HSBC MUTUAL FUNDS TRUST
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HSBC Asset Management Americas Inc. [GRAPHIC OMITTED]
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International Equity Fund
SEMI-ANNUAL REPORT (UNAUDITED)
June 30, 1998
Managed by:
HSBC ASSET MANAGEMENT AMERICAS INC.
Sponsored and distributed by:
BISYS FUND SERVICES
<PAGE>
HSBC MUTUAL FUNDS TRUST
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HSBC Asset Management Americas Inc. [GRAPHIC OMITTED]
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International Equity Fund
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July 13, 1998
Dear Shareholder:
The HSBC International Equity Fund returned 20.97% for the 6 months ended June
30, 1998. The first half of 1998 experienced continued financial and economic
turbulence in Asia. Japan is struggling with stimulus packages for the economy
and clearly more policy initiatives are required. Europe on the other hand
enjoyed earnings growth relative to other markets, productivity gains and a low
inflationary environment.
The portfolio's country allocation continued to favor Europe at the expense of
Asia. The portfolio will remain overweight in Europe at the expense of Asia over
the near term. What follows is more detail on our views of the regional markets
and economies.
EXECUTIVE SUMMARY
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We continue to expect that major OECD (Organization for Economic Co-operation &
Development) countries will experience benign economic conditions for the rest
of 1998. Indeed, the Asian crisis is anticipated to cause around a 1%
deceleration in the OECD real GDP growth. While on the inflation front, price
increases in the OECD countries, as a group, remain close to 30 year lows. Going
forward, we expect no significant pick up in price pressures at either the
retail or the wholesale level.
An environment characterized by moderate economic growth, subdued consumer and
producer price inflation, and generally improving fiscal positions argues for
keeping monetary policy on hold for the time being in many OECD countries. This
environment also implies that long term interest rates will remain stable and be
generally supportive of equities. In addition, equity markets appear to be
fairly priced relative to earnings and interest rates at the global level.
Consequently, against this fundamental backdrop, we expect global equities and
global bonds to continue to outperform global cash.
Within equities, in a global context, we consider Continental Europe to be
attractively priced, the UK and the U.S. to be fairly priced, and equity markets
in Japan and Asia to be unattractively priced at current levels.
The following pages illustrate how our current market views translate into
actual average-risk portfolios. The figures shown are weightings relative to the
specified benchmark.
UNITED KINGDOM
- --------------
The recent decision by the Monetary Policy Committee (MPC) to raise interest
rates by another quarter point to 7.5% came as a shock to the market. The
majority of commentators had assumed that the MPC would keep rates unchanged,
bearing in mind the very real slowdown being experienced by manufacturing
industry, coupled with the inevitable effects of the Asian financial crisis.
<PAGE>
The domestic labor market appears to be driving the MPC decision making process,
and data released since the 4th of June appears to validate the upward move. The
latest average earnings data was poor with growth accelerating to 5.2% and
private sector earnings rising by 5.9%. Although the latter figure was boosted
by seasonal bonuses, the trend was still sufficient to raise doubts as to the
rate that the economy is slowing, and many argue that there is now a case for
rates to rise still further. The retail price figures for May saw headline
inflation increase to 4.2% while the underlying rate increased to 3.2%, well
above the Government's target of 2.5%. The economy is not slowing as quickly as
expected, mainly because consumer incomes are still growing strongly while
export demand from both the U.S. and Europe is good. However, profits will be
hit across the board as a result of this recent move in rates. Higher financing
costs plus higher labor costs will lead to a squeeze on margins unless
productivity can be dramatically improved.
The overall direction of the UK equity market is now more uncertain. The market
will be concerned by the potential for further interest rate rises and
potentially a 'hard landing' for the economy and a more dramatic slowdown in
growth than had been forecast. In addition, the indirect effect of the Asian
slowdown has yet to be seen in UK corporate earnings, and downgrades are
inevitable, leading to further pressure on stock valuations. Overall, therefore,
the outlook for UK equities is mixed. The actual direction of UK equities over
the next few months will be dominated by global events, but the most resilient
areas of the market will be the large relatively defensive sectors. This will
continue until there is clearer evidence of a UK slowdown, and the expectation
therefore that the next move in interest rates will be down.
CONTINENTAL EUROPE
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The environment for European equities for the remainder of 1998 remains
favorable despite continued worries over Asia. We expect economic growth to
exceed 3% across Europe and 4% in high growth areas such as Ireland,
Netherlands, and Spain. This strong performance is the result of a sustained
recovery in domestic demand after nearly a decade of anemic growth. Interest
rates are likely to rise slightly ahead of EMU on January 1st 1999 but
inflationary pressures remain minimal so the medium term threat to higher rates
is small -- as evidenced by the decisive fall in bond yields to below 5%. This
benign background means that earnings growth has a high potential to exceed 15%
for both 1998 and 1999 -- an impressive performance in a weak global context.
There is still room for earnings upgrades as broker analysts have so far failed
to pick up the leveraged effect of superior economic growth.
The flow of merger and acquisition activity has picked up again as expected with
the announcement of some high profile mergers -- the biggest of which was the
merger of auto giants Chrysler of the U.S. and Daimler Benz of Germany. A worry
as we approach the second half is the marked increase in the supply of liquidity
as privatization's, primary issues, and rights issues take advantage of high
share prices. The other major risk to the market is the high valuation levels --
despite support from bond markets. The valuations are justified given the
impressive outlook for earnings growth.
Europe remains our favored equity asset class. Visible earnings growth relative
to other markets, continued corporate restructuring, little inflationary
pressure, and a low exposure to Asian economies make Europe an attractive area
for investment.
2
<PAGE>
JAPAN
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The news surrounding the Japanese economy, banking system and the Yen has
remained negative with obvious implications for sentiment surrounding Japanese
financial assets. In particular the weakness of the Yen, reflecting low domestic
and foreign confidence in the economy, and risks associated with Japanese
assets, has put greater pressure on regional economies in Asia at a time when
distress is already considerable. This has resulted in joint intervention to
support the Yen, although policy will need to be credible if the currency is to
stabilize.
The economy is contracting, as evidenced by recent 1st quarter GNP, and the need
for greater energy on the restructuring of the banking sector is already
evident, at least to the international financial community. Against this
background the fiscal package announced recently should support the economy, but
more policy initiatives are clearly required.
Whilst the Japanese stock market continues to offer stock specific
opportunities, we are unlikely to become more positive on Japanese equities
overall until macro policy becomes more credible relative to the difficulties
facing the economy, and corporate restructuring becomes more pervasive. Until
then we will remain both cautious and underweight.
ASIA
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The rallies seen within the region in the first quarter of 1998, have been
replaced by renewed pessimism regarding prospects. The result has been a return
to, or through, January lows, although currencies have, for the most part held
up reasonably well.
Our rationale for caution remains in place. Much of the region will see a
contraction of economic activity in 1998, whilst prospects for 1999 are
continuing to deteriorate. At the same time a fall in asset prices, and the
related need for companies to deleverage is placing additional strains on
banking systems, although with varying degrees of magnitude.
Exacerbating regional difficulties is the weakness of the Japanese economy, the
Yen, and the withdrawal of credit facilities in Asia by financial institutions.
The adjustment process in regional economies remains, therefore, very painful
with the region experiencing its most hostile environment since the first oil
crisis. Whilst economies such as Hong Kong and Singapore remain, in our view,
structurally sound part of the economic, adjustment process in the region is
accompanied by the need for reform at both the macro and micro level.
We remain underweight in Asian markets, although we hope to discuss a more
optimistic environment in future reports.
We continue to manage the investments of the HSBC International Equity Fund with
the objective of delivering solid returns to our shareholders. We would like to
take this opportunity to thank you for choosing the HSBC International Equity
Fund to help you meet your investment needs.
HSBC Asset Management Americas, Inc.
The views expressed in this report reflect those of the portfolio manager
through the end of the period covered by the report as stated on the cover. The
manager's views are subject to change at any time based on the market and other
conditions. Past performance is no guarantee of future results.
3
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
INTERNATIONAL EQUITY FUND VS. MSCI-EAFE INDEX
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Total Return - Institutional Class Shares Service Class Shares
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Inception Inception
1 Year (3/1/95) 1 Year (4/25/94)
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Offering Price(1) N/A N/A 3.03% 4.30%
NAV(2) 8.27% 11.22% 8.45% 5.60%
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With Maximum MSCI- Without Maximum
Sales Charge EAFE Sales Charge
4/25/94 9,496.68 10,000 10,000
12/94 9,069.33 9,991 9,550
12/95 9,468.38 11,111 9,970
12/96 10,066.8 11,775 10,600
12/97 9,860.41 11,999 10,383
6/98 11,931 13,910 12,559
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. WITHOUT CERTAIN FEE
WAIVERS, THE RETURN WOULD HAVE BEEN LOWER. THE FUND'S INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST.
(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 SERVICE CLASS SHARES
OF THE INTERNATIONAL EQUITY FUND ON APRIL 25, 1994 (DATE OF INCEPTION) TO A
$10,000 INVESTMENT IN THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA
AND FAR EAST (MSCI-EAFE) INDEX ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS ARE REINVESTED. PLEASE REFER TO THE BOX ABOVE FOR RETURNS ON
INSTITUTIONAL CLASS SHARES, WHICH HAVE BEEN OFFERED SINCE MARCH 1, 1995.
THE FUND'S PERFORMANCE TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES. THE
MSCI-EAFE INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVER 900 SECURITIES
LISTED ON THE STOCK EXCHANGES OF THE FOLLOWING COUNTRIES IN EUROPE, AUSTRALIA,
AND THE FAR EAST: AUSTRALIA, AUSTRIA, BELGIUM, DENMARK, FINLAND, FRANCE, HONG
KONG, IRELAND, ITALY, JAPAN, MALAYSIA, NETHERLANDS, NEW ZEALAND. THIS INDEX IS A
WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL STOCK MARKET PERFORMANCE, AND DOES
NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES.
INTERNATIONAL INVESTING INVOLVES INCREASED RISKS AND VOLATILITY.
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
RICHARD J. LOOS Vice Chairman Emeritus
*Member of the Audit and Nominating Committees
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OFFICERS
WALTER B. GRIMM PRESIDENT
ERIC F. ALMQUIST SENIOR VICE PRESIDENT
ANTHONY J. FISCHER VICE PRESIDENT
CHARLES L. BOOTH VICE PRESIDENT
PAUL KANE ASSISTANT TREASURER
STEVEN R. HOWARD SECRETARY
ALAINA V. METZ ASSISTANT SECRETARY
ROBERT L. TUCH ASSISTANT SECRETARY
5
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
COUNTRY/ VALUE PERCENT OF
INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS
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<S> <C> <C> <C> <C>
EQUITIES
AUSTRALIA
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BANKING 31,426 Australia & New Zealand Banking Group Ltd. .......... $ 216,790
30,300 West-Pac Banking Corp. .............................. 184,818
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401,608 0.6%
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BROADCASTING &
PUBLISHING 39,163 News Corp., Ltd. .................................... 319,636 0.5
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BUILDING MATERIALS 42,200 CSR Ltd. ............................................ 121,776 0.2
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DIVERSIFIED 38,040 Southcorp Ltd. ...................................... 110,478 0.2
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INSURANCE 26,576 GIO Australia Holdings Ltd. ......................... 68,198 0.1
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NATURAL RESOURCES
EXPLORATION/ PRODUCTION 14,754 Broken Hill Proprietary Co. Ltd. .................... 124,712 0.2
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TELECOMMUNICATIONS 92,100 Telstra Corporation ................................. 236,115 0.4
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TOTAL AUSTRALIA ..................................... 1,382,523 2.2
(COST - $1,391,782) ---------- ----
DENMARK
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TELECOMMUNICATIONS 7,295 Tele Danmark AS Class B ............................. 700,115 1.1
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TOTAL DENMARK ....................................... 700,115 1.1
(COST - 654,229) ---------- ----
FINLAND
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TELECOMMUNICATIONS 10,241 Nokia Oyj - Class A ................................. 753,168 1.2
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TOTAL FINLAND ....................................... 753,168 1.2
(COST - $446,134) ---------- ----
FRANCE
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BANKING 7,872 Banque Nationale De Paris ........................... 643,193
5,325 Compagnie Financiere de Paribas ..................... 569,841
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1,213,034 1.9
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COMPUTER SOFTWARE 3,534 Cap Gemini SA ....................................... 555,290 0.9
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CONSTRUCTION 2,851 Bouygues SA(b) ...................................... 517,761 0.8
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ELECTRICAL & ELECTRONICS 1,880 Alcatel Alsthom ..................................... 382,777
4,513 Schneider SA(b) ..................................... 359,859
6,047 SGS-Thomson Microelectronics N.V.(b) ................ 428,569
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1,171,205 1.9
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</TABLE>
6
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
COUNTRY/ VALUE PERCENT OF
INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS
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<S> <C> <C> <C> <C>
EQUITIES (continued)
FRANCE (continued)
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FOOD PRODUCTS & SERVICES 1,942 Groupe Danone ........................................ $ 535,445 0.8%
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HEALTH & PERSONAL CARE 4,309 ELF Sanofi SA ........................................ 506,729 0.8
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INDUSTRIAL GOODS
& SERVICES 2,718 Compagnie de Saint Gobain ............................ 503,947 0.8
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INDUSTRIAL HOLDING
COMPANY 3,533 Suez Lyonnaise des Eaux .............................. 581,429 0.9
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INSURANCE 5,331 Axa - UAP ............................................ 599,580 0.9
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OIL CO. - INTEGRATED 4,218 Total SA, Class B .................................... 548,351 0.9
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RETAIL 621 Pinault-Printemps-Redoute SA(b) ...................... 519,723 0.8
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TOTAL FRANCE ......................................... 7,252,494 11.4
(COST - $5,494,835) ---------- ----
GERMANY
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APPAREL - FOOTWEAR 2,995 Adidas AG ............................................ 517,686 0.8
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AUTOMOBILES 579 Bayerische Motoren Werke AG(b) ....................... 582,739
5,249 Daimler-Benz AG ...................................... 514,712
2,335 Daimler-Benz AG Rights(b) ............................ 2,587
613 Volkswagen AG ........................................ 589,216
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1,689,254 2.6
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BANKING 6,475 Bayerische Vereinsbank AG 550,634
15,186 Commerzbank AG ....................................... 580,506
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1,131,140 1.8
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CHEMICALS 11,372 BASF AG .............................................. 538,664 0.8
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COMPUTER SOFTWARE 751 SAP AG, Vorzug (Preferred) ........................... 510,504 0.8
---------- ----
CONGLOMERATES 1,004 VIAG AG(b) ........................................... 678,591 1.1
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INDUSTRIAL GOODS
& SERVICES 6,861 Mannesmann AG ........................................ 695,970
2,057 Thyssen AG ........................................... 520,793
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1,216,763 1.9
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</TABLE>
7
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
COUNTRY/ VALUE PERCENT OF
INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITIES (continued)
GERMANY (continued)
- -------
INSURANCE 3,462 Allianz AG ......................................... $ 1,141,191
3,774 Ergo Versicherungs Gruppe AG(b) .................... 677,425
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1,818,616 2.9%
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TOTAL GERMANY ...................................... 8,101,218 12.7
(COST - $5,911,865) ----------- ----
IRELAND
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BANKING 28,422 Bank of Ireland .................................... 580,784 0.9
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TOTAL IRELAND ...................................... 580,784 0.9
(COST - $472,006) ----------- ----
ITALY
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BANKING 26,100 Banca Popolare di Brescia .......................... 493,353
32,726 Istituto Bancario San Paolo di Torino .............. 472,235
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965,588 1.6
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INSURANCE 23,686 Assicurazioni Generali SpA(b) ...................... 770,190 1.2
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OIL & GAS EXPLORATION,
PRODUCTION & SERVICES 82,613 Ente Nozionale Idrocarburi SpA ..................... 541,443 0.8
----------- ----
TELECOMMUNICATIONS 108,269 Telecom Italia SpA ................................. 796,996 1.2
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TOTAL ITALY ........................................ 3,074,217 4.8
(COST - $2,519,921) ----------- ----
JAPAN
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BANKING 16,000 Bank of Tokyo - Mitsubishi Ltd. .................... 169,355
23,000 Sumitomo Bank Ltd. ................................. 223,728
33,000 Sumitomo Trust & Banking Corp. ..................... 147,422
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540,505 0.8
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BROKERAGE SERVICES 21,000 Nomura Securities Co. Ltd. ......................... 244,371 0.4
----------- ----
BUILDING MATERIALS 57,000 Juken Sangyo Co. Ltd. .............................. 135,533 0.2
----------- ----
CHEMICALS 84,000 Asahi Chemical Industry Co. Ltd. ................... 302,626 0.5
----------- ----
COMMERCIAL SERVICES 26,000 Yamato Transport Co. Ltd. .......................... 291,314 0.5
----------- ----
CONSTRUCTION 42,000 Obayashi Corp. ..................................... 177,944 0.3
----------- ----
</TABLE>
8
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
COUNTRY/ VALUE PERCENT OF
INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITIES (continued)
JAPAN (continued)
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DATA PROCESSING &
REPRODUCTION 5 NTT Data Corp ....................................... $ 180,495 0.3%
----------- ----
ELECTRICAL & ELECTRONICS 47,000 Hitachi Ltd. ........................................ 306,481
13,000 Murata Manufacturing Co. Ltd. ....................... 421,515
5,000 Rohm Co. Ltd. ....................................... 513,384
3,500 Sony Corp. .......................................... 301,365
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1,542,745 2.3
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FINANCIAL SERVICES 10,500 Credit Saison Co. Ltd. .............................. 208,056 0.3
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FOOD & HOUSEHOLD
PRODUCTS 22,000 Kao Corp. ........................................... 339,230 0.5
----------- ----
INDUSTRIAL GOODS &
SERVICES 11,000 Fuji Machine Manufacturing Co. Ltd. ................. 291,674 0.5
----------- ----
LEISURE, RECREATION &
GAMING 12,600 NAMCO Ltd. .......................................... 294,153 0.5
----------- ----
OFFICE EQUIPMENT &
SUPPLIES 23,000 Ricoh Co. Ltd. ...................................... 242,123 0.4
----------- ----
PAPER & RELATED PRODUCTS 62,000 Nippon Paper Industries Co. ......................... 258,212 0.4
----------- ----
PHARMACEUTICALS 14,000 Sankyo Co. Ltd. ..................................... 318,766 0.5
----------- ----
PHOTOGRAPHY 11,000 Fuji Photo Film Co. ................................. 382,823
8,400 Noritsu Koki Co. Ltd. ............................... 187,628
----------- ----
570,451 0.9
----------- ----
REAL ESTATE 27,000 Mitsubishi Estate Co. Ltd. .......................... 237,346 0.4
----------- ----
RETAIL 7,500 Family Mart Co. Ltd. ................................ 285,333
5,000 Ito Yokado Co. Ltd. ................................. 235,256
----------- ----
520,589 0.8
----------- ----
STEEL 159,000 Nippon Steel Corp. .................................. 279,540 0.4
----------- ----
TELECOMMUNICATIONS 33 Nippon Telegraph & Telephone Corp. .................. 273,445 0.4
----------- ----
</TABLE>
9
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
COUNTRY/ VALUE PERCENT OF
INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITIES (continued)
JAPAN (continued)
- -----
TRANSPORTATION 161,000 Mitsui O.S.K. Lines, Ltd. ......................... $ 273,776 0.4%
----------- ----
WHOLESALE &
INTERNATIONAL TRADE 42,000 Mitsui & Co. ...................................... 226,970 0.4
----------- ----
TOTAL JAPAN ....................................... 7,749,864 12.1
(COST - $10,321,268) ----------- ----
NETHERLANDS
- -----------
BANKING 10,868 ING Groep N.V. .................................... 711,632 1.1
----------- ----
COMPUTER SOFTWARE 11,411 Baan Company N.V.(b) .............................. 410,056 0.6
----------- ----
INDUSTRIAL GOODS &
SERVICES 11,994 Benckiser N.V. Class B(b) ......................... 737,604 1.2
----------- ----
OIL CO. - INTEGRATED 22,754 Royal Dutch Petroleum Co. ......................... 1,261,736 1.9
----------- ----
PRINTING & PUBLISHING 17,621 nv Verenigd Bezit VNU ............................. 640,142 1.0
----------- ----
RETAIL 16,985 Koninklijke Ahold N.V. ............................ 545,231 0.9
----------- ----
TOTAL NETHERLANDS ................................. 4,306,401 6.7
(COST - $3,884,266) ----------- ----
NORWAY
- ------
MANUFACTURING -
CONSUMER GOODS 16,976 Orkla ASA Class A ................................. 394,892 0.6
----------- ----
OILFIELD EQUIPMENT
& SERVICES 11,261 Transocean Offshore Inc. .......................... 498,953 0.8
----------- ----
TOTAL NORWAY ...................................... 893,845 1.4
(COST - $1,051,477) ----------- ----
PORTUGAL
- --------
BANKING 20,667 Banco Commercial Portuguese ....................... 586,825
22,082 Electricidade De Portugal ......................... 513,318
----------- ----
TOTAL PORTUGAL .................................... 1,100,143 1.7
(COST - $1,167,159) ----------- ----
SPAIN
- -----
BANKING 15,440 Banco Bilbao Vizcaya SA(b) ........................ 793,734
23,914 Banco Central Hispanoamer SA ...................... 752,926
----------- ----
1,546,660 2.5
----------- ----
</TABLE>
10
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
COUNTRY/ VALUE PERCENT OF
INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITIES (continued)
SPAIN (continued)
TELECOMMUNICATIONS 17,029 Telefonica SA ..................................... $ 788,658 1.2%
----------- ----
TOTAL SPAIN ....................................... 2,335,318 3.7
(COST - $1,840,698) ----------- ----
SWEDEN
- ------
BANKING 75,333 Nordbanken Holding AB ............................. 552,603 0.9
----------- ----
FOREST PRODUCTS 30,227 Stora Kopparbergs Bergslags Aktiebolag, Class B ... 477,571 0.7
----------- ----
INSURANCE 48,363 Skandia Forsakrings AB ............................ 691,338 1.1
----------- ----
RETAIL 12,576 Hennes & Mauritz AB, Class B ...................... 802,662 1.3
----------- ----
TELECOMMUNICATIONS 27,566 Telelfonaktiebolaget L.M. Ericsson ................ 805,381 1.2
----------- ----
TOTAL SWEDEN ...................................... 3,329,555 5.2
(COST - $2,295,768) ----------- ----
SWITZERLAND
- -----------
BANKING 3,242 Credit Suisse Group ............................... 721,365
2,515 Union Bank of Switzerland AG-Registered ........... 935,160
----------- ----
1,656,525 2.6
----------- ----
CHEMICALS 3,892 Ciba Specialty Chemicals AG ....................... 499,711 0.8
----------- ----
COMMERCIAL SERVICES 1,177 Adecco SA ......................................... 530,764 0.8
----------- ----
FOOD PRODUCTS & SERVICES 262 Nestle SA, Registered Shares ...................... 560,684 0.9
----------- ----
INSURANCE 1,254 Zuerich Verichrng Gesellschft-Registered .......... 800,279 1.3
----------- ----
PHARMACEUTICALS 270 Ares - Serono Group SA ............................ 375,591
860 Novartis AG, Registered Shares .................... 1,431,054
112 Roche Holdings AG ................................. 1,099,834
----------- ----
2,906,479 4.5
----------- ----
TOTAL SWITZERLAND ................................. 6,954,442 10.9
(COST - $5,714,375) ----------- ----
UNITED KINGDOM
- --------------
BANKING 48,171 Standard Chartered PLC ............................ 546,941 0.9
----------- ----
BEVERAGES 83,912 Diageo PLC ........................................ 998,953
58,675 Scottish & Newcastle PLC .......................... 825,781
----------- ----
1,824,734 2.9
----------- ----
</TABLE>
11
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
COUNTRY/ VALUE PERCENT OF
INDUSTRY SHARES SECURITY (NOTE 2) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITIES (continued)
UNITED KINGDOM (continued)
- --------------
DIVERSIFIED 91,333 General Electric Co. PLC ........................... $ 787,091 1.2%
----------- ----
ELECTRIC UTILITY 72,609 Southern Electric PLC .............................. 670,556 1.0
----------- ----
FINANCIAL SERVICES 59,442 Lloyds TSB Group PLC ............................... 830,129 1.3
----------- ----
FOOD & HOUSEHOLD
PRODUCTS 69,761 Cadbury Schweppes PLC .............................. 1,080,158 1.7
----------- ----
HEALTH & PERSONAL CARE 23,680 Glaxo Holdings PLC ................................. 712,763 1.1
----------- ----
INSURANCE 50,748 Commercial Union PLC ............................... 947,492 1.5
----------- ----
MACHINERY & EQUIPMENT 51,620 GKN PLC ............................................ 653,712 1.0
----------- ----
OIL CO. - INTEGRATED 112,274 British Petroleum Co. PLC .......................... 1,634,450 2.6
----------- ----
PHARMACEUTICALS 122,559 Smithkline Beecham PLC ............................. 1,491,754 2.3
----------- ----
PRINTING & PUBLISHING 59,133 United News & Media PLC ............................ 826,800 1.3
----------- ----
TELECOMMUNICATIONS 41,993 British Telecommunications PLC ..................... 516,732
111,428 Vodafone Group PLC ................................. 1,414,836
----------- ----
1,931,568 3.0
----------- ----
TOBACCO 139,627 Gallaher Group PLC ................................. 771,706 1.2
----------- ----
TRANSPORTATION 46,605 British Airways PLC ................................ 501,944 0.8
----------- ----
TOTAL UNITED KINGDOM ............................... 15,211,798 23.8
(COST - $12,082,674) ----------- ----
TOTAL EQUITIES ..................................... 63,725,885 99.8
(COST - $55,248,457) ----------- ----
</TABLE>
12
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1998 (UNAUDITED) (CONTINUED)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
VALUE PERCENT OF
SECURITY (NOTE 2) NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS ................................. $63,725,885 99.8%
(COST - $55,248,457)(a) ----------- -----
OTHER ASSETS IN EXCESS OF LIABILITIES ............. 138,978 0.2
----------- -----
TOTAL NET ASSETS .................................. $63,864,863 100%
=========== =====
<FN>
- -----------
(a) Represent costs for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation ............................................................ $12,097,633
Unrealized depreciation ............................................................ $ 3,620,205
-----------
Net unrealized appreciation ........................................................ $ 8,477,428
-----------
(b) Non-income producing securities.
PLC - Public Limited Company
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 30, 1998 (UNAUDITED)
INTERNATIONAL EQUITY FUND
ASSETS:
Investments in securities, at value (cost $55,248,457) ........ $63,725,885
Cash .......................................................... 170,011
Receivable from investment securities sold .................... 496,201
Interest and dividends receivable ............................. 75,011
Foreign tax receivable ........................................ 57,066
Unrealized appreciation on forward contracts .................. 161
Deferred organization cost .................................... 8,077
Prepaid expenses .............................................. 2,744
-----------
Total Assets ............................................. 64,535,156
-----------
LIABILITIES:
Payable to brokers for investments purchased .................. 535,342
Unrealized depreciation on forward contracts .................. 149
Accrued expenses and other payables:
Investment advisory fees .................................... 26,189
Administration fees ......................................... 5,238
Custodian fees .............................................. 51,927
Legal and audit fees ........................................ 5,293
Accounting and transfer agent fees .......................... 22,626
Deferred trustees payable ................................... 5,650
Other liabilities ........................................... 17,879
-----------
Total Liabilities ........................................ 670,293
-----------
Net Assets ....................................................... $63,864,863
===========
COMPUTATION OF NET ASSET VALUE:
Net Assets:
Institutional Class ......................................... $63,562,275
Service Class ............................................... 302,588
-----------
Total .................................................... $63,864,863
-----------
Shares of beneficial interest issued and outstanding:
($0.001 par value per share, unlimited number of
shares authorized)
Institutional Class ......................................... 5,078,277
Service Class ............................................... 24,173
-----------
Total .................................................... 5,102,450
===========
Net Asset Value:
Institutional Class - offering and redemption price
per share ................................................ $ 12.52
===========
Service Class - redemption price per share .................. $ 12.52
Maximum sales charge 5.00%
Maximum offering price (Service Class) (Net asset value of
Service Class / (100% - Maximum Sales Charge) ............ $ 13.18
===========
COMPOSITION OF NET ASSETS:
Paid-in capital ............................................. $50,230,758
Accumulated undistributed (distribution in excess of)
net investment income ..................................... (33,592)
Accumulated undistributed net realized gains (losses)
from investment and foreign currency transactions ........ 5,191,765
Net unrealized appreciation (depreciation) from investments
and translation of assets and liabilities denominated
in foreign currencies .................................... 8,475,932
-----------
Net Assets .................................................... $63,864,863
===========
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
INTERNATIONAL EQUITY FUND
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $120,111) ........ $ 655,571
Interest ...................................................... 39,001
-----------
Total Income ................................................ 694,572
-----------
EXPENSES:
Advisory fees ................................................. 280,894
Administration fees ........................................... 46,816
Co-administration and shareholder servicer assistance fees .... 9,423
Distribution fees (Service Class) ............................. 528
Audit fees .................................................... 8,360
Fund accounting fees .......................................... 5,319
Transfer agent fees ........................................... 46,330
Legal fees .................................................... 37,719
Other expenses ................................................ 20,699
-----------
Gross Expenses ................................................... 456,088
Less: Fee waivers ............................................. (150,399)
-----------
Total Net Expenses ............................................... 305,689
-----------
Net Investment Income ............................................ 388,883
-----------
NET REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from investments and
foreign currency transactions ................................. 6,371,861
Net change in unrealized appreciation (depreciation)
from investments and assets and liabilities denominated
in foreign currencies ......................................... 4,781,145
-----------
Net Realized/Unrealized Gains from Investments
and Foreign Currencies ........................................ 11,153,006
-----------
Change in Net Assets Resulting from Operations ................... $11,541,889
===========
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
From Investment Activities:
OPERATIONS:
Net investment income ........................................... $ 388,883 $ 157,541
Net realized gains (losses) from investments and
foreign currency transactions ................................. 6,371,861 (1,197,928)
Net change in unrealized appreciation (depreciation)
from investments and translation of assets and
liabilities denominated in foreign currencies ................. 4,781,145 (1,687,823)
------------ ------------
Change in net assets resulting from operations .................. 11,541,889 (2,728,210)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Institutional Class
From net investment income .................................... -- (156,823)
In excess of net investment income ............................ -- (52,622)
Service Class
From net investment income .................................... -- (718)
In excess of net investment income ............................ -- (241)
------------ ------------
Change in net assets from shareholder distributions ............. -- (210,404)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued ..................................... 5,317,248 22,751,521
Dividends reinvested ............................................ -- 41,892,562
Cost of shares redeemed ......................................... (20,761,644) (15,447,327)
------------ ------------
Change in net assets from share transactions .................... (15,444,396) 49,196,756
------------ ------------
Change in net assets ............................................ (3,902,507) 46,258,142
NET ASSETS:
Beginning of period ............................................. 67,767,370 21,509,228
------------ ------------
End of period (including distribution in excess of net investment
income of ($33,592) and ($422,475) respectively) .............. $ 63,864,863 $ 67,767,370
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION
HSBC Mutual Funds Trust, (the "Trust") was organized in Massachusetts 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. The accompanying financial statements and notes
relate only to the International Equity Fund ("the Fund"). The Fund offers
two classes of shares: Service Shares and Institutional Shares. The
Institutional Class is available to customers of financial institutions or
corporations on behalf of their customers or employees, or on behalf of any
trust, pension, profit-sharing or other benefit plan for such customers or
employees. The Service Class is available to all other investors. The
Service Class Shares and Institutional Class Shares are identical in all
respects except that Institutional Class Shares are not subject to a sales
load or the imposition of any shareholder servicing fees or Rule 12b-1
fees.
The Fund's investment objective is to seek to provide investors with
long-term capital appreciation by investing at least 80% of its total
assets in equity securities (including American and European Depositary
Receipts) issued by companies based outside of the United States. The
balance of the Fund's assets will be invested in equity and debt securities
of companies based in the United States and outside of the United States
including bonds and money market instruments. The Fund may also use other
investment practices to enhance return or to hedge against fluctuations in
the value of portfolio securities.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its 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 are valued at the last
quoted sale price as of the close of business on the day the valuation is
made, or if a sale is not reported for that day, at the mean between
closing bid and asked prices. Price information for listed securities is
taken from the exchange where the securities are primarily traded.
Investments in futures and related options, which are traded on commodities
exchanges, are valued at their last sale price as of the close of such
exchanges. Other securities for which no quotations are readily available
are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees. Short-term investments having
maturities of 60 days or less are valued at amortized cost, which
approximates market value.
All assets and liabilities initially expressed in foreign currencies are
translated into U.S. dollars at the bid price of such currencies against
the U.S. dollar's last quoted price by a major bank or broker. If such
quotations are not available as of the close of the New York Stock
Exchange, the rate of exchange will be determined in accordance with
policies established in good faith by the Board of Trustees.
FOREIGN CURRENCIES: Transactions denominated in foreign currencies are
recorded at the prevailing rate of exchange as incurred or earned. Asset
and liability accounts are adjusted to reflect the current rate at the end
of each period. Such adjustments are recorded in net unrealized
appreciation of other assets and liabilities denominated in foreign
currencies. Net realized foreign currency gains or losses include exchange
rate
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
differences between trade date and settlement date for security purchases
and sales, and between the date the Fund records income, expenses and other
assets and liabilities and the date such assets and liabilities are
received or paid. The portion of both realized and unrealized gains and
losses on investments that result from fluctuations in foreign currency
exchange rates is not separately disclosed. The Fund may enter into forward
foreign currency exchange contracts for investment purposes and to hedge
its exposure to changes in foreign currency exchange rates on its foreign
portfolio holdings and to hedge certain firm purchase and sales commitments
denominated in foreign currencies. A forward foreign currency exchange
contract is a commitment to purchase or sell a foreign currency at a future
date at a negotiated rate. The gain or loss arising from the difference
between the original contracts and the closing of such contracts is
included in realized gains or losses from foreign currency transactions.
Fluctuations in the value of forward foreign currency exchange contracts
are recorded for financial reporting purposes as unrealized gains or losses
by the Fund until settlement date.
The Fund's custodian will place cash or liquid high grade debt securities
into a segregated account of the Fund in an amount equal to the value of
the Fund's total assets committed to the consummation of forward foreign
exchange contracts requiring the Fund to purchase foreign currency of
foreign exchange contracts entered into for non-hedging purposes. If the
value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts.
Risks may arise from the potential inability of a counter party to meet the
terms of a contract and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar. The face or contract amount,
in U.S. dollars reflects the total exposure the Fund has in that particular
currency contract. The fund had the following outstanding forward foreign
currency exchange contracts as of June 30, 1998.
FOREIGN SETTLEMENT VALUE AT CURRENT UNREALIZED
CURRENCY CONTRACTS DATE SETTLEMENT DATE VALUE GAIN/(LOSS)
-------------------- --------- --------------- ------- -----------
PURCHASE CONTRACTS:
British Pound 7/02/98 $535,181 $535,342 $ 161
-------- -------- -----
SALE CONTRACTS:
British Pound 7/02/98 $496,052 $496,201 $(149)
-------- -------- -----
TAXES: It is the Fund's policy to comply with the requirements of the
Internal Revenue Code, as amended, applicable to regulated investment
companies, and to distribute substantially all of its taxable income, and
net realized capital gains, if any, to its shareholders. Therefore, no
provision is required for federal income tax. Under the applicable foreign
tax law, a withholding tax may be imposed on interest, dividends and
capital gains earned on foreign investments at various rates. Where
available, the Fund will file for claims on foreign taxes withheld.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DIVIDENDS AND DISTRIBUTIONS: The Fund intends to distribute substantially
all of its net investment income and net realized capital gains, if any,
annually in the form of dividends.
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. 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.
ORGANIZATIONAL COSTS: Costs incurred in connection with the organization of
the Fund have been deferred and are being amortized on a straight-line
basis over a five year period beginning on the date operations commenced.
3. PORTFOLIO SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
six months ended June 30, 1998 were $60,887,083 and $72,802,246,
respectively.
4. RELATED PARTY TRANSACTIONS
The Trust retains HSBC Asset Management Americas Inc. to act as Investment
Adviser for the Fund. HSBC Asset Management Americas Inc. is the North
American investment 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 portfolio of the Fund, subject to policies
established by the Board of Trustees. As compensation for its services,
HSBC Asset Management Americas Inc. is paid a monthly advisory fee at an
annual rate of 0.90% of the Fund's average daily net assets. For the six
months ended June 30, 1998, HSBC Asset Management Americas Inc. waived
$124,842 in advisory fees.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
The Adviser retains HSBC Asset Management Europe Ltd., HSBC Asset
Management Hong Kong Ltd., HSBC Asset Management (Japan) and HSBC Asset
Management Australia Ltd. to act as sub-advisers (the "Sub-Advisers") to
the Fund. HSBC Asset Management Europe Ltd., HSBC Asset Management Hong
Kong Ltd., HSBC Asset Management (Japan) and HSBC Asset Management
Australia Ltd. are all investment advisory affiliates of HSBC Asset
Management Americas Inc.
Under its Sub-Advisory Contract with HSBC Asset Management Americas Inc.,
each Sub-Advisor will undertake at its own expense to furnish the Fund and
HSBC Asset Management Americas Inc. with micro- and macroeconomics;
research, advice and recommendations; and economic and statistical data
with respect to the Fund's investments, subject to the overall review by
HSBC Asset Management Americas Inc. and the Board of Trustees.
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 of the Trust are affiliated, serves
the Trust as distributor, administrator, fund accountant and transfer
agent. Such officers are not paid any fees directly by the Funds for
serving as officers of the Trust.
In accordance with the terms of the Management and Administration and Fund
Accounting Agreements, BISYS is paid a monthly fee equal to an annual rate
of 0.15% of the Fund's average daily net assets. For the six months ended
June 30, 1998, BISYS waived $15,606 in administrative services fees.
HSBC Asset Management Americas Inc. earned co-administration/shareholder
servicer assistance fees of up to 0.07% of the Fund's average net assets
totaling $9,423 from the Fund for the six months ended June 30, 1998, all
of which was waived.
The Fund has adopted a Distribution Plan and Agreement (the "Plan")
pursuant to Rule 12b-1 of the 1940 Act with respect to Service Shares of
the Fund. The Service Class Plan provides for a monthly payment by the Fund
to BISYS for expenses incurred in connection with distribution services
provided to the Fund not to exceed an annual rate of 0.35% of the Fund's
average net assets. The Fund incurred expenses totaling $528 with regard to
the Plan for the six months ended June 30, 1998, all of which was waived.
As distributor, BISYS is entitled to receive commissions on sales of shares
of the variable net asset value funds. For the six months ended June 30,
1998, BISYS received $30 from commissions earned on sales of shares of the
Fund, $27 of which was reallowed to affiliated broker/dealers of the Fund,
$3 of which was retained by BISYS.
The Fund may enter into agreements (the "Service Agreements") with certain
banks, financial institutions and corporations ("Service Organizations")
whereby each Service Organization handles record-keeping and provides
certain administration services for its customers who invest in the Fund
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 Fund 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. For the six
months ended June 30, 1998, the Fund did not participate in any Service
Agreements.
A partner of the Trust's legal counsel served as Secretary of the Trust.
Baker and McKenzie served as legal counsel until April 2, 1998. Paul,
Weiss, Rifkino, Wharton and Garrison assumed the role of legal counsel as
of April 3, 1998. For the six months ended June 30, 1998 the Fund incurred
legal fees of $37,719.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 FOR THE YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------------------- ---------------------------
AMOUNT SHARES AMOUNT SHARES
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
INSTITUTIONAL CLASS SHARES:
Shares issued $ 5,314,446 444,010 $ 22,732,764 2,100,838
Shares issued in common trust
fund conversion -- -- 41,892,562 3,815,352
Shares redeemed (20,694,526) (1,885,788) (15,334,320) (1,384,639)
------------ ---------- ------------ ----------
Net increase $(15,380,080) (1,441,778) $ 49,291,006 4,531,551
============ ========== ============ ==========
SERVICE CLASS SHARES:
Shares issued $ 2,802 260 $ 18,757 1,663
Shares redeemed (67,118) (5,955) (113,007) (10,373)
------------ ---------- ------------ ----------
Net decrease $ (64,316) (5,695) $ (94,250) (8,710)
============ ========== ============ ==========
</TABLE>
21
<PAGE>
FINANCIAL HIGHLIGHTS
HSBC INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS SHARES
------------------------------------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE FOR THE FOR THE PERIOD
JUNE 30, 1998 YEAR ENDED YEAR ENDED MARCH 1, 1995(c) TO
(UNAUDITED) DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................. $ 10.35 $ 10.61 $ 9.98 $ 8.81
------- ------- ------- ------
Investment Activities
Net investment income ............... 0.06 0.04 (0.01) (0.03)
Net realized and unrealized gains
from investment transactions ...... 2.11 (0.27) 0.64 1.20
------- ------- ------- ------
Total from Investment Activities .... 2.17 (0.23) 0.63 1.17
------- ------- ------- ------
Distributions
From net investment income .......... -- (0.02) -- --
In excess of net investment income .. -- (0.01) -- --
------- ------- ------- ------
Total Distributions .................... -- (0.03) -- --
------- ------- ------- ------
Net Asset Value, End of Period ......... $ 12.52 $ 10.35 $ 10.61 $ 9.98
======= ======= ======= ======
Total Return (excludes sales or
redemption charges) ................. 20.97%(a) (2.15)% 6.31% 13.28%(a)
Ratios/Supplemental Data:
Net Assets at end of period (000) ... $63,562 $67,458 $21,100 $15,253
Ratio of expenses to average
net assets ........................ 0.98%(b) 1.12% 2.04% 2.62%(b)
Ratio of net investment income to
average net assets ................ 1.25%(b) 0.35% (0.10)% (0.34)%(b)
Ratio of expenses to average
net assets* ....................... 1.46%(b) 1.91% 2.89% 3.12%(b)
Ratio of net investment income
to average net assets* ............ 0.77%(b) (0.44)% (0.95)% (0.84)%(b)
Portfolio turnover rate*** .......... 101.02% 112.54% 77.91% 90.31%(a)
</TABLE>
<TABLE>
<CAPTION>
SERVICE CLASS SHARES
---------------------------------------------------------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE FOR THE FOR THE FOR THE PERIOD
JUNE 30, 1998 YEAR ENDED YEAR ENDED YEAR ENDED APRIL 25, 1994(c) TO
(UNAUDITED) DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------- ----------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................ $ 10.35 $ 10.60 $ 9.97 $9.55 $ 10.00
------- ------- -------- ----- -------
Investment Activities
Net investment income .............. 0.06 0.06** (0.02) (0.07) --
Net realized and unrealized gains
from investment transactions ..... 2.11 (0.28) 0.65 0.49 (0.43)
------- ------- -------- ----- -------
Total from Investment Activities ... 2.17 (0.22) 0.63 0.42 (0.43)
------- ------- -------- ----- -------
Distributions
From net investment income ......... -- (0.03) -- -- --
In excess of net investment income . -- -- -- -- (0.02)
------- ------- -------- ----- -------
Total Distributions ................... -- (0.03) -- -- (0.02)
------- ------- -------- ----- -------
Net Asset Value, End of Period ........ $ 12.52 $ 10.35 $ 10.60 $9.97 $ 9.55
======= ======= ======== ===== =======
Total Return (excludes sales or
redemption charges) ................ 20.97%(a) (2.06)% 6.32% 4.40% (4.30)%(a)
Ratios/Supplemental Data:
Net Assets at end of period (000) .. $ 303 $ 309 $ 409 $658 $16,819
Ratio of expenses to average
net assets ....................... 0.98%(b) 1.17% 2.10% 1.98% 2.16%(b)
Ratio of net investment income to
average net assets ............... 1.23%(b) 0.54% (0.19)% (1.01)% (0.04)%(b)
Ratio of expenses to average
net assets* ...................... 1.46%(b) 2.19% 2.94% 3.66% 2.50%(b)
Ratio of net investment income
to average net assets* ........... 0.75%(b) (0.48)% (1.03)% (2.69)% (0.39)%(b)
Portfolio turnover rate*** ......... 101.02% 112.54% 77.91% 90.31% 29.37%(a)
<FN>
- -------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductins and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Based on average shares outstanding.
*** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) Not annualized.
(b) Annualized.
(c) Commencement of operations.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22-23
<PAGE>
HSBC(SERVICE MARK) MUTUAL FUNDS TRUST
3435 Stelzer Road
Columbus, Ohio 43219
INFORMATION:
(800) 634-2536
INVESTMENT ADVISER
HSBC Asset Management Americas Inc.
140 Broadway (6th Floor)
New York, New York 10005-1180
DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
LEGAL COUNSEL
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of Americas
New York, New York 10019
This report is for the information of the shareholders of HSBC Mutual Funds
Trust. Its use in connection with any offering of the Trust's shares is
authorized only in the case of a concurrent or prior delivery of the Trust's
current prospectus. Shares of the Fund are not an obligation of or guaranteed or
endorsed by HSBC Holdings plc or its affiliates. In addition, such shares are
not insured by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency and may involve investment risks, including the
possible loss of principal.
8/98
