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