-date, 264 issues have price for a total of $104.9 billion, compared with 303 issues for $83.6 billion same period last year. Continuing to dominate their higher-quality counterparts, CCC-rated issues returned 2.91% for the month of October, followed by B-rated issues up 1.32% and BB-rated issues up 1.18%. For the past 12-months, CCC-rated issuers have returned 14.29%, B-rated bonds have returned 11.31%, and BB-rated bonds have returned 7.69%. PORTFOLIO PERFORMANCE Performance has been driven since inception by the Fund's position in CCC-rated issuers and its position in Cable & Aerospace industries offset somewhat by the position in the Airline industry coupled with its short duration position.* Going forward, we will maintain duration that approximates that of the Merrill Lynch U.S. High Yield Master II Index. We continue to analyze the yield curve for pricing anomalies and subject to portfolio restrictions, we will attempt to add high quality securitized debt issues that offer attractive yields without the issuer specific risk of corporate bonds. Within corporates, we will continue our focus on security selection, including select off-benchmark names that we think in a relatively homogenized credit environment, may offer greater opportunities for value.* Our outlook for the remainder of 2006 is cautiously optimistic. We continue to be positive about sustained economic growth, low default rates, and constructive capital markets. Although wider spreads are an eventual certainty, we believe that strong fundamentals and technicals will lead to a prolonged period of compressed spread levels. On an industry front, we remain positive on the Energy, Gaming, Wireless, and Cable sectors.* * Portfolio composition is subject to change. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. 13 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO BY HSBC INVESTMENTS (USA) INC. U.S. CORE FIXED INCOME TEAM The HSBC Investor Intermediate Duration Fixed Income Portfolio (the "Portfolio") seeks to realize above-average total return, consistent with reasonable risk, by investing in a diversified investment grade portfolio of U.S. government obligations, corporate bonds and mortgage-backed securities. INVESTMENT CONCERNS Bonds offer a relatively stable level of income, although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate-term, higher-quality bonds generally offer less risk than longer-term bonds and a lower rate of return. MARKET COMMENTARY GDP(1) growth fell significantly in the 4th quarter of 2005, but rebounded dramatically in the first half of 2006. The economy continued to strengthen in the third quarter of 2006 with GDP growth of 1.6%, albeit at a markedly slower pace than the first half of the year. Energy prices rose through most of the year, but they began to fall in the second half of 2006. Oil prices eased substantially during the third quarter, even dipping below $60 and touching a six-month low. Citing slower economic growth and falling energy prices despite elevated core inflation, the Federal Reserve Open Market Committee kept rates at 5.25% during its last two sessions. This came on the heels of 17 straight increases. Perhaps the most significant data pertains to the housing market, which slowed amid rising inventories and higher mortgage rates. Home sales and construction data came in well below expectations over the last part of the period, indicating the housing slow down may prove to be a substantial drag on the economy going forward. Thus far, the slowdown in the housing sector does not appear to have spilled over into the broader economy as business and consumer spending remain relatively healthy. During the period interest rates were somewhat volatile, but the 10-year Treasury rate ended (4.59%) the period at almost the point it began (4.56%). Short-term rates rose with the Fed hikes, as the 2-year rose from 4.30% to 4.69%. This rise in rates caused a bearish flattening of the yield curve, and created a somewhat difficult period of performance for much of the period under review. However, a rally in rates in the third quarter helped the U.S. fixed income market register its best quarter since the 3rd quarter of 2002, with the Lehman Aggregate Index returning 3.81 percent. For the year, the Lehman Aggregate Index returned 5.19%. Spreads tightened in most sectors over the period, and all spread sectors had excess returns versus Treasury securities of similar duration. Mortgages were the best performing sector within the Aggregate Index, outperforming Treasuries of comparable duration by 1.01%. Lower quality sectors performed even better, with High Yield and Emerging Market Debt beating comparable duration Treasuries by 5.57% and 7.16% respectively. PORTFOLIO PERFORMANCE The key component of positive performance was select, off-benchmark holdings in high yield and emerging market debt. The position in spread sectors particularly asset backed securities and collateralized mortgage backed securities and individual security selection in corporate credit also had a positive impact on performance. Our short, defensive positioning for most of the period helped performance, as did our yield curve positioning. Going forward, we will maintain duration that approximates that of the Lehman Brothers Intermediate U.S. Aggregate Bond Index. We continue to analyze the yield curve for pricing anomalies and subject to portfolio restrictions, we will attempt to add high quality securitized debt issues that offer attractive yields without the issuer specific risk of corporate bonds. Within corporates, we will continue our focus on security selection, including select off-benchmark names that we think in a relatively homogenized credit environment, may offer greater opportunities for value. * (1) Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced by labor and property in the United States. * Portfolio composition is subject to change. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. HSBC INVESTOR FAMILY OF FUNDS 14 - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR GROWTH PORTFOLIO BY PHILIP J. SANDERS, SENIOR VICE PRESIDENT/PORTFOLIO MANAGER, CFA AND DANIEL P. BECKER, SENIOR VICE PRESIDENT/PORTFOLIO MANAGER, CFA WADDELL & REED INVESTMENT MANAGEMENT COMPANY The HSBC Investor Growth Portfolio (the "Portfolio") seeks long-term growth of capital by investing primarily in U.S. and foreign equity securities of high quality companies with market capitalization generally in excess of $2 billion, which the sub-adviser believes have the potential to generate superior levels of long-term profitability and growth. The Portfolio employs Waddell & Reed Investment Management Company (Waddell & Reed) as the sub-adviser. INVESTMENT CONCERNS Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. MARKET COMMENTARY Growth stocks produced solid returns during the fiscal year, although growth shares trailed value stocks by a wide margin. Growth stocks gained ground during the first six months of the period, declined during spring, and then recovered during late summer and early fall. All told, growth stocks posted returns roughly in line with historical averages, helping the portion of the Fund invested in this portfolio post a healthy gain. Strong performance from financial stocks boosted the absolute performance, while weakness in the health care sector generated a substantial drag on absolute returns. Stock selection in the energy sector boosted returns, and a relatively large position in energy stocks helped lift the relative performance as well. Strong security selection in the materials sector also boosted returns during the 12-month period under review. Stock selection in the health care sector produced the largest drag on performance. Poor performance by the health care stocks more than offset the positive impact provided by the allocation to the health care sector. Security selection in the information technology and financials sectors also weighed on returns during the fiscal year.* * Portfolio composition is subject to change. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. 15 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO BY KEVIN F. SIMMS CO-CIO INTERNATIONAL VALUE EQUITIES AND DIRECTOR OF RESEARCH - GLOBAL AND INTERNATIONAL VALUE EQUITIES ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND MANAGEMENT The HSBC Investor International Equity Portfolio (the "Portfolio") seeks to provide their shareholders with long-term growth of capital and future income by investing primarily in securities of non-U.S. issuers and securities of issuers whose principal markets are outside of the United States. The Portfolio employs Bernstein Investment Research and Management ("AllianceBernstein"), a unit of AllianceBernstein Investment Research and Management as sub-investment adviser. The Portfolio invests primarily in equity securities of companies organized and domiciled in developed nations outside the U.S., or for which the principal trading market is outside the U.S., including Europe, Canada, Australia and the Far East. INVESTMENT CONCERNS There are risks associated with investing in foreign companies, such as erratic market conditions, economic and political instability and fluctuations in currency and exchange rates. Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. MARKET COMMENTARY Robust global economic growth, strong corporate profits and modest inflation helped international stock markets perform well during the fiscal year. Foreign stocks posted strong gains during the first half of the period, declined in spring, and then rebounded as benign global economic data, lower oil prices and moderate interest rates fueled investor optimism. That environment helped the portion of the Fund invested in this Portfolio post very strong absolute returns for the 12-month period as a whole. Stock selection drove the superior performance. The sub-advisor employs deep fundamental research to uncover value opportunities across a broad range of industries throughout global stock markets. The portfolio's holdings in the industrial commodities sector benefited from surging commodity prices and strong earnings, and significantly boosted returns. Security selection in the financial, consumer staples and utilities sectors also lifted the Fund's performance.* The position in the energy sector weighed on the relative gains. Energy stocks produced strong returns early in the period, but gave up much of that gain when crude-oil prices softened between July and October. That development led the energy sector to trail the broad market for the period as a whole. The energy stocks in the Portfolio outperformed the energy stocks in the MSCI EAFE Index, but that positive selection effect did not fully offset the negative impact of the relatively large sector weighting. Likewise, an underweight stake in the construction and housing sector dragged on relative performance, despite strong security selection within that sector.* * Portfolio composition is subject to change. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. HSBC INVESTOR FAMILY OF FUNDS 16 - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO BY WILLIAM A. MUGGIA PRESIDENT-CHIEF INVESTMENT OFFICER WESTFIELD CAPITAL MANAGEMENT The HSBC Investor Small Cap Equity Fund and the HSBC Investor Opportunity Fund ("the Funds") seek to provide their shareholders with long-term growth of capital by investing in equity securities of emerging small and medium-sized companies expected to deliver earnings growth well above the growth rate of the economy and the rate of inflation. The Funds employ a two-tier structure, commonly referred to as "master-feeder." The Funds invest all of their investable assets in the HSBC Investor Small Cap Equity Portfolio (the "Portfolio"). The Portfolio employs Westfield Capital Management, LLC as sub-investment adviser. The Portfolio invests primarily in common stocks of small and medium-sized companies that may have the potential to become major enterprises. INVESTMENT CONCERNS Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. Small-capitalization funds typically carry additional risks since smaller companies generally have a higher risk of failure, and historically, their stocks have experienced a greater degree of market volatility than stocks on average. MARKET COMMENTARY Small-cap stocks performed well, helping the portion of the Fund invested in this Portfolio post strong returns. Technology and health care stocks provided the largest contributions to the gains. Stock selection in the health care sector boosted returns. Stock selection in various health care industries, including biotechnology, pharmaceuticals, health care equipment, health care facilities and life science tools & services, helped the performance and added significantly to relative gains.* Selection among technology stocks also boosted relative returns. The sub-advisor's selection of stocks in the communications equipment, applications software and data processing & outsourced services industries particularly lifted the return.* An underweight stake in the consumer discretionary sector helped the performance as well. Stock selection in consumer discretionary also boosted returns.* The Portfolio had no exposure to the telecommunications services or consumer staples sectors, and owned only one stock in the materials sector. Those three sectors performed well for the 12-month period under review, so the lack of exposure dragged on relative performance. The lack of exposure in financials also weighed on returns, as did security selection in that sector. Selection among industrials weakened performance as well.* * Portfolio composition is subject to change. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. 17 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- HSBC INVESTOR VALUE PORTFOLIO BY JON D. BOSSE, CFA CHIEF INVESTMENT OFFICER NWQ INVESTMENT MANAGEMENT CO., LLC The HSBC Investor Value Portfolio (the "Portfolio") seeks long-term growth of capital and income by investing primarily in U.S. and foreign companies with large and medium capitalizations that possess hidden opportunities underpriced by the market. The Portfolio employs NWQ Investment Management Company, LLC ("NWQ") as the sub-adviser. INVESTMENT CONCERNS Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value. Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. MARKET COMMENTARY Value stocks rallied during the period as a whole, despite a stock-market correction in the spring. That environment helped the Portfolio generate strong returns. The sub-advisor held a significant position in stocks in the oil and natural gas exploration and production (E&P) industry. That stake had a substantial positive effect on returns, in part because the largest holding, an E&P firm, was acquired in an all-cash deal at a substantial premium to its market value. The Portfolio also benefited from weightings in defense, telephone, cable television and radio stocks. The sub-advisor found a number of attractively valued stocks in the information technology sector, which appeared poised to benefit from a rebound in capital spending. Technology stocks in general generated strong performance, but poor earnings weighed on the returns of several technology stocks in the portfolio. Those company-specific issues caused the technology position to weaken the returns.* The small position in financials stocks was because the sub-advisor expected a flat yield curve to hurt profit margins at financial companies. The financials sector generated strong gains, however, led by a rally in shares of large brokerage firms. The small stake therefore weighed on returns.* * Portfolio composition is subject to change. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183. HSBC INVESTOR FAMILY OF FUNDS 18 - -------------------------------------------------------------------------------- PORTFOLIO REVIEWS - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION* OCTOBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE - -------------------------------------------------------------------------------- Mortgage Backed Securities 23.3% - -------------------------------------------------------------------------------- Corporate Bonds 21.5% - -------------------------------------------------------------------------------- U.S. Treasury Securities 16.1% - -------------------------------------------------------------------------------- Asset Backed Securities 12.2% - -------------------------------------------------------------------------------- Commercial Mortgage Backed Securities 9.3% - -------------------------------------------------------------------------------- Foreign Bonds 7.8% - -------------------------------------------------------------------------------- Collateralized Mortgage Obligations 7.4% - -------------------------------------------------------------------------------- Cash Equivalents 2.4% - -------------------------------------------------------------------------------- Total 100.0% ================================================================================ - -------------------------------------------------------------------------------- HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE - -------------------------------------------------------------------------------- Corporate Bonds 97.8% - -------------------------------------------------------------------------------- Cash Equivalents 2.2% - -------------------------------------------------------------------------------- Total 100.0% ================================================================================ - -------------------------------------------------------------------------------- HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE - -------------------------------------------------------------------------------- Corporate Bonds 23.7% - -------------------------------------------------------------------------------- Mortgage Backed Securities 23.6% - -------------------------------------------------------------------------------- Asset Backed Securities 15.1% - -------------------------------------------------------------------------------- Commercial Mortgage Backed Securities 9.8% - -------------------------------------------------------------------------------- U.S. Treasury Securities 9.2% - -------------------------------------------------------------------------------- Collateralized Mortgage Obligations 8.5% - -------------------------------------------------------------------------------- Foreign Bonds 7.2% - -------------------------------------------------------------------------------- Cash Equivalents 2.9% - -------------------------------------------------------------------------------- Total 100.0% ================================================================================ - -------------------------------------------------------------------------------- HSBC INVESTOR GROWTH PORTFOLIO - -------------------------------------------------------------------------------- INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE - -------------------------------------------------------------------------------- Information Technology 27.3% - -------------------------------------------------------------------------------- Health Care 19.4% - -------------------------------------------------------------------------------- Industrials 14.4% - -------------------------------------------------------------------------------- Financials 11.1% - -------------------------------------------------------------------------------- Consumer Discretionary 10.3% - -------------------------------------------------------------------------------- Consumer Staples 8.2% - -------------------------------------------------------------------------------- Energy 5.8% - -------------------------------------------------------------------------------- Cash Equivalents 3.5% - -------------------------------------------------------------------------------- Total 100.0% ================================================================================ - -------------------------------------------------------------------------------- HSBC INTERNATIONAL EQUITY PORTFOLIO - -------------------------------------------------------------------------------- INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE - -------------------------------------------------------------------------------- Europe 61.4% - -------------------------------------------------------------------------------- Japan 23.9% - -------------------------------------------------------------------------------- Australia & Far East 6.4% - -------------------------------------------------------------------------------- Canada 3.6% - -------------------------------------------------------------------------------- Cash Equivalents 2.4% - -------------------------------------------------------------------------------- Other 2.3% - -------------------------------------------------------------------------------- Total 100.0% ================================================================================ - -------------------------------------------------------------------------------- HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO - -------------------------------------------------------------------------------- INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE - -------------------------------------------------------------------------------- HealthCare 29.3% - -------------------------------------------------------------------------------- Information Technology 25.7% - -------------------------------------------------------------------------------- Consumer Discretionary 12.6% - -------------------------------------------------------------------------------- Industrials 10.8% - -------------------------------------------------------------------------------- Energy 8.9% - -------------------------------------------------------------------------------- Financial 5.5% - -------------------------------------------------------------------------------- Cash Equivalents 5.4% - -------------------------------------------------------------------------------- Materials 1.8% - -------------------------------------------------------------------------------- Total 100.0% ================================================================================ - -------------------------------------------------------------------------------- HSBC INVESTOR VALUE PORTFOLIO - -------------------------------------------------------------------------------- INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE - -------------------------------------------------------------------------------- Financials 28.3% - -------------------------------------------------------------------------------- Consumer Discretionary 11.3% - -------------------------------------------------------------------------------- Industrials 9.3% - -------------------------------------------------------------------------------- Consumer Staples 7.7% - -------------------------------------------------------------------------------- Information Technology 7.7% - -------------------------------------------------------------------------------- Materials 7.5% - -------------------------------------------------------------------------------- Energy 7.4% - -------------------------------------------------------------------------------- Telecommunication Services 7.4% - -------------------------------------------------------------------------------- Cash Equivalents 6.7% - -------------------------------------------------------------------------------- Utilities 2.0% - -------------------------------------------------------------------------------- Miscellaneous 1.9% - -------------------------------------------------------------------------------- Transportation 1.8% - -------------------------------------------------------------------------------- Health Care 1.0% - -------------------------------------------------------------------------------- Total 100.0% ================================================================================ * Portfolio composition is subject to change. 19 HSBC INVESTOR FAMILY OF FUNDS HSBC INVESTOR LIFELINE FUNDS STATEMENTS OF ASSETS AND LIABILITIES--OCTOBER 31, 2006
AGGRESSIVE GROWTH MODERATE CONSERVATIVE CONSERVATIVE GROWTH STRATEGY GROWTH GROWTH INCOME STRATEGY FUND FUND STRATEGY FUND STRATEGY FUND STRATEGY FUND - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS: Investments in Portfolios $ 7,167,305 $ 21,584,145 $ 22,035,856 $ 4,673,610 $ 1,472,579 Investment in affiliates, at value (a) 73,212 219,775 1,413,771 1,245,874 630,196 Receivable for capital shares issued 73,158 76,802 22,632 18,180 100 Receivable from Investment Adviser 298 26,586 33,492 19,180 14,688 Receivable from Sub-Administrator 32,189 9,250 6,505 6,539 11,320 Prepaid expenses 4,668 6,693 5,077 344 244 ------------- ------------ ------------- ------------- ------------ TOTAL ASSETS 7,350,830 21,923,251 23,517,333 5,963,727 2,129,127 ------------- ------------ ------------- ------------- ------------ LIABILITIES: Dividends payable -- -- -- -- 373 Payable for capital shares redeemed -- 49,800 22,641 -- 19,805 Accrued related party expenses and other liabilities: Investment Management 298 897 963 253 90 Administration 230 699 758 199 77 Transfer Agent -- -- -- 214 169 Printing 3,766 11,667 12,647 3,534 1,378 Distribution 2,019 5,876 7,319 1,843 532 Shareholder Servicing 1,496 4,515 4,871 1,277 454 Trustee 7 23 25 8 4 Other 285 882 955 268 103 ------------- ------------ ------------- ------------- ------------ TOTAL LIABILITIES 8,101 74,359 50,179 7,596 22,985 ------------- ------------ ------------- ------------- ------------ NET ASSETS $ 7,342,729 $ 21,848,892 $ 23,467,154 $ 5,956,131 $ 2,106,142 ============= ============ ============= ============= ============ - ------------------------------------------------------------------------------------------------------------------------------------ COMPOSITION OF NET ASSETS: Capital $ 6,745,939 $ 19,993,978 $ 21,845,162 $ 5,601,417 $ 2,056,568 Accumulated net investment income (loss) (14,704) 55,913 4,489 4,342 (106) Accumulated net realized gains (losses) from investment transactions (10,475) 154,482 198,487 65,382 1,164 Unrealized appreciation/depreciation from investments 621,969 1,644,519 1,419,016 284,990 48,516 ------------- ------------ ------------- ------------- ------------ NET ASSETS $ 7,342,729 $ 21,848,892 $ 23,467,154 $ 5,956,131 $ 2,106,142 ============= ============ ============= ============= ============ - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS: Class A Shares $ 4,116,240 $ 12,562,167 $ 11,973,207 $ 3,069,257 $ 1,319,970 Class B Shares 2,997,519 8,702,166 10,730,953 2,566,513 762,918 Class C Shares 228,970 584,559 762,994 320,361 23,254 ------------- ------------ ------------- ------------- ------------ $ 7,342,729 $ 21,848,892 $ 23,467,154 $ 5,956,131 $ 2,106,142 ============= ============ ============= ============= ============ - ------------------------------------------------------------------------------------------------------------------------------------ SHARES OUTSTANDING ($0.001 par value; unlimited number of shares authorized): Class A Shares 327,512 1,008,931 1,022,728 276,301 128,281 Class B Shares 240,994 700,368 915,549 233,091 73,973 Class C Shares 18,450 46,840 66,523 28,503 2,249 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE: Class A Shares $ 12.57 $ 12.45 $ 11.71 $ 11.11 $ 10.29 Class B Shares* $ 12.44 $ 12.43 $ 11.72 $ 11.01 $ 10.31 Class C Shares* $ 12.41 $ 12.48 $ 11.47 $ 11.24 $ 10.34 Maximum Sales Charge--Class A Shares 5.00% 5.00% 5.00% 5.00% 4.75% ============= ============ ============= ============= ============ Maximum Offering Price per share (Net Asset Value/(100%-maximum sales charge)) $ 13.23 $ 13.11 $ 12.33 $ 11.69 $ 10.80 ============= ============ ============= ============= ============ Investments in affiliates, at cost (a) $ 73,212 $ 219,775 $ 1,413,771 $ 1,245,874 $ 630,196 ============= ============ ============= ============= ============
- ---------- * Redemption Price per share varies by length of time shares are held. (a) The investment in affiliates are holdings of the HSBC Investor Money Market Fund Class Y Shares (see Note 1). The shares held in the Fund are identical to value since it is at $1.00 net asset value per share. In addition, value and cost for financial reporting and federal income tax purposes are the same. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 20 HSBC INVESTOR LIFELINE FUNDS STATEMENTS OF OPERATIONS--FOR THE YEAR ENDED OCTOBER 31, 2006
AGGRESSIVE GROWTH MODERATE CONSERVATIVE CONSERVATIVE GROWTH STRATEGY GROWTH GROWTH INCOME FUND FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME: Investment income from Portfolios (a) $ 64,633 $ 315,030 $ 452,081 $ 128,179 $ 60,628 Investment income from affiliates 1,894 6,094 42,693 41,907 25,346 Foreign tax withholding from Portfolios (a) (3,413) (9,463) (8,337) (1,538) (260) Expenses from Portfolios (a) (32,308) (100,861) (111,075) (27,710) (10,500) ---------- ----------- ----------- ------------ ------------ TOTAL INVESTMENT INCOME 30,806 210,800 375,362 140,838 75,214 ---------- ----------- ----------- ------------ ------------ - ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES: Investment Management 2,028 6,556 7,689 2,208 921 Administration 1,519 4,910 5,759 1,654 690 Distribution: Class B Shares 13,897 42,889 53,359 15,017 4,436 Class C Shares 1,025 3,536 5,446 2,079 1,265 Shareholder Servicing: Class A Shares 5,167 17,302 18,841 5,342 2,707 Class B Shares 4,633 14,296 17,786 5,006 1,479 Class C Shares 342 1,179 1,815 693 422 Accounting 31,500 31,500 31,500 31,500 31,500 Compliance Service 51 173 208 57 21 Printing 14,335 48,521 61,443 18,339 8,128 State Registration 4,547 4,227 6,744 1,822 1,763 Transfer Agent 43,634 47,082 49,559 42,614 41,599 Trustee 95 312 371 109 46 Other 4,184 11,609 14,051 5,624 3,435 ---------- ----------- ----------- ------------ ------------ Total expenses before fee reductions 126,957 234,092 274,571 132,064 98,412 Fees reduced by Fund Accounting and Transfer Agent (48,603) (48,687) (48,636) (48,586) (48,549) Fees reduced and expenses reimbursed by Investment Adviser (2,414) (33,131) (40,217) (21,135) (15,659) Expenses waived or reimbursed by Sub-Administrator (32,189) (9,250) (6,505) (6,539) (11,320) ---------- ----------- ----------- ------------ ------------ NET EXPENSES 43,751 143,024 179,213 55,804 22,884 ---------- ----------- ----------- ------------ ------------ - ------------------------------------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) (12,945) 67,776 196,149 85,034 52,330 ---------- ----------- ----------- ------------ ------------ - ------------------------------------------------------------------------------------------------------------------------------------ NET REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS: (a) Net realized gains (losses) from investments (17,813) 150,344 196,766 66,363 4,522 Change in unrealized appreciation/depreciation from investments 557,180 1,449,423 1,241,590 247,105 43,770 ---------- ----------- ----------- ------------ ------------ - ------------------------------------------------------------------------------------------------------------------------------------ Net realized/unrealized gains from investment transactions 539,367 1,599,767 1,438,356 313,468 48,292 ---------- ----------- ----------- ------------ ------------ CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 526,422 $ 1,667,543 $ 1,634,505 $ 398,502 $ 100,622 ========== =========== =========== ============ ============
- ---------- (a) Represents amounts allocated from the respective Portfolios. 21 HSBC INVESTOR LIFELINE FUNDS SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS STATEMENTS OF CHANGES IN NET ASSETS
AGGRESSIVE GROWTH STRATEGY FUND GROWTH STRATEGY FUND - --------------------------------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 (a) OCTOBER 31, 2006 OCTOBER 31, 2005 (b) - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: OPERATIONS: Net investment income (loss) $ (12,945) $ (3,032) $ 67,776 $ 886 Net realized gains (losses) from investment transactions (17,813) 4,441 150,344 (1,238) Change in unrealized appreciation/depreciation from investments 557,180 64,789 1,449,423 195,096 ---------------- -------------------- ---------------- -------------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 526,422 66,198 1,667,543 194,744 ---------------- -------------------- ---------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------- DIVIDENDS: NET INVESTMENT INCOME: Class A Shares -- -- (22) -- Class B Shares -- -- -- -- Class C Shares -- -- -- -- NET REALIZED GAINS: Class A Shares (4,248) -- (7,479) -- Class B Shares (4,512) -- (8,003) -- Class C Shares (298) -- (626) -- ---------------- -------------------- ---------------- -------------------- CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS (9,058) -- (16,130) -- ---------------- -------------------- ---------------- -------------------- CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 5,378,169 1,380,998 14,606,757 5,395,978 ---------------- -------------------- ---------------- -------------------- CHANGE IN NET ASSETS 5,895,533 1,447,196 16,258,170 5,590,722 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 1,447,196 -- 5,590,722 -- ---------------- -------------------- ---------------- -------------------- End of period $ 7,342,729 $ 1,447,196 $ 21,848,892 $ 5,590,722 ================ ==================== ================ ==================== Accumulated net investment income (loss) $ (14,704) $ (1,486) $ 55,913 $ (4,996) ================ ==================== ================ ====================
- ---------- (a) Aggressive Growth Strategy Fund Class A Shares commenced operations on February 14, 2005, Class B Shares commenced operations on February 9, 2005, and Class C Shares commenced operations on June 10, 2005. (b) Growth Strategy Fund Class A Shares commenced operations on February 8, 2005, Class B Shares commenced operations on February 1, 2005, and Class C Shares commenced operations on April 27, 2005. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 22 HSBC INVESTOR LIFELINE FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
AGGRESSIVE GROWTH STRATEGY FUND GROWTH STRATEGY FUND - --------------------------------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 (a) OCTOBER 31, 2006 OCTOBER 31, 2005 (b) - --------------------------------------------------------------------------------------------------------------------------- CAPITAL TRANSACTIONS: CLASS A SHARES: Proceeds from shares issued $ 3,199,933 $ 693,884 $ 9,462,116 $ 2,731,568 Dividends reinvested 4,248 -- 7,500 -- Cost of shares redeemed (77,034) (9,512) (634,007) (26,214) ---------------- -------------------- ---------------- -------------------- Class A Shares capital transactions 3,127,147 684,372 8,835,609 2,705,354 ---------------- -------------------- ---------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------- CLASS B SHARES: Proceeds from shares issued 2,171,105 690,126 5,742,896 2,623,574 Dividends reinvested 4,512 -- 8,002 -- Cost of shares redeemed (116,411) (13,505) (412,505) (35,907) ---------------- -------------------- ---------------- -------------------- Class B Shares capital transactions 2,059,206 676,621 5,338,393 2,587,667 ---------------- -------------------- ---------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES: Proceeds from shares issued 196,567 20,005 547,274 102,957 Dividends reinvested 298 -- 627 -- Cost of shares redeemed (5,049) -- (115,146) -- ---------------- -------------------- ---------------- -------------------- Class C Shares capital transactions 191,816 20,005 432,755 102,957 ---------------- -------------------- ---------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------- CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS $ 5,378,169 $ 1,380,998 $ 14,606,757 $ 5,395,978 ================ ==================== ================ ==================== - --------------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: CLASS A SHARES: Issued 265,210 69,359 799,471 265,018 Reinvested 378 -- 664 -- Redeemed (6,528) (907) (53,747) (2,475) ---------------- -------------------- ---------------- -------------------- Change in Class A Shares 259,060 68,452 746,388 262,543 ---------------- -------------------- ---------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------- CLASS B SHARES: Issued 183,959 67,597 486,469 251,135 Reinvested 405 -- 705 -- Redeemed (9,634) (1,333) (34,595) (3,346) ---------------- -------------------- ---------------- -------------------- Change in Class B Shares 174,730 66,264 452,579 247,789 ---------------- -------------------- ---------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES: Issued 16,830 2,000 46,515 9,809 Reinvested 27 -- 55 -- Redeemed (407) -- (9,539) -- ---------------- -------------------- ---------------- -------------------- Change in Class C Shares 16,450 2,000 37,031 9,809 ---------------- -------------------- ---------------- --------------------
- ---------- (a) Aggressive Growth Strategy Fund Class A Shares commenced operations on February 14, 2005, Class B Shares commenced operations on February 9, 2005, and Class C Shares commenced operations on June 10, 2005. (b) Growth Strategy Fund Class A Shares commenced operations on February 8, 2005, Class B Shares commenced operations on February 1, 2005, and Class C Shares commenced operations on April 27, 2005. 23 HSBC INVESTOR LIFELINE FUNDS SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
MODERATE GROWTH STRATEGY FUND CONSERVATIVE GROWTH STRATEGY FUND - --------------------------------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 (a) OCTOBER 31, 2006 OCTOBER 31, 2005 (b) - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: OPERATIONS: Net investment income (loss) $ 196,149 $ 14,049 $ 85,034 $ 7,510 Net realized gains (losses) from investment transactions 196,766 (11,530) 66,363 (4,777) Change in unrealized appreciation/ depreciation from investments 1,241,590 177,426 247,105 37,885 ---------------- -------------------- ---------------- -------------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,634,505 179,945 398,502 40,618 ---------------- -------------------- ---------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------- DIVIDENDS: NET INVESTMENT INCOME: Class A Shares (125,404) (116) (51,938) (203) Class B Shares (57,383) (73) (31,029) (5) Class C Shares (5,807) -- (4,345) -- - --------------------------------------------------------------------------------------------------------------------------- NET REALIZED GAINS: Class A Shares (3,616) -- -- -- Class B Shares (3,427) -- -- -- Class C Shares (500) -- -- -- ---------------- -------------------- ---------------- -------------------- CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS (196,137) (189) (87,312) (208) ---------------- -------------------- ---------------- -------------------- CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 14,905,868 6,943,162 3,202,429 2,402,102 ---------------- -------------------- ---------------- -------------------- CHANGE IN NET ASSETS 16,344,236 7,122,918 3,513,619 2,442,512 ---------------- -------------------- ---------------- -------------------- - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 7,122,918 -- 2,442,512 -- ---------------- -------------------- ---------------- -------------------- End of period $ 23,467,154 $ 7,122,918 $ 5,956,131 $ 2,442,512 ================ ==================== ================ ==================== Accumulated net investment income $ 4,489 $ 3,256 $ 4,342 $ 14,630 ================ ==================== ================ ====================
- ---------- (a) Moderate Growth Strategy Fund Class A Shares commenced operations on February 3, 2005, Class B Shares commenced operations on February 1, 2005, and Class C Shares commenced operations on June 10, 2005. (b) Conservative Growth Strategy Fund Class A Shares commenced operations on February 23, 2005, Class B Shares commenced operations on February 17, 2005, and Class C Shares commenced operations on April 19, 2005. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 24 HSBC INVESTOR LIFELINE FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
MODERATE GROWTH STRATEGY FUND CONSERVATIVE GROWTH STRATEGY FUND - ---------------------------------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 (a) OCTOBER 31, 2006 OCTOBER 31, 2005 (b) - ---------------------------------------------------------------------------------------------------------------------------- CAPITAL TRANSACTIONS: CLASS A SHARES: Proceeds from shares issued $ 8,904,235 $ 3,264,968 $ 2,584,751 $ 1,046,895 Dividends reinvested 126,311 117 51,938 203 Cost of shares redeemed (1,004,146) (110,833) (773,807) (11,388) ---------------- -------------------- ---------------- -------------------- Class A Shares capital transactions 8,026,400 3,154,252 1,862,882 1,035,710 ---------------- -------------------- ---------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------- CLASS B SHARES: Proceeds from shares issued 6,939,098 3,640,156 1,216,860 1,298,439 Dividends reinvested 60,467 63 30,500 4 Cost of shares redeemed (544,781) (125,948) (130,465) (13,275) ---------------- -------------------- ---------------- -------------------- Class B Shares capital transactions 6,454,784 3,514,271 1,116,895 1,285,168 ---------------- -------------------- ---------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES: Proceeds from shares issued 574,091 275,464 285,040 81,224 Dividends reinvested 6,307 -- 4,345 -- Cost of shares redeemed (155,714) (825) (66,733) -- ---------------- -------------------- ---------------- -------------------- Class C Shares capital transactions 424,684 274,639 222,652 81,224 ---------------- -------------------- ---------------- -------------------- CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS $ 14,905,868 $ 6,943,162 $ 3,202,429 $ 2,402,102 ================ ==================== ================ ==================== - ---------------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: CLASS A SHARES: Issued 791,634 319,580 240,413 103,636 Reinvested 11,134 12 4,788 20 Redeemed (89,017) (10,615) (71,416) (1,140) ---------------- -------------------- ---------------- -------------------- Change in Class A Shares 713,751 308,977 173,785 102,516 ---------------- -------------------- ---------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------- CLASS B SHARES: Issued 615,692 355,469 114,343 129,472 Reinvested 5,311 6 2,841 --(c) Redeemed (48,672) (12,257) (12,263) (1,302) ---------------- -------------------- ---------------- -------------------- Change in Class B Shares 572,331 343,218 104,921 128,170 ---------------- -------------------- ---------------- -------------------- - ---------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES: Issued 52,985 27,076 26,278 7,918 Reinvested 572 -- 398 -- Redeemed (14,028) (82) (6,091) -- ---------------- -------------------- ---------------- -------------------- Change in Class C Shares 39,529 26,994 20,585 7,918 ---------------- -------------------- ---------------- --------------------
- ---------- (a) Moderate Growth Strategy Fund Class A Shares commenced operations on February 3, 2005, Class B Shares commenced operations on February 1, 2005, and Class C Shares commenced operations on June 10, 2005. (b) Conservative Growth Strategy Fund Class A Shares commenced operations on February 23, 2005, Class B Shares commenced operations on February 17, 2005, and Class C Shares commenced operations on April 19, 2005. (c) Rounds to less than $1.0 shares. 25 HSBC INVESTOR LIFELINE FUNDS SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
CONSERVATIVE INCOME STRATEGY FUND - ------------------------------------------------------------------------------------------------------------- FOR THE FOR THE YEAR ENDED PERIOD ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 (a) - ------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: OPERATIONS: Net investment income (loss) $ 52,330 $ 7,227 Net realized gains (losses) from investment transactions 4,522 (4,123) Change in unrealized appreciation/depreciation from investments 43,770 4,746 ---------------- -------------------- CHANGE IN NET ASSETS FROM OPERATIONS 100,622 7,850 ---------------- -------------------- - ------------------------------------------------------------------------------------------------------------- DIVIDENDS: NET INVESTMENT INCOME: Class A Shares (36,621) (3,758) Class B Shares (15,134) (1,409) Class C Shares (3,851) (1,093) ---------------- -------------------- CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS (55,606) (6,260) ---------------- -------------------- CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 919,405 1,140,131 ---------------- -------------------- CHANGE IN NET ASSETS 964,421 1,141,721 - ------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 1,141,721 -- ---------------- -------------------- End of period $ 2,106,142 $ 1,141,721 ================ ==================== Accumulated net investment income (loss) $ (106) $ 3,253 ================ ====================
- ---------- (a) The Conservative Income Strategy Fund Class A Shares commenced operations on February 8, 2005, Class B Shares commenced operations on February 14, 2005, and Class C Shares commenced operations on May 4, 2005. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 26 HSBC INVESTOR LIFELINE FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
CONSERVATIVE INCOME STRATEGY FUND - ------------------------------------------------------------------------------------------------------------- FOR THE FOR THE YEAR ENDED PERIOD ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 (a) - ------------------------------------------------------------------------------------------------------------- CAPITAL TRANSACTIONS: CLASS A SHARES: Proceeds from shares issued $ 1,034,033 $ 420,293 Dividends reinvested 37,283 2,097 Cost of shares redeemed (193,548) (3,999) ---------------- -------------------- Class A Shares capital transactions 877,768 418,391 ---------------- -------------------- - ------------------------------------------------------------------------------------------------------------- CLASS B SHARES: Proceeds from shares issued 373,366 516,383 Dividends reinvested 14,496 695 Cost of shares redeemed (120,786) (40,981) ---------------- -------------------- Class B Shares capital transactions 267,076 476,097 ---------------- -------------------- - ------------------------------------------------------------------------------------------------------------- CLASS C SHARES: Proceeds from shares issued 1,378 245,019 Dividends reinvested 4,319 624 Cost of shares redeemed (231,136) -- ---------------- -------------------- Class C Shares capital transactions (225,439) 245,643 ---------------- -------------------- CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS $ 919,405 $ 1,140,131 ================ ==================== - ------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: CLASS A SHARES: Issued 101,772 42,045 Reinvested 3,674 208 Redeemed (19,020) (398) ---------------- -------------------- Change in Class A Shares 86,426 41,855 ---------------- -------------------- - ------------------------------------------------------------------------------------------------------------- CLASS B SHARES: Issued 36,774 51,661 Reinvested 1,425 69 Redeemed (11,858) (4,098) ---------------- -------------------- Change in Class B Shares 26,341 47,632 ---------------- -------------------- - ------------------------------------------------------------------------------------------------------------- CLASS C SHARES: Issued 131 24,240 Reinvested 424 62 Redeemed (22,608) -- ---------------- -------------------- Change in Class C Shares (22,053) 24,302 ---------------- --------------------
- ---------- (a) The Conservative Income Strategy Fund Class A Shares commenced operations on February 8, 2005, Class B Shares commenced operations on February 14, 2005, and Class C Shares commenced operations on May 4, 2005. 27 HSBC INVESTOR LIFELINE FUNDS SEE NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- HSBC INVESTOR AGGRESSIVE GROWTH STRATEGY FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS ------------------------------------------- ------------------------ NET REALIZED AND NET ASSET NET UNREALIZED GAINS TOTAL NET REALIZED VALUE, INVESTMENT (LOSSES) FROM FROM GAINS FROM BEGINNING INCOME INVESTMENT INVESTMENT INVESTMENT TOTAL OF PERIOD (LOSS) TRANSACTIONS ACTIVITIES TRANSACTIONS DIVIDENDS - ---------------------------------------------------------------------------------------------------------------------- CLASS A SHARES Period ended October 31, 2005 (f) $ 10.00 (0.01) 0.61 0.60 -- -- Year ended October 31, 2006 10.60 0.01 2.01 2.02 (0.05) (0.05) - ---------------------------------------------------------------------------------------------------------------------- CLASS B SHARES Period ended October 31, 2005 (g) $ 10.00 (0.04) 0.61 0.57 -- -- Year ended October 31, 2006 10.57 (0.05) 1.97 1.92 (0.05) (0.05) - ---------------------------------------------------------------------------------------------------------------------- CLASS C SHARES Period ended October 31, 2005 (h) $ 10.00 (0.05) 0.60 0.55 -- -- Year ended October 31, 2006 10.55 (0.04) 1.95 1.91 (0.05) (0.05) - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTARY DATA ----------------------------------------------------------------------- RATIO OF NET NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF VALUE, AT END OF EXPENSES TO INCOME (LOSS) EXPENSES TO END OF TOTAL PERIOD AVERAGE TO AVERAGE AVERAGE NET PORTFOLIO PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e) - ----------------------------------------------------------------------------------------------------------------------------------- CLASS A SHARES Period ended October 31, 2005 (f) $ 10.60 6.00% $ 726 1.50% (0.20)% 11.72% 49.10% Year ended October 31, 2006 12.57 19.15% 4,116 1.50% 0.05% 3.52% 48.46% - ----------------------------------------------------------------------------------------------------------------------------------- CLASS B SHARES Period ended October 31, 2005 (g) $ 10.57 5.70% $ 700 2.25% (1.01)% 11.63% 49.10% Year ended October 31, 2006 12.44 18.25% 2,998 2.25% (0.70)% 4.33% 48.46% - ----------------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES Period ended October 31, 2005 (h) $ 10.55 5.50% $ 21 2.25% (1.15)% 9.79% 49.10% Year ended October 31, 2006 12.41 18.19% 229 2.25% (0.69)% 4.20% 48.46% - -----------------------------------------------------------------------------------------------------------------------------------
(a) The per share amounts and percentages reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the applicable HSBC Investor Portfolios. (b) Not annualized for periods less than one year. Total return calculations do not include any sales or redemption charges. (c) Annualized for periods less than one year. (d) During the period certain fees were reduced. If such fee reductions had not occurred, the ratio would have been as indicated. (e) Portfolio turnover is calculated by aggregating the results of multiplying the Fund's investment percentage in the respective Portfolios by the corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates. Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. (f) Class A Shares commenced operations on February 14, 2005. (g) Class B Shares commenced operations on February 9, 2005. (h) Class C Shares commenced operations on June 10, 2005. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 28 - -------------------------------------------------------------------------------- HSBC INVESTOR GROWTH STRATEGY FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS ------------------------------------------- ------------------------ NET REALIZED AND NET NET ASSET NET UNREALIZED GAINS TOTAL REALIZED VALUE, INVESTMENT (LOSSES) FROM FROM GAINS FROM BEGINNING INCOME INVESTMENT INVESTMENT INVESTMENT TOTAL OF PERIOD (LOSS) TRANSACTIONS ACTIVITIES TRANSACTIONS DIVIDENDS - ---------------------------------------------------------------------------------------------------------------------- CLASS A SHARES Period ended October 31, 2005 (f) $ 10.00 0.02 0.70 0.72 -- -- Year ended October 31, 2006 10.72 0.07 1.69 1.76 (0.03) (0.03) - ---------------------------------------------------------------------------------------------------------------------- CLASS B SHARES Period ended October 31, 2005 (g) $ 10.00 (0.01) 0.79 0.78 -- -- Year ended October 31, 2006 10.78 0.02 1.66 1.68 (0.03) (0.03) - ---------------------------------------------------------------------------------------------------------------------- CLASS C SHARES Period ended October 31, 2005 (h) $ 10.00 (0.02) 0.84 0.82 -- -- Year ended October 31, 2006 10.82 0.02 1.67 1.69 (0.03) (0.03) - ---------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTARY DATA ----------------------------------------------------------------------- RATIO OF NET NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF VALUE, AT END OF EXPENSES TO INCOME (LOSS) EXPENSES TO END OF TOTAL PERIOD AVERAGE TO AVERAGE AVERAGE NET PORTFOLIO PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e) - ----------------------------------------------------------------------------------------------------------------------------------- CLASS A SHARES Period ended October 31, 2005 (f) $ 10.72 7.20% $ 2,814 1.50% 0.42% 5.19% 69.23% Year ended October 31, 2006 12.45 16.41% 12,562 1.50% 0.87% 2.19% 80.30% - ----------------------------------------------------------------------------------------------------------------------------------- CLASS B SHARES Period ended October 31, 2005 (g) $ 10.78 7.80% $ 2,670 2.25% (0.38)% 5.74% 69.23% Year ended October 31, 2006 12.43 15.57% 8,702 2.25% 0.11% 2.94% 80.30% - ----------------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES Period ended October 31, 2005 (h) $ 10.82 8.20% $ 106 2.25% (0.55)% 5.24% 69.23% Year ended October 31, 2006 12.48 15.61% 585 2.25% 0.14% 2.90% 80.30% - -----------------------------------------------------------------------------------------------------------------------------------
(a) The per share amounts and percentages reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the applicable HSBC Investor Portfolios. (b) Not annualized for periods less than one year. Total return calculations do not include any sales or redemption charges. (c) Annualized for periods less than one year. (d) During the period certain fees were reduced. If such fee reductions had not occurred, the ratio would have been as indicated. (e) Portfolio turnover is calculated by aggregating the results of multiplying the Fund's investment percentage in the respective Portfolios by the corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates. Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. (f) Class A Shares commenced operations on February 8, 2005. (g) Class B Shares commenced operations on February 1, 2005. (h) Class C Shares commenced operations on April 27, 2005. SEE NOTES TO FINANCIAL STATEMENTS. 29 HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- HSBC INVESTOR MODERATE GROWTH STRATEGY FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS ---------------------------------------- ------------------------------------------ NET REALIZED AND NET REALIZED NET ASSET NET UNREALIZED GAINS TOTAL GAINS FROM VALUE, INVESTMENT (LOSSES) FROM FROM NET INVESTMENT BEGINNING INCOME INVESTMENT INVESTMENT INVESTMENT AND TOTAL OF PERIOD (LOSS) TRANSACTIONS ACTIVITIES INCOME TRANSACTIONS DIVIDENDS - ---------------------------------------------------------------------------------------------------------------------------------- CLASS A SHARES Period ended October 31, 2005 (f) $ 10.00 0.04 0.45 0.49 -- (g) -- -- (g) Year ended October 31, 2006 10.49 0.17 1.23 1.40 (0.17) (0.01) (0.18) - ---------------------------------------------------------------------------------------------------------------------------------- CLASS B SHARES Period ended October 31, 2005 (h) $ 10.00 0.01 0.49 0.50 -- (g) -- -- (g) Year ended October 31, 2006 10.50 0.09 1.22 1.31 (0.08) (0.01) (0.09) - ---------------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES Period ended October 31, 2005 (i) $ 10.00 -- (g) 0.28 0.28 -- -- -- Year ended October 31, 2006 10.28 0.09 1.19 1.28 (0.08) (0.01) (0.09) - ---------------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTARY DATA ---------------------------------------------------------------------- RATIO OF NET NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF VALUE, AT END OF EXPENSES TO INCOME TO EXPENSES TO END OF TOTAL PERIOD AVERAGE AVERAGE AVERAGE NET PORTFOLIO PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e) - -------------------------------------------------------------------------------------------------------------------------------- CLASS A SHARES Period ended October 31, 2005 (f) $ 10.49 4.94% $ 3,241 1.50% 0.95% 4.30% 84.55% Year ended October 31, 2006 11.71 13.40% 11,973 1.50% 1.65% 2.12% 101.57% - -------------------------------------------------------------------------------------------------------------------------------- CLASS B SHARES Period ended October 31, 2005 (h) $ 10.50 5.03% $ 3,604 2.25% 0.18% 5.01% 84.55% Year ended October 31, 2006 11.72 12.45% 10,731 2.25% 0.91% 2.87% 101.57% - -------------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES Period ended October 31, 2005 (i) $ 10.28 2.80% $ 278 2.25% 0.05% 4.69% 84.55% Year ended October 31, 2006 11.47 12.53% 763 2.25% 0.87% 2.83% 101.57% - --------------------------------------------------------------------------------------------------------------------------------
(a) The per share amounts and percentages reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the applicable HSBC Investor Portfolios. (b) Not annualized for periods less than one year. Total return calculations do not include any sales or redemption charges. (c) Annualized for periods less than one year. (d) During the period certain fees were reduced. If such fee reductions had not occurred, the ratio would have been as indicated. (e) Portfolio turnover is calculated by aggregating the results of multiplying the Fund's investment percentage in the respective Portfolios by the corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates. Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. (f) Class A Shares commenced operations on February 3, 2005. (g) Rounds to less than $0.01. (h) Class B Shares commenced operations on February 1, 2005. (i) Class C Shares commenced operations on June 10, 2005. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 30 - -------------------------------------------------------------------------------- HSBC INVESTOR CONSERVATIVE GROWTH STRATEGY FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS ------------------------------------------ ---------------------- NET REALIZED AND NET ASSET NET UNREALIZED GAINS VALUE, INVESTMENT (LOSSES) FROM TOTAL FROM NET BEGINNING INCOME INVESTMENT INVESTMENT INVESTMENT TOTAL OF PERIOD (LOSS) TRANSACTIONS ACTIVITIES INCOME DIVIDENDS - ----------------------------------------------------------------------------------------------------------------------- CLASS A SHARES Period ended October 31, 2005 (f) $ 10.00 0.04 0.26 0.30 (0.01) (0.01) Year ended October 31, 2006 10.29 0.22 0.85 1.07 (0.25) (0.25) - ----------------------------------------------------------------------------------------------------------------------- CLASS B SHARES Period ended October 31, 2005 (g) $ 10.00 0.03 0.16 0.19 -- (h) -- (h) Year ended October 31, 2006 10.19 0.15 0.83 0.98 (0.16) (0.16) - ----------------------------------------------------------------------------------------------------------------------- CLASS C SHARES Period ended October 31, 2005 (i) $ 10.00 0.03 0.38 0.41 -- -- Year ended October 31, 2006 10.41 0.15 0.85 1.00 (0.17) (0.17) - ----------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTARY DATA ------------------------------------------------------------------------ RATIO OF NET NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF VALUE, AT END OF EXPENSES TO INCOME TO EXPENSES TO END OF TOTAL PERIOD AVERAGE AVERAGE AVERAGE NET PORTFOLIO PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e) - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A SHARES Period ended October 31, 2005 (f) $ 10.29 2.96% $ 1,054 1.50% 1.28% 8.01% 72.14% Year ended October 31, 2006 11.11 10.48% 3,069 1.50% 2.33% 3.22% 96.58% - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B SHARES Period ended October 31, 2005 (g) $ 10.19 1.92% $ 1,306 2.25% 0.53% 9.21% 72.14% Year ended October 31, 2006 11.01 9.65% 2,567 2.25% 1.54% 3.98% 96.58% - ------------------------------------------------------------------------------------------------------------------------------------ CLASS C SHARES Period ended October 31, 2005 (i) $ 10.41 4.10% $ 82 2.25% 0.66% 7.94% 72.14% Year ended October 31, 2006 11.24 9.66% 320 2.25% 1.56% 3.92% 96.58% - ------------------------------------------------------------------------------------------------------------------------------------
(a) The per share amounts and percentages reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the applicable HSBC Investor Portfolios. (b) Not annualized for periods less than one year. Total return calculations do not include any sales or redemption charges. (c) Annualized for periods less than one year. (d) During the period certain fees were reduced. If such fee reductions had not occurred, the ratio would have been as indicated. (e) Portfolio turnover is calculated by aggregating the results of multiplying the Fund's investment percentage in the respective Portfolios by the corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates. Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. (f) Class A Shares commenced operations on February 23, 2005. (g) Class B Shares commenced operations on February 17, 2005. (h) Rounds to less than $0.01. (i) Class C Shares commenced operations on April 19, 2005. SEE NOTES TO FINANCIAL STATEMENTS. 31 HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- HSBC INVESTOR CONSERVATIVE INCOME STRATEGY FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS ------------------------------------------ ----------------------- NET REALIZED AND NET ASSET NET UNREALIZED GAINS TOTAL VALUE, INVESTMENT (LOSSES) FROM FROM NET BEGINNING OF INCOME INVESTMENT INVESTMENT INVESTMENT TOTAL PERIOD (LOSS) TRANSACTIONS ACTIVITIES INCOME DIVIDENDS - -------------------------------------------------------------------------------------------------------------------------- CLASS A SHARES Period ended October 31, 2005 (f) $ 10.00 0.11 0.01 0.12 (0.11) (0.11) Year ended October 31, 2006 10.01 0.32* 0.29 0.61 (0.33) (0.33) - -------------------------------------------------------------------------------------------------------------------------- CLASS B SHARES Period ended October 31, 2005 (g) $ 10.00 0.06 0.01 0.07 (0.04) (0.04) Year ended October 31, 2006 10.03 0.24* 0.30 0.54 (0.26) (0.26) - -------------------------------------------------------------------------------------------------------------------------- CLASS C SHARES Period ended October 31, 2005 (h) $ 10.00 0.06 0.08 0.14 (0.06) (0.06) Year ended October 31, 2006 10.08 0.22* 0.27 0.49 (0.23) (0.23) - -------------------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTARY DATA ------------------------------------------------------------------------ RATIO OF NET NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF VALUE, AT END OF EXPENSES TO INCOME EXPENSES TO END OF TOTAL PERIOD AVERAGE TO AVERAGE AVERAGE NET PORTFOLIO PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e) - ------------------------------------------------------------------------------------------------------------------------------------ CLASS A SHARES Period ended October 31, 2005 (f) $ 10.01 1.18% $ 419 1.50% 1.79% 14.10% 79.90% Year ended October 31, 2006 10.29 6.19% 1,320 1.50% 3.19% 5.50% 110.57% - ------------------------------------------------------------------------------------------------------------------------------------ CLASS B SHARES Period ended October 31, 2005 (g) $ 10.03 0.68% $ 478 2.25% 1.21% 12.16% 79.90% Year ended October 31, 2006 10.31 5.40% 763 2.25% 2.39% 6.43% 110.57% - ------------------------------------------------------------------------------------------------------------------------------------ CLASS C SHARES Period ended October 31, 2005 (h) $ 10.08 1.41% $ 245 2.25% 1.24% 9.60% 79.90% Year ended October 31, 2006 10.34 4.92% 23 2.25% 2.15% 6.58% 110.57% - ------------------------------------------------------------------------------------------------------------------------------------
* Calculated based on average shares outstanding. (a) The per share amounts and percentages reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the applicable HSBC Investor Portfolios. (b) Not annualized for periods less than one year. Total return calculations do not include any sales or redemption charges. (c) Annualized for periods less than one year. (d) During the period certain fees were reduced. If such fee reductions had not occurred, the ratio would have been as indicated. (e) Portfolio turnover is calculated by aggregating the results of multiplying the Fund's investment percentage in the respective Portfolios by the corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates. Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. (f) Class A Shares commenced operations on February 8, 2005. (g) Class B Shares commenced operations on February 14, 2005. (h) Class C Shares commenced operations on May 4, 2005. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 32 - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 1. ORGANIZATION: The HSBC Investor Funds (the "Trust"), a Massachusetts business trust organized on April 22, 1987, is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. As of October 31, 2006, the Trust is comprised of 24 separate funds, each a diversified series of the HSBC Investor Family of Funds. The accompanying financial statements are presented for the following 5 funds (individually a "Fund", collectively the "LifeLine Funds"):
FUND SHORT NAME - ---- ---------- HSBC Investor Aggressive Growth Strategy Fund Aggressive Growth Fund HSBC Investor Growth Strategy Fund Growth Strategy Fund HSBC Investor Moderate Growth Strategy Fund Moderate Growth Fund HSBC Investor Conservative Growth Strategy Fund Conservative Growth Fund HSBC Investor Conservative Income Strategy Fund Conservative Income Fund
Financial statements for all other funds of the HSBC Investor Family of Funds are published separately. The HSBC Investor Money Market Fund (the "Money Market Fund") is an open-end management investment company and, like each LifeLine Fund, is a diversified series of the Trust. The LifeLine Funds utilize a master feeder fund structure and seek to achieve their investment objectives by investing all of their investable assets in the Portfolios and the Money Market Fund (collectively the "Underlying Portfolios") per the following schedule from April 28, 2006 to October 31, 2006: LIFELINE FUNDS PORTFOLIO WEIGHTINGS
AGGRESSIVE GROWTH MODERATE CONSERVATIVE CONSERVATIVE GROWTH STRATEGY GROWTH GROWTH INCOME UNDERLYING PORTFOLIOS FUND FUND FUND FUND FUND - --------------------- ---------- -------- -------- ------------ ------------ Core Plus Fixed Income Portfolio ..................... None 15% 26% 25% 15% High Yield Fixed Income Portfolio .................... None 2% 5% 8% 10% Intermediate Duration Fixed Income Portfolio ......... None None None 3% 25% Growth Portfolio ..................................... 21% 21% 19% 15% 8% International Equity Portfolio ....................... 23% 20% 15% 10% 4% Small Cap Equity Portfolio ........................... 34% 20% 11% 4% None Value Portfolio ...................................... 21% 21% 18% 14% 8% Money Market Fund .................................... 1% 1% 6% 21% 30% ---------- -------- -------- ------------ ------------ Total ................................................ 100% 100% 100% 100% 100% ========== ======== ======== ============ ============
Prior to April 28, 2006, the Lifeline Funds utilized the following schedule:
AGGRESSIVE GROWTH MODERATE CONSERVATIVE CONSERVATIVE GROWTH STRATEGY GROWTH GROWTH INCOME UNDERLYING PORTFOLIOS FUND FUND FUND FUND FUND - --------------------- ---------- -------- -------- ------------ ------------ Core Plus Fixed Income Portfolio ..................... None 17% 31% 20% 25% Intermediate Duration Fixed Income Portfolio ......... None None None 15% 25% Growth Portfolio ..................................... 21% 21% 19% 15% 8% International Equity Portfolio ....................... 23% 20% 15% 10% 4% Small Cap Equity Portfolio ........................... 34% 20% 11% 5% None Value Portfolio ...................................... 21% 21% 18% 15% 8% Money Market Fund .................................... 1% 1% 6% 20% 30% ---------- -------- -------- ------------ ------------ Total ................................................ 100% 100% 100% 100% 100% ========== ======== ======== ============ ============
The HSBC Investor Core Plus Fixed Income Portfolio (formerly the HSBC Investor Fixed Income Portfolio), HSBC Investor High Yield Fixed Income Portfolio, HSBC Investor Intermediate Duration Fixed Income Portfolio (formerly the HSBC Investor Limited Maturity Portfolio), HSBC Investor Growth Portfolio, HSBC Investor International Equity Portfolio, HSBC Investor Small Cap Equity Portfolio and the HSBC Investor Value Portfolio 33 HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) (individually a "Portfolio," collectively the "Portfolios") are diversified series of the HSBC Investor Portfolios (the "Portfolio Trust"). The Portfolios operate as master funds in master-feeder arrangements. The financial statements of the Portfolios, including the Schedules of Portfolio Investments, are included elsewhere in this report. The financial statements of the Portfolios should be read in conjunction with the financial statements of the LifeLine Funds. The LifeLine Funds are authorized to issue an unlimited number of shares of beneficial interest with a par value of $0.001 per share. Each Fund offers four classes of shares: Class A Shares, Class B Shares, Class C Shares, and Class R Shares (currently not operational with assets). Class A Shares of the Aggressive Growth Fund, Growth Strategy Fund, Moderate Growth Fund, and the Conservative Growth Fund have a maximum sales charge of 5.00% as a percentage of the original purchase price while Class A Shares of the Conservative Income Fund has a maximum sales charge of 4.75% as a percentage of the original purchase price. The Class B Shares of the Lifeline Funds are offered without any front-end sales charge but will be subject to a contingent deferred sales charge ("CDSC") ranging from a maximum of 4.00% if redeemed less than one year after purchase to 0.00% if redeemed more than four years after purchase. Class C Shares of the Lifeline Funds are offered without any front-end sales charge but will be subject to a maximum CDSC of 1.00% if redeemed less than one year after purchase. No sales charges are assessed with respect to Class R Shares of the Funds. Each class of shares in the LifeLine Funds has identical rights and privileges except with respect to arrangements pertaining to shareholder servicing or distribution, class-related expenses, voting rights on matters affecting a single class of shares, and the exchange privileges of each class of shares. Under the Trust's organizational documents, the LifeLine Funds' officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the LifeLine Funds. In addition, in the normal course of business, the LifeLine Funds enter into contracts with service providers, which also provide for indemnifications by the LifeLine Funds. The LifeLine Funds' maximum exposure under these arrangements is unknown as this would involve any future claims that may be made against the LifeLine Funds. However, based on experience, the LifeLine Funds expect that risk of loss to be remote. 2. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of the significant accounting policies followed by the LifeLine Funds in the preparation of their financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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: The LifeLine Funds record their investments in the Underlying Portfolios at fair value. The LifeLine Funds record their investments in the Money Market Fund at the respective net asset value reported by the Fund. The underlying securities of the Portfolios' and the Money Market Fund are recorded at fair value and at amortized cost, respectively, as more fully discussed in the notes to those financial statements. SECURITIES TRANSACTIONS AND RELATED INCOME: The LifeLine Funds record daily their pro-rata income, expenses and unrealized/realized gains and losses derived from their respective Portfolio. Dividend income is recorded on the ex-dividend date for the Money Market Fund. Changes in holdings of the Money Market Fund for each LifeLine Fund are reflected no later than the first business day following trade date. However, for financial reporting purposes, changes in holdings of the Money Market Fund are reflected as of trade date. In addition, the LifeLine Funds accrue their own expenses daily as incurred. ALLOCATIONS: Expenses directly attributable to a Fund are charged to that Fund. Expenses not directly attributable to a Fund are allocated proportionately among various or all LifeLine Funds within the HSBC Investor Family of Funds in relation to the net assets of each Fund or on another reasonable basis. Expenses specific to a class are charged to that class. In HSBC INVESTOR LIFELINE FUNDS 34 - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) addition, income, expenses (other than class specific expenses), and unrealized/realized gains and losses are allocated to each class based on relative net assets on a daily basis. DIVIDENDS TO SHAREHOLDERS: The Conservative Income Fund declares and distributes all net investment income as dividends to its shareholders monthly. Dividends from net investment income, if any, are declared and distributed quarterly in the case of the Moderate Growth Fund and Conservative Growth Fund, and annually in the case of the Aggressive Growth Fund and Growth Strategy Fund. The LifeLine Funds' net realized gains, if any, are distributed to shareholders at least annually. Additional distributions are also made to the LifeLine Funds' shareholders to the extent necessary to avoid the federal excise tax on certain undistributed income and net capital gains of regulated investment companies. The amount and character of net investment income and net realized gains distributions are determined in accordance with federal income tax regulations which may differ from GAAP. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of market discounts, certain gain/loss, paydowns, and certain distributions), such amounts are reclassified within the components of net assets; temporary differences (e.g., wash losses and post-october loss deferrals) do not require reclassification. The LifeLine Funds may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as a part of the dividends paid deduction for income tax purposes. REDEMPTION FEE: A redemption fee of 2.00% will be charged and recorded as paid-in-capital for any shares redeemed or exchanged after holding them for less than 30 days. This fee does not apply to shares purchased through reinvested dividends or capital gains or shares held in certain omnibus accounts or retirement plans that cannot implement the fee. For the year ended October 31, 2006, the following LifeLine Funds collected redemption fees as follows: FUND FEES COLLECTED ---- -------------- Aggressive Growth Fund ................... $ 363 Growth Strategy Fund ..................... 514 Moderate Growth Fund ..................... 429 Conservative Growth Fund ................. 54 Conservative Income Fund ................. 70 FEDERAL INCOME TAXES: Each Fund is a separate taxable entity for federal income tax purposes. Each Fund has qualified and intends to continue to qualify each year as a "regulated investment company" under Subchapter M of the Internal Revenue Code, as amended, and to distribute substantially all of their taxable net investment income and net realized gains, if any, to their shareholders. Accordingly, no provision for federal income or excise tax is required. NEW ACCOUNTING PRONOUNCEMENTS: In September 2006 the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current GAAP from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of October 31, 2006, the LifeLine Funds do not believe the adoption of SFAS No. 157 will impact the financial statement amounts, however, additional disclosures will be required about the inputs used to develop the measurements and the effect of certain of the measurements on changes in net assets for the period. 35 HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) On July 13, 2006, the FASB released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the LifeLine Funds' tax return to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more likely-than-not threshold would be recorded as a tax benefit or expense in the year of determination. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Management is in the process of completing their analysis on whether the adoption of FIN 48 will have an impact to the financial statements upon adoption. 3. RELATED PARTY TRANSACTIONS: INVESTMENT MANAGEMENT: HSBC Investments (USA) Inc. ("HSBC" or the "Investment Adviser"), a wholly owned subsidiary of HSBC Bank USA, a New York State chartered bank, acts as Investment Adviser to the LifeLine Funds. As Investment Adviser, HSBC manages the investments of the LifeLine Funds and continuously reviews, supervises and administers the LifeLine Funds' investments. For its services as Investment Adviser, HSBC is entitled to receive a fee, computed daily and paid monthly, based on average daily net assets, at an annual rate of 0.05% for each Fund. ADMINISTRATION: HSBC serves the LifeLine Funds as Administrator. Under the terms of the administration agreement, HSBC receives from the LifeLine Funds a fee accrued daily and paid monthly at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS FEE RATE - --------------------------------- -------- Up to $8 billion ........................................................................ 0.075% In excess of $8 billion but not exceeding $9.25 billion ................................. 0.070% In excess of $9.25 billion but not exceeding $12 billion ................................ 0.050% In excess of $12 billion ................................................................ 0.030%
The fee breakpoints are determined on the basis of the aggregate average daily net assets of the HSBC Investor Family of Funds. The fee is allocated to each series of the HSBC Investor Family of Funds based upon its pro-rata share of net assets. For assets invested in Underlying Portfolios by LifeLine Funds, the Portfolios pay half of the administration fee, and the LifeLine Funds pay the other half, for a combination of the total fee rate above. The administration fees accrued for each class by Fund, of which 50% of such fees are deemed to be class specific since June 1, 2006 (100% was deemed class specific prior to that date), are as follows:
AGGRESSIVE MODERATE CONSERVATIVE CONSERVATIVE GROWTH GROWTH GROWTH GROWTH INCOME STRATEGY FUND STRATEGY FUND FUND FUND FUND ------------- ------------- ------------ ------------ ------------ Class A Shares ......... $ 774 $ 2,593 $ 2,823 $ 801 $ 406 Class B Shares ......... 693 2,141 2,664 750 221 Class C Shares ......... 52 176 272 103 63 ------------- ------------- ------------ ------------ ------------ Total Shares ........... $ 1,519 $ 4,910 $ 5,759 $ 1,654 $ 690 ============= ============= ============ ============ ============
Pursuant to a Sub-Administration Agreement with HSBC, BISYS Fund Services Ohio, Inc. ("BISYS Ohio") a wholly-owned subsidiary of The BISYS Group, Inc, serves as the Trust's sub-administrator to each Fund subject to the general supervision of the Trust's Board of Trustees and HSBC. For these services, BISYS Ohio is entitled to a fee, payable by HSBC, at an annual rate equivalent to the fee rates set forth above, minus 0.02% (2 basis points) which is retained by HSBC. Under a Compliance Services Agreement between the Trusts and BISYS Ohio (the "CCO Agreement"), BISYS Ohio makes an employee available to serve as the Trust's Chief Compliance Officer (the "CCO"). Under the CCO Agreement, BISYS Ohio also provides infrastructure and support in implementing the written policies and procedures comprising the Trust's compliance program, including support services to the CCO. For the services provided under the HSBC INVESTOR LIFELINE FUNDS 36 - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) CCO Agreement, the HSBC Investor Family of Funds paid BISYS Ohio $240,000 for the year ended October 31, 2006, plus reimbursement of certain out of pocket expenses. Expenses incurred are reflected on the Statements of Operations as "Compliance service." BISYS Ohio pays the salary and other compensation earned by any such individuals as employees of BISYS Ohio. DISTRIBUTION PLAN: BISYS Fund Services Limited Partnership ("BISYS"), a wholly-owned subsidiary of BISYS Fund Services, Inc., serves the LifeLine Funds as Distributor (the "Distributor"). The Trust has adopted a non-compensatory Distribution Plan and Agreement (the "Plan") pursuant to Rule 12b-1 of the Act. The Plan provides for reimbursement of expenses incurred by the Distributor related to distribution and marketing, at a rate not to exceed 0.25%, 1.00% and 1.00% of the average daily net assets of Class A Shares (currently not being charged), Class B Shares (currently charging 0.75%) and Class C Shares (currently charging 0.75%) of the LifeLine Funds, respectively. BISYS, as Distributor, also received $1,248,150, $797,394 and $18,602 in commissions from sales of HSBC Investor Family of Funds, for Class A Shares, Class B Shares and Class C Shares, respectively of which $1,247,785, $797,194 and $18,602, was reallowed to affiliated brokers and dealers, for Class A Shares, Class B Shares and Class C Shares, respectively. SHAREHOLDER SERVICING: The Trust has adopted an Administrative Services Plan which provides for payments to shareholder servicing agents (which currently consists of HSBC and its affiliates) for providing various shareholder services. For performing these services, the shareholder servicing agents receive a fee up to 0.25%, 0.25%, 0.25% and 0.75% that is computed daily and paid monthly equal to a percentage of average daily net assets of Class A Shares, Class B Shares, Class C Shares and Class R Shares of the Lifeline Funds, respectively. The fees paid to the Distributor pursuant to the Distribution Plan and to shareholder servicing agents pursuant to the Administrative Services Plan currently are not intended to exceed, in the aggregate, 0.25% of the average daily net assets of Class A Shares, 1.00% of the average daily net assets of Class B Shares and Class C Shares, and 0.75% of the average daily net assets of Class R Shares. FUND ACCOUNTING, TRANSFER AGENCY, CUSTODIAN AND TRUSTEE: BISYS Ohio provides fund accounting and transfer agency services for each Fund. As transfer agent for the LifeLine Funds, BISYS receives a fee based on the number of LifeLine Funds and shareholder accounts, subject to certain minimums and reimbursement of certain expenses. As fund accountant for the LifeLine Funds, BISYS receives an annual fee per Fund and share class, subject to certain minimums and reimbursement of certain expenses. HSBC Bank is the named Custodian for the LifeLine Funds, however, the LifeLine Funds maintained no securities for which such services were rendered during the period. Effective May 18, 2006 each of the six non-interested Trustees are compensated with a $35,000 annual Board retainer, as well as a $3,000 annual retainer for each Committee of the Board. Each non-interested Trustee also receives a $5,000 and $3,000 meeting fee for each regular in-person Board meeting and Committee meeting, respectively. Furthermore, each non-interested Trustee receives compensation for attending special meetings and/or functioning as a Committee Chairperson or Lead Trustee. In addition, the non-interested Trustees are reimbursed for certain expenses incurred in connection with their Board membership. Prior to May 18, 2006 each of the six non-interested Trustees were compensated with a $24,000 annual Board retainer, as well as a $1,000 annual retainer for each Committee of the Board. Each non-interested Trustee also received a $4,000 and $2,000 meeting fee for each regular in-person Board meeting and Committee meeting, respectively. FEE REDUCTIONS: The Investment Adviser has agreed to contractually limit through March 1, 2007 the total expenses, exclusive of interest, taxes, brokerage commissions and extraordinary expenses, of the LifeLine Funds. Each Fund Class has its own expense limitations based on the average daily net assets for any full fiscal year as follows: Class A 1.50%, Class B 2.25%, Class C 2.25% and Class R 2.00%. The Administrator and BISYS Ohio may voluntarily waive/reimburse fees to help support the expense limits of each Fund. In addition, the Investment Adviser may waive/reimburse additional fees at their discretion. Amounts 37 HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) waived/reimbursed by the Investment Adviser, Administrator and BISYS Ohio are reported separately on the statements of operations. All contractual and any voluntary fee waivers/reimbursements are not subject to recoupment in subsequent fiscal periods. Voluntary waivers/reimbursements may be stopped at any time. 4. INVESTMENT TRANSACTIONS: Aggregate contributions and withdrawals of the Underlying Portfolios for the period ended October 31, 2006 totaled: CONTRIBUTIONS WITHDRAWALS ------------- ------------ Aggressive Growth Fund ......... $ 5,529,094 $ 354,750 Growth Strategy Fund ........... 15,742,029 1,471,960 Moderate Growth Fund ........... 15,822,725 2,221,828 Conservative Growth Fund ....... 3,879,066 1,572,299 Conservative Income Fund ....... 1,194,406 629,755 5. LEGAL AND REGULATORY MATTERS: On September 26, 2006 BISYS Fund Services, Inc. ("BISYS"), an affiliate of BISYS Fund Services Ohio, Inc. which provides various services to the Funds as described in footnote 3, reached a settlement with the Securities and Exchange Commission ("SEC") regarding the SEC's investigation related to BISYS' past payment of certain marketing and other expenses with respect to certain of its mutual fund clients. Although BISYS has reached a settlement with the SEC, the LifeLine Funds' management is not aware that any determination has been made as to how the BISYS settlement monies will be distributed. The SEC's examination of BISYS' mutual fund clients and their advisers, including HSBC, has not been completed. While the LifeLine Funds' management is currently unable to determine the impact, if any, of such matters on the LifeLine Funds or the LifeLine Funds' financial statements, management does not anticipate a material, adverse impact to the LifeLine Funds or the Lifeline Funds' Financial Statements. 6. FEDERAL INCOME TAX INFORMATION: The tax characteristics of dividends paid by the LifeLine Funds during the fiscal year ended October 31, 2006 were as follows:
DIVIDENDS PAID FROM -------------------------- ORDINARY NET LONG TERM TOTAL TAXABLE TAX EXEMPT TOTAL DIVIDENDS FUND INCOME CAPITAL GAINS DIVIDENDS DISTRIBUTIONS PAID(1) - ---- ---------- ------------- ------------- ------------- --------------- Aggressive Growth Fund ........... $ -- $ 9,058 $ 9,058 $ -- $ 9,058 Growth Strategy Fund ............. 22 16,108 16,130 -- 16,130 Moderate Growth Fund ............. 188,594 7,543 196,137 -- 196,137 Conservative Growth Fund ......... 87,312 -- 87,312 -- 87,312 Conservative Income Fund ......... 52,647 -- 52,647 -- 52,647
The tax characteristics of dividends paid by the LifeLine Funds during the fiscal year ended October 31, 2005 were as follows:
DIVIDENDS PAID FROM -------------------------- ORDINARY NET LONG TERM TOTAL TAXABLE TAX EXEMPT TOTAL DIVIDENDS FUND INCOME CAPITAL GAINS DIVIDENDS DISTRIBUTIONS PAID(1) - ---- ---------- ------------- ------------- ------------- --------------- Moderate Growth Fund ............. $ 189 $ -- $ 189 $ -- $ 189 Conservative Growth Fund ......... 208 -- 208 -- 208 Conservative Income Fund ......... 3,499 -- 3,499 -- 3,499
HSBC INVESTOR LIFELINE FUNDS 38 - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) As of October 31, 2006, the components of accumulated earnings/(deficit) on a tax basis for the LifeLine Funds were as follows:
UNDISTRIBUTED ACCUMULATED TOTAL UNDISTRIBUTED UNDISTRIBUTED LONG TERM CAPITAL AND UNREALIZE ACCUMULATED ORDINARY TAX EXEMPT CAPITAL ACCUMULATED DIVIDENDS OTHER APPRECIATION/ EARNINGS/ FUND INCOME INCOME GAINS EARNINGS PAYABLE(2) LOSSES (DEPRECIATION)(3) (DEFICIT) ---- ------------- ------------- ------------- ----------- ---------- ----------- ----------------- ----------- Aggressive Growth Fund ......... $ -- $ -- $ -- $ -- $ -- $ (6,368) $ 603,158 $ 596,790 Growth Strategy Fund ......... 94,306 -- 164,526 258,832 -- -- 1,596,082 1,854,914 Moderate Growth Fund ......... 35,375 -- 208,376 243,751 -- -- 1,378,241 1,621,992 Conservative Growth Fund .. 9,529 -- 67,208 76,737 -- -- 277,976 354,713 Conservative Income Fund .. 6,349 -- 1,845 8,194 (5,720) -- 47,100 49,574
- ---------- (1) Total dividends paid may differ from the amount reported in the Statement of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. (2) Dividends payable may differ from the amount reported in the Statements of Assets and Liabilities because dividends reinvested on October 31, 2006 are booked as capital for financial reporting purposes but are reflected as a payable for tax purposes. (3) The differences between book-basis and tax-basis unrealized appreciation/deprecation are attributable primarily to: tax deferral of losses on wash sales, the realization for tax purposes of unrealized gains/losses on certain derivative instruments, the difference between book and tax amortization methods for premium and market discount, the realization for tax purposes of unrealized gains/losses on investments in passive foreign investment companies, and the return of capital adjustments from real estate investment trusts. As of October 31, 2006, the following Fund had net capital loss carryforwards, which are available to offset future realized gains. FUND AMOUNT EXPIRES ---- ------ ------- Aggressive Growth Fund .................... $6,368 2014 39 HSBC INVESTOR LIFELINE FUNDS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of HSBC Investor LifeLine Funds: We have audited the accompanying statements of assets and liabilities of HSBC Investor Aggressive Growth Strategy Fund, HSBC Investor Growth Strategy Fund, HSBC Investor Moderate Growth Strategy Fund, HSBC Investor Conservative Growth Strategy Fund and HSBC Investor Conservative Income Strategy Fund (the Funds), including the related statements of operations for the year then ended and the statements of changes in net assets and the financial highlights for each period in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Funds' 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 the standards of the Public Company Accounting Oversight Board (United States). 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. 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 Funds as of October 31, 2006, and the results of their operations for the year then ended and the changes in their net assets and the financial highlights for each period in the two-year period then ended, in conformity with U.S. generally accepted accounting principles. KPMG LLP Columbus, Ohio December 22, 2006 HSBC INVESTOR LIFELINE FUNDS 40 - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- OTHER FEDERAL INCOME TAX INFORMATION--OCTOBER 31, 2006 (UNAUDITED) For the fiscal year ended October 31, 2006, the following percentage of the total ordinary income dividends paid by the LifeLine Funds qualify for the corporate dividends received deduction available to corporate shareholders. DIVIDENDS FUND RECEIVED DEDUCTION ---- ------------------ Growth Strategy Fund ........................ 80% Moderate Growth Fund ........................ 37% Conservative Growth Fund .................... 20% Conservative Income Fund .................... 7% For the fiscal year ended October 31, 2006, dividends paid by the LifeLine Funds may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The LifeLine Funds intend to designate the maximum amount allowable as taxed at a maximum rate of 15%. Complete information will be reported in conjunction with your 2006 Form 1099-DIV. QUALIFIED DIVIDEND FUND INCOME ---- --------- Growth Strategy Fund ........................ 100% Moderate Growth Fund ........................ 66% Conservative Growth Fund .................... 36% Conservative Income Fund .................... 11% During the fiscal year ended October 31, 2006, the following LifeLine Funds declared net long term capital gains distributions: AMOUNT ------ Aggressive Growth Fund ...................... $ 9,058 Growth Strategy Fund ........................ 16,108 Moderate Growth Fund ........................ 7,543 41 HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- TABLE OF SHAREHOLDERS EXPENSES--OCTOBER 31, 2006 (UNAUDITED) As a shareholder of the HSBC Investor LifeLine Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchases; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and shareholder servicing fees; and other fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the HSBC Investor LifeLine Funds and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from May 1, 2006 through October 31, 2006. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
ANNUALIZED BEGINNING ENDING EXPENSE PAID EXPENSE RATIO ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD 5/1/06 10/31/06 5/1/06-10/31/06 5/1/06-10/31/06 ------------- ------------- --------------- --------------- Aggressive Growth Strategy Fund Class A $1,000.00 $1,014.50 $ 7.62 1.50% Class B 1,000.00 1,010.60 11.40 2.25% Class C 1,000.00 1,010.60 11.40 2.25% Conservative Growth Strategy Fund Class A 1,000.00 1,028.10 8.33 1.63% Class B 1,000.00 1,023.50 12.24 2.40% Class C 1,000.00 1,024.20 12.30 2.41% Conservative Income Strategy Fund Class A 1,000.00 1,027.90 8.43 1.65% Class B 1,000.00 1,024.00 12.24 2.40% Class C 1,000.00 1,019.50 14.35 2.82% Growth Strategy Fund Class A 1,000.00 1,022.20 7.80 1.53% Class B 1,000.00 1,018.90 11.65 2.29% Class C 1,000.00 1,018.80 11.65 2.29% Moderate Growth Strategy Fund Class A 1,000.00 1,028.00 8.08 1.58% Class B 1,000.00 1,023.30 11.88 2.33% Class C 1,000.00 1,023.30 12.04 2.36%
- ---------- * Expenses are equal to the average account value times the Fund's annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. HSBC INVESTOR LIFELINE FUNDS 42 - -------------------------------------------------------------------------------- HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- TABLE OF SHAREHOLDERS EXPENSES--OCTOBER 31, 2006 (UNAUDITED) (CONTINUED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below provides information about hypothetical account values and hypothetical expenses based on each HSBC Investor LifeLine Funds' actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
ANNUALIZED BEGINNING ENDING EXPENSE PAID EXPENSE RATIO ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD 5/1/06 10/31/06 5/1/06-10/31/06 5/1/06-10/31/06 ------------- ------------- --------------- --------------- Aggressive Growth Strategy Fund Class A $1,000.00 $1,017.64 $ 7.63 1.50% Class B 1,000.00 1,013.86 11.42 2.25% Class C 1,000.00 1,013.86 11.42 2.25% Conservative Growth Strategy Fund Class A 1,000.00 1,016.99 8.29 1.63% Class B 1,000.00 1,013.11 12.18 2.40% Class C 1,000.00 1,013.06 12.23 2.41% Conservative Income Strategy Fund Class A 1,000.00 1,016.89 8.39 1.65% Class B 1,000.00 1,013.11 12.18 2.40% Class C 1,000.00 1,010.99 14.29 2.82% Growth Strategy Fund Class A 1,000.00 1,017.49 7.78 1.53% Class B 1,000.00 1,013.66 11.62 2.29% Class C 1,000.00 1,013.66 11.62 2.29% Moderate Growth Strategy Fund Class A 1,000.00 1,017.24 8.03 1.58% Class B 1,000.00 1,013.46 11.82 2.33% Class C 1,000.00 1,013.31 11.98 2.36%
- ---------- * Expenses are equal to the average account value times the Fund's annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. 43 HSBC INVESTOR LIFELINE FUNDS - -------------------------------------------------------------------------------- HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 - -------------------------------------------------------------------------------- U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 44.7% - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- FEDERAL HOME LOAN MORTGAGE CORP. - 4.3% Pool #1B2655, 4.14%, 12/1/34 (a) ................... 1,559,661 1,545,870 Pool #1J1313, 6.58%, 6/1/36 ........................ 2,055,189 2,085,555 Pool #C00368, 8.50%, 10/1/24 ....................... 33,810 36,238 Pool #C00922, 8.00%, 2/1/30 ........................ 218,412 229,944 Pool #C54447, 7.00%, 7/1/31 ........................ 39,406 40,662 Pool #C60712, 6.50%, 11/1/31 ....................... 625,614 641,534 Pool #C80387, 6.50%, 4/1/26 ........................ 33,745 34,679 Pool #D62926, 6.50%, 8/1/25 ........................ 20,404 20,940 Pool #G01317, 7.00%, 10/1/31 ....................... 175,627 181,224 ----------- 4,816,646 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 20.7% Pool #253438, 8.50%, 9/1/30 ........................ 55,696 59,891 Pool #255770, 5.50%, 7/1/35 ........................ 4,358,875 4,310,043 Pool #329530, 7.00%, 12/1/25 ....................... 101,168 104,672 Pool #329655, 7.00%, 11/1/25 ....................... 44,889 46,444 Pool #356905, 7.06%, 10/1/36 (a) ................... 261,927 264,909 Pool #398958, 6.50%, 10/1/12 ....................... 79,173 80,745 Pool #535332, 8.50%, 4/1/30 ........................ 50,442 54,216 Pool #535440, 8.50%, 8/1/30 ........................ 59,918 64,430 Pool #548965, 8.50%, 7/1/30 ........................ 55,685 59,879 Pool #568486, 7.00%, 1/1/31 ........................ 39,878 41,204 Pool #573752, 8.50%, 2/1/31 ........................ 46,926 50,460 Pool #575328, 6.50%, 4/1/31 ........................ 57,635 59,079 TBA December, 5.00%, 12/1/35 ....................... 7,370,000 7,112,050 TBA December, 6.50%, 12/1/35 ....................... 1,910,000 1,946,894 TBA December, 6.00%, 12/15/35 ...................... 2,900,000 2,915,405 TBA November, 5.50%, 11/15/36 ...................... 5,950,000 5,879,344 ----------- 23,049,665 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.3% Pool #346406, 7.50%, 2/15/23 ....................... 70,219 73,232 Pool #412530, 7.50%, 12/15/25 ...................... 92,567 96,644 Pool #781300, 7.00%, 6/15/31 ....................... 166,934 172,709 TBA November, 6.00%, 11/15/36 ...................... 1,080,000 1,094,514 ----------- 1,437,099 ----------- U.S. TREASURY BONDS - 3.4% 4.50%, 2/15/36 ..................................... 3,890,000 3,754,457 ----------- U.S. TREASURY INFLATION PROTECTED BONDS - 1.0% 2.50%, 7/15/16 ..................................... 1,050,000 1,075,372 ----------- U.S. TREASURY NOTES - 14.0% 4.875%, 4/30/08 .................................... 1,398,000 1,399,911 4.875%, 5/31/08 .................................... 5,850,000 5,859,829 5.125%, 6/30/08 .................................... 350,000 352,078 4.875%, 10/31/08 ................................... 800,000 802,687 4.50%, 2/15/09 ..................................... 2,350,000 2,342,015 4.875%, 5/15/09 .................................... 450,000 452,566 4.75%, 3/31/11 ..................................... 470,000 473,176 4.50%, 9/30/11 ..................................... 950,000 946,697 4.875%, 8/15/16 .................................... 2,830,000 2,888,810 ----------- 15,517,769 ----------- TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (COST $49,270,548) .................. $49,651,008 ----------- - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS - 24.4% - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- AUTO MANUFACTURERS - 0.3% General Motors Corp., 7.125%, 7/15/13 .............. 400,000 358,000 ----------- BANKS - 0.3% JP Morgan Chase Bank NA, 2.53%, 1/3/12 (b)** .................................... 845,000 356,763 ----------- BUILDING PRODUCTS - 1.1% Masco Corp., 6.125%, 10/3/16 ....................... 1,200,000 1,204,788 ----------- CABLE - 0.6% Comcast Corp., 6.50%, 1/15/15 ...................... 650,000 680,237 ----------- CHEMICALS - 0.4% Lyondell Chemical Co., 8.25%, 9/15/16, Callable 9/15/11 @ 104.125 ...................... 400,000 412,000 ----------- COLLEGES & UNIVERSITIES - 1.5% Tulane University of Louisiana, 6.21%, 11/15/12 (a) (c) ................................ 1,700,000 1,705,100 ----------- ELECTRIC - 2.4% General Electric Co., 5.00%, 2/1/13 ................ 1,700,000 1,685,023 Progress Energy, Inc., 5.80%, 11/14/08, Callable 11/14/06 @ 100 (a) ..................... 1,000,000 1,001,631 ----------- 2,686,654 ----------- FINANCE - 4.0% Ford Motor Credit Corp., 5.80%, 1/12/09 ............ 1,250,000 1,193,950 General Motors Acceptance Corp., 4.375%, 12/10/07 ........................................ 2,250,000 2,207,196 International Lease Finance Corp., 5.70%, 7/1/11 (a) ...................................... 1,000,000 1,004,873 ----------- 4,406,019 ----------- HOTELS & LODGING - 0.7% MGM Mirage, Inc., 6.00%, 10/1/09 ................... 800,000 790,000 ----------- OFFICE EQUIPMENT & SERVICES - 1.4% Xerox Corp., 6.16%, 12/18/09 (a) ................... 550,000 552,750 Xerox Corp., 6.875%, 8/15/11 ....................... 950,000 973,750 ----------- 1,526,500 ----------- OIL & GAS - 0.4% Williams Partners LP, 7.50%, 6/15/11 (c) ........... 400,000 410,000 ----------- REAL ESTATE - 1.1% Realogy, Corp., 6.50%, 10/15/16 (c) ................ 1,150,000 1,178,743 ----------- RETAIL - 0.7% Federated Department Stores, 6.90%, 4/1/29 .......................................... 750,000 774,291 ----------- TELECOMMUNICATIONS - 7.0% AOL Time Warner, Inc., 7.70%, 5/1/32 ............... 1,000,000 1,138,892 AT&T, Inc., 5.10%, 9/15/14 ......................... 1,150,000 1,120,293 Bell Atlantic Virginia, 7.625%, 12/1/12 ............ 1,000,000 1,083,364 Bell Telephone Co. Pennsylvania, 8.75%, 8/15/31 ......................................... 850,000 1,027,181 Sprint Capital Corp., 8.75%, 3/15/32 ............... 1,600,000 1,976,730 Time Warner Entertainment Co., 8.375%, 3/15/23 ......................................... 1,300,000 1,534,449 ----------- 7,880,909 ----------- SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 44 - -------------------------------------------------------------------------------- HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED) - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- TRANSPORTATION - 1.5% Burlington Northern Santa Fe Railway Co., 7.57%, 1/2/21 ................................... 309,623 349,673 Union Pacific Corp., 6.85%, 1/2/19 ................. 1,218,585 1,308,711 ----------- 1,658,384 ----------- WASTE DISPOSAL - 1.0% Allied Waste North America, 7.125%, 5/15/16, Callable 5/15/11 @ 103.563 ............. 1,150,000 1,138,500 ----------- TOTAL CORPORATE OBLIGATIONS (COST $26,889,337) .............................. 27,166,888 ----------- - -------------------------------------------------------------------------------- ASSET BACKED SECURITIES - 13.8% - -------------------------------------------------------------------------------- Americredit Auto Receivables Trust Series 2004-DF, Class A3, 2.98%, 7/6/09 .......................................... 610,420 605,432 Asset Backed Funding Certificates Series 2003-AHL1, Class A1, 3.68%, 3/25/33 ......................................... 738,743 722,079 Capital Auto Receivables Asset Trust Series 2006-1, Class A2A, 5.03%, 9/15/08 ......................................... 1,447,890 1,445,442 Capital One Auto Finance Trust Series 2006-B, Class A2, 5.53%, 5/15/09 ......................................... 600,000 601,508 Citigroup Mortgage Loan Trust, Inc. Series 2005-WF2, Class AF2, 4.92%, 8/25/35 ......................................... 694,366 687,133 Countrywide Asset-Backed Certificates Series 2006-S4, Class A3, 5.80%, 10/25/36 ........................................ 1,060,000 1,057,875 DB Master Finance LLC Series 2006-1, Class A2, 5.78%, 6/20/31, (c) ................... 650,000 660,930 GMAC Mortgage Corp. Loan Trust Series 2006-HE3, Class A3, 5.805%, 10/25/36 ........................................ 900,000 903,622 GSAA Home Equity Trust Series 2006-15, Class AF3A, 5.88%, 9/25/36 ...................... 870,000 872,071 MBNA Credit Card Master Note Trust Series 2006-A4, Class A4, 5.31%, 9/15/11 (a) ..................................... 2,000,000 2,000,452 Nomura Asset Acceptance Corp. Series 2006-AP1, Class A2, 5.515%, 2/25/36 ......................................... 750,000 745,483 SLM Student Loan Trust Series 2003-12, Class A3, 5.51%, 12/15/15 (a) ................... 1,838,989 1,843,552 Target Credit Card Master Trust Series 2002-1, Class A, 5.515%, 6/27/11 (a) ..................................... 3,200,000 3,202,795 ----------- TOTAL ASSET BACKED SECURITIES (COST $15,333,281) .............................. 15,348,374 ----------- - -------------------------------------------------------------------------------- COMMERCIAL MORTGAGE BACKED SECURITIES - 10.6% - -------------------------------------------------------------------------------- Banc of America Commercial Mortgage, Inc. Series 2006-3, Class A4, 5.89%, 7/10/44 ......................................... 760,000 792,415 Bear Stearns Commercial Mortgage Securities Series 2006-T24, Class A4, 5.54%, 10/12/41 ................................. 1,100,000 1,119,422 Citigroup Commercial Mortgage Trust Series 2006-C4, Class A3, 5.72%, 3/15/49 (a) ..................................... 1,000,000 1,035,973 - -------------------------------------------------------------------------------- COMMERCIAL MORTGAGE BACKED SECURITIES, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- Citigroup/Deutsche Bank Commercial Mortgage Series 2006-CD3, Class A2, 5.56%, 10/15/48 ................................. 1,100,000 1,114,007 Commercial Mortgage Pass-Through Certificate Series 2005-FL11, Class A1, 5.47%, 11/15/17 (a) (c) ......................... 569,916 569,990 DLJ Mortgage Acceptance Corp. IO Series 1997-CF1, Class S, 0.90%, 5/15/30 (c) (d) ................................. 275,857 2,151 GMAC Commercial Mortgage Securities, Inc. IO Series 1996-C1, Class X2, 2.89%, 10/15/28 (d) ............................. 42,404 3 GMAC Commercial Mortgage Securities, Inc. Series 1999-C3, Class A2, 7.18%, 8/15/36 ......................................... 1,340,049 1,396,306 Greenwich Capital Commercial Funding Corp. Series 2005-GG3, Class A2, 4.305%, 8/10/42 ................................. 1,260,000 1,230,874 Greenwich Capital Commercial Funding Corp. Series 2006-GG7, Class A4, 5.91%, 7/10/38 (a) .............................. 1,000,000 1,050,190 GS Mortgage Securities Corp. IO Series 1997-GL, Class X2, 0.82%, 7/13/30 (d) ..................................... 360,933 2,135 LB-UBS Commercial Mortgage Trust Series 2000-C3, Class A1, 7.95%, 7/15/09 ......................................... 45,349 45,564 LB-UBS Commercial Mortgage Trust Series 2006-C1, Class A4, 5.16%, 2/15/31 ......................................... 1,300,000 1,288,178 LB-UBS Commercial Mortgage Trust Series 2006-C6, Class A4, 5.37%, 9/15/39 ......................................... 1,100,000 1,105,918 Morgan Stanley Capital I Series 2006-IQ11, Class AM, 5.95%, 10/15/42 (a) .................................... 1,000,000 1,035,638 ----------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (COST $11,632,494) .............................. 11,788,764 ----------- - -------------------------------------------------------------------------------- FOREIGN BONDS - 8.8% - -------------------------------------------------------------------------------- CANADA - 1.9% Conocophilips Canada, 5.625%, 10/15/16 ............. 1,000,000 1,014,030 Nova Chemicals Corp., 6.50%, 1/15/12 ............... 1,200,000 1,128,000 ----------- 2,142,030 ----------- CAYMAN ISLANDS - 1.0% Preferred Term Securities XXII, 5.73%, 9/22/36, Callable 6/22/11 @ 100 (a) (c) ......................................... 1,100,000 1,102,750 ----------- DOMINICAN REPUBLIC - 0.2% Dominican Republic Treasury Bill, 13.00%, 10/22/07 (b) (c) ................................ 300,000 261,790 ----------- ICELAND - 2.5% Kaupthing Bank, 6.07%, 1/15/10 (a) (c) ............. 500,000 499,745 Kaupthing Bank, 7.125%, 5/19/16 (c) ................ 500,000 532,627 Kaupthing Bank, 6.125%, 10/4/16 (c) ................ 500,000 508,027 Landsbanki Islands HF, 6.10%, 8/25/09 (a) (c) ................................. 1,250,000 1,250,262 ----------- 2,790,661 ----------- 45 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED) - -------------------------------------------------------------------------------- FOREIGN BONDS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- KOREA - 1.3% Citibank Korea Inc., 4.68%, 6/18/13, Callable 6/18/08 @ 100 (a) ...................... 1,400,000 1,402,759 ----------- UNITED KINGDOM - 1.9% Barclays Bank plc, 5.93%, 12/15/16 (c) ............. 700,000 706,734 Granite Master Issuer plc Series 2005-4, Class A3, 5.46%, 12/20/54 (a) ................... 1,400,000 1,400,154 ----------- 2,106,888 ----------- TOTAL FOREIGN BONDS (COST $9,707,560) ............................... 9,806,878 ----------- - -------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS - 8.4% - -------------------------------------------------------------------------------- Countrywide Home Loans Series 2005-HYB8, Class 2A1, 5.34%, 12/20/35 (a) .................................... 1,520,345 1,520,676 Fannie Mae IO Series 2000-16, Class PS, 3.28%, 10/25/29 (d) ............................. 65,854 3,870 Fannie Mae IO Series 2000-32, Class SV, 3.28%, 3/18/30 (d) .............................. 14,957 248 Fannie Mae IO Series 2001-4, Class SA, 2.23%, 2/17/31 (d) .............................. 271,370 17,121 Fannie Mae IO Series 270, Class 2, 8.50%, 9/1/23 (d) ............................... 56,363 12,295 Fannie Mae IO Series 296, Class 2, 8.00%, 4/1/24 (d) ............................... 66,174 15,577 Fannie Mae IO Series 306, Class IO, 8.00%, 5/1/30 (d) ............................... 80,259 18,792 FHA Weyerhauser, 7.43%, 1/1/24 (e) (f) ............. 33,926 33,926 Freddie Mac IO Series 1534, Class K, 2.025%, 6/15/23 (d) ............................. 175,172 7,814 Freddie Mac IO Series 2141, Class SD, 2.83%, 4/15/29 (d) .............................. 136,110 12,717 Freddie Mac IO Series 2247, Class SC, 2.18%, 8/15/30 (d) .............................. 90,779 3,361 Freddie Mac Reference Remic Series R009, Class AJ, 5.75%, 12/15/18 .......... 1,350,000 1,357,863 Freddie Mac Series 2962, Class CJ, 5.50%, 11/15/23 ........................................ 1,926,276 1,927,686 Government National Mortgage Association IO Series 1999-30, Class S, 3.28%, 8/16/29 (d) ..................................... 75,200 5,169 Government National Mortgage Association IO Series 1999-30, Class SA, 2.68%, 4/16/29 (d) ..................................... 101,630 5,587 Government National Mortgage Association IO Series 1999-32, Class SB, 2.68%, 7/16/27 (d) ..................................... 16,710 225 J.P. Morgan Alternative Loan Trust Series 2005-S1, Class 2A9, 6.00%, 12/25/35 ........................................ 2,169,565 2,165,861 Morgan Stanley Mortgage Loan Trust Series 2006-3AR, Class 2A3, 5.90%, 3/25/36 (a) ..................................... 1,515,739 1,530,967 Residential Asset Securitization Trust Series 2006-A1, Class 1A3, 6.00%, 4/25/36 ......................................... 687,899 694,193 ----------- - -------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $9,350,400) ............................... 9,333,948 ----------- - -------------------------------------------------------------------------------- INVESTMENT COMPANIES - 2.7% - -------------------------------------------------------------------------------- INVESTMENT COMPANIES - 2.7% HSBC Investor Money Market Fund Class I Shares, 5.23% (g) * ..................... 2,998,076 2,998,076 ----------- TOTAL INVESTMENT COMPANIES (COST $2,998,076) ............................... 2,998,076 ----------- TOTAL INVESTMENTS (COST $125,181,696) - 113.4% .................... 126,093,936 =========== - ---------- Percentages indicated are based on net assets of $111,191,931. (a) Variable rate security. The interest rates on these securities are adjusted periodically to reflect then-current short-term interest rates. The rates presented represent the rates in effect on October 31, 2006. The maturity dates presented reflect the final maturity date. However, some of these securities may contain put or demand features that allow the fund to require the issuer to repurchase the security from the fund within various time periods, including daily, weekly, monthly, or semi-annually. (b) Discount note. Rate presented represents the effective yield at time of purchase. (c) Security exempt from registration under Rule 144a of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. These securities have been deemed liquid by the Investment Adviser based on procedures approved by the Board of Trustees. (d) Interest-Only represents securities that entitle holders to receive only interest payments on the underlying mortgages. The yield to maturity of an Interest-Only is extremely sensitive to the rate of principal payments on the underlying mortgage assets. A rapid (slow) rate of principal repayments may have an adverse (positive) effect on yield to maturity. Interest rate adjusts periodically based on the pay off of the underlying mortgage. The interest rate presented represents the rates in effect on October 31, 2006. The principal amount shown is the notional amount of the underlying mortgages. (e) Rule 144a, section 4(2) or other security which is restricted as to resale to institutional investors. The Investment Adviser, using Board approved procedures, has deemed these securities to be illiquid. Represents 0.03% of net assets. (f) Security was fair valued as of October 31, 2006. Represents 0.03% of net assets. (g) Variable rate security. The rates presented represent the annualized one day yield that was in effect on October 31, 2006. * Investment in affiliate. ** The principal amount of the security is denominated in Brazilian Real. IO - Interest-only security. Represents 0.10% of net assets. TBA - Security was traded on a "to be announced" basis. Represents 17.04% of net assets. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 46 - -------------------------------------------------------------------------------- HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED) At October 31, 2006, the Portfolio's open forward currency contracts were as follows:
CONTRACT AMOUNT CONTRACT UNREALIZED DELIVERY (LOCAL VALUE APPRECIATION/ CURRENCY DATE CURRENCY) (U.S. DOLLAR) VALUE (DEPRECIATION) - -------- --------- ---------- ------------- --------- -------------- SHORT CONTRACTS Icelandic Krona vs. U.S. Dollar ........ 11/2/2006 18,643,438 $ 273,436 $ 275,668 $ (2,232) Mexican Nuevo Peso vs. U.S. Dollar ..... 11/1/2006 6,143,733 573,966 571,494 2,472 --------- --------- --------- TOTAL SHORT CONTRACTS ............................................ $ 847,402 $ 847,162 $ 240 ========= ========= =========
47 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS - 96.7% - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- ADVERTISING SERVICES - 3.4% Iron Mountain, Inc., 8.625%, 4/1/13, Callable 4/1/06 @ 104.313 ....................... 250,000 257,500 R.H. Donnelley Corp., 6.875%, 1/15/13, Callable 1/15/09 @ 103.438 ...................... 100,000 94,125 R.H. Donnelley Corp., 6.875%, 1/15/13, Callable 1/15/09 @ 103.438 ...................... 90,000 84,713 ----------- 436,338 ----------- AEROSPACE & DEFENCE - 0.8% DRS Technologies, Inc., 7.625%, 2/1/18, Callable 2/1/11 @ 103.813 ....................... 100,000 102,250 ----------- APPAREL MANUFACTURERS - 1.5% Levi Strauss & Co., 8.875%, 4/1/16, Callable 4/1/11 @ 104.44 ........................ 50,000 51,375 Quiksilver, Inc., 6.875%, 4/15/15, Callable 04/15/10 @ 103.44 ............................... 150,000 144,375 ----------- 195,750 ----------- AUTO MANUFACTURERS - 1.1% General Motors Corp., 7.125%, 7/15/13 .............. 150,000 134,250 ----------- BUILDING & CONSTRUCTION PRODUCTS - 2.3% Ainsworth Lumber Co. Ltd., 7.25%, 10/1/12, Callable 10/1/08 @ 103.63 .............. 150,000 111,375 Interline Brands, Inc., 8.125%, 6/15/14, Callable 6/15/10 @ 104.06 ....................... 50,000 51,125 Ply Gem Industries, Inc., 9.00%, 2/15/12, Callable 2/15/08 @ 104.50 ....................... 150,000 125,250 ----------- 287,750 ----------- CABLE TELEVISION - 3.9% Cablevision Systems Corp., 8.00%, 4/15/12 .......... 250,000 242,813 Mediacom LLC, 7.875%, 2/15/11, Callable 2/15/06 @ 103.938 ............................... 250,000 248,750 ----------- 491,563 ----------- CHEMICALS - 4.6% Georgia Gulf Corp., 9.50%, 10/15/14, Callable 10/15/10 @ 104.75 (a) .................. 75,000 73,875 Huntsman International LLC, 7.875%, 11/15/14, Callable 11/15/10 @103.94 (a) ......... 35,000 35,219 JohnsonDiversey, Inc., 9.625%, 5/15/12, Callable 5/15/07 @ 104.813 ...................... 250,000 255,312 Lyondell Chemical Co., 8.00%, 9/15/14, Callable 9/15/10 @ 104 .......................... 25,000 25,563 Lyondell Chemical Co., 8.25%, 9/15/16, Callable 9/15/11 @ 104.125 ...................... 25,000 25,750 Millennium America, Inc., 9.25%, 6/15/08 ........... 25,000 25,750 PQ Corp., 7.50%, 2/15/13, Callable 02/15/09 @ 103.75 ............................... 150,000 143,624 ----------- 585,093 ----------- COMPUTER SERVICES - 0.2% Compucom Systems, Inc., 12.00%, 11/1/14, Callable 11/1/10 @ 106 (a) ...................... 25,000 25,156 ----------- COMPUTER SOFTWARE - 0.4% Activant Solutions Holdings, Inc., 9.50%, 5/1/16, Callable 5/1/11 @ 104.75 (a) ............ 50,000 46,500 ----------- - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- CONTAINERS-PAPER AND PLASTIC - 3.5% Solo Cup Co., 8.50%, 2/15/14, Callable 2/15/09 @ 104.25 ................................ 250,000 211,250 Stone Container Finance Co. of Canada, 7.375%, 7/15/14, Callable 7/15/09 @ 103.688 ....................................... 250,000 229,688 ----------- 440,938 ----------- DISTRIBUTION & WHOLESALE - 0.8% Baker & Taylor, Inc., 11.50%, 7/1/13, Callable 7/1/10 @ 105.75 (a) .................... 100,000 100,000 ----------- DIVERSIFIED OPERATIONS - 0.6% Stripes Acquisition LLC/Susser Finance Corp., 10.625%, 12/15/13, Callable 12/15/09 @ 105.313 (a) .......................... 72,000 78,120 ----------- EDUCATION - 0.4% Education Management LLC, 8.75%, 6/1/14, Callable 6/1/10 @104.38 (a) ............. 25,000 25,625 Education Management LLC, 10.25%, 6/1/16, Callable 6/1/11 @ 105.13 (a) ............ 25,000 25,938 ----------- 51,563 ----------- ELECTRIC - 1.3% AES Corp., 7.75%, 3/1/14 ........................... 60,000 62,850 CMS Energy Corp., 6.875%, 12/15/15 ................. 100,000 101,750 ----------- 164,600 ----------- ENERGY - 3.7% Copano Energy LLC, 8.125%, 3/1/16, Callable 3/1/11 @ 104.06 ........................ 80,000 81,400 Massey Energy, Co., 6.875%, 12/15/13, Callable 12/15/09 @ 103.44 ...................... 100,000 93,750 Mirant North America LLC, 7.375%, 12/31/13, Callable 12/31/09 @ 103.688 ........... 50,000 50,563 Williams Cos., 6.375%, 10/1/10 (a) ................. 250,000 248,750 ----------- 474,463 ----------- FINANCE - 10.6% Basell AF SCA, 8.375%, 8/15/15, Callable 8/15/10 @ 104.188 (a) ........................... 250,000 253,750 CCM Merger, Inc., 8.00%, 8/1/13, Callable 8/1/09 @ 104 (a) ................................ 250,000 240,938 Crystal U.S. Holdings Corp., 0.00%, 10/1/14, Rate set to step up to 10.5% on 10/1/09, Callable 10/1/09 @ 105.25 (b) (c) .................................. 250,000 210,000 Ford Motor Credit Co., 7.375%, 10/28/09 ............ 250,000 243,343 Ford Motor Credit Co., 7.375%, 2/1/11 .............. 50,000 47,774 General Motors Accept Corp., 6.875%, 8/28/12 ......................................... 300,000 300,804 Nalco Finance Holdings, Inc., 0.00%, 2/1/14, Rate set to step to 9.0% on 2/1/09, Callable 2/1/09 @ 104.5 (b) (c) ......... 75,000 60,750 ----------- 1,357,359 ----------- GAMBLING - 6.5% Choctaw Resort Development Entertainment, 7.25%, 11/15/19, Callable 11/15/11 @ 103.63 (b) ........................... 50,000 49,750 Greektown Holdings, Inc., 10.75%, 12/1/13, Callable 12/1/10 @ 105.375 (b) .................. 100,000 105,749 Inn of the Mountain Gods, 12.00%, 11/15/10, Callable 11/15/07 @ 106 ............... 50,000 53,500 SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 48 - -------------------------------------------------------------------------------- HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED) - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- Isle of Capri Casinos, Inc., 7.00%, 3/1/14, Callable 3/1/09 @ 103.50 ........................ 250,000 239,999 MGM MIRAGE, Inc., 6.75%, 4/1/13 .................... 100,000 97,000 MTR Gaming Group, Inc., 9.00%, 6/1/12, Callable 6/1/09 @ 104.50 (a) .................... 100,000 101,375 Pokagon Gaming Authority, 10.375%, 6/15/14, Callable 6/15/10 @ 105.19 (a) .......... 75,000 80,438 San Pasqual Casino, 8.00%, 9/15/13, Callable 9/15/09 @ 104 (b) ...................... 25,000 25,500 Turning Stone Resort Casino, 9.125%, 9/15/14, Callable 9/15/10 @ 104.563 (a) ......... 75,000 76,313 ----------- 829,624 ----------- INTERNET SERVICES - 0.4% Atlantic Broadband Finance LLC, 9.375%, 1/15/14, Callable 01/15/09 @ 104.69 ............. 50,000 49,750 ----------- LEISURE - 2.9% AMC Entertainment, Inc., 11.00%, 2/1/16, Callable 2/1/11 @ 105.5 ......................... 100,000 110,625 K2, Inc., 7.375%, 7/1/14, Callable 7/1/09 @ 103.688 ....................................... 258,000 255,420 ----------- 366,045 ----------- MACHINERY--FARM - 0.4% Case New Holland, Inc., 7.125%, 3/1/14, Callable 3/1/10 @ 103.563 ....................... 50,000 50,375 ----------- MANUFACTURING - 0.8% AGY Holding Corp., 11.00%, 11/15/14, Callable 11/15/10 @ 105.50 (a) .................. 50,000 50,250 Libbey Glass, Inc., 12.435%, 6/1/11, Callable 6/1/08 @ 107.50 (a) .................... 25,000 26,500 Nutro Products, Inc., 10.75%, 4/15/14, Callable 4/15/09 @ 108.063 (a) .................. 25,000 26,875 ----------- 103,625 ----------- MEDICAL - 1.6% MultiPlan, Inc., 10.375%, 4/15/16, Callable 4/15/11 @ 105.188 (a) ........................... 100,000 100,000 Omnicare, Inc., 6.75%, 12/15/13, Callable 12/15/09 @ 103.375 .............................. 100,000 98,000 ----------- 198,000 ----------- METAL PROCESSORS & FABRICATION - 1.1% PNA Group, Inc., 10.75%, 9/1/16, Callable 9/1/11 @ 105.375 (a) ............................ 50,000 51,500 TriMas Corp., 9.875%, 6/15/12, Callable 6/15/07 @ 104.938 ............................... 100,000 94,250 ----------- 145,750 ----------- METALS & MINING - 3.1% AK Steel Corp., 7.75%, 6/15/12, Callable 6/15/07 @ 103.875 ............................... 200,000 200,000 Gibraltar Industries, Inc., 8.00%, 12/1/15, Callable 12/1/10 @ 104 .......................... 150,000 148,500 International Coal Group, Inc., 10.25%, 7/15/14, Callable 7/15/10 @ 105.13 (a) .......... 50,000 48,625 ----------- 397,125 ----------- OIL & GAS - 10.5% Chaparral Energy, Inc., 8.50%, 12/1/15, Callable 12/1/10 @ 104.25 ....................... 100,000 99,750 Chesapeake Energy Corp., 6.875%, 1/15/16, Callable 1/15/09 @ 103.438 ............. 250,000 248,124 - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- Clayton Williams Energy, Inc., 7.75%, 8/1/13, Callable 8/1/09 @ 103.875 ............... 200,000 184,500 Colorado Interstate Gas Co., 6.80%, 11/15/15 ........................................ 150,000 152,440 Compton Petroleum Finance Corp., 7.625%, 12/1/13, Callable 12/1/09 @ 103.813 ......................................... 250,000 236,875 El Paso Production Holdings, 7.75%, 6/1/13, Callable 6/1/08 @ 103.875 ............... 150,000 153,750 Inergy LP/Inergy Finance, 8.25%, 3/1/16, Callable 3/1/11 @ 104.13 ........................ 100,000 103,750 Pogo Producing Co., 7.875%, 5/1/13, Callable 5/1/10 @ 103.94 (a) .................... 100,000 101,750 Swift Energy Co., 7.625%, 7/15/11, Callable 7/15/08 @ 103.81 ....................... 50,000 50,125 ----------- 1,331,064 ----------- PAPER & RELATED PRODUCTS - 4.1% Abitibi-Consolidated Co. of Canada, 8.375%, 4/1/15 .................................. 250,000 217,813 Exopack Holding Corp., 11.25%, 2/1/14, Callable 2/1/10 @ 105.625 (a) ................... 50,000 52,375 Georgia-Pacific Corp., 7.70%, 6/15/15 .............. 150,000 152,250 Norampac, Inc., 6.75%, 6/1/13, Callable 6/1/08 @ 103.38 ................................. 100,000 96,250 ----------- 518,688 ----------- PIPELINES - 1.6% Dynegy Holdings, Inc., 8.375%, 5/1/16 .............. 150,000 154,125 Semgroup LP, 8.75%, 11/15/15, Callable 11/15/10 @ 104.375 (a) .......................... 50,000 50,375 ----------- 204,500 ----------- PRINTING - 0.8% Sheridan Group, Inc., 10.25%, 8/15/11, Callable 08/15/07 @ 105.12 ...................... 100,000 102,000 ----------- PUBLISHING - 2.3% Block Communications, Inc., 8.25%, 12/15/15, Callable 12/15/10 @ 104.125 (a) ..................................... 50,000 49,250 Morris Publishing, 7.00%, 8/1/13, Callable 8/1/08 @ 103.50 ................................. 250,000 237,813 ----------- 287,063 ----------- RENTAL--AUTO AND EQUIPMENT - 1.6% Avis Budget Car Rental, Inc., 7.625%, 5/15/14, Callable 5/15/10 @ 103.81 (a) .......... 100,000 97,750 Hertz Corp., 8.875%, 1/1/14, Callable 1/1/10 @ 104.44 (b) ............................. 100,000 104,500 ----------- 202,250 ----------- RESEARCH AND TESTING SERVICES - 0.4% Sensata Technologies BV, 8.00%, 5/1/14, Callable 5/1/10 @ 104 (a) ....................... 50,000 48,250 ----------- RESTAURANTS - 2.7% Buffets, Inc., 12.50%, 11/1/14, Callable 11/1/10 @ 106.25 (a) ............................ 50,000 50,250 Dave & Busters, Inc., 11.25%, 3/15/14, Callable 3/15/10 @ 105.62 ....................... 50,000 48,500 Landry's Restaurants, Inc., 7.50%, 12/15/14, Callable 12/15/09 @ 103.75 ............ 200,000 191,000 49 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED) - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- NPC International, Inc., 9.50%, 5/1/14, Callable 5/1/10 @ 104.75 (a) .................... 50,000 50,625 ----------- 340,375 ----------- RETAIL - 2.3% Linens 'N Things, Inc., 11.00%, 1/15/14, Callable 1/15/08 @ 102 (b) ...................... 50,000 49,000 The Jean Coutu Group PJC, Inc., 8.50%, 8/1/14, Callable 8/1/09 @ 104.25 ................ 250,000 245,313 ----------- 294,313 ----------- SEISMIC DATA COLLECTION - 0.4% CIE Gener de Geophysique, 7.50%, 5/15/15, Callable 5/15/10 @ 103.75 .............. 50,000 49,375 ----------- SPECIAL PURPOSE ENTITY - 0.4% TFS Acquisition Corp., 12.90%, 8/1/14, Callable 8/1/10 @ 106.50 (a) (b) ................ 50,000 49,438 ----------- TELECOMMUNICATIONS - 11.7% Centennial Communications Corp., 10.00%, 1/1/13, Callable 1/1/09 @ 107.50 ................ 100,000 103,750 Cincinnati Bell, Inc., 8.375%, 1/15/14, Callable 1/15/09 @ 104.1885 ..................... 250,000 254,999 Cricket Communications I, 9.375%, 11/1/14, Callable 11/1/10 @ 104.69 (a) .......... 50,000 51,000 Insight Midwest L.P., 9.75%, 10/1/09, Callable 10/1/07 @ 100 .......................... 250,000 254,374 Level 3 Financing, Inc., 9.25%, 11/1/14, Callable 11/1/10 @ 104.63 (a) ................... 50,000 50,313 Metropcs Wireless, Inc., 9.25%, 11/1/14, Callable 11/1/10 @ 104.625 (a) .................. 50,000 50,438 Nordic Telephone Co. Holdings, 8.875%, 5/1/16, Callable 5/1/11 @ 104.438 (a) ........... 50,000 52,375 NTL Cable plc, 9.125%, 8/15/16, Callable 8/15/11 @ 104.56 ................................ 125,000 131,406 Panamsat Corp., 9.00%, 6/15/16, Callable 6/15/11 @ 104.50 (a) ............................ 50,000 52,250 Qwest Corp., 5.625%, 11/15/08 ...................... 150,000 149,437 Rural Cellular Corp., 9.75%, 1/15/10, Callable 1/15/07 @ 103.25 ....................... 50,000 50,625 Suncom Wireless Holdings, Inc., 8.50%, 6/1/13, Callable 6/1/08 @ 104.25 ................ 150,000 142,500 - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- West Corp., 11.00%, 10/15/16, Callable 10/15/11 @ 105.50 (b) ........................... 25,000 25,063 Wind Acquisition Financial SA, 10.75%, 12/1/15, Callable 12/1/10 @ 105.375 (a) ......... 100,000 111,125 Windstream Corp., 8.625%, 8/1/16, Callable 8/1/11 @ 104.31 (a) .................... 25,000 26,969 ----------- 1,506,624 ----------- WASTE DISPOSAL - 2.0% Allied Waste North America, Inc., 7.375%, 4/15/14, Callable 4/15/09 @ 103.688 ............. 250,000 248,750 ----------- TOTAL CORPORATE OBLIGATIONS (COST $12,228,088) .............................. 12,294,677 ----------- - -------------------------------------------------------------------------------- INVESTMENT COMPANIES - 2.2% - -------------------------------------------------------------------------------- Investors Bank Trust Cash Reserve, 3.65% (d) ....................................... 281,588 281,588 ----------- TOTAL INVESTMENT COMPANIES (COST $281,588) ................................. 281,588 ----------- TOTAL INVESTMENTS (COST $12,509,676) - 98.9% ...................... 12,576,265 =========== - ---------- Percentages indicated are based on net assets of $12,718,765. (a) Variable rate security. The interest rates on these securities are adjusted periodically to reflect then-current short-term interest rates. The rates presented represent the rates in effect on October 31, 2006. The maturity dates presented reflect the final maturity date. However, some of these securities may contain put or demand features that allow the fund to require the issuer to repurchase the security from the fund within various time periods, including daily, weekly, monthly, or semi-annually. (b) Security exempt from registration under Rule 144a of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. These securities have been deemed liquid by the Investment Adviser based on procedures approved by the Board of Trustees. (c) Step Bond. Income recognition is on the effective yield method for Step Bonds. (d) Variable rate security. The rates presented represent the annualized one day yield that was in effect on October 31, 2006. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 50 - -------------------------------------------------------------------------------- HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 - -------------------------------------------------------------------------------- U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 36.9% - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- FEDERAL HOME LOAN MORTGAGE CORP. - 3.5% Pool #1B2655, 4.14%, 12/1/34 (a) ................... 288,826 286,272 Pool #1J1313, 6.58%, 6/1/36 ........................ 382,361 388,010 ----------- 674,282 ----------- FEDERAL NATIONAL MORTGAGE ASSOCIATION - 22.0% Pool #255770, 5.50%, 7/1/35 ........................ 888,703 878,747 Pool #740686, 6.50%, 10/1/33 ....................... 539,712 552,694 TBA December, 5.00%, 12/1/35 ....................... 1,300,000 1,254,500 TBA December, 6.00%, 12/15/35 ...................... 600,000 603,187 TBA November, 5.50%, 11/15/36 ...................... 1,000,000 988,125 ----------- 4,277,253 ----------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.0% TBA November, 6.00%, 11/15/36 ...................... 200,000 202,688 ----------- U.S. TREASURY INFLATION PROTECTED BONDS - 1.0% 2.50%, 7/15/16 ..................................... 200,000 204,833 ----------- U.S. TREASURY NOTES - 9.4% 5.125%, 6/30/08 .................................... 50,000 50,297 4.625%, 9/30/08 .................................... 1,200,000 1,198,077 4.875%, 10/31/08 ................................... 150,000 150,504 4.50%, 9/30/11 ..................................... 265,000 264,079 4.875%, 8/15/16 .................................... 150,000 153,117 ----------- 1,816,074 ----------- TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (COST $7,153,629) ................... 7,175,130 ----------- - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS - 26.6% - -------------------------------------------------------------------------------- AUTO MANUFACTURERS - 0.2% General Motors Corp., 7.125%, 7/15/13 .............. 50,000 44,750 ----------- BUILDING PRODUCTS - 1.0% Masco Corp., 6.125%, 10/3/16 ....................... 200,000 200,798 ----------- CABLE - 1.6% Comcast Corp., 6.50%, 1/15/15 ...................... 300,000 313,956 ----------- CHEMICALS - 0.4% Lyondell Chemical Co., 8.25%, 9/15/16, Callable 9/15/11 @ 104.125 ...................... 75,000 77,250 ----------- COLLEGES & UNIVERSITIES - 2.1% Tulane University of Louisiana, 6.21%, 11/15/12 (a) (b) ................................ 400,000 401,200 ----------- ELECTRIC - 2.8% General Electric Co., 5.00%, 2/1/13 ................ 300,000 297,357 Progress Energy, Inc., 5.80%, 11/14/08, Callable 11/14/06 @ 100 (a) ..................... 250,000 250,408 ----------- 547,765 ----------- FINANCE - 4.9% Ford Motor Credit Corp., 5.80%, 1/12/09 ............ 275,000 262,669 General Motors Acceptance Corp., 4.375%, 12/10/07 ........................................ 500,000 490,488 International Lease Finance Corp., 5.70%, 7/1/11 (a) ...................................... 200,000 200,975 ----------- 954,132 ----------- HOTELS & LODGING - 0.5% MGM Mirage, Inc., 6.00%, 10/1/09 ................... 100,000 98,750 ----------- MEDIA - 2.1% Time Warner Entertainment, 8.875%, 10/1/12 ......... 350,000 403,788 ----------- - -------------------------------------------------------------------------------- CORPORATE OBLIGATIONS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- OFFICE EQUIPMENT & SERVICES - 1.6% Xerox Corp., 6.16%, 12/18/09 (a) ................... 100,000 100,500 Xerox Corp., 6.875%, 8/15/11 ....................... 200,000 205,000 ----------- 305,500 ----------- OIL & GAS - 0.4% Williams Partners LP, 7.50%, 6/15/11, (b) .......... 75,000 76,875 ----------- TELECOMMUNICATIONS - 5.0% AT&T, Inc., 5.10%, 9/15/14 ......................... 300,000 292,250 Bell Atlantic Virginia, 7.625%, 12/1/12 ............ 200,000 216,673 Sprint Capital Corp., 8.75%, 3/15/32 ............... 150,000 185,318 Verizon Pennsylvania, Inc., 5.65%, 11/15/11 ........ 275,000 276,690 ----------- 970,931 ----------- TRANSPORTATION - 2.9% Burlington Northern Santa Fe Railway Co., 4.83%, 1/15/23 .................................. 279,656 279,326 Union Pacific Railroad, 5.08%, 1/2/29 .............. 299,958 290,887 ----------- 570,213 ----------- WASTE DISPOSAL - 1.1% Allied Waste North America, 7.125%, 5/15/16, Callable 5/15/11 @ 103.563 ............. 225,000 222,750 ----------- TOTAL CORPORATE OBLIGATIONS (COST $5,160,758) ............................... 5,188,658 ----------- - -------------------------------------------------------------------------------- ASSET BACKED SECURITIES - 16.9% - -------------------------------------------------------------------------------- Americredit Auto Receivables Trust Series 2004-DF, Class A3, 2.98%, 7/6/09 ................ 122,084 121,086 Asset Backed Funding Certificates Series 2003-AHL1, Class A1, 3.68%, 3/25/33 ............. 210,318 205,574 Capital One Auto Finance Trust Series 2006-B, Class A2, 5.53%, 5/15/09 ................ 110,000 110,277 Citigroup Mortgage Loan Trust, Inc. Series 2005-WF2, Class AF2, 4.92%, 8/25/35 ............. 121,819 120,550 Countrywide Asset-Backed Certificates Series 2006-S4, Class A3, 5.80%, 7/25/34 ............... 210,000 209,579 DB Master Finance LLC Series 2006-1, Class A2, 5.78%, 6/20/31 (b) .................... 130,000 132,186 GMAC Mortgage Corp. Loan Trust Series 2006-HE3, Class A3, 5.805%, 10/25/36 ............ 170,000 170,684 GSAA Home Equity Trust Series 2006-15, Class AF3A, 5.88%, 9/25/36 ...................... 160,000 160,381 MBNA Credit Card Master Note Trust Series 2003-A3, Class A3, 5.44%, 8/16/10 (a) ........... 500,000 500,804 MBNA Credit Card Master Note Trust Series 2006-A4, Class A4, 5.31%, 9/15/11 (a) ........... 500,000 500,113 Nomura Asset Acceptance Corp. Series 2006-AP1, Class A2, 5.515%, 2/25/36 ............. 150,000 149,097 SLM Student Loan Trust Series 2003-12, Class A3, 5.51%, 12/15/15 (a) ................... 367,798 368,710 Target Credit Card Master Trust Series 2002-1, Class A, 5.515%, 6/27/11 (a) ............ 550,000 550,479 ----------- TOTAL ASSET BACKED SECURITIES (COST $3,297,802) ............................... 3,299,520 ----------- 51 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED) - -------------------------------------------------------------------------------- COMMERCIAL MORTGAGE BACKED SECURITIES - 10.9% - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- Banc of America Commercial Mortgage, Inc. Series 2006-3, Class A4, 5.89%, 7/10/44 ......... 140,000 145,971 Bear Stearns Commercial Mortgage Securities Series 2006-T24, Class A4, 5.54%, 10/12/41 ...... 200,000 203,531 Citigroup Commercial Mortgage Trust Series 2006-C4, Class A3, 5.72%, 3/15/49 (a) ........... 180,000 186,475 Citigroup/Deutsche Bank Commercial Mortgage Series 2006-CD3, Class A2, 5.56%, 10/15/48 ................................. 200,000 202,547 Commercial Mortgage Pass-Through Certificate Series 2005-FL11, Class A1, 5.47%, 11/15/17 (a) (b) ......................... 140,143 140,161 GMAC Commercial Mortgage Securities, Inc. Series 1999-C3, Class A2, 7.18%, 8/15/36 ........ 211,587 220,470 Greenwich Capital Commercial Funding Corp. Series 2005-GG3, Class A2, 4.305%, 8/10/42 ......................................... 225,000 219,799 Greenwich Capital Commercial Funding Corp. Series 2006-GG7, Class A4, 6.11%, 6/10/16 (a) ..................................... 200,000 210,038 LB-UBS Commercial Mortgage Trust Series 2006-C1, Class A4, 5.16%, 2/15/31 ............... 200,000 198,181 LB-UBS Commercial Mortgage Trust Series 2006-C6, Class A4, 5.37%, 9/15/39 ............... 200,000 201,076 Morgan Stanley Capital I Series 2006-IQ11, Class AM, 5.95%, 10/15/42 (a) ................... 200,000 207,128 ----------- TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (COST $2,104,723) ............................... 2,135,377 ----------- - -------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS - 9.5% - -------------------------------------------------------------------------------- Countrywide Home Loans Series 2005-HYB8, Class 2A1, 5.34%, 12/20/35 (a) .................................... 382,035 382,119 Freddie Mac Reference Remic Series R009, Class AJ, 5.75%, 12/15/18 ....................... 250,000 251,456 Freddie Mac Series 2962, Class CJ, 5.50%, 11/15/23 ........................................ 308,204 308,430 J.P. Morgan Alternative Loan Trust Series 2005-S1, Class 2A9, 6.00%, 12/25/35 ............. 467,945 467,146 Morgan Stanley Mortgage Loan Trust Series 2006-3AR, Class 2A3, 5.90%, 3/25/36 (a) ......... 324,801 328,064 Residential Asset Securitization Trust Series 2006-A1, Class 1A3, 6.00%, 4/25/36 .............. 122,503 123,623 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (COST $1,863,431) ............................... 1,860,838 ----------- - -------------------------------------------------------------------------------- FOREIGN BONDS - 8.0% - -------------------------------------------------------------------------------- CANADA - 1.7% Conocophilips Canada, 5.625%, 10/15/16 ............. 150,000 152,105 Nova Chemicals Corp., 6.50%, 1/15/12 ............... 200,000 188,000 ----------- 340,105 ----------- - -------------------------------------------------------------------------------- FOREIGN BONDS, CONTINUED - -------------------------------------------------------------------------------- SHARES OR PRINCIPAL AMOUNT($) VALUE($) ---------- ----------- CAYMAN ISLANDS - 1.0% Preferred Term Securities XXII, 5.73%, 9/22/36, Callable 6/22/11 @ 100 (a) (b) ......... 200,000 200,500 ----------- DOMINICAN REPUBLIC - 0.2% Dominican Republic Treasury Bill, 13.00%, 10/22/07 (c) .................................... 50,000 43,632 ----------- ICELAND - 2.8% Kaupthing Bank, 6.07%, 1/15/10 (a) (b) ............. 100,000 99,949 Kaupthing Bank, 7.125%, 5/19/16 (b) ................ 100,000 106,525 Kaupthing Bank, 6.125%, 10/4/16 (b) ................ 100,000 101,605 Landsbanki Islands HF, 6.10%, 8/25/09 (a) (b) ...... 225,000 225,047 ----------- 533,126 ----------- KOREA - 1.3% Citibank Korea Inc., 4.68%, 6/18/13, Callable 6/18/08 @ 100 (a) ............................... 250,000 250,493 ----------- UNITED KINGDOM - 1.0% Granite Master Issuer plc Series 2005-4, Class A3, 5.46%, 12/20/54 (a) ................... 200,000 200,022 ----------- TOTAL FOREIGN BONDS (COST $1,549,956) ............................... 1,567,878 ----------- - -------------------------------------------------------------------------------- INVESTMENT COMPANIES - 3.2% - -------------------------------------------------------------------------------- HSBC Investor Money Market Fund Class I Shares, 5.23% (d) * ............................. 634,275 634,275 ----------- TOTAL INVESTMENT COMPANIES (COST $634,275) ................................. 634,275 ----------- TOTAL INVESTMENTS (COST $21,764,574) - 112.0% ..................... 21,861,676 =========== - ---------- Percentages indicated are based on net assets of $19,516,568. (a) Variable rate security. The interest rates on these securities are adjusted periodically to reflect then-current short-term interest rates. The rates presented represent the rates in effect on October 31, 2006. The maturity dates presented reflect the final maturity date. However, some of these securities may contain put or demand features that allow the fund to require the issuer to repurchase the security from the fund within various time periods, including daily, weekly, monthly, or semi-annually. (b) Security exempt from registration under Rule 144a of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. These securities have been deemed liquid by the Investment Adviser based on procedures approved by the Board of Trustees. (c) Discount note. Rate presented represents the effective yield at time of purchase. (d) Variable rate security. The rates presented represent the annualized one day yield that was in effect on October 31, 2006. * Investment in affiliate. TBA--Security was traded on a "to be announced" basis. Represents 15.62% of net assets. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 52 - -------------------------------------------------------------------------------- HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED) At October 31, 2006, the Portfolio's open forward currency contracts were as follows:
CURRENCY CONTRACT UNREALIZED DELIVERY AMOUNT VALUE APPRECIATION/ CURRENCY DATE (LOCAL CURRENCY) (U.S. DOLLAR) VALUE (DEPRECIATION) - -------- --------- ---------------- ------------- --------- -------------- SHORT CONTRACTS Icelandic Krona vs. U.S. Dollar ............. 11/2/2006 3,699,858 $ 54,264 $ 54,707 $ (443) Mexican Nuevo Peso vs. U.S. Dollar .......... 11/1/2006 1,165,191 108,856 108,387 469 --------- --------- ------ TOTAL SHORT CONTRACTS ...................................................... $ 163,120 $ 163,094 $ 26 ========= ========= ======
53 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- HSBC INVESTOR GROWTH PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 - -------------------------------------------------------------------------------- COMMON STOCKS - 97.0% - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- AEROSPACE & DEFENSE - 3.4% General Dynamics Corp. ............................. 15,700 1,116,270 The Boeing Co. ..................................... 11,250 898,425 ----------- 2,014,695 ----------- BIOTECHNOLOGY - 3.5% Gilead Sciences, Inc.(a) ........................... 30,600 2,108,340 ----------- BUSINESS SERVICES - 2.9% Paychex, Inc. ...................................... 43,700 1,725,276 ----------- CHEMICALS - 2.9% Monsanto Co. ....................................... 39,250 1,735,635 ----------- COMPUTER SOFTWARE - 10.3% Adobe Systems, Inc. (a) ............................ 32,600 1,246,950 Automatic Data Processing, Inc. .................... 12,800 632,832 CheckFree Corp. (a) ................................ 24,100 951,468 Electronic Arts, Inc. (a) .......................... 18,250 965,243 Microsoft Corp. .................................... 61,500 1,765,665 SAP AG-ADR ......................................... 11,900 590,716 ----------- 6,152,874 ----------- COMPUTERS - 5.0% Apple Computer, Inc. (a) ........................... 21,400 1,735,112 Research In Motion Ltd. (a) ........................ 10,700 1,257,036 ----------- 2,992,148 ----------- CONSUMER PRODUCTS -- 11.6% Colgate-Palmolive Co. .............................. 37,700 2,411,668 Harman International Industries, Inc. .............. 4,100 419,635 PepsiCo, Inc. ...................................... 31,700 2,011,048 The Procter & Gamble Co. ........................... 31,900 2,022,141 ----------- 6,864,492 ----------- DIVERSIFIED MANUFACTURING OPERATIONS -- 3.2% General Electric Co. ............................... 54,562 1,915,672 ----------- ELECTRONIC COMPONENTS & SEMICONDUCTORS - 4.0% Broadcom Corp., Class A (a) ........................ 9,850 298,160 Emerson Electric Co. ............................... 10,200 860,880 Microchip Technology, Inc. ......................... 38,000 1,251,340 ----------- 2,410,380 ----------- FINANCIAL SERVICES - 10.6% Goldman Sachs Group, Inc. .......................... 7,250 1,375,978 SLM Corp. .......................................... 30,050 1,462,834 The Chicago Mercantile Exchange Holdings, Inc. ..... 4,000 2,003,999 UBS AG-ADR ......................................... 25,050 1,498,992 ----------- 6,341,803 ----------- GAMING - 1.4% International Game Technology ...................... 20,300 862,953 ----------- HEALTH CARE - 4.2% Baxter International, Inc. ......................... 18,850 866,535 DENTSPLY International, Inc. ....................... 18,050 564,604 Medtronic, Inc. .................................... 22,250 1,083,130 ----------- 2,514,269 ----------- - -------------------------------------------------------------------------------- COMMON STOCKS, CONTINUED - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- HOTELS & LODGING - 2.2% Las Vegas Sands Corp. (a) .......................... 17,500 1,333,500 ----------- INSURANCE - 0.5% AFLAC, Inc. ........................................ 6,900 309,948 ----------- INTERNET RELATED - 3.0% Google, Inc., Class A (a) .......................... 3,800 1,810,282 ----------- MOTOR VEHICLES - 0.5% Harley-Davidson, Inc. .............................. 4,200 288,246 ----------- OIL & GAS - 5.9% Schlumberger Ltd. .................................. 26,450 1,668,466 Smith International, Inc. .......................... 46,450 1,833,846 ----------- 3,502,312 ----------- PHARMACEUTICALS - 11.8% Abbott Laboratories ................................ 11,750 558,243 Alcon, Inc.-ADR .................................... 6,050 641,784 Allergan, Inc. ..................................... 8,700 1,004,850 Genentech, Inc. (a) ................................ 21,229 1,768,375 Johnson & Johnson .................................. 28,150 1,897,309 Roche Holdings Ltd.-ADR ............................ 6,300 551,317 Schering-Plough Corp. .............................. 27,050 598,887 ----------- 7,020,765 ----------- RETAIL - 2.9% Kohl's Corp. (a) ................................... 6,000 423,600 Target Corp. ....................................... 7,850 464,563 Walgreen Co. ....................................... 19,867 867,791 ----------- 1,755,954 ----------- TELECOMMUNICATIONS -- 5.2% Cisco Systems, Inc. (a) ............................ 106,950 2,580,703 QUALCOMM, Inc. ..................................... 15,350 558,587 ----------- 3,139,290 ----------- TRANSPORTATION - 2.0% Expeditors International of Washington, Inc. ....... 25,450 1,206,585 ----------- TOTAL COMMON STOCKS (COST $52,398,200) .............................. 58,005,419 ----------- - -------------------------------------------------------------------------------- INVESTMENT COMPANIES - 3.5% - -------------------------------------------------------------------------------- HSBC Investor Money Market Fund Class I Shares, 5.23% (b)* ...................... 2,114,763 2,114,763 ----------- TOTAL INVESTMENT COMPANIES (COST $2,114,763) ............................... 2,114,763 ----------- TOTAL INVESTMENTS (COST $54,512,963) -- 100.5% .................... 60,120,182 =========== - ---------- Percentages indicated are based on net assets of $59,827,764. (a) Represents non-income producing security. (b) Variable rate security. The rates presented represent the annualized one day yield that was in effect on October 31, 2006. * Investment in affiliate. ADR--American Depositary Receipt SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 54 - -------------------------------------------------------------------------------- HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 - -------------------------------------------------------------------------------- COMMON STOCKS -- 96.1% - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- AUSTRALIA - 1.2% Coles Myer, Ltd. ................................... 148,900 1,565,282 Macquarie Airports ................................. 966,900 2,402,617 ----------- 3,967,899 ----------- AUSTRIA - 1.6% Omv AG ............................................. 49,300 2,679,403 Voestalpine AG ..................................... 59,600 2,810,244 ----------- 5,489,647 ----------- BELGIUM - 1.7% Fortis ............................................. 106,100 4,453,102 KBC Bankverzekeringsholding ........................ 11,300 1,234,342 ----------- 5,687,444 ----------- BRAZIL - 1.5% Gerdau SA ADR ...................................... 75,150 1,109,966 Petroleo Brasileiro SA ADR ......................... 27,700 2,242,591 Unibanco ADR ....................................... 8,100 637,875 Usinas Siderurgicas de Minas Gerais SA ............. 30,200 1,027,125 ----------- 5,017,557 ----------- CANADA - 3.5% Canadian Natural Resources Ltd. .................... 40,300 2,098,098 EnCana Corp. ....................................... 30,000 1,425,047 Gerdau Ameristeel Corp. ............................ 102,700 1,047,399 ING Canada, Inc. ................................... 43,693 2,302,755 IPSCO, Inc. ........................................ 16,449 1,511,757 Nexen, Inc. ........................................ 20,018 1,068,057 Teck Cominco, Ltd., B shares ....................... 32,300 2,378,123 ----------- 11,831,236 ----------- CHINA - 0.3% China Petroleum & Chemical Corp. ................... 592,000 411,074 China Telecom Corp., Ltd. .......................... 1,264,000 476,233 ----------- 887,307 ----------- FRANCE - 12.1% Air France-KLM ..................................... 6,400 227,941 BNP Paribas SA ..................................... 57,980 6,374,071 Credit Agricole SA ................................. 89,990 3,825,184 France Telecom SA .................................. 107,200 2,783,829 Michelin, B Shares ................................. 20,900 1,704,239 Renault SA ......................................... 62,300 7,286,248 Sanofi-Aventis ..................................... 57,800 4,912,307 Societe Generale ................................... 35,385 5,879,137 Total SA ........................................... 110,600 7,487,277 ----------- 40,480,233 ----------- GERMANY - 9.6% Allianz AG ......................................... 9,300 1,720,104 Continental AG ..................................... 51,400 5,745,145 DaimlerChrysler AG ................................. 23,300 1,322,823 Deutsche Lufthansa AG .............................. 162,600 3,741,103 E.ON AG (a) ........................................ 41,000 4,900,809 Fresenius Medical Care AG .......................... 11,800 1,570,543 Muenchener Rueckversicherungs-Gesellschaft AG ...... 43,400 7,021,402 RWE AG ............................................. 44,500 4,385,037 TUI AG ............................................. 75,300 1,643,140 ----------- 32,050,106 ----------- GREECE - 0.5% Public Power Corp. ................................. 61,000 1,556,837 ----------- HONG KONG - 0.5% China Netcom Group Corp., Ltd. ..................... 462,000 821,022 Sino Land Co., Ltd. ................................ 406,695 708,096 ----------- 1,529,118 ----------- HUNGARY - 0.3% MOL Magyar Olaj-es Gazipari Rt. GDR ................ 9,600 955,200 ----------- - -------------------------------------------------------------------------------- COMMON STOCKS, CONTINUED - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- INDIA - 0.3% State Bank of India GDR ............................ 17,600 1,105,280 ----------- ISRAEL - 0.4% Bank Hapoalim BM ................................... 286,600 1,428,975 ----------- ITALY - 3.7% Buzzi Unicem SpA ................................... 91,400 2,408,517 ENI SpA ............................................ 166,500 5,020,666 Fondiaria-SAI SpA .................................. 45,600 2,029,667 Fondiaria-SAI SpA-RNC .............................. 18,700 621,392 Italcementi SpA .................................... 91,700 2,428,124 ----------- 12,508,366 ----------- JAPAN - 23.6% Alps Electric Co., Ltd. ............................ 55,000 550,753 Canon, Inc. ........................................ 32,250 1,729,156 East Japan Railway Co. ............................. 195 1,364,033 EDION Corp. ........................................ 67,800 976,937 Hitachi, Ltd. ...................................... 144,000 831,195 Honda Motor Co., Ltd. .............................. 47,000 1,663,930 Isuzu Motors, Ltd. ................................. 342,000 1,184,454 ITOCHU Corp. ....................................... 167,000 1,330,973 Japan Tobacco, Inc. ................................ 1,200 5,233,453 JFE Holdings, Inc. ................................. 140,100 5,630,836 Kobe Steel, Ltd. ................................... 958,000 2,932,820 Leopalace21 Corp. .................................. 24,900 936,891 Mitsubishi Corp. ................................... 129,000 2,493,073 Mitsubishi UFJ Financial Group, Inc. ............... 172 2,162,134 Mitsui & Co., Ltd. ................................. 171,000 2,335,275 Mitsui Chemicals, Inc. ............................. 417,000 2,863,443 Mitsui O.S.K. Lines, Ltd. .......................... 451,000 3,760,262 Nippon Mining Holdings, Inc. ....................... 360,000 2,690,611 Nippon Telegraph & Telephone Corp. ................. 728 3,666,769 Nissan Motor Co., Ltd. ............................. 225,100 2,696,811 ORIX Corp. ......................................... 19,300 5,438,131 Sharp Corp. ........................................ 216,000 3,851,206 Sony Corp. ......................................... 12,510 518,843 Sumitomo Heavy Industries, Ltd. .................... 163,000 1,396,665 Sumitomo Metal Industries, Ltd. .................... 294,000 1,106,208 Sumitomo Mitsui Financial Group, Inc. .............. 598 6,545,579 The Tokyo Electric Power Co., Inc. ................. 90,600 2,634,171 Tokyo Gas Co., Ltd. ................................ 293,000 1,495,818 Toyota Motor Corp. ................................. 123,900 7,342,459 UNY Co., Ltd. ...................................... 90,000 1,130,580 ----------- 78,493,469 ----------- NETHERLANDS - 8.1% ABN AMRO Holding NV ................................ 97,283 2,836,655 European Aeronautic Defence and Space Co. .......... 125,160 3,393,969 ING Groep NV ....................................... 190,468 8,436,457 Koninklijke Philips Electronics NV ................. 52,120 1,820,382 Mittal Steel Co. NV ................................ 107,652 4,622,645 Royal Dutch Shell plc, A Shares .................... 98,400 3,409,167 Wolters Kluwer NV .................................. 89,700 2,465,594 ----------- 26,984,869 ----------- SINGAPORE - 0.6% Flextronics International, Ltd. (a) ................ 162,400 1,883,840 ----------- 55 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED) - -------------------------------------------------------------------------------- COMMON STOCKS, CONTINUED - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- SOUTH AFRICA - 0.7% Sanlam, Ltd. ....................................... 554,040 1,318,031 Standard Bank Group, Ltd. .......................... 59,000 693,769 Tiger Brands, Ltd. ................................. 20,800 432,586 ----------- 2,444,386 ----------- SOUTH KOREA - 1.9% Honam Petrochemical Corp. .......................... 8,100 507,379 Hyundai Motors Co., Second Preferred ............... 15,950 753,557 Industrial Bank of Korea GDR ....................... 88,300 1,546,133 Kookmin Bank ADR ................................... 14,600 1,158,656 LG.Philips LCD Co., Ltd. (a) ....................... 13,600 433,167 POSCO ADR .......................................... 29,000 2,045,079 ----------- 6,443,971 ----------- SPAIN - 1.7% Endesa SA .......................................... 22,200 984,161 Repsol YPF SA ...................................... 141,100 4,681,486 ----------- 5,665,647 ----------- SWEDEN - 0.6% Svenska Cellusoa AB, B Shares ...................... 44,800 2,057,038 ----------- SWITZERLAND - 1.9% Credit Suisse Group ................................ 81,100 4,890,649 Novartis AG ........................................ 24,830 1,507,329 ----------- 6,397,978 ----------- TAIWAN - 1.4% China Steel Corp. GDR .............................. 37,746 666,217 Compal Electronics, Inc. GDR ....................... 229,388 1,000,131 Gigabyte Technology Co., Ltd. ...................... 261,112 189,394 Siliconware Precision Industries Co. ............... 694,000 881,442 Taiwan Semiconductor Manufacturing Co., Ltd. ....... 505,870 928,733 United Microelectronics Corp. ...................... 1,570,000 876,527 ----------- 4,542,444 ----------- THAILAND - 0.2% PTT Public Company Ltd. plc ........................ 121,400 728,234 ----------- UNITED KINGDOM - 18.2% AstraZeneca plc .................................... 61,200 3,616,204 Aviva plc .......................................... 346,270 5,118,429 Barclays plc ....................................... 410,200 5,535,314 BHP Billiton plc ................................... 47,100 908,222 - -------------------------------------------------------------------------------- COMMON STOCKS, CONTINUED - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- UNITED KINGDOM, CONTINUED BP Amoco plc ....................................... 125,000 1,389,949 British Aerospace plc .............................. 485,500 3,884,556 British American Tobacco plc ....................... 75,900 2,068,684 Friends Provident plc .............................. 782,500 3,089,405 George Wimpey plc .................................. 167,400 1,679,428 HBOS plc ........................................... 260,121 5,392,934 Mitchells & Butlers plc ............................ 99,346 1,129,323 Punch Taverns plc .................................. 91,000 1,785,981 Royal & Sun Alliance Insurance Group plc ........... 752,249 2,116,283 Royal Bank of Scotland Group plc ................... 169,100 6,024,772 Royal Dutch Shell plc, B Shares .................... 45,973 1,646,716 Sainsbury plc ...................................... 410,062 3,063,929 Taylor Woodrow plc ................................. 235,300 1,632,469 Vodafone Group plc ................................. 2,512,958 6,470,520 Whitbread plc ...................................... 1,220 32,600 Xstrata plc ........................................ 96,000 4,101,469 ----------- 60,687,187 ----------- TOTAL COMMON STOCKS (COST $241,761,903) ............................. 320,824,268 ----------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 2.4% - -------------------------------------------------------------------------------- Investors Bank & Trust, 3.52%, purchased on 10/31/06, due 11/1/06 with a maturity value of $7,901,801 (Collateralized fully by various U.S. Government Obligations) ... 7,901,028 7,901,028 ----------- TOTAL REPURCHASE AGREEMENTS (COST $7,901,028) ............................... 7,901,028 ----------- - -------------------------------------------------------------------------------- RIGHTS & WARRANTS - 0.0% - -------------------------------------------------------------------------------- UNITED KINGDOM TI Automotive Ltd., Class A (b) .................... 190,000 0 ----------- TOTAL RIGHTS & WARRANTS (COST $0) ....................................... 0 ----------- TOTAL INVESTMENTS (COST $249,662,931) -- 98.5% .................... 328,725,296 =========== - ---------- Percentages indicated are based on net assets of $333,754,693. (a) Represents non-income producing security. (b) Illiquid security, representing 0.00% of net assets. ADR-American Depositary Receipt GDR-Global Depositary Receipt SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 56 - -------------------------------------------------------------------------------- HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED) PERCENT OF INDUSTRY NET ASSETS - -------- ---------- Aerospace & Defense .............................................. 2.2% Automotive ....................................................... 8.9% Banking & Financial Services ..................................... 22.7% Building & Construction .......................................... 3.3% Chemicals ........................................................ 1.0% Computer Related ................................................. 0.4% Drugs--Medical ................................................... 3.5% Electrical ....................................................... 5.2% Electronic Components & Semiconductors ........................... 2.6% Food & Beverage .................................................. 0.9% Insurance ........................................................ 7.6% Manufacturing .................................................... 2.1% Metals & Mining .................................................. 9.6% Oil & Gas ........................................................ 12.8% Publishing ....................................................... 0.7% Real Estate ...................................................... 0.2% Repurchase Agreement ............................................. 2.4% Retail ........................................................... 2.0% Telecommunications ............................................... 4.3% Tobacco .......................................................... 2.2% Tourism .......................................................... 0.5% Transportation Services .......................................... 3.4% ----- Total Investments ................................................ 98.5% ----- Other assets in excess of liabilities ............................ 1.5% ----- Net Assets ....................................................... 100.0% ===== 57 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 - -------------------------------------------------------------------------------- COMMON STOCKS - 95.5% - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- ADVERTISING - 1.5% Monster Worldwide, Inc. (a) ........................ 87,000 3,524,370 ----------- AEROSPACE & DEFENSE - 1.7% Esterline Technologies Corp. (a) ................... 41,800 1,575,860 Hexcel Corp. (a) ................................... 162,900 2,637,351 ----------- 4,213,211 ----------- BANKING - 1.6% East West Bancorp, Inc. ............................ 107,500 3,924,825 ----------- BIOTECHNOLOGY - 3.7% Celgene Corp. (a) .................................. 97,400 5,205,056 Invitrogen Corp. (a) ............................... 63,200 3,666,232 ----------- 8,871,288 ----------- COMMERCIAL SERVICES - 3.5% Alliance Data Systems Corp. (a) .................... 62,500 3,795,000 Schawk, Inc., Class A .............................. 107,700 2,030,145 Sotheby's Holdings, Inc. ........................... 67,200 2,553,600 ----------- 8,378,745 ----------- COMPUTER SOFTWARE - 9.4% CheckFree Corp. (a) ................................ 94,900 3,746,652 Red Hat, Inc. (a) .................................. 148,900 2,438,982 Satyam Computer Services Ltd. ADR .................. 190,600 4,214,166 Sina Corp. (a) ..................................... 99,300 2,553,003 SRA International, Inc., Class A (a) ............... 148,300 4,753,015 Transaction Systems Architects, Inc., Class A (a) .. 148,700 5,012,677 ----------- 22,718,495 ----------- CONSUMER PRODUCTS - 0.9% Jarden Corp. (a) ................................... 62,600 2,252,348 ----------- DIVERSIFIED MANUFACTURING OPERATIONS - 6.5% Actuant Corp., Class A ............................. 41,600 2,135,744 AMETEK, Inc. ....................................... 156,400 7,300,752 IDEX Corp. ......................................... 135,300 6,345,570 ----------- 15,782,066 ----------- EDUCATION - 1.5% Corinthian Colleges, Inc. (a) ...................... 304,379 3,728,643 ----------- ELECTRONIC COMPONENTS & SEMICONDUCTORS - 11.2% Atmel Corp. (a) .................................... 647,500 3,723,125 ATMI, Inc. (a) ..................................... 102,400 3,245,056 Cognos, Inc. (a) ................................... 192,300 7,015,104 Silicon Laboratories, Inc. (a) ..................... 57,000 1,859,910 Thermo Electron Corp. (a) .......................... 143,400 6,147,558 Varian Semiconductor Equipment Associates, Inc. (a) ........................................ 138,050 5,037,445 ----------- 27,028,198 ----------- ENVIRONMENTAL SERVICES - 1.1% Waste Connections, Inc. (a) ........................ 63,100 2,567,539 ----------- FINANCIAL SERVICES - 4.2% Affiliated Managers Group, Inc. (a) ................ 59,700 5,978,358 eFunds Corp. (a) ................................... 165,700 4,109,360 ----------- 10,087,718 ----------- HEALTH CARE - 13.4% Charles River Laboratories International, Inc. (a) ........................................ 83,000 3,562,360 CYTYC Corp. (a) .................................... 145,600 3,846,752 Manor Care, Inc. ................................... 90,400 4,338,296 Omnicare, Inc. ..................................... 116,600 4,416,808 Pediatrix Medical Group, Inc. (a) .................. 78,300 3,518,019 Respironics, Inc. (a) .............................. 212,400 7,501,968 Ventana Medical Systems (a) ........................ 126,000 5,089,140 ----------- 32,273,343 ----------- - -------------------------------------------------------------------------------- COMMON STOCKS, CONTINUED - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- HOTELS & LODGING - 1.1% Strategic Hotels and Resorts, Inc. ................. 121,100 2,575,797 ----------- MEDIA - 3.0% Dreamworks Animation SKG, Inc. (a) ................. 95,500 2,525,975 Meredith Corp. ..................................... 88,800 4,662,000 ----------- 7,187,975 ----------- OIL & GAS - 9.0% Chesapeake Energy Corp. ............................ 103,500 3,357,540 Consol Energy, Inc. ................................ 86,000 3,043,540 Denbury Resources, Inc. (a) ........................ 163,200 4,690,368 Grant Prideco, Inc. (a) ............................ 86,500 3,267,105 Massey Energy Co. .................................. 148,300 3,744,575 Smith International, Inc. .......................... 92,600 3,655,848 ----------- 21,758,976 ----------- PHARMACEUTICALS - 10.0% Alexion Pharmaceuticals, Inc. (a) .................. 68,104 2,544,365 Elan Corp. PLC ADR (a) ............................. 438,300 6,346,584 MGI Pharma, Inc. (a) ............................... 213,000 4,053,390 OSI Pharmaceuticals, Inc. (a) ...................... 217,100 8,310,588 Santarus, Inc. (a) ................................. 384,400 2,956,036 ----------- 24,210,963 ----------- REAL ESTATE - 0.4% Northstar Realty Finance Corp. ..................... 62,000 939,300 ----------- RETAIL - 6.2% Advance Auto Parts, Inc. ........................... 6,500 227,630 Dick's Sporting Goods, Inc. (a) .................... 105,800 5,264,608 P.F. Chang's China Bistro, Inc. (a) ................ 38,900 1,626,798 PETsMART, Inc. ..................................... 144,200 4,150,076 Williams-Sonoma, Inc. .............................. 108,400 3,686,684 ----------- 14,955,796 ----------- TELECOMMUNICATIONS - 3.7% Comverse Technology, Inc. (a) ...................... 117,300 2,553,621 Polycom, Inc. (a) .................................. 236,700 6,485,580 ----------- 9,039,201 ----------- TRANSPORTATION - 1.9% J.B. Hunt Transport Services, Inc. ................. 210,200 4,548,728 ----------- TOTAL COMMON STOCKS (COST $189,713,278) ............................. 230,567,525 ----------- - -------------------------------------------------------------------------------- INVESTMENT COMPANIES - 5.5% - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- HSBC Investor Money Market Fund Class I Shares, 5.23% (b)* .............................. 13,240,979 13,240,979 ----------- TOTAL INVESTMENT COMPANIES (COST $13,240,979) .............................. 13,240,979 ----------- TOTAL INVESTMENTS (COST $202,954,257) - 101.0% .................... 243,808,504 =========== - ---------- Percentages indicated are based on net assets of $241,494,843. (a) Represents non-income producing security. (b) Variable rate security. The rates presented represent the annualized one day yield that was in effect on October 31, 2006. * Investment in affiliate. ADR-American Depository Receipt SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 58 - -------------------------------------------------------------------------------- HSBC INVESTOR VALUE PORTFOLIO - -------------------------------------------------------------------------------- SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 - -------------------------------------------------------------------------------- COMMON STOCKS - 93.1% - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- AEROSPACE & DEFENSE - 4.6% Lockheed Martin Corp. .............................. 19,400 1,686,442 Raytheon Co. ....................................... 28,300 1,413,585 ----------- 3,100,027 ----------- BANKING - 4.7% Bank of America Corp. .............................. 23,600 1,271,332 Wells Fargo & Co. .................................. 51,600 1,872,564 ----------- 3,143,896 ----------- BUSINESS SERVICES - 2.9% Pitney Bowes, Inc. ................................. 42,100 1,966,491 ----------- COMPUTER SOFTWARE - 6.4% CA, Inc. ........................................... 110,800 2,743,408 Microsoft Corp. .................................... 54,300 1,558,953 ----------- 4,302,361 ----------- CONGLOMERATES - 1.9% Loews Corp. ........................................ 33,600 1,307,712 ----------- CONSUMER PRODUCTS - 7.7% Altria Group, Inc. ................................. 35,700 2,903,481 Kimberly-Clark Corp. ............................... 27,000 1,796,040 Tyson Foods, Inc., Class A ......................... 34,200 494,190 ----------- 5,193,711 ----------- DIVERSIFIED MANUFACTURING OPERATIONS - 1.6% Ingersoll-Rand Co., Class A ........................ 29,800 1,093,958 ----------- ELECTRONIC COMPONENTS & SEMICONDUCTORS - 1.3% Agilent Technologies, Inc. (a) ..................... 24,564 874,478 ----------- FINANCIAL SERVICES - 16.6% Citigroup, Inc. .................................... 36,707 1,841,223 Countrywide Financial Corp. ........................ 76,600 2,919,993 Fannie Mae ......................................... 41,500 2,459,290 Genworth Financial, Inc., Class A .................. 50,900 1,702,096 J.P. Morgan Chase & Co. ............................ 34,150 1,620,076 MGIC Investment Corp. .............................. 11,800 693,368 ----------- 11,236,046 ----------- GAS & ELECTRIC UTILITY - 2.0% Dominion Resources, Inc. ........................... 17,000 1,376,830 ----------- INSURANCE - 8.1% Aetna, Inc. ........................................ 16,600 684,252 AON Corp. .......................................... 46,400 1,614,256 Radian Group, Inc. ................................. 17,400 927,420 The Hartford Financial Services Group, Inc. ........ 25,700 2,240,269 ----------- 5,466,197 ----------- MEDIA - 11.2% CBS Corp., Class B ................................. 33,050 956,467 Clear Channel Communications, Inc. ................. 33,500 1,167,475 Comcast Corp., Special Class A (a) ................. 42,300 1,712,304 Liberty Media Capital Group, Class A (a) ........... 5,017 446,814 Liberty Media Interactive Group, Class A (a) ....... 37,087 818,510 Viacom Inc., Class B (a) ........................... 63,800 2,483,096 ----------- 7,584,666 ----------- - -------------------------------------------------------------------------------- COMMON STOCKS, CONTINUED - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- METALS & MINING - 6.2% Barrick Gold Corp. ................................. 62,700 1,943,700 POSCO ADR .......................................... 11,800 832,136 Rio Tinto PLC ADR .................................. 2,900 642,031 United States Steel Corp. .......................... 10,900 736,840 ----------- 4,154,707 ----------- OIL & GAS - 7.4% Apache Corp. ....................................... 12,200 796,904 ConocoPhillips ..................................... 16,271 980,165 Noble Energy, Inc. ................................. 65,500 3,185,265 ----------- 4,962,334 ----------- PAPER PRODUCTS - 1.3% International Paper Co. ............................ 26,800 893,780 ----------- TELECOMMUNICATIONS - 7.4% AT&T, Inc. ......................................... 44,900 1,537,825 BellSouth Corp. .................................... 21,050 949,355 Motorola, Inc. ..................................... 70,200 1,618,812 Sprint Nextel Corp. ................................ 45,600 852,264 ----------- 4,958,256 ----------- TRANSPORTATION - 1.8% Union Pacific Corp. ................................ 13,200 1,196,316 ----------- TOTAL COMMON STOCKS (COST $50,318,029) .............................. 62,811,766 ----------- - -------------------------------------------------------------------------------- INVESTMENT COMPANIES - 6.7% - -------------------------------------------------------------------------------- SHARES VALUE($) ---------- ----------- HSBC Investor Money Market Fund Class I Shares, 5.23% (b)* ...................... 4,508,066 4,508,066 ----------- TOTAL INVESTMENT COMPANIES (COST $4,508,066) ............................... 4,508,066 ----------- - -------------------------------------------------------------------------------- RIGHTS AND WARRANTS - 0.1% - -------------------------------------------------------------------------------- AEROSPACE & DEFENSE Raytheon Co., 37.5 strike price, expires 6/16/11 (a) ..................................... 4,833 75,975 ----------- TOTAL RIGHTS AND WARRANTS (COST $0) ....................................... 75,975 ----------- TOTAL INVESTMENTS (COST $54,826,095) - 99.9% ...................... 67,395,807 =========== - ---------- Percentages indicated are based on net assets of $67,432,095. (a) Represents non-income producing security. (b) Variable rate security. The rates presented represent the annualized one day yield that was in effect on October 31, 2006. * Investment in affiliate. ADR-American Depository Receipt 59 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS STATEMENTS OF ASSETS AND LIABILITIES--OCTOBER 31, 2006
INTERMEDIATE CORE PLUS HIGH YIELD DURATION] INTERNATIONAL FIXED INCOME FIXED INCOME FIXED INCOME GROWTH EQUITY PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------------------------------- ASSETS: Investments in non-affiliates, at value $ 123,095,860 $ 12,576,265 $ 21,227,401 $ 58,005,419 $ 328,725,296 Investments in affiliates, at value 2,998,076 -- 634,275 2,114,763 -- Cash -- 16 -- -- 44,591 Foreign currency -- -- -- -- 2,125,252 Interest and dividends receivable 989,785 261,881 155,141 50,388 636,904 Receivable for investments sold 13,281,508 32,289 2,026,784 142,543 2,718,203 Unrealized appreciation on forward foreign currency contracts 2,472 -- 469 -- -- Prepaid expenses and other assets 1,698 301 490 774 4,559 ------------- ------------ ------------ ------------ ------------- TOTAL ASSETS 140,369,399 12,870,752 24,044,560 60,313,887 334,254,805 ------------- ------------ ------------ ------------ ------------- - ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 29,121,190 135,219 4,517,975 457,514 192,318 Unrealized depreciation on forward foreign currency contracts 2,232 -- 443 -- -- Accrued expenses and other liabilities: Investment management 44,042 6,316 6,626 24,589 238,047 Administration 6,794 404 1,822 1,966 14,078 Accounting -- -- -- 388 -- Compliance service 1 -- -- -- -- Custodian -- 9,975 516 -- 46,608 Trustee 167 17 34 83 465 Other 3,042 56 576 1,583 8,596 ------------- ------------ ------------ ------------ ------------- TOTAL LIABILITIES 29,177,468 151,987 4,527,992 486,123 500,112 ------------- ------------ ------------ ------------ ------------- - ------------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Applicable to investors' beneficial interest $ 111,191,931 $ 12,718,765 $ 19,516,568 $ 59,827,764 $ 333,754,693 ============= ============ ============ ============ ============= Total Investments, at cost $ 125,181,696 $ 12,509,676 $ 21,764,574 $ 54,512,963 $ 249,662,931 ============= ============ ============ ============ ============= Foreign currency, at cost $ 2,091,355 =============
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 60 HSBC INVESTOR PORTFOLIOS STATEMENTS OF ASSETS AND LIABILITIES--OCTOBER 31, 2006 (CONTINUED)
SMALL CAP EQUITY VALUE PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------- ASSETS: Investments in non-affiliates, at value $ 230,567,525 $ 62,887,741 Investments in affiliates, at value 13,240,979 4,508,066 Cash 4,765 -- Interest and dividends receivable 61,218 69,383 Receivable for investments sold 4,265,643 -- Prepaid expenses and other assets 7,919 805 ------------- ------------ TOTAL ASSETS 248,148,049 67,465,995 ------------- ------------ - --------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 6,470,680 -- Accrued expenses and other liabilities: Investment management 163,675 29,600 Administration 12,040 2,202 Accounting 114 200 Trustee 329 95 Other 6,368 1,803 ------------- ------------ TOTAL LIABILITIES 6,653,206 33,900 ------------- ------------ - --------------------------------------------------------------------------------- NET ASSETS: Applicable to investors' beneficial interest $ 241,494,843 $ 67,432,095 ============= ============ Total Investments, at cost $ 202,954,257 $ 54,826,095 ============= ============
61 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS STATEMENTS OF OPERATIONS--FOR THE YEAR ENDED OCTOBER 31, 2006
INTERMEDIATE CORE PLUS HIGH YIELD DURATION INTERNATIONAL FIXED INCOME FIXED INCOME FIXED INCOME GROWTH EQUITY PORTFOLIO PORTFOLIO (a) PORTFOLIO PORTFOLIO PORTFOLIO - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $ 6,074,170 $ 764,816 $ 1,208,927 $ 1 $ 134,644 Dividends -- 10,683 -- 499,254 9,042,924 Dividend income from affiliated investments 97,176 -- 26,213 95,644 -- Foreign tax withholding -- -- -- -- (974,388) Income from securities lending 17,878 -- 3,075 19 -- ------------- ------------- ------------ ------------ ------------- TOTAL INVESTMENT INCOME 6,189,224 775,499 1,238,215 594,918 8,203,180 ------------- ------------- ------------ ------------ ------------- - ----------------------------------------------------------------------------------------------------------------------------------- EXPENSES: Investment management 521,319 56,612 92,601 274,052 1,905,467 Administration 41,473 3,535 8,677 20,859 106,142 Accounting 65,688 57,056 59,562 52,882 92,992 Compliance service 1,593 131 341 789 3,930 Custodian 45,750 57,077 13,418 25,798 276,849 Interest 4,939 -- -- -- -- Trustee 3,105 217 689 1,477 7,462 Other 18,240 1,101 4,014 8,815 42,574 ------------- ------------- ------------ ------------ ------------- TOTAL EXPENSES 702,107 175,729 179,302 384,672 2,435,416 ------------- ------------- ------------ ------------ ------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) 5,487,117 599,770 1,058,913 210,246 5,767,764 ------------- ------------- ------------ ------------ ------------- - ----------------------------------------------------------------------------------------------------------------------------------- NET REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND FOREIGN CURRENCIES: Net realized gains (losses) from investments and foreign currency transactions (2,015,195) 36,553 (458,266) 3,913,855 31,508,299 Change in unrealized appreciation/depreciation from investments and foreign currencies 2,496,112 66,589 518,623 (380,204) 39,700,669 ------------- ------------- ------------ ------------ ------------- - ----------------------------------------------------------------------------------------------------------------------------------- Net realized/unrealized gains (losses) from investments and foreign currency transactions 480,917 103,142 60,357 3,533,651 71,208,968 ------------- ------------- ------------ ------------ ------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,968,034 $ 702,912 $ 1,119,270 $ 3,743,897 $ 76,976,732 ============= ============= ============ ============ =============
(a) The High Yield Fixed Income Portfolio commenced operations on November 18, 2005. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 62 HSBC INVESTOR PORTFOLIOS STATEMENTS OF OPERATIONS--FOR THE YEAR ENDED OCTOBER 31, 2006 (CONTINUED)
SMALL CAP EQUITY VALUE PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 947,741 $ 1,051,111 Dividend income from affiliated investments 244,837 115,771 Income from securities lending 7,230 113 ------------- ------------- TOTAL INVESTMENT INCOME 1,199,808 1,166,995 ------------- ------------- - ------------------------------------------------------------------------------------ EXPENSES: Investment management 1,868,748 316,677 Administration 87,545 22,605 Accounting 53,770 52,651 Compliance service 3,296 849 Custodian 86,396 21,762 Trustee 6,294 1,607 Other 31,376 9,827 ------------- ------------- TOTAL EXPENSES 2,137,425 425,978 ------------- ------------- - ------------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) (937,617) 741,017 ------------- ------------- - ------------------------------------------------------------------------------------ NET REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND FOREIGN CURRENCIES: Net realized gains (losses) from investments and foreign currency transactions 38,504,562 5,586,911 Change in unrealized appreciation/depreciation from investments and foreign currencies 3,658,201 5,704,297 ------------- ------------- - ------------------------------------------------------------------------------------ Net realized/unrealized gains (losses) from investments and foreign currency transactions 42,162,763 11,291,208 ------------- ------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 41,225,146 $ 12,032,225 ============= =============
63 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS
CORE PLUS HIGH YIELD FIXED INCOME FIXED INCOME PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------------------------------ FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED PERIOD ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006 (a) - ------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: OPERATIONS: Net investment income $ 5,487,117 $ 6,493,010 $ 599,770 Net realized gains (losses) from investment and foreign currency transactions (2,015,195) 7,083,274 36,553 Change in unrealized appreciation/depreciation from investments and foreign currencies 2,496,112 (10,643,468) 66,589 ---------------- ---------------- -------------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 5,968,034 2,932,816 702,912 ---------------- ---------------- -------------------- Proceeds from contributions 23,850,640 31,409,368 13,667,509 Value of withdrawals (41,156,523) (81,271,788) (1,651,656) ---------------- ---------------- -------------------- CHANGE IN NET ASSETS FROM TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST (17,305,883) (49,862,420) 12,015,853 ---------------- ---------------- -------------------- CHANGE IN NET ASSETS (11,337,849) (46,929,604) 12,718,765 - ------------------------------------------------------------------------------------------------------------------ NET ASSETS: Beginning of period 122,529,780 169,459,384 -- ---------------- ---------------- -------------------- End of period $ 111,191,931 $ 122,529,780 $ 12,718,765 ================ ================ ====================
- ---------- (a) The High Yield Fixed Income Portfolio commenced operations on November 18, 2005. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 64 HSBC INVESTOR PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INTERMEDIATE DURATION FIXED INCOME PORTFOLIO - ------------------------------------------------------------------------------------------ FOR THE FOR THE YEAR ENDED YEAR ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 - ------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: OPERATIONS: Net investment income $ 1,058,913 $ 1,897,871 Net realized gains (losses) from investment and foreign currency transactions (458,266) (162,231) Change in unrealized appreciation/depreciation from investments and foreign currencies 518,623 (1,247,772) ---------------- ---------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,119,270 487,868 ---------------- ---------------- Proceeds from contributions 1,801,738 6,926,443 Value of withdrawals (16,214,126) (38,301,414) ---------------- ---------------- CHANGE IN NET ASSETS FROM TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST (14,412,388) (31,374,971) ---------------- ---------------- CHANGE IN NET ASSETS (13,293,118) (30,887,103) - ------------------------------------------------------------------------------------------ NET ASSETS: Beginning of period 32,809,686 63,696,789 ---------------- ---------------- End of period $ 19,516,568 $ 32,809,686 ================ ================
65 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
GROWTH INTERNATIONAL EQUITY PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006 OCTOBER 31, 2005 - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: OPERATIONS: Net investment income $ 210,246 $ 403,238 $ 5,767,764 $ 4,381,037 Net realized gains (losses) from investment and foreign currency transactions 3,913,855 2,375,542 31,508,299 18,977,305 Change in unrealized appreciation/depreciation from investments and foreign currencies (380,204) 3,995,556 39,700,669 17,737,274 ---------------- ---------------- ---------------- ---------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 3,743,897 6,774,336 76,976,732 41,095,616 ---------------- ---------------- ---------------- ---------------- Proceeds from contributions 15,350,040 15,081,868 62,831,133 68,931,727 Value of withdrawals (8,680,872) (22,121,709) (36,283,024) (99,822,646) ---------------- ---------------- ---------------- ---------------- CHANGE IN NET ASSETS FROM TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST 6,669,168 (7,039,841) 26,548,109 (30,890,919) ---------------- ---------------- ---------------- ---------------- CHANGE IN NET ASSETS 10,413,065 (265,505) 103,524,841 10,204,697 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 49,414,699 49,680,204 230,229,852 220,025,155 ---------------- ---------------- ---------------- ---------------- End of period $ 59,827,764 $ 49,414,699 $ 333,754,693 $ 230,229,852 ================ ================ ================ ================
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 66 HSBC INVESTOR PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
SMALL CAP EQUITY VALUE PORTFOLIO PORTFOLIO - -------------------------------------------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006 OCTOBER 31, 2005 - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: OPERATIONS: Net investment income (loss) $ (937,617) $ (1,294,078) $ 741,017 $ 721,613 Net realized gains (losses) from investment transactions 38,504,562 62,035,547 5,586,911 4,124,126 Change in unrealized appreciation/depreciation from investments 3,658,201 (17,237,446) 5,704,297 4,254,259 ---------------- ---------------- ---------------- ---------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 41,225,146 43,504,023 12,032,225 9,099,998 ---------------- ---------------- ---------------- ---------------- Proceeds from contributions 22,244,597 24,917,377 13,285,641 14,013,050 Value of withdrawals (a) (40,753,125) (208,976,448) (12,036,219) (30,376,597) ---------------- ---------------- ---------------- ---------------- CHANGE IN NET ASSETS FROM TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST (18,508,528) (184,059,071) 1,249,422 (16,363,547) ---------------- ---------------- ---------------- ---------------- CHANGE IN NET ASSETS 22,716,618 (140,555,048) 13,281,647 (7,263,549) - -------------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period 218,778,225 359,333,273 54,150,448 61,413,997 ---------------- ---------------- ---------------- ---------------- End of period $ 241,494,843 $ 218,778,225 $ 67,432,095 $ 54,150,448 ================ ================ ================ ================
- ---------- (a) During the year ended October 31, 2005, the Small Cap Equity Portfolio delivered cash and securities with a market value of $61,810,186 in connection with a redemption in-kind of the HSBC Investor Small Cap Equity Fund. 67 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
RATIOS/SUPPLEMENTARY DATA --------------------------------------------------------------------------------- RATIO OF RATIO OF NET NET ASSETS AT EXPENSES INVESTMENT RATIO OF END OF TO AVERAGE INCOME (LOSS) EXPENSES TOTAL PERIOD NET TO AVERAGE TO AVERAGE PORTFOLIO RETURN(a) (000'S) ASSETS(b) NET ASSETS(b) NET ASSETS(b)(c) TURNOVER (a) - ----------------------------------------------------------------------------------------------------------------------------------- CORE PLUS FIXED INCOME PORTFOLIO Year ended October 31, 2002 $ 385,802 0.48% 5.14% 0.48% 77.82% Year ended October 31, 2003 5.80% 203,551 0.48% 4.38% 0.48% 70.91% Year ended October 31, 2004 5.56% 169,459 0.52% 4.31% 0.52% 34.88% Year ended October 31, 2005 1.64% (d) 122,530 0.40% (d) 4.25% (d) 0.53% 176.60% Year ended October 31, 2006 5.55% 111,192 0.63% 4.96% 0.63% 273.91% - ----------------------------------------------------------------------------------------------------------------------------------- HIGH YIELD FIXED INCOME PORTFOLIO Period ended October 31, 2006 (e) 7.41% $ 12,719 1.86% 6.33% 1.86% 13.61% - ----------------------------------------------------------------------------------------------------------------------------------- INTERMEDIATE DURATION FIXED INCOME PORTFOLIO Year ended October 31, 2002 $ 149,815 0.51% 4.60% 0.51% 44.04% Year ended October 31, 2003 4.42% 84,488 0.53% 3.70% 0.53% 98.42% Year ended October 31, 2004 4.48% 63,697 0.57% 3.54% 0.57% 50.06% Year ended October 31, 2005 0.76% (d) 32,810 0.49% (d) 3.85% (d) 0.58% 107.26% Year ended October 31, 2006 5.29% 19,517 0.78% 4.58% 0.78% 236.51% - ------------------------------------------------------------------------------------------------------------------------------- --- GROWTH PORTFOLIO Period ended October 31, 2004 (e) (0.86%) $ 49,680 0.72% 0.06% 0.72% 53.08% Year ended October 31, 2005 13.59% (d) 49,415 0.63% (d) 0.77% (d) 0.68% 79.54% Year ended October 31, 2006 7.53% 59,828 0.69% 0.38% 0.69% 75.06% - ----------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL EQUITY PORTFOLIO Year ended October 31, 2002 $ 256,616 0.91% 0.63% 0.91% 31.63% Year ended October 31, 2003 23.70% 201,805 0.96% 1.00% 0.96% 68.51% Year ended October 31, 2004 20.29% 220,025 0.94% 1.53% 0.94% 106.11% Year ended October 31, 2005 19.54% 230,230 0.84% 1.92% 0.84% 31.32% Year ended October 31, 2006 32.79% 333,755 0.86% 2.03% 0.86% 33.39% - ----------------------------------------------------------------------------------------------------------------------------------- SMALL CAP EQUITY PORTFOLIO Year ended October 31, 2002 $ 266,217 0.99% (0.78%) 0.99% 103.90% Year ended October 31, 2003 33.30% 426,181 0.91% (0.62%) 0.91% 152.05% Year ended October 31, 2004 5.93% 359,333 0.88% (0.52%) 0.88% 81.75% Year ended October 31, 2005 14.35% (d) 218,778 0.85% (d) (0.45%)(d) 0.90% 63.95% Year ended October 31, 2006 19.54% 241,495 0.91% (0.40%) 0.91% 60.83% - ----------------------------------------------------------------------------------------------------------------------------------- VALUE PORTFOLIO Period ended October 31, 2004 (e) 6.12% $ 61,414 0.71% 1.28% 0.71% 10.33% Year ended October 31, 2005 15.23% (d) 54,150 0.64% (d) 1.15% (d) 0.69% 16.45% Year ended October 31, 2006 22.21% 67,432 0.71% 1.23% 0.71% 20.63% - -----------------------------------------------------------------------------------------------------------------------------------
(a) Not annualized for periods less than one year. (b) Annualized for periods less than one year. (c) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratio would have been as indicated. (d) During the year ended October 31, 2005, HSBC reimbursed certain amounts to the Portfolios related to violations of certain investment policies and limitations. The corresponding impact to the net expense ratio, net income ratio and total return were 0.12%, 0.09%, 0.05%, 0.04% and 0.05% for the Core Plus Fixed Income Portfolio, Intermediate Duration Fixed Income Portfolio, Growth Portfolio, Small Cap Equity Portfolio and Value Portfolio, respectively. (e) High Yield Fixed Income Portfolio commenced operations on November 18, 2005. Growth Portfolio commenced operations on May 7, 2004. Value Portfolio commenced operations on May 7, 2004. SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 68 - -------------------------------------------------------------------------------- HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 1. ORGANIZATION: The HSBC Investor Portfolios (the "Portfolio Trust"), is an open-end management investment company organized as a New York trust under the laws of the State of New York on November 1, 1994. The Portfolio Trust contains the following master funds (individually a "Portfolio," collectively the "Portfolios"):
PORTFOLIO SHORT NAME - --------- ---------- HSBC Investor Core Plus Fixed Income Portfolio Core Plus Fixed Income Portfolio (formerly the HSBC Investor Fixed Income Portfolio) HSBC Investor High Yield Fixed Income Portfolio High Yield Fixed Income Portfolio HSBC Investor Intermediate Duration Fixed Intermediate Duration Fixed Income Income Portfolio (formerly the HSBC Investor Portfolio Limited Maturity Portfolio) HSBC Investor Growth Portfolio Growth Portfolio HSBC Investor International Equity Portfolio International Equity Portfolio HSBC Investor Small Cap Equity Portfolio Small Cap Equity Portfolio HSBC Investor Value Portfolio Value Portfolio
The Portfolios operate as master funds in master-feeder arrangements, in which other funds invest their assets in the Portfolios. The Declaration of Trust permits the Board of Trustees to issue an unlimited number of beneficial interests in the Portfolios. The Portfolios are diversified series of the Portfolio Trust and are part of the HSBC Investor Family of Funds. Financial Statements for all other funds of the HSBC Investor Family of Funds are published separately. Under the Portfolio Trust's organizational documents, the Portfolios' officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Portfolios. In addition, in the normal course of business, the Portfolios enter into contracts with their service providers, which also provide for indemnifications by the Portfolios. The Portfolios' maximum exposure under these arrangements is unknown as this would involve any future claims that may be made against the Portfolios. However, based on experience, the Portfolios expect that risk of loss to be remote. 2. SIGNIFICANT ACCOUNTING POLICIES: The following is a summary of the significant accounting policies followed by the Portfolios in the preparation of their financial statements. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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: Bonds and other fixed income securities (other than short-term obligations but including listed issues) are valued on the basis of valuations furnished by a pricing service, the use of which has been approved by the Portfolios' Board of Trustees. In making such valuations, the pricing service utilizes both dealer-supplied valuations and the use of matrix techniques which take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics other than market data and without exclusive reliance upon quoted prices or exchanges or over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. All debt portfolio securities with a remaining maturity of 60 days or less are valued at amortized cost. Under the amortized cost method, premium or discount, if any, is amortized or accreted, respectively, on a constant (straight-line) basis to the maturity of the security. The value of each equity security is based either on the last sale price on a national securities exchange, or in the absence of recorded sales, at the closing bid prices on such exchanges, or at the quoted bid price in the over-the-counter 69 HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) market. Securities or other assets for which market quotations are not readily available, or are deemed unreliable due to a significant event or otherwise, are valued by or at the direction of the Portfolios' Board of Trustees. Examples of potentially significant events that could affect the value of an individual security include corporate actions by the issuer, announcements by the issuer relating to its earnings or products, regulatory news, natural disasters and litigation. Examples of potentially significant events that could affect multiple securities held by a Portfolio include governmental actions, natural disasters and armed conflicts. In addition, if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Portfolios' net assets are calculated, such securities may be valued using fair value pricing in accordance with procedures adopted by the Board of Trustees. Management identifies possible fluctuations in foreign securities by monitoring the rise or fall in the value of a designated benchmark index. In the event of a rise or fall greater than predetermined levels, the International Equity Portfolio may use a systematic valuation model provided by an independent third party to value its foreign securities, rather than local market closing prices. When the International Equity Portfolio uses such a valuation model, the value assigned to the International Equity Portfolio's foreign securities may not be the quoted or published prices of the investment on their primary markets or exchanges. SECURITIES TRANSACTIONS AND RELATED INCOME: During the period, security transactions are accounted for no later than one business day following trade date. For financial reporting purposes, however, changes in holdings are accounted for on trade date on the last business day of the reporting period. Securities gains and losses are calculated on the identified cost basis. Interest income is recognized on the accrual basis and includes, where applicable, the amortization or accretion of premium or discount. Dividend income is recorded on the ex-dividend date. FOREIGN CURRENCY TRANSLATION: The accounting records of the Portfolios are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the current rate of exchange to determine the value of investments, assets and liabilities. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. The Portfolios do not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments and foreign currencies. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Portfolios may enter into forward foreign currency exchange contracts in connection with planned purchases or sales of securities or to hedge the U.S. dollar value of portfolio securities denominated in a particular currency. The Portfolios could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized gains or losses until the contract settlement date. FUTURES CONTRACTS: Each Portfolio may invest in futures contracts for the purpose of hedging their existing portfolio securities or securities it intends to purchase against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Portfolio is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount (initial margin deposit). Subsequent payments, known as "variation margin," are made or received by the Portfolio each day, depending on the daily fluctuations in the fair value of the underlying security. The Portfolio recognizes a gain or loss equal to the daily variation margin. Should market conditions move unexpectedly, the Portfolio may not achieve the anticipated benefits of the futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets. HSBC INVESTOR PORTFOLIOS 70 - -------------------------------------------------------------------------------- HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) MORTGAGE DOLLAR ROLL TRANSACTIONS: The Core Plus Fixed Income Portfolio, the High Yield Fixed Income Portfolio and the Intermediate Duration Fixed Income Portfolio may engage in dollar roll transactions with respect to mortgage securities issued by the Government National Mortgage Association, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. In a dollar roll transaction, the Portfolio sells a mortgage-backed security and simultaneously agrees to repurchase a similar security on a specified future date at an agreed upon price. During the roll period, the Portfolio will not be entitled to receive any interest or principal paid on the securities sold. The Portfolio is compensated for the lost interest on the securities sold by the difference between the sales price and the lower price for the future repurchase as well as by the interest earned on the reinvestment of the sales proceeds. The Portfolio may also be compensated by receipt of a commitment fee. RESTRICTED AND ILLIQUID SECURITIES: A restricted security is a security which has been purchased through a private offering and cannot be resold to the general public without prior registration under the Securities Act of 1933 (the "1933 Act") or pursuant to the resale limitations provided by Rule 144 under the 1933 Act, or an exemption from the registration requirements of the 1933 Act. Certain restricted securities may be resold in transactions exempt from registration, normally to qualified institutional buyers, and may be deemed liquid by the investment adviser based on procedures established by the Board of Trustees. Therefore, not all restricted securities are considered illiquid. At October 31, 2006 the HSBC Core Plus Fixed Income Portfolio held restricted securities that were illiquid, representing 0.03% of net assets, as follows:
ACQUISITION ACQUISITION PRINCIPAL SECURITY NAME DATE COST($) AMOUNT($) VALUE($) - ------------- ----------- ----------- --------- -------- FHA Weyerhauser, 7.43%, 1/1/24 ....... 3/28/2002 32,060 33,926 33,926
SECURITY LOANS: To generate additional income, the Portfolios may lend portfolio securities in amounts up to 33 1/3%, except for the Small Cap Equity Portfolio, which may lend up to 30%, of its respective assets pursuant to agreements requiring that the loan be collateralized by cash, U.S. Government or U.S. Government agency securities, equal at all times to at least 100% of the fair value of the loaned securities. HSBC Bank USA ("HSBC Bank"), an affiliate of the Investment Adviser (defined below), acted as the securities lending agent for this activity through March 30, 2006. The Portfolios receive payments from borrowers equivalent to the dividends and interest that would have been earned on securities loaned while simultaneously seeking to earn income on the investment of collateral. Collateral is marked to market daily to provide the required level of collateral. There may be risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. However, loans will be made only to borrowers, such as broker-dealers, banks or institutional borrowers of securities, deemed by HSBC Bank to be of good standing and creditworthy under guidelines approved by the Board of Trustees and when, in the judgment of HSBC Bank, the amounts that can be earned currently from such securities loans justifies the attendant risks. Loans are subject to termination by the Portfolios or the borrower at any time and are, therefore, not considered to be illiquid investments. As of October 31, 2006 the Portfolios did not have any securities on loan. REPURCHASE AGREEMENTS: The Funds may enter into repurchase agreements with an entity which is a member of the Federal Reserve System or which is a "primary dealer" (as designated by the Federal Reserve Bank of New York) in U.S. Government obligations. The repurchase price generally equals the price paid by a Portfolio plus interest negotiated on the basis of current short-term rates, which may be more or less than the rate on the underlying portfolio securities. The seller, under a repurchase agreement, is required to maintain the collateral held pursuant to the agreement, with a fair value equal to or greater than the repurchase price (including accrued interest). Collateral subject to repurchase agreements is held by the Portfolios' custodian or another qualified custodian or in the Federal Reserve/Treasury book-entry system. In the event of counterparty default, the Portfolio has the right to use the collateral to offset losses incurred. There is potential for loss to the Portfolio in the event the Portfolio is delayed or prevented from exercising its rights to dispose 71 HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) of the collateral securities, including the risk of a possible decline in the fair value of the underlying securities during the period while the Portfolio seeks to assert its rights. LINE OF CREDIT: The Portfolios may borrow up to $50 million under the terms of a short-term, demand note agreement with HSBC Bank. The purpose of the agreement is to meet temporary or emergency cash needs, including redemption requests that might otherwise require the untimely disposition of securities. During the year ended October 31, 2006, the details of the borrowings were as follows (based on actual number of days in which the respective Portfolios borrowed monies):
AVERAGE AMOUNT AVERAGE FUND OUTSTANDING INTEREST RATE - ---- -------------- ------------- Core Plus Fixed Income Portfolio ....................... $7,732,592 4.60%
EXPENSE ALLOCATIONS: Expenses directly attributable to a Portfolio are charged to that Portfolio. Expenses not directly attributable to a Portfolio are allocated proportionally among various or all funds within the HSBC Investor Family of Funds in relation to net assets or on another reasonable basis. FEDERAL INCOME TAXES: Each Portfolio will be treated as a partnership for U.S. Federal income tax purposes. Accordingly, each Portfolio passes through all of its net investment income and gains and losses to its feeder funds, and is therefore not subject to U.S. Federal income tax. As such, investors in the Portfolios will be taxed on their respective share of the Portfolios' ordinary income and realized gains. It is intended that the Portfolios will be managed in such a way that an investor will be able to satisfy the requirements of the Internal Revenue Code applicable to regulated investment companies. NEW ACCOUNTING PRONOUNCEMENTS: In September 2006 the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current GAAP from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of October 31, 2006, the Portfolios do not believe the adoption of SFAS No. 157 will impact the financial statement amounts, however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements on changes in net assets for the period. On July 13, 2006, the FASB released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Portfolios' tax return to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more likely-than-not threshold would be recorded as a tax benefit or expense in the year of determination. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Management is in the process of completing their analysis on whether the adoption of FIN 48 will have an impact to the financial statements upon adoption. HSBC INVESTOR PORTFOLIOS 72 - -------------------------------------------------------------------------------- HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) 3. RELATED PARTY TRANSACTIONS: INVESTMENT MANAGEMENT: HSBC Investments (USA) Inc. ("HSBC" or the "Investment Adviser"), a wholly owned subsidiary of HSBC Bank USA, a New York State chartered bank, acts as the Investment Adviser to the Portfolios pursuant to an investment management contract with the Portfolio Trust. As Investment Adviser, HSBC manages the investments of the Portfolios and continuously reviews, supervises and administers the Portfolios' investments, except that Waddell & Reed Investment Management Company, AllianceBernstein Investment Research and Management, Westfield Capital Management, LLC and NWQ Investment Management Co., LLC serve as sub-investment advisers for the Growth Portfolio, International Equity Portfolio, Small Cap Equity Portfolio and the Value Portfolio, respectively, and are paid for their services directly by the respective Portfolios. For its services, the Investment Adviser receives a fee, accrued daily and paid monthly, at an annual rate of 0.60% of the High Yield Fixed Income Portfolio's average daily net assets and 0.40% of the Intermediate Duration Fixed Income Portfolio's average daily net assets. For its services as Investment Adviser, HSBC receives, from the Core Plus Fixed Income Portfolio, a fee accrued daily and paid monthly at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE - ------------------------------------ -------- Up to $50 million ............................................................. 0.575% In excess of $50 million but not exceeding $95 million ........................ 0.450% In excess of $95 million but not exceeding $150 million ....................... 0.200% In excess of $150 million but not exceeding $250 million ...................... 0.400% In excess of $250 million ..................................................... 0.350%
For their services, the Investment Adviser and Waddell & Reed Investment Management Company receive in aggregate, from the Growth Portfolio, a fee, accrued daily and paid monthly, at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE - ------------------------------------ -------- Up to $50 million ............................................................. 0.500% In excess of $50 million but not exceeding $100 million ....................... 0.425% In excess of $100 million but not exceeding $200 million ...................... 0.375% In excess of $200 million ..................................................... 0.325%
For their services, the Investment Adviser and AllianceBernstein Investment Research and Management receive in aggregate, from the International Equity Portfolio, a fee, accrued daily and paid monthly, at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE - ------------------------------------ -------- Up to $10 million ............................................................. 1.015% In excess of $10 million but not exceeding $25 million ........................ 0.925% In excess of $25 million but not exceeding $50 million ........................ 0.79% In excess of $50 million but not exceeding $100 million ....................... 0.70% In excess of $100 million ..................................................... 0.61%
For their services, the Investment Adviser and Westfield Capital Management, LLC receive in aggregate, a fee, accrued daily and paid monthly, at an annual rate of 0.80% of the Small Cap Equity Portfolio's average daily net assets. For their services, the Investment Adviser and NWQ Investment Management Co., LLC receive in aggregate, from the Value Portfolio, a fee, accrued daily and paid monthly, at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE - ------------------------------------ -------- Up to $500 million ............................................................ 0.525% In excess of $500 million but not exceeding $1 billion ........................ 0.475% In excess of $1 billion ....................................................... 0.425%
73 HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) ADMINISTRATION: HSBC serves the Portfolios as Administrator. Under the terms of the administration agreement, HSBC receives from the Portfolios a fee, accrued daily and paid monthly, at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE - ------------------------------------ -------- Up to $8 billion .............................................................. 0.075% In excess of $8 billion but not exceeding $9.25 billion ....................... 0.070% In excess of $9.25 billion but not exceeding $12 billion ...................... 0.050% In excess of $12 billion ...................................................... 0.030%
The fee rates and breakpoints are determined on the basis of the aggregate average daily net assets of the HSBC Investor Family of Funds, however, the assets of the Portfolios and Feeder Funds that invest in the Portfolios are not double-counted. The total administration fee paid to BISYS is allocated to each series in the HSBC Investor Family of Funds based upon its proportionate share of the aggregate net assets of the Family of Funds. For assets invested in the Portfolios by Feeder Funds, the Portfolios pay half of the administration fee and the Feeder Funds pay half of the administration fee, for a combination of the total fee rate set forth above. Pursuant to a Sub-Administration Agreement with HSBC, BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), a wholly-owned subsidiary of The BISYS Group, Inc., serves as the Portfolio Trust's sub-administrator subject to the general supervision of the Portfolio Trust's Board of Trustees and HSBC. For these services, BISYS Ohio is entitled to a fee, payable by HSBC, at an annual rate equivalent to the fee rates set forth above, minus 0.02% (2 basis points) which is retained by HSBC. Under a Compliance Services Agreement between the Portfolios' and BISYS Ohio (the "CCO Agreement"), BISYS Ohio makes an employee available to serve as the Portfolios' Chief Compliance Officer (the "CCO"). Under the CCO Agreement, BISYS Ohio also provides infrastructure and support in implementing the written policies and procedures comprising the Portfolios' compliance program, including support services to the CCO. For the services provided under the CCO Agreement, the HSBC Investor Family of Funds paid BISYS Ohio $240,000 for the year ended October 31, 2006, plus reimbursement of certain expenses. Expenses incurred by each Portfolio are reflected on the Statements of Operations as "Compliance Service". BISYS Ohio pays the salary and other compensation earned by any such individuals as employees of BISYS Ohio. FUND ACCOUNTING, CUSTODIAN AND TRUSTEE: BISYS Ohio provides fund accounting services for the Portfolios. For its services to the Portfolios, BISYS Ohio receives an annual fee per Portfolio, including reimbursement of certain expenses, that is accrued daily and paid monthly. Investor's Bank & Trust Company ("IBT") serves as custodian for the High Yield Fixed Income Portfolio and the International Equity Portfolio. HSBC Bank serves as custodian to all the other Portfolios. Compensation paid to IBT and HSBC Bank for services to the Portfolios as custodian is presented in the Statements of Operations as custodian fees. Effective May 18, 2006 each of the six non-interested Trustees are compensated with a $35,000 annual Board retainer, as well as a $3,000 annual retainer for each Committee of the Board. Each non-interested Trustee also receives a $5,000 and $3,000 meeting fee for each regular in-person Board meeting and Committee meeting, respectively. Furthermore, each non-interested Trustee receives compensation for attending special meetings and/or functioning as a Committee Chairperson or Lead Trustee. In addition, the non-interested Trustees are reimbursed for certain expenses incurred in connection with their Board membership. Prior to May 18, 2006 each of the six non-interested Trustees were compensated with a $24,000 annual Board retainer, as well as a $1,000 annual retainer for each Committee of the Board. Each non-interested Trustee also received a $4,000 and $2,000 meeting fee for each regular in-person Board meeting and Committee meeting, respectively. OTHER: For its services as securities lending agent, HSBC Bank (see note 2--Security Loans) received a fee equal to 0.06% of the average dollar value of the loans outstanding from the Portfolios. Income from securities lending, net of HSBC INVESTOR PORTFOLIOS 74 - -------------------------------------------------------------------------------- HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) related expenses, is recorded as earned by the Portfolios. The fees collected by HSBC Bank for the period ended October 31, 2006 were:
PORTFOLIO FEE - --------- -------- Core Plus Fixed Income Portfolio .............................................. $ 940 Intermediate Duration Fixed Income Portfolio .................................. 161 Growth Portfolio .............................................................. 38 Small Cap Equity Portfolio .................................................... 7,966 Value Portfolio ............................................................... 188
The HSBC Investor Family of Funds may use affiliated broker/dealers for the execution of portfolio investment trades. For the year ended October 31, 2006, affiliated broker/dealers received $31 in commissions on the execution of trades related to the HSBC Investor Family of Funds. 4. INVESTMENT TRANSACTIONS: For the year ended October 31, 2006, each Portfolio purchased and sold securities, excluding short-term securities, in the following amounts:
PURCHASES SALES PURCHASES SALES (EXCLUDING U.S. (EXCLUDING U.S. OF U.S. OF U.S. PORTFOLIO NAME GOVERNMENT) GOVERNMENT) GOVERNMENT GOVERNMENT - -------------- --------------- --------------- ------------- ------------- Core Plus Fixed Income Portfolio ............... $ 134,526,696 $ 172,510,986 $ 118,026,656 $ 113,130,153 High Yield Fixed Income Portfolio .............. 12,433,301 1,205,330 -- -- Intermediate Duration Fixed Income Portfolio ... 23,023,323 36,797,439 22,747,051 22,556,861 Growth Portfolio ............................... 46,482,340 40,299,206 -- -- International Equity Portfolio ................. 115,023,721 92,278,196 -- -- Small Cap Equity Portfolio ..................... 139,376,585 166,871,695 -- -- Value Portfolio ................................ 11,960,212 12,990,518 -- --
5. LEGAL AND REGULATORY MATTERS: On September 26, 2006 BISYS Fund Services, Inc. ("BISYS"), an affiliate of BISYS Fund Services Ohio, Inc. which provides various services to the Portfolios as described in footnote 3, reached a settlement with the Securities and Exchange Commission ("SEC") regarding the SEC's investigation related to BISYS' past payment of certain marketing and other expenses with respect to certain of its mutual fund clients. Although BISYS has reached a settlement with the SEC, the Portfolios' management is not aware that any determination has been made as to how the BISYS settlement monies will be distributed. The SEC's examination of BISYS' mutual fund clients and their advisers, including HSBC, has not been completed. While the Portfolios' management is currently unable to determine the impact, if any, of such matters on the Portfolios or the Portfolios' financial statements, management does not anticipate a material, adverse impact to the Portfolios or the Portfolios' financial statements. 75 HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED) 6. FEDERAL INCOME TAX INFORMATION: As of October 31, 2006, the cost, gross unrealized appreciation and gross unrealized depreciation on securities, for federal income tax purposes, were as follows:
NET UNREALIZED TAX UNREALIZED TAX UNREALIZED APPRECIATION PORTFOLIO NAME TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) - -------------- --------------- -------------- -------------- -------------- Core Plus Fixed Income Portfolio ............... $ 125,300,474 $ 1,085,114 $ (291,652) $ 793,462 High Yield Fixed Income Portfolio .............. 12,509,676 66,589 0 66,589 Intermediate Duration Fixed Income Portfolio ... 21,771,631 143,186 (53,141) 90,045 Growth Portfolio ............................... 54,631,776 6,517,205 (1,028,799) 5,488,406 International Portfolio ........................ 252,905,339 79,099,774 (3,279,816) 75,819,958 Small Cap Equity Portfolio ..................... 203,854,870 46,004,811 (6,051,177) 39,953,634 Value Portfolio ................................ 54,501,953 14,341,092 (1,447,238) 12,893,854
HSBC INVESTOR PORTFOLIOS 76 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of HSBC Investor Portfolios: We have audited the accompanying statements of assets and liabilities of HSBC Investor Core Plus Fixed Income Portfolio, HSBC Investor High Yield Fixed Income Portfolio, HSBC Investor Intermediate Duration Fixed Income Portfolio, HSBC Investor Growth Portfolio, HSBC Investor International Equity Portfolio, HSBC Investor Small Cap Equity Portfolio and HSBC Investor Value Portfolio (the Funds), including the schedules of portfolio investments, as of October 31, 2006, and the related statements of operations for the year or period then ended, the changes in net assets for each period in the two-year period then ended and the financial highlights for each period in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Funds' 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 the standards of the Public Company Accounting Oversight Board (United States). 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. Our procedures included confirmation of securities owned as of October 31, 2006, by correspondence with the custodians and brokers; or other appropriate auditing procedures. 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 Funds as of October 31, 2006, and the results of their operations for the year or period then ended, the changes in their net assets for each period in the two-year period then ended, and the financial highlights for each period in the five-year period then ended, in conformity with U.S. generally accepted accounting principles. KPMG LLP Columbus, Ohio December 22, 2006 77 HSBC INVESTOR PORTFOLIOS - -------------------------------------------------------------------------------- HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- TABLE OF SHAREHOLDER EXPENSES (UNAUDITED)--OCTOBER 31, 2006 As a shareholder of the HSBC Investor Funds, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchases; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or shareholder servicing fees; and other fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the HSBC Investor Funds and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from May 1, 2006 through October 31, 2006. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
ANNUALIZED BEGINNING ENDING EXPENSE PAID EXPENSE RATIO ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD 5/1/06 10/31/06 5/1/06-10/31/06 5/1/06-10/31/06 ------------- ------------- --------------- --------------- Core Plus Fixed Income Portfolio $1,000.00 $1,046.30 $3.30 0.64% High Yield Fixed Income Portfolio 1,000.00 1,026.10 9.50 1.86% Intermediate Duration Fixed Income Portfolio 1,000.00 1,043.70 4.02 0.78% Growth Portfolio 1,000.00 992.70 3.47 0.69% International Equity Portfolio 1,000.00 1,036.40 4.41 0.86% Small Cap Equity Portfolio 1,000.00 987.40 4.61 0.92% Value Portfolio 1,000.00 1,076.00 3.61 0.69%
- ---------- * Expenses are equal to the average account value times the Portfolio's annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. HSBC INVESTOR FAMILY OF FUNDS 78 - -------------------------------------------------------------------------------- HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- TABLE OF SHAREHOLDER EXPENSES (UNAUDITED)--OCTOBER 31, 2006 (CONTINUED) HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below provides information about hypothetical account values and hypothetical expenses based on each HSBC Investor Funds's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
EXPENSE PAID ANNUALIZED BEGINNING ENDING DURING EXPENSE RATIO ACCOUNT VALUE ACCOUNT VALUE PERIOD* DURING PERIOD 5/1/06 10/31/06 5/1/06-10/31/06 5/1/06-10/31/06 ------------- ------------- --------------- --------------- Core Plus Fixed Income Portfolio $1,000.00 $1,021.98 $3.26 0.64% High Yield Fixed Income Portfolio 1,000.00 1,015.83 9.45 1.86% Intermediate Duration Fixed Income Portfolio 1,000.00 1,021.27 3.97 0.78% Growth Portfolio 1,000.00 1,021.73 3.52 0.69% International Equity Portfolio 1,000.00 1,020.87 4.38 0.86% Small Cap Equity Portfolio 1,000.00 1,020.57 4.69 0.92% Value Portfolio 1,000.00 1,021.73 3.52 0.69%
- ---------- * Expenses are equal to the average account value times the Fund's annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year. 79 HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- BOARD OF TRUSTEES (UNAUDITED) The following table contains information regarding HSBC Investor Family of Funds Board of Trustees. Asterisks indicate those Trustees who are "interested persons," as defined in the Investment Company Act of 1940, as amended, of the Funds. The Funds' Statement of Additional Information includes additional information about the Trustees and is available by calling (888) 525-5757.
NUMBER OF PORTFOLIOS TERM OF OFFICE AND IN THE FUND NAME, ADDRESS POSITION HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN OTHER DIRECTORSHIPS AND AGE WITH THE FUNDS SERVED WITH THE FUNDS DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ Frederick C. Chen Emeritus Trustee Indefinite; Trustee Management Consultant, 38 None P.O. Box 182845 from 1990 to June since 1988 Columbus, Ohio 43218 2005; Age: 79 16 years - ------------------------------------------------------------------------------------------------------------------------------------ Larry M. Robbins Trustee Indefinite; 19 years Director, Center for 38 None P.O. Box 182845 Teaching and Learning, Columbus, Ohio 43218 University of Pennsylvania Age: 68 - ------------------------------------------------------------------------------------------------------------------------------------ Alan S. Parsow Trustee Indefinite; 19 years General Partner of Elkhorn 38 None P.O. Box 182845 Partners, L.P., since 1989 Columbus, Ohio 43218 Age: 56 - ------------------------------------------------------------------------------------------------------------------------------------ Michael Seely Trustee Indefinite; 19 years Private Investor; Finance 38 None P.O. Box 182845 Chair of the Vermont Columbus, Ohio 43218 Republican Party; Age: 61 President of Investor Access Corporation, 1981-2004 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas Robards Trustee Indefinite; 2 years Private Investor; Chief 38 Financial Federal P.O. Box 182845 Financial Officer, Corporation and Columbus, Ohio 43218 American Museum of Natural Overseas Age: 60 History (2003 to 2004); Shipholding Chief Financial Officer, Group Datek Online Holding Corp. (2000 to 2002); Executive member of Board of Directors, Executive Vice President and Chief Financial Officer, Republic New York Corporation (1976 to 1999) - ------------------------------------------------------------------------------------------------------------------------------------ Richard Brealey Trustee Indefinite; 2 years Emeritus Professor, London 38 None P.O. Box 182845 School of Business (2002 Columbus, Ohio 43218 to present); Deputy Age: 70 Chairman, Balancing and Settlement Code Panel (September 2000 to present) - ------------------------------------------------------------------------------------------------------------------------------------ Stephen J. Baker* Trustee Indefinite; 3 years Chief Executive Officer, 38 None P.O. Box 182845 HSBC Investments (USA), Columbus, Ohio 43218 Inc. (2003 to present); Age: 50 Chief Executive Officer, HSBC Asset Management (Canada) Limited (1998 to 2003) - ------------------------------------------------------------------------------------------------------------------------------------
HSBC INVESTOR FAMILY OF FUNDS 80 - -------------------------------------------------------------------------------- HSBC INVESTOR FAMILY OF FUNDS - -------------------------------------------------------------------------------- BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) The names of the Officers, their addresses, ages, position(s) held with each Trust, and principal occupation(s) during the past five years are described in the table below. Unless otherwise indicated, the address for each Officer is 3435 Stelzer Road, Columbus, Ohio 43219-3035.
TERM OF OFFICE AND NAME, ADDRESS POSITION(S) HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) AND AGE WITH THE FUNDS SERVED WITH THE FUNDS DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------------------ Richard A. Fabietti President Indefinite; March 2004-Present Senior Vice President, Head of Product Management, 3435 Stelzer Road HSBC Investments (USA) Inc., 1998-Present Columbus, Ohio 43219 Age: 48 - ------------------------------------------------------------------------------------------------------------------------------------ Elba Vasquez Vice President Indefinite; 2006-Present Vice President of Product Administration, HSBC 452 Fifth Avenue Investments (USA) Inc. (2005 to present); Vice President New York, NY 10018 of Client Services, BISYS Fund Services, Inc. (1996 to Age: 45 2005) - ------------------------------------------------------------------------------------------------------------------------------------ Marc Schuman Secretary Indefinite; 2005-Present Senior Counsel of BISYS Fund Services, Inc., 2005- 90 Park Avenue Present; Senior Corporate Counsel of The BISYS Group, 10th Floor Inc. 2001-2005; Of Counsel to Morgan, Lewis & Bockius New York, NY 10016 LLP (law firm) 2000-2001. Age: 46 - ------------------------------------------------------------------------------------------------------------------------------------ Michael Lawlor Assistant Secretary Indefinite; March 2005-Present Assistant Counsel of BISYS Fund Services, Inc. 2005- 100 Summer Street Present; Associate Counsel of IXIS Advisors Group Suite 1500 2003-2005; Staff Counsel Loomis, Sayles & Company, L.P. Boston, MA 02110 2000-2003; Legal Product Manager, Scudder Kemper Age: 37 Investments 1999-2000. - ------------------------------------------------------------------------------------------------------------------------------------ Troy Sheets * Treasurer Indefinite; 2004-Present Employee of BISYS Fund Services, Inc., 2002-Present; 3435 Stelzer Road Senior Manager, KPMG LLP, 1993-2002 Columbus, Ohio 43219 Age: 35 - ------------------------------------------------------------------------------------------------------------------------------------ Frederick J. Schmidt* Chief Compliance Expires 2006; 2004-Present Senior Vice President and Chief Compliance Officer, CCO 90 Park Avenue Officer Services of BISYS Fund Services, 2004-Present; 10th Floor President, FJS Associates, 2002-2004; Vice President, New York, NY 10016 Credit Agricole Asset Mangement, U.S., 1987-2002 Age: 47 - ------------------------------------------------------------------------------------------------------------------------------------
* Messrs. Sheets and Schmidt also are officers of certain other investment companies of which BISYS or an affiliate is the administrator. 81 HSBC INVESTOR FAMILY OF FUNDS A description of the policies and procedures that the Funds use to determine how to vote proxies relating to the portfolio securities is available without charge, upon request, by calling 1-800-525-5757 for HSBC Bank USA and HSBC Brokerage (USA) Inc. clients and 1-800-782-8183 for all other shareholders or on the Fund's website at WWW.INVESTORFUNDS.US.HSBC.COM and the Securities and Exchange Commission's website at HTTP://WWW.SEC.GOV. A copy of the Fund's voting record for the most recent 12 month period ending June 30 is available at the Security and Exchange Commission's website at HTTP://WWW.SEC.GOV. Schedules of Portfolio Investments for fiscal quarters ending January 31 and July 31 will be available no later than 60 days after each period end, without charge, on the Fund's website at WWW.INVESTORFUNDS.US.HSBC.COM and on the Securities and Exchange Commission's website at HTTP://WWW.SEC.GOV. An investment in a Fund is not a deposit of HSBC Bank USA, National Association, and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. HSBC INVESTOR LIFELINE FUNDS: INVESTMENT ADVISER AND ADMINISTRATOR HSBC Investments (USA) Inc. 452 Fifth Avenue New York, NY 10018 SUB-ADVISERS HSBC INVESTOR GROWTH PORTFOLIO Waddell & Reed Investment Management Company 6300 Lamar Avenue Overland Park, KS 66202 HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO AllianceBernstein Investment Research and Management 1345 Avenue of the Americas, 39th Floor New York, NY 10105 HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO Westfield Capital Management, LLC One Financial Center Boston, MA 02111 HSBC INVESTOR VALUE PORTFOLIO NWQ Investment Management Co., LLC 2049 Century Park East, 16th Floor Los Angeles, CA 90067 SHAREHOLDER SERVICING AGENTS FOR HSBC BANK USA, N.A. AND HSBC SECURITIES (USA) INC. CLIENTS HSBC Bank USA, N.A. 452 Fifth Avenue New York, NY 10018 1-888-525-5757 FOR ALL OTHER SHAREHOLDERS HSBC Investor Funds P.O. Box 182845 Columbus, OH 43218-2845 1-800-782-8183 TRANSFER AGENT, DISTRIBUTOR AND SPONSOR BISYS Fund Services 3435 Stelzer Road Columbus, OH 43219 CUSTODIANS HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO HSBC INVESTOR GROWTH PORTFOLIO HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO HSBC INVESTOR VALUE PORTFOLIO HSBC Bank USA, N.A. 452 Fifth Avenue New York, NY 10018 HSBC INVESTOR HIGH YIELD FIXED INCOME FUND HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO Investors Bank & Trust Company 200 Clarendon Street - 16th Floor Boston, MA 02116 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP 191 West Nationwide Blvd., Suite 500 Columbus, OH 43215 LEGAL COUNSEL Dechert LLP 1775 Eye Street, N.W. Washington, D.C. 20006 The HSBC LifeLine Funds are distributed by BISYS Fund Services. This document must be preceded or accompanied by a current prospectus for the HSBC Investor Funds, which you should read carefully before you invest or send money. -- NOT FDIC INSURED -- NO BANK GUARANTEE -- MAY LOSE VALUE HSB-SR-LL 12/06 ITEM 2. CODE OF ETHICS. (A) THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS PERFORMING SIMILAR FUNCTIONS. THIS CODE OF ETHICS IS INCLUDED AS EXHIBIT 12(A)(I). (B)DURING THE PERIOD COVERED BY THE REPORT, WITH RESPECT TO THE REGISTRANT'S CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS PERFORMING SIMILAR FUNCTIONS; THERE HAVE BEEN NO AMENDMENTS TO, NOR ANY WAIVERS GRANTED FROM, A PROVISION THAT RELATES TO ANY ELEMENT OF THE CODE OF ETHICS DEFINITION ENUMERATED IN PARAGRAPH (B) OF THIS ITEM 2. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. 3(a)(1) THE REGISTRANT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE REGISTRANT HAS AT LEAST ONE AUDIT COMMITTEE FINANCIAL EXPERT SERVING ON ITS AUDIT COMMITTEE. 3(a)(2) THE AUDIT COMMITTEE FINANCIAL EXPERT IS THOMAS ROBARDS, WHO IS "INDEPENDENT" FOR PURPOSES OF THIS ITEM 3 OF FORM N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) AUDIT FEES 2005 $255,000 2006 $284,700 (b) AUDIT-RELATED FEES 2005 $40,000 2006 $41,600 2005 - Fees of $5,000 relate to the consent of N1A filing and $35,000 relate to the performance of the Funds' 17f-2 examinations. 2006 - Fees of $5,200 relate to the consent of N1A filing and $36,400 relate to the performance of the Funds' 17f-2 examinations. (c) TAX FEES 2005 $139,200 2006 $154,800 Fees for both 2005 and 2006 relate to the preparation of federal income and excise tax returns and the review of excise tax distributions. (d) ALL OTHER FEES 2005 $0 2006 $0 (e)(1) Except as permitted by Rule 2-01(c)(7)(i)(C) of Regulation S-X, the Trust's Audit Committee must preapprove all audit and non-audit services by the independent accountants relating to the operations or financial reporting of the Funds. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law. (2) None of the services summarized in (b) - (d), above, were approved by the audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X. (f) Not applicable. (g) Aggregate non-audit fees 2005 $228,200 2006 $238,800 (h) THE AUDIT COMMITTEE CONSIDERED THE NONAUDIT SERVICES RENDERED TO THE REGISTRANT'S INVESTMENT ADVISER AND ANY ENTITY CONTROLLING, CONTROLLED BY, OR UNDER COMMON CONTROL WITH THE INVESTMENT ADVISER, AND BELIEVES THE SERVICES ARE COMPATIBLE WITH THE PRINCIPAL ACCOUNTANT'S INDEPENDENCE. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 11. CONTROLS AND PROCEDURES. (a) THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER HAVE CONCLUDED, BASED ON THEIR EVALUATION OF THE REGISTRANT'S DISCLOSURE CONTROLS AND PROCEDURES AS CONDUCTED WITHIN 90 DAYS OF THE FILING DATE OF THIS REPORT, THAT THESE DISCLOSURE CONTROLS AND PROCEDURES ARE ADEQUATELY DESIGNED AND ARE OPERATING EFFECTIVELY TO ENSURE THAT INFORMATION REQUIRED TO BE DISCLOSED BY THE REGISTRANT ON FORM N-CSR IS RECORDED, PROCESSED, SUMMARIZED AND REPORTED WITHIN THE TIME PERIODS SPECIFIED IN THE SECURITIES AND EXCHANGE COMMISSION'S RULES AND FORMS. (b) THERE WERE NO CHANGES IN THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING THAT OCCURRED DURING THE SECOND FISCAL QUARTER OF THE PERIOD COVERED BY THIS REPORT THAT HAVE MATERIALLY AFFECTED OR ARE REASONABLY LIKELY TO MATERIALLY AFFECT, THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING. ITEM 12. EXHIBITS. (a)(1) THE CODE OF ETHICS THAT IS THE SUBJECT OF THE DISCLOSURE REQUIRED BY ITEM 2 IS ATTACHED HERETO. (a)(2) CERTIFICATIONS PURSUANT TO RULE 30A-2(A) ARE ATTACHED HERETO. (a)(3) NOT APPLICABLE. (b) CERTIFICATIONS PURSUANT TO RULE 30A-2(B) ARE FURNISHED HEREWITH. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) HSBC INVESTOR PORTFOLIOS By (Signature and Title)* /s/ RICHARD A. FABIETTI ------------------------------------------------------- Richard A. Fabietti President Date_____January 5, 2007_______________________________ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ RICHARD A. FABIETTI ------------------------------------------------------- Richard A. Fabietti President Date____January 5, 2007________________________________ By (Signature and Title)* /s/ TROY A. SHEETS ------------------------------------------------------- Troy A. Sheets Treasurer Date___January 5, 2007_________________________________ * Print the name and title of each signing officer under his or her signature. EX-99.CODE ETH 2 c44850_ex99-code.txt CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS HSBC INVESTOR FUNDS HSBC ADVISOR FUNDS TRUST HSBC INVESTOR PORTFOLIOS Approved by the Boards of Trustees HSBC Investor Funds, HSBC Advisor Funds Trust and HSBC Investor Portfolios as of August 14, 2003 Pursuant to the Sarbanes-Oxley Act of 2002 I. INTRODUCTION AND APPLICATION HSBC Investor Funds, HSBC Advisor Funds Trust, HSBC Investor Portfolios and HSBC Absolute Return Portfolio LLC (each a "Trust") recognize the importance of high ethical standards in the conduct of their business and require this Code of Ethics ("Code") to be observed by their respective principal executive officers (each a "Covered Officer") (defined below). In accordance with the Sarbanes-Oxley Act of 2002 (the "Act") and the rules promulgated thereunder by the U.S. Securities and Exchange Commission ("SEC") each Trust is required to file reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended ("1934 Act"), and must disclose whether they have adopted a code of ethics applicable to the principal executive officers. Each Trust's Board of Trustees ("Board"), including a majority of its Independent Trustees (defined below) has approved this Code as compliant with the requirements of the Act and related SEC rules. This Code does not supersede or otherwise affect the separate code of ethics that each Trust has adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended ("1940 Act"). All recipients of the Code are directed to read it carefully, retain it for future reference and abide by the rules and policies set forth herein. Any questions concerning the applicability or interpretation of such rules and policies, and compliance therewith, should be directed to the relevant Compliance Officer (defined below), as specified in Schedule 1. II. PURPOSE This Code has been adopted by the Board in accordance with the Act and the rules promulgated by the SEC in order to deter wrongdoing and promote: (A) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (B) full, fair, accurate, timely and understandable disclosure in reports and documents filed by the Trust with the SEC or made in other public communications by the Trust; (C) compliance with applicable governmental laws, rules and regulations; (D) prompt internal reporting to an appropriate person or persons of violations of the Code; and (E) accountability for adherence to the Code. III. DEFINITIONS (A) "COVERED OFFICER" means the principal executive officer and senior financial officers, including the principal financial officer, controller or principal accounting officer, or persons performing similar functions. (B) "COMPLIANCE OFFICER" means the person appointed by the Trust's Board of Trustees to administer the Code. (C) "TRUSTEE" means a trustee of the Trust. (D) "EXECUTIVE OFFICER" shall have the same meaning as set forth in Rule 3b-7 of the 1934 Act. Subject to any changes in the Rule, an Executive Officer means the president, any vice president, any officer who performs a policy making function, or any other person who performs similar policy making functions for the Trust. (E) "INDEPENDENT TRUSTEE" means a trustee of the Trust who is not an "interested person" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act. (F) "IMPLICIT WAIVER" means the Compliance Officer failed to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an Executive Officer. (G) "RESTRICTED LIST" means that listing of securities maintained by the Trust Compliance Officer in which trading by certain individuals subject to the Trust's 17j-1 code of ethics is generally prohibited. (H) "WAIVER" means the approval by the Compliance Office of a material departure from a provision of the Code. IV. HONEST AND ETHICAL CONDUCT (A) OVERVIEW. A "conflict of interest" occurs when a Covered Officer's personal interest interferes with the interests of, or his service to, the Trust. Certain conflicts of interest arise out of the relationships between Covered Officers and the Trust and already are subject to the conflict of interest provisions in the 1940 Act and the Investment Advisers Act of 1940, as 2 amended (the "Advisers Act"). The Trust's and each investment adviser and sub-adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. (B) GENERAL POLICY. Each Covered Officer shall adhere to the highest standards of honest and ethical conduct. Each Covered Officer has a duty to exercise his or her authority and responsibility for the benefit of the Trust, to place the interests of the shareholders first and to refrain from having outside interests that conflict with the interests of the Trust and its shareholders. Each such person must avoid any circumstances that might adversely affect or appear to affect his or her duty of complete loyalty to the Trust and its shareholders in discharging his or her responsibilities, including the protection of confidential information and corporate integrity. (C) EXAMPLES OF CONFLICTS. The following list provides examples of conflicts of interest under the Code but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Trust. (1) PROHIBITED CONFLICTS OF INTEREST. Each Covered Officer must: o not use his personal influence or personal relationships improperly to influence decisions or financial reporting by the Trust whereby the Covered Officer would benefit personally to the detriment of the Trust; o not cause the Trust to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than benefit the Trust; o not use material non-public knowledge of portfolio transactions made or contemplated for the Trust to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; (2) CONFLICTS OF INTEREST THAT MAY BE WAIVED. There are some conflict of interest situations for which a Covered Officer may seek a Waiver from a provision(s) of the Code. Waivers must be sought in accordance with Section VIII of the Code. Examples of these include: o OUTSIDE EMPLOYMENT OR ACTIVITIES. Covered Officers may not serve as directors, officers, general partners, consultants, agents, representatives or employees of any other business unless prior authorization is obtained from the Compliance Officer. Such authorization will be based on a determination that the business of such corporation does not conflict with the interests of the Trust, and that such service would be consistent with the best interests of the Trust and its shareholders, and that such service is not prohibited by law. 3 o GIFTS, ENTERTAINMENT, FAVORS OR LOANS. No Covered Officer shall receive any gift or other thing of more than DE MINIMIS value from any person or entity that does business with or on behalf of the Trust. o CORPORATE OPPORTUNITIES. Covered Officers may not exploit for their own personal gain opportunities that are discovered through the use of Trust property, information or position unless the opportunity is fully disclosed, in writing, to the Board and the Board declines to pursue such opportunity. o OWNERSHIP INTERESTS. Covered Officers may not have: (i) any ownership interest in, or any consulting or employment relationship with, any of the Trust's service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; or (ii) a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Trust for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. V. FULL, FAIR, ACCURATE, TIMELY AND UNDERSTANDABLE DISCLOSURE (A) GENERAL POLICY. This Code is intended to promote the full, fair, accurate, timely and understandable disclosure in reports and other documents filed by the Trust with the SEC or made in other public communications by the Trust. Accordingly, the Covered Officers are expected to consider this to be central to their roles as officers of the Trust and shall ensure that full, fair, accurate, timely and understandable disclosure is made in the Trust's reports and other documents filed with the SEC and in other public communications. (B) RESPONSIBILITIES. Covered Officers shall: (1) familiarize himself with the disclosure requirements generally applicable to the Trust; (2) not knowingly misrepresent, or cause other to misrepresent; facts about the Trust to others, whether within or outside the Trust, including to the Trust's Trustee's and auditors, and to governmental regulators and self-regulatory organizations; (3) to the extent appropriate within his area of responsibility, consult with the other officers and employees of the Trust and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Trust files with, or submit to, the SEC and in other public communications made by the Trust; and (4) promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. 4 (C) CHANGES IN DISCLOSURE PROCESS. If, at any time, a Covered Officer believes that measures should be taken to improve the Trust's disclosure process, he or she shall advise the Compliance Officer and shall work with the Compliance Officer and other appropriate personnel to facilitate any changes in the process. VI. INTERNAL REPORTING BY COVERED PERSONS (A) CERTIFICATIONS. Each Covered Officer shall: (1) upon adoption of the Code (or thereafter as applicable upon becoming a Covered Officer), affirm in writing on Schedule A hereto that the Covered Officer has received, read, and understands the Code; and (2) annually thereafter affirm on Schedule A hereto that the Covered Officer has complied with the requirements of the Code. (B) REPORTING. A Covered Officer shall promptly report any knowledge of a material violation of this Code to the Compliance Officer. Failure to do so is itself a violation of the Code. (C) REQUIRED DOCUMENTATION. Any such report shall be in writing, and shall describe in reasonable detail the conduct that the Covered Officer believes to have violated this Code. If the Compliance Officer concludes that there has been a violation of the Code, he or she shall determine appropriate sanctions in accordance with Section IX(A) below. Notwithstanding the foregoing, the Compliance Officer shall be entitled to grant a Waiver of one or more provisions of this Code as set forth in Section VIII of the Code. VII. WAIVERS OF PROVISIONS OF THE CODE (A) WAIVERS. The Compliance Officer may grant Waivers to the Code in circumstances that present special hardship. Waivers shall be structured to be as narrow as is reasonably practicable with appropriate safeguards designed to prevent abuse of the Waiver. To request a Waiver from the Code, the Covered Officer shall submit to the Compliance Officer a written request describing the transaction, activity or relationship for which a Waiver is sought. The request shall briefly explain the reason for engaging in the transaction, activity or relationship. (B) IMPLICIT WAIVERS. In the event that the Compliance Officer has not acted upon a properly submitted request for a Waiver within a reasonable amount of time and a material departure from the Code has taken place in accordance with the request, the Compliance Officer may nevertheless, in lieu of finding a violation of the Code, determine retroactively to grant a Waiver. 5 (C) DOCUMENTATION. The Compliance Officer shall document all Waiver determinations. If a Waiver is granted under paragraphs (A) or (B), above, the Compliance Officer shall prepare a brief description of the nature of the Waiver, the name of the Covered Officer and the date of the Waiver so that this information may be disclosed in the next Form N-CSR to be filed on behalf of the Trust or posted on the Trust's internet website within five business days following the date of the Waiver. All Waivers must be reported to the Board at each quarterly meeting as set forth in Section IX below. VIII. REPORTING AND MONITORING (A) SANCTIONS. Compliance by Covered Officers with the provisions of the Code is required. Covered Officers should be aware that in response to any violation, the Trust will take whatever action is deemed necessary under the circumstances, including, but not limited to, fines, suspension or termination. (B) BOARD REPORTING. The Compliance Officer shall report any material violations of the Code to the Board for its consideration on a quarterly basis. At a minimum, the report shall: (1) describe the violation under the Code and any sanctions imposed; (2) identify and describe any Waivers to the Code; and (3) identify any recommended changes to the Code. (C) AMENDMENTS TO THE CODE. The Covered Officers and the Compliance Officer may recommend amendments to the Code for the consideration and approval of the Board. In connection with any amendment to the Code, the Compliance Officer shall prepare a brief description of the amendment, so that the necessary disclosure may be made with the next Form N-CSR to be filed on behalf of the Trust or posted on the Trust's internet website within five business days following the date of the amendment. IX. RECORD-KEEPING The Compliance Officer shall maintain all records, including any internal memoranda, relating to compliance with the Code or Waivers of the Code, for a period of 6 years from the end of the fiscal year in which such document was created, 2 years in an accessible place. Such records shall be furnished to the SEC or its staff upon request. XI. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained on a confidential basis and will be reasonably secured to prevent access to such records by unauthorized personnel. 6 SCHEDULE 1 COMPLIANCE OFFICER Martin R. Dean 7 EXHIBIT A CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS INITIAL AND ANNUAL CERTIFICATION OF COMPLIANCE WITH THE CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS [ ] I hereby certify that I have received the Code of Ethics for Principal Executive and Senior Financial Officers adopted pursuant to the Sarbanes-Oxley Act of 2002 (the "Code") and that I have read and understood the Code. I further certify that I am subject to the Code and will comply with each of the Code's provisions to which I am subject. [ ] I hereby certify that I have received the Code of Ethics for Principal Executive and Senior Financial Officers adopted pursuant to the Sarbanes-Oxley Act of 2002 (the "Code") and that I have read and understood the Code. I further certify that I have complied with and will continue to comply with each of the provisions of the Code to which I am subject. ___________________________________________ (Signature) Name:______________________________________ Title/Department:__________________________ Date:______________________________________ Received By (Name/Title):_____________________________ Signature:____________________________________________ Date:_________________________________________________ 8 EX-99.CERT 3 c44850_ex99-cert.txt CERTIFICATIONS I, Richard A. Fabietti, certify that: 1. I have reviewed this report on Form N-CSR of HSBC Investor Portfolios (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. JANUARY 5, 2007 /s/ RICHARD A. FABIETTI - --------------- ----------------------- Date Richard A. Fabietti President CERTIFICATIONS I, Troy A. Sheets, certify that: 1. I have reviewed this report on Form N-CSR of HSBC Investor Portfolios (the "registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. JANUARY 5, 2007 /s/ TROY A. SHEETS - --------------- ------------------ Date Troy A. Sheets Treasurer EX-99.906CERT 4 c44850_ex99-906.txt This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. ss. 1350, and accompanies the report on Form N-CSR for the period ended October 31, 2006 of HSBC Investor Portfolios (the "Registrant"). Each of the undersigned, being the Principal Executive Officer and Principal Financial Officer of the Registrant, hereby certifies that, to such officer's knowledge,: 1. the Form N-CSR fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78m(a) or 78o(d)); and 2. the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. JANUARY 5, 2007 - --------------- Date /S/ RICHARD A. FABIETTI ----------------------- Richard A. Fabietti President /S/ TROY A. SHEETS ----------------------- Troy A. Sheets Treasurer This certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of Form N-CSR or as a separate disclosure document. A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----