<PAGE>
HSBC Mutual Funds Trust
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[Logo of HSBC Asset Management Americas Inc. Appears Here]
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Growth and Income Fund
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February 1, 2000
Dear Shareholder:
Although very few people would have predicted it a year ago, the S&P 500 Index*
registered its fifth consecutive year of returns in excess of 20% during 1999.
For the year, the market rose 21.0% on a U.S. dollar, total return basis.
Expectations of a prolonged global recovery remained the primary theme
influencing market activity during the year. Beginning in mid-1999, the Federal
Reserve instituted three interest rate hikes of 25 basis points each, unwinding
the 75 basis point ease from the fall of 1998. After the global economic
turmoil witnessed during the previous year, 1999 was relatively benign. The
U.S. economy continued to chug along, and was joined by an Asian recovery along
with modest European growth. The U.S. economy has just set the record for the
longest economic expansion in its history, with no signs of a recession on the
horizon. In fact, the opposite is true--the Federal Reserve is concerned that
the economy is growing too quickly and may have to raise rates to slow the
growth.
After a slow start to 1999, the markets gathered steam and rose 15% by early
summer. As the Federal Reserve moved to take back the interest rate cuts from
1998, investors paused and the market entered a volatile period that lasted
into October, taking the S&P 500 index down to prior year-end levels. A quick
reversal followed and the markets raced ahead for the remainder of the year,
shrugging off a third interest rate hike as well as Y2K worries to close at
record levels at year-end.
Looking at the internals of the market, one can see how the major indices hide
what really happened during 1999. Although the S&P 500 closed 1999 at a record
high, 53% of S&P 500 stocks were at least 20% below their 52-week high. On the
NASDAQ, 62% were down 20% or more from their 52-week high. 1999 was one of the
narrowest market climbs in history. Seven stocks accounted for 53% of the
market gain, and 25 stocks accounted for the entire gain in the market during
1999. Essentially, 475 of the 500 stocks combined for no return during the
year. If one strayed away from the biggest of the big-caps, performance
suffered.
Outlook
Investors continue to pour huge sums of money into equity funds. During 1999,
an estimated $188 billion flowed into all stock funds during the year, 19%
higher than the $157 billion in 1998. Although these figures show continued
demand for equities, we are more interested by the huge flows into money market
funds--future fuel for equity demand. It is estimated that more than $150
billion flowed into money market funds during the fourth quarter of 1999 alone.
The supply/demand scenario for equities continues to be very positive. The IPO
backlog is currently $25 billion versus $45 billion in late 1999. Merger and
acquisition activity continues to be very robust. Also stock buybacks, which in
many cases have taken the place of significant dividend hikes, continue at high
levels. These factors combined mean that more stock is being retired than
issued. The demand side is led by the simple demographics of Americans. As the
baby boomer generation enters middle age (peak earning and saving years), they
are taking an increasingly hands-on approach to planning for their retirement.
This is partly due to the growing realization that
<PAGE>
Social Security benefits alone will not allow a comfortable retirement. Also,
the trend towards allowing the individual to take a greater interest in
retirement planning via defined contribution rather than defined benefit plans
bodes well for stocks.
Valuation continues to be a very challenging aspect of the U.S. market
forecast. Stocks are currently selling at near record levels on a
price/earnings, price/book and price/cash flow basis as well as dividend yield
levels. However, when one analyzes the returns on equity and capital achieved
by U.S. companies versus their international brethren (as well as versus US
companies 10 and 20 years ago) in addition to the relatively low levels of
domestic interest rates and inflation, these valuations appear more rational.
Further, we would note that the S&P 500 Composite--due to the numerous changes
enacted during the past several years--is no longer reminiscent of "the
market", and is rather a large-cap, growth-oriented portfolio of companies.
The combination of sustained low inflation, rising governmental budget
surpluses and rapidly growing corporate earnings should allow markets to
continue moving higher in 2000, possibly at a somewhat slower pace than
experienced during the past several years. With the economy continuing its
strong growth, we foresee 50 basis points of Federal Reserve rate increases
during the first half of 2000. However, we continue to believe that strong,
and broad-based earnings growth will be more important to investors than
modest rate hikes. As global recovery progresses, it is assisting the more
cyclical areas of the U.S. economy, broadening the earnings gains. Earnings
for the fourth quarter of 1999 ran about 25% ahead of the year ago period.
This substantial increase in earnings will meaningfully lower the P/E
multiples for the major indices. Earnings growth of 12% or greater for 2000
seems quite likely and preliminary estimates for 2001 are for another year of
double-digit growth. We are also in an election year which is very positive
for the markets. We have not had a down market in a presidential election year
since Franklin Roosevelt was in office. We continue to believe that multiples
can expand further if the global economies continue to recover and earnings
continue to show strong upside surprises. Looking forward, we believe it is
possible for markets to rise approximately in line with earnings growth,
resulting in low to mid double-digit returns during the next twelve months.
HSBC Growth and Income Fund Portfolio Summary
During 1999, the HSBC Growth and Income Fund gained 18.5% (Class A shares) on
a net-of-expenses basis. This compared unfavorably to an S&P 500 return of
21.0%, but was far ahead of the Lipper Growth and Income Index gain of only
11.86%.
We remained positioned towards large-capitalization, growth-oriented companies
during the year but made some sector changes during the year. We reduced
Healthcare early in 1999 as the valuations ran to levels unwarranted by near-
term fundamentals. We also shifted away from the Consumer Cyclicals and
Consumer Staples areas during the third quarter as we began to grow concerned
that consumer spending, which accounts for two-thirds of U.S. economic
activity, would slow from the torrid pace witnessed during the past few years.
These monies were redeployed into the Energy and Financial sectors which were
at more reasonable valuations.
In aggregate our sector weighting decisions had a neutral effect on relative
results. We benefited by being overweight Technology, underweight Healthcare
and moving to an underweight in Consumer Staples during the year. Conversely,
our overweight in Financials and underweight in the Basic Materials sectors
detracted from results. Looking at stock selection, Financials, Utilities and
Consumer Cyclicals posted the best relative performance, with Technology,
Communication Services and Basic Materials weak.
As we enter 2000, we believe that Technology will continue to be the driving
force in the economy, with productivity benefits flowing into other areas.
Thus we expect to maintain a meaningful overweight in technology
2
<PAGE>
during the year. Financial stocks look very attractive after their sell-off
during the latter part of 1999, and in the absence of a protracted series of
rate hikes, should perform well during 2000. With our belief that we will
likely see the consumer begin to retrench in 2000, we remain underweight in
the Consumer Cyclicals and Consumer Staples sectors.
Sincerely,
/s/ Fredric P. Lutcher
Fredric P. Lutcher, III, CFA
Chief Investment Officer, U.S. Equities
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* The Fund's performance is compared to the Standard and Poor's 500 Stock
Index, which represents the U.S. stock market as a whole. The Index is
unmanaged, and does not reflect the deduction of fees associated with a
mutual fund, such as investment management fees. Investors can not invest
directly in an index.
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.
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.
3
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
GROWTH AND INCOME FUND VS. S&P 500 INDEX
[LINE CHART HERE]
Growth and Growth and
Income Fund Income Fund Standard Lipper Growth
Class A Class A & Poor's & Income
(without load) (with load) 500 Index Fund Index
DEC 1989 10000 9500 10000 10000
DEC 1990 9559 9081 9683 9401
DEC 1991 12610 11980 12641 12009
DEC 1992 13586 12907 13610 13167
DEC 1993 15112 14356 14970 15092
DEC 1994 14663 13930 15166 15030
DEC 1995 19518 18542 20842 19715
DEC 1996 23013 21862 25651 23791
DEC 1997 29323 27857 34209 30185
DEC 1998 37230 35369 43987 34285
DEC 1999 44110 41905 53244 38354
The performance data quoted represents past performance and is not an
indication of future results. The investment return and net asset 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%
(3) Maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% over 4 years. Class B shares bear ongoing distribution fees
and service organization fees. The Class B expenses are reflected in the
performance data. Class B shares were initially offered on July 1, 1999.
The performance figures for Class B shares for periods prior to such date
represent the performance for Class A shares of the Portfolio.
(4) Excludes contingent deferred sales charge for Class B shares.
(5) Maximum contingent deferred sales charge for Class C shares is 1% and is
reduced to 0% over 1 year. Class C shares bear ongoing distribution fees
and service organization fees. The Class C expenses are reflected in the
performance data. Class C shares were initially offered on July 1, 1999.
The performance figures for Class C shares for periods prior to such date
represent the performance for Class A shares of the Portfolio.
(6) Excludes contingent deferred sales charge for Class C shares.
The above illustration compares a $10,000 investment in the Growth and Income
Fund, Class A shares, on January 1, 1990 to a $10,000 investment in the
Standard & Poor's 500 Index and the Lipper Growth and Income Fund Index.
The Fund's performance reflects the waiver and reimbursement of a portion of
the Fund's fees. Without waiver and reimbursement the performance for the
period would have been lower. The Standard & Poor's 500 Index is a widely
accepted unmanaged index of overall stock market performance and does not
reflect the expenses associated with a mutual fund, such as investment
management and fund accounting fees. The Fund's performance reflects the
deduction of fees for these value added services.
An investor can not invest directly in an index.
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
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HSBC Fixed Income Fund
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Dear Shareholder:
The Federal Reserve Open Market Committee during 1999 raised interest rates 75
basis points through a series of 25 basis point increases that occurred during
June, August and November. These increases reversed the 75 basis point easing
of 1998 caused by the global credit crisis and tended to overstimulate the
economy which saw the Gross Domestic Product (GDP) increase by more than 3% for
the fourth year in a row. This economic expansion will enter its 107th month of
growth in 2/00 which surpasses the 106 month streak set back in 1969.
The total return for 1999 in the major sectors of the investment grade bond
market as measured by the Lehman Aggregate Index* was -0.82% which is only the
second year (1994's return was -2.92%) that this index generated a negative
return. These returns were caused by the sharp upturn in the United States
Treasury yield curve which for 1999 saw 2 year notes up 170 basis points to
6.24%, 10 year notes up 178 basis points to 6.44% and 30 year bonds up 138
basis points to 6.48%. On a duration adjusted basis, Mortgages were the best
performing sector followed by Agencies, Corporates and Treasuries.
The fund returned -0.36% for the fourth quarter and -1.86% for all of 1999.
This compares favorably to our peer group, as measured by the Lipper Analytical
Services Corporate Debt Funds A-Rated Index, which returned -0.46% and -2.61%
for the identical time periods. In terms of peer group ranking, the HSBC Fixed
Income Fund finished the year in the 35th percentile.
Sincerely,
/s/ Edward J. Merkle
Edward J. Merkle
Managing Director, Fixed Income
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* 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
back 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.
The performance data quoted represents past performance and is not an
indication of future results. The investment return and net asset value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
The Lipper Corporate Debt Funds A-Rated Index consists of funds that invest at
least 65% of its assets in corporate debt issues rated "A" or better or
government issues.
Portfolio composition is subject to change.
An investor can not invest directly in an index.
5
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COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
FIXED INCOME FUND VS. LEHMAN AGGREGATE BOND INDEX
[LINE CHART HERE]
Fixed Income Fund Fixed Income Fund
Class A Class A Lehman Aggregate
(without load) (with load) Bond Index
DEC 1992 10000 9527 10000
DEC 1993 10859 10342 10768
DEC 1994 10653 10146 10454
DEC 1995 12435 11843 12386
DEC 1996 12698 12094 12833
DEC 1997 13793 13136 14076
DEC 1998 14942 14231 15297
DEC 1999 14664 13966 15170
The performance data quoted represents past performance and is not an
indication of future results. The investment return and net asset 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,
Class A shares, 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 reflects the waiver and reimbursement of a portion of
the Fund's fees. Without waiver and reimbursement the performance for the
period would have been lower. The Lehman Aggregate Index is a widely accepted
unmanaged index of overall municipal bond market performance and does not
reflect the expenses associated with a mutual fund, such as investment
management and fund accounting fees. The Fund's performance reflects the
deduction of fees for these value added services.
An investor can not invest directly in an index.
6
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HSBC New York Tax-Free Bond Fund
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Dear Shareholder:
During 1999 municipals underperformed taxables on a pretax total return basis.
The one year total return on the Lehman Municipal Bond Index was -2.06%. By
comparison the Lehman Aggregate Index posted a one year return of -0.82%. This
reflected the fact that yields across the municipal yield curve rose by
approximately 90 basis points on 2 year bonds, 95 basis points on ten year
bonds, and 100 basis points on thirty year bonds. Comparatively, yields along
the treasury curve rose by 170 basis points on two year bonds, 178 basis points
on ten year bonds and 138 basis points on thirty year bonds. Once again the
credit outlook continued to improve throughout the state. Given the preceding
information regarding yields and ratios municipals should have outperformed
taxables. The underperformance of municipals was due primarily to negative
convexity factors of many bonds where losses were accelerated as bonds
approached deminimus cutoffs and subsequently had certain tax implications for
those bonds. This became a particularly vexing factor for non premium bonds
issued after October 1998. This deminimus factor typically becomes a
performance factor in sharp market sell offs.
The Fund's total return for the year was -3.58% which placed the Fund into the
top 14th percentile. The fund outperformed the average of Lipper's New York
Municipal Debt Funds* which stood at -4.89%. The 132 basis points of
outperformance represented the result of the portfolio maintaining a short
duration during key rallying points in the market as well as relative value
trading over the course of the year. Additionally, the Fund guarded itself from
falling into the above mentioned deminimus trap and was underweighted in lower
coupon bonds. As of December 31, 1999 the Fund's duration (which takes into
account interim principal and income payments as well as maturity levels) was
7.47 years which represented 98% of the duration of the Lehman New York State
Exempt Index and an overall defensive view of the fixed income markets. The
average maturity of the Fund was 12.32 years. In terms of sector
diversification the largest sectors consisted of general obligations (31.6%),
medical revenue (17.0%), and higher education (15.3%).
New York outperformed the rest of the municipal market by just 2 basis points
as reflected by the total return of the Lehman New York State Exempt Index.
Despite the lower overall credit profile of the Lehman New York State Exempt
Index as compared with the Lehman Municipal Bond Index (AA3/A1 versus AA1/AA2)
the yield to worst of the New York index is just 3 basis points higher than
that of the Municipal Bond Index. Our credit strategy is to continue to
overweight insured credits as the yield spread between insured AAA and single A
rated credits is only 5-8 basis points.
Sincerely,
/s/ Jerry Samet
Jerry Samet
Municipal Portfolio Manager
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* The Lehman New York State Exempt Index is a broad based, total return index
which is comprised of bonds issued in the State of New York.
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.
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.
The Lehman Aggregate Bond Index is a market value-weighted index that tracks
the daily price, coupon, paydowns and total return performance of fixed-rate,
publicly place, dollar denominated and nonconvertible, investment-grade debt
issues with at least $100 million par amount outstanding and with at least one
year to final maturity.
The Lipper New York Municipal Debt Funds Index consists of funds that invests
at least 65% of its assets in municipal debt issues that are exempt from
taxation in New York (double tax-exempt) or a city in New York (triple tax-
exempt).
The performance data quoted represents past performance and is not an
indication of future results. The investment return and net asset value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
Portfolio composition is subject to change.
Investors can not invest directly in an index.
7
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
NEW YORK TAX-FREE BOND FUND VS. LEHMAN MUNICIPAL BOND INDEX
[LINE CHART HERE]
New York Tax-Free New York Tax-Free
Bond Fund Bond Fund
Class A Class A Lehman Municipal
(without load) (with load) Bond Index
DEC 1989 10000 9524 10000
DEC 1990 10613 10108 10729
DEC 1991 11950 11381 12032
DEC 1992 13222 12592 13094
DEC 1993 15108 14389 14702
DEC 1994 13879 13218 13941
DEC 1995 15984 15223 16376
DEC 1996 16622 15831 17101
DEC 1997 18112 17250 18676
DEC 1998 19198 18284 19887
DEC 1999 18511 17360 19476
The performance data quoted represents past performance and is not a
indication of future results. The investment return and net asset 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%
(3) Maximum contingent deferred sales charge for Class B shares is 4% and is
reduced to 0% over 4 years. Class B shares bear ongoing distribution fees
and service organization fees. The Class B expenses are reflected in the
performance data. Class B shares were initially offered on July 1, 1999.
The performance figures for Class B shares for periods prior to such date
represent performance for Class A shares of the portfolio.
(4) Excludes contingent deferred sales charge for Class B shares.
The above illustration compares a $10,000 investment in the New York Tax-Free
Bond Fund, Class A shares, on January 1, 1990 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 reflects the waiver and reimbursement of a portion of
the Fund's fees. Without waiver and reimbursement the performance for the
period would have been lower. The Lehman Municipal Bond Index is a widely
accepted unmanaged index of overall municipal bond market performance and does
not reflect the expenses associated with a mutual fund, such as investment
management and fund accounting fees. The Fund's performance reflects the
deduction of fees for these value added services.
An investor can not invest directly in an index.
8
<PAGE>
Board of Trustees
WOLFE J. FRANKL Former Director, North America, Berlin Economic
Development Corporation
JEFFREY J. HASS Professor of Law, New York Law School
RICHARD J. LOOS Former Managing Director, HSBC Asset Management
Americas Inc.
CLIFTON H.W. MALONEY President, C.H.W. Maloney & Co. Incorporated
JOHN C. MEDITZ President, Horizon Asset Management, Inc.
HARALD PAUMGARTEN Managing Director, Heritage Capital Corp.
JOHN P. PFANN Former Senior Vice President and Treasurer, ITT
ROBERT A. ROBINSON Trustee, Henrietta and B. Frederick H. Bugher
Foundation
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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
JOEL B. ENGLE Treasurer
STEVEN R. HOWARD Secretary
ALAINA V. METZ Assistant Secretary
ROBERT L. TUCH Assistant Secretary
9
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Market
Shares Security Description Value
------ -------------------- ------------
<C> <S> <C>
COMMON STOCKS (98.9%)
Automotive (1.2%)
12,100 General Motors Corp...................................... $ 879,519
17,700 Lear Corp.(b)............................................ 566,400
------------
1,445,919
------------
Banking (5.2%)
10,300 Bank of America Corp..................................... 516,931
31,200 Bank of New York Co., Inc................................ 1,248,000
15,300 Bank One Corp............................................ 490,556
18,100 Chase Manhattan Corp..................................... 1,406,144
19,200 U.S. Bancorp............................................. 457,200
54,400 Wells Fargo Co........................................... 2,199,800
------------
6,318,631
------------
Beverages (1.4%)
14,000 Coca-Cola Co............................................. 815,500
26,400 PepsiCo, Inc............................................. 930,600
------------
1,746,100
------------
Brewery (0.4%)
7,200 Anheuser-Busch Co., Inc.................................. 510,300
------------
Broadcasting/Cable (4.3%)
28,400 AT&T-Liberty Media Corp. Class A(b)...................... 1,611,699
22,100 Comcast Corp............................................. 1,110,525
16,300 MediaOne Group, Inc.(b).................................. 1,252,044
20,600 Viacom, Inc., Class B(b)................................. 1,245,013
------------
5,219,281
------------
Chemicals (1.9%)
7,000 Dow Chemical Co.......................................... 935,375
4,400 E.I. du Pont de Nemours & Co............................. 289,850
15,400 Union Carbide Corp....................................... 1,027,950
------------
2,253,175
------------
Computer Software (8.3%)
12,500 BMC Software, Inc.(b).................................... 999,219
53,700 Microsoft Corp.(b)....................................... 6,269,474
24,800 Oracle Corp.(b).......................................... 2,779,150
------------
10,047,843
------------
</TABLE>
10
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999 (continued)
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Market
Shares Security Description Value
------ -------------------- ------------
<C> <S> <C>
COMMON STOCKS (continued)
Computers & Peripherals (16.5%)
33,800 Cisco Systems, Inc.(b)................................... $ 3,620,825
17,100 Compaq Computer Corp..................................... 462,769
29,200 Dell Computer Corp.(b)................................... 1,489,200
35,744 EMC Corp.(b)............................................. 3,905,031
11,900 Hewlett-Packard Co....................................... 1,355,856
37,100 Intel Corp............................................... 3,053,794
12,400 International Business Machines Corp..................... 1,339,200
7,900 Lexmark International Group, Inc., Class A(b)............ 714,950
9,600 LSI Logic Corp.(b)....................................... 648,000
27,700 Sun Microsystems, Inc.(b)................................ 2,145,019
11,400 Texas Instruments, Inc................................... 1,104,375
------------
19,839,019
------------
Consumer Goods & Services (1.5%)
12,000 Procter & Gamble Co...................................... 1,314,750
10,800 Sealed Air Corp.(b)...................................... 559,575
------------
1,874,325
------------
Diversified (6.4%)
37,500 General Electric Co...................................... 5,803,125
50,000 Tyco International Ltd................................... 1,943,750
------------
7,746,875
------------
Financial Services (7.2%)
6,100 American Express Co...................................... 1,014,125
55,500 Citigroup, Inc........................................... 3,083,719
16,400 Fannie Mae............................................... 1,023,975
7,200 Lehman Brothers Holding, Inc............................. 609,750
44,600 MBNA Corp................................................ 1,215,350
10,500 Morgan Stanley Dean Witter & Co.......................... 1,498,875
12,500 Washington Mutual, Inc................................... 325,000
------------
8,770,794
------------
Food Products & Services (1.0%)
34,200 Safeway, Inc.(b)......................................... 1,216,238
------------
</TABLE>
11
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999 (continued)
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Market
Shares Security Description Value
------ -------------------- ------------
<C> <S> <C>
COMMON STOCKS (continued)
Health Care (1.7%)
13,600 Johnson & Johnson........................................ $ 1,266,500
22,400 Medtronic, Inc........................................... 816,200
------------
2,082,700
------------
Household Products (0.4%)
22,400 Dial Corp................................................ 544,600
------------
Industrial Goods & Services (1.0%)
16,300 Eaton Corp............................................... 1,183,788
------------
Insurance (2.6%)
17,600 American International Group, Inc........................ 1,903,000
14,800 AXA Financial, Inc....................................... 501,350
7,600 Hartford Financial Services Group........................ 360,050
5,500 Progressive Corp......................................... 402,188
------------
3,166,588
------------
Internet Software (1.6%)
25,400 America Online, Inc.(b).................................. 1,916,113
------------
Oil & Gas Exploration, Production, and Services (6.8%)
16,800 Chevron Corp............................................. 1,455,300
18,800 Enron Corp............................................... 834,250
49,706 Exxon Mobil Corp......................................... 4,004,440
18,000 Schlumberger Ltd......................................... 1,012,500
3,485 Transoccan Sedco Forex, Inc.............................. 117,394
28,300 Williams Co.............................................. 864,919
------------
8,288,803
------------
Paper Products (0.7%)
15,300 International Paper Co................................... 863,494
------------
Pharmaceuticals (8.6%)
12,000 Alza Corp.(b)............................................ 415,500
11,700 American Home Products Corp.............................. 461,419
23,400 Bristol-Myers Squibb Co.................................. 1,501,988
17,700 Cardinal Health, Inc..................................... 847,388
23,100 Eli Lilly & Co........................................... 1,536,149
37,900 Merck & Co., Inc......................................... 2,541,668
24,500 Pfizer, Inc.............................................. 794,719
</TABLE>
12
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999 (continued)
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Market
Shares Security Description Value
------ -------------------- ------------
<C> <S> <C>
COMMON STOCKS (continued)
16,900 Schering-Plough Corp..................................... $ 712,969
20,200 Warner-Lambert Co........................................ 1,655,137
------------
10,466,937
------------
Printing & Publishing (0.8%)
13,400 Time Warner, Inc......................................... 970,663
------------
Restaurants (0.7%)
21,700 McDonald's Corp.......................................... 874,781
------------
Retail Stores (6.9%)
17,400 Bed Bath & Beyond, Inc.(b)............................... 604,650
25,900 Circuit City Stores, Inc................................. 1,167,119
22,600 Gap, Inc................................................. 1,039,600
33,750 Home Depot, Inc.......................................... 2,313,984
46,200 Wal-Mart Stores, Inc..................................... 3,193,575
------------
8,318,928
------------
Telecommunications (11.8%)
26,848 AT&T Corp................................................ 1,362,536
7,200 Bell Atlantic Corp....................................... 443,250
18,500 GTE Corp................................................. 1,305,406
42,100 Lucent Technologies, Inc................................. 3,149,606
60,000 MCI Worldcom, Inc.(b).................................... 3,183,749
11,500 Nextel Communications, Inc., Class A(b).................. 1,185,938
11,400 Nortel Networks Corp..................................... 1,151,400
3,200 Qualcomm, Inc.(b)........................................ 564,000
21,305 SBC Communications, Inc.................................. 1,038,619
10,800 Sprint Corp.............................................. 726,975
------------
14,111,479
------------
Total Common Stocks (Cost - $84,127,650)...................... 119,777,374
------------
</TABLE>
13
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999 (continued)
GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
Shares or
Maturity Principal Market
Rate Date Amount Value
---- -------- ---------- ------------
<S> <C> <C> <C> <C>
OPEN END INVESTMENT COMPANIES (1.1%)
Provident Institutional Temporary
Investment Fund....................... $1,329,000 $ 1,329,000
------------
Total Open End Investment Companies (Cost - $1,329,000)......... 1,329,000
------------
TOTAL (Cost - $85,456,650) (a)--100.0%.......................... $121,106,374
============
Schedule of Options Written
<CAPTION>
Contracts
----------
<S> <C> <C> <C> <C>
General Electric Co.,
(Premium received $26,724)............ $135 1/22/00 50 $ 115,000
------------
Total Options Written Outstanding at End of Year................ $115,000
============
</TABLE>
- --------
Percentages indicated are based on market value of investments of
$121,106,374.
(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
$123,688. Cost for Federal income tax purposes differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation....................................... $37,495,413
Unrealized depreciation....................................... (1,969,377)
-----------
Net unrealized appreciation................................... $35,526,036
===========
</TABLE>
(b) Represents non-income producing security.
See Notes to Financial Statements.
14
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999
FIXED INCOME FUND
<TABLE>
<CAPTION>
Maturity Principal Market
Rate Date Amount Value
---- -------- ---------- -----------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (2.4%)
Financial Services (2.4%)
Yamaha Motor Finance................... 6.25% 2/28/00 $1,000,000 $ 989,236
-----------
Total Commercial Paper (Cost - $989,236)........................ 989,236
-----------
CORPORATE BONDS (34.7%)
Aerospace & Defense (6.1%)
Lockheed Martin Corp. (Guaranteed by
Lockheed Martin Tactical Systems,
Inc.)................................. 6.85 5/15/01 2,500,000 2,474,340
-----------
Banking (6.3%)
BankAmerica Corp....................... 7.88 12/1/02 2,500,000 2,549,320
-----------
Electric Utility (10.6%)
Columbus Southern Power Company
(American Electric Power)............. 7.25 10/1/02 2,500,000 2,488,290
Commonwealth Edison.................... 6.95 7/15/18 2,000,000 1,803,914
-----------
4,292,204
-----------
Financial Services (7.1%)
Chase Manhattan Grantor Trust, Series
1996-A, Class A, ABS.................. 5.20 2/15/02 172,141 171,569
Ford Motor Credit, 1998-C, Class A-4... 5.81 3/15/02 300,000 298,920
Associates Corp., NA................... 5.75 11/1/03 1,500,000 1,428,188
Travelers Property Casualty Corp....... 7.75 4/15/26 1,000,000 974,583
-----------
2,873,260
-----------
Telecommunications (4.6%)
MCI Communications Corp................ 6.50 4/15/10 2,000,000 1,861,728
-----------
Total Corporate Bonds (Cost - $14,728,287)...................... 14,050,852
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS
(40.7%)
Fannie Mae (18.3%)
Fannie Mae, Pool #310001............... 6.00 9/1/00 606,695 602,334
Fannie Mae, Medium Term Note, Callable
1/31/00 @100.......................... 6.34 3/8/04 1,000,000 974,139
Fannie Mae, Series 1993-104, Class C,
REMIC................................. 6.50 3/25/21 2,000,000 1,932,319
Fannie Mae, Pool #250414............... 7.00 12/1/25 2,626,917 2,540,618
Fannie Mae, Pool #343195............... 7.50 5/1/26 1,221,758 1,208,961
Fannie Mae, Pool #343812............... 7.50 5/1/26 171,381 169,586
-----------
7,427,957
-----------
</TABLE>
15
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999 (continued)
FIXED INCOME FUND
<TABLE>
<CAPTION>
Maturity Principal Market
Rate Date Amount Value
---- -------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS
(continued)
Freddie Mac (17.5%)
Freddie Mac, Pool #220019............... 7.75% 1/1/02 $ 17,190 $ 17,371
Freddie Mac, Medium Term Note, Callable
1/31/00 @ 100.......................... 8.00 10/27/09 2,500,000 2,477,113
Freddie Mac, Pool #D62926............... 6.50 8/1/25 1,670,559 1,575,648
Freddie Mac, Pool #C00742............... 6.50 4/1/29 3,212,479 3,030,772
----------
7,100,904
----------
Government National Mortgage Association
(4.9%)
Government National Mortgage
Association, Pool # 356578............. 7.50 6/15/23 1,976,506 1,966,155
----------
Total U.S. Government Agency Obligations (Cost - $16,640,257).... 16,495,016
----------
U.S. GOVERNMENT OBLIGATIONS (16.9%)
U.S. Treasury Bonds (11.9%)
U.S. Treasury Bonds..................... 8.75 8/15/20 1,050,000 1,272,141
U.S. Treasury Bonds..................... 6.63 2/15/27 3,200,000 3,169,002
U.S. Treasury Bonds..................... 6.13 8/15/29 400,000 381,375
----------
4,822,518
----------
U.S. Treasury Notes (5.0%)
U.S. Treasury Notes..................... 5.63 9/30/01 1,550,000 1,534,016
U.S. Treasury Notes..................... 6.63 5/15/07 500,000 502,032
----------
2,036,048
----------
Total U.S. Government Obligations (Cost - $6,975,014)............ 6,858,566
----------
MUNICIPAL OBLIGATIONS (4.8%)
Oakland, California Pension Obligation,
Sub-Series A (MBIA Insured)............ 6.91 12/15/07 2,000,000 1,925,530
----------
Total Municipal Obligations (Cost - $2,000,000).................. 1,925,530
----------
</TABLE>
16
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999 (continued)
FIXED INCOME FUND
<TABLE>
<CAPTION>
Maturity Principal Market
Rate Date Amount Value
---- -------- ---------- -----------
<S> <C> <C> <C> <C>
OPEN END INVESTMENT COMPANIES (0.5%)
Provident Institutional Temporary
Investment Fund........................ $ 214,000 $ 214,000
-----------
Total Open End Investment Companies (Cost - $214,000)............ 214,000
-----------
TOTAL (Cost - $41,546,794) (a)--100.0%........................... $40,533,200
===========
</TABLE>
- --------
Percentages indicated are based on market value of investments of $40,533,200.
(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
$133,142. Cost for Federal income tax purposes differs from value by net
unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $ 200,220
Unrealized depreciation...................................... (1,346,956)
-----------
Net unrealized depreciation.................................. $(1,146,736)
===========
</TABLE>
MBIA - Municipal Bond Insurance Association
NA - National Association
REMIC - Real Estate Mortgage Investment Conduit
See Notes to Financial Statements.
17
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
Maturity Principal Market
Rate Date Amount Value
---- -------- ---------- -----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (99.3%)
New York (99.3%)
Albany County Airport Authority,
Airport Revenue, AMT (FSA Insured)
Callable 12/15/07 @ 102............... 5.50% 12/15/19 $ 750,000 $ 695,625
Bethlehem Central School District, GO
(AMBAC Insured)....................... 7.10 11/1/07 200,000 225,500
Metropolitan Transportation Authority,
Transportation Facilities Revenue,
Series A (MBIA Insured) Callable
7/1/07 @ 101.5........................ 5.63 7/1/25 1,200,000 1,123,500
Monroe County, Series B, GO, Callable
6/1/00 @ 101.......................... 7.00 6/1/04 10,000 10,207
New York City, Municipal Water Finance
Authority, Water & Sewer System
Revenue, Series A (FGIC Insured)*..... 4.50 1/3/00 350,000 350,000
New York City, Series A, GO, Callable
8/15/01 @ 101.5....................... 7.75 8/15/04 10,000 10,625
New York City, Series A, GO, Callable
8/15/01 @ 101.5....................... 7.75 8/15/07 70,000 74,288
New York City, Series A, GO,
Prerefunded 8/15/01 @ 101.5........... 7.75 8/15/01 590,000 627,613
New York City, Series A, GO,
Prerefunded 8/15/01 @ 101.5........... 7.75 8/15/01 305,000 324,444
New York City, Series B, GO............ 6.10 8/15/05 2,000,000 2,094,999
New York City, Series B, GO, Callable
2/1/02 @ 101.5........................ 7.50 2/1/07 1,000,000 1,067,500
New York City, Series E, GO............ 6.50 2/15/06 2,000,000 2,132,499
New York City, Series F, GO, Callable
11/15/01 @ 101.5...................... 8.40 11/15/05 45,000 48,656
New York City, Series F, GO,
Prerefunded 11/15/01 @ 101.5.......... 8.40 11/15/01 105,000 113,794
New York City, Series G, GO............ 6.75 2/1/09 1,000,000 1,093,750
New York City, Transitional Finance
Authority Revenue, Series B (FTS),
Callable 5/1/09 @101.................. 4.75 11/1/23 1,500,000 1,218,750
New York City, Trust For Cultural
Resources, Museum of Modern Art (AMBAC
Insured) Prerefunded 1/1/02 @ 102..... 6.40 1/1/02 350,000 367,938
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 1,000,000 796,250
New York State, Dormitory Authority,
City University System Revenue, Series
A (FGIC-TCRS Insured)................. 5.75 7/1/18 2,370,000 2,355,187
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 1,330,313
New York State, Dormitory Authority,
State University Education Facilities
Revenue, Series A (MBIA Insured)...... 5.88 5/15/11 1,500,000 1,565,625
New York State, Environmental
Facilities Corporation, Clean Water,
Series B, Callable 6/15/08 @ 102...... 5.05 6/15/13 300,000 283,875
</TABLE>
18
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999 (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
Corporation, Pollution Control Revenue,
State Water, Series A, Callable 6/15/01
@ 102.................................. 7.00% 6/15/12 $ 150,000 $ 157,688
New York State, Environmental Facilities
Corporation, Pollution Control Revenue,
State Water, Series A,
Prerefunded 6/15/01 @ 102.............. 7.00 6/15/01 150,000 158,063
New York State, Environmental Facilities
Corporation, Pollution Control Revenue,
State Water, Series B, Callable 3/16/00
@ 101.................................. 7.50 3/15/11 250,000 254,115
New York State, Environmental Facilities
Corporation, Pollution Control Revenue,
State Water, Series C, Callable 3/16/00
@ 102.................................. 7.20 3/15/11 200,000 205,162
New York State, Housing Finance Agency,
Multifamily Mortgage Housing Revenue,
Series A (FHA Insured) Callable 8/15/02
@ 102.................................. 7.00 8/15/22 900,000 947,250
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 2,015,506
New York State, Medical Care Facilities
Finance Agency, Series A (FSA Insured)
Callable 3/16/00 @ 100................. 7.70 2/15/18 80,000 80,286
New York State, Urban Development
Corporation, Senior Lien, Corporate
Purpose, Callable 7/1/06 @ 102......... 5.50 7/1/16 2,000,000 1,917,500
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 2,456,999
Syracuse, GO, Prerefunded 2/15/01 @
102.................................... 6.70 2/15/01 300,000 312,750
Triborough Bridge & Tunnel Authority,
General Purpose Revenue, Series A, GO,
Callable 1/1/07 @ 101.................. 5.25 1/1/28 500,000 438,125
TSASC, Inc., New York, Revenue, Callable
7/15/09 @101........................... 6.38 7/15/39 1,000,000 966,250
-----------
Total Municipal Bonds (Cost -
$28,055,630).......................... 27,820,632
-----------
</TABLE>
19
<PAGE>
Schedule of Portfolio Investments as of December 31, 1999 (continued)
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
Maturity Market
Rate Date Shares Value
---- -------- ------- -----------
<S> <C> <C> <C> <C>
OPEN-END INVESTMENT COMPANIES (0.7%)
New York (0.7%)
New York Money Fund........................ 200,000 $ 200,000
-----------
Total Open-End Investment Companies (Cost -
$200,000)................................ 200,000
-----------
TOTAL (Cost - $28,255,630) (a)--100.0%........................... $28,020,632
===========
</TABLE>
- --------
Percentages indicated are based on market value of investments of $28,020,632.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $ 694,671
Unrealized depreciation......................................... (929,669)
---------
Net unrealized depreciation..................................... $(234,998)
=========
</TABLE>
* Variable rate security. Rate represents rate in effect at December 31, 1999.
Date presented represents the next rate change date.
AMBAC - American Municipal Bond Assurance Corp.
AMT - Alternative minimum Taxable Paper
FGIC - Financial Guaranty Insurance Corp.
FHA - Federal Housing Administration
FSA - Financial Security Assurance, Inc.
FTS - Future Tax Secured
GO - General Obligation
MBIA - Municipal Bond Assurance Association
SONYMA - State of New York Mortgage Agency
TCRS - Transferable Custody Receipts
See Notes to Financial Statements.
20
<PAGE>
Statements of Assets and Liabilities
December 31, 1999
<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 $85,456,650, $41,546,794,
$28,255,630, respectively)............. $121,106,374 $40,533,200 $28,020,632
Cash.................................... 65,643 4,051 4,997
Interest and dividends receivable....... 73,272 428,419 550,877
Receivable for capital shares sold...... 16,210 1,645,243 57
Receivable from investment securities
sold................................... -- 28 --
Prepaid expenses........................ 17,879 6,870 3,978
------------ ----------- -----------
Total Assets............................. 121,279,378 42,617,811 28,580,541
------------ ----------- -----------
LIABILITIES:
Dividends payable....................... -- 213,176 54,234
Payable for capital shares redeemed..... 15,319 -- --
Options contracts written, at market
value (Premiums received $26,724, $0,
$0, respectively)...................... 115,000 -- --
Accrued expenses and other payables:
Investment advisory fees............... 55,337 19,263 11,104
Administration fees.................... 10,061 3,502 2,468
Distribution fees...................... 7,129 -- 5,467
Service organization Fees.............. 2,365 -- --
Other.................................. 50,317 29,342 40,165
------------ ----------- -----------
Total Liabilities........................ 255,528 265,283 113,438
------------ ----------- -----------
Net Assets............................... $121,023,850 $42,352,528 $28,467,103
============ =========== ===========
COMPOSITION OF NET ASSETS:
Paid-in capital......................... $ 82,178,751 $45,490,544 $29,338,115
Undistributed (overdistributed) net
investment income...................... 11,705 53,100 (18,944)
Accumulated net realized gain (losses)
from investment transactions........... 3,271,946 (2,177,522) (617,070)
Net unrealized appreciation
(depreciation) from investments........ 35,561,448 (1,013,594) (234,998)
------------ ----------- -----------
Net Assets............................... $121,023,850 $42,352,528 $28,467,103
============ =========== ===========
COMPUTATION OF NET ASSET VALUE:
Class A:
Net assets............................. $117,542,043 $42,352,528 $28,075,468
Shares of beneficial interest issued
and outstanding (par value $0.001 per
share, unlimited number of shares
authorized)........................... 7,879,959 4,405,205 2,617,601
------------ ----------- -----------
Net asset value........................ $14.92 $9.61 $10.73
============ =========== ===========
Maximum sales charge................... 5.00% 4.75% 4.75%
Maximum offering price (Net asset
value/(100%--Maximum sales charge))... $15.71 $10.09 $11.27
============ =========== ===========
Class B:
Net assets............................. $ 3,458,509 $ 391,635
Shares of beneficial interest issued
and outstanding (par value $0.001 per
share, unlimited number of shares
authorized)........................... 232,684 36,521
------------ -----------
Net asset value........................ $14.86 $10.72
============ ===========
Class C:
Net assets............................. $ 23,298
Shares of beneficial interest issued
and outstanding (par value $0.001 per
share, unlimited number of shares
authorized)........................... 1,568
------------
Net asset value........................ $14.86
============
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
Statements of Operations
For the year ended December 31, 1999
<TABLE>
<CAPTION>
Growth Fixed New York
and Income Tax-Free
Income Fund Fund Bond Fund
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest................................ $ 123 $ 3,045,564 $ 1,758,654
Dividends............................... 1,157,463 19,397 5,891
----------- ----------- -----------
Total Income............................. 1,157,586 3,064,961 1,764,545
----------- ----------- -----------
EXPENSES:
Investment advisory fees................ 623,293 254,999 143,721
Administration fees..................... 169,989 69,546 47,907
Co-administration and shareholder
servicing fees......................... 79,328 32,454 22,356
Service organization fees (Class B)..... 4,680 -- 586
Service organization fees (Class C)..... 50 -- --
Distribution fees (Class A)............. 799 178 52,027
Distribution fees (Class B)............. 7,003 -- 877
Distribution fees (Class C)............. 75 -- --
Custodian fees.......................... 16,054 7,212 4,219
Legal fees.............................. 88,047 36,841 24,344
Transfer agent fees..................... 58,042 22,501 83,316
Other expenses.......................... 98,960 58,296 44,258
----------- ----------- -----------
Total expenses before fee reductions
and reimbursements.................... 1,146,320 482,027 423,611
Fee reductions and reimbursement of
expenses.............................. (138,357) (55,636) (73,503)
----------- ----------- -----------
Net Expenses............................. 1,007,963 426,391 350,108
----------- ----------- -----------
Net Investment Income.................... 149,623 2,638,570 1,414,437
----------- ----------- -----------
NET REALIZED/UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains (losses) from
investment transactions................ 12,129,768 (405,827) (125,254)
Net change in unrealized appreciation
(depreciation) from investments........ 7,082,383 (3,184,724) (2,457,036)
----------- ----------- -----------
Net Realized/Unrealized Gains (Losses)
from Investments....................... 19,212,151 (3,590,551) (2,582,290)
----------- ----------- -----------
Change in Net Assets Resulting from
Operations.............................. $19,361,774 $ (951,981) $(1,167,853)
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Growth and Income Fund
-----------------------------------
For the For the
year ended year ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
From Investment Activities:
OPERATIONS:
Net investment income..................... $ 149,623 $ 530,461
Net realized gains (losses) from
investment transactions.................. 12,129,768 9,102,892
Net change in unrealized appreciation
(depreciation) from investments.......... 7,082,383 13,103,132
------------ ------------
Change in net assets resulting from
operations............................... 19,361,774 22,736,485
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Class A.................................. (137,848) (531,024)
Class B*................................. (64) --
Class C*................................. (6) --
From net realized gains:
Class A.................................. (10,530,718) (12,216,636)
Class B*................................. (250,808) --
Class C*................................. (2,072) --
------------ ------------
Change in net assets from shareholder
distributions............................ (10,921,516) (12,747,660)
------------ ------------
Change in net assets from capital share
transactions............................. 6,316,652 41,083,371
------------ ------------
Change in Net Assets...................... 14,756,910 51,072,196
------------ ------------
NET ASSETS:
Beginning of year......................... 106,266,940 55,194,744
------------ ------------
End of year (including undistributed net
investment income of $11,705, $0,
respectively)............................ $121,023,850 $106,266,940
============ ============
</TABLE>
- --------
*Class B and Class C shares commenced offering on July 1, 1999.
See Notes to Financial Statements.
23
<PAGE>
Statements 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, 1999 December 31, 1998 December 31, 1999 December 31, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
From Investment
Activities:
OPERATIONS:
Net investment income.. $ 2,638,570 $ 3,146,518 $ 1,414,437 $ 1,568,024
Net realized gains
(losses) from
investment
transactions.......... (405,827) 1,275,186 (125,254) 805,303
Net change in
unrealized
appreciation
(depreciation) from
investments........... (3,184,724) 91,117 (2,457,036) (300,037)
------------ ----------- ----------- -----------
Change in net assets
resulting from
operations............ (951,981) 4,512,821 (1,167,853) 2,073,290
------------ ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income:
Class A............... (2,649,910) (3,146,518) (1,410,156) (1,568,024)
Class B*.............. -- -- (4,281) --
In excess of net
investment income:
Class A............... -- -- (18,944) --
------------ ----------- ----------- -----------
Change in net assets
from shareholder
distributions......... (2,649,910) (3,146,518) (1,433,381) (1,568,024)
------------ ----------- ----------- -----------
Change in net assets
from capital share
transactions.......... (7,879,139) (8,935,023) (2,599,702) (4,361,201)
------------ ----------- ----------- -----------
Change in Net Assets... (11,481,030) (7,568,720) (5,200,936) (3,855,935)
------------ ----------- ----------- -----------
NET ASSETS:
Beginning of year...... 53,833,558 61,402,278 33,668,039 37,523,974
------------ ----------- ----------- -----------
End of year (including
undistributed/
(overdistributed) net
investment income of
$22,174, $33,514,
($18,944), and $0,
respectively)......... $ 42,352,528 $53,833,558 $28,467,103 $33,668,039
============ =========== =========== ===========
</TABLE>
- --------
*Class B shares commenced offering on July 1, 1999.
See Notes to Financial Statements.
24
<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 (individually as a "Fund", collectively as the "Funds").
The investment objectives and policies are as follows:
<TABLE>
<C> <S>
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 Fund-- To provide investors with as high a level of
current income exempt from regular Federal,
New York State and New York City personal
income taxes as is consistent with relative
stability of capital.
</TABLE>
Effective July 1, 1999 the Funds were authorized to issue three classes of
shares as follows: Class A, Class B, and Class C. At December 31, 1999,
Fixed Income Fund had not issued Class B and Class C shares and the New
York Tax-Free Bond Fund had not issued Class C shares. Class A shares are
subject to a sales load as described in the prospectus. Class B and Class C
shares are subject to a contingent deferred sales charge at the time of the
redemption. Class A, Class B, and Class C shares bear distribution (12b-1)
fees. Class A, Class B, and Class C bear service organization fees. Each
class has identical rights and privileges except with respect to the
distribution (12b-1) fees and the service organization fees paid by each
respective class, voting matters affecting a single class of shares and the
exchange privileges of each class of shares.
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
25
<PAGE>
Notes to Financial Statements (continued)
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 Funds' 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.
For Federal income tax purposes, the following funds have capital loss
carryforwards as of December 31, 1999 which are available to offset any
future gains, if any:
<TABLE>
<CAPTION>
Amount Expires
---------- -------
<S> <C> <C>
Fixed Income Fund........ $1,377,021 2004
363,749 2005
244,634 2007
----------
$1,985,404
==========
New York Tax-Free Bond
Fund.................... $ 486,136 2003
5,680 2005
75,427 2007
----------
$ 567,243
==========
</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.
26
<PAGE>
Notes to Financial Statements (continued)
As of December 31, 1999, the following reclassifications have been made to
increase (decrease) the indicated accounts:
<TABLE>
<CAPTION>
Accumulated Net
Realized
Undistributed Net Gains/(Losses)
Investment Income on Investments
----------------- ---------------
<S> <C> <C>
Fixed Income Fund.......................... $30,926 $(30,926)
</TABLE>
Security Transactions and Related Income: Security transactions are
recorded on trade date. Dividend income is recorded on the ex-dividend
date. Interest income is recognized on the accrual basis and includes,
where applicable, the amortization of premium or discount. Securities gains
and losses are calculated on the identified cost basis.
Expense Allocation: Expenses directly attributed to each Fund in the Trust
are charged to that Fund's operations; expenses which are applicable to all
Funds are allocated among them on the basis of relative net assets or
another appropriate basis.
3. Portfolio Securities
Purchases and sales of securities (excluding short-term securities) for the
year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Growth and Income Fund............................. $105,241,850 $109,862,454
Fixed Income Fund.................................. 33,981,562 40,423,586
New York Tax-Free Bond Fund........................ 3,656,055 6,239,011
</TABLE>
27
<PAGE>
Notes to Financial Statements (continued)
4. Shares of Beneficial Interest
The Funds are authorized to issue an unlimited number of shares of
beneficial interest with a par value of $0.001 per share. Transactions in
shares of beneficial interest and capital transactions for the year ended
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Growth and Income Fund
--------------------------------
For the Year Ended December 31,
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares issued.............. $ 9,955,766 $ 42,875,131
Dividends reinvested..................... 9,322,388 13,780,310
Cost of shares redeemed.................. (16,362,843) (15,572,070)
--------------- ---------------
Class A capital transactions............. $ 2,915,311 $ 41,083,371
--------------- ---------------
Class B Shares:*
Proceeds from shares issued.............. $ 3,150,439 $ --
Dividends reinvested..................... 250,838 --
Cost of shares redeemed.................. (24,436) --
--------------- ---------------
Class B capital transactions............. $ 3,376,841 $ --
--------------- ---------------
Class C Shares:*
Proceeds from shares issued.............. $ 22,455 $ --
Dividends reinvested..................... 2,045 --
--------------- ---------------
Class C capital transactions............. $ 24,500 $ --
--------------- ---------------
Net increase from capital transactions.... $ 6,316,652 $ 41,083,371
=============== ===============
SHARE TRANSACTIONS:
Class A Shares:
Issued................................... 684,171 3,357,173
Reinvested............................... 646,833 1,009,942
Redeemed................................. (1,115,495) (1,168,181)
--------------- ---------------
Class A capital transactions............. 215,509 3,198,934
--------------- ---------------
Class B Shares:*
Issued................................... 216,842 --
Reinvested............................... 17,554 --
Redeemed................................. (1,712) --
--------------- ---------------
Class B capital transactions............. 232,684 --
--------------- ---------------
Class C Shares:*
Issued................................... 1,426 --
Reinvested............................... 142 --
--------------- ---------------
Class C capital transactions............. 1,568 --
--------------- ---------------
Net increase from share transactions...... 449,761 3,198,934
=============== ===============
</TABLE>
*Class B and Class C shares commenced offering on July 1, 1999.
28
<PAGE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
Fixed Income Fund New York Tax-Free Bond Fund
-------------------------- ----------------------------
For the Year Ended For the Year Ended
December 31, December 31,
-------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Class A Shares:
Proceeds from shares
issued................. $ 6,778,445 $ 9,201,178 $ 1,276,057 $ 1,667,644
Dividends reinvested... 45,015 54,313 861,424 904,671
Cost of shares
redeemed............... (14,702,599) (18,190,514) (5,139,821) (6,933,516)
------------ ------------ ------------- -------------
Class A capital
transactions........... $ (7,879,139) $ (8,935,023) $ (3,002,340) $ (4,361,201)
------------ ------------ ------------- -------------
Class B Shares:*
Proceeds from shares
issued................. $ -- $ -- $ 403,571 $ --
Dividends reinvested... -- -- 4,022 --
Cost of shares
redeemed............... -- -- (4,955) --
------------ ------------ ------------- -------------
Class B capital
transactions........... $ -- $ -- $ 402,638 $ --
------------ ------------ ------------- -------------
Net increase
transactions............ $ (7,879,139) $ (8,935,023) $ (2,599,702) $ (4,361,201)
============ ============ ============= =============
SHARE TRANSACTIONS:
Class A Shares:
Issued................. 685,707 902,978 111,664 144,518
Reinvested............. 4,510 5,316 76,461 78,329
Redeemed............... (1,476,476) (1,784,806) (461,798) (601,146)
------------ ------------ ------------- -------------
Class A capital
transactions........... (786,259) (876,512) (273,673) (378,299)
------------ ------------ ------------- -------------
Class B Shares:*
Issued................. -- -- 36,607 --
Reinvested -- -- 372 --
Redeemed............... -- -- (458) --
------------ ------------ ------------- -------------
Class B capital
transactions........... -- -- 36,521 --
------------ ------------ ------------- -------------
Net increase from share
transactions............ (786,259) (876,512) (237,152) (378,299)
============ ============ ============= =============
</TABLE>
*Class B shares commenced offering on July 1, 1999.
29
<PAGE>
Notes to Financial Statements (continued)
5. 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. accrues
daily, and is paid monthly, advisory fees at the following annual rates:
<TABLE>
<CAPTION>
Investment 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%
<CAPTION>
Investment
Advisory Fee Rate
New York
Portion of the Fund's Average Daily Net Assets Fund Tax-Free Bond
--------------------------------------------------- -----------------
<S> <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% (Class A shares) and 0.50% (Class B and Class C shares, each)
of the average value of the Funds' shares held in the subaccounts of the
Service Organizations. During the year ended December 31, 1999, the Funds
Class A shares did not participate in any service agreement. Additionally,
BISYS Fund Services waived service organization fees for the Growth and
Income Fund Class B and Class C, in the amounts of $2,340 and $25,
respectively, and the New York Tax-Free Bond Fund Class B in the amount of
$293.
30
<PAGE>
Notes to Financial Statements (continued)
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership, is a subsidiary of The BISYS Group,
Inc. BISYS, with whom certain officers are affiliated, serves the Trust as
distributor, administrator, transfer agent and fund accountant. Such
officers are not paid any fees directly by the Funds for serving as
officers of the Trust. In accordance with the terms of the Management and
Administration Agreement and the Fund Accounting Agreement, BISYS accrues
daily, and is paid monthly, an asset-based fee as follows:
<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>
BISYS is contractually limiting its Administration fee to 0.10% of each
Fund's average net assets.
HSBC Asset Management Americas Inc. earned co-administration and
shareholder services fees of 0.07% of each Fund's average net assets, all
of which were waived. Effective July 1, 1999, HSBC Asset Management
Americas Inc. no longer charges co-administration and shareholder services
assistance fees.
Information regarding these fee waivers for the year ended December 31,
1999 follows:
<TABLE>
<CAPTION>
Co-Administration
Investment and Shareholder
Advisory Fees Administration Servicing Fees
waived Fees waived waived
------------- -------------- -----------------
<S> <C> <C> <C>
Growth and Income Fund.. $ -- $56,664 $79,328
Fixed Income Fund....... -- 23,182 32,454
New York Tax-Free Bond
Fund.................... 34,885 15,969 22,356
</TABLE>
With respect to Class A, the Funds have adopted a Distribution Plan and
Agreement (the "Plan") pursuant to Rule 12b-1 of the 1940 Act. The Plan
provides for a monthly payment by the Fund to BISYS Fund Services for
expenses incurred in connection with distribution services provided to the
Fund not to exceed an annual rate of 0.35% (0.50% for Growth and Income
Fund) of the average net assets for Class A shares during the preceding
month.
31
<PAGE>
Notes to Financial Statements (continued)
With respect to Class B and Class C, the Funds have adopted a Distribution
Plan and Agreement (the "Plan") pursuant to Rule 12b-1 of the 1940 Act. The
Plan provides for a monthly payment by the Fund to BISYS Fund Services for
expenses incurred in connection with distribution services provided to the
Fund not to exceed an annual rate of 0.75% of the average net assets for
Class B and Class C shares 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, 1999, 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................. $21,680 $2,518 $ 2,749
Fixed Income Fund...................... 735 0 26
New York Tax-Free Bond Fund............ 23,783 238 22,493
------- ------ -------
$46,198 $2,756 $25,268
======= ====== =======
</TABLE>
A partner of the Trust's legal counsel served as Secretary of the Trust.
Paul, Weiss, Rifkind, Wharton and Garrison serves as the Trust's legal
counsel for the year ended December 31, 1999.
6. Options Written
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.
A 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 exceed 25% of the value of the Fund's net assets.
32
<PAGE>
Notes to Financial Statements (continued)
The following is a summary of written call option activity for the year
ended December 31, 1999 by the Growth and Income Fund:
<TABLE>
<CAPTION>
Call Options
------------------
Number of
Contracts Premiums
--------- --------
<S> <C> <C>
Balance at beginning of year............................. 70 $ 23,415
Options written.......................................... 862 337,273
Options closed........................................... 825 314,186
Options expired.......................................... 57 19,778
--- --------
Options outstanding at end of year....................... 50 $ 26,724
=== ========
</TABLE>
7. 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.
8. Federal Income Tax Information (Unaudited)
Federal income tax information for the taxable year ended December 31, 1999
was as follows:
<TABLE>
<CAPTION>
Long-Term Dividends
Tax-Exempt Capital Gain Received
Distribution Distribution Deduction %
------------ ------------ -----------
<S> <C> <C> <C>
Growth and Income Fund................. $ -- $10,783,598 79.18%
New York Tax-Free Bond Fund............ 1,507,598 -- --
</TABLE>
33
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH AND INCOME FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each
Year and Periods Indicated.
<TABLE>
<CAPTION>
Class A Class B*** Class C***
----------------------------------------------- ------------ ------------
Period ended Period ended
For the year ended December 31, December 31, December 31,
----------------------------------------------- ------------ ------------
1999 1998 1997 1996 1995 1999 1999
-------- -------- ------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 13.86 $ 12.36 $ 16.28 $ 14.77 $ 11.93 $15.32 $15.32
-------- -------- ------- -------- ------- ------ ------
Investment Activities
Net investment income.. 0.02 0.07 0.18 0.18 0.30 (0.03) (0.06)
Net realized and
unrealized gains from
investment
transactions.......... 2.47 3.23 4.28** 2.46 3.64 0.98 1.01
-------- -------- ------- -------- ------- ------ ------
Total from Investment
Activities............. 2.49 3.30 4.46 2.64 3.94 0.95 0.95
-------- -------- ------- -------- ------- ------ ------
Distributions
From net investment
income................ (0.02) (0.08) (0.19) (0.18) (0.30) -- --
From net realized
gains................. (1.41) (1.72) (8.19) (0.95) (0.80) (1.41) (1.41)
-------- -------- ------- -------- ------- ------ ------
Total Distributions..... (1.43) (1.80) (8.38) (1.13) (1.10) (1.41) (1.41)
-------- -------- ------- -------- ------- ------ ------
Net Asset Value, End of
Period................. $ 14.92 $ 13.86 $ 12.36 $ 16.28 $ 14.77 $14.86 $14.86
======== ======== ======= ======== ======= ====== ======
Total Return (excludes
sales charges)......... 18.48% 26.97% 27.42% 17.90% 33.11% 6.68%(a) 6.68%(a)
Ratios/Supplemental
Data:
Net Assets at end of
period (000).......... $117,542 $106,267 $55,195 $140,688 $66,062 $3,459 $ 23
Ratio of expenses to
average net assets.... 0.88% 0.89% 0.83% 0.85% 0.94% 1.77%(b) 1.72%(b)
Ratio of net investment
income to average net
assets................ 0.14% 0.58% 0.95% 1.43% 2.06% (0.87)%(b) (0.81)%(b)
Ratio of expenses to
average net assets*... 1.00% 1.01% 0.95% 0.96% 0.97% 2.13%(b) 2.07%(b)
Portfolio turnover rate
(c)................... 94.36% 82.19% 69.07% 61.68% 52.77% 94.36% 94.36%
</TABLE>
- --------
(a) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
* During the period, certain fees were reduced and/or reimbursed. If such 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.
*** Class B and Class C commenced offering on July 1, 1999.
34
<PAGE>
FINANCIAL HIGHLIGHTS
FIXED INCOME FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each
Year and Periods Indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 10.37 $ 10.12 $ 9.89 $ 10.28 $ 9.35
------- ------- ------- -------- -------
Investment Activities
Net investment income.......... 0.57 0.57 0.59 0.59 0.59
Net realized and unrealized
gains from investment
transactions.................. (0.76) 0.25 0.23 (0.39) 0.93
------- ------- ------- -------- -------
Total from Investment
Activities..................... (0.19) 0.82 0.82 0.20 1.52
------- ------- ------- -------- -------
Distributions
From net investment income..... (0.57) (0.57) (0.59) (0.59) (0.59)
------- ------- ------- -------- -------
Total Distributions............. (0.57) (0.57) (0.59) (0.59) (0.59)
------- ------- ------- -------- -------
Net Asset Value, End of Period.. $ 9.61 $ 10.37 $ 10.12 $ 9.89 $ 10.28
======= ======= ======= ======== =======
Total Return (excludes sales
charges)....................... (1.86%) 8.33% 8.62% 2.11% 16.73%
Ratios/Supplemental Data:
Net Assets at end of period
(000)......................... $42,353 $53,834 $61,402 $104,875 $99,942
Ratio of expenses to average
net assets.................... 0.92% 0.89% 0.88% 0.88% 0.93%
Ratio of net investment income
to average net assets......... 5.70% 5.59% 6.00% 5.94% 6.03%
Ratio of expenses to average
net assets*................... 1.04% 1.01% 1.00% 0.98% 0.96%
Portfolio turnover rate........ 75.75% 71.05% 60.98% 156.05% 41.58%
</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.
35
<PAGE>
FINANCIAL HIGHLIGHTS
NEW YORK TAX-FREE BOND FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each
Year and Periods Indicated.
<TABLE>
<CAPTION>
Class A Class B***
-------------------------------------------- ------------
Period ended
For the year ended December 31, December 31,
-------------------------------------------- ------------
1999 1998 1997 1996 1995 1999
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 11.64 $ 11.48 $ 11.05 $ 11.17 $ 10.20 $11.21
------- ------- ------- ------- ------- ------
Investment Activities
Net investment income.. 0.51 0.51 0.53 0.55 0.54 0.19
Net realized and
unrealized gains from
investment
transactions.......... (0.91) 0.16 0.43 (0.12) 0.97 (0.49)
------- ------- ------- ------- ------- ------
Total from Investment
Activities............. (0.40) 0.67 0.96 0.43 1.51 (0.30)
------- ------- ------- ------- ------- ------
Distributions
From net investment
income................ (0.51) (0.51) (0.53) (0.55) (0.54) (0.19)
------- ------- ------- ------- ------- ------
Total Distributions..... (0.51) (0.51) (0.53) (0.55) (0.54) (0.19)
------- ------- ------- ------- ------- ------
Net Asset Value, End of
Period................. $ 10.73 $ 11.64 $ 11.48 $ 11.05 $ 11.17 $10.72
======= ======= ======= ======= ======= ======
Total Return (excludes
sales charges)......... (3.58%) 5.99% 8.97% 3.99% 15.17% (2.71%)(a)
Ratios/Supplemental
Data:
Net Assets at end of
period (000).......... $28,075 $33,668 $37,524 $41,975 $50,677 $ 392
Ratio of expenses to
average net assets.... 1.08% 0.96% 0.92% 0.91% 0.99% 2.01%(b)
Ratio of net investment
income to average net
assets................ 4.40% 4.47% 4.79% 5.02% 5.07% 3.37%(b)
Ratio of expenses to
average net assets*... 1.31% 1.28% 1.24% 1.21% 1.20% 2.35%(b)
Portfolio turnover
rate**................ 11.85% 56.81% 35.64% 87.40% 24.43% 11.85%
</TABLE>
- --------
(a) Not annualized.
(b) Annualized.
* 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.
** Porfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
*** Class B commenced offering on July 1, 1999.
36
<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, 1999, 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 auditing standards generally
accepted in the United States. 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, 1999,
by correspondence with the custodian and others. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth and Income Fund, Fixed Income Fund, and New York Tax-Free Bond Fund at
December 31, 1999, 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 accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 23, 2000
37
<PAGE>
HSBC Mutual Funds Trust
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[LOGO OF HSBC ASSET MANAGEMENT
AMERICAS INC. APPEARS HERE]
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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.
2/00
Annual Report
December 31, 1999
Managed by:
HSBC Asset Management Americas Inc.
Sponsored and distributed by:
BISYS Fund Services
