HSBC FUNDS TRUST
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
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HSBC Asset Management Americas Inc. [GRAPHIC OMITTED]
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Cash Management Fund
Government Money Market Fund
U.S. Treasury Money Market Fund
New York Tax-Free Money Market Fund
ANNUAL REPORT
December 31, 1997
Managed by:
HSBC ASSET MANAGEMENT AMERICAS INC.
Sponsored and distributed by:
BISYS FUND SERVICES
<PAGE>
HSBC FUNDS TRUST
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MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
HSBC Asset Management Americas Inc. [GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
CASH MANAGEMENT FUND
GOVERNMENT MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
NEW YORK TAX-FREE MONEY MARKET FUND
- --------------------------------------------------------------------------------
January 15, 1998
Dear Shareholder:
The year began with the Federal Open Market Committee (Federal Reserve) raising
interest rates 25 basis points to 5.50% during their March 25 meeting. However,
the rest of the year saw short-term interest rates remain unchanged despite the
markets being influenced by economic factors both at home and abroad.
Domestically, there were several false alarms during the second and third
quarters that the Fed would be raising rates as an answer to a tight labor
market and robust growth in housing and consumer spending. But these factors
were quickly negated as inflation indicators such as the Consumer Price Index
(CPI) and Producer Price Index (PPI) reflected that inflation was very much
under control.
With two Federal Reserve meetings scheduled during the fourth quarter, market
sentiment again focused on higher interest rates. But all talk of a tightening
ceased as the markets witnessed a flight to quality, brought upon by the Asian
situation. This event completely overshadowed the domestic economic picture as
financial and currency problems in Southeast Asia took center stage and
investors sought safety in United States Treasury securities.
As we have over the years, our primary goal is to ensure that the HSBC Money
Market Funds reflect the highest standards characterized by safety, stability,
performance and service. The portfolio managers, analysts and traders at HSBC
Asset Management value your relationship, and we appreciate your confidence to
let us work on your behalf.
Sincerely,
/s/ EDWARD J. MERKLE
Edward J. Merkle
Managing Director
The views expressed in this letter reflect those of the portfolio manager
through the end of the period covered by the report as stated on the cover.
<PAGE>
BOARD OF TRUSTEES
JOHN P. PFANN* Chairman and President, JPP Equities, Inc.
WOLFE J. FRANKL* Former Director, North America, Berlin
Economic Development Corporation
HARALD PAUMGARTEN President, Paumgarten and Company
ROBERT A. ROBINSON* Trustee, Henrietta and B. Frederick H. Bugher Foundation
*Member of the Audit and Nominating Committees
- --------------------------------------------------------------------------------
OFFICERS
WALTER B. GRIMM PRESIDENT
ERIC F. ALMQUIST SENIOR VICE PRESIDENT
KAREN DOYLE VICE PRESIDENT
CHARLES L. BOOTH VICE PRESIDENT
THOMAS LINE TREASURER
STEVEN R. HOWARD SECRETARY
ALAINA V. METZ ASSISTANT SECRETARY
ROBERT L. TUCH ASSISTANT SECRETARY
2
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
CREDIT RATING INTEREST/
MOODY'S/S&P SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION RATE DATE AMOUNT (NOTE 2)
------------- ----------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER (45.9%):
AUTOMOBILES (1.5%):
P-1, A-1 Mitsubishi Motors, Corp.
(LOC - Bank of Tokyo) ..................... 6.15% 1/13/98 $2,800,000 $ 2,794,260
------------
BANKING (9.4%):
P-1, A-1 Banco Rio de la Plata SA
(LOC - Bayerische Vereinsbank) ............ 5.80 1/21/98 8,400,000 8,372,933
P-1, A-1 Bank of New York Co., Inc. .................. 5.82 1/16/98 9,000,000 8,978,175
------------
17,351,108
------------
ELECTRICAL EQUIPMENT (1.6%):
P-1, A-1 General Electric Co. ........................ 5.80 1/16/98 3,000,000 2,992,750
------------
FINANCIAL SERVICES (20.9%):
P-1, A-1 Ford Motor Credit Co. ....................... 5.82 1/15/98 8,000,000 7,981,893
P-1, A-1 GTE Funding, Inc. ........................... 5.83 1/5/98 4,823,000 4,819,876
P-1, A-1 GTE Funding, Inc. ........................... 5.88 1/7/98 3,750,000 3,746,325
P-1, A-1 Ryobi Finance Corp.
(LOC - Bank of Tokyo-Mitsubishi) .......... 6.75 1/7/98 6,000,000 5,993,250
P-1, A-1 75 State Street Capital
(LOC - Banque Paribas) .................... 5.92 1/20/98 6,393,000 6,373,026
P-1, A-1 Three Rivers Funding Corp.
(LOC - Mellon Bank) ....................... 6.50 1/7/98 9,500,000 9,489,708
------------
38,404,078
------------
ELECTRIC UTILITY (5.3%):
P-1, A-1 Jacksonville Electric ....................... 5.88 2/13/98 9,700,000 9,700,000
------------
GOVERNMENTS (FOREIGN) (4.3%):
P-1, A-1 Ontario Hydro ............................... 5.65 3/3/98 8,000,000 7,923,411
------------
HOTELS & MOTELS (2.9%):
P-1, A-1 Accor SA (LOC - Banque National de Paris) ... 5.77 2/25/98 5,400,000 5,352,398
------------
TOTAL COMMERCIAL PAPER (Amortized Cost - $84,518,005) ......................... 84,518,005
------------
CORPORATE NOTES (10.2%):
BANKING (10.2%):
P-1, A-1 American Express Centurion Bank* ............ 5.97 1/12/98 10,000,000 10,000,000
P-1, A-1 PNC Bank, Inc.*** ........................... 5.65 1/2/98 8,800,000 8,799,210
------------
TOTAL CORPORATE NOTES (Amortized Cost - $18,799,210) .......................... 18,799,210
------------
</TABLE>
3
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED)
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
CREDIT RATING INTEREST/
MOODY'S/S&P SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION RATE DATE AMOUNT (NOTE 2)
------------- ----------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
MEDIUM TERM NOTES (9.5%):
FINANCIAL SERVICES (9.5%):
P-1, A-1 Bear Stearns Co., Inc.* ..................... 5.67% 4/9/98 $ 4,700,000 $ 4,700,000
P-1, A-1 Bear Stearns Co., Inc.* ..................... 5.83 2/24/98 4,000,000 4,000,000
P-1, A-1 Merrill Lynch & Co., Inc.* .................. 5.68 3/26/98 8,800,000 8,800,000
------------
TOTAL MEDIUM TERM NOTES (Amortized Cost - $17,500,000) ........................ 17,500,000
------------
PROMISSORY NOTE (4.5%):
P-1, A-1 Goldman Sachs L.P.** ........................ 5.80 1/20/98 8,300,000 8,300,000
------------
TOTAL PROMISSORY NOTE (Amortized Cost - $8,300,000) ........................... 8,300,000
------------
YANKEE CERTIFICATES OF DEPOSIT (27.8%):
BANKING (27.8%):
P-1, A-1 Bank of America, N.A. ....................... 5.94 10/22/98 8,200,000 8,196,212
P-1, A-1 Bankers Trust New York Corp. ................ 5.97 10/27/98 8,000,000 7,998,121
P-1, A-1 Barclays Bank, PLC .......................... 5.94 6/25/98 8,000,000 7,998,350
P-1, A-1 Bayerische Landesbank ....................... 5.81 12/17/98 4,000,000 3,996,662
P-1, A-1 Canadian Imperial Bank of Commerce .......... 5.87 8/11/98 5,000,000 4,996,947
P-1, A-1 Commerzbank AG .............................. 5.83 1/15/98 10,000,000 10,000,037
P-1, A-1 Deutsche Bank ............................... 5.94 9/15/98 5,000,000 4,998,975
P-1, A-1 Deutsche Bank ............................... 5.94 10/23/98 3,000,000 3,000,048
------------
TOTAL YANKEE CERTIFICATES OF DEPOSIT (Amortized Cost - $51,185,352) ........... 51,185,352
------------
REPURCHASE AGREEMENTS (1.8%):
Chase Securities, Inc., (Purchased on 12/31/97,
proceeds at maturity $3,310,121;
Collateralized by $4,020,000 FHLMC,
8.50%, 11/1/26, market value $3,404,414) .. 6.10 1/2/98 3,309,000 3,309,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost - $3,309,000) ......................................................... 3,309,000
------------
TOTAL INVESTMENTS (99.7%)
(Amortized Cost - $183,611,567)(a) .......................................... 183,611,567
------------
OTHER ASSETS IN EXCESS OF LIABILITIES (0.3%) .................................. 593,697
------------
NET ASSETS (100.0%) ........................................................... $184,205,264
============
<FN>
- --------------
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Variable rate security. Rate presented represents rate in effect at December
31, 1997. Date presented represents the next rate change date.
** Security restricted as to resale. This investment was acquired on October
20, 1997 and represents 4.5% of net assets as of December 31, 1997.
*** Variable rate security. The security's interest rate is based upon bank
prime rates. Rate presented represents the rate in effect at December 31,
1997.
FHLMC - Federal Home Loan Mortgage Corporation
LOC - Letter of Credit
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997
GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
CREDIT RATING INTEREST/
MOODY'S/S&P SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION RATE DATE AMOUNT (NOTE 2)
------------- ----------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (64.1%):
Aaa, N/R Federal Home Loan Bank ...................... 5.65% 1/7/98 $10,000,000 $ 10,000,000
Aaa, N/R Federal Home Loan Bank** .................... 5.79 1/2/98 7,000,000 7,012,311
Aaa, N/R Federal Home Loan Bank** .................... 5.51 1/2/98 20,000,000 19,990,495
Aaa, N/R Federal Home Loan Bank, Discount Note ....... 5.41 8/28/98 2,000,000 1,928,167
Aaa, N/R Federal Home Loan Mortgage Corp.** .......... 5.90 1/2/98 2,750,000 2,754,079
Aaa, N/R Federal Home Loan Mortgage Corp. ............ 5.85 6/9/98 5,000,000 5,002,436
Aaa, N/R Federal National Mortgage Association** ..... 5.52 1/2/98 15,000,000 14,994,534
Aaa, N/R Federal National Mortgage Association ....... 5.71 3/18/98 3,000,000 2,999,344
------------
TOTAL U.S. GOVERNMENT AGENCIES (Amortized Cost - $64,681,366) ................. 64,681,366
------------
REPURCHASE AGREEMENTS (35.4%):
Chase Securities, Inc. (Purchased on 12/31/97,
proceeds at maturity $5,159,748;
Collateralized by $7,210,000 FHLMC,
8.50%, 4/1/26, market value $5,398,597) ... 6.10 1/2/98 5,158,000 5,158,000
Chase Securities, Inc. (Purchased on 12/11/97,
proceeds at maturity $7,546,719;
Collateralized by $9,397,787 FGLMC,
8.50%, 8/1/26, market value $7,901,721) ... 5.75 1/20/98 7,500,000 7,500,000
Donaldson Lufkin & Jenrette Securities Corp.
(Purchased on 12/31/97, proceeds at maturity
$23,007,667; Collateralized by $23,491,000
U.S. Treasury Notes, 5.63%, 12/31/99,
market value $23,472,938) ................. 6.00 1/2/98 23,000,000 23,000,000
------------
TOTAL REPURCHASE AGREEMENTS
(Cost - $35,658,000) ........................................................ 35,658,000
------------
TOTAL INVESTMENTS (99.5%)
(Amortized Cost - $100,339,366)(a) .......................................... 100,339,366
------------
OTHER ASSETS IN EXCESS OF LIABILITIES (0.5%) .................................. 522,245
------------
NET ASSETS (100.0%) ........................................................... $100,861,611
============
<FN>
- --------------
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Variable rate note. Rate presented represents rate in effect at December
31, 1997. Date presented represents the next rate change date.
** Variable rate security. The security's interest rate is based upon bank
prime rates. Rate presented represents rate in effect at December 31, 1997.
FGLMC - Federal Home Loan Mortgage Corp., Giant
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
N/R - Not rated
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997
U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
SHARES
CREDIT RATING INTEREST/ OR
MOODY'S/S&P SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION RATE DATE AMOUNT (NOTE 2)
------------- ----------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY BILLS (30.2%):
Aaa, AAA U.S. Treasury Bills ......................... 5.00%* 7/23/98 $2,000,000 $ 1,941,017
Aaa, AAA U.S. Treasury Bills ......................... 5.07* 8/20/98 1,500,000 1,450,046
Aaa, AAA U.S. Treasury Bills ......................... 5.20* 10/15/98 2,000,000 1,916,531
Aaa, AAA U.S. Treasury Bills ......................... 5.14* 11/12/98 2,500,000 2,384,719
-----------
TOTAL U.S. TREASURY BILLS (Amortized Cost - $7,692,313) ....................... 7,692,313
-----------
OPEN-END INVESTMENT COMPANIES (2.4%):
Provident Institutional T-Fund ....................................... 604,000 604,000
-----------
TOTAL OPEN-END INVESTMENT COMPANIES (Amortized Cost - $604,000) ............... 604,000
-----------
REPURCHASE AGREEMENTS (68.0%):
Bear Stearns Co., Inc. (Purchased on 12/31/97,
proceeds at maturity $1,100,367;
Collateralized by $1,070,000 U.S.
Treasury Bonds, 6.50%, 5/15/05,
market value $1,123,409) .................. 6.00 1/2/98 1,100,000 1,100,000
Chase Securities, Inc. (Purchased on 12/31/97,
proceeds at maturity $5,724,700;
Collateralized by $5,740,000 U.S.
Treasury Notes, 5.00%, 1/31/99,
market value $5,698,744) .................. 6.00 1/26/98 5,700,000 5,700,000
C.S. First Boston, Inc. (Purchased on 11/24/97,
proceeds at maturity $2,321,467;
Collateralized by $7,825,000 U.S. Treasury
Strips, 5/15/17, market value $2,351,734) . 5.60 1/23/98 2,300,000 2,300,000
Donaldson Lufkin & Jenrette Securities Corp.
(Purchased on 12/31/97, proceeds at maturity
$1,200,433; Collateralized by $2,488,000
U.S. Treasury Strips, 11/15/09,
market value $1,226,477) .................. 6.50 1/2/98 1,200,000 1,200,000
</TABLE>
6
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED)
U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
INTEREST/
SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
DESCRIPTION RATE DATE AMOUNT (NOTE 2)
----------- --------- -------- --------- ------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
Lehman Government Securities, Inc.
(Purchased on 12/31/97, proceeds at maturity
$1,100,373; Collateralized by $700,000
U.S. Treasury Bonds, 11.25%, 2/15/15,
market value $1,125,245) .................. 6.10% 1/2/98 $1,100,000 $ 1,100,000
Merrill Lynch Government Securities, Inc.
(Purchased on 12/31/97, proceeds at maturity
$1,200,400; Collateralized by $1,195,000
U.S. Treasury Notes, 6.63%, 6/30/01,
market value $1,227,521) .................. 6.00 1/2/98 1,200,000 1,200,000
Union Bank of Switzerland (Purchased on
12/31/97, proceeds at maturity $4,754,703;
Collateralized by $4,849,000 U.S.
Treasury Notes, 4.75%, 10/31/98,
market value $4,852,081) .................. 6.45 1/26/98 4,753,000 4,753,000
-----------
TOTAL REPURCHASE AGREEMENTS
(Cost - $17,353,000) ........................................................ 17,353,000
-----------
TOTAL INVESTMENTS (100.6%)
(Amortized Cost - $25,649,313)(a) ........................................... 25,649,313
-----------
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.6%) ................................. (142,046)
-----------
NET ASSETS (100.0%) ........................................................... $25,507,267
===========
<FN>
- --------------
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Rate represents effective yield at date of purchase.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997
NEW YORK TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
CREDIT RATING INTEREST/
MOODY'S/S&P SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION RATE DATE AMOUNT (NOTE 2)
------------- ----------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL NOTES (10.4%):
MIG1, N/R Brentwood Unified Free School District,
GO, TAN ................................... 4.25% 6/30/98 $2,000,000 $ 2,003,316
MIG1, Sp1+ Buffalo, GO, RAN (LOC - Landesbank
Hessen) ................................... 4.40 8/5/98 1,000,000 1,003,349
MIG1, Sp1+ New York City, GO, Series A, RAN
(LOC - Morgan Guaranty Trust,
Westdeutsche Landesbank, Societe
Generale, Landesbank Hessen,
National Westminster Bank, Bayerische
Landesbank Girozentrale) .................. 4.50 6/30/98 2,000,000 2,006,414
N/R, N/R Town of Hempstead, GO, Series D,
BAN ....................................... 4.00 10/15/98 2,000,000 2,003,028
MIG1, Sp1+ Puerto Rico Commonwealth, Series A,
TAN & RAN ................................. 4.50 7/30/98 2,000,000 2,008,453
-----------
TOTAL MUNICIPAL NOTES (Amortized Cost - $9,024,560) ........................... 9,024,560
-----------
MUNICIPAL COMMERCIAL PAPER (10.2%):
P-1, A-1 New York City, Municipal Assistance Corp.
(LOC - Landesbank Hessen) ................. 3.70 2/23/98 2,000,000 2,000,000
P-1, A-1+ New York City, Municipal Water
(LOC- Canadian Imperial Bank) ............. 3.80 2/11/98 4,000,000 4,000,000
P-1, A-1 New York State Dormitory Authority,
Sloan Kettering (LOC - Chase
Manhattan Bank) ........................... 3.60 1/5/98 2,800,000 2,800,000
-----------
TOTAL MUNICIPAL COMMERCIAL PAPER (Amortized Cost - $8,800,000) ................ 8,800,000
-----------
MANDATORY PUT MUNICIPAL BONDS (7.2%):
VMIG1, N/R New York State Energy, Research &
Development Authority, Pollution Control
Revenue, Long Island Lighting Co.
Project, Series A,
(LOC - Deutsche Bank AG)* ................. 3.60 3/2/98 2,000,000 2,000,000
VMIG1, A-1 New York State Power Authority, GO,
Revenue & General Purpose (Revolving
Credit Agreement - Morgan Guaranty Trust
Co., Sumitomo Bank Ltd., Bank of Tokyo-
Mitsubishi Ltd., Bank of America)* ........ 3.50 3/2/98 2,220,000 2,220,000
P-1, A-1+ Puerto Rico Industrial, Medical &
Environmental Financing Authority,
Pollution Control Revenue, Reynolds Metals
Co. Project, (LOC - ABN AMRO Bank)
Callable 9/1/98 @ 100* .................... 3.80 9/1/98 2,000,000 2,000,000
-----------
TOTAL MANDATORY PUT MUNICIPAL BONDS (Amortized Cost - $6,220,000) ............. 6,220,000
-----------
</TABLE>
8
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED)
NEW YORK TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
CREDIT RATING INTEREST/
MOODY'S/S&P SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION RATE DATE AMOUNT (NOTE 2)
------------- ----------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
NON-VARIABLE MUNICIPAL BONDS (14.2%):
AA/Aa2 New York City, Municipal Assistance Corp. ... 4.00% 7/1/98 $2,000,000 $ 2,001,442
A2, A- New York City, Municipal Water Finance
Authority, Water & Sewer System Revenue,
Series C .................................. 4.00 6/15/98 1,665,000 1,666,419
AAA, AAA New York City, Municipal Water Finance
Authority, Water & Sewer System Revenue,
Series B, (FGIC Insured),
Prerefunded 6/15/98 @ 101.5 ............... 7.63 6/15/17 3,000,000 3,094,028
AAA, AAA New York State, Medical Care Facilities
Financial Agency,
Prerefunded 2/15/98 @ 102 ................. 7.70 2/15/18 3,000,000 3,074,369
A-3, A- New York State Thruway Authority,
Highway & Bridge Trust Fund, Series A ..... 4.50 4/1/98 2,500,000 2,504,470
-----------
TOTAL NON-VARIABLE MUNICIPAL BONDS (Amortized Cost - $12,340,728) ............. 12,340,728
-----------
VARIABLE MUNICIPAL BONDS (50.5%):
N/R, A-1+ Montgomery Industrial Development
Authority, Industrial Development Revenue,
Service Merchandise Co.
(LOC - Canadian Imperial Bank)* ........... 3.90 1/15/98 100,000 100,000
VMIG1, A-1+ New York City, GO, Series B
(FGIC Insured)* ........................... 4.15 1/2/98 400,000 400,000
VMIG1, A-1+ New York City, GO, Series B,
Subseries B2 (MBIA Insured,
SPA Bank of Austria)* ..................... 5.10 1/2/98 100,000 100,000
VMIG1, A-1+ New York City, GO, Series B,
Subseries B3 (MBIA Insured,
SPA Bank of Nova Scotia)* ................. 5.10 1/2/98 700,000 700,000
VMIG1, A-1+ New York City, GO, Series B,
Subseries B4 (MBIA Insured,
SPA National Westminster Bank PLC)* ....... 5.10 1/2/98 600,000 600,000
VMIG1, A-1+ New York City, GO, Series B,
Subseries B7 (AMBAC Insured,
SPA Rabobank Nederland)* .................. 5.10 1/2/98 200,000 200,000
VMIG1, A-1+ New York City, GO, Subseries A-10
(LOC - Morgan Guaranty Trust)* ............ 4.15 1/2/98 800,000 800,000
VMIG1, A-1+ New York City, GO, Subseries A-10
(LOC - Morgan Guaranty Trust)* ............ 4.15 1/2/98 335,000 335,000
</TABLE>
9
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED)
NEW YORK TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
CREDIT RATING INTEREST/
MOODY'S/S&P SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION RATE DATE AMOUNT (NOTE 2)
------------- ----------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
VARIABLE MUNICIPAL BONDS (CONTINUED)
VMIG1, A-1+ New York City,
GO, Subseries B-3,
(LOC - Morgan Guaranty Trust)* ............ 4.15% 1/2/98 $ 400,000 $ 400,000
VMIG1, A-1+ New York City, Health & Hospital Corp.,
Health Systems, Series A
(LOC - Morgan Guaranty Trust)* ............ 3.50 1/7/98 500,000 500,000
N/R, A-1+ New York City, Housing Development Corp.,
Multi-Family Rental Housing Revenue,
TriBeCa Tower, Series A, AMT
(FNMA Collateral)* ........................ 3.55 1/7/98 2,000,000 2,000,000
N/R, A-1 New York City, Housing Development Corp.,
Special Obligation, Montefiore Medical
Center, Series A
(LOC - Chase Manhattan Bank)* ............. 3.90 1/7/98 2,500,000 2,500,000
VMIG1, N/R New York City, Industrial Development
Agency, Civic Facilities Revenue,
Berkeley Carroll School Project
(LOC - Chase Manhattan Bank)* ............. 3.60 1/7/98 1,126,000 1,126,000
N/R, A-1 New York City, Industrial Development
Agency, Civic Facilities Revenue,
Columbia Grammar School Project,
(LOC - Chase Manhattan Bank)* ............. 3.60 1/7/98 1,550,000 1,550,000
VMIG1, A-1+ New York City, Municipal Water Finance
Authority, Water & Sewer System Revenue,
Series A (FGIC Insured)* .................. 4.15 1/2/98 4,600,000 4,600,000
VMIG1, A-1+ New York City, Municipal Water Finance
Authority, Water & Sewer System Revenue,
Series C (FGIC Insured)* .................. 5.10 1/2/98 200,000 200,000
VMIG1, A-1+ New York City, Municipal Water Finance
Authority, Water & Sewer System Revenue,
Series G (FGIC Insured)* .................. 5.00 1/2/98 1,600,000 1,600,000
VMIG1, A-1+ New York City, Trust for Cultural Resources,
Carnegie Hall (LOC - Westdeutsche
Landesbank)* .............................. 3.65 1/7/98 400,000 400,000
VMIG1, A-1+ New York City, Trust for Cultural Resources,
Carnegie Hall (LOC - Westdeutsche
Landesbank)* .............................. 3.65 1/7/98 2,200,000 2,200,000
</TABLE>
10
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED)
NEW YORK TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
CREDIT RATING INTEREST/
MOODY'S/S&P SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION RATE DATE AMOUNT (NOTE 2)
------------- ----------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
VARIABLE MUNICIPAL BONDS (CONTINUED)
VMIG1, A-1+ New York City,
Trust for Cultural Resources,
Museum of Broadcasting
(LOC - Kredietbank NV)* ................... 3.55% 1/7/98 $ 800,000 $ 800,000
VMIG1, N/R New York State Dormitory Authority* ......... 3.85 1/7/98 4,300,000 4,300,000
VMIG1, A-1+ New York State Energy, Research &
Development Authority, Brooklyn Union
Gas Co. Project, Series A-1, (MBIA Insured,
SPA Union Bank of Switzerland)* ........... 3.70 1/7/98 2,000,000 2,000,000
VMIG1, A-1+ New York State Energy, Research &
Development Authority, Pollution Control
Revenue, New York Electric & Gas, Series D
(LOC - Union Bank of Switzerland)* ........ 4.15 1/2/98 300,000 300,000
P-1, N/R New York State Energy, Research &
Development Authority, Pollution Control
Revenue, Niagara Mohawk Power Corp.
Project, Series A
(LOC - Toronto Dominion Bank)* ............ 5.00 1/2/98 1,000,000 1,000,000
N/R, A-1+ New York State Energy, Research &
Development Authority, Pollution Control
Revenue, Niagara Mohawk Power Corp.
Project, Series B, AMT
(LOC - Morgan Guaranty Trust)* ............ 4.55 1/2/98 3,300,000 3,300,000
N/R, A-1+ New York State Energy, Research &
Development Authority, Pollution Control
Revenue, Niagara Mohawk Power Corp.
Project, Series B, AMT
(LOC - Morgan Guaranty Trust)* ............ 4.55 1/2/98 2,000,000 2,000,000
P-1, N/R New York State Energy, Research &
Development Authority, Pollution Control
Revenue, Niagara Mohawk Power Corp.
Project, Series C
(LOC - Canadian Imperial Bank)* ........... 4.95 1/2/98 1,000,000 1,000,000
VMIG1, A-1+ New York State Energy, Research &
Development Authority, Pollution Control
Revenue, Orange & Rockland Utilities Project,
Series A (LOC - Societe Generale)* ........ 3.55 1/7/98 2,000,000 2,000,000
</TABLE>
11
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED)
NEW YORK TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
CREDIT RATING INTEREST/
MOODY'S/S&P SECURITY DISCOUNT MATURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION RATE DATE AMOUNT (NOTE 2)
------------- ----------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
VARIABLE MUNICIPAL BONDS (CONTINUED)
VMIG1, AAA New York State
Housing Finance Agency,
Multifamily Housing Revenue, Series A,
(AMBAC Insured)* .......................... 3.60 1/7/98 $1,100,000 $ 1,100,000
VMIG1, A-1+ New York State Local Government Assistance
Corp., Series A (LOC - Union Bank of
Switzerland, Credit Suisse)* .............. 3.50 1/7/98 1,400,000 1,400,000
VMIG1, A-1+ New York State Local Government Assistance
Corp., GO, Series B (LOC - Credit Suisse
First Boston)* ............................ 3.50 1/7/98 400,000 400,000
VMIG1, A-1+ New York State Local Government Assistance
Corp., Series F (LOC - Toronto Dominion
Bank)* .................................... 3.50 1/7/98 800,000 800,000
VMIG1, A-1+ Niagara Falls Bridge Commission,
Toll Revenue, Series A (FGIC Insured)* .... 3.55 1/7/98 1,300,000 1,300,000
VMIG1, A-1+ Triborough Bridge & Tunnel Authority,
Special Obligation (FGIC Insured)* ........ 3.55 1/7/98 400,000 400,000
VMIG1, N/R Wallkill Industrial Development Agency,
Pollution Control Revenue, Reynolds Metal Co.
Project (LOC - Dresdner Bank AG)* ......... 3.80 1/7/98 500,000 500,000
VMIG1, N/R Yonkers Industrial Development Agency,
Civic Facilities Revenue,
Consumers Union Facility
(LOC - Credit Local de France)* ........... 3.50 1/7/98 900,000 900,000
-----------
TOTAL VARIABLE MUNICIPAL BONDS (Amortized Cost - $43,811,000) 43,811,000
-----------
</TABLE>
12
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1997 (CONTINUED)
NEW YORK TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
CREDIT RATING
MOODY'S/S&P SECURITY PRINCIPAL VALUE
(UNAUDITED) DESCRIPTION AMOUNT (NOTE 2)
------------- ----------- ---------- -----------
<S> <C> <C> <C>
OPEN-END INVESTMENT COMPANIES (7.2%):
Dreyfus New York Municipal Cash Management Fund ................... $2,460,000 $ 2,460,000
New York Money Fund ............................................... 3,825,000 3,825,000
-----------
TOTAL OPEN-END INVESTMENT COMPANIES (Amortized Cost - $6,285,000) ............. 6,285,000
-----------
TOTAL INVESTMENTS (99.7%):
(Amortized Cost - $86,481,288)(a) ........................................... 86,481,288
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES (0.3%) .................................. 247,539
-----------
NET ASSETS (100.0%) ........................................................... $86,728,827
===========
<FN>
- --------------
(a) Cost and value for federal income tax and financial reporting purposes are
the same.
* Variable rate security. Rate presented represents rate in effect at December
31, 1997. Date presented represents the next rate change date.
AMBAC - American Municipal Bond Assurance Corp.
AMT - Alternative Minimum Tax Paper
BAN - Bond Anticipation Note
FGIC - Financial Guaranty Insurance Corp.
FNMA - Federal National Mortgage Assoc.
GO - General Obligation
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assuranc
N/R - Not rated
PLC - Public Limited Co.
RAN - Revenue Anticipation Note
SPA - Standby Purchase Agreement
TAN - Tax Anticipation Note
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW YORK
GOVERNMENT U.S. TREASURY TAX-FREE
CASH MANAGEMENT MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
--------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securities, at value
(amortized cost $180,302,567, $64,681,366,
$8,296,313, $86,481,288, respectively) .......... $180,302,567 $ 64,681,366 $ 8,296,313 $86,481,288
Repurchase Agreements
(cost $3,309,000, $35,658,000, $17,353,000,
and $0, respectively). .......................... 3,309,000 35,658,000 17,353,000 --
------------ ------------ ----------- -----------
Total Investment .............................. 183,611,567 100,339,366 25,649,313 86,481,288
Cash .............................................. 370 539 138 --
Interest and dividends receivable ................. 1,602,588 945,132 16,851 585,584
Receivable for capital shares sold ................ 15,000 -- 4,000 --
Prepaid expenses .................................. 13,095 5,560 1,669 5,945
------------ ------------ ----------- -----------
Total Assets ......................................... 185,242,620 101,290,597 25,671,971 87,072,817
------------ ------------ ----------- -----------
LIABILITIES:
Cash overdraft .................................... -- -- -- 24,948
Dividends payable ................................. 831,785 332,451 110,342 220,897
Payable for capital shares redeemed ............... 5,696 -- -- --
Accrued expenses and other payables:
Investment advisory fees ........................ 26,494 13,933 1,329 3,035
Administration fees ............................. 16,277 6,800 2,279 12,748
Distribution fees ............................... 14,783 2,836 971 4,191
Custodian fees .................................. 9,995 4,482 3,898 3,778
Legal and audit fees. ........................... 64,219 29,222 10,560 32,789
Fund accounting and transfer agent fees. ........ 24,779 11,052 13,478 14,965
Deferred trustees payable. ...................... 32,974 23,766 20,435 21,632
Other.. ......................................... 10,354 4,444 1,412 5,007
------------ ------------ ----------- -----------
Total Liabilities .................................... 1,037,356 428,986 164,704 343,990
------------ ------------ ----------- -----------
Net Assets ........................................... $184,205,264 $100,861,611 $25,507,267 $86,728,827
============ ============ =========== ===========
COMPUTATION OF NET ASSET VALUE:
Net assets ........................................ $184,205,264 $100,861,611 $25,507,267 $86,728,827
Shares of beneficial interest issued and outstanding
($0.001 par value per share, unlimited number
of shares authorized) ........................... 184,207,871 100,863,402 25,506,739 86,736,588
------------ ------------ ----------- -----------
Net asset value, offering price and redemption
price per share ................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ =========== ===========
COMPOSITION OF NET ASSETS:
Paid-in capital ................................... $184,211,005 $100,862,535 $25,507,083 $86,770,695
Accumulated undistributed net realized gains
(losses) from investment transactions ........... (5,741) (924) 184 (41,868)
------------ ------------ ----------- -----------
Net Assets, December 31, 1997 ........................ $184,205,264 $100,861,611 $25,507,267 $86,728,827
============ ============ =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NEW YORK
CASH GOVERNMENT U.S. TREASURY TAX-FREE
MANAGEMENT MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest .......................................... $10,500,019 $4,006,787 $1,427,368 $2,781,291
Dividends ......................................... 24,889 12,111 21,031 141,826
----------- ---------- ---------- ----------
Total Income ...................................... 10,524,908 4,018,898 1,448,399 2,923,117
----------- ---------- ---------- ----------
EXPENSES:
Advisory fees ..................................... 647,611 252,442 92,003 283,194
Administration fees ............................... 277,550 108,190 39,430 121,370
Co-administration and shareholder
servicing fees ................................. 129,522 50,489 18,401 56,639
Distribution fees ................................. 53,227 13,959 4,294 24,755
Audit fees ........................................ 38,257 17,756 6,557 19,249
Fund accounting fees .............................. 1,726 536 142 2,866
Transfer agent fees. .............................. 140,855 50,378 37,460 60,684
Service organization fees ......................... 41,537 2,119 16,610 --
Custodian fees .................................... 22,799 14,109 12,859 14,175
Printing costs .................................... 31,194 14,295 3,976 12,976
Registration fees ................................. 16,159 3,161 565 5,517
Legal fees ........................................ 74,439 26,200 7,782 32,019
Trustee fees ...................................... 20,092 7,753 2,863 7,321
Other expenses .................................... 32,671 11,838 3,705 11,055
----------- ---------- ---------- ----------
Gross Expenses ....................................... 1,527,639 573,225 246,647 651,820
Less: Fee waivers ................................. (222,223) (86,624) (31,570) (186,672)
Less: Reimbursements .............................. (133,524) (32,370) (44,308) (43,638)
----------- ---------- ---------- ----------
Net Expenses ......................................... 1,171,892 454,231 170,769 421,510
----------- ---------- ---------- ----------
Net Investment Income ................................ 9,353,016 3,564,667 1,277,630 2,501,607
----------- ---------- ---------- ----------
NET REALIZED GAINS/ (LOSSES)
FROM INVESTMENTS:
Net realized gains/(losses) from investment
transactions .................................... 5 (329) 184 (7,385)
----------- ---------- ---------- ----------
Net Increase in Net Assets
Resulting from Operations ....................... $ 9,353,021 $3,564,338 $1,277,814 $2,494,222
=========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
GOVERNMENT
CASH MANAGEMENT FUND MONEY MARKET FUND
----------------------------------- ---------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
From Investment Activities:
OPERATIONS:
Net investment income ........................ $ 9,353,016 $ 9,593,928 $ 3,564,667 $ 3,440,009
Net realized gains (losses) from
investment transactions .................... 5 (2,993) (329) (342)
--------------- --------------- ------------- -------------
Change in net assets resulting
from operations ............................ 9,353,021 9,590,935 3,564,338 3,439,667
--------------- --------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................... (9,353,016) (9,593,928) (3,564,667) (3,440,009)
In excess of net investment income ........... -- -- -- (867)
--------------- --------------- ------------- -------------
Change in net assets from shareholder
distributions .............................. (9,353,016) (9,593,928) (3,564,667) (3,440,876)
--------------- --------------- ------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued .................. 1,156,962,210 1,165,750,259 235,133,212 222,091,173
Dividends reinvested ......................... 4,569,829 3,331,841 1,188,858 1,134,318
Cost of shares redeemed ...................... (1,198,286,576) (1,118,988,159) (222,851,766) (222,682,793)
--------------- --------------- ------------- -------------
Change in net assets from capital
transactions ............................... (36,754,537) 50,093,941 13,470,304 542,698
--------------- --------------- ------------- -------------
Change in net assets ............................ (36,754,532) 50,090,948 13,469,975 541,489
--------------- --------------- ------------- -------------
NET ASSETS:
Beginning of year ............................... 220,959,796 170,868,848 87,391,636 86,850,147
--------------- --------------- ------------- -------------
End of year ..................................... $ 184,205,264 $ 220,959,796 $ 100,861,611 $ 87,391,636
=============== =============== ============= =============
SHARE TRANSACTIONS:
Issued ....................................... 1,156,959,601 1,165,750,259 235,133,212 222,091,173
Reinvested ................................... 4,569,829 3,331,841 1,188,858 1,134,318
Redeemed ..................................... (1,198,286,576) (1,118,988,159) (222,851,766) (222,682,793)
--------------- --------------- ------------- -------------
Change in shares ................................ (36,757,146) 50,093,941 13,470,304 542,698
=============== =============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
U.S. TREASURY NEW YORK TAX-FREE
MONEY MARKET FUND MONEY MARKET FUND
-------------------------------- --------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
From Investment Activities:
OPERATIONS:
Net investment income ........................ $ 1,277,630 $ 1,376,970 $ 2,501,607 $ 1,911,584
Net realized gains (losses) from
investment transactions .................... 184 343 (7,385) (240)
------------- ------------- ------------- ------------
Change in net assets resulting
from operations ............................ 1,277,814 1,377,313 2,494,222 1,911,344
------------- ------------- ------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................... (1,277,630) (1,376,970) (2,501,607) (1,911,584)
In excess of net investment income ........... -- -- -- --
------------- ------------- ------------- ------------
Change in net assets from shareholder
distributions .............................. (1,277,630) (1,376,970) (2,501,607) (1,911,584)
------------- ------------- ------------- ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued .................. 221,502,675 144,331,089 160,027,422 98,191,108
Dividends reinvested ......................... 551,579 567,034 1,604,558 1,135,887
Cost of shares redeemed ...................... (225,509,647) (148,436,061) (145,234,462) (93,871,590)
------------- ------------- ------------- ------------
Change in net assets from capital
transactions ............................... (3,455,393) (3,537,938) 16,397,518 5,455,405
------------- ------------- ------------- ------------
Change in net assets ............................ (3,455,209) (3,537,595) 16,390,133 5,455,165
------------- ------------- ------------- ------------
NET ASSETS:
Beginning of year ............................... 28,962,476 32,500,071 70,338,694 64,883,529
------------- ------------- ------------- ------------
End of year ..................................... $ 25,507,267 $ 28,962,476 $ 86,728,827 $ 70,338,694
============= ============= ============= ============
SHARE TRANSACTIONS:
Issued ....................................... 221,502,675 144,331,089 160,027,422 98,191,108
Reinvested ................................... 551,579 567,034 1,604,558 1,135,887
Redeemed ..................................... (225,509,647) (148,436,061) (145,234,462) (93,871,590)
------------- ------------- ------------- ------------
Change in shares ................................ (3,455,393) (3,537,938) 16,397,518 5,455,405
============= ============= ============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16 & 17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
HSBC Funds Trust (the "Trust") was organized in Massachusetts on October
31, 1985 as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended ("1940 Act"), as a diversified,
open-end management investment company with multiple investment portfolios,
including the Cash Management Fund, the Government Money Market Fund, the
U.S. Treasury Money Market Fund and the New York Tax-Free Money Market Fund
(herein referred to individually as a "Fund" and collectively as the
"Funds").
The investment objective of the Cash Management Fund, the Government Money
Market Fund and the U.S. Treasury Money Market Fund is to achieve as high a
level of current income as is consistent with preservation of capital and
liquidity. The investment objective of the New York Tax-Free Money Market
Fund is to provide its shareholders with as high a level of current income
exempt from regular federal, New York State and New York City income taxes
as is consistent with preservation of capital and liquidity. The Cash
Management Fund invests in a variety of high quality, short-term money
market instruments, with remaining maturities of thirteen months or less.
The Government Money Market Fund invests exclusively in short-term
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities with remaining maturities of thirteen months
or less, and repurchase agreements. The U.S. Treasury Money Market Fund
invests exclusively in short-term direct obligations of the United States
Treasury with remaining maturities of thirteen months or less, and
repurchase agreements. The New York Tax-Free Money Market Fund invests
primarily in high quality obligations issued by or on behalf of New York,
its cities, municipalities or other public authorities that are exempt from
regular federal, New York State and New York City income tax in the opinion
of bond counsel to the issuer with remaining maturities of thirteen months
or less.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income
and expenses for the period. Actual results could differ from those
estimates.
SECURITIES VALUATION: The Funds each value portfolio securities at
amortized cost, which approximates market value. The amortized cost method
involves valuing a security at cost on the date of purchase and thereafter
assuming a constant amortization to maturity of the difference between the
principal amount due at maturity and initial cost. Restricted securities
and securities for which market quotations are not readily available, if
any, are valued at fair value using methods approved by the Board of
Directors.Investments in investment companies are valued at their net asset
values as reported by such companies. In addition, the Funds may not (a)
purchase any instrument with a remaining maturity greater than thirteen
months unless such instrument is subject to a demand feature, or (b)
maintain a dollar-weighted average maturity which exceeds 90 days.
TAXES: It is the Funds' policy to comply with the provisions of the
Internal Revenue Code, as amended, applicable to regulated investment
companies, and to distribute substantially all of its taxable income and
net realized capital gains, if any, to its shareholders for each taxable
year. Therefore, no provision is required for federal income tax.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For federal income tax purposes, the following Funds have capital loss
carryforwards as of December 31, 1997, which are available to offset future
gains, if any:
AMOUNT EXPIRES
------- -------
Cash Management Fund .................. $ 520 2002
2,228 2003
2,993 2004
-------
$ 5,741
-------
Government Money Market Fund .......... $ 252 2003
342 2004
330 2005
-------
$ 924
-------
New York Tax-Free Money Market Fund ... $29,192 1998
3,591 2001
1,324 2002
136 2003
240 2004
7,385 2005
-------
$41,868
-------
Capital losses incurred after October 31 for the Funds are deemed to arise
on the first business day of the following fiscal year for tax purposes.The
U.S. Treasury Fund has incurred and will elect to defer such capital losses
of $1,098 after October 31, 1997.
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are
declared daily to shareholders and are paid monthly. Distributions of net
realized gains, if any, will be paid at least annually. However, to the
extent that net realized gains of a Fund can be reduced by any capital loss
carryovers of that Fund, such gains will not be distributed. Dividends and
distributions are recorded by the Funds on the ex-dividend date. The
amounts of dividends from net investment income and of distributions from
net realized gains are determined in accordance with federal income tax
regulations that may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent
in nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the composition of net assets based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions to shareholders which exceed
net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in
excess of net investment income or distributions in excess of net realized
gains. To the extent they exceed net investment income and net realized
gains for tax purposes, they are reported as distributions of capital.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As of December 31, 1997, the following reclassifications have been made to
increase (decrease) the indicated accounts with offsetting adjustments to
paid-in-capital:
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET REALIZED GAINS/
NET INVESTMENT (LOSSES) ON
INCOME INVESTMENTS
-------------- -------------------
New York Tax-Free
Money Market Fund -- $22,404
SECURITY TRANSACTIONS AND RELATED INCOME: Security transactions are
recorded on trade date. Identified cost of investments sold is used for
both financial statement and federal income tax purposes. Interest income,
including the amortization of premium or accretion of discount, is recorded
as earned.
EXPENSE ALLOCATION: Expenses directly attributed to each Fund in the Trust
are charged to that Fund's operations; expenses which are applicable to all
Funds are allocated among them on the basis of relative net assets or
another appropriate basis.
3. RELATED PARTY TRANSACTIONS
The Trust retains HSBC Asset Management Americas Inc. to act as Investment
Adviser for the Fund. HSBC Asset Management Americas Inc. is the North
American investment management affiliate of HSBC Holdings plc (Hong Kong
and Shanghai Banking Corporation). As Investment Adviser, HSBC Asset
Management Americas Inc. furnishes investment guidance and policy direction
in connection with the management of the investment portfolios of the
Funds, subject to policies established by the Board of Trustees.
As compensation for its services, HSBC Asset Management Americas Inc. is
paid monthly advisory fees at the following annual rates:
<TABLE>
<CAPTION>
ADVISORY FEE RATE
-----------------------------------------------
U.S. NEW YORK
GOVERNMENT TREASURY TAX-FREE
CASH MONEY MONEY MONEY
MANAGEMENT MARKET MARKET MARKET
PORTIONS OF EACH FUND'S AVERAGE DAILY NET ASSETS FUND FUND FUND FUND
---------------------------------------------------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Up to $500 million ....................................... 0.350% 0.350% 0.350% 0.350%
In excess of $500 million but not exceeding $1 billion ... 0.315% 0.315% 0.315% 0.315%
In excess of $1 billion but not exceeding $1.5 billion ... 0.280% 0.280% 0.280% 0.280%
In excess of $1.5 billion ................................ 0.245% 0.245% 0.245% 0.245%
</TABLE>
For the year ended December 31, 1997, HSBC Asset Management Americas Inc.
earned $521,010 from the Cash Management Fund, $220,426 from the Government
Money Market Fund, $47,695 from the U.S. Treasury Money Market Fund and
$150,060 from the New York Tax-Free Money Market Fund, net of fee waivers
totaling $0, $0, $0 and $89,496, respectively. HSBC Asset Management
Americas Inc. has voluntarily agreed to reimburse Fund expenses to the
extent a Fund's ordinary operating expenses net of other fee waivers exceed
0.65% of each Fund's average daily net assets. For the year ended December
31, 1997, HSBC Asset
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Management Americas Inc. agreed to reimburse expenses totaling $126,601;
$32,016; $44,308 and $43,638 for the Cash Management, Government Money
Market, U.S. Treasury Money Market, and New York Tax-Free Money Market
Fund, respectively, pursuant to this voluntary agreement.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership, is a subsidiary of The BISYS Group,
Inc. BISYS, with whom certain officers are affiliated, serves the Trust as
distributor, administrator, transfer agent and fund accountant. Such
officers are not paid any fees directly by the Funds for serving as
officers of the Trust.
In accordance with the terms of the Management and Administration Agreement
and the Fund Accounting Agreement, BISYS is paid a monthly asset-based fee
of 0.15% (annualized) of a Fund's first $200 million of average net assets;
0.125% of a Fund's next $200 million of average net assets; 0.10% of a
Fund's next $200 million of average net assets; and 0.08% of a Fund's
average net assets in excess of $600 million; exclusive of out-of-pocket
expenses. For the year ended December 31, 1997, BISYS earned administrative
services fees of $184,849 from the Cash Management Fund, $72,055 from the
Government Money Market Fund, $26,260 from the U.S. Treasury Money Market
Fund and $80,833 from the New York Tax-Free Money Market Fund, net of fee
waivers of $92,701; $36,135; $13,170 and $40,537, respectively.
HSBC Asset Management Americas Inc. earned co-administration/shareholder
servicer assistance fees of 0.07% of each Fund's average net assets
totaling $129,522 from the Cash Management Fund, $50,489 from the
Government Money Market Fund, $18,401 from the U.S. Treasury Money Market
Fund and $56,639 from the New York Tax-Free Money Market Fund for the year
ended December 31, 1997, all of which was waived.
The Trust has adopted a Distribution Plan and Agreement (the "Plan")
pursuant to Rule 12b-1 of the 1940 Act. The Plan provides for a monthly
payment by a Fund to BISYS Fund Services for expenses incurred in
connection with distribution services provided to the Fund not to exceed an
annual rate of 0.20% of the Fund's average net assets during the preceding
month. For the year ended December 31, 1997, the expenses incurred as a
result of these agreements totaled $53,227 from the Cash Management Fund,
$13,959 from the Government Money Market Fund, $4,294 from the U.S.
Treasury Money Market Fund and $24,755 from the New York Tax-Free Money
Market Fund.
The Fund may enter into agreements (the "Service Agreements") with certain
banks, financial institutions and corporations ("Service Organizations")
whereby each Service Organization handles record keeping and provides
certain administration services for its customers who invest in the Funds
through accounts maintained at that Service Organization. Each Service
Organization will receive monthly payments for the performance of its
service under the Service Agreement. The payments from the Funds on an
annual basis will not exceed 0.35% of the average value of the Funds'
shares held in the subaccounts of the Service Organizations. As a result of
these agreements, First Tennessee Bank received $41,537 from the Cash
Management Fund and $2,119 from the Government Money Market Fund, for the
year ended December 31, 1997. HSBC Asset Management Americas Inc.
reimbursed the Funds $6,923 and $354, respectively. In addition, Bank of
Oklahoma received $16,610 from the U.S. Treasury Money Market Fund for the
year ended December 31, 1997 pursuant to these agreements.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
A partner of Baker & McKenzie, legal counsel to the Trust, serves as
Secretary of the Trust. For the year ended December 31, 1997, legal fees
incurred by the Funds totaled $74,439 for the Cash Management Fund, $26,200
for the Government Money Market Fund, $7,782 for the U.S. Treasury Money
Market Fund and $32,019 for the New York Tax-Free Money Market Fund,
respectively.
4. CONCENTRATION OF CREDIT
The New York Tax-Free Money Market Fund invests primarily in debt
obligations issued by the State of New York and its respective political
subdivisions, agencies and public authorities to obtain funds for various
public purposes. The Fund is more susceptible to economic and political
factors adversely affecting issuers of New York specific municipal
securities than is a municipal bond fund that is not concentrated in these
issuers to the same extent.
22
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
CASH MANAGEMENT FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year ........................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Investment Activities
Net investment income .................................. 0.051 0.049 0.053 0.039 0.027
Net realized and unrealized gain
from investment ..................................... -- -- -- -- 0.002
-------- -------- -------- -------- --------
Total from Investment Activities ....................... 0.051 0.049 0.053 0.039 0.029
-------- -------- -------- -------- --------
Distributions
From net investment income ............................. (0.051) (0.049) (0.053) (0.039) (0.027)
From net realized gains ................................ -- -- -- -- (0.002)
-------- -------- -------- -------- --------
Total distributions .................................... (0.051) (0.049) (0.053) (0.039) (0.029)
-------- -------- -------- -------- --------
Net Asset Value, End of Year ................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total Return ................................................ 5.18% 5.00% 5.41% 3.95% 3.11%
Ratios/Supplemental Data:
Net assets at end of year (000) ........................ $184,205 $220,960 $170,869 $200,492 $172,518
Ratio of expenses to average net assets ................ 0.63% 0.68% 0.79% 0.63% 0.58%
Ratio of net investment income to
average net assets .................................. 5.06% 4.88% 5.29% 3.84% 2.88%
Ratio of expenses to average net assets* ............... 0.83% 0.80% 0.80% 0.64% 0.58%
Ratio of net investment income to
average net assets* ................................. 4.86% 4.76% 5.28% 3.83% 2.88%
<FN>
- ------------
* During the year, certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year ........................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- ------- ------- -------- --------
Investment Activities
Net investment income .................................. 0.049 0.048 0.052 0.038 0.028
Net realized and unrealized gain
from investment ..................................... -- -- -- -- 0.001
-------- ------- ------- -------- --------
Total from Investment Activities ....................... 0.049 0.048 0.052 0.038 0.029
-------- ------- ------- -------- --------
Distributions
From net investment income ............................. (0.049) (0.048) (0.052) (0.038) (0.028)
From net realized gains ................................ -- -- -- -- (0.001)
-------- ------- ------- -------- --------
Total distributions .................................... (0.049) (0.048) (0.052) (0.038) (0.029)
-------- ------- ------- -------- --------
Net Asset Value, End of Year ................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======= ======= ======== ========
Total Return ................................................ 5.05% 4.87% 5.32% 3.83% 2.99%
Ratios/Supplemental Data:
Net assets at end of year (000) ........................ $100,862 $87,392 $86,850 $166,796 $138,085
Ratio of expenses to average net assets ................ 0.63% 0.72% 0.76% 0.63% 0.61%
Ratio of net investment income to
average net assets .................................. 4.94% 4.75% 5.21% 3.76% 2.89%
Ratio of expenses to average net assets* ............... 0.79% 0.84% 0.78% 0.64% 0.61%
Ratio of net investment income to
average net assets* ................................. 4.78% 4.63% 5.19% 3.75% 2.89%
<FN>
- ------------
* During the year, certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
U.S. TREASURY MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year ........................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- -------- --------
Investment Activities
Net investment income .................................. 0.049 0.046 0.049 0.036 0.026
Distributions
From net investment income ............................. (0.049) (0.046) (0.049) (0.036) (0.026)
------- ------- ------- -------- --------
Net Asset Value, End of Year ................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======== ========
Total Return ................................................ 4.98% 4.68% 5.04% 3.60% 2.65%
Ratios/Supplemental Data:
Net assets at end of year (000) ........................ $25,507 $28,962 $32,500 $105,720 $133,070
Ratio of expenses to average net assets ................ 0.65% 0.78% 0.82% 0.68% 0.59%
Ratio of net investment income to
average net assets .................................. 4.86% 4.57% 4.94% 3.48% 2.62%
Ratio of expenses to average net assets* ............... 0.94% 0.95% 0.84% 0.69% 0.59%
Ratio of net investment income to
average net assets* ................................. 4.57% 4.40% 4.92% 3.47% 2.62%
<FN>
- ------------
* During the year, certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
NEW YORK TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year ........................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- -------
Investment Activities
Net investment income .................................. 0.031 0.029 0.031 0.022 0.018
Distributions
From net investment income ............................. (0.031) (0.029) (0.031) (0.022) (0.018)
------- ------- ------- ------- -------
Net Asset Value, End of Year ................................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= =======
Total Return ................................................ 3.14% 2.92% 3.17% 2.23% 1.86%
Ratios/Supplemental Data:
Net assets at end of year (000) ........................ $86,729 $70,339 $64,884 $53,538 $59,394
Ratio of expenses to average net assets ................ 0.52% 0.59% 0.69% 0.57% 0.55%
Ratio of net investment income to
average net assets .................................. 3.09% 2.88% 3.13% 2.20% 1.85%
Ratio of expenses to average net assets* ............... 0.80% 0.87% 0.85% 0.73% 0.72%
Ratio of net investment income to
average net assets* ................................. 2.81% 2.60% 2.97% 2.04% 1.68%
<FN>
- ------------
* During the year, certain fees were voluntarily reduced and/or reimbursed. If
such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
HSBC Funds Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of the Cash Management Fund, the
Government Money Market Fund, the U.S. Treasury Money Market Fund and the New
York Tax-Free Money Market Fund (four of the portfolios comprising HSBCFunds
Trust) as ofDecember 31, 1997, the related statements of operations for the year
then ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the years
indicated therein. These financial statements and financial highlights are the
responsibility of theTrust's management.Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights.Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and others. 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
Cash Management Fund, the Government Money Market Fund, the U.S.Treasury Money
Market Fund and the New York Tax-Free Money Market Fund at December 31, 1997,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended and their
financial highlights for each of the indicated years, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 13, 1998
27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HSBC(SERVICE MARK) MUTUAL FUNDS TRUST
3435 Stelzer Road
Columbus,Ohio 43219
INFORMATION:
(800) 634-2536
INVESTMENT ADVISER
HSBC Asset Management Americas Inc.
140 Broadway (6th Floor)
New York, New York 10005-1180
DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
LEGAL COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022
This report is for the information of the
shareholders of HSBC Mutual Funds Trust. Its
use in connection with any offering of the
Trust's shares is authorized only in the case of
a concurrent or prior delivery of the Trust's
current prospectus. Shares of the Funds are not
an obligation of or guaranteed or endorsed by
HSBC Holdings plc or its affiliates.An investment
in the trust is neither insured nor guaranteed by
the U.S.Government and there can be no assurance
that the trust will be able to maintain a stable net
asset value of $1.00 per share.
2/98
