HSBC MUTUAL FUNDS TRUST
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HSBC Asset Management Americas Inc. [GRAPHIC OMITTED]
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Fixed Income Fund
New York Tax-Free Bond Fund
SEMI-ANNUAL REPORT (UNAUDITED)
June 30, 1997
Managed by:
HSBC ASSET MANAGEMENT AMERICAS INC.
Sponsored and distributed by:
BISYS FUND SERVICES
<PAGE>
HSBC MUTUAL FUNDS TRUST
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FIXED INCOME FUNDS
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HSBC Asset Management Americas Inc. [GRAPHIC OMITTED]
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FIXED INCOME FUND
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July 11, 1997
Dear Shareholder:
The performance of the bond market has been a Jekyll/Hyde affair so far in 1997.
The first quarter was fairly gruesome. Strong GDP growth of 5.9%, continued
gains in the labor market and tighter monetary policy pushed interest rates
higher and produced a negative total return of 0.56% in the first three months
of the year according to the Lehman Aggregate Index. The second quarter was much
kinder to the bond market. Slower growth, positive technicals and a lack of any
price pressures propelled the market to gains of 3.67% for the period, bringing
year to date returns to 3.09%. While we are not surprised by the result, the
path taken was unexpected.
The Fund returned 3.53% (no load) for the second quarter versus 3.67% for the
benchmark, the Lehman Aggregate Index. Year to date, the Fund posted a 2.69% (no
load) net return versus 3.09% for the benchmark. In our duration positioning, we
have tended to go long relative to benchmark when long bond yields approach
7.125% and have moved to short of benchmark as long bonds have rallied to 6.5% -
6.75%. This strategy helped performance marginally over the first half.
Sector allocation detracted slightly from performance in the second quarter
after not being a factor in the first quarter. We were underweight in Mortgages
and they outperformed similar duration in Treasuries by roughly 57 basis points
in the second quarter. Corporates were 20 basis points tighter over the last
three months and we had a very slight overweight in the sector.
As of June 30, 1997, the average quality of the portfolio was AAA, the effective
duration was 4.45 years and the average coupon was 7.04%.
Sincerely,
[\S\ JAMES LARK]
James Lark
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
FIXED INCOME FUND VS. LEHMAN AGGREGATE
- --------------------------------------
Average Annual Total Return
- --------------------------------------
Inception
1 Year (1/15/93)
- --------------------------------------
Offering Price(1) 2.13% 4.98%
NAV(2) 7.26% 6.13%
- --------------------------------------
[GRAPHIC OMITTED]
LEHMAN
FUND(1) AGGREGATE FUND(2)
1/93 10,000 10,000 10,000
3/93 9,788 10,315 10,277
6/93 10,053 10,589 10,555
9/93 10,343 10,865 10,860
12/93 10,340 10,870 10,857
3/94 10,164 10,558 10,672
6/94 10,073 10,450 10,576
9/94 10,112 10,514 10,618
12/94 10,145 10,554 10,651
3/95 10,580 11,086 11,108
6/95 11,218 11,761 11,778
9/95 11,374 11,993 11,941
12/95 11,842 12,504 12,433
3/96 11,548 12,281 12,123
6/96 11,579 12,351 12,158
9/96 11,768 12,578 12,356
12/96 12,093 12,956 12,698
3/97 11,995 12,883 12,595
6/97 12,419 13,356 13,040
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
(1) INCLUDES THE MAXIMUM SALES CHARGE OF 4.75%
(2) EXCLUDES THE MAXIMUM SALES CHARGE OF 4.75%
THE ABOVE ILLUSTRATION COMPARES A $10,000 INVESTMENT IN THE FIXED INCOME FUND ON
JANUARY 15, 1993 (DATE OF INCEPTION), TO A $10,000 INVESTMENT IN THE LEHMAN
AGGREGATE BOND INDEX ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
ARE REINVESTED.
THE FUND'S PERFORMANCE TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES AND
WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED. THE LEHMAN
AGGREGATE BOND INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL GOVERNMENT
CORPORATE/MORTGAGE BOND MARKET PERFORMANCE AND DOES NOT TAKE INTO ACCOUNT
CHARGES, FEES AND OTHER EXPENSES.
2
<PAGE>
NEW YORK TAX-FREE BOND FUND
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July 11, 1997
Dear Shareholder:
Low supply and historically low volatility levels in the municipal fixed income
market provided the background for municipals to outperform taxables on a total
return basis over the course of the past six months. The total return of the
Lehman Municipal Bond Index was 3.20%. By comparison the Lehman Aggregate Index
posted a six month return of 3.09%. This reflected the fact that credit spreads
in the fixed income markets had narrowed quite considerably. The average rating
of the Municipal Bond Index is AA while that of the Aggregate index is AAA. This
more than offset the fact that the taxable yields across the curve were lower
(10-20 basis points) than yields in the municipal market (5-15 basis points).
The fund's total return for the six month period ending June 30, 1997 was 3.05%
(no load). The fund outperformed the average of Lipper's New York Municipal Debt
Funds which stood at 2.96%. As of June 30, 1997, the fund's duration which takes
into account interim principal and income payments as well as maturity levels
was 7.18 which approximated 95% of the Lehman New York State Index. The average
maturity of the fund was 11.46 years.
In terms of sector diversification, the largest sectors consisted of general
obligations (30.5%), medical revenue (13.8%) and higher education (12.9%).
In terms of credit quality both New York State and New York City continued to
sustain their recent improved economic condition. As a result, lower rated New
York paper continued to outperform higher rated New York bonds as credit spreads
between BAA to AAA rated paper continued to contract. There appear to be two
areas of concern going forward in New York State and New York City. The first
one relates to the new federal guidelines to welfare funding and how they will
impact municipal finances. Next, there is still the fear that the strength in
the New York economy may still be localized and highly dependent on the
financial industry which historically sees periods of volatile earning
fluctuations.
Sincerely,
[\S\ JERRYSAMET]
Jerry Samet
3
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
NEW YORK TAX-FREE BOND FUND VS. LEHMAN MUNICIPAL
BOND INDEX
- -----------------------------------------------
Average Annual Total Return
- -----------------------------------------------
Inception
1 Year 5 Years (3/21/89)
- -----------------------------------------------
Offering Price(1) 3.13% 5.34% 6.97%
NAV(2) 8.30% 6.36% 7.60%
- -----------------------------------------------
[GRAPHIC OMITTED]
LEHMAN MUNI
FUND(1) BOND INDEX FUND(2)
3/89 10,000 10,000 10,000
12/89 10,203 11,005 10,713
12/90 10,829 11,807 11,370
12/91 12,192 13,242 12,802
12/92 13,492 14,409 14,167
12/93 15,417 16,178 16,188
12/94 14,161 15,340 14,869
12/95 16,310 18,018 17,125
12/96 16,960 18,817 17,808
12/97 17,477 19,422 18,351
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
(1) INCLUDES THE MAXIMUM SALES CHARGE OF 4.75%
(2) EXCLUDES THE MAXIMUM SALES CHARGE OF 4.75%
THE ABOVE ILLUSTRATION COMPARES A $10,000 INVESTMENT IN THE NEW YORK TAX-FREE
BOND FUND ON MARCH 21, 1989 (DATE OF INCEPTION), TO A $10,000 INVESTMENT IN THE
LEHMAN MUNICIPAL BOND INDEX ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ARE REINVESTED.
THE FUND'S PERFORMANCE TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES AND
WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED. THE LEHMAN
MUNICIPAL BOND INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL MUNICIPAL
BOND MARKET PERFORMANCE AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER
EXPENSES.
4
<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
MICHAEL J. KANE PRESIDENT
ERIC ALMQUIST VICE PRESIDENT
KAREN DOYLE VICE PRESIDENT
KEVIN MARTIN TREASURER
STEVEN R. HOWARD SECRETARY
CURTIS BARNES ASSISTANT SECRETARY
ALAINA V. METZ ASSISTANT SECRETARY
ROBERT L. TUCH ASSISTANT SECRETARY
5
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED)
FIXED INCOME FUND
<TABLE>
<CAPTION>
SHARES OR
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS (20.0%):
AEROSPACE AND DEFENSE EQUIPMENT (4.0%):
Lockheed Martin Corp. ........................................ 6.85% 05/15/01 $ 2,500,000 $ 2,506,017
-----------
ENTERTAINMENT (0.8%):
Walt Disney Co. .............................................. 6.38 03/30/01 500,000 496,939
-----------
FINANCIAL SERVICES (12.0%):
ABN Amro Bank N.V. ........................................... 7.13 06/18/07 3,000,000 3,000,000
American Express Centurion Bank .............................. 6.13 06/15/00 2,000,000 1,978,076
Chase Manhattan Grantor Trust, Series 1996-A, Class A ........ 5.20 02/15/02 1,592,304 1,580,442
Travelers/Aetna Property & Casualty Corp. .................... 7.75 04/15/26 1,000,000 1,005,470
-----------
7,563,988
-----------
TELECOMMUNICATIONS (3.2%):
Lucent Technologies, Inc. .................................... 6.90 07/15/01 2,000,000 2,019,706
-----------
Total Corporate Bonds (Cost - $12,557,718) ....................................................... 12,586,650
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS (36.9%):
Export Development Corp. ..................................... 8.13 08/10/99 380,000 393,314
Federal Home Loan Mortgage Corp., Pool #D62926, .............. 6.50 08/01/25 2,814,819 2,697,835
Federal Home Loan Mortgage Corp. Pool #220019 ................ 7.75 01/01/02 158,617 161,358
Federal Home Loan Mortgage Corp., Debenture .................. 6.71 01/23/01 5,000,000 5,006,350
Federal Home Loan Mortgage Corporation, REMIC,
PAC-1(21), Series 33, Class C, CMO ........................ 8.00 09/15/18 149,074 148,709
Federal National Mortgage Assoc., Pool # 310001 .............. 6.00 09/01/00 1,507,672 1,484,115
Federal National Mortgage Assoc., Pool # 343812 .............. 7.50 05/01/26 469,755 470,784
Federal National Mortgage Assoc., Pool # 343195 .............. 7.50 05/01/26 1,959,163 1,963,454
Federal National Mortgage Assoc., Pool # 250414 .............. 7.00 12/01/25 4,654,686 4,561,606
Federal National Mortgage Assoc., Series1993-104,
Class C ................................................... 6.50 03/25/21 2,000,000 1,886,193
Government National Mortgage Assoc., Pool # 168414 ........... 10.00 08/15/22 950,048 1,016,849
Government National Mortgage Assoc., Pool # 356578 ........... 7.50 06/15/23 3,351,864 3,379,248
-----------
Total U.S. Government Agency Obligations (Cost - $23,017,645) ................................. 23,169,815
-----------
U.S. GOVERNMENT OBLIGATIONS (34.5%):
U.S. TREASURY NOTES (26.7%):
U.S. Treasury Notes .......................................... 7.25 02/15/98 1,000,000 1,009,063
U.S. Treasury Notes .......................................... 6.88 07/31/99 4,450,000 4,515,361
U.S. Treasury Notes .......................................... 8.00 08/15/99 1,000,000 1,036,875
U.S. Treasury Notes .......................................... 7.75 01/31/00 1,450,000 1,502,563
U.S. Treasury Notes .......................................... 7.50 05/15/02 2,000,000 2,092,500
U.S. Treasury Notes .......................................... 7.88 11/15/04 4,250,000 4,584,688
U.S. Treasury Notes .......................................... 6.88 05/15/06 2,000,000 2,041,250
-----------
16,782,300
-----------
</TABLE>
6
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED)
FIXED INCOME FUND
<TABLE>
<CAPTION>
SHARES OR
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (CONTINUED)
U.S. TREASURY BONDS (7.8%):
U.S. Treasury Bonds ............................................ 8.75% 08/15/20 $ 2,280,000 $ 2,768,775
U.S. Treasury Bonds ............................................ 7.88 02/15/21 1,000,000 1,114,375
U.S. Treasury Bonds ............................................ 6.75 08/15/26 1,035,000 1,024,003
-----------
4,907,153
-----------
Total U.S. Government Obligations (Cost - $21,455,393) ......................................... 21,689,453
-----------
MUNICIPAL OBLIGATIONS (3.2%):
Oakland, California Pension Obligation,
Subseries A (MBIA Insured) .................................. 6.91 12/15/07 2,000,000 1,985,258
-----------
Total Municipal Obligations (Cost - $2,000,000) ................................................ 1,985,258
-----------
CASH SWEEP ACCOUNT (0.0%):
Bank of New York** ............................................. 4.60 703 703
-----------
Total Cash Sweep Account (Cost - $703) ......................................................... 703
-----------
OPEN-END INVESTMENT COMPANIES (4.6%):
Provident Institutional Temporary Investment Fund .............. 2,889,000 2,889,000
-----------
Total Open-End Investment Companies (Cost - $2,889,000) ........................................ 2,889,000
-----------
TOTAL INVESTMENTS (99.2%)
(Cost - $61,920,459)(a) ........................................................................ 62,320,879
OTHER ASSETS IN EXCESS OF LIABILITIES (0.8%) ................................................... 489,107
-----------
NET ASSETS (100.0%) ............................................................................ $62,809,986
===========
<FN>
- --------------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation ........................................................................ $ 674,809
Unrealized depreciation ........................................................................ (274,389)
-----------
Net unrealized appreciation .................................................................... $ 400,420
===========
** Variable rate account. Rate presented represents rate in effect at June 30, 1997.
CMO - Collateralized Mortgage Obligation
MBIA - Municipal Bond Insurance Association
REMIC - Real Estate Mortgage Investment Conduit
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED)
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
SHARES OR
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.7%):
NEW YORK (93.2%):
Albany County Airport Authority, AMT (FSA Insured)
Callable 12/15/07 @ 102 ................................... 5.50% 12/15/19 $ 750,000 $ 736,875
Bethlehem Central School District, G.O.
(AMBAC Insured) ........................................... 7.10 11/01/07 200,000 237,000
Metropolitan Transportation Authority, Transportation
Facilities Revenue, Series 1997-A (MBIA Insured),
Callable 7/1/07 @ 101.5 ................................... 5.63 07/01/25 1,200,000 1,188,000
Monroe County, G.O., Series B,
Pre-Refunded 6/1/98 @102 .................................. 7.00 06/01/04 40,000 41,884
Monroe County, G.O., Series B,
Callable 6/1/98 @102 ...................................... 7.00 06/01/04 10,000 10,444
New York City, G.O., Series A,
Prerefunded 8/15/01 @101.5 ................................ 7.75 08/15/04 20,000 22,650
New York City, G.O., Series A,
Prerefunded 8/15/01 @ 101.5 ............................... 7.75 08/15/07 3,145,000 3,569,575
New York City, G.O., Series A,
Callable 8/15/01 @ 101.5 .................................. 7.75 08/15/04 580,000 647,425
New York City, G.O., Series A,
Callable 8/15/01 @ 101.5 .................................. 7.75 08/15/07 355,000 394,937
New York City, G.O., Series B ................................ 6.10 08/15/05 2,000,000 2,107,500
New York City, G.O., Series B,
Callable 2/1/02 @101.5 .................................... 7.50 02/01/07 1,000,000 1,107,500
New York City, G.O., Series E ................................ 6.50 02/15/06 2,000,000 2,165,000
New York City, G.O., Series F,
Pre-Refunded 11/15/01 @101.5 .............................. 8.40 11/15/05 105,000 122,719
New York City, G.O., Series F,
Callable 11/15/01 @101.5 .................................. 8.40 11/15/05 45,000 51,412
New York City, G.O., Series G ................................ 6.75 02/01/09 1,000,000 1,106,250
New York City, Municipal Assistance Corp., Series E .......... 6.00 07/01/03 2,200,000 2,351,250
New York City, Municipal Water Finance Authority,
Water & Sewer System Revenue, Series A,
Callable 6/15/06 @101 ..................................... 5.50 06/15/24 1,800,000 1,741,500
New York City, Trust for Cultural Resources,
Museum of Modern Art (AMBAC Insured)
Callable 1/1/02 @102 ...................................... 6.40 01/01/04 350,000 382,375
New York State, Dormitory Authority, City
University System Revenue, Series A (FGIC Insured) ........ 5.75 07/01/18 2,370,000 2,461,837
New York State, Dormitory Authority,
State University Educational Facilities Revenue,
Series A .................................................. 5.88 05/15/11 1,500,000 1,543,125
New York State, Environmental Facilities Corp., PCR,
State Water, Revolving Fund, Series A,
Callable 6/15/01 @102 ..................................... 7.00 06/15/12 300,000 328,500
</TABLE>
8
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED)
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
SHARES OR
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
New York State, Environmental Facilities Corp., PCR,
State Water, Revolving Fund, Series B,
Callable 3/15/99 @102 ..................................... 7.50% 03/15/11 $ 250,000 $ 267,500
New York State, Environmental Facilities Corp., PCR,
State Water, Revolving Fund, Series C,
Callable 3/15/00 @102 ..................................... 7.20 03/15/11 200,000 216,250
New York State, Environmental Facilities Corp.,
Special Obligation Revenue, Riverbank State Park
(AMBAC Insured) ........................................... 5.00 04/01/05 1,000,000 1,011,250
New York State, Housing Financial Agency,
Multifamily Mortgage Housing Revenue,
Series A (FHA Insured) Callable 8/15/02 @102 .............. 7.00 08/15/22 900,000 952,875
New York State, Medical Care Facilities Financial Agency,
Series A (FSA Insured) Prerefunded 2/15/98 @ 102 .......... 7.70 02/15/18 35,000 36,504
New York State, Medical Care Facilities Financial Agency,
Series A (FSA Insured) Callable 2/15/98 @102 .............. 7.70 02/15/18 80,000 83,175
New York State, Medical Care Facilities Financial Agency,
Adult Day Care Facility, Series A (SONYMA Insured)
Callable 11/15/05 @102 .................................... 6.38 11/15/20 2,000,000 2,102,500
New York State, Medical Care Facilities Financial Agency,
Mental Health Services, Series F .......................... 6.00 08/15/03 1,900,000 2,004,500
New York State, Power Authority Revenue and General
Purpose (MBIA Insured) Callable 1/1/03 @ 102 .............. 5.00 01/01/14 1,550,000 1,462,813
New York State, Urban Development Corp.,
Callable 7/1/06 @ 102 ..................................... 5.50 07/01/16 2,000,000 2,007,500
Niagara Frontier Transportation Authority, Greater Buffalo
International Airport Revenue, Series A, AMT
(AMBAC Insured) Callable 4/1/04 @102 ...................... 6.13 04/01/14 2,400,000 2,511,000
Port Authority of New York and New Jersey,
Series 109 (FSA Insured) Callable 1/15/07 @ 107 ........... 5.38 07/15/27 1,000,000 971,250
Syracuse, G.O., Pre-Refunded 2/15/01 @102 .................... 6.70 02/15/01 300,000 326,625
-----------
36,271,500
-----------
PUERTO RICO (4.5%):
Puerto Rico Public Building Authority, Government
Facilities Revenue, Series B (MBIA Insured)
Callable 7/1/07 @ 101.5 ................................... 5.00 07/01/09 1,775,000 1,768,344
-----------
Total Municipal Bonds (Cost - $36,324,973) .................................................... 38,039,844
-----------
</TABLE>
9
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1997 (UNAUDITED) (CONTINUED)
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
SHARES OR
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
CASH SWEEP ACCOUNTS (0.0%):
Bank of New York** 4.60% $ 272 $ 272
-----------
Total Cash Sweep Accounts (Cost - $272) ...................................................... 272
-----------
OPEN-END INVESTMENT COMPANIES (0.9%):
Provident Institutional New York Money Fund ....................................... 343,000 343,000
-----------
Total Open End Investment Companies (Cost - $343,000) ........................................ 343,000
-----------
TOTAL INVESTMENTS (98.6%)
(Cost - $36,668,245)(a) ...................................................................... 38,383,116
OTHER ASSETS IN EXCESS OF LIABILITIES (1.4%) ................................................. 557,129
-----------
NET ASSETS (100.0%) .......................................................................... $38,940,245
===========
<FN>
- -----------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation ...................................................................... $ 1,718,355
Unrealized depreciation ...................................................................... (3,484)
-----------
Net unrealized appreciation .................................................................. $ 1,714,871
===========
** Variable rate account. Rate presented represents rate in effect at June 30,
1997.
AMBAC - AMBAC Indemnity Corporation.
AMT - Alternative Minimum Taxable Paper
FHA - Insured by Federal Housing Administration
FSA - Insured by Financial Security Assurance
G.O. - General Obligation
MBIA - Municipal Bond Insurance Association
PCR - Pollution Control Revenue
SONYMA - State of New York Mortgage Agency
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES AS OF JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
FIXED NEW YORK
INCOME TAX-FREE
FUND BOND FUND
----------- -----------
<S> <C> <C>
ASSETS:
Investment in securities, at value (cost $61,920,459 and $36,668,245,
respectively) ............................................................... $62,320,879 $38,383,116
Interest and dividends receivable ............................................. 850,674 752,303
Receivable from investments sold .............................................. 1,509 --
Deferred organization costs ................................................... 5,054 --
Prepaid expenses and other assets ............................................. 15,559 16,667
----------- -----------
Total Assets ................................................................ 63,193,675 39,152,086
----------- -----------
LIABILITIES:
Dividends payable ............................................................. 317,233 157,166
Accrued expenses and other payables:
Investment advisory fees .................................................... 28,773 8,073
Administration fees ......................................................... 5,370 3,284
Distribution fees ........................................................... -- 8,655
Legal and audit fees ........................................................ 10,236 3,864
Deferred trustee fees ....................................................... 11,006 20,490
Other ....................................................................... 11,071 10,309
----------- -----------
Total Liabilities ........................................................... 383,689 211,841
----------- -----------
Net Assets ....................................................................... $62,809,986 $38,940,245
=========== ===========
COMPUTATION OF NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE:
Net assets .................................................................... $62,809,986 $38,940,245
Shares of beneficial interest issued and outstanding ($0.001 par
value per share, unlimited number of shares authorized) ..................... 6,379,260 3,503,911
----------- -----------
Net asset value ............................................................... $ 9.85 $ 11.11
Maximum sales charge -- 4.75% of offering price ............................... 0.49 0.55
----------- -----------
Maximum offering price ........................................................ $ 10.34 $ 11.66
=========== ===========
COMPOSITION OF NET ASSETS:
Paid-in capital ............................................................... $65,422,858 $38,965,987
Undistributed net investment income ........................................... 10,321 --
Accumulated undistributed net realized losses from
investment transactions ..................................................... (3,023,613) (1,740,614)
Net unrealized appreciation from investments .................................. 400,420 1,714,872
----------- -----------
Net Assets, June 30, 1997 ........................................................ $62,809,986 $38,940,245
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
FIXED NEW YORK
INCOME TAX-FREE
FUND BOND FUND
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends ...................................................................... $ 71,410 $ 17,171
Interest ....................................................................... 2,280,460 1,145,189
---------- ----------
Total Income ................................................................. 2,351,870 1,162,360
---------- ----------
EXPENSES:
Advisory fees .................................................................. 184,787 89,852
Administration fees ............................................................ 50,396 29,951
Co-administration fees ......................................................... 23,518 13,977
Distribution fees .............................................................. -- 34,676
Audit fees ..................................................................... 2,801 3,494
Transfer agent fees ............................................................ 13,631 36,202
Custodian fees ................................................................. 5,060 3,102
Printing costs ................................................................. 12,155 7,122
Registration fees .............................................................. 2,626 2,338
Amortization of organization costs ............................................. 6,666 --
Legal fees ..................................................................... 7,995 5,236
Trustees' fees ................................................................. 3,076 2,013
Other expenses ................................................................. 8,655 5,385
---------- ----------
Gross Expenses .................................................................... 321,366 233,348
Less: Fee waivers .............................................................. (40,350) (63,916)
---------- ----------
Net Expenses ...................................................................... 281,016 169,432
---------- ----------
Net Investment Income ............................................................. $2,070,854 $992,928
---------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from investment transactions ....................... (452,563) 170,233
Net change in unrealized appreciation/depreciation from investments ............ 161,630 42,920
---------- ----------
Net Realized and Unrealized Gains (Losses) from Investments ....................... (290,933) 213,153
---------- ----------
Net Increase in Net Assets Resulting from Operations .............................. $1,779,921 $1,206,081
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FIXED INCOME FUND NEW YORK TAX-FREE BOND FUND
-------------------------------- --------------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE MONTHS ENDED FOR THE
JUNE 30, 1997 YEAR ENDED JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996 (UNAUDITED) DECEMBER 31, 1996
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
From Investment Activities:
OPERATIONS:
Net investment income ......................... $ 2,070,854 $ 6,073,106 $ 992,928 $ 2,257,044
Net realized gains (losses) from investment
transactions ................................ (452,563) (1,449,259) 170,233 1,168,816
Net change in unrealized appreciation/
depreciation from investments ............... 161,630 (2,191,530) 42,920 (1,819,652)
------------ ------------ ----------- ------------
Change in net assets resulting from
operations .................................. 1,779,921 2,432,317 1,206,081 1,606,208
------------ ------------ ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income .................... (2,070,854) (6,073,106) (992,928) (2,257,044)
In excess of net investment income ............ -- (1,496) -- --
------------ ------------ ----------- ------------
Change in net assets from distributions to
shareholders ................................ (2,070,854) (6,074,602) (992,928) (2,257,044)
------------ ------------ ----------- ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ................... 7,885,484 35,631,687 624,693 1,426,786
Dividends reinvested .......................... 38,218 76,121 591,536 1,243,334
Cost of shares redeemed ....................... (49,697,832) (27,132,519) (4,463,822) (10,721,363)
------------ ------------ ----------- ------------
Change in net assets from share
transactions ................................ (41,774,130) 8,575,289 (3,247,593) (8,051,243)
------------ ------------ ----------- ------------
Change in net assets ............................. (42,065,063) 4,933,004 (3,034,440) (8,702,079)
NET ASSETS:
Beginning of period .............................. 104,875,049 99,942,045 41,974,685 50,676,764
------------ ------------ ----------- ------------
End of period .................................... $ 62,809,986 $104,875,049 $38,940,245 $ 41,974,685
============ ============ =========== ============
SHARE TRANSACTIONS:
Issued ........................................ 805,649 3,608,906 56,895 130,184
Reinvested .................................... 3,902 7,721 53,851 114,042
Redeemed ...................................... (5,038,879) (2,726,104) (406,393) (983,166)
------------ ------------ ----------- ------------
Change in shares ................................. (4,229,328) 890,523 (295,647) (738,940)
============ ============ =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
HSBC Mutual Funds Trust, (the "Trust") was organized on November 1, 1989 as
a Massachusetts business trust, and is registered under the Investment
Company Act of 1940, as amended ("1940 Act"), as a diversified, open-end
management investment company with multiple investment portfolios,
including the Fixed Income Fund and the New York Tax-Free Bond Fund (herein
referred to individually as a "Fund" and collectively as the "Funds").
The investment objective of the Fixed Income Fund is generation of high
current income consistent with appreciation of capital by investing in a
variety of fixed-income securities. The investment objective of the New
York Tax-Free Bond Fund is to provide its investors with as high a level of
current income exempt from federal, New York State and New York City income
taxes as is consistent with relative stability of capital. Economic changes
affecting the state and certain of its public bodies and municipalities may
affect the ability of issuers within the state to pay interest on, or repay
principal of, municipal obligations held by the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Funds in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income
and expenses for the period. Actual results could differ from those
estimates.
SECURITIES VALUATION: Portfolio securities for which market quotations are
readily available are valued at the quoted bid price. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Trust's
officers in accordance with guidelines which have been adopted by the Board
of Trustees. Such procedures include the use of independent pricing
services which use prices based on yields or prices of securities of
comparable quality, coupon, maturity and type, indicators as to value from
dealers and general market conditions. Investments in mutual funds are
valued at their net asset value as reported by such investment companies.
Short-term obligations having maturities of 60 days or less are valued at
amortized cost which approximates market value.
TAXES: It is the Funds' policy to comply with the provisions of the
Internal Revenue Code, as amended, applicable to regulated investment
companies, and to distribute substantially all of their taxable income and
net realized capital gains to its shareholders for each taxable year.
Therefore, no provision is required for federal income tax.
At December 31, 1996, the Fixed Income Fund had available $2,524,512 of
capital loss carryforwards which, if not utilized, $1,082,278 and
$1,442,234 will expire in the year 2003 and 2004, respectively.
At December 31, 1996, the New York Tax-Free Bond Fund had available
$1,905,167 of capital loss carryforwards which, if not utilized, $1,261,112
and $644,055 will expire in the year 2002 and 2003, respectively.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DIVIDENDS AND DISTRIBUTIONS: The Funds intend to declare as a dividend
substantially all of its net investment income at the end of each business
day and to pay within five business days after the end of each month. Net
capital gains, if any, are distributed at least annually.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the composition of net assets
based on their federal tax-basis treatment; temporary differences do not
require reclassification. Dividends and distributions to shareholders which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in
excess of net investment income or distributions in excess of net realized
gains. To the extent they exceed net investment income and net realized
gains for tax purposes, they are reported as distributions of capital.
SECURITY TRANSACTIONS AND RELATED INCOME: Security transactions are
recorded on trade date. Identified cost of investments sold is used for
both financial statement and federal income tax purposes. Interest income
including amortization of discount and premium, is recorded as earned.
EXPENSE ALLOCATION: Expenses directly attributed to each Fund in the Trust
are charged to that Fund's operations; expenses which are applicable to all
Funds are allocated among them on the basis of relative net assets or
another appropriate basis.
ORGANIZATIONAL COSTS: Costs incurred in connection with the organization of
the Fund are being amortized on a straight-line basis over a five-year
period from the date operations commenced.
3. PORTFOLIO SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
six months ended June 30, 1997 were as follows:
PURCHASES SALES
---------- -----------
Fixed Income Fund ................. $17,191,370 $36,660,625
New York Tax-Free Bond Fund ....... $ 7,261,881 $12,090,837
4. RELATED PARTY TRANSACTIONS
The Trust retains HSBC Asset Management Americas Inc. to act as Investment
Adviser for the Funds. HSBC Asset Management Americas Inc. is the North
American investment affiliate of HSBC Holdings plc (Hong Kong and Shanghai
Banking Corporation). As Investment Adviser, HSBC Asset Management Americas
Inc. furnishes investment guidance and policy direction in connection with
the management of the investment portfolios of the Funds, subject to
policies established by the Board of Trustees.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
As compensation for its services, HSBC Asset Management Americas Inc. is
paid monthly advisory fees at the following annual rates:
ADVISORY FEE RATE
-----------------
FIXED INCOME
PORTIONS OF THE FUND'S AVERAGE DAILY NET ASSETS FUND
----------------------------------------------------------- -----------------
Up to $400 million......................................... 0.550%
In excess of $400 million but not exceeding $800 million .. 0.505%
In excess of $800 million but not exceeding $1.2 billion .. 0.460%
In excess of $1.2 billion but not exceeding $1.6 billion .. 0.415%
In excess of $1.6 billion but not exceeding $2.0 billion .. 0.370%
In excess of $2.0 billion ................................. 0.315%
ADVISORY FEE RATE
-----------------
NEW YORK
TAX-FREE BOND
PORTIONS OF THE FUND'S AVERAGE DAILY NET ASSETS FUND
----------------------------------------------------------- -----------------
Up to $300 million......................................... 0.450%
In excess of $300 million but not exceeding $600 million .. 0.420%
In excess of $600 million but not exceeding $1.0 billion .. 0.385%
In excess of $1.0 billion but not exceeding $1.5 billion .. 0.350%
In excess of $1.5 billion but not exceeding $2.0 billion .. 0.315%
In excess of $2.0 billion ................................. 0.280%
For the six months ended June 30, 1997, HSBC Asset Management Americas Inc.
earned advisory fees of $184,787 from the Fixed Income Fund and $49,918
from the New York Tax-Free Bond Fund, net fee of waivers of $0 and $39,934,
respectively.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership is a subsidiary of the BISYS Group,
Inc. BISYS, with whom certain officers are affiliated, serves the Trust as
distributor, administrator, transfer agent and fund accountant. Such
officers are not paid any fees directly by the Funds for serving as
officers of the Trust.
In accordance with the terms of the Administration and Accounting Servicing
agreements BISYS is paid a monthly asset-based fee of 0.15% (annualized) of
the Fund's first $200 million of average net assets; 0.125% of the Fund's
next $200 million of average net assets; 0.10% of the Fund's next $200
million of average net assets; and 0.08% of the Fund's average net assets
in excess of $600 million; exclusive of out-of-pocket expenses. For the six
months ended June 30, 1997, BISYS earned administrative services fees of
$33,564 from the Fixed Income Fund, and $19,946 from the New York Tax-Free
Bond Fund, net of fee waivers of $16,832 and $10,005, respectively.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
HSBC Asset Management Americas Inc. is paid a co-administration/shareholder
servicing fee of 0.07% of each Fund's average daily net assets. For the six
months ended June 30, 1997, HSBC Asset Management Americas Inc. waived all
of their co-administration/shareholder servicing fees. These waivers
totaled $23,518 for the Small Cap Fund and $13,977 for the Growth and
Income Fund.
The Funds have adopted a Distribution Plan and Agreement (the "Plan")
pursuant to Rule 12b-1 of the 1940 Act. The Plan provides for a monthly
payment by the Fund to BISYS Fund Services for expenses incurred in
connection with distribution services provided to the Fund not to exceed an
annual rate of 0.35% of each Fund's average net assets during the preceding
month. The expenses incurred as a result of these agreements totaled $0
from the Fixed Income Fund and $34,676 from the New York Tax-Free Bond
Fund.
The Funds may enter into agreements (the "Service Agreements") with certain
banks, financial institutions and corporations ("Service Organizations")
whereby each Service Organization handles record keeping and provides
certain administration services for its customers who invest in the Funds
through accounts maintained at that Service Organization. Each Service
Organization will receive monthly payments for the performance of its
service under the Service Agreement. The payments from the Funds on an
annual basis will not exceed 0.35% of the average value of the Funds'
shares held in the subaccounts of the Service Organizations.
A partner of Baker & McKenzie, legal counsel to the Trust, serves as
Secretary of the Trust. For the six months ended June 30, 1997 the Funds
incurred legal fees of $7,995 for the Fixed Income Fund, and $5,236 for the
New York Tax-Free Bond Fund.
5. CONCENTRATION OF CREDIT
The New York Tax-Free Bond Fund invests primarily in debt obligations
issued by the State of New York and its respective political subdivisions,
agencies and public authorities to obtain funds for various public
purposes. The Fund is more susceptible to economic and political factors
adversely affecting issuers of New York specific municipal securities than
is a municipal bond fund that is not concentrated in these issuers to the
same extent.
17
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD
FIXED INCOME FUND
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD
JUNE 30, 1997 ------------------------------ JANUARY 15, 1993(a) TO
(UNAUDITED) 1996 1995 1994 DECEMBER 31, 1993
--------------- ------ ------ ------ ----------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............ $ 9.89 $ 10.28 $ 9.35 $ 10.13 $ 10.00
------- -------- ------- ------- -------
Investment Activities
Net investment income ...................... 0.30 0.59 0.59 0.59 0.63
Net realized and unrealized gains
(losses) from investments ............... (0.04) (0.39) 0.93 (0.78) 0.21
------- -------- ------- ------- -------
Total from Investment Activities ........... 0.26 0.20 1.52 (0.19) 0.84
------- -------- ------- ------- -------
Distributions
From net investment income ................. (0.30) (0.59) (0.59) (0.59) (0.63)
From net realized gains .................... -- -- -- -- (0.08)
------- -------- ------- ------- -------
Total distributions ........................ (0.30) (0.59) (0.59) (0.59) (0.71)
------- -------- ------- ------- -------
Net Change in Net Asset Value ................... (0.04) (0.39) 0.93 (0.78) 0.13
------- -------- ------- ------- -------
Net Asset Value, End of Period .................. $ 9.85 $ 9.89 $ 10.28 $ 9.35 $ 10.13
======= ======== ======= ======= =======
Total Return(b) ................................. 2.69%(d) 2.11% 16.73% (1.89)% 8.57%(d)
Ratios/Supplemental Data:
Net Assets at end of period (000) .......... $62,810 $104,875 $99,942 $84,774 $90,907
Ratio of expenses to average net assets .... 0.84%(c) 0.88% 0.93% 0.77% 0.22%(c)
Ratio of net investment income to
average net assets ...................... 6.18%(c) 5.94% 6.03% 6.10% 6.40%(c)
Ratio of expenses to average net assets* ... 0.96%(c) 0.98% 0.96% 0.86% 0.87%(c)
Ratio of net investment income to
average net assets* ..................... 6.06%(c) 5.84% 6.00% 6.01% 5.75%(c)
Portfolio Turnover Rate .................... 26.59% 156.05% 41.58% 63.96% 107.34%(d)
<FN>
- ------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or expense reimbursements had not
occurred, the ratios would have been as indicated.
(a) Commencement of operations.
(b) Excludes sales charge.
(c) Annualized.
(d) Not annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, 1997 ------------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .......... $ 11.05 $ 11.17 $ 10.20 $ 11.70 $ 11.01 $ 10.66
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income .................... 0.27 0.55 0.54 0.53 0.59 0.66
Net realized and unrealized gains (losses)
from investments ...................... 0.06 (0.12) 0.97 (1.47) 0.95 0.44
------- ------- ------- ------- ------- -------
Total from Investment Activities ......... 0.33 0.43 1.51 (0.94) 1.54 1.10
------- ------- ------- ------- ------- -------
Distributions
From net investment income ............... (0.27) (0.55) (0.54) (0.53) (0.59) (0.66)
From net realized gains .................. 0.00 0.00 0.00 (0.03) (0.26) (0.09)
------- ------- ------- ------- ------- -------
Total distributions ...................... (0.27) (0.55) (0.54) (0.56) (0.85) (0.75)
------- ------- ------- ------- ------- -------
Net Change in Net Asset Value ................. 0.06 (0.12) 0.97 (1.50) 0.69 0.35
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ................ $ 11.11 $ 11.05 $ 11.17 $ 10.20 $ 11.70 $ 11.01
======= ======= ======= ======= ======= =======
Total Return(a) ............................... 3.05%(c) 3.99% 15.17% (8.13)% 14.27% 10.66%
Ratios/Supplemental Data:
Net Assets at end of period (000) ........ $38,940 $41,975 $50,677 $50,711 $61,740 $32,407
Ratio of expenses to average
net assets ............................ 0.85%(b) 0.91% 0.99% 0.84% 0.63% 0.38%
Ratio of net investment income
to average net assets ................. 4.97%(b) 5.02% 5.07% 4.93% 4.98% 6.04%
Ratio of expenses to average
net assets* ........................... 1.17%(b) 1.21% 1.20% 1.10% 1.06% 1.17%
Ratio of net investment income to
average net assets* ................... 4.65%(b) 4.72% 4.86% 4.67% 4.55% 5.25%
Portfolio Turnover Rate .................. 18.83% 87.40% 24.43% 122.43% 70.36% 66.44%
<FN>
- ------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or expense reimbursements had not
occurred, the ratios would have been as indicated.
(a) Excludes sales charge.
(b) Annualized.
(c) Not annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HSBC[SERVICE MARK] MUTUAL FUNDS TRUST
3435 Stelzer Road
Columbus, Ohio 43219
INFORMATION:
(800) 634-2536
INVESTMENT ADVISER
HSBC Asset Management Americas Inc.
250 Park Avenue
New York, New York 10177
DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
LEGAL COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022
This report is for the information of the shareholders of HSBC Mutual Funds
Trust. Its use in connection with any offering of the Trust's shares is
authorized only in the case of a concurrent or prior delivery of the Trust's
current prospectus.
8/97
