<PAGE>
HSBC Mutual Funds Trust
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HSBC Asset Management Americas Inc.
- --------------------------------------------------------------------------------
Growth and Income Fund
------------------------------------------------------------------
January 29, 1999
Dear Shareholder:
For the fourth consecutive year U.S. stocks as measured by the S&P 500 Index/1/
generated an annual gain in excess of 20% in 1998, despite the "too-brief-to-
qualify-as-a-true-bear-market" 20% peak-to-trough correction during six weeks
in mid-summer. For the year, the market rose 28.6% on a U.S. dollar, total
return basis. Several very serious threats to both the domestic economy and
stock market arose during the year including: 1) global economic uncertainty
exacerbated by Russia's mid-year default, 2) political scandal which ultimately
led to President Clinton's impeachment, 3) a decline in U.S. corporate earnings
growth to a low single-digit rate, 4) a dramatic and arguably unhealthy drop in
oil prices and 5) the near collapse of one of the best known U.S. hedge funds.
However, the heady brew of a budget surplus, non-existent inflation, a strong
domestic economy, falling rates and a weaker dollar in the second half of the
year allowed the U.S. market to fight off these threats and move ahead to
record highs.
The pace of U.S. economic growth remained remarkably brisk in 1998, with gross
domestic product (GDP) rising 5.5% in the first quarter, 1.8% in the second,
3.7% in the third and 5.6% in the final quarter of the year. This eight years
old expansion is already the longest in peacetime history. Consumer spending,
which accounts for two-thirds of U.S. economic activity helped to offset the
drag of Asia's economic crises on heavy industry during the year as personal
consumption expenditures rose at over 6% in the first half of the year and only
slowed slightly later in the year. The U.S. consumer benefited from extremely
low unemployment (close to a 28-year low at this writing), gains in real wages
and salaries, low interest and mortgage rates which led to torrid refinancing
activity, and the drop in oil prices. Taken together these factors drove
Consumer Confidence to record highs and translated into strong retail sales.
However, global pricing pressures kept inflation in check, with the Consumer
Price Index rising a mere 1.6% rise for 1998, below 1997 and at the lowest
level since 1986.
Corporate (S&P 500) earnings were under pressure during the year, notably in
the commodity-based sectors where pricing was particularly weak, as well as in
the manufacturing sector, hit by the slowdown in exports and capital spending.
Results from the financial services and banks were dampened by losses related
to emerging markets--notably the Russian debt default, hedge funds, a fall off
in the syndicate [deal] calendar and a fairly flat yield curve for most of the
year. The General Motors strike also negatively impacted results. However, in
aggregate S&P 500 component companies managed to eke out small gains in 1998,
buoyed by strong results at retailers and pharmaceutical companies. While
earnings growth slowed, interest rates fell, supporting equity market
valuations. The Treasury curve shifted downward with yields falling across all
maturities but most significantly in the intermediate sector.
Supply/demand was generally positive with demand running at a record pace in
the first half but slower in the third quarter during and after the market's
correction. It is estimated that $165 billion flowed into all stock funds in
1998, down from a record $231 billion in 1997, yet a strong absolute number.
International stock funds took in a mere $10 billion in 1998 versus $38 billion
in all of 1997, which did impact the total equity fund flows. Preliminary
indications for the final two months of the year pointed to a rebound in flows,
although remaining below year-ago
- ------
/1/ The Standard & Poor's 500 Index is a widely accepted unmanaged index of
overall stock market performance.
<PAGE>
levels. Supply also weakened later in the year, allowing the modest inflows to
move into existing securities rather then to be siphoned off by the new issue
market. Finally, merger and acquisition activity remained robust with the
biggest single day in merger history recorded on November 23, 1998, with ten
transactions larger than $1 billion announced. For the year it is estimated
that U.S. merger and acquisition volume was up 78% in dollar terms.
Technology stocks reigned in 1998, up over 70% for the year, driven by the
internet and related stocks as well as the recovery in semiconductor prices.
Communication stocks came in a distant second, albeit returning nearly 50%,
and the Healthcare stocks returned nearly 40% for the year. The commodity
based sectors performed poorly as energy and commodity prices continued to
decline, and both earnings and share prices were under pressure.
Transportation stocks also were negatively impacted despite the benefit of
lower fuel costs, with rails hurt by ongoing merger integration pains, and
airlines by labor actions and capacity concerns. One outstanding feature of
the market in 1998 was the narrowness of leadership, and the domination of
large capitalization growth issues, with only 2% of the S&P 500 accounting for
43% of the Index's gain. More evidence of this trend was the average decline
posted by the Wilshire 5000/2/ stock if the top 250 largest cap issues are
removed from this Index. This dichotomy between the performance of the average
stock versus the gains posted by the large cap "darlings" (Lucent, Cisco,
Walmart, GE, Microsoft, Worldcom, IBM, Dell and Pfizer specifically) factored
significantly in the lagging results of active managers with only 10%
outpacing the S&P 500 in 1998.
Outlook
It appears increasingly unlikely that the U.S. economy will fall into
recession in 1999 as economic growth remains healthy driven by the strong
consumer. Low and fairly stable interest rates, meager inflation including
very low oil prices, low unemployment, rising salaries and wages and high
levels of Consumer Confidence lend credence to this view. Clearly the Federal
Reserve has signaled via an accommodative stance, that it will work to keep
domestic momentum going, in essence inoculating the U.S. economy from any
global ills. Given the current extremely low inflation rate, the Fed has room
to reduce rates further if signs of slowing arise. We are anticipating above
trendline GDP growth for 1999--in the 2.5% with the caveat that if we are
wrong, economic growth will probably be stronger, rather than weaker, than our
forecast.
With this type of positive economic backdrop, plus no budget deficit and no
inflation, we believe the environment remains quite equity friendly for the
year ahead. On the earnings front, we expect modest profit growth in 1999,
helped in part by the lack of the "drags" that occurred in 1998, such as the
GM strike, large charge-offs by financial service companies, a stronger dollar
(year-over-year), technology price weakness, notably in the semiconductor
industry, and dramatic drop in the price of oil. In addition, productivity
enhancements in the wake the Y2K-related technology spending should allow
profit margins to continue to improve. Finally, while we cannot assume any
significant improvement in demand from the emerging markets or Japan, we feel
that a unified Europe should help the U.S.-based multinationals, providing a
more stable single currency, a low inflation/low interest rate environment
overseen by a vigilant European Central Bank.
The supply/demand scenario for equities also remains positive, in part helped
by demographic trends. Americans, notably that rapidly growing segment of the
population now entering middle age, have taken an increasingly large part in
planning for their retirement and their childrens' education. In part this is
due to the recognition of the paucity of Social Security benefits as well as
the general trend by employers and the government to let the individual take a
greater interest in these benefits via defined contribution rather than
defined benefit plans.
- --------
/2/ The Wilshire 5000 Equity Index is a widely accepted unmanaged index which
measures the performance of all U.S. headquartered equity readily available
price data.
2
<PAGE>
Valuation is the most challenging aspect of the U.S. market forecast as stocks
are currently selling at high absolute levels on a price/earnings, price/book
and price/cash flow basis and low absolute levels of dividend yield and payout
ratios. However, when one considers the returns on equity and capital achieved
by U.S. companies versus their international brethren as well as the low
levels of domestic interest rates and inflation, these valuations appear more
rational. Further, we would suggest that the dividend yield and payout ratio
are no longer appropriate valuation measurements as the market, most notably
the S&P 500 Index, favors growth companies as evidenced by the dramatic
increase in the sector weighting of Technology over the past several years.
In summary, we believe an equity friendly economic backdrop in combination
with modest earnings growth with little multiple expansion should be enough to
drive the U.S. equity market to new highs in the year ahead.
HSBC Growth and Income Fund
During 1998, the HSBC Growth and Income Fund gained 26.97% on a net-of-
expenses basis. This compared to a S&P 500 return of 28.58% but a Lipper
Growth and Income Index gain of only 13.58% as active managers continued to
lag the composite.
For most of 1998, the fund was positioned towards large capitalization,
domestic growth--notably through overweighted positions in Technology and
Consumer Cyclicals--and away from the commodity oriented sectors such as
Energy and Basic Materials where global pricing pressures continued to depress
earnings. This positioning reflected our economic forecast of a strong
consumer driving domestic growth, while weak global demand impacted
manufacturing and deep (commodity) cyclicals. During the final calendar
quarter of the year we reduced our Utilities overweighting to a neutral
position, and added a bit to Healthcare and to regional banks with the
proceeds.
In aggregate sector weighting decisions made a positive contribution to
relative results, with the largest benefits derived by the significant
underweights in both Basic Materials and Energy, as the sectors performed
poorly during the year versus the 28%+ gain for the market. Overweights in the
strong Consumer Cyclicals, Technology and Communications Services sectors also
augmented results. Conversely, an overweight in the poor performing Utility
stocks through the first three quarters of the year hurt returns. In terms of
stock selection, Consumer Staples, Technology and Capital Goods posted the
best relative performance, with Energy, Utilities and Healthcare weak.
Given our belief that we will likely see more of the same in 1999--a strong
consumer driving the domestic economy as well as decent levels capital
spending on technology especially in the first half of the year--we have
maintained a tilt towards growth in equity portfolios. In particular, we
prefer those companies and industries which provide high value-added or
proprietary products (Technology and Healthcare) and those service companies
catering to the strong consumer such as retailers within the Consumer
Cyclicals sector. Given ongoing concerns as to global demand and the export
picture, we are remaining underweighted in the commodity cyclicals and Capital
Goods stocks.
Sincerely,
/s/ Fred Lutcher
Fred Lutcher
Managing Director, U.S. Equities
- --------
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
GROWTH AND INCOME FUND VS. S&P 500 INDEX
Graph Appears Here
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------
<S> <C> <C> <C>
1 Year 5 Year 10 Year
- --------------------------------------------------------------------
Offering Price(1) 20.64% 18.54% 16.07%
NAV(2) 26.97% 19.76% 16.67%
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WITHOUT MAXIMUM WITH MAXIMUM LIPPER GROWTH &
SALES CHARGE SALES CHARGE S&P 500 INCOME FUND INDEX
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
DEC 1988 10000 9500 10000 10000
- --------------------------------------------------------------------------------
DEC 1989 12555.82 11928.03 13149 12374
- --------------------------------------------------------------------------------
DEC 1990 12001.88 11401.79 12732 11632
- --------------------------------------------------------------------------------
DEC 1991 15833.26 15041.6 16621 14860
- --------------------------------------------------------------------------------
DEC 1992 17058.9 16205.95 17896 16292
- --------------------------------------------------------------------------------
DEC 1993 18973.79 18025.1 19684 18675
- --------------------------------------------------------------------------------
DEC 1994 18410.59 17490.06 19941 18597
- --------------------------------------------------------------------------------
DEC 1995 24506.91 23281.57 27405 24395
- --------------------------------------------------------------------------------
DEC 1996 28894.7 27449.96 33729 29438
- --------------------------------------------------------------------------------
DEC 1997 36817.51 34976.63 44982 37350
- --------------------------------------------------------------------------------
DEC 1998 46745.09 44407.83 57838 42423
- --------------------------------------------------------------------------------
</TABLE>
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 and Income
Fund on January 1, 1989 to a $10,000 investment in the Standard & Poor's 500
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 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 Fund Index is an index based on the thirty
largest growth and income mutual funds (equally weighted) tracked by Lipper
Analytical Services Incorporated.
4
<PAGE>
HSBC Fixed Income Fund
- --------------------------------------------------------------------------------
It has been a fascinating year in the fixed income markets. Global events such
as the crisis in Asia and default in Russia had a significant impact on the
U.S. bond market. The fundamental implications of global deflationary forces
continued to drive interest rates lower. It was however the actions of highly
leveraged hedge funds such as Long Term Capital Markets that really put fear
into the hearts of investors. Their large esoteric bets went horribly wrong in
the wake of the Russian default. This threatened the stability of the world
financial system with the risk of a domino effect of counter-party defaults.
The result of this scare was a new found appreciation for liquidity and credit
quality.
The total returns for the major sectors of the investment grade bond market
were positively correlated with their credit quality. On a duration adjusted
basis Treasuries were the best performing sector followed by Agencies,
Mortgages and Corporates respectively. This was the worst relative performance
for each of the spread sectors in several years. The theme of reaching for
yield had been successful for most of the 1990's but last year marked a
significant departure and clearly punished any sacrifices in credit quality.
The fund returned 8.33% for the year on a net basis compared to 8.69% for the
Lehman Aggregate Bond Index/1/, a proxy for the investment grade market. In
general our positive fundamental outlook had us correctly positioned with in
terms of duration for most of the year and this added value. Our sector
positioning, though, hurt our relative performance due to an overweight in
Corporate securities, the worst performing sector. Fortunately our focus on
better credits led to better performance than many of our peers. According to
Lipper Analytical Services the fund was ranked in the top third of its category
returning 83 basis points more than the peer group average for the year.
Sincerely,
/s/ James Lark
James Lark
Director, Fixed Income
- -------
/1/ The Lehman Aggregate Bond Index is composed of the Lehman
Government/Corporate Index and the Mortgage-Backed Securities Index and
includes treasury issues, agency issues, corporate bond issues and mortgage
backed securities.
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.
5
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
FIXED INCOME FUND VS. LEHMAN AGGREGATE BOND INDEX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------
<S> <C> <C> <C>
Inception
1 Year 5 Year (1/15/93)
- --------------------------------------------------------------------
Offering Price(1) 3.23% 5.55% 6.10%
NAV(2) 8.33% 6.59% 6.97%
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
WITHOUT MAXIMUM WITH MAXIMUM LEHMAN AGGREGATE
SALES CHARGE SALES CHARGE BOND INDEX
<S> <C> <C> <C>
- ----------------------------------------------------------------------
JAN 1993 10000 9525 10000
- ----------------------------------------------------------------------
DEC 1993 10859.26 10324.12 10870
- ----------------------------------------------------------------------
DEC 1994 10653.11 10145.78 10554
- ----------------------------------------------------------------------
DEC 1995 12435.3 11842.97 12504
- ----------------------------------------------------------------------
DEC 1996 12698.17 12093.29 12956
- ----------------------------------------------------------------------
DEC 1997 13792.85 13135.86 14206
- ----------------------------------------------------------------------
DEC 1998 14942.13 14230.23 15443
- ----------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance. The investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
(1) Includes the maximum sales charge of 4.75%
(2) Excludes the maximum sales charge of 4.75%
The above illustration compares a $10,000 investment in the Fixed Income Fund
on January 15, 1993 (date of inception), to a $10,000 investment in the Lehman
Aggregate Bond Index on that date. All dividends and capital gain
distributions are reinvested.
The Fund's performance takes into account all applicable fees and expenses and
would have been lower had certain expenses not been reduced. The Lehman
Aggregate Bond Index is a widely accepted unmanaged index of overall
government corporate/mortgage bond market performance and does not take into
account charges, fees and other expenses.
6
<PAGE>
HSBC New York Tax-Free Bond Fund
- --------------------------------------------------------------------------------
During 1998 municipals underperformed taxables on a pretax total return basis.
The one year total return on the Lehman Municipal Bond Index was 6.48%. By
comparison the Lehman Aggregate Index posted a one year return of 8.69%. This
reflected the fact that yields across the municipal yield curve declined by
approximately 40 basis points on 2 year bonds, 20 basis points on ten year
bonds, and 1 basis point on thirty year bonds. Comparatively, yields along the
treasury curve declined by 111 basis points on two year bonds, 109 basis points
on ten year bonds and 82 basis points on thirty year bonds.
The Fund's total return for the year was 5.99%. The fund outperformed the
average of Lipper's New York Municipal Debt Funds which stood at 5.64%. The 35
basis points of outperformance represented the result of being long duration
during key rallying points in the market as well as relative value trading over
the course of the year. As of December 31, 1998 the Fund's duration which takes
into account interim principal and income payments as well as maturity levels
was 7.05 years which represented a 15% longer duration positioning than the
Lehman NYS (New York State) Exempt Index/1/ and an overall constructive view of
the fixed income markets. The average maturity of the fund was 10.44 years. In
terms of sector diversification the largest sectors consisted of general
obligations (28.0%), higher education (16.7%), and medical revenue (15.8%).
New York outperformed the rest of the municipal market by 40 basis points as
reflected by the total return of the Lehman NYS Exempt Index. This came about
as lower rated credits (which New York is more heavily weighted in relative to
the municipal universe) within the investment grade spectrum continued to
outperform higher rated credits. For the year the Lehman NYS Exempt Index
returned 6.88%. Given the strong performance of New York State and its local
credits, we believe that the recent financial improvement is at its peak. We
believe that the drastic compression in credit spreads despite the continuing
underlying structural weakness in many state and local government fiscal
profiles provides us the opportunity to upgrade the overall quality of the
portfolio with a minimal give up in yield.
The municipal market's relative underperformance is due in part to muted retail
participation as a result of sticker shock in response to lower yields in
addition to reduced cash inflows into bond funds. Also, 1998 marked the second
largest year of new issue supply. In addition, the natural lag which municipals
tend to encounter when treasury prices decline caused municipal/treasury yield
ratios to improve. Going forward we look for munis to keep pace with
treasuries. We have taken on a long duration position of 115% of benchmark as a
reflection of a constructive bias in our fixed income outlook for the first
quarter of 1999. In the event of a grind towards lower rates we expect
municipals to track treasuries in the intermediate portion of the curve and lag
slightly on the longer end of the curve. Therefore we will be overweighing the
intermediate (5-10 year bonds) portion of the curve going forward in
anticipation of a steeper municipal yield curve. We continue to favor higher
rated credits within the investment grade spectrum. The municipal credit curve
continued to flatten even as other fixed income products widened dramatically
over the course of the year. With the spread between Baa and insured paper as
tight as 15-20 basis points we do not feel that credit risk is adequately
compensated and as such we will favor an overweight in natural AAA and insured
AAA bonds with an underweight in A and lower rated credits.
Once again the credit outlook continued to improve throughout the state. This
was a strong reason why the New York market outperformed the national market as
a whole for the year as measured by the returns of the Lehman
- -------
/1/ The Lehman New York State Exempt Index is a broad based, total return index
which is comprised of 8,000 actual bonds issued in the State of New York.
7
<PAGE>
NYS Exempt Index versus the Lehman Municipal Bond Index (6.88% versus 6.48%).
Surpluses in the state's general fund led to an upgrade in the credit rating
of the state by the credit agencies of both New York State general obligation
debt as well as appropriation debt. Once again New York City debt turned in
strong performance as its economic condition continued to improve while the
city recorded back to back years of surpluses. Going forward the credit issue
within the state will be whether the surplus will be spent in a prudent and
fiscally conservative manner or whether the coming gubernatorial elections
bring increased spending. In terms of New York City the issue will be one of
sustainability and the relative lack of diversification of revenues as the
financial services industry continues to be the source of approximately 25% of
the City's earnings.
Sincerely,
/s/ Jerry Samet
Jerry Samet
Municipal Portfolio Manager
- --------
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.
8
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
NEW YORK TAX-FREE BOND FUND VS. LEHMAN MUNICIPAL BOND INDEX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------
<S> <C> <C> <C>
Inception
1 Year 5 Year (3/21/89)
- --------------------------------------------------------------------
Offering Price(1) 0.98% 3.90% 7.11%
NAV(2) 5.99% 4.91% 7.65%
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
WITHOUT MAXIMUM WITH MAXIMUM LEHMAN MUNICIPAL
SALES CHARGE SALES CHARGE BOND INDEX
<S> <C> <C> <C>
- ----------------------------------------------------------------------
MAR 1989 10000 9525 10000
- ----------------------------------------------------------------------
DEC 1989 10713.26 10202.96 11005
- ----------------------------------------------------------------------
DEC 1990 11370.08 10828.4 11807
- ----------------------------------------------------------------------
DEC 1991 12801.91 12191.95 13242
- ----------------------------------------------------------------------
DEC 1992 14164.81 13490 14409
- ----------------------------------------------------------------------
DEC 1993 16185.31 15414.63 14178
- ----------------------------------------------------------------------
DEC 1994 14868.34 14160.46 15340
- ----------------------------------------------------------------------
DEC 1995 17123.39 16308.2 18018
- ----------------------------------------------------------------------
DEC 1996 17807.07 16959.32 18817
- ----------------------------------------------------------------------
DEC 1997 19403.5 18479.82 20551
- ----------------------------------------------------------------------
DEC 1998 20566.37 19587.44 21881
- ----------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance. The investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
(1) Includes the maximum sales charge of 4.75%
(2) Excludes the maximum sales charge of 4.75%
The above illustration compares a $10,000 investment in the New York Tax-Free
Bond Fund on March 21, 1989 (date of inception), to a $10,000 investment in
the Lehman Municipal Bond Index on that date. All dividends and capital gain
distributions are reinvested.
The Fund's performance takes into account all applicable fees and expenses and
would have been lower had certain expenses not been reduced. The Lehman
Municipal Bond Index is a widely accepted unmanaged index of overall municipal
bond market performance and does not take into account charges, fees and other
expenses.
9
<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
- --------------------------------------------------------------------------------
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
10
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Security Market
Shares Description Value
--------- ----------- ------------
<C> <S> <C>
COMMON STOCKS (99.1%):
Airlines (0.7%):
35,500 Southwest Airlines Co................................. $ 796,531
------------
Automotive (1.5%):
18,300 Ford Motor Co......................................... 1,073,981
12,800 Lear Corp. (b)........................................ 492,800
------------
1,566,781
------------
Banking (9.6%):
39,600 Bank Of New York Co., Inc............................. 1,593,900
21,830 Bank One Corp......................................... 1,114,694
38,061 BankAmerica Corp...................................... 2,288,416
14,000 Chase Manhattan Corp.................................. 952,875
31,000 First Union Corp...................................... 1,885,188
24,500 U.S. Bancorp.......................................... 869,750
35,300 Wells Fargo Co........................................ 1,409,794
------------
10,114,617
------------
Beverages (2.5%):
23,100 Coca-Cola Co.......................................... 1,544,812
26,500 PepsiCo, Inc.......................................... 1,084,844
------------
2,629,656
------------
Brewery (0.4%):
5,900 Anheuser-Busch Co., Inc............................... 387,188
------------
Chemicals (1.5%):
22,300 Air Products & Chemicals, Inc......................... 892,000
14,000 E.I. du Pont de Nemours & Co.......................... 742,875
------------
1,634,875
------------
Computer Software (5.6%):
23,500 BMC Software, Inc.(b)................................. 1,047,219
27,370 Cadence Design Systems, Inc........................... 814,258
29,300 Microsoft Corp.(b).................................... 4,063,543
------------
5,925,020
------------
Computers & Peripherals (12.0%):
28,275 Cisco Systems, Inc.(b)................................ 2,624,272
23,000 Compaq Computer Corp.................................. 964,563
18,200 Dell Computer Corp.(b)................................ 1,332,013
</TABLE>
11
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998 (continued)
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Security Market
Shares Description Value
--------- ----------- ------------
<C> <S> <C>
COMMON STOCKS (continued)
Computers & Peripherals (continued)
22,372 EMC Corp.............................................. $ 1,901,619
19,900 Intel Corp............................................ 2,359,393
4,610 International Business Machines Corp.................. 851,698
20,900 Sun Microsystems, Inc.(b)............................. 1,789,563
24,100 Unisys Corp........................................... 829,944
------------
12,653,065
------------
Consumer Goods & Services (5.1%):
5,600 Clorox Co............................................. 654,150
27,500 Maytag Corp........................................... 1,711,875
26,700 Philip Morris Cos., Inc............................... 1,428,450
17,500 Procter & Gamble Co................................... 1,597,969
------------
5,392,444
------------
Diversified (5.0%):
37,500 General Electric Co................................... 3,827,344
19,700 Tyco International.................................... 1,486,119
------------
5,313,463
------------
Electric Utility (2.3%):
17,300 Duke Energy Corp...................................... 1,108,281
10,200 FPL Group, Inc........................................ 628,575
16,400 Public Service Enterprise Group, Inc.................. 656,000
------------
2,392,856
------------
Environmental Services (0.6%):
14,400 Waste Management, Inc................................. 671,400
------------
Financial Services (5.8%):
4,400 American Express Co................................... 449,900
45,000 Citigroup Inc......................................... 2,227,500
26,900 Fannie Mae............................................ 1,990,600
19,800 MBNA Corp............................................. 493,763
4,900 Morgan Stanley Dean Witter & Co....................... 347,900
16,300 Washington Mutual, Inc................................ 622,456
------------
6,132,119
------------
</TABLE>
12
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998 (continued)
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Security Market
Shares Description Value
--------- ----------- ------------
<C> <S> <C>
COMMON STOCKS (continued)
Food Products & Services (2.5%):
19,900 H.J. Heinz Co......................................... $ 1,126,838
25,600 Safeway, Inc.(b)...................................... 1,560,000
------------
2,686,838
------------
Health Care (2.1%):
26,700 Johnson & Johnson..................................... 2,239,463
------------
Insurance (1.5%):
8,720 Allstate Corp......................................... 336,810
13,500 American International Group, Inc..................... 1,304,438
------------
1,641,248
------------
Internet Software (0.3%):
2,300 America Online, Inc. (b).............................. 368,000
------------
Machinery & Equipment (0.8%):
19,100 Ingersoll-Rand Co..................................... 896,506
------------
Medical-Hospital Management & Services (1.0%):
41,300 Tenet Healthcare Corp.(b)............................. 1,084,125
------------
Office Equipment & Services (1.0%):
9,400 Xerox Corp............................................ 1,109,200
------------
Oil & Gas Exploration, Production, and Services (5.8%):
17,500 Chevron Corp.......................................... 1,451,406
19,800 Enron Corp............................................ 1,129,838
30,000 Exxon Corp............................................ 2,193,750
9,000 Schlumberger Ltd...................................... 415,125
18,600 Texaco, Inc........................................... 983,475
------------
6,173,594
------------
Paper Products (0.8%):
18,900 International Paper Co................................ 846,956
------------
Pharmaceuticals (9.0%):
29,700 American Home Products Corp........................... 1,672,481
11,400 Bristol-Myers Squibb Co............................... 1,525,463
13,000 Merck & Co., Inc...................................... 1,919,937
14,000 Pfizer, Inc........................................... 1,756,125
</TABLE>
13
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998 (continued)
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Security Market
Shares Description Value
--------- ----------- ------------
<C> <S> <C>
COMMON STOCKS (continued)
Pharmaceuticals (continued)
22,600 Schering-Plough Corp.................................. $ 1,248,650
19,000 Warner-Lambert Co..................................... 1,428,563
------------
9,551,219
------------
Printing & Publishing (1.2%):
20,000 Time Warner, Inc...................................... 1,241,250
------------
Radio (0.7%):
14,200 Clear Channel Communications Inc.(b).................. 773,900
------------
Retail Stores (8.8%):
24,300 Gap, Inc.............................................. 1,366,875
42,300 Home Depot, Inc....................................... 2,588,231
25,900 Rite Aid Corp......................................... 1,283,669
24,800 Tandy Corp............................................ 1,021,450
23,432 TJX Cos., Inc......................................... 679,528
29,150 Wal-Mart Stores, Inc.................................. 2,373,903
------------
9,313,656
------------
Telecommunications (9.4%):
14,100 Ameritech Corp........................................ 893,588
24,100 AT&T Corp............................................. 1,813,525
8,600 Bell Atlantic Corp.................................... 455,800
22,400 Bellsouth Corp........................................ 1,117,200
7,900 Lucent Technologies, Inc.............................. 869,000
45,009 MCI Worldcom Inc.(b).................................. 3,229,395
30,400 SBC Communications, Inc............................... 1,630,200
------------
10,008,708
------------
Utilities (1.6)%:
16,800 GTE Corp.............................................. 1,092,000
14,000 MediaOne Group, Inc.(b)............................... 658,000
------------
1,750,000
------------
Total Common Stocks (Cost - $76,790,903).............. 105,294,678
------------
</TABLE>
14
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998 (continued)
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Security Market
Shares Description Value
--------- ----------- ------------
<C> <S> <C>
OPEN END INVESTMENT COMPANIES (1.1%):
1,147,000 Provident Institutional Temporary Investment Fund... $ 1,147,000
------------
Total Open End Investment Companies (Cost-
$1,147,000)........................................ 1,147,000
------------
TOTAL INVESTMENTS (Cost $77,937,903)(a) (100.2%).... 106,441,678
LIABILITIES IN EXCESS OF OTHER ASSETS (0.2)%........ (174,738)
------------
TOTAL NET ASSETS (100.0%)........................... $106,266,940
============
SCHEDULE OF OPTIONS WRITTEN
<CAPTION>
Shares Value
--------- ------------
<C> <S> <C>
Pfizer, Inc., $120, 1/16/99 (Premium received
70,000 $23,415)........................................... $ 48,125
------------
TOTAL OPTIONS WRITTEN OUTSTANDING AT END OF YEAR.... $ 48,125
============
</TABLE>
- --------
Percentages indicated are based on net assets of $106,266,940.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax purposes of
$4,941. Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $30,150,898
Unrealized depreciation........................................ (1,652,064)
-----------
Net unrealized appreciation.................................... $28,498,834
===========
</TABLE>
(b) Represents non-income producing security.
See Notes to Financial Statements.
15
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998
FIXED INCOME FUND
<TABLE>
<CAPTION>
Maturity Principal Market
Rate Date Amount Value
---- -------- ---------- -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS (54.4%):
Aerospace & Defense (4.8%):
Lockheed Martin Corp. (Guaranteed by
Lockheed Martin Tactical Systems,
Inc.).................................. 6.85% 5/15/01 $2,500,000 $ 2,580,038
-----------
Banking (13.8%):
Provident Bank.......................... 6.13 12/15/00 2,500,000 2,524,637
BankAmerica Corp........................ 7.88 12/1/02 2,500,000 2,708,567
ABN Amro Bank N.V. ..................... 7.13 6/18/07 2,000,000 2,150,538
-----------
7,383,742
-----------
Electric Utility (13.5%):
Columbus Southern Power Company
(American
Electric Power)........................ 7.25 10/1/02 2,500,000 2,629,099
Israel Electric Corp., Ltd. ............ 7.13 7/15/05 2,500,000 2,561,973
Commonwealth Edison..................... 6.95 7/15/18 2,000,000 2,080,766
-----------
7,271,838
-----------
Entertainment (1.0%):
Walt Disney Co., Series A............... 6.38 3/30/01 500,000 515,061
-----------
Financial Services (9.7%):
American Express Credit Corp............ 6.13 6/15/00 2,000,000 2,020,736
Chase Manhattan Grantor Trust, Series
1996-A,
Class A, ABS........................... 5.20 2/15/02 543,386 543,658
Associates Corp. NA..................... 5.75 11/1/03 1,500,000 1,510,715
Travelers Property Casualty Corp........ 7.75 4/15/26 1,000,000 1,123,097
-----------
5,198,206
-----------
Telecommunications (11.6%):
Lucent Technologies, Inc................ 6.90 7/15/01 2,000,000 2,090,562
New York Telephone...................... 6.13 1/15/10 2,000,000 2,099,940
MCI Communications...................... 6.50 4/15/10 2,000,000 2,075,264
-----------
6,265,766
-----------
Total Corporate Bonds (Cost - $28,242,977)....................... 29,214,651
-----------
CANADIAN GOVERNMENT AGENCY OBLIGATIONS (0.7%):
Export Development Corp., Debenture..... 8.13 8/10/99 380,000 386,128
-----------
Total Canadian Government Agency Obligations (Cost - $409,218)... 386,128
-----------
</TABLE>
16
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998 (continued)
FIXED INCOME FUND
<TABLE>
<CAPTION>
Maturity Principal Market
Rate Date Amount Value
---- -------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS
(24.2%):
Fannie Mae (15.3%):
Fannie Mae, Pool #310001............... 6.00% 9/1/00 $ 948,633 $ 941,221
Fannie Mae, Series 1993-104, Class C,
REMIC................................. 6.50 3/25/21 2,000,000 2,010,678
Fannie Mae, Pool #250414............... 7.00 12/1/25 3,443,132 3,509,843
Fannie Mae, Pool #343195............... 7.50 5/1/26 1,442,178 1,480,487
Fannie Mae, Pool #343812............... 7.50 5/1/26 257,284 264,118
-----------
8,206,347
-----------
Freddie Mac (4.0%):
Freddie Mac, Pool #220019.............. 7.75 1/1/02 63,688 64,634
Freddie Mac, Gold Pool #D62926......... 6.50 8/1/25 2,099,834 2,112,958
-----------
2,177,592
-----------
Government National Mortgage Association
(4.9%):
Government National Mortgage
Association, Pool #356578............. 7.50 6/15/23 2,580,770 2,660,724
-----------
Total U.S. Government Agency Obligations (Cost - $12,452,635).. 13,044,663
-----------
U.S. GOVERNMENT OBLIGATIONS (10.8%):
U.S. Treasury Bonds (6.5%):
U.S. Treasury Bonds.................... 8.75 8/15/20 1,050,000 1,496,579
U.S. Treasury Bonds.................... 6.63 2/15/27 1,700,000 2,010,781
-----------
3,507,360
-----------
U.S. Treasury Notes (4.3%):
U.S. Treasury Notes.................... 5.50 12/31/00 550,000 559,110
U.S. Treasury Notes.................... 7.88 11/15/04 1,500,000 1,737,657
-----------
2,296,767
-----------
Total U.S. Government Obligations (Cost - $5,421,094).......... 5,804,127
-----------
MUNICIPAL OBLIGATIONS (9.0%):
Oakland, California Pension Obligation,
Subseries A
(MBIA Insured)........................ 6.91 12/15/07 2,000,000 2,189,850
Puerto Rico Electric Power Authority... 5.00 7/1/08 2,500,000 2,669,485
-----------
Total Municipal Obligations (Cost - $4,611,850)................ 4,859,335
-----------
</TABLE>
17
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998 (continued)
FIXED INCOME FUND
<TABLE>
<CAPTION>
Market
Shares Value
------- -----------
<S> <C> <C> <C> <C>
OPEN END INVESTMENT COMPANIES (0.4%):
Provident Institutional Temporary
Investment Fund........................... 241,000 $ 241,000
-----------
Total Open End Investment Companies (Cost -
$241,000)....................................... 241,000
-----------
TOTAL INVESTMENTS (Cost - $51,378,774)(a)
(99.5%).......................................... 53,549,904
OTHER ASSETS IN EXCESS OF LIABILITIES (0.5%)...... 283,654
-----------
TOTAL NET ASSETS (100.0%)......................... $53,833,558
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $53,833,558.
(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $2,196,734
Unrealized depreciation........................................ (25,604)
----------
Net unrealized appreciation.................................... $2,171,130
==========
</TABLE>
ABS -- Asset Backed Security
MBIA -- Municipal Bond Insurance Association
See Notes to Financial Statements.
18
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
Maturity Principal Market
Rate Date Amount Value
---- -------- --------- -----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (98.5%):
New York (98.5%)
Albany County Airport Authority, Airport
Revenue, AMT (FSA Insured), Callable
12/15/07 @ 102......................... 5.50% 12/15/19 $ 750,000 $ 779,063
Bethlehem Central School District, GO
(AMBAC Insured)........................ 7.10 11/1/07 200,000 243,750
Metropolitan Transportation Authority,
Transportation Facilities Revenue,
Series A (MBIA Insured), Callable
7/1/07 @ 101.5......................... 5.63 7/1/25 1,200,000 1,266,000
Monroe County, Series B, GO, Callable
6/1/99 @ 101.5......................... 7.00 6/1/04 10,000 10,291
New York City, Municipal Water Finance
Authority, Water & Sewer System
Revenue, Series A, Callable 6/15/06 @
101.................................... 5.50 6/15/24 1,800,000 1,869,750
New York City, Series A, GO, Callable
8/15/01 @ 101.5........................ 7.75 8/15/04 20,000 22,175
New York City, Series A, GO, Callable
8/15/01 @ 101.5........................ 7.75 8/15/07 175,000 193,375
New York City, Series A, GO, Prerefunded
8/15/01 @ 101.5........................ 7.75 8/15/01 580,000 645,975
New York City, Series A, GO, Prerefunded
8/15/01 @ 101.5........................ 7.75 8/15/01 180,000 200,700
New York City, Series B, GO............. 6.10 8/15/05 2,000,000 2,214,999
New York City, Series B, GO, Callable
2/1/02 @ 101.5......................... 7.50 2/1/07 1,000,000 1,111,250
New York City, Series E, GO............. 6.50 2/15/06 2,000,000 2,264,999
New York City, Series F, GO, Callable
11/15/01 @ 101.5....................... 8.40 11/15/05 45,000 50,963
New York City, Series F, GO, Prerefunded
11/15/01 @ 101.5....................... 8.40 11/15/01 105,000 119,831
New York City, Series G, GO............. 6.75 2/1/09 1,000,000 1,183,750
New York City, Sub-Series B-2, GO (LOC-
Morgan Guarantee Trust)*............... 5.00 8/15/19 300,000 300,000
New York City, Transitional Financial
Authority Revenue,
Series A, Callable 8/15/07 @ 101....... 5.00 8/15/27 1,500,000 1,479,375
New York City, Trust For Cultural
Resources, Museum of Modern Art (AMBAC
Insured) Prerefunded 1/1/02 @ 102...... 6.40 1/1/02 350,000 382,375
New York State, Dormitory Authority
Lease Revenue, Court Facilities,
Westchester County..................... 5.00 8/1/08 750,000 797,813
New York State, Dormitory Authority,
Lease Revenue, Municipal Health
Facilities Improvement Programs, Series
1 (FSA Insured) Callable 1/15/09 @
101.................................... 4.75 1/15/29 1,000,000 947,500
New York State, Dormitory Authority,
City University System Revenue, Series
A (FGIC-TCRS Insured).................. 5.75 7/1/18 2,370,000 2,651,437
New York State, Dormitory Authority,
Mental Health Services Facilities
Revenue, Series G (AMBAC Insured),
Callable 8/15/08 @ 101................. 4.50 8/15/18 1,650,000 1,553,063
New York State, Dormitory Authority,
State University Education Facilities
Revenue, Series A
(MBIA-IBC Insured)..................... 5.88 5/15/11 1,500,000 1,702,500
</TABLE>
19
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998 (continued)
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
Maturity Principal Market
Rate Date Amount Value
---- -------- --------- -----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (continued)
New York (continued)
New York State, Environmental Facilities
Corp., Pollution Control Revenue, State
Water, Series A, Callable
6/15/01 @ 102........................... 7.00 6/15/12 $ 150,000 $ 163,688
New York State, Environmental Facilities
Corp., Pollution Control Revenue, State
Water, Series A, Prerefunded
6/15/01 @ 102........................... 7.00 6/15/01 150,000 164,438
New York State, Environmental Facilities
Corp., Pollution Control Revenue, State
Water, Series B, Callable
3/15/99 @ 102........................... 7.50 3/15/11 250,000 256,943
New York State, Environmental Facilities
Corp., Pollution Control Revenue, State
Water, Series C, Callable
3/15/00 @ 102........................... 7.20 3/15/11 200,000 211,750
New York State, Environmental Facilities
Corp., Riverbank
State Park Revenue, Prerefunded 4/01/02
@ 102................................... 7.25 4/1/02 1,000,000 1,123,750
New York State, Environmental Facilities
Corp., Series B, Callable 6/15/08 @
102..................................... 5.05 6/15/13 500,000 516,875
New York State, Housing Finance Agency,
Multifamily Mortgage Housing Revenue,
Series A (FHA Insured) Callable
8/15/02 @ 102........................... 7.00 8/15/22 900,000 976,500
New York State, Medical Care Facilities
Finance Agency, Adult Day Care Facility,
Series A (SONYMA Insured) Callable
11/15/05 @ 102.......................... 6.38 11/15/20 1,945,000 2,137,069
New York State, Medical Care Facilities
Finance Agency, Series A (FSA Insured)
Callable 2/15/99 @ 101.................. 7.70 2/15/18 80,000 81,148
New York State, Urban Development Corp.,
Senior Lien, Corporate Purpose, Callable
7/1/06 @ 102............................ 5.50 7/1/16 2,000,000 2,102,500
Niagara Frontier Transportation
Authority, Greater Buffalo International
Airport Revenue, Series A, AMT (AMBAC
Insured) Callable 4/1/04 @ 102.......... 6.13 4/1/14 2,400,000 2,609,999
Syracuse, GO, Prerefunded 2/15/01 @ 102.. 6.70 2/15/01 300,000 323,625
Triborough Bridge & Tunnel Authority,
General Purpose Revenue, Series A, GO,
Callable 1/1/07 @ 101................... 5.25 1/1/28 500,000 506,875
-----------
Total Municipal Bonds (Cost - $30,944,056)...................... 33,166,094
-----------
</TABLE>
20
<PAGE>
Schedule of Portfolio Investments as of December 31, 1998 (continued)
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
Market
Shares Value
------- -----------
<S> <C> <C> <C> <C>
OPEN-END INVESTMENT COMPANIES (0.3%):
New York (0.3%):
New York Money Fund........................ 100,000 $ 100,000
-----------
Total Open-End Investment Companies (Cost -
$100,000)....................................... 100,000
-----------
TOTAL INVESTMENTS (Cost - $31,044,056)(a)
(98.8%).......................................... 33,266,094
OTHER ASSETS IN EXCESS OF LIABILITIES (1.2%)...... 401,945
-----------
TOTAL NET ASSETS (100.0%)......................... $33,668,039
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $33,668,039.
(a) Represents cost for financial reporting purposes and federal income tax
purposes and differs from value by net unrealized appreciation of
securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........................................ $2,269,748
Unrealized depreciation........................................ (47,710)
----------
Net unrealized appreciation.................................... $2,222,038
==========
</TABLE>
* Variable rate security. Rate represents rate in effect at December 31, 1998.
Date presented represents the next rate change date.
AMBAC - American Municipal Bond Assurance Corp.
AMT - Alternative Minimum Taxable Paper
FHA - Federal Housing Administration
FSA - Financial Security Assurance
GO - General Obligation
IBC - Insured Bond Certificate
LOC - Letter of Credit
MBIA - Municipal Bond Insurance Association
SONYMA - State of New York Mortgage Agency
TCRS - Transferable Custody Receipts
See Notes to Financial Statements.
21
<PAGE>
Statement of Assets and Liabilities
As of December 31, 1998
<TABLE>
<CAPTION>
Growth Fixed New York
and Income Tax-Free
Income Fund Fund Bond Fund
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value
(cost $77,937,903, $51,378,774,
$31,044,056 respectively)............ $106,441,678 $53,549,904 $33,266,094
Cash.................................. 875 140 99
Interest and dividends receivable..... 95,408 642,185 565,319
Receivable for capital shares sold.... 190 -- --
Prepaid expenses...................... 7,207 4,008 2,561
------------ ----------- -----------
Total Assets........................... 106,545,358 54,196,237 33,834,073
------------ ----------- -----------
LIABILITIES:
Dividends payable..................... -- 251,229 128,451
Payable to custodian.................. 68,761 -- --
Payable for capital shares redeemed... 49,241 50,000 --
Option contracts written, at market
value--
Premiums received $23,415, $0, and $0
respectively........................ 48,125 -- --
Accrued expenses and other payables:
Investment advisory fees............. 47,880 25,498 7,222
Administration fees.................. 8,705 4,636 2,889
Distribution fees.................... -- -- 4,671
Fund accounting and transfer agent
fees................................ 3,058 5,823 3,121
Other liabilities.................... 52,648 25,493 19,680
------------ ----------- -----------
Total Liabilities...................... 278,418 362,679 166,034
------------ ----------- -----------
Net Assets............................. $106,266,940 $53,833,558 $33,668,039
============ =========== ===========
COMPUTATION OF NET ASSET VALUE:
Net assets............................ $106,266,940 $53,833,558 $33,668,039
Shares of beneficial interest issued
and outstanding ($0.001 par value per
share, unlimited number of shares
authorized).......................... 7,664,450 5,191,464 2,891,274
------------ ----------- -----------
Net asset value....................... $ 13.86 $ 10.37 $ 11.64
============ =========== ===========
Maximum sales charge.................. 5.00% 4.75% 4.75%
Maximum offering price (Net asset
value/(100% - Maximum sales
charge))............................. $ 14.59 $ 10.89 $ 12.22
============ =========== ===========
COMPOSITION OF NET ASSETS:
Paid-in capital....................... $ 75,862,099 $53,369,683 $31,937,817
Undistributed net investment income... -- 33,514 --
Accumulated net realized gains
(losses) from investment
transactions......................... 1,925,776 (1,740,769) (491,816)
Net unrealized appreciation from
investments.......................... 28,479,065 2,171,130 2,222,038
------------ ----------- -----------
Net Assets............................. $106,266,940 $53,833,558 $33,668,039
============ =========== ===========
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
Statement of Operations
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Growth Fixed New York
and Income Tax-Free
Income Fund Fund Bond Fund
----------- ---------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................. $ 21,952 $3,598,511 $1,887,968
Dividends................................ 1,352,588 48,520 16,200
----------- ---------- ----------
Total Income.............................. 1,374,540 3,647,031 1,904,168
----------- ---------- ----------
EXPENSES:
Advisory fees............................ 518,499 309,890 158,707
Administration fees...................... 141,409 84,516 52,902
Co-administration and shareholder
servicing fees.......................... 65,991 39,440 24,688
Distribution fees........................ -- -- 55,834
Custody fees............................. 20,110 7,098 6,797
Fund accounting fees..................... 4,345 4,254 5,551
Transfer agent fees...................... 49,173 31,177 87,198
Legal fees............................... 79,339 46,567 29,721
Other expenses........................... 78,367 45,201 27,616
----------- ---------- ----------
Gross Expenses............................ 957,233 568,143 449,014
Less: Fee waivers........................ (113,154) (67,630) (112,870)
----------- ---------- ----------
Net Expenses.............................. 844,079 500,513 336,144
----------- ---------- ----------
Net Investment Income..................... 530,461 3,146,518 1,568,024
----------- ---------- ----------
NET REALIZED/UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains from investment
transactions............................ 9,102,892 1,275,186 805,303
Net change in unrealized
appreciation/(depreciation)
from investments........................ 13,103,132 91,117 (300,037)
----------- ---------- ----------
Net Realized/Unrealized Gains (Losses)
from Investments........................ 22,206,024 1,366,303 505,266
----------- ---------- ----------
Change in Net Assets Resulting from
Operations.............................. $22,736,485 $4,512,821 $2,073,290
=========== ========== ==========
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Growth and Income Fund
-----------------------------------
For the For the
year ended year ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
From Investment Activities:
OPERATIONS:
Net investment income..................... $ 530,461 $ 1,301,839
Net realized gains (losses) from
investment transactions.................. 9,102,892 40,637,112
Net change in unrealized appreciation
(depreciation) from investments.......... 13,103,132 (4,934,551)
------------ -------------
Change in net assets resulting from
operations............................... 22,736,485 37,004,400
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................ (531,024) (1,305,354)
From net realized gain from investment
transactions............................. (12,216,636) (36,862,753)
------------ -------------
Change in net assets from shareholder
distributions............................ (12,747,660) (38,168,107)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued............... 42,875,131 30,839,794
Dividends reinvested...................... 13,780,310 446,344
Cost of shares redeemed................... (15,572,070) (115,615,426)
------------ -------------
Change in net assets from capital share
transactions............................. 41,083,371 (84,329,288)
------------ -------------
Change in Net Assets...................... 51,072,196 (85,492,995)
------------ -------------
NET ASSETS:
Beginning of year......................... 55,194,744 140,687,739
------------ -------------
End of year (including undistributed net
investment income of $0, and
$36,028, respectively)................... $106,266,940 $ 55,194,744
============ =============
SHARE TRANSACTIONS:
Issued.................................... 3,357,173 1,740,537
Reinvested................................ 1,009,942 26,099
Redeemed.................................. (1,168,181) (5,941,405)
------------ -------------
Change in shares.......................... 3,198,934 (4,174,769)
============ =============
</TABLE>
See Notes to Financial Statememts.
24
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Fixed Income Fund New York Tax-Free Bond Fund
----------------------------------- -----------------------------------
For the For the For the For the
year ended year ended year ended year ended
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
From Investment Activities:
OPERATIONS:
Net investment income...... $ 3,146,518 $ 3,866,301 $ 1,568,024 $ 1,885,020
Net realized gains (losses)
from investment
transactions.............. 1,275,186 (421,712) 805,303 613,728
Net change in unrealized
appreciation
(depreciation) from
investments............... 91,117 1,841,223 (300,037) 850,123
------------ ----------- ----------- -----------
Change in net assets
resulting from
operations................ 4,512,821 5,285,812 2,073,290 3,348,871
------------ ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income.................... (3,146,518) (3,866,301) (1,568,024) (1,885,020)
------------ ----------- ----------- -----------
Change in net assets from
shareholder distributions.. (3,146,518) (3,866,301) (1,568,024) (1,885,020)
------------ ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares
issued.................... 9,201,178 10,843,888 1,667,644 2,112,149
Dividends reinvested....... 54,313 68,234 904,671 1,114,438
Cost of shares redeemed.... (18,190,514) (55,804,404) (6,933,516) (9,141,149)
------------ ----------- ----------- -----------
Change in net assets from
capital
share transactions........ (8,935,023) (44,892,282) (4,361,201) (5,914,562)
------------ ----------- ----------- -----------
Change in Net Assets....... (7,568,720) (43,472,771) (3,855,935) (4,450,711)
------------ ----------- ----------- -----------
NET ASSETS:
Beginning of year.......... 61,402,278 104,875,049 37,523,974 41,974,685
------------ ----------- ----------- -----------
End of year (including
undistributed net
investment income of
$33,514, $14,033, $0,
and $0, respectively)..... $ 53,833,558 $61,402,278 $33,668,039 $37,523,974
============ =========== =========== ===========
SHARE TRANSACTIONS:
Issued..................... 902,978 1,101,997 144,518 188,254
Reinvested................. 5,316 6,909 78,329 100,156
Redeemed................... (1,784,806) (5,649,518) (601,146) (818,395)
------------ ----------- ----------- -----------
Change in shares........... (876,512) (4,540,612) (378,299) (529,985)
============ =========== =========== ===========
</TABLE>
See Notes to Financial Statememts.
25
<PAGE>
Notes to Financial Statements
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 Growth and Income Fund, Fixed Income Fund, and New York Tax-
Free Bond Fund (herein referred collectively as the "Funds").
The investment objectives and policies are as follows:
<TABLE>
<S> <C>
Growth and Income Fund-- To provide investors with long-term growth of capital and
current income by investing primarily in common stocks,
preferred stocks and securities convertible into or with
rights to purchase common stocks ("equity securities").
Fixed Income Fund-- Generation of high current income consistent with
appreciation of capital by investing primarily in notes,
bonds, debentures and other fixed income securities.
New York Tax-Free Bond To provide investors with as high a level of current
Fund-- income exempt from federal, New York State and New York
City income taxes as is consistent with relative
stability of capital.
</TABLE>
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 equity 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 ask prices. The bid price is used when no ask price is available. Debt
securities for which market quotations are readily available are valued at
the quoted bid price. Debt securities for which market quotations are not
readily available are valued at fair value as determined in good faith by
or under the supervision of the Trust's officers in accordance with
guidelines which have been adopted by the Board of Trustees. Such
procedures include the use of independent pricing services which use prices
based on yields or prices of securities of comparable quality, coupon,
maturity and type, indicators as to value from dealers and general market
conditions. Investments in open-end investment companies 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 each Fund's policy to continue to comply with the provisions
of the Internal Revenue Code, as amended, applicable to regulated
investment companies, and to distribute substantially all of its taxable
income and net realized capital gains, if any, to its shareholders for each
taxable year. Therefore, no provision is required for federal income tax.
26
<PAGE>
Notes to Financial Statements (continued)
2.Significant Accounting Policies (continued)
For federal income tax purposes, the following Funds have capital loss
carryforwards as of December 31, 1998, which are available to offset future
gains, if any:
<TABLE>
<CAPTION>
Amount Expires
---------- --------
<S> <C> <C>
Fixed Income Fund........................................ $1,377,020 2004
363,749 2005
----------
$1,740,769
==========
New York Tax-Free Bond Fund.............................. $ 486,136 2003
5,680 2005
----------
$ 491,816
==========
</TABLE>
Dividends and Distributions: The Growth and Income Fund intends to declare
and pay, as a semi-annual dividend, substantially all of its net investment
income. The Fixed Income and New York Tax-Free Bond Funds intend to declare
as a dividend substantially all of its net investment income at the end of
each business day and to pay within five business days after the end of
each month. Net capital gains for all three Funds, if any, are distributed
at least annually.
Dividends and distributions are recorded by the Funds on the ex-dividend
date. The amounts of dividends from net investment income and of
distributions from net realized gains are determined in accordance with
federal income tax regulations that may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the composition
of net assets based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions to
shareholders which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are
reported as dividends in excess of net investment income or distributions
in excess of net realized gains. To the extent they exceed net investment
income and net realized gains for tax purposes, they are reported as
distributions of capital.
As of December 31, 1998, the following reclassifications have been made to
increase (decrease) the indicated accounts:
<TABLE>
<CAPTION>
Accumulated Net
Undistributed Net Realized Gains/(Losses)
Investment Income on Investments
----------------- -----------------------
<S> <C> <C>
Growth and Income Fund........... $(35,465) $35,465
Fixed Income Fund................ 19,481 (19,481)
</TABLE>
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 on the
acrual basis and includes, where applicable, discount and premium.
27
<PAGE>
Notes to Financial Statements (continued)
2.Significant Accounting Policies (continued)
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.
Options Writing: When a Fund writes an option, an amount equal to the
premium received by the Fund is recorded as a liability and is subsequently
adjusted to the current fair value of the option written. Premiums received
from writing options that expire unexercised are treated by the Fund on the
expiration date as realized gains from investments. The difference between
the premium and the amount paid on effecting a closing purchase
transaction, including brokerage commissions, is also treated as a realized
gain, or if the premium is less than the amount paid for the closing
purchase transaction, as a realized loss. If a call option is exercised,
the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of
the securities purchased by the Fund. The Fund as writer of an option bears
the market risk of an unfavorable change in the price of the security
underlying the written option.
3.Portfolio Securities
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- -----------
<S> <C> <C>
Growth and Income Fund.............................. $84,648,643 $75,293,801
Fixed Income Fund................................... 38,647,464 46,458,144
New York Tax-Free Bond Fund......................... 19,484,322 21,773,512
</TABLE>
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 management affiliate of HSBC Holdings plc (Hong Kong
and Shanghai Banking Corporation). As Investment Adviser, HSBC Asset
Management Americas Inc. furnishes investment guidance and policy direction
in connection with the management of the investment portfolios of the
Funds, subject to policies established by the Board of Trustees. As
compensation for its services, HSBC Asset Management Americas Inc. is paid
monthly advisory fees at the following annual rates:
<TABLE>
<CAPTION>
Advisory Fee Rate
------------------------------
Growth and Income Fixed Income
Portion of Each Fund's Average Daily Net Assets Fund Fund
----------------------------------------------- ----------------- ------------
<S> <C> <C>
Up to $400 million............................................. 0.550% 0.550%
In excess of $400 million but not exceeding $800 million....... 0.505% 0.505%
In excess of $800 million but not exceeding $1.2 billion....... 0.460% 0.460%
In excess of $1.2 billion but not exceeding $1.6 billion....... 0.415% 0.415%
In excess of $1.6 billion but not exceeding $2.0 billion....... 0.370% 0.370%
In excess of $2.0 billion...................................... 0.315% 0.315%
</TABLE>
28
<PAGE>
Notes to Financial Statements (continued)
4.Related Party Transactions (continued)
<TABLE>
<CAPTION>
Advisory Fee Rate
-----------------
New York
Tax-Free Bond
Portion of the Fund's Average Daily Net Assets Fund
---------------------------------------------- -----------------
<S> <C> <C>
Up to $300 million....................................................... 0.450%
In excess of $300 million but not exceeding $600 million................. 0.420%
In excess of $600 million but not exceeding $1.0 billion................. 0.385%
In excess of $1.0 billion but not exceeding $1.5 billion................. 0.350%
In excess of $1.5 billion but not exceeding $2.0 billion................. 0.315%
In excess of $2.0 billion................................................ 0.280%
</TABLE>
The Fund may enter into agreements (the "Service Agreements") with certain
banks, financial institutions and corporations ("Service Organizations")
whereby each Service Organization provides recordkeeping and certain
administration services for its customers who invest in the Funds through
accounts maintained at that Service Organization. Each Service Organization
will receive monthly payments for the performance of its service under the
Service Agreement. The payments from the Funds on an annual basis will not
exceed 0.35% of the average value of the Funds' shares held in the
subaccounts of the Service Organizations. During the year ended December
31, 1998, the Funds did not participate in any service agreement.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership, is a subsidiary of The BISYS Group,
Inc. BISYS, with whom certain officers are affiliated, serves the Trust as
distributor, administrator, transfer agent and fund accountant. Such
officers are not paid any fees directly by the Funds for serving as
officers of the Trust.
<TABLE>
<CAPTION>
Administration
Portion of Each Fund's Average Daily Net Assets Fee Rate
----------------------------------------------- --------------
<S> <C>
Up to $200 million........................................... 0.150%
In excess of $200 million but not exceeding $400 million..... 0.125%
In excess of $400 million but not exceeding $600 million..... 0.100%
In excess of $600 million.................................... 0.080%
</TABLE>
HSBC Asset Management Inc. earned co-administration and shareholder
servicer assistance fees of 0.07% of each Fund's average net assets.
For the period ended December 31, 1998, fee waivers and voluntary
reimbursements for the Funds were:
<TABLE>
<CAPTION>
Co-Administration
and Shareholder
Investment Servicer Assistance
Advisory Fees Administration Fees Fees
------------- ------------------- -------------------
<S> <C> <C> <C>
Growth and Income Fund.. $ -- $47,163 $65,991
Fixed Income Fund....... -- 28,190 39,440
New York Tax-Free Bond
Fund................... 70,537 17,645 24,688
</TABLE>
The Funds have adopted a Distribution Plan and Agreement (the "Plan")
pursuant to Rule 12b-1 of the 1940 Act. The Plan provides for a monthly
payment by the Fund to BISYS Fund Services for expenses incurred in
29
<PAGE>
Notes to Financial Statements (continued)
4.Related Party Transactions (continued)
connection with distribution services provided to the Fund not to exceed an
annual rate of 0.35% (0.50% for Growth and Income Fund) of each Fund's
average net assets during the preceding month. As distributor, BISYS is
entitled to receive commissions on sales of shares of the Funds. For the
year ended December 31, 1998, the total commission BISYS received,
retained, and reallowed to affiliated broker/dealers of the Funds are as
follow:
<TABLE>
<CAPTION>
Commissions
Commissions Reallowed to
Total Retained by Affiliated
Commissions BISYS Broker/Dealer
----------- ----------- -------------
<S> <C> <C> <C>
Growth and Income Fund................. $ 4,145 $1,008 $ 3,137
Fixed Income Fund...................... 665 542 123
New York Tax-Free Bond Fund............ 24,860 2,835 22,025
------- ------ -------
$29,670 $4,385 $25,285
======= ====== =======
</TABLE>
A partner of the Trust's legal counsel served as Secretary of the Trust.
Baker & McKenzie served as legal counsel until April 2, 1998. Paul, Weiss,
Rifkind, Wharton and Garrison assumed the role of legal counsel as of April
3, 1998. For the year ended December 31, 1998, legal fees incurred by the
Funds totaled $79,339 for the Growth and Income Fund, $46,567 for the Fixed
Income Fund and $29,721 for the New York Tax-Free Bond Fund, respectively.
5.Options Written
The Growth and Income Fund may seek to earn premiums by writing covered
call options against some of the securities in its portfolio. A call option
is "covered" if the Fund owns the underlying securities covered by the
call. The purchaser of the call option obtains the right to acquire these
securities at a fixed price (which may be less than, the same as, or
greater than the current market price of such securities) during a specific
period of time. Until an option lapses or is canceled by a closing
transaction, the maximum sales price the Fund can realize on the underlying
security is limited to the strike price. The Fund continues to bear the
risk of a decline in the market price of the security during the option
period, although the decline in value would be mitigated by the amount of
the premium received for the call. The aggregate value of the securities
subject to options written by the Fund may not exceeded 25% of the value of
the Fund's net assets.
The following is a summary of written call option activity for the year
ended December 31, 1998 by the Growth and Income Fund:
<TABLE>
<CAPTION>
Call Options
------------------
Number of
Contracts Premiums
--------- --------
<S> <C> <C>
Balance at beginning of year............................. -- $ --
Options written.......................................... 2,069 486,155
Options closed........................................... 1,749 390,375
Options expired.......................................... 250 72,365
----- --------
Options outstanding at end of year....................... 70 $ 23,415
===== ========
</TABLE>
30
<PAGE>
Notes to Financial Statements (continued)
6.Concentration of Credit Risk
The New York Tax-Free Bond Fund invests primarily in debt obligations
issued by the State of New York and its respective political subdivisions,
agencies and public authorities to obtain funds for various public
purposes. The Fund is more susceptible to economic and political factors
adversely affecting issuers of New York specific municipal securities than
is a municipal bond fund that is not concentrated in these issuers to the
same extent.
7.Federal Income Tax Information (Unaudited)
Federal income tax information for the taxable year ended December 31, 1998
was as follows:
<TABLE>
<CAPTION>
Long Term Dividends
Tax-Exempt Capital Gain Received
Distribution Distribution Deduction %
------------ ------------ ------------
<S> <C> <C> <C>
Growth and Income Fund................ $ -- $10,760,080 45.25%
New York Tax-Free Bond Fund........... 1,572,960 -- --
</TABLE>
31
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 12.36 $ 16.28 $ 14.77 $ 11.93 $ 12.87
-------- ------- -------- ------- -------
Investment Activities
Net investment income........ 0.07 0.18 0.18 0.30 0.29
Net realized and unrealized
gains (losses) from
investment transactions..... 3.23 4.28** 2.46 3.64 (0.67)
-------- ------- -------- ------- -------
Total from Investment
Activities.................. 3.30 4.46 2.64 3.94 (0.38)
-------- ------- -------- ------- -------
Distributions
From net investment income... (0.08) (0.19) (0.18) (0.30) (0.29)
From net realized gains...... (1.72) (8.19) (0.95) (0.80) (0.15)
In excess of net realized
gains....................... -- -- -- -- (0.12)
-------- ------- -------- ------- -------
Total Distributions.......... (1.80) (8.38) (1.13) (1.10) (0.56)
-------- ------- -------- ------- -------
Net Asset Value, End of Year.. $ 13.86 $ 12.36 $ 16.28 $ 14.77 $ 11.93
======== ======= ======== ======= =======
Total Return (excludes sales
or redemption charges)....... 26.97% 27.42% 17.90% 33.11% (2.97)%
Ratios/Supplemental Data:
Net Assets at end of
period (000)................ $106,267 $55,195 $140,688 $66,062 $64,999
Ratio of expenses to average
net assets.................. 0.89% 0.83% 0.85% 0.94% 0.78%
Ratio of net investment
income to average net
assets...................... 0.58% 0.95% 1.43% 2.06% 2.25%
Ratio of expenses to average
net assets*................. 1.01% 0.95% 0.96% 0.97% 0.86%
Portfolio Turnover Rate...... 82.19% 69.07% 61.68% 52.77% 23.31%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** In addition to the net realized and unrealized gains from investment
transactions, this amount includes a decrease in net asset value per share
resulting from the timing of issuances and redemptions of Fund shares in
relation to fluctuating market values for the portfolio.
32
<PAGE>
FINANCIAL HIGHLIGHTS
FIXED INCOME FUND
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1998 1997 1996 1995 1994
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................... $ 10.12 $ 9.89 $ 10.28 $ 9.35 $ 10.13
------- ------- -------- ------- -------
Investment Activities
Net investment income.......... 0.57 0.59 0.59 0.59 0.59
Net realized and unrealized
gains (losses) from
investments................... 0.25 0.23 (0.39) 0.93 (0.78)
------- ------- -------- ------- -------
Total from Investment
Activities.................... 0.82 0.82 0.20 1.52 (0.19)
------- ------- -------- ------- -------
Distributions
From net investment income..... (0.57) (0.59) (0.59) (0.59) (0.59)
From net realized gains........ -- -- -- -- --
------- ------- -------- ------- -------
Total Distributions............ (0.57) (0.59) (0.59) (0.59) (0.59)
------- ------- -------- ------- -------
Net Asset Value, End of Year.... $ 10.37 $ 10.12 $ 9.89 $ 10.28 $ 9.35
======= ======= ======== ======= =======
Total Return (excludes sales or
redemption charges)............ 8.33% 8.62% 2.11% 16.73% (1.89)%
Ratios/Supplemental Data:
Net Assets at end of
period (000).................. $53,834 $61,402 $104,875 $99,942 $84,774
Ratio of expenses to average
net assets.................... 0.89% 0.88% 0.88% 0.93% 0.77%
Ratio of net investment income
to average net assets......... 5.59% 6.00% 5.94% 6.03% 6.10%
Ratio of expenses to average
net assets*................... 1.01% 1.00% 0.98% 0.96% 0.86%
Portfolio Turnover Rate........ 71.05% 60.98% 156.05% 41.58% 63.96%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
33
<PAGE>
FINANCIAL HIGHLIGHTS
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................ $ 11.48 $ 11.05 $ 11.17 $ 10.20 $ 11.70
------- ------- ------- ------- -------
Investment Activities
Net investment income........... 0.51 0.53 0.55 0.54 0.53
Net realized and unrealized
gains (losses) from
investments.................... 0.16 0.43 (0.12) 0.97 (1.47)
------- ------- ------- ------- -------
Total from Investment
Activities..................... 0.67 0.96 0.43 1.51 (0.94)
------- ------- ------- ------- -------
Distributions
From net investment income...... (0.51) (0.53) (0.55) (0.54) (0.53)
From net realized gains......... -- -- -- -- (0.03)
------- ------- ------- ------- -------
Total Distributions............. (0.51) (0.53) (0.55) (0.54) (0.56)
------- ------- ------- ------- -------
Net Asset Value, End of Year..... $ 11.64 $ 11.48 $ 11.05 $ 11.17 $ 10.20
======= ======= ======= ======= =======
Total Return (excludes sales or
redemption charges)............. 5.99% 8.97% 3.99% 15.17% (8.13)%
Ratios/Supplemental Data:
Net Assets at end of
period (000)................... $33,668 $37,524 $41,975 $50,677 $50,711
Ratio of expenses to average net
assets......................... 0.96% 0.92% 0.91% 0.99% 0.84%
Ratio of net investment income
to average net assets.......... 4.47% 4.79% 5.02% 5.07% 4.93%
Ratio of expenses to average net
assets*........................ 1.28% 1.24% 1.21% 1.20% 1.10%
Portfolio Turnover Rate......... 56.81% 35.64% 87.40% 24.43% 122.43%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
34
<PAGE>
Report of Independent Auditors
The Board of Trustees and Shareholders
HSBC Mutual Funds Trust
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolio investments and options written, of the
Growth and Income Fund, Fixed Income Fund, and New York Tax-Free Bond Fund
(three of the portfolios comprising HSBC Mutual Funds Trust) as of December
31, 1998, the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth and Income Fund, Fixed Income Fund, and New York Tax-Free Bond Fund at
December 31, 1998, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended and their financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 12, 1999
35
<PAGE>
HSBC Mutual Funds Trust
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO HSBC ASSET MANAGEMENT AMERICAS INC.
- --------------------------------------------------------------------------------
Growth and Income Fund
Fixed Income Fund
New York Tax-Free Bond Fund
HSBC/SM/ 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 Funds 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.
2/99
Annual Report
December 31, 1998
Managed by:
HSBC Asset Management Americas Inc.
Sponsored and distributed by:
BISYS Fund Services
