<PAGE>
HSBC Mutual Funds Trust
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[Logo of HSBC Asset Management Americas Inc. Appears Here]
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International Equity Fund
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July 18, 2000
Executive Summary
. Value equities begin to perform
. Currencies have micro implications too
. Japan remains overvalued
In the 2nd half of the six months ended June 30, 2000, the majority of equity
markets produced negative returns in United States ("U.S.") Dollar terms, with
the notable exceptions being Australia, Belgium and Norway which all produced
positive returns of over 6%. The Asian markets that were especially weak were
Hong Kong and Japan, which fell by 13.5% and 6.2% to the U.S. Dollar investor.
The majority of Scandinavian markets in Europe produced particularly poor
returns with local currency returns falling by 3.1%, 8.4% and 5.5% for Denmark,
Finland and Sweden, reflecting their high exposure in technology and
telecommunications sectors. Germany, Spain and the United Kingdom ("U.K.") also
showed disappointing returns over the second quarter with performances of
(11.8%), (7.5%) and (6.5%) in U.S. Dollar terms. The U.K. was especially
hindered by a weak currency, which fell by 5.1% against the U.S. Dollar over
the period. The Japanese Yen and New Zealand dollar also had a negative impact
on the Morgan Stanley Capital International Europe, Australasia and Far East
("MSCI-EAFE") Index's/1/ performance with both currencies falling by 3.1% and
5.2% respectively.
March was a turning point. From the second half of that month on, the market
darlings were no longer technology and telecommunications stocks, but rather
those in the so-called "old economy".
Within the undoubtedly fast growth sectors of technology, media and
telecommunications companies, investors will no longer be prepared to ignore
questionable fundamentals, such as high cash "burn" rates for business-to-
consumer internet retailers, or huge license fees in European
telecommunications. There has been a significant switch to valuing growth,
rather than chasing it.
The first six months have seen increased volatility in currency markets,
reflecting an unclear interest rate picture and huge cross-border capital
flows. An understanding of currency impact on corporate earnings and
competitiveness is vital since many companies operate in the global market
place. We believe that a fundamental assessment of currency value is key to an
accurate appraisal of the long-term micro fundamentals of stocks.
Despite evidence that there may be a growing closeness between the performance
of stocks within industrial global sectors, recent differences in market
returns have also demonstrated that socio-economic and political factors do
------
/1/Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East
(EAFE) Index is an unmanaged index that measures performance of a diverse
range of developed countries in the indicated regions.
<PAGE>
HSBC Mutual Funds Trust
remain important. Our negative stance on Japan bore some fruit in the second
quarter. A combination of unattractive valuations and unclear communications
on monetary policy or deregulation, justify our value stance. The key driver
will be the speed with which Japanese corporations embrace "U.S. style"
return-on-equity parameters. Progress has been made here, and we believe there
is more to come. However, it is happening too slowly to make equities
attractive at this time.
The International Equity Fund (the "Fund") significantly outperformed the
MSCI-EAFE in the second quarter as a result of very strong stock selection.
The Fund continues to focus on value opportunities outside the U.K.
Economic Background
. U.S. economy slower, but deficit worst since Civil War
. Europe on the rise
. World demand remains high
Economic trends are mostly on message. The U.S. economy is slowing while
Europe is picking up. The Euro has risen, at the expense of the dollar. If
there is a surprise, it's that the Euro has not risen more quickly.
Higher interest rates are making some impact on the U.S. There are some signs
of a slowdown, principally in housing, which will have an effect on consumer
demand. However, economic growth remains high. Not until it gets below 3% can
one expect much improvement in the balance of payments, or indeed any
reduction in the risks of inflation. The Consumer Price Index/2/ ("CPI") was
already above 3% a year ago, and seems likely to get worse before it gets
better. We believe that further interest rate hikes are in the cards.
By borrowing Euros, U.S. companies have been helping to drag in the capital to
finance the hole in the U.S. current account--now the worst since the Civil
War. As U.S. business confidence wanes, so will the flow of capital; then the
dollar will fall. In fact--we may have already seen the tide turn. The dollar
fell in both May and June. Since the U.S. Dollar hit 89 cents versus the Euro
in early May, the Euro has risen 8%; the yen is up 5% from its low and the
Australian Dollar up 6%. Nevertheless, we still believe the U.S. Dollar to be
significantly over-valued and will need to decline further before it has a big
impact on the current account.
With the Euro improving, the European Central Bank should become less
concerned about monetary conditions being too loose. But it is unlikely to get
complacent. European growth is now almost as fast as in the U.S. May
industrial production was 6% higher than a year ago, reflecting strong
exports, high investment and confident consumers. Such high rates will hurt
the Euro balance of payments, but it does start from a good surplus. Strong
demand and historically low interest rates mean that Euro zone public finances
are in good shape, and there is more money to come from the sale of telecom
rights. Fiscal policy is being eased, keeping the European economies on the
boil for the next several quarters. Productivity is high, so domestic cost
pressures are almost non-existent. What little inflation there is reflects
external factors (oil prices and the past decline of the Euro). The different
strategic positions of the U.S. and European economies suggest the Euro will
improve further against the U.S. Dollar.
In contrast, Japan remains mired. The optimism of some observers has again
been dashed. Japanese company profits are doing well, but a more bullish
outlook by business in general seems some way off. Nevertheless, even a modest
growth outlook is better than the recent past.
--------
/2/The Consumer Price Index is a measure of the average change in prices over
time in a fixed market basket.
2
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HSBC Mutual Funds Trust
World activity remains high, so those who look for big falls in oil prices may
be disappointed. World inflation is still benign, but the pressure is
gradually building.
Political Background
. Mexico elects a non-PRI president
. No change in Japan (again)
There is no doubt that the political event of the quarter was the fact that
Vicente Fox became president of Mexico. What Fox will do, or even whether he
will actually do anything much, is not the important issue. He is the first
president of Mexico in 71 years who does not belong to the Institutional
Revolutionary Party (PRI), a party which in the past has controlled Mexico,
and which seemingly was prepared to do virtually anything to make sure that it
held on to power. Fox's win shows that Mexico may have joined the ranks of
democratic modern states. Because the PRI has had a monopoly of power, the
problems of the poor have escalated into serious regional issues. There is now
a chance they may be addressed differently, but whether this is a recipe for
success, or for chaos, is yet to be determined.
Being reminded of how long it took Mexico to break with the past should make
us less surprised at the result of the election in Japan. In short, very
little changed. The ruling Liberal Democratic-led (the "LDP") coalition
remains in place with a reasonable majority, despite having no more than 50%
of the vote. At first glance, this was a surprise. The economy has been in
such a poor state for so long that some kind of electoral reprimand might have
been expected. In fact, that did happen to an extent, but the LDP and its
allies understood Japan's electoral system better than their opponents, and
were better at arranging local constituency pacts. Therefore, their results in
terms of seats were better than the opposition. The opposition should become
better disciplined after this. In addition, the public debt problem will
demand tough action, while the economy seems unlikely to stage a major
recovery. Finally, remember that Japan (like the U.S. and U.K.) has a winner
take all electoral system, which can magnify opinion changes. The risk of some
major electoral earthquake in Japan remains. Until then, expect no big changes
to economic policy.
Fixed Income
. Value lies outside the U.S.
In the 2nd half of the six months ended June 30, 2000, most bond markets were
again positive, averaging a 1% rise in local currency terms. Mostly, it felt
as if the U.S. (up 1.5%) led the way because Japan was up only 0.7% and the
Euro markets 0.6%--but in fact the other Anglo markets were strong. Australia
rose 2.8%, New Zealand 2.6%, the U.K. 1.9% and Canada 1.7%. U.S. Dollar
returns were again eroded by currency changes. The U.S. Dollar rose 1.6% on
average, with both Sterling and New Zealand dollar down 5%, and the yen down
3%; these three had the worst U.S. Dollar returns, (3.3%), (2.8%) and (2.3%)
respectively. However, this picture of a strong U.S. Dollar in the 2nd quarter
is misleading, as it weakened in both May and June.
3
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HSBC Mutual Funds Trust
Currencies
. U.S. Dollar turns (at last)
. Getting harder to finance U.S. deficit
. Many non-U.S. currencies are cheap
Since early May, the U.S. Dollar has been weak. This may appear something of a
rush to judgement, as this is such a short period of experience, but we do not
think so. We have previously emphasized the large U.S. current account, and
that this needs to be covered by a similarly large inflow of capital, if the
U.S. Dollar is to do no more than hold its present value in the foreign
exchanges. Until now, the U.S. has found this easy to do. The corporate sector
has been busy borrowing abroad (not necessarily direct, but via U.S. banks)
and the build-up of oil surpluses has also helped.
To us, the surprise is that U.S. Dollar strength has gone on for so long. Now,
the profitability problems of a number of U.S. technology-based companies are
becoming well publicized. They will find borrowing more difficult in the
quarters ahead, and this will translate into less capital inflow. But the
current account shows no sign of getting any smaller, and it will not until
U.S. growth gets well below 3%. The U.S. Dollar is at risk, not just of a
prolonged decline, but possibly a sharp one.
In currency terms, the best values lie outside the U.S. In fact, a number of
currencies are at historical extremes of value. This description applies to
the Euro, to the Australian and New Zealand dollars, and to a lesser extent
the Canadian currency. Sterling and the yen continue to be ones to avoid.
Sincerely,
/s/ Clive Gillmore
Clive Gillmore
Regional Research Director, Equities
Delaware International Advisers, Ltd.
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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.
The views expressed in this report reflect those of the portfolio manager
through the year ended June 30, 2000. The manager's views are subject to
change at any time based on the market and other conditions.
4
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HSBC Mutual Funds Trust
International Equity Fund
Performance (as of June 30, 2000)
[GRAPH APPEARS HERE]
International International
Equity Fund- Equity Fund- MSCI-
Class A Shares Class A Shares EAFE
(without load) (with load) Index(3)
April 1994 10,000 9,497 10,000
December 1994 9,550 9,069 9,990
December 1995 9,970 9,468 11,110
December 1996 10,600 10,066 11,781
December 1997 10,382 9,860 11,991
December 1998 11,557 10,975 14,389
December 1999 13,853 13,156 18,268
June 2000 14,140 13,428 17,526
Average Annual Total Return
Inception
1 Year 5 Year (3/1/95)
Institutional
Class A Shares
Offering Price
& NAV 10.50% 8.46% 9.27%
Class A Shares
Offering Price(1) 5.00% 7.35% 4.83%
NAV(2) 10.50% 8.46% 5.76%
- - International Equity Fund-
Class A Shares (without load)
------- International Equity Fund-
Class A Shares (with load)
_______ MSCI-EAFE Index(3)
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) The MSCI-EAFE Index (the "Index) is a broad based capitalization weighted
unmanaged index that represents the general performance of over 1,000
companies of the European, Australian and Far Eastern equity markets. The
Index is widely accepted 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.
The above illustration compares a $10,000 investment in the International
Equity Fund, Class A Shares, on April 25, 1994 (date of inception) to a
$10,000 investment in the Morgan Stanley Capital International Europe,
Australasia and Far East (MSCI-EAFE) Index on that date. All dividends and
capital gain distributions are reinvested.
The Fund's performance reflects the reduction and/or reimbursement of a
portion of the Fund's fees. Without reductions and/or reimbursements the
performance for the period would have been lower.
Investors cannot invest directly in an index, although they can invest in its
underlying securities.
International investing involves increased risks and volatility.
5
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HSBC Mutual Funds Trust
Board of Trustees
JEFFREY J. HAAS 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. Inc.
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
ANTHONY J. FISCHER Vice President
CHARLES L. BOOTH Vice President
MARK L. SUTER Vice President
NADEEM YOUSAF Treasurer
STEVEN R. HOWARD Secretary
ALAINA V. METZ Assistant Secretary
ROBERT L. TUCH Assistant Secretary
6
<PAGE>
HSBC Mutual Funds Trust
Schedule of Portfolio Investments as of June 30, 2000 (Unaudited)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Shares Security Description Value
------- -------------------- -----------
<C> <S> <C>
COMMON STOCKS (96.7%)
Australia (11.9%)
286,800 Amcor Ltd................................................ $ 1,005,824
482,000 CSR Ltd.................................................. 1,342,829
496,500 Foster's Brewing Group Ltd............................... 1,401,112
100,250 National Australia Bank Ltd.............................. 1,679,240
118,000 Orica Ltd................................................ 536,899
95,600 Paperlinx Ltd.(b)........................................ 181,959
-----------
6,147,863
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Belgium (1.6%)
3,220 Electrabel SA............................................ 799,136
-----------
France (9.0%)
16,006 Alcatel.................................................. 1,054,077
7,268 Compagnie de Saint-Gobain................................ 986,532
22,000 Societe Generale......................................... 1,328,605
8,369 Total SA, Class B........................................ 1,288,404
-----------
4,657,618
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Germany (8.5%)
31,900 Bayer AG................................................. 1,247,623
18,393 Bayerische Vereinsbank AG................................ 1,200,695
28,080 RWE AG................................................... 947,486
6,350 Siemens AG............................................... 958,710
-----------
4,354,514
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Hong Kong (3.0%)
265,000 Hong Kong Electric Holdings Ltd.......................... 853,300
385,485 Wharf (Holdings) Ltd..................................... 689,864
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1,543,164
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Japan (14.4%)
30,000 Canon Inc................................................ 1,497,143
33,000 Eisai Co., Ltd........................................... 1,060,476
117,000 Hitachi Ltd.............................................. 1,691,942
52,000 Matsushita Electric Industrial Co., Ltd.................. 1,351,588
65,000 Nichido Fire & Marine Insurance Co., Ltd................. 356,328
360 West Japan Railway Co.................................... 1,463,117
-----------
7,420,594
-----------
</TABLE>
7
<PAGE>
HSBC Mutual Funds Trust
Schedule of Portfolio Investments as of June 30, 2000 (Unaudited) (continued)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Shares Security Description Value
------- -------------------- -----------
<C> <S> <C>
COMMON STOCKS (continued)
Netherlands (7.3%)
98,800 Elsevier NV.............................................. $ 1,201,853
19,877 ING Groep NV............................................. 1,349,015
19,499 Royal Dutch Petroleum Co................................. 1,216,820
-----------
3,767,688
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New Zealand (2.5%)
487,000 Carter Holt Harvey Ltd................................... 424,127
251,400 Telecom Corp. of New Zealand Ltd......................... 881,690
-----------
1,305,817
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Singapore (2.3%)
151,000 Jardine Matheson Holdings Ltd............................ 661,380
79,000 Oversea-Chinese Banking Corp., Ltd....................... 543,732
-----------
1,205,112
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South Africa (2.1%)
446,400 Sanlam Ltd............................................... 527,402
82,200 Sasol Ltd................................................ 551,655
-----------
1,079,057
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Spain (4.8%)
71,728 Banco Santander Central Hispanoamer SA................... 759,773
57,310 Iberdrola SA............................................. 741,647
44,059 Telefonica SA............................................ 950,276
-----------
2,451,696
-----------
United Kingdom (29.3%)
79,144 Associated British Foods PLC............................. 547,860
133,549 Bass PLC................................................. 1,494,110
168,486 BG Group PLC............................................. 1,086,603
203,600 Blue Circle Industries PLC............................... 1,319,226
157,400 Boots Co. PLC............................................ 1,200,972
200,100 British Airways PLC...................................... 1,151,898
67,800 Cable & Wireless PLC..................................... 1,151,649
93,300 GKN PLC.................................................. 1,188,594
93,300 GKN PLC, B Shares........................................ 15,537
41,923 Glaxo Wellcome PLC....................................... 1,221,745
210,180 Great Universal Stores PLC............................... 1,313,337
</TABLE>
8
<PAGE>
HSBC Mutual Funds Trust
Schedule of Portfolio Investments as of June 30, 2000 (Unaudited) (continued)
INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
Shares Security Description Value
------- -------------------- -----------
<C> <S> <C>
COMMON STOCKS (continued)
United Kingdom (continued)
109,600 Halifax Group PLC........................................ $ 1,051,956
174,799 PowerGen PLC............................................. 1,503,089
48,900 Rio Tinto PLC............................................ 801,002
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15,047,578
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Total Common Stocks (Cost - $43,207,625)....................... 49,779,837
-----------
Total Investments (Cost - $43,207,625) (a)--96.7%.............. 49,779,837
Other assets in excess of liabilities--3.3%.................... 1,687,696
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NET ASSETS--100.0%............................................. $51,467,533
===========
</TABLE>
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At June 30, 2000, the fund's open forward currency contracts were as follows:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Delivery Amount Value Market Appreciation/
Currency Date (Local Currency) (U.S. Dollar) Value (Depreciation)
-------- -------- ---------------- ------------- ------ --------------
<S> <C> <C> <C> <C> <C>
SHORT CONTRACTS
British Pound........... 7/3/00 172,364 $260,443 $260,943 $(500)
Japanese Yen............ 7/3/00 20,319,280 192,509 192,051 458
-------- -------- -----
TOTAL SHORT CONTRACTS............................. $452,952 $452,994 $ (42)
======== ======== =====
</TABLE>
(a) Represents cost for financial reporting purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation....................................... $ 9,620,168
Unrealized depreciation....................................... (3,047,956)
-----------
Net unrealized appreciation................................... $ 6,572,212
===========
</TABLE>
(b) Represents a non-income producing security.
AG - Aktiengesellschaft (West German Stock Co.)
NV - Naamloze Vennootschap (Dutch Corp.)
PLC - Public Limited Company
SA - Societe Anonyme (French Corp.)
See Notes to Fnancial Statements.
9
<PAGE>
HSBC Mutual Funds Trust
Statement of Assets and Liabilities
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
<S> <C>
Assets:
Investments, at value (cost $43,207,625)......................... $49,779,837
Foreign cash..................................................... 52,019
Cash............................................................. 966,977
Dividends receivable............................................. 217,987
Receivable from investments sold................................. 452,994
Foreign tax reclaims receivable.................................. 67,638
Prepaid expenses................................................. 6,485
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Total Assets...................................................... 51,543,937
-----------
Liabilities:
Accrued expenses and other payables:
Investment advisory............................................. 24,706
Administration.................................................. 4,129
Other........................................................... 47,569
-----------
Total Liabilities................................................. 76,404
-----------
Net Assets........................................................ $51,467,533
===========
Composition of Net Assets:
Capital.......................................................... $38,833,050
Accumulated net investment income................................ 616,341
Accumulated net realized gains from investment and foreign
currency transactions........................................... 5,436,029
Unrealized appreciation from investments and translation of
assets and liabilities denominated in foreign currencies........ 6,582,113
-----------
Net Assets........................................................ $51,467,533
===========
Institutional Class Shares:
Net Assets....................................................... $51,201,220
Shares of beneficial interest issued and outstanding............. 3,992,412
-----------
Net Asset Value, Offering Price and Redemption Price per share... $ 12.82
===========
Class A Shares:
Net Assets....................................................... $ 266,313
Shares of beneficial interest issued and outstanding............. 20,773
-----------
Net Asset Value and Redemption Price per share................... $ 12.82
===========
Maximum sales charge............................................. 5.00%
Maximum offering price (Net Asset Value/(100%-maximum sales
charge)......................................................... $ 13.49
===========
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
HSBC Mutual Funds Trust
Statement of Operations
For the six months ended June 30, 2000 (Unaudited)
INTERNATIONAL EQUITY FUND
<TABLE>
<S> <C>
Investment Income:
Dividends......................................................... $ 1,000,367
Foreign tax withholding........................................... (99,901)
-----------
Total Investment Income............................................ 900,466
Expenses:
Investment advisory............................................... 260,660
Administration ................................................... 43,444
Custodian......................................................... 9,131
Printing.......................................................... 24,240
Transfer agent.................................................... 18,214
Other............................................................. 38,030
-----------
Total expenses before contractual fee reductions................. 393,719
Contractual fee reductions....................................... (109,594)
-----------
Net expenses....................................................... 284,125
-----------
Net Investment Income.............................................. 616,341
-----------
Net Realized/Unrealized Gains (Losses) from Investments and
Foreign Currencies:
Net realized gains from investment and foreign currency
transactions..................................................... 3,429,285
Change in unrealized appreciation/depreciation from investments
and foreign currencies........................................... (4,189,815)
-----------
Net realized/unrealized losses from investments and foreign
currencies....................................................... (760,530)
-----------
Change in net assets resulting from operations..................... $ (144,189)
===========
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
HSBC Mutual Funds Trust
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
International Equity Fund
----------------------------------
For the For the
six months ended year ended
June 30, 2000 December 31, 1999
---------------- -----------------
<S> <C> <C>
(Unaudited)
Investment Activities:
Operations:
Net investment income....................... $ 616,341 $ 1,191,169
Net realized gains from investment and
foreign currency transactions.............. 3,429,285 7,163,117
Change in unrealized
appreciation/depreciation from investments
and foreign currencies..................... (4,189,815) 3,737,002
------------ -----------
Change in net assets resulting from
operations.................................. (144,189) 12,091,288
------------ -----------
Dividends:
Institutional Class Shares:
From net investment income................. -- (1,118,602)
In excess of net investment income......... -- (350,209)
From net realized gains (losses) from
investment transactions................... -- (4,419,816)
Class A Shares:
From net investment income................. -- (3,639)
In excess of net investment income......... -- (1,139)
From net realized gains (losses) from
investment transactions................... -- (14,402)
------------ -----------
Change in net assets from shareholder
dividends................................... -- (5,907,807)
------------ -----------
Change in net assets from capital share
transactions................................ (18,697,219) (1,272,202)
------------ -----------
Change in net assets......................... (18,841,408) 4,911,279
------------ -----------
Net Assets:
Beginning of period......................... 70,308,941 65,397,662
------------ -----------
End of period............................... $ 51,467,533 $70,308,941
============ ===========
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
HSBC Mutual Funds Trust
Notes to Financial Statements
June 30, 2000 (Unaudited)
1. Organization
HSBC Mutual Funds Trust (the "Trust") was organized in Massachusetts on
November 1, 1989 as a Massachusetts business trust, and is registered under
the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end
management investment company. The accompanying financial statements are
for the International Equity Fund (the "Fund").
The Fund is authorized to issue four classes of shares as follows:
Institutional Class Shares, Class A Shares, Class B Shares and Class C
Shares. At June 30, 2000, the Fund had not issued any Class B Shares or
Class C Shares. Each class has identical rights and privileges except with
respect to the fees paid under service organization and distribution plans,
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 Fund in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles in the United
States of America (the "U.S."). 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:
The value of each equity security is based either on the last sale price on
a national securities exchange, or in the absence of recorded sales, at the
closing bid prices on such exchanges, or at the quoted bid price in the
over-the-counter market. Securities or other assets for which market
quotations are not readily available are valued at fair value as determined
by the Fund's Board of Trustees.
Bonds and other fixed-income securities (other than short-term obligations
but including listed issues) are valued on the basis of valuations
furnished by a pricing services, the use of which has been approved by the
Board of Trustees. In making such valuations, the pricing service utilizes
both dealer-supplied valuation and electronic data processing techniques
which take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics other than market data and
without exclusive reliance upon quoted prices or exchanges or over-the-
counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. All debt securities with a
remaining maturity of 60 days or less are valued at amortized cost, which
approximates value. Under the amortized cost method, discount or premium,
if any, is accreted or amortized, respectively, on a constant (straight-
line) basis to the maturity of the security.
Security Transactions and Related Income:
Security transactions are accounted for on the date the security is
purchased or sold ("trade date"). Interest income is recognized on the
accrual basis and includes, where applicable, the amortization of premium
or accretion of discount. Dividend income is recorded on the ex-dividend
date. Securities gains and losses are calculated on the identified cost
basis.
13
<PAGE>
HSBC Mutual Funds Trust
Notes to Financial Statements (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. Expenses specific to a class are charged to that class.
Foreign Currency Translation:
The accounting records of the Fund are maintained in U.S. Dollars. Foreign
currency amounts are translated into U.S. Dollars at the current rate of
exchange to determine the value of investments, assets and liabilities.
Purchases and sales of securities, and income and expenses are translated
at the prevailing rate of exchange on the respective dates of such
transactions. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments
from fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain or
loss from investments and foreign currencies.
Forward Foreign Currency Exchange Contracts:
The Fund entered into forward foreign currency exchange contracts in
connection with planned purchases or sales of securities or to hedge the
U.S. Dollar value of portfolio securities denominated in a particular
currency. The Fund could be exposed to risks if the counter-parties to the
contracts are unable to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the
U.S. Dollar. The forward foreign currency exchange contracts are adjusted
by the daily exchange rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized gains or
losses until the contract settlement date.
Federal Income Taxes and Dividends:
The Fund is a separate taxable entity for federal tax purposes. The Fund
has qualified and intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code, as amended. The
Fund declares and pays substantially all net investment income and net
realized gains, if any, at least annually. Additional dividends are also
made to the Fund's shareholders to the extent necessary to avoid the
federal excise tax on certain undistributed income and net realized gains
of regulated investment companies. Accordingly, no provision for federal or
excise tax is required.
3. Related Party Transactions
Investment Adviser:
The Trust retains HSBC Asset Management Americas, Inc. to act as Investment
Adviser (the "Investment Adviser") for the Fund. The Investment Adviser is
the North American investment affiliate of HSBC Holdings plc (Hong Kong and
Shanghai Banking Corporation). As compensation for its services, the
Investment Adviser is entitled to receive a fee accrued daily, and paid
monthly, at an annual rate of 0.90% of the Fund's average daily net assets.
For the six months ended June 30, 2000, the Investment Adviser
contractually reduced $95,113 in investment advisory fees.
14
<PAGE>
HSBC Mutual Funds Trust
Notes to Financial Statements (continued)
The Investment Adviser appointed Delaware International Advisers Ltd. (the
"Sub-adviser") to act as sub-adviser for the Fund. The Sub-adviser receives
an annual fee accrued daily and paid monthly by the Investment Adviser for
its services.
Administrator:
BISYS Fund Services Ohio, Inc. ("BISYS"), a subsidiary of The BISYS Group,
Inc., with whom certain officers are affiliated, serves the Trust as
administrator. Such officers are not paid any fees directly by the Fund for
serving as officers of the Trust. In accordance with the terms of the
Management and Administration Agreement, BISYS is entitled to receive a fee
accrued daily, and paid monthly, at an annual rate of 0.15% of the Fund's
average daily net assets. For the six months ended June 30, 2000, BISYS
contractually reduced $14,481 in management and administration fees.
Distribution:
BISYS Fund Services Limited Partnership (the "Distributor") serves as
distributor of the Fund.
The Fund has adopted a Distribution Plan and Agreement (the "Plan")
pursuant to Rule 12b-1 of the 1940 Act with respect to Class A Shares,
Class B Shares and Class C Shares of the Fund. The Plan provides for a
monthly payment by the Fund to the Distributor for expenses incurred in
connection with distribution services provided to the Fund not to exceed an
annual rate of 0.35% for Class A Shares, and 0.75% for Class B Shares and
Class C Shares, of the average net assets of each respective class. The
Fund incurred no expenses with regard to the Plan for the six months ended
June 30, 2000.
The Distributor is entitled to receive commissions on sales of shares of
the Fund. For the six months ended June 30, 2000, the Distributor received
$1,287 from commissions earned on sales of shares of the Fund, all of which
was reallowed to affiliated broker/dealers of the Fund.
Service Organization:
The Fund may enter into Service Organization agreements (the "Service
Agreements") with certain banks, financial institutions and corporations
("Service Organizations") whereby each Service Organization handles record-
keeping and provides certain administration services for its customers who
invest in the Fund through accounts maintained at that Service
Organization. Each Service Organization will receive monthly payments for
the performance of its service under the Service Agreement. The payments
from the Fund on an annual basis will not exceed 0.35% of the average value
of the Fund's Class A Shares and 0.50% of the average value for Class B
Shares and Class C Shares held in the sub-accounts of the Service
Organizations. For the six months ended June 30, 2000, the Fund's Class A
Shares did not participate in any Service Agreements.
Fund Accountant, Transfer Agent, and Custodian:
BISYS provides fund accounting and transfer agent services for the Fund. In
addition, Bank of New York serves as custodian for the Fund. For these
services to the Fund, BISYS and Bank of New York receive an annual fee
accrued daily and paid monthly.
15
<PAGE>
HSBC Mutual Funds Trust
Notes to Financial Statements (continued)
Legal Counsel:
A partner of the Trust's legal counsel served as Secretary of the Trust.
Paul, Weiss, Rifkind, Wharton and Garrison served as the Trust's legal
counsel for the six months ended June 30, 2000. For the six months ended
June 30, 2000, legal fees incurred by the Fund totaled $763.
4. Investment Transactions
Purchases and sales of securities (excluding short-term securities) for the
six months ended June 30, 2000 were $2,274,726 and $21,049,780,
respectively.
5. Capital Share Transactions
The Fund is authorized to issue an unlimited number of shares of beneficial
interest with a par value of $0.001 per share. Transactions in dollars and
shares for the six months ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
For the six months
ended For the year ended
June 30, 2000 December 31, 1999
------------------------ ------------------------
Amount Shares Amount Shares
------------ ---------- ------------ ----------
(Unaudited)
<S> <C> <C> <C> <C>
Institutional Class
Shares:
Issued................. $ 6,221,866 519,144 $ 20,432,876 1,626,249
Reinvested............. -- -- -- --
Redeemed............... (24,929,086) (2,102,894) (21,671,840) (1,772,526)
------------ ---------- ------------ ----------
Net decrease............ (18,707,220) (1,583,750) (1,238,964) (146,277)
------------ ---------- ------------ ----------
Class A Shares:
Issued................. 30,880 2,690 12,839 1,002
Reinvested............. -- -- 19,181 1,573
Redeemed............... (20,879) (1,768) (65,258) (5,478)
------------ ---------- ------------ ----------
Net decrease............ 10,001 922 (33,238) (2,903)
------------ ---------- ------------ ----------
Total Net decrease...... $(18,697,219) (1,582,828) $ (1,272,202) (149,180)
============ ========== ============ ==========
</TABLE>
16
<PAGE>
[This Page Intentionally Left Blank]
17
<PAGE>
HSBC Mutual Funds Trust
FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY FUND
Selected per share data for a share outstanding throughout each period
indicated.
<TABLE>
<CAPTION>
Institutional Class Shares
-------------------------------------------------------------------
For the period
For the six March 1,
months ended For the year ended December 31, 1995(c) to
June 30, ----------------------------------- December 31,
2000 1999 1998 1997 1996 1995
------------ ------- ------- ------- ------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.56 $ 11.38 $ 10.35 $ 10.61 $ 9.98 $ 8.81
------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income.. 0.15 0.22 0.08 0.04* (0.01) (0.03)
Net realized and
unrealized
gains/(losses) from
investment and foreign
currency
transactions.......... 0.11 2.01 1.09 (0.27) 0.64 1.20
------- ------- ------- ------- ------- -------
Total from Investment
Activities............. 0.26 2.23 1.17 (0.23) 0.63 1.17
------- ------- ------- ------- ------- -------
Dividends:
Net investment income.. -- (0.20) (0.08) (0.02) -- --
In excess of net
investment income..... -- (0.06) (0.02) (0.01) -- --
Net realized gains from
investment and foreign
currency
transactions.......... -- (0.79) (0.04) -- -- --
------- ------- ------- ------- ------- -------
Total Dividends......... -- (1.05) (0.14) (0.03) -- --
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 12.82 $ 12.56 $ 11.38 $ 10.35 $ 10.61 $ 9.98
======= ======= ======= ======= ======= =======
Total Return (excludes
sales charges)......... 2.07%(a) 19.87% 11.32% (2.15)% 6.31% 13.28%(a)
Ratios/Supplemental
Data:
Net assets at end of
period (000's)........ $51,201 $70,060 $65,139 $67,458 $21,110 $15,253
Ratio of expenses to
average net assets.... 0.98%(b) 1.00% 1.14% 1.12% 2.04% 2.62%(b)
Ratio of net investment
income to average net
assets................ 2.13%(b) 1.83% 0.81% 0.35% (0.10)% (0.34)%(b)
Ratio of expenses to
average net assets**.. (d) 1.47% 1.61% 1.91% 2.89% 3.12%(b)
Portfolio turnover
rate***............... 4.03% 22.60% 163.90% 112.54% 77.91% 90.31%
</TABLE>
--------
(a) Not annualized.
(b) Annualized.
(c) Commencement of operations.
(d) For the six months ended June 30, 2000, there were no voluntary fee
reductions/reimbursements.
* Based on average shares outstanding.
** During the period, certain fees were contractually reduced. If such fee
reductions had not occurred, the ratios would have been as indicated.
Ratios for periods prior to January 1, 2000 were calculated including
voluntary and contractual fee reductions/reimbursements. Starting with
the six months ended June 30, 2000, ratios are calculated using voluntary
reductions/reimbursements only.
*** Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
See Notes to Financial Statements.
18
<PAGE>
<TABLE>
<CAPTION>
Class A Shares
----------------------------------------------------------------------------------
For the six
months ended For the year ended December 31,
June 30, ------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------ ------ ------ ------ ------ -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
$12.56 $11.38 $10.35 $10.60 $ 9.97 $9.55
------ ------ ------ ------ ------ -----
0.13 0.22 0.08 0.06* (0.02) (0.07)
0.13 2.01 1.09 (0.28) 0.65 0.49
------ ------ ------ ------ ------ -----
0.26 2.23 1.17 (0.22) 0.63 0.42
------ ------ ------ ------ ------ -----
-- (0.20) (0.10) (0.03) -- --
-- (0.06) -- -- -- --
-- (0.79) (0.04) -- -- --
------ ------ ------ ------ ------ -----
-- (1.05) (0.14) (0.03) -- --
------ ------ ------ ------ ------ -----
$12.82 $12.56 $11.38 $10.35 $10.60 $9.97
====== ====== ====== ====== ====== =====
2.07%(a) 19.87% 11.32% (2.06)% 6.32% 4.40%
$ 266 $ 249 $ 259 $ 309 $ 409 $ 658
0.98%(b) 1.01% 1.12% 1.17% 2.10% 1.98%
2.15%(b) 1.84% 0.81% 0.54% (0.19)% (1.01)%
(d) 1.63% 1.94% 2.19% 2.94% 3.66%
4.03% 22.60% 163.90% 112.54% 77.91% 90.31%
</TABLE>
19
<PAGE>
HSBC Mutual Funds Trust
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[LOGO OF HSBC ASSET MANAGEMENT
AMERICAS INC. APPEARS HERE]
--------------------------------------------------------------------------------
International Equity 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 the Americas
New York, New York 10019
This report is for the information of the shareholders of HSBC Mutual Funds
Trust. Its use in connection with any offering of the Trust's shares is
authorized only in the case of a concurrent or prior delivery of the Trust's
current prospectus. Shares of the Fund are not an obligation of or guaranteed
or endorsed by HSBC Holdings plc or its affiliates. In addition, such shares
are not insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency and may involve investment risks, including
the possible loss of principal.
8/00
Semi-Annual Report
June 30, 2000
Managed by:
HSBC Asset Management Americas Inc.
Sponsored and distributed by:
BISYS Fund Services
