UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-08928
HSBC INVESTOR PORTFOLIOS
(Exact name of registrant as specified in charter)
452 FIFTH AVENUE
NEW YORK, NY 10018
(Address of principal executive offices) (Zip code)
BISYS FUND SERVICES
3435 STELZER ROAD
COLUMBUS, OH 43219
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-782-8183
Date of fiscal year end: October 31, 2006
Date of reporting period: October 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
Annual Report
HSBC Investor LIFELine Funds(TM)
OCTOBER 31, 2006
HSBC INVESTOR AGGRESSIVE
GROWTH STRATEGY FUND
LIFELine
HSBC INVESTOR GROWTH
STRATEGY FUND
It's simple.
HSBC INVESTOR MODERATE
It's easy. GROWTH STRATEGY FUND
It's affordable.
HSBC INVESTOR CONSERVATIVE
GROWTH STRATEGY FUND
HSBC INVESTOR CONSERVATIVE
INCOME STRATEGY FUND
HSBC INVESTOR LIFELINE FUNDS
[HSBC LOGO]
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TABLE OF CONTENTS
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HSBC INVESTOR LIFELINE FUNDS
ANNUAL REPORT - OCTOBER 31, 2006
Chairman's Message ...................................................... 1
Commentary From the Investment Manager .................................. 2
Portfolio Reviews ....................................................... 3
Statements of Assets and Liabilities .................................... 20
Statements of Operations ................................................ 21
Statements of Changes in Net Assets ..................................... 22
Financial Highlights .................................................... 28
Notes to Financial Statements ........................................... 33
Report of Independent Registered Public Accounting Firm ................. 40
Other Federal Income Tax Information .................................... 41
Table of Shareholder Expenses ........................................... 42
HSBC INVESTOR PORTFOLIOS
Schedules of Portfolio Investments
HSBC Investor Core Plus Fixed Income Portfolio ....................... 44
HSBC Investor High Yield Fixed Income Portfolio ...................... 48
HSBC Investor Intermediate Duration Fixed Income Portfolio ........... 51
HSBC Investor Growth Portfolio ....................................... 54
HSBC Investor International Equity Portfolio ......................... 55
HSBC Investor Small Cap Equity Portfolio ............................. 58
HSBC Investor Value Portfolio ........................................ 59
Statements of Assets and Liabilities .................................... 60
Statements of Operations ................................................ 62
Statements of Changes in Net Assets ..................................... 64
Financial Highlights .................................................... 68
Notes to Financial Statements ........................................... 69
Report of Independent Registered Public Accounting Firm ................. 77
Table of Shareholder Expenses ........................................... 78
Board of Trustees ....................................................... 80
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CHAIRMAN'S MESSAGE
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DEAR FELLOW SHAREHOLDERS:
In the world of investing, one of the keys to success is finding experienced
professionals who are dedicated to the interests of shareholders. To achieve
positive results, HSBC Investor Funds embrace the "multi-manager" process for
each of their equity funds. These equity funds engage HSBC Investments as
advisor to help select sub-advisors who have expertise in specific asset classes
of the investment universe. The fixed income and money market funds are managed
by HSBC Investments.
The Board monitors the results of HSBC Investments and each of the sub-advisors
in a variety of ways. The board reviews the investment results of each fund at
their quarterly meetings. Importantly, at most quarterly meetings, selected
sub-advisors are invited to discuss their investing philosophy, their
decision-making process and, of course, their performance. The Board is
especially interested in how these sub-advisors monitor their own internal
systems and how they communicate with HSBC Investments. The sub-advisors must
also establish a code of ethics that complies with SEC regulations.
This "hands-on" approach enables the Board to ask probing questions and to hold
the Advisor and sub-advisors accountable. The Advisor and sub-advisors
appreciate the opportunity to make their case about how they perform for the
shareholders. If performance clearly lags over a period of time, the
sub-advisors are put on notice; and, if they do not improve, they are replaced.
The mutual fund business is sometimes thought of as impersonal and
market-driven. While, certainly, the fast pace of investing requires
well-thought out and well-managed systems, it is important to understand that
people manage money for people. In recognizing their responsibility to
shareholders, the HSBC Investor Funds believe in open and personal
communication.
We encourage you to be part of this communication process. Please feel free to
contact us with your observations and concerns. We appreciate the confidence you
have shown by investing in the funds, and we want to make sure that your
confidence is warranted.
Sincerely,
/s/ Larry M. Robbins
Larry M. Robbins, Chairman, HSBC Investor Funds
1 HSBC INVESTOR FAMILY OF FUNDS
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COMMENTARY FROM THE INVESTMENT MANAGER
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HSBC INVESTMENTS (USA) INC.
U.S. ECONOMIC REVIEW
Economic growth moderated during the 12-month period between November 1, 2005
and October 31, 2006, as a slowing housing market and higher interest rates and
energy prices combined to restrain the economy.
The aftereffects of hurricanes Katrina, Wilma and Rita slowed economic growth
during the final months of 2005. The economy rebounded powerfully during the
first calendar quarter of 2006, however. Gross domestic product grew by an
annualized rate of 5.8% between January and March, due to strong corporate
spending and a warm winter, which boosted housing construction.
Economic growth subsequently cooled. The once-booming housing market fell
sharply, removing what had been the economy's primary source of strength during
recent years. High energy costs also weighed on the economy. Oil prices, which
hovered around $10 a barrel as recently as 1999, climbed past $70 a barrel in
the spring as strong global demand and concerns about supply disruptions fueled
speculation.
Signs emerged during spring that the high cost of oil and other commodities had
begun to push up inflation. The increase in inflation came despite a two-year
campaign by the Federal Reserve to forestall rapid price escalation by raising
short-term interest rates. All told, the Fed increased its target Federal Funds
rate 17 times between June, 2004 and June, 2006, bringing the rate from 1.00% to
5.25%. The persistence of inflationary pressures led to concerns that the Fed,
under the guidance of new chairman Ben Bernanke, might raise interest rates far
enough to choke off economic growth.
More-benign economic and inflationary data emerged during summer, however.
Energy prices receded, due to strong levels of oil and gas supplies. The price
of a barrel of crude oil fell from more than $78 in July to less than $60 in
early fall. Meanwhile the weakening housing market contributed to slower
economic growth, productivity remained solid and wage growth stagnated. Those
developments removed much of the inflationary pressure on the economy, allowing
the Federal Reserve to leave interest rates unchanged at its meetings in August,
September and October. The U.S. economy grew at an annualized rate of 1.6%
during the third calendar quarter of 2006.
MARKET REVIEW
Stocks posted strong returns for the 12 months through October. The S&P 500(1)
gained 16.33%, while the Russell 2000 Index(1) of small-company stocks gained
19.98% and the MSCI EAFE Index(1) of foreign stocks gained 28.04%.
The corporate sector was very healthy during this fiscal year. Corporations
enjoyed strong balance sheets, including large cash holdings, and generated
powerful profit and cash-flow growth. Many companies used their strong positions
to engage in shareholder-friendly activities such as mergers and acquisitions,
share repurchases and dividend increases.
Market leadership showed signs of shifting during this period. Relatively
volatile shares of small caps and foreign stocks had led the bull market that
began in 2002, while energy and materials stocks soared in recent years on the
strength of rising commodity prices. The dominance of those sections of the
market continued during the first half of this period.
Stocks experienced a correction between May and July, however, and the former
market leaders fell the farthest. Shares of large, high-quality firms held up
relatively well during the downturn, and continued to lead the market during the
summer. Technology stocks, which had suffered generally poor returns since 2000,
generated strong gains between July and October, as investors anticipating a
slow-growing economy sought shares of firms that appeared poised to generate
good earnings growth.
Shares of smaller, weaker firms rallied again late in the period, due largely to
investor optimism about the prospects for an interest-rate cut early in 2007.
Lower gasoline prices also gave a boost to consumer-oriented stocks late in the
fiscal year, by freeing up consumers' income for discretionary spending.
The S&P 500 hit its highest level in five and a half years in late September,
and the Dow Jones Industrial Average in October passed 12,000 for the first time
in its history. The stock market following the run-up between July and October
appeared fully valued, potentially providing room for growth over the coming
months but leaving little buffer to shield investors in case of negative
developments in earnings, economic growth or interest rates
(1) STANDARD & POOR'S 500 INDEX ("S&P 500") measures the performance of the
stock market as a whole. RUSSELL 2000(R) INDEX measures the performance of
the 2,000 smallest companies in the Russell 3000 Index, which represents
approximately 8% of the total market capitalization of the Russell 3000
Index. The companies which comprise this index have high price-to-book
ratios and higher forecasted growth values. MORGAN STANLEY CAPITAL
INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST ("MSCI EAFE") INDEX
measures performance of a diverse range of developed countries in the
indicated regions.
HSBC INVESTOR FAMILY OF FUNDS 2
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PORTFOLIO REVIEWS
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HSBC INVESTOR AGGRESSIVE GROWTH STRATEGY FUND
HSBC INVESTOR GROWTH STRATEGY FUND
HSBC INVESTOR MODERATE GROWTH STRATEGY FUND
HSBC INVESTOR CONSERVATIVE GROWTH STRATEGY FUND
HSBC INVESTOR CONSERVATIVE INCOME STRATEGY FUND
INVESTMENT CONCERNS
Equity securities (stocks) are more volatile and carry more risk, than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of the Fund will fluctuate as the
value of the securities in the portfolio changes.
Common stocks, and funds investing in common stocks, generally provide greater
return potential when compared with other types of investments.
Value-based investments are subject to the risk that the broad market may not
recognize their intrinsic value.
Small capitalization funds typically carry additional risks, since smaller
companies generally have a higher risk of failure and historically have
experienced a greater degree of market volatility than average. There are risks
associated with investing in a fund that invests in securities of foreign
countries, such as erratic market conditions, economic and political
instabilities and fluctuations in currency exchanges.
AN INVESTMENT IN MONEY MARKET FUNDS IS NOT INSURED OR GUARANTEED BY THE FDIC OR
ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF
YOUR INVESTMENT AT $1.00.
The HSBC Investor Funds feature a number of funds that are structured as
"master/feeder" funds. Under this two-tier structure, one fund (the "feeder
fund") invests all of its assets in a second fund (the "master fund"). The
LifeLine Funds, through this master/feeder structure, provide an asset
allocation option to investors who seek to diversify their investment across a
variety of asset classes. Each LifeLine Fund provides an asset allocation option
corresponding to different investment objectives and risk tolerances. Each
LifeLine Fund is a feeder fund. However, unlike most feeder funds, a LifeLine
Fund will not direct all of its assets to a single master fund. Instead, the
LifeLine Fund will allocate its assets to different master funds in accordance
with its asset allocation model. HSBC Investments (USA) Inc. (the "Adviser"),
according to specific target allocations, invested each LifeLine Fund's assets
in some or all of the following master funds ("underlying Portfolios"):
HSBC Investor Growth Portfolio ("Growth Portfolio"); HSBC Investor Value
Portfolio ("Value Portfolio"); HSBC Investor Small Cap Equity Portfolio ("Small
Cap Equity Portfolio"); HSBC Investor International Equity Portfolio
("International Equity Portfolio"); HSBC Investor Core Plus Fixed Income
Portfolio ("Core Plus Fixed Income Portfolio"); HSBC Investor High Yield Fixed
Income Portfolio (High Yield Fixed Income Fund); HSBC Investor Intermediate
Duration Fixed Income Portfolio ("Intermediate Duration Fixed Income
Portfolio"); and the HSBC Investor Money Market Fund ("Money Market Fund").
3 HSBC INVESTOR FAMILY OF FUNDS
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PORTFOLIO REVIEWS
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Effective April 28, 2006 the Lifeline Funds began investing in the HSBC Investor
High Yield Fixed Income Portfolio. During the last fiscal year, each LifeLine
Fund invested in a different combination of the underlying Portfolios according
to the various target percentage weightings selected by the Adviser,
approximately as set forth in the charts below.
HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR
OCTOBER 31, 2006 AGGRESSIVE GROWTH GROWTH MODERATE GROWTH CONSERVATIVE GROWTH CONSERVATIVE INCOME
REALLOCATION STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
UNDERLYING PORTFOLIO FUND FUND FUND FUND FUND
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Money Market Fund 1% 1% 6% 21% 30%
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Core Plus Fixed Income Portfolio None 15% 26% 25% 15%
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High Yield Fixed Income Portfolio None 2% 5% 8% 10%
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Intermediate Duration Fixed
Income Portfolio None None None 3% 25%
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Growth Portfolio 21% 21% 19% 15% 8%
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International Equity Portfolio 23% 20% 15% 10% 4%
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Small Cap Equity Portfolio 34% 20% 11% 4% None
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Value Portfolio 21% 21% 18% 14% 8%
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Total: 100% 100% 100% 100% 100%
====================================================================================================================================
HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR HSBC INVESTOR
PRE APRIL 28, 2006 AGGRESSIVE GROWTH GROWTH MODERATE GROWTH CONSERVATIVE GROWTH CONSERVATIVE INCOME
REALLOCATION STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY
UNDERLYING PORTFOLIO FUND FUND FUND FUND FUND
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Money Market Fund 1% 1% 6% 20% 30%
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Core Plus Fixed Income Portfolio None 17% 31% 20% 25%
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Intermediate Duration Fixed
Income Portfolio None None None 15% 25%
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Growth Portfolio 21% 21% 19% 15% 8%
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International Equity Portfolio 23% 20% 15% 10% 4%
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Small Cap Equity Portfolio 34% 20% 11% 5% None
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Value Portfolio 21% 21% 18% 15% 8%
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Total: 100% 100% 100% 100% 100%
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HSBC INVESTOR FAMILY OF FUNDS 4
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PORTFOLIO REVIEWS
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HSBC INVESTOR AGGRESSIVE GROWTH STRATEGY FUND
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VALUE OF A $10,000 INVESTMENT
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[LINE GRAPH]
HSBC Investor Citigroup U.S.
Aggressive Growth Domestic Three
Strategy Fund Russell 1000(R) Russell 1000(R) Russell 2500(R) Month Treasury
(B Shares)(2) Growth Index Value Index Growth Index MSCI EAFE Index Bill Index
2/9/05 10000 10000 10000 10000 10000 10000
9850 9922 10190 9917 10176 10039
10110 10167 10360 10270 10100 10108
10900 10575 10763 10916 11154 10188
12/31/05 11233 10889 10899 11213 11614 10282
12128 11226 11546 12539 12714 10387
11907 10788 11614 11771 12834 10507
12118 11213 12336 11629 13345 10638
10/31/06 12199 11607 12740 12202 13865 10682
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VALUE OF A $10,000 INVESTMENT
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[LINE GRAPH]
HSBC Investor
Aggressive Growth Aggressive
Strategy Fund Growth Blended
(B Shares)(2) Portfolio Index(4)
2/9/05 10000 10000
9850 10036
10110 10232
10900 10868
12/31/05 11233 11172
12128 12075
11907 11765
12118 12078
10/31/06 12199 12561
The charts above represent a comparison of a hypothetical $10,000 investment in
the indicated share classes versus a similar investment in the Funds' benchmark
and represents the reinvestment of dividends and capital gains in the Funds.
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FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%)
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INCEPTION 1 SINCE
AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION
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HSBC Investor Aggressive Growth Strategy Fund Class A(1) 2/14/05 13.17 11.22
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HSBC Investor Aggressive Growth Strategy Fund Class B(2) 2/9/05 14.25 12.23
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HSBC Investor Aggressive Growth Strategy Fund Class C(3) 6/9/05 18.19 17.15
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Aggressive Growth Blended Portfolio Index(4) 18.56 --
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PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
(1) REFLECTS THE MAXIMUM SALES CHARGE OF 5.00%.
(2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
4.00%.
(3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
1.00%.
(4) THE AGGRESSIVE GROWTH BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY
PERCENTAGE OF THE FOLLOWING INDICES. THE CITIGROUP U.S. DOMESTIC 3-MONTH
T-BILL (1%); RUSSELL 1000(R) GROWTH INDEX (21%); RUSSELL 1000(R) VALUE
INDEX (21%); RUSSELL 2500(R) GROWTH INDEX (34%) AND THE MSCI EAFE INDEX
(23%). THE 90-DAY T-BILL IS GOVERNMENT GUARANTEED AND OFFERS A FIXED RATE
OF RETURN. RETURN AND PRINCIPAL OF STOCKS AND BONDS WILL VARY WITH MARKET
CONDITIONS. TREASURY BILLS ARE LESS VOLATILE THAN LONGER-TERM FIXED-INCOME
SECURITIES AND ARE GUARANTEED AS TO TIMELY PAYMENT OF PRINCIPAL AND
INTEREST BY THE U.S. GOVERNMENT. THE RUSSELL 1000(R) GROWTH INDEX MEASURES
THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH HIGHER PRICE-TO-BOOK
RATIOS AND HIGHERFORECASTED GROWTH VALUES. THE RUSSELL 1000(R) VALUE INDEX
MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH A
LESS-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY
HAVE LOW PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS, HIGHER DIVIDEND
YIELDS, AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 2500(R) GROWTH
INDEX MEASURES THE PERFORMANCE OF THOSE 2500 SECURITIES IN THE RUSSELL
UNIVERSE WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH
VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED EQUITY
INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND
REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE
INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL
FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX.
5 HSBC INVESTOR FAMILY OF FUNDS
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PORTFOLIO REVIEWS
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HSBC INVESTOR GROWTH STRATEGY FUND
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VALUE OF A $10,000 INVESTMENT
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[LINE GRAPH]
HSBC Investor Merrill Lynch Citigroup U.S.
Growth Strategy High Yield Domestic Three Lehman Brothers
Fund Russell 1000(R) Russell 1000(R) Russell 2500(R) MSCI EAFE Master II Month Treasury U.S. Aggregate
(B Shares)(2) Growth Index Value Index Growth Index Index Index Bill Index Bond Index
2/1/05 10000 10000 10000 10000 10000 10000 10000 10000
10150 9922 10190 9917 10176 9866 10039 9890
10410 10167 10360 10270 10100 10124 10108 10188
11040 10575 10763 10916 11154 10217 10188 10119
12/31/05 11336 10889 10899 11213 11614 10284 10282 10179
12018 11226 11546 12539 12714 10579 10387 10114
11877 10788 11614 11771 12834 10600 10507 10105
12128 11213 12336 11629 13345 11030 10638 10490
10/31/06 12159 11607 12740 12202 13865 11191 10682 10559
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VALUE OF A $10,000 INVESTMENT
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[LINE GRAPH]
HSBC Investor
Growth Strategy Growth Blended
Fund (B Shares)(2) Portfolio Index(4)
2/1/05 10000 10000
10150 10025
10410 10224
11040 10725
12/31/05 11336 10982
12018 11643
11877 11439
12128 11825
10/31/06 12159 12217
The charts above represent a comparison of a hypothetical $10,000 investment in
the indicated share classes versus a similar investment in the Funds' benchmark
and represents the reinvestment of dividends and capital gains in the Funds.
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FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%)
- -----------------------------------------------------------------------------------------
INCEPTION 1 SINCE
AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION
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HSBC Investor Growth Strategy Fund Class A(1) 2/8/05 10.63 10.34
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HSBC Investor Growth Strategy Fund Class B(2) 2/1/05 11.57 11.85
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HSBC Investor Growth Strategy Fund Class C(3) 4/27/05 14.61 15.95
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Growth Blended Portfolio Index(4) 16.37 --
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PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
(1) REFLECTS THE MAXIMUM SALES CHARGE OF 5.00%.
(2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
4.00%.
(3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
1.00%.
(4) THE GROWTH BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY PERCENTAGE OF
THE FOLLOWING INDICES. THE CITIGROUP U.S. DOMESTIC 3-MONTH T-BILL (1%);
MERRILL LYNCH HIGH YIELD MASTER II INDEX (2.0%); LEHMAN BROTHERS U.S.
AGGREGATE BOND FUND INDEX (15%); RUSSELL 1000(R) GROWTH INDEX (21%);
RUSSELL 1000(R) VALUE INDEX (21%); RUSSELL 2500(R) GROWTH INDEX (20%), AND
THE MSCI EAFE INDEX (20%). THE 90-DAY T-BILL IS GOVERNMENT GUARANTEED AND
OFFERS A FIXED RATE OF RETURN. RETURN AND PRINCIPAL OF STOCKS AND BONDS
WILL VARY WITH MARKET CONDITIONS. TREASURY BILLS ARE LESS VOLATILE THAN
LONGER-TERM FIXED-INCOME SECURITIES AND ARE GUARANTEED AS TO TIMELY
PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT. THE MERRILL
LYNCH HIGH YIELD MASTER II INDEX CONSISTS OF U.S. DOLLAR DENOMINATED BONDS
THAT ARE ISSUED IN COUNTRIES HAVING A BBB3 OR HIGHER DEBT RATING WITH AT
LEAST ONE YEAR REMAINING TILL MATURITY. ALL BONDS MUST HAVE A CREDIT
RATING BELOW INVESTMENT GRADE BUT NOT IN DEFAULT. THE LEHMAN BROTHERS U.S.
AGGREGATE BOND FUND INDEX IS A MARKET VALUE-WEIGHTED PERFORMANCE BENCHMARK
FOR INVESTMENT-GRADE FIXED-RATE DEBT ISSUES, INCLUDING GOVERNMENT,
CORPORATE, ASSET-BACKED, AND MORTGAGE-BACKED SECURITIES, WITH MATURITIES
OF AT LEAST ONE YEAR. THE RUSSELL 1000(R) GROWTH INDEX MEASURES THE
PERFORMANCE OF THOSE RUSSELL COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS
AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 1000(R) VALUE INDEX
MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH A
LESS-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY
HAVE LOW PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS, HIGHER DIVIDEND
YIELDS, AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 2500(R) GROWTH
INDEX MEASURES THE PERFORMANCE OF THOSE 2500 SECURITIES IN THE RUSSELL
UNIVERSE WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH
VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED EQUITY
INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND
REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE
INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL
FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX.
HSBC INVESTOR FAMILY OF FUNDS 6
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PORTFOLIO REVIEWS
- --------------------------------------------------------------------------------
HSBC INVESTOR MODERATE GROWTH STRATEGY FUND
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH]
HSBC Investor Merrill Lynch Citigroup U.S.
Moderate Growth High Yield Domestic Three Lehman Brothers
Strategy Fund Russell 1000(R) Russell 1000(R) Russell 2500(R) MSCI EAFE Master II Month Treasury U.S. Aggregate
(B Shares)(2) Growth Index Value Index Growth Index Index Index Bill Index Bond Index
2/1/05 10000 10000 10000 10000 10000 10000 10000 10000
9866 9922 10190 9917 10176 10032 10039 9890
10124 10167 10360 10270 10100 10263 10108 10188
10217 10575 10763 10916 11154 10693 10188 10119
12/31/05 10284 10889 10899 11213 11614 10935 10282 10179
10579 11226 11546 12539 12714 11391 10387 10114
10600 10788 11614 11771 12834 11302 10507 10105
11030 11213 12336 11629 13345 11553 10638 10490
10/31/06 11191 11607 12740 12202 13865 11510 10682 10559
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH]
HSBC Investor
Moderate Growth Moderate
Strategy Fund Growth Blended
(B Shares)(2) Portfolio Index(4)
2/1/05 10000 10000
10032 10006
10263 10213
10693 10575
12/31/05 10935 10784
11391 11237
11302 11109
11553 11510
10/31/06 11510 11815
The charts above represent a comparison of a hypothetical $10,000 investment in
the indicated share classes versus a similar investment in the Funds' benchmark
and represents the reinvestment of dividends and capital gains in the Funds.
- -----------------------------------------------------------------------------------------
FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%)
- -----------------------------------------------------------------------------------------
INCEPTION 1 SINCE
AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION
- -----------------------------------------------------------------------------------------
HSBC Investor Moderate Growth Strategy Fund Class A(1) 2/3/05 7.75 7.29
- -----------------------------------------------------------------------------------------
HSBC Investor Moderate Growth Strategy Fund Class B(2) 2/1/05 8.45 8.39
- -----------------------------------------------------------------------------------------
HSBC Investor Moderate Growth Strategy Fund Class C(3) 6/9/05 11.53 11.01
- -----------------------------------------------------------------------------------------
Moderate Growth Blended Portfolio Index(4) 13.62 --
- -----------------------------------------------------------------------------------------
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
(1) REFLECTS THE MAXIMUM SALES CHARGE OF 5.00%.
(2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
4.00%.
(3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
1.00%.
(4) THE MODERATE GROWTH BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY
PERCENTAGE OF THE FOLLOWING INDICES. THE CITIGROUP U.S. DOMESTIC 3-MONTH
T-BILL (6%); LEHMAN BROTHERS U.S. AGGREGATE BOND FUND INDEX (26%); MERRILL
LYNCH HIGH YIELD MASTER II INDEX (5%); RUSSELL 1000(R) GROWTH INDEX (19%);
RUSSELL 1000(R) VALUE INDEX (18%); RUSSELL 2500(R) GROWTH INDEX (11%) AND
THE MSCI EAFE INDEX (15%). THE 90-DAY T-BILL IS GOVERNMENT GUARANTEED AND
OFFERS A FIXED RATE OF RETURN. RETURN AND PRINCIPAL OF STOCKS AND BONDS
WILL VARY WITH MARKET CONDITIONS. TREASURY BILLS ARE LESS VOLATILE THAN
LONGER-TERM FIXED-INCOME SECURITIES AND ARE GUARANTEED AS TO TIMELY
PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT. THE MERRILL
LYNCH HIGH YIELD MASTER II INDEX CONSISTS OF U.S. DOLLAR DENOMINATED BONDS
THAT ARE ISSUED IN COUNTRIES HAVING A BBB3 OR HIGHER DEBT RATING WITH AT
LEAST ONE YEAR REMAINING TILL MATURITY. ALL BONDS MUST HAVE A CREDIT
RATING BELOW INVESTMENT GRADE BUT NOT IN DEFAULT. THE LEHMAN BROTHERS U.S.
AGGREGATE BOND FUND INDEX IS A MARKET VALUE-WEIGHTED PERFORMANCE BENCHMARK
FOR INVESTMENT-GRADE FIXED-RATE DEBT ISSUES, INCLUDING GOVERNMENT,
CORPORATE, ASSET-BACKED, AND MORTGAGE-BACKED SECURITIES, WITH MATURITIES
OF AT LEAST ONE YEAR. THE RUSSELL 1000(R) GROWTH INDEX MEASURES THE
PERFORMANCE OF THOSE RUSSELL COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS
AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 1000(R) VALUE INDEX
MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH A
LESS-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY
HAVE LOW PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS, HIGHER DIVIDEND
YIELDS, AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 2500(R) GROWTH
INDEX MEASURES THE PERFORMANCE OF THOSE 2500 SECURITIES IN THE RUSSELL
UNIVERSE WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH
VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED EQUITY
INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND
REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE
INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL
FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX.
7 HSBC INVESTOR FAMILY OF FUNDS
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
- --------------------------------------------------------------------------------
HSBC INVESTOR CONSERVATIVE GROWTH STRATEGY FUND
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH]
HSBC Investor
Conservative Russell Russell Russell Merrill Lynch Citigroup U.S. Lehman Brothers
Growth 1000(R) 1000(R) 2500(R) High Yield Domestic Three Lehman Brothers Intermediate U.S.
Strategy Fund Growth Value Growth MSCI EAFE Master II Month Treasury U.S. Aggregate Aggregate
(B Shares)(2) Index Index Index Index Index Bill Index Bond Index Bond Index
2/1/05 10000 10000 10000 10000 10000 10000 10000 10000 10000
9866 9922 10190 9917 9872 10176 10039 9910 9890
10124 10167 10360 10270 10032 10100 10108 10150 10188
10217 10575 10763 10916 10312 11154 10188 10110 10119
12/31/05 10284 10889 10899 11213 10530 11614 10282 10166 10179
10579 11226 11546 12539 10809 12714 10387 10140 10114
10600 10788 11614 11771 10766 12834 10507 10153 10105
11030 11213 12336 11629 10998 13345 10638 10499 10490
10/31/06 11191 11607 12740 12202 10876 13865 10682 10563 10559
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH]
HSBC Investor
Conservative Growth Conservative Growth
Strategy Fund Blended Portfolio
(B Shares)(2) Index(4)
2/1/05 10000 10000
9872 10004
10032 10189
10312 10444
12/31/05 10530 10611
10809 10918
10766 10873
10998 11249
10/31/06 10876 11470
The charts above represent a comparison of a hypothetical $10,000 investment in
the indicated share classes versus a similar investment in the Funds' benchmark
and represents the reinvestment of dividends and capital gains in the Funds.
- ------------------------------------------------------------------------------------------
FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%)
- ------------------------------------------------------------------------------------------
INCEPTION 1 SINCE
AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION
- ------------------------------------------------------------------------------------------
HSBC Investor Conservative Growth Strategy Fund Class A(1) 2/23/05 4.97 4.69
- ------------------------------------------------------------------------------------------
HSBC Investor Conservative Growth Strategy Fund Class B(2) 2/17/05 5.65 5.06
- ------------------------------------------------------------------------------------------
HSBC Investor Conservative Growth Strategy Fund Class C(3) 4/19/05 8.66 9.01
- ------------------------------------------------------------------------------------------
Conservative Growth Blended Portfolio Index(4) 11.12 --
- ------------------------------------------------------------------------------------------
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
(1) REFLECTS THE MAXIMUM SALES CHARGE OF 5.00%.
(2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
4.00%.
(3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
1.00%.
(4) THE CONSERVATIVE GROWTH BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY
PERCENTAGE OF THE FOLLOWING INDICES. THE CITIGROUP U.S. DOMESTIC 3-MONTH
T-BILL (21%); MERRILL LYNCH HIGH YIELD MASTER II INDEX (8%); LEHMAN
BROTHERS U.S. AGGREGATE BOND FUND INDEX (25%); LEHMAN BROTHERS U.S.
INTERM. AGGREGATE BOND INDEX (3%); RUSSELL 1000(R) GROWTH INDEX (15%);
RUSSELL 1000(R) VALUE INDEX (14%); RUSSELL 2500(R) GROWTH INDEX (4%) AND
THE MSCI EAFE INDEX (10%). THE 90-DAY T-BILL IS GOV'T. GUARANTEED AND
OFFERS A FIXED RATE OF RETURN. RETURN AND PRINCIPAL OF STOCKS AND BONDS
WILL VARY WITH MARKET CONDITIONS. TREASURY BILLS ARE LESS VOLATILE THAN
LONGER-TERM FIXED-INCOME SECURITIES AND ARE GUARANTEED AS TO TIMELY
PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT. THE MERRILL
LYNCH HIGH YIELD MASTER II INDEX CONSISTS OF U.S. DOLLAR DENOMINATED BONDS
THAT ARE ISSUED IN COUNTRIES HAVING A BBB3 OR HIGHER DEBT RATING WITH AT
LEAST ONE YEAR REMAINING TILL MATURITY. ALL BONDS MUST HAVE A CREDIT
RATING BELOW INVESTMENT GRADE BUT NOT IN DEFAULT. THE LEHMAN BROS. U.S.
AGGREGATE BOND FUND INDEX IS A MARKET VALUE-WEIGHTED PERFORMANCE BENCHMARK
FOR INVESTMENT-GRADE FIXED-RATE DEBT ISSUES, INCLUDING GOV'T, CORPORATE,
ASSET-BACKED, AND MORTGAGE-BACKED SECURITIES, WITH MATURITIES OF AT LEAST
ONE YEAR. THE LEHMAN BROS. INTERMEDIATE U.S. AGGREGATE INDEX IS AN
UNMANAGED INDEX GENERALLY REPRESENTATIVE OF INVESTMENT-GRADE DEBT ISSUES
WITH MATURITIES BETWEEN THREE AND TEN YEARS. THE RUSSELL 1000(R) GROWTH
INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES WITH HIGHER
PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL
1000(R) VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL COMPANIES
WITH A LESS-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX
GENERALLY HAVE LOW PRICE-TO-BOOK AND PRICE-TO-EARNINGS RATIOS, HIGHER
DIVIDEND YIELDS, AND LOWER FORECASTED GROWTH VALUES. THE RUSSELL 2500(R)
GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE 2500 SECURITIES IN THE
RUSSELL UNIVERSE WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED
GROWTH VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED
EQUITY INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND
REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE
INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL
FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX.
HSBC INVESTOR FAMILY OF FUNDS 8
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
- --------------------------------------------------------------------------------
HSBC INVESTOR CONSERVATIVE INCOME STRATEGY FUND
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH]
HSBC Investor Russell Russell Merrill Lynch Citigroup U.S. Lehman Brothers
Conservative Income 1000(R) 1000(R) High Yield Domestic Three Lehman Brothers Intermediate U.S.
Strategy Fund Growth Value MSCI EAFE Master II Month Treasury U.S. Aggregate Aggregate
(A Shares)(1) Index Index Index Index Bill Index Bond Index Bond Index
2/1/05 9524 10000 10000 10000 10000 10000 10000 10000
9444 9922 10190 10176 9866 10039 9910 9890
9588 10167 10360 10100 10124 10108 10150 10188
9694 10575 10763 11154 10217 10188 10110 10119
12/31/05 9798 10889 10899 11614 10284 10282 10166 10179
9911 11226 11546 12714 10579 10387 10140 10114
9904 10788 11614 12834 10600 10507 10153 10105
10123 11213 12336 13345 11030 10638 10499 10490
10/31/06 10233 11607 12740 13865 11191 10682 10563 10559
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
[LINE GRAPH]
HSBC Investor
Conservative Income Conservative Income
Strategy Fund Blended Portfolio
(A Shares)(1) Index(4)
2/1/05 9524 10000
9444 9978
9588 10165
9694 10269
12/31/05 9798 10380
9911 10501
9904 10510
10123 10843
10/31/06 10233 10976
The charts above represent a comparison of a hypothetical $10,000 investment in
the indicated share classes versus a similar investment in the Funds' benchmark
and represents the reinvestment of dividends and capital gains in the Funds.
- ------------------------------------------------------------------------------------------
FUND PERFORMANCE AVERAGE ANNUAL TOTAL RETURN (%)
- ------------------------------------------------------------------------------------------
INCEPTION 1 SINCE
AS OF OCTOBER 31, 2006 DATE YEAR INCEPTION
- ------------------------------------------------------------------------------------------
HSBC Investor Conservative Income Strategy Fund Class A(1) 2/8/05 1.14 1.34
- ------------------------------------------------------------------------------------------
HSBC Investor Conservative Income Strategy Fund Class B(2) 2/14/05 1.40 1.81
- ------------------------------------------------------------------------------------------
HSBC Investor Conservative Income Strategy Fund Class C(3) 5/3/05 3.92 4.23
- ------------------------------------------------------------------------------------------
Conservative Income Blended Portfolio Index(4) 7.60 --
- ------------------------------------------------------------------------------------------
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT THE TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
(1) REFLECTS THE MAXIMUM SALES CHARGE OF 4.75%.
(2) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
4.00%.
(3) REFLECTS THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE, MAXIMUM OF
1.00%.
(4) THE CONSERVATIVE INCOME BLENDED PORTFOLIO INDEX CONSISTS OF A BLEND BY
PERCENTAGE OF THE FOLLOWING INDICES. THE CITIGROUP 3-MONTH T-BILL (30%);
LEHMAN BROS. U.S. AGGREGATE BOND FUND INDEX (15%); MERRILL LYNCH HIGH
YIELD MASTER II INDEX (10%); LEHMAN BROS. U.S. INTERM. AGGREGATE BOND
INDEX (25%); RUSSELL 1000(R) GROWTH INDEX (8%); RUSSELL 1000(R) VALUE
INDEX (8%) AND THE MSCI EAFE INDEX (4%). THE 90-DAY T-BILL IS GOV'T.
GUARANTEED AND OFFERS A FIXED RATE OF RETURN. RETURN AND PRINCIPAL OF
STOCKS AND BONDS WILL VARY WITH MARKET CONDITIONS. TREASURY BILLS ARE LESS
VOLATILE THAN LONGER-TERM FIXED-INCOME SECURITIES AND ARE GUARANTEED AS TO
TIMELY PAYMENT OF PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT. THE
MERRILL LYNCH HIGH YIELD MASTER II INDEX CONSISTS OF U.S. DOLLAR
DENOMINATED BONDS THAT ARE ISSUED IN COUNTRIES HAVING A BBB3 OR HIGHER
DEBT RATING WITH AT LEAST ONE YEAR REMAINING TILL MATURITY. ALL BONDS MUST
HAVE A CREDIT RATING BELOW INVESTMENT GRADE BUT NOT IN DEFAULT. THE LEHMAN
BROS. U.S. AGGREGATE BOND FUND INDEX IS A MARKET VALUE-WEIGHTED
PERFORMANCE BENCHMARK FOR INVESTMENT-GRADE FIXED-RATE DEBT ISSUES,
INCLUDING GOV'T., CORPORATE, ASSET-BACKED, AND MORTGAGE-BACKED SECURITIES,
WITH MATURITIES OF AT LEAST ONE YEAR. THE LEHMAN BROS. INTERM. U.S.
AGGREGATE INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF
INVESTMENT-GRADE DEBT ISSUES WITH MATURITIES BETWEEN THREE AND TEN YEARS.
THE RUSSELL 1000(R) GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL
1000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED
GROWTH VALUES. THE RUSSELL 1000(R) VALUE INDEX MEASURES THE PERFORMANCE OF
THOSE RUSSELL 1000 COMPANIES WITH A LESS-THAN-AVERAGE GROWTH ORIENTATION.
COMPANIES IN THIS INDEX GENERALLY HAVE LOW PRICE-TO-BOOK AND
PRICE-TO-EARNINGS RATIOS, HIGHER DIVIDEND YIELDS, AND LOWER FORECASTED
GROWTH VALUES. THE MSCI EAFE INDEX IS A MARKET CAPITALIZATION-WEIGHTED
EQUITY INDEX COMPRISING 20 OF THE 48 COUNTRIES IN THE MSCI UNIVERSE AND
REPRESENTING THE DEVELOPED WORLD OUTSIDE OF NORTH AMERICA. THE ABOVE
INDICES ARE UNMANAGED AND DO NOT REFLECT THE FEES ASSOCIATED WITH A MUTUAL
FUND, AND INVESTORS CANNOT DIRECTLY INVEST IN AN INDEX.
9 HSBC INVESTOR FAMILY OF FUNDS
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
- --------------------------------------------------------------------------------
AGGRESSIVE GROWTH
BLENDED PORTFOLIO
INDEX
[PIE CHART]
34.0% Russell 2500(R) Growth Index
23.0% MSCI EAFE Index
21.0% Russell 1000(R) Value Index
21.0% Russell 1000(R) Growth Index
1.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index
GROWTH BLENDED
PORTFOLIO INDEX
[PIE CHART]
21.0% Russell 1000(R) Value Index
21.0% Russell 1000(R) Growth Index
20.0% Russell 2500(R) Growth Index
20.0% MSCI EAFE Index
15.0% Lehman Brothers U.S. Aggregate Bond Index
2.0% Merrill Lynch High Yield Master II Index
1.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index
MODERATE GROWTH
BLENDED PORTFOLIO
INDEX
[PIE CHART]
26.0% Lehman Brothers U.S. Aggregate Bond Index
19.0% Russell 1000(R) Growth Index
18.0% Russell 1000(R) Value Index
15.0% MSCI EAFE Index
11.0% Russell 2500(R) Growth Index
6.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index
5.0% Merrill Lynch High Yield Master II Index
CONSERVATIVE GROWTH
BLENDED PORTFOLIO
INDEX
[PIE CHART]
25.0% Lehman Brothers U.S. Aggregate Bond Index
21.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index
15.0% Russell 1000(R) Growth Index
14.0% Russell 1000(R) Value Index
10.0% MSCI EAFE Index
8.0% Merrill Lynch High Yield Master II Index
4.0% Russell 2500(R) Growth Index
3.0% Lehman Brothers Intermediate U.S. Aggregate Bond Index
CONSERVATIVE INCOME
BLENDED PORTFOLIO
INDEX
[PIE CHART]
30.0% Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index
25.0% Lehman Brothers Intermediate U.S. Aggregate Bond Index
15.0% Lehman Brothers U.S. Aggregate Bond Index
10.0% Merrill Lynch High Yield Master II Index
8.0% Russell 1000(R) Growth Index
8.0% Russell 1000(R) Value Index
4.0% MSCI EAFE Index
- --------------------------------------------------------------------------------
STANDARDIZED PERFORMANCE BENCHMARK INDICES FOR THE 1
PERIOD ENDED OCTOBER 31, 2006 YEAR (%)
- --------------------------------------------------------------------------------
Citigroup U.S. Domestic 3-Month U.S. Treasury Bill Index 4.54
Lehman Brothers U.S. Aggregate Bond Index 5.19
Lehman Brothers Intermediate U.S. Aggregate Bond Index 5.12
Merrill Lynch High Yield Master II Index 10.34
MSCI EAFE Index 28.04
Russell 1000(R) Growth Index 10.84
Russell 1000(R) Value Index 21.46
Russell 2500(R) Growth Index 15.56
CITIGROUP U.S. DOMESTIC 3-MONTH U.S. TREASURY BILL INDEX reflects monthly return
equivalents of yield averages that are not marked to the market. The Index is an
average of the last three -month Treasury Bill issues. The three-month Treasury
Bills are the short-term debt obligations of the U.S. government.
LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX is a market value-weighted
performance benchmark for investment-grade fixed-rate debt issues, including
government, corporate, asset-backed, and mortgage-backed securities, with
maturities of at least one year.
LEHMAN BROTHERS INTERMEDIATE U.S. AGGREGATE BOND INDEX is generally
representative of investment-grade debt issues with maturities between three and
ten years.
THE MERRILL LYNCH HIGH YIELD MASTER II INDEX consists of U.S. dollar denominated
bonds that are issued in countries having a BBB3 or higher debt rating with at
least one year remaining till maturity. All bonds must have a credit rating
below investment grade but not in default.
MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST INDEX
(MSCI EAFE) is a market capitalization-weighted equity index comprising 20 of
the 48 countries in the MSCI universe and representing the developed world
outside of North America. Each MSCI country index is created separately, then
aggregated, without change, into regional MSCI indices. EAFE performance data is
calculated in U.S. dollars and in local currency.
RUSSELL 1000(R) GROWTH INDEX measures the performance of 1000 securities in the
Russell Universe with higher price-to-book ratios and higher forecasted growth
values.
RUSSELL 1000(R) VALUE INDEX measures the performance of 1000 securities in the
Russell Universe with a less-than-average growth orientation. Companies in this
index generally have low price-to-book and price-to-earnings ratios, higher
dividend yields, and lower forecasted growth values. Investors cannot invest
directly in an index.
RUSSELL 2500(R) GROWTH INDEX measures the performance of those 2500 securities
in the Russell universe with higher price-to-book ratios and higher forecasted
growth values.
Investors cannot invest directly in an index, although they can invest in the
underlying securities.
HSBC INVESTOR FAMILY OF FUNDS 10
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
- --------------------------------------------------------------------------------
-----------------------------
HSBC INVESTOR MONEY MARKET FUND MOODY'S HAS ASSIGNED AN "Aaa"
RATING TO THE HSBC INVESTOR
BY THOMAS RIORDAN MONEY MARKET FUND.(1)
SENIOR FIXED INCOME PORTFOLIO MANAGER -----------------------------
INVESTMENT CONCERNS
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER
GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE
FUND.
During the third quarter of 2006 there has been a dramatic change in the outlook
for the U.S. economy. After increasing the target federal funds rate from a low
on 1.00% in June 2004 to its current level of 5.25%, the economy as measured by
GDP(2) has slowed from an unsustainably high growth rate of 5.6% in the 1st
quarter to its current rate of 2.2%. There remain several conflicting issues
facing the economy. The housing market has slowed significantly with both new
and existing sales data falling well below prior years levels. Inflation,
however, remains above Federal Reserve Chairman Bernanke's comfort range of 1 to
2%.
While core PPI(1) measured on a year to year basis has moderated as oil prices
have fallen, CPI(2) remains stubbornly above 2%. On a year over year basis core
CPI has increased from 2.3% in April to 2.9% in September. Although many market
participants expect those pressures to recede as the economy slows, Federal
Reserve members continue to express concern over the level of inflation. The
Federal Open Market Committee ("FOMC") decided not to raise the federal funds
rate at both the August and September FOMC meetings in order to assess the
effect of previous rate hikes. Their patience has been rewarded as the economy
has cooled. It remains to be seen whether the slowing economy will bring about
the desired effect of lower inflation.
The housing market has changed from a source of strength to a drag on the
overall U.S. economy. Recent indicators of the health of the housing market have
all been negative. New and existing home sales have been declining for much of
the year and the NAHB Housing Market Confidence Index has dropped to its lowest
level in years. It remains uncertain whether this weakness will in turn cause
the U.S. consumer to reduce their spending. Should that happen the Fed would
likely reduce the target federal funds rate in an attempt to restart the
economy.
Trading activity the past year has adjusted to the changes in the economy and
resulting changes in expectations of future activity from the Federal Reserve
Bank. As it became clear that the tightening cycle was approaching the end, we
lengthened the average maturity of the portfolio in order to capture higher
yields. We achieved this by purchasing securities in the 3 to 6 month period and
adding to our holdings of floating rate notes indexed to 3 month Libor(3).
As we approach the end of 2006, the short term markets are adjusting to the
slowing economy and the possibility of a cut in the target federal funds rate.
Market participants are concerned that the dramatic slowdown in the housing
market may drag the broader economy into a recession. They also believe that the
slowing economy to help ease the inflationary pressures and allow the Fed to
lower the federal funds rate. The FOMC has expressed the contrary opinion, that
the damage to the economy will be limited and that their primary concern remains
stubbornly high inflation. Our longer average maturity allows us to enhance
yield over the federal funds rate while maintaining the flexibility to alter
strategy should either the economy regain momentum or inflation not decline as
expected.*
(1) The "Aaa" money market fund rating is historical and reflects the superior
quality of the Fund's investments, sound liquidity management, and strong
operations and trading support. Periodic reviews are conducted to ensure a
secure operations environment. Moody's rating represents an opinion only,
not a recommendation to buy or sell.
(2) CONSUMER PRICE INDEX ("CPI") a measure of price changes in consumer goods
and services such as gasoline, food, and automobiles. Sometimes referred
to as "headline inflation." PRODUCER PRICE INDEX ("PPI") a family of
indexes that measures the average change over time in selling prices
received by domestic producers of goods and services. PPIs measure price
change from the perspective of the seller.
(3) The London Inter-Bank Offer Rate (LIBOR) is the interest rate that the
largest international banks charge each other for loans.
* Portfolio composition is subject to change.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
11 HSBC INVESTOR FAMILY OF FUNDS
- --------------------------------------------------------------------------------
PORTFOLIO REVIEWS
- --------------------------------------------------------------------------------
HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO
BY HSBC INVESTMENTS (USA) INC. U.S. CORE FIXED INCOME TEAM
The HSBC Investor Core Plus Fixed Income Portfolio (the "Portfolio") seeks to
provide investors with above-average total return, consistent with reasonable
risk, through investments in a diversified portfolio of fixed-income securities.
INVESTMENT CONCERNS
Bonds offer a relatively stable level of income, although bond prices will
fluctuate providing the potential for principal gain or loss. Intermediate-term,
higher-quality bonds generally offer less risk than longer-term bonds and a
lower rate of return.
MARKET COMMENTARY
GDP(1) growth fell significantly in the 4th quarter of 2005, but rebounded
dramatically in the first half of 2006. The economy continued to strengthen in
the third quarter of 2006 with GDP growth of 1.6%, albeit at a markedly slower
pace than the first half of the year. Energy prices rose through most of the
year, but they began to fall in the second half of 2006. Oil prices eased
substantially during the third quarter, even dipping below $60 and touching a
six-month low. Citing slower economic growth and falling energy prices despite
elevated core inflation, the Federal Reserve Open Market Committee kept rates at
5.25% during its last two sessions. This came on the heels of 17 straight
increases. Perhaps the most significant data pertains to the housing market,
which slowed amid rising inventories and higher mortgage rates. Home sales and
construction data came in well below expectations over the last part of the
period, indicating the housing slow down may prove to be a substantial drag on
the economy going forward. Thus far, the slowdown in the housing sector does not
appear to have spilled over into the broader economy as business and consumer
spending remain relatively healthy.
During the period interest rates were somewhat volatile, but the 10-year
Treasury rate ended (4.59%) the period at almost the point it began (4.56%).
Short-term rates rose with the Fed hikes, as the 2-year rose from 4.30% to
4.69%. This rise in rates caused a bearish flattening of the yield curve, and
created a somewhat difficult period of performance for much of the period under
review. However, a rally in rates in the third quarter helped the U.S. fixed
income market register its best quarter since the 3rd quarter of 2002, with the
Lehman Aggregate Index returning 3.81 percent. For the year, the Lehman
Aggregate Index returned 5.19%. Spreads tightened in most sectors over the
period, and all spread sectors had excess returns versus Treasury securities of
similar duration. Mortgages were the best performing sector within the Aggregate
Index, outperforming Treasuries of comparable duration by 1.01%. Lower quality
sectors performed even better, with High Yield and Emerging Market Debt beating
comparable duration Treasuries by 5.57% and 7.16% respectively.
PORTFOLIO PERFORMANCE
The key component of the Portfolio's positive performance was select,
off-benchmark holdings in high yield and emerging market debt. A position in
spread sectors particularly asset backed securities and collateralized mortgage
backed securities and individual security selection in corporate credit also had
a positive impact on performance. Our short, defensive positioning for most of
the period helped performance, as did our yield curve positioning.*
Going forward, we will maintain duration that approximates that of the Lehman
Brothers U.S. Aggregate Bond Index. We continue to analyze the yield curve for
pricing anomalies and subject to portfolio restrictions, we will attempt to add
high quality securitized debt issues that offer attractive yields without the
issuer specific risk of corporate bonds. Within corporates, we will continue our
focus on security selection, including select off-benchmark names that we think
in a relatively homogenized credit environment, may offer greater opportunities
for value.*
(1) Gross Domestic Product (GDP) is the measure of the market value of the
goods and services produced by labor and property in the United States.
* Portfolio composition is subject to change.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
HSBC INVESTOR FAMILY OF FUNDS 12
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PORTFOLIO REVIEWS
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HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO
BY HSBC INVESTMENTS (USA) INC. HIGH YIELD TEAM
HSBC Investments (USA) Inc. serves as investment adviser to the Fund. The HSBC
High Yield Team provides the day to day management of the portfolio. The Team's
philosophy is focused on delivering sustainable value added performance in the
high yield fixed income market. The investment approach is a combination of
top-down sector/industry selection and bottom-up security/quality selection. The
team rotates sectors and themes within the high yield universe during different
market environments seeking to add value, endeavoring to take advantage of
market inefficiencies in order to outperform in both up and down markets.
INVESTMENT CONCERNS
Bond funds will tend to experience smaller fluctuations in value than stock
funds. However, investors in any bond fund should anticipate fluctuations in
price, especially for longer-term issues and in environments of rising interest
rates. High yield bonds are subject to greater risks than investment grade
bonds, such as the increased risk of default because of the lower credit quality
of the issues.
MARKET COMMENTARY
GDP(1) growth fell significantly in the 4th quarter of 2005, but rebounded
dramatically in the first half of 2006. The economy continued to strengthen in
the third quarter of 2006 with GDP growth of 1.6%, albeit at a markedly slower
pace than the first half of the year. Energy prices rose through most of the
year, but they began to fall in the second half of 2006. Oil prices eased
substantially during the third quarter, even dipping below $60 and touching a
six-month low. Citing slower economic growth and falling energy prices despite
elevated core inflation, the Federal Reserve Open Market Committee kept rates at
5.25% during its last two sessions. This came on the heels of 17 straight
increases. Perhaps the most significant data pertains to the housing market,
which slowed amid rising inventories and higher mortgage rates. Home sales and
construction data came in well below expectations over the last part of the
period, indicating the housing slow down may prove to be a substantial drag on
the economy going forward. Thus far, the slowdown in the housing sector does not
appear to have spilled over into the broader economy as business and consumer
spending remain relatively healthy.
During the past 12-months, a decline in Treasury yields and the failure of
issuance volumes to match market expectations drove high yield spreads tighter.
With Fed policy now seemingly on extended pause, probability of a rise on
volatility by year-end has decreased. Strong equity market performance - coupled
with low volatility - have led to solid returns for the high yield asset class.
From an industry perspective, strength in the market has been broad based over
the past 12-months. The Airline (+44.46%), Broadband (+43.98%) and Cable
(+13.95%) industries posted the strongest returns.
With regard to high yield issuance, primary market activity continues to
accelerate. Notably, acquisition-related volumes accounted for more than
two-thirds of proceeds during the month. 24 new issues were priced during
October for a total of $12.9 billion, compared with 22 issues for $7.8 billion
in September. Year-to-date, 264 issues have price for a total of $104.9 billion,
compared with 303 issues for $83.6 billion same period last year. Continuing to
dominate their higher-quality counterparts, CCC-rated issues returned 2.91% for
the month of October, followed by B-rated issues up 1.32% and BB-rated issues
up 1.18%. For the past 12-months, CCC-rated issuers have returned 14.29%,
B-rated bonds have returned 11.31%, and BB-rated bonds have returned 7.69%.
PORTFOLIO PERFORMANCE
Performance has been driven since inception by the Fund's position in CCC-rated
issuers and its position in Cable & Aerospace industries offset somewhat by the
position in the Airline industry coupled with its short duration position.*
Going forward, we will maintain duration that approximates that of the Merrill
Lynch U.S. High Yield Master II Index. We continue to analyze the yield curve
for pricing anomalies and subject to portfolio restrictions, we will attempt to
add high quality securitized debt issues that offer attractive yields without
the issuer specific risk of corporate bonds. Within corporates, we will continue
our focus on security selection, including select off-benchmark names that we
think in a relatively homogenized credit environment, may offer greater
opportunities for value.*
Our outlook for the remainder of 2006 is cautiously optimistic. We continue to
be positive about sustained economic growth, low default rates, and constructive
capital markets. Although wider spreads are an eventual certainty, we believe
that strong fundamentals and technicals will lead to a prolonged period of
compressed spread levels. On an industry front, we remain positive on the
Energy, Gaming, Wireless, and Cable sectors.*
* Portfolio composition is subject to change.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
13 HSBC INVESTOR FAMILY OF FUNDS
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PORTFOLIO REVIEWS
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HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO
BY HSBC INVESTMENTS (USA) INC. U.S. CORE FIXED INCOME TEAM
The HSBC Investor Intermediate Duration Fixed Income Portfolio (the "Portfolio")
seeks to realize above-average total return, consistent with reasonable risk, by
investing in a diversified investment grade portfolio of U.S. government
obligations, corporate bonds and mortgage-backed securities.
INVESTMENT CONCERNS
Bonds offer a relatively stable level of income, although bond prices will
fluctuate providing the potential for principal gain or loss. Intermediate-term,
higher-quality bonds generally offer less risk than longer-term bonds and a
lower rate of return.
MARKET COMMENTARY
GDP(1) growth fell significantly in the 4th quarter of 2005, but rebounded
dramatically in the first half of 2006. The economy continued to strengthen in
the third quarter of 2006 with GDP growth of 1.6%, albeit at a markedly slower
pace than the first half of the year. Energy prices rose through most of the
year, but they began to fall in the second half of 2006. Oil prices eased
substantially during the third quarter, even dipping below $60 and touching a
six-month low. Citing slower economic growth and falling energy prices despite
elevated core inflation, the Federal Reserve Open Market Committee kept rates at
5.25% during its last two sessions. This came on the heels of 17 straight
increases. Perhaps the most significant data pertains to the housing market,
which slowed amid rising inventories and higher mortgage rates. Home sales and
construction data came in well below expectations over the last part of the
period, indicating the housing slow down may prove to be a substantial drag on
the economy going forward. Thus far, the slowdown in the housing sector does not
appear to have spilled over into the broader economy as business and consumer
spending remain relatively healthy.
During the period interest rates were somewhat volatile, but the 10-year
Treasury rate ended (4.59%) the period at almost the point it began (4.56%).
Short-term rates rose with the Fed hikes, as the 2-year rose from 4.30% to
4.69%. This rise in rates caused a bearish flattening of the yield curve, and
created a somewhat difficult period of performance for much of the period under
review. However, a rally in rates in the third quarter helped the U.S. fixed
income market register its best quarter since the 3rd quarter of 2002, with the
Lehman Aggregate Index returning 3.81 percent. For the year, the Lehman
Aggregate Index returned 5.19%. Spreads tightened in most sectors over the
period, and all spread sectors had excess returns versus Treasury securities of
similar duration. Mortgages were the best performing sector within the Aggregate
Index, outperforming Treasuries of comparable duration by 1.01%. Lower quality
sectors performed even better, with High Yield and Emerging Market Debt beating
comparable duration Treasuries by 5.57% and 7.16% respectively.
PORTFOLIO PERFORMANCE
The key component of positive performance was select, off-benchmark holdings in
high yield and emerging market debt. The position in spread sectors particularly
asset backed securities and collateralized mortgage backed securities and
individual security selection in corporate credit also had a positive impact on
performance. Our short, defensive positioning for most of the period helped
performance, as did our yield curve positioning.
Going forward, we will maintain duration that approximates that of the Lehman
Brothers Intermediate U.S. Aggregate Bond Index. We continue to analyze the
yield curve for pricing anomalies and subject to portfolio restrictions, we will
attempt to add high quality securitized debt issues that offer attractive yields
without the issuer specific risk of corporate bonds. Within corporates, we will
continue our focus on security selection, including select off-benchmark names
that we think in a relatively homogenized credit environment, may offer greater
opportunities for value. *
(1) Gross Domestic Product (GDP) is the measure of the market value of the
goods and services produced by labor and property in the United States.
* Portfolio composition is subject to change.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
HSBC INVESTOR FAMILY OF FUNDS 14
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PORTFOLIO REVIEWS
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HSBC INVESTOR GROWTH PORTFOLIO
BY PHILIP J. SANDERS, SENIOR VICE PRESIDENT/PORTFOLIO MANAGER, CFA AND
DANIEL P. BECKER, SENIOR VICE PRESIDENT/PORTFOLIO MANAGER, CFA
WADDELL & REED INVESTMENT MANAGEMENT COMPANY
The HSBC Investor Growth Portfolio (the "Portfolio") seeks long-term growth of
capital by investing primarily in U.S. and foreign equity securities of high
quality companies with market capitalization generally in excess of $2 billion,
which the sub-adviser believes have the potential to generate superior levels
of long-term profitability and growth. The Portfolio employs Waddell & Reed
Investment Management Company (Waddell & Reed) as the sub-adviser.
INVESTMENT CONCERNS
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes.
MARKET COMMENTARY
Growth stocks produced solid returns during the fiscal year, although growth
shares trailed value stocks by a wide margin. Growth stocks gained ground during
the first six months of the period, declined during spring, and then recovered
during late summer and early fall. All told, growth stocks posted returns
roughly in line with historical averages, helping the portion of the Fund
invested in this portfolio post a healthy gain. Strong performance from
financial stocks boosted the absolute performance, while weakness in the health
care sector generated a substantial drag on absolute returns.
Stock selection in the energy sector boosted returns, and a relatively large
position in energy stocks helped lift the relative performance as well. Strong
security selection in the materials sector also boosted returns during the
12-month period under review.
Stock selection in the health care sector produced the largest drag on
performance. Poor performance by the health care stocks more than offset the
positive impact provided by the allocation to the health care sector. Security
selection in the information technology and financials sectors also weighed on
returns during the fiscal year.*
* Portfolio composition is subject to change.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
15 HSBC INVESTOR FAMILY OF FUNDS
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PORTFOLIO REVIEWS
- --------------------------------------------------------------------------------
HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO
BY KEVIN F. SIMMS
CO-CIO INTERNATIONAL VALUE EQUITIES AND DIRECTOR OF RESEARCH - GLOBAL AND
INTERNATIONAL VALUE EQUITIES ALLIANCEBERNSTEIN INVESTMENT RESEARCH AND
MANAGEMENT
The HSBC Investor International Equity Portfolio (the "Portfolio") seeks to
provide their shareholders with long-term growth of capital and future income by
investing primarily in securities of non-U.S. issuers and securities of issuers
whose principal markets are outside of the United States. The Portfolio employs
Bernstein Investment Research and Management ("AllianceBernstein"), a unit of
AllianceBernstein Investment Research and Management as sub-investment adviser.
The Portfolio invests primarily in equity securities of companies organized and
domiciled in developed nations outside the U.S., or for which the principal
trading market is outside the U.S., including Europe, Canada, Australia and the
Far East.
INVESTMENT CONCERNS
There are risks associated with investing in foreign companies, such as erratic
market conditions, economic and political instability and fluctuations in
currency and exchange rates.
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes.
MARKET COMMENTARY
Robust global economic growth, strong corporate profits and modest inflation
helped international stock markets perform well during the fiscal year. Foreign
stocks posted strong gains during the first half of the period, declined in
spring, and then rebounded as benign global economic data, lower oil prices and
moderate interest rates fueled investor optimism. That environment helped the
portion of the Fund invested in this Portfolio post very strong absolute returns
for the 12-month period as a whole.
Stock selection drove the superior performance. The sub-advisor employs deep
fundamental research to uncover value opportunities across a broad range of
industries throughout global stock markets. The portfolio's holdings in the
industrial commodities sector benefited from surging commodity prices and strong
earnings, and significantly boosted returns. Security selection in the
financial, consumer staples and utilities sectors also lifted the Fund's
performance.*
The position in the energy sector weighed on the relative gains. Energy stocks
produced strong returns early in the period, but gave up much of that gain when
crude-oil prices softened between July and October. That development led the
energy sector to trail the broad market for the period as a whole. The energy
stocks in the Portfolio outperformed the energy stocks in the MSCI EAFE Index,
but that positive selection effect did not fully offset the negative impact of
the relatively large sector weighting. Likewise, an underweight stake in the
construction and housing sector dragged on relative performance, despite strong
security selection within that sector.*
* Portfolio composition is subject to change.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
HSBC INVESTOR FAMILY OF FUNDS 16
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PORTFOLIO REVIEWS
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HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO
BY WILLIAM A. MUGGIA
PRESIDENT-CHIEF INVESTMENT OFFICER
WESTFIELD CAPITAL MANAGEMENT
The HSBC Investor Small Cap Equity Fund and the HSBC Investor Opportunity Fund
("the Funds") seek to provide their shareholders with long-term growth of
capital by investing in equity securities of emerging small and medium-sized
companies expected to deliver earnings growth well above the growth rate of the
economy and the rate of inflation. The Funds employ a two-tier structure,
commonly referred to as "master-feeder." The Funds invest all of their
investable assets in the HSBC Investor Small Cap Equity Portfolio (the
"Portfolio"). The Portfolio employs Westfield Capital Management, LLC as
sub-investment adviser.
The Portfolio invests primarily in common stocks of small and medium-sized
companies that may have the potential to become major enterprises.
INVESTMENT CONCERNS
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes.
Small-capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure, and historically, their
stocks have experienced a greater degree of market volatility than stocks on
average.
MARKET COMMENTARY
Small-cap stocks performed well, helping the portion of the Fund invested in
this Portfolio post strong returns. Technology and health care stocks provided
the largest contributions to the gains.
Stock selection in the health care sector boosted returns. Stock selection in
various health care industries, including biotechnology, pharmaceuticals, health
care equipment, health care facilities and life science tools & services, helped
the performance and added significantly to relative gains.*
Selection among technology stocks also boosted relative returns. The
sub-advisor's selection of stocks in the communications equipment, applications
software and data processing & outsourced services industries particularly
lifted the return.*
An underweight stake in the consumer discretionary sector helped the performance
as well. Stock selection in consumer discretionary also boosted returns.*
The Portfolio had no exposure to the telecommunications services or consumer
staples sectors, and owned only one stock in the materials sector. Those three
sectors performed well for the 12-month period under review, so the lack of
exposure dragged on relative performance. The lack of exposure in financials
also weighed on returns, as did security selection in that sector. Selection
among industrials weakened performance as well.*
* Portfolio composition is subject to change.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
17 HSBC INVESTOR FAMILY OF FUNDS
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PORTFOLIO REVIEWS
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HSBC INVESTOR VALUE PORTFOLIO
BY JON D. BOSSE, CFA
CHIEF INVESTMENT OFFICER
NWQ INVESTMENT MANAGEMENT CO., LLC
The HSBC Investor Value Portfolio (the "Portfolio") seeks long-term growth of
capital and income by investing primarily in U.S. and foreign companies with
large and medium capitalizations that possess hidden opportunities underpriced
by the market. The Portfolio employs NWQ Investment Management Company, LLC
("NWQ") as the sub-adviser.
INVESTMENT CONCERNS
Value-based investments are subject to the risk that the broad market may not
recognize their intrinsic value.
Equity securities (stocks) are more volatile and carry more risk than other
forms of investments, including investments in high-grade fixed income
securities. The net asset value per share of this Fund will fluctuate as the
value of the securities in the portfolio changes.
MARKET COMMENTARY
Value stocks rallied during the period as a whole, despite a stock-market
correction in the spring. That environment helped the Portfolio generate strong
returns.
The sub-advisor held a significant position in stocks in the oil and natural gas
exploration and production (E&P) industry. That stake had a substantial positive
effect on returns, in part because the largest holding, an E&P firm, was
acquired in an all-cash deal at a substantial premium to its market value. The
Portfolio also benefited from weightings in defense, telephone, cable television
and radio stocks.
The sub-advisor found a number of attractively valued stocks in the information
technology sector, which appeared poised to benefit from a rebound in capital
spending. Technology stocks in general generated strong performance, but poor
earnings weighed on the returns of several technology stocks in the portfolio.
Those company-specific issues caused the technology position to weaken the
returns.*
The small position in financials stocks was because the sub-advisor expected a
flat yield curve to hurt profit margins at financial companies. The financials
sector generated strong gains, however, led by a rally in shares of large
brokerage firms. The small stake therefore weighed on returns.*
* Portfolio composition is subject to change.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE DATA QUOTED
REPRESENTS PAST PERFORMANCE AND CURRENT RETURNS MAY BE LOWER OR HIGHER. TOTAL
RETURN FIGURES INCLUDE CHANGE IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND
CAPITAL GAINS AND DO NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. THE INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED MAY
BE WORTH MORE OR LESS THAN THE ORIGINAL COST. TO OBTAIN PERFORMANCE INFORMATION
CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-782-8183.
HSBC INVESTOR FAMILY OF FUNDS 18
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PORTFOLIO REVIEWS
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION*
OCTOBER 31, 2006
(UNAUDITED)
- --------------------------------------------------------------------------------
HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE
- --------------------------------------------------------------------------------
Mortgage Backed Securities 23.3%
- --------------------------------------------------------------------------------
Corporate Bonds 21.5%
- --------------------------------------------------------------------------------
U.S. Treasury Securities 16.1%
- --------------------------------------------------------------------------------
Asset Backed Securities 12.2%
- --------------------------------------------------------------------------------
Commercial Mortgage Backed Securities 9.3%
- --------------------------------------------------------------------------------
Foreign Bonds 7.8%
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations 7.4%
- --------------------------------------------------------------------------------
Cash Equivalents 2.4%
- --------------------------------------------------------------------------------
Total 100.0%
================================================================================
- --------------------------------------------------------------------------------
HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE
- --------------------------------------------------------------------------------
Corporate Bonds 97.8%
- --------------------------------------------------------------------------------
Cash Equivalents 2.2%
- --------------------------------------------------------------------------------
Total 100.0%
================================================================================
- --------------------------------------------------------------------------------
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE
- --------------------------------------------------------------------------------
Corporate Bonds 23.7%
- --------------------------------------------------------------------------------
Mortgage Backed Securities 23.6%
- --------------------------------------------------------------------------------
Asset Backed Securities 15.1%
- --------------------------------------------------------------------------------
Commercial Mortgage Backed Securities 9.8%
- --------------------------------------------------------------------------------
U.S. Treasury Securities 9.2%
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations 8.5%
- --------------------------------------------------------------------------------
Foreign Bonds 7.2%
- --------------------------------------------------------------------------------
Cash Equivalents 2.9%
- --------------------------------------------------------------------------------
Total 100.0%
================================================================================
- --------------------------------------------------------------------------------
HSBC INVESTOR GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE
- --------------------------------------------------------------------------------
Information Technology 27.3%
- --------------------------------------------------------------------------------
Health Care 19.4%
- --------------------------------------------------------------------------------
Industrials 14.4%
- --------------------------------------------------------------------------------
Financials 11.1%
- --------------------------------------------------------------------------------
Consumer Discretionary 10.3%
- --------------------------------------------------------------------------------
Consumer Staples 8.2%
- --------------------------------------------------------------------------------
Energy 5.8%
- --------------------------------------------------------------------------------
Cash Equivalents 3.5%
- --------------------------------------------------------------------------------
Total 100.0%
================================================================================
- --------------------------------------------------------------------------------
HSBC INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE
- --------------------------------------------------------------------------------
Europe 61.4%
- --------------------------------------------------------------------------------
Japan 23.9%
- --------------------------------------------------------------------------------
Australia & Far East 6.4%
- --------------------------------------------------------------------------------
Canada 3.6%
- --------------------------------------------------------------------------------
Cash Equivalents 2.4%
- --------------------------------------------------------------------------------
Other 2.3%
- --------------------------------------------------------------------------------
Total 100.0%
================================================================================
- --------------------------------------------------------------------------------
HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE
- --------------------------------------------------------------------------------
HealthCare 29.3%
- --------------------------------------------------------------------------------
Information Technology 25.7%
- --------------------------------------------------------------------------------
Consumer Discretionary 12.6%
- --------------------------------------------------------------------------------
Industrials 10.8%
- --------------------------------------------------------------------------------
Energy 8.9%
- --------------------------------------------------------------------------------
Financial 5.5%
- --------------------------------------------------------------------------------
Cash Equivalents 5.4%
- --------------------------------------------------------------------------------
Materials 1.8%
- --------------------------------------------------------------------------------
Total 100.0%
================================================================================
- --------------------------------------------------------------------------------
HSBC INVESTOR VALUE PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ALLOCATION PERCENTAGE OF INVESTMENTS AT VALUE
- --------------------------------------------------------------------------------
Financials 28.3%
- --------------------------------------------------------------------------------
Consumer Discretionary 11.3%
- --------------------------------------------------------------------------------
Industrials 9.3%
- --------------------------------------------------------------------------------
Consumer Staples 7.7%
- --------------------------------------------------------------------------------
Information Technology 7.7%
- --------------------------------------------------------------------------------
Materials 7.5%
- --------------------------------------------------------------------------------
Energy 7.4%
- --------------------------------------------------------------------------------
Telecommunication Services 7.4%
- --------------------------------------------------------------------------------
Cash Equivalents 6.7%
- --------------------------------------------------------------------------------
Utilities 2.0%
- --------------------------------------------------------------------------------
Miscellaneous 1.9%
- --------------------------------------------------------------------------------
Transportation 1.8%
- --------------------------------------------------------------------------------
Health Care 1.0%
- --------------------------------------------------------------------------------
Total 100.0%
================================================================================
* Portfolio composition is subject to change.
19 HSBC INVESTOR FAMILY OF FUNDS
HSBC INVESTOR LIFELINE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES--OCTOBER 31, 2006
AGGRESSIVE GROWTH MODERATE CONSERVATIVE CONSERVATIVE
GROWTH STRATEGY GROWTH GROWTH INCOME
STRATEGY FUND FUND STRATEGY FUND STRATEGY FUND STRATEGY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in Portfolios $ 7,167,305 $ 21,584,145 $ 22,035,856 $ 4,673,610 $ 1,472,579
Investment in affiliates, at value (a) 73,212 219,775 1,413,771 1,245,874 630,196
Receivable for capital shares issued 73,158 76,802 22,632 18,180 100
Receivable from Investment Adviser 298 26,586 33,492 19,180 14,688
Receivable from Sub-Administrator 32,189 9,250 6,505 6,539 11,320
Prepaid expenses 4,668 6,693 5,077 344 244
------------- ------------ ------------- ------------- ------------
TOTAL ASSETS 7,350,830 21,923,251 23,517,333 5,963,727 2,129,127
------------- ------------ ------------- ------------- ------------
LIABILITIES:
Dividends payable -- -- -- -- 373
Payable for capital shares redeemed -- 49,800 22,641 -- 19,805
Accrued related party expenses and other
liabilities:
Investment Management 298 897 963 253 90
Administration 230 699 758 199 77
Transfer Agent -- -- -- 214 169
Printing 3,766 11,667 12,647 3,534 1,378
Distribution 2,019 5,876 7,319 1,843 532
Shareholder Servicing 1,496 4,515 4,871 1,277 454
Trustee 7 23 25 8 4
Other 285 882 955 268 103
------------- ------------ ------------- ------------- ------------
TOTAL LIABILITIES 8,101 74,359 50,179 7,596 22,985
------------- ------------ ------------- ------------- ------------
NET ASSETS $ 7,342,729 $ 21,848,892 $ 23,467,154 $ 5,956,131 $ 2,106,142
============= ============ ============= ============= ============
- ------------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
Capital $ 6,745,939 $ 19,993,978 $ 21,845,162 $ 5,601,417 $ 2,056,568
Accumulated net investment income (loss) (14,704) 55,913 4,489 4,342 (106)
Accumulated net realized gains (losses) from
investment transactions (10,475) 154,482 198,487 65,382 1,164
Unrealized appreciation/depreciation from
investments 621,969 1,644,519 1,419,016 284,990 48,516
------------- ------------ ------------- ------------- ------------
NET ASSETS $ 7,342,729 $ 21,848,892 $ 23,467,154 $ 5,956,131 $ 2,106,142
============= ============ ============= ============= ============
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Class A Shares $ 4,116,240 $ 12,562,167 $ 11,973,207 $ 3,069,257 $ 1,319,970
Class B Shares 2,997,519 8,702,166 10,730,953 2,566,513 762,918
Class C Shares 228,970 584,559 762,994 320,361 23,254
------------- ------------ ------------- ------------- ------------
$ 7,342,729 $ 21,848,892 $ 23,467,154 $ 5,956,131 $ 2,106,142
============= ============ ============= ============= ============
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
($0.001 par value; unlimited number of shares
authorized):
Class A Shares 327,512 1,008,931 1,022,728 276,301 128,281
Class B Shares 240,994 700,368 915,549 233,091 73,973
Class C Shares 18,450 46,840 66,523 28,503 2,249
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE:
Class A Shares $ 12.57 $ 12.45 $ 11.71 $ 11.11 $ 10.29
Class B Shares* $ 12.44 $ 12.43 $ 11.72 $ 11.01 $ 10.31
Class C Shares* $ 12.41 $ 12.48 $ 11.47 $ 11.24 $ 10.34
Maximum Sales Charge--Class A Shares 5.00% 5.00% 5.00% 5.00% 4.75%
============= ============ ============= ============= ============
Maximum Offering Price per share (Net Asset
Value/(100%-maximum sales charge)) $ 13.23 $ 13.11 $ 12.33 $ 11.69 $ 10.80
============= ============ ============= ============= ============
Investments in affiliates, at cost (a) $ 73,212 $ 219,775 $ 1,413,771 $ 1,245,874 $ 630,196
============= ============ ============= ============= ============
- ----------
* Redemption Price per share varies by length of time shares are held.
(a) The investment in affiliates are holdings of the HSBC Investor Money
Market Fund Class Y Shares (see Note 1). The shares held in the Fund are
identical to value since it is at $1.00 net asset value per share. In
addition, value and cost for financial reporting and federal income tax
purposes are the same.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 20
HSBC INVESTOR LIFELINE FUNDS
STATEMENTS OF OPERATIONS--FOR THE YEAR ENDED OCTOBER 31, 2006
AGGRESSIVE GROWTH MODERATE CONSERVATIVE CONSERVATIVE
GROWTH STRATEGY GROWTH GROWTH INCOME
FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Investment income from Portfolios (a) $ 64,633 $ 315,030 $ 452,081 $ 128,179 $ 60,628
Investment income from affiliates 1,894 6,094 42,693 41,907 25,346
Foreign tax withholding from Portfolios (a) (3,413) (9,463) (8,337) (1,538) (260)
Expenses from Portfolios (a) (32,308) (100,861) (111,075) (27,710) (10,500)
---------- ----------- ----------- ------------ ------------
TOTAL INVESTMENT INCOME 30,806 210,800 375,362 140,838 75,214
---------- ----------- ----------- ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment Management 2,028 6,556 7,689 2,208 921
Administration 1,519 4,910 5,759 1,654 690
Distribution:
Class B Shares 13,897 42,889 53,359 15,017 4,436
Class C Shares 1,025 3,536 5,446 2,079 1,265
Shareholder Servicing:
Class A Shares 5,167 17,302 18,841 5,342 2,707
Class B Shares 4,633 14,296 17,786 5,006 1,479
Class C Shares 342 1,179 1,815 693 422
Accounting 31,500 31,500 31,500 31,500 31,500
Compliance Service 51 173 208 57 21
Printing 14,335 48,521 61,443 18,339 8,128
State Registration 4,547 4,227 6,744 1,822 1,763
Transfer Agent 43,634 47,082 49,559 42,614 41,599
Trustee 95 312 371 109 46
Other 4,184 11,609 14,051 5,624 3,435
---------- ----------- ----------- ------------ ------------
Total expenses before fee reductions 126,957 234,092 274,571 132,064 98,412
Fees reduced by Fund Accounting and Transfer Agent (48,603) (48,687) (48,636) (48,586) (48,549)
Fees reduced and expenses reimbursed by Investment
Adviser (2,414) (33,131) (40,217) (21,135) (15,659)
Expenses waived or reimbursed by Sub-Administrator (32,189) (9,250) (6,505) (6,539) (11,320)
---------- ----------- ----------- ------------ ------------
NET EXPENSES 43,751 143,024 179,213 55,804 22,884
---------- ----------- ----------- ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (12,945) 67,776 196,149 85,034 52,330
---------- ----------- ----------- ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS: (a)
Net realized gains (losses) from investments (17,813) 150,344 196,766 66,363 4,522
Change in unrealized appreciation/depreciation from
investments 557,180 1,449,423 1,241,590 247,105 43,770
---------- ----------- ----------- ------------ ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized/unrealized gains from investment transactions 539,367 1,599,767 1,438,356 313,468 48,292
---------- ----------- ----------- ------------ ------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 526,422 $ 1,667,543 $ 1,634,505 $ 398,502 $ 100,622
========== =========== =========== ============ ============
- ----------
(a) Represents amounts allocated from the respective Portfolios.
21 HSBC INVESTOR LIFELINE FUNDS SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR LIFELINE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
AGGRESSIVE GROWTH STRATEGY FUND GROWTH STRATEGY FUND
- ---------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 (a) OCTOBER 31, 2006 OCTOBER 31, 2005 (b)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss) $ (12,945) $ (3,032) $ 67,776 $ 886
Net realized gains (losses) from
investment transactions (17,813) 4,441 150,344 (1,238)
Change in unrealized
appreciation/depreciation from
investments 557,180 64,789 1,449,423 195,096
---------------- -------------------- ---------------- --------------------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 526,422 66,198 1,667,543 194,744
---------------- -------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
DIVIDENDS:
NET INVESTMENT INCOME:
Class A Shares -- -- (22) --
Class B Shares -- -- -- --
Class C Shares -- -- -- --
NET REALIZED GAINS:
Class A Shares (4,248) -- (7,479) --
Class B Shares (4,512) -- (8,003) --
Class C Shares (298) -- (626) --
---------------- -------------------- ---------------- --------------------
CHANGE IN NET ASSETS FROM SHAREHOLDER
DIVIDENDS (9,058) -- (16,130) --
---------------- -------------------- ---------------- --------------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS 5,378,169 1,380,998 14,606,757 5,395,978
---------------- -------------------- ---------------- --------------------
CHANGE IN NET ASSETS 5,895,533 1,447,196 16,258,170 5,590,722
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,447,196 -- 5,590,722 --
---------------- -------------------- ---------------- --------------------
End of period $ 7,342,729 $ 1,447,196 $ 21,848,892 $ 5,590,722
================ ==================== ================ ====================
Accumulated net investment income
(loss) $ (14,704) $ (1,486) $ 55,913 $ (4,996)
================ ==================== ================ ====================
- ----------
(a) Aggressive Growth Strategy Fund Class A Shares commenced operations on
February 14, 2005, Class B Shares commenced operations on February 9,
2005, and Class C Shares commenced operations on June 10, 2005.
(b) Growth Strategy Fund Class A Shares commenced operations on February 8,
2005, Class B Shares commenced operations on February 1, 2005, and Class C
Shares commenced operations on April 27, 2005.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 22
HSBC INVESTOR LIFELINE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
AGGRESSIVE GROWTH STRATEGY FUND GROWTH STRATEGY FUND
- ---------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 (a) OCTOBER 31, 2006 OCTOBER 31, 2005 (b)
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued $ 3,199,933 $ 693,884 $ 9,462,116 $ 2,731,568
Dividends reinvested 4,248 -- 7,500 --
Cost of shares redeemed (77,034) (9,512) (634,007) (26,214)
---------------- -------------------- ---------------- --------------------
Class A Shares capital transactions 3,127,147 684,372 8,835,609 2,705,354
---------------- -------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Proceeds from shares issued 2,171,105 690,126 5,742,896 2,623,574
Dividends reinvested 4,512 -- 8,002 --
Cost of shares redeemed (116,411) (13,505) (412,505) (35,907)
---------------- -------------------- ---------------- --------------------
Class B Shares capital transactions 2,059,206 676,621 5,338,393 2,587,667
---------------- -------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES:
Proceeds from shares issued 196,567 20,005 547,274 102,957
Dividends reinvested 298 -- 627 --
Cost of shares redeemed (5,049) -- (115,146) --
---------------- -------------------- ---------------- --------------------
Class C Shares capital transactions 191,816 20,005 432,755 102,957
---------------- -------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS $ 5,378,169 $ 1,380,998 $ 14,606,757 $ 5,395,978
================ ==================== ================ ====================
- ---------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued 265,210 69,359 799,471 265,018
Reinvested 378 -- 664 --
Redeemed (6,528) (907) (53,747) (2,475)
---------------- -------------------- ---------------- --------------------
Change in Class A Shares 259,060 68,452 746,388 262,543
---------------- -------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Issued 183,959 67,597 486,469 251,135
Reinvested 405 -- 705 --
Redeemed (9,634) (1,333) (34,595) (3,346)
---------------- -------------------- ---------------- --------------------
Change in Class B Shares 174,730 66,264 452,579 247,789
---------------- -------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES:
Issued 16,830 2,000 46,515 9,809
Reinvested 27 -- 55 --
Redeemed (407) -- (9,539) --
---------------- -------------------- ---------------- --------------------
Change in Class C Shares 16,450 2,000 37,031 9,809
---------------- -------------------- ---------------- --------------------
- ----------
(a) Aggressive Growth Strategy Fund Class A Shares commenced operations on
February 14, 2005, Class B Shares commenced operations on February 9,
2005, and Class C Shares commenced operations on June 10, 2005.
(b) Growth Strategy Fund Class A Shares commenced operations on February 8,
2005, Class B Shares commenced operations on February 1, 2005, and Class C
Shares commenced operations on April 27, 2005.
23 HSBC INVESTOR LIFELINE FUNDS SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR LIFELINE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
MODERATE GROWTH STRATEGY FUND CONSERVATIVE GROWTH STRATEGY FUND
- ---------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 (a) OCTOBER 31, 2006 OCTOBER 31, 2005 (b)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss) $ 196,149 $ 14,049 $ 85,034 $ 7,510
Net realized gains (losses) from
investment transactions 196,766 (11,530) 66,363 (4,777)
Change in unrealized appreciation/
depreciation from investments 1,241,590 177,426 247,105 37,885
---------------- -------------------- ---------------- --------------------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 1,634,505 179,945 398,502 40,618
---------------- -------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
DIVIDENDS:
NET INVESTMENT INCOME:
Class A Shares (125,404) (116) (51,938) (203)
Class B Shares (57,383) (73) (31,029) (5)
Class C Shares (5,807) -- (4,345) --
- ---------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAINS:
Class A Shares (3,616) -- -- --
Class B Shares (3,427) -- -- --
Class C Shares (500) -- -- --
---------------- -------------------- ---------------- --------------------
CHANGE IN NET ASSETS FROM SHAREHOLDER
DIVIDENDS (196,137) (189) (87,312) (208)
---------------- -------------------- ---------------- --------------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS 14,905,868 6,943,162 3,202,429 2,402,102
---------------- -------------------- ---------------- --------------------
CHANGE IN NET ASSETS 16,344,236 7,122,918 3,513,619 2,442,512
---------------- -------------------- ---------------- --------------------
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 7,122,918 -- 2,442,512 --
---------------- -------------------- ---------------- --------------------
End of period $ 23,467,154 $ 7,122,918 $ 5,956,131 $ 2,442,512
================ ==================== ================ ====================
Accumulated net investment income $ 4,489 $ 3,256 $ 4,342 $ 14,630
================ ==================== ================ ====================
- ----------
(a) Moderate Growth Strategy Fund Class A Shares commenced operations on
February 3, 2005, Class B Shares commenced operations on February 1, 2005,
and Class C Shares commenced operations on June 10, 2005.
(b) Conservative Growth Strategy Fund Class A Shares commenced operations on
February 23, 2005, Class B Shares commenced operations on February 17,
2005, and Class C Shares commenced operations on April 19, 2005.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 24
HSBC INVESTOR LIFELINE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
MODERATE GROWTH STRATEGY FUND CONSERVATIVE GROWTH STRATEGY FUND
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 (a) OCTOBER 31, 2006 OCTOBER 31, 2005 (b)
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued $ 8,904,235 $ 3,264,968 $ 2,584,751 $ 1,046,895
Dividends reinvested 126,311 117 51,938 203
Cost of shares redeemed (1,004,146) (110,833) (773,807) (11,388)
---------------- -------------------- ---------------- --------------------
Class A Shares capital transactions 8,026,400 3,154,252 1,862,882 1,035,710
---------------- -------------------- ---------------- --------------------
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Proceeds from shares issued 6,939,098 3,640,156 1,216,860 1,298,439
Dividends reinvested 60,467 63 30,500 4
Cost of shares redeemed (544,781) (125,948) (130,465) (13,275)
---------------- -------------------- ---------------- --------------------
Class B Shares capital transactions 6,454,784 3,514,271 1,116,895 1,285,168
---------------- -------------------- ---------------- --------------------
- ----------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES:
Proceeds from shares issued 574,091 275,464 285,040 81,224
Dividends reinvested 6,307 -- 4,345 --
Cost of shares redeemed (155,714) (825) (66,733) --
---------------- -------------------- ---------------- --------------------
Class C Shares capital transactions 424,684 274,639 222,652 81,224
---------------- -------------------- ---------------- --------------------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS $ 14,905,868 $ 6,943,162 $ 3,202,429 $ 2,402,102
================ ==================== ================ ====================
- ----------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued 791,634 319,580 240,413 103,636
Reinvested 11,134 12 4,788 20
Redeemed (89,017) (10,615) (71,416) (1,140)
---------------- -------------------- ---------------- --------------------
Change in Class A Shares 713,751 308,977 173,785 102,516
---------------- -------------------- ---------------- --------------------
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Issued 615,692 355,469 114,343 129,472
Reinvested 5,311 6 2,841 --(c)
Redeemed (48,672) (12,257) (12,263) (1,302)
---------------- -------------------- ---------------- --------------------
Change in Class B Shares 572,331 343,218 104,921 128,170
---------------- -------------------- ---------------- --------------------
- ----------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES:
Issued 52,985 27,076 26,278 7,918
Reinvested 572 -- 398 --
Redeemed (14,028) (82) (6,091) --
---------------- -------------------- ---------------- --------------------
Change in Class C Shares 39,529 26,994 20,585 7,918
---------------- -------------------- ---------------- --------------------
- ----------
(a) Moderate Growth Strategy Fund Class A Shares commenced operations on
February 3, 2005, Class B Shares commenced operations on February 1, 2005,
and Class C Shares commenced operations on June 10, 2005.
(b) Conservative Growth Strategy Fund Class A Shares commenced operations on
February 23, 2005, Class B Shares commenced operations on February 17,
2005, and Class C Shares commenced operations on April 19, 2005.
(c) Rounds to less than $1.0 shares.
25 HSBC INVESTOR LIFELINE FUNDS SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR LIFELINE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
CONSERVATIVE INCOME STRATEGY FUND
- -------------------------------------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 (a)
- -------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss) $ 52,330 $ 7,227
Net realized gains (losses) from investment transactions 4,522 (4,123)
Change in unrealized appreciation/depreciation from investments 43,770 4,746
---------------- --------------------
CHANGE IN NET ASSETS FROM OPERATIONS 100,622 7,850
---------------- --------------------
- -------------------------------------------------------------------------------------------------------------
DIVIDENDS:
NET INVESTMENT INCOME:
Class A Shares (36,621) (3,758)
Class B Shares (15,134) (1,409)
Class C Shares (3,851) (1,093)
---------------- --------------------
CHANGE IN NET ASSETS FROM SHAREHOLDER DIVIDENDS (55,606) (6,260)
---------------- --------------------
CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS 919,405 1,140,131
---------------- --------------------
CHANGE IN NET ASSETS 964,421 1,141,721
- -------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 1,141,721 --
---------------- --------------------
End of period $ 2,106,142 $ 1,141,721
================ ====================
Accumulated net investment income (loss) $ (106) $ 3,253
================ ====================
- ----------
(a) The Conservative Income Strategy Fund Class A Shares commenced operations
on February 8, 2005, Class B Shares commenced operations on February 14,
2005, and Class C Shares commenced operations on May 4, 2005.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR LIFELINE FUNDS 26
HSBC INVESTOR LIFELINE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
CONSERVATIVE INCOME STRATEGY FUND
- -------------------------------------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 (a)
- -------------------------------------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
CLASS A SHARES:
Proceeds from shares issued $ 1,034,033 $ 420,293
Dividends reinvested 37,283 2,097
Cost of shares redeemed (193,548) (3,999)
---------------- --------------------
Class A Shares capital transactions 877,768 418,391
---------------- --------------------
- -------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Proceeds from shares issued 373,366 516,383
Dividends reinvested 14,496 695
Cost of shares redeemed (120,786) (40,981)
---------------- --------------------
Class B Shares capital transactions 267,076 476,097
---------------- --------------------
- -------------------------------------------------------------------------------------------------------------
CLASS C SHARES:
Proceeds from shares issued 1,378 245,019
Dividends reinvested 4,319 624
Cost of shares redeemed (231,136) --
---------------- --------------------
Class C Shares capital transactions (225,439) 245,643
---------------- --------------------
CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS $ 919,405 $ 1,140,131
================ ====================
- -------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
CLASS A SHARES:
Issued 101,772 42,045
Reinvested 3,674 208
Redeemed (19,020) (398)
---------------- --------------------
Change in Class A Shares 86,426 41,855
---------------- --------------------
- -------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Issued 36,774 51,661
Reinvested 1,425 69
Redeemed (11,858) (4,098)
---------------- --------------------
Change in Class B Shares 26,341 47,632
---------------- --------------------
- -------------------------------------------------------------------------------------------------------------
CLASS C SHARES:
Issued 131 24,240
Reinvested 424 62
Redeemed (22,608) --
---------------- --------------------
Change in Class C Shares (22,053) 24,302
---------------- --------------------
- ----------
(a) The Conservative Income Strategy Fund Class A Shares commenced operations
on February 8, 2005, Class B Shares commenced operations on February 14,
2005, and Class C Shares commenced operations on May 4, 2005.
27 HSBC INVESTOR LIFELINE FUNDS SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
HSBC INVESTOR AGGRESSIVE GROWTH STRATEGY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS
------------------------------------------- ------------------------
NET REALIZED AND
NET ASSET NET UNREALIZED GAINS TOTAL NET REALIZED
VALUE, INVESTMENT (LOSSES) FROM FROM GAINS FROM
BEGINNING INCOME INVESTMENT INVESTMENT INVESTMENT TOTAL
OF PERIOD (LOSS) TRANSACTIONS ACTIVITIES TRANSACTIONS DIVIDENDS
- ----------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.00 (0.01) 0.61 0.60 -- --
Year ended October 31, 2006 10.60 0.01 2.01 2.02 (0.05) (0.05)
- ----------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (g) $ 10.00 (0.04) 0.61 0.57 -- --
Year ended October 31, 2006 10.57 (0.05) 1.97 1.92 (0.05) (0.05)
- ----------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (h) $ 10.00 (0.05) 0.60 0.55 -- --
Year ended October 31, 2006 10.55 (0.04) 1.95 1.91 (0.05) (0.05)
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA
-----------------------------------------------------------------------
RATIO OF NET
NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF
VALUE, AT END OF EXPENSES TO INCOME (LOSS) EXPENSES TO
END OF TOTAL PERIOD AVERAGE TO AVERAGE AVERAGE NET PORTFOLIO
PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e)
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.60 6.00% $ 726 1.50% (0.20)% 11.72% 49.10%
Year ended October 31, 2006 12.57 19.15% 4,116 1.50% 0.05% 3.52% 48.46%
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (g) $ 10.57 5.70% $ 700 2.25% (1.01)% 11.63% 49.10%
Year ended October 31, 2006 12.44 18.25% 2,998 2.25% (0.70)% 4.33% 48.46%
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (h) $ 10.55 5.50% $ 21 2.25% (1.15)% 9.79% 49.10%
Year ended October 31, 2006 12.41 18.19% 229 2.25% (0.69)% 4.20% 48.46%
- -----------------------------------------------------------------------------------------------------------------------------------
(a) The per share amounts and percentages reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the applicable HSBC Investor Portfolios.
(b) Not annualized for periods less than one year. Total return calculations
do not include any sales or redemption charges.
(c) Annualized for periods less than one year.
(d) During the period certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
(e) Portfolio turnover is calculated by aggregating the results of multiplying
the Fund's investment percentage in the respective Portfolios by the
corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates.
Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(f) Class A Shares commenced operations on February 14, 2005.
(g) Class B Shares commenced operations on February 9, 2005.
(h) Class C Shares commenced operations on June 10, 2005.
SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR LIFELINE FUNDS 28
- --------------------------------------------------------------------------------
HSBC INVESTOR GROWTH STRATEGY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS
------------------------------------------- ------------------------
NET REALIZED AND NET
NET ASSET NET UNREALIZED GAINS TOTAL REALIZED
VALUE, INVESTMENT (LOSSES) FROM FROM GAINS FROM
BEGINNING INCOME INVESTMENT INVESTMENT INVESTMENT TOTAL
OF PERIOD (LOSS) TRANSACTIONS ACTIVITIES TRANSACTIONS DIVIDENDS
- ----------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.00 0.02 0.70 0.72 -- --
Year ended October 31, 2006 10.72 0.07 1.69 1.76 (0.03) (0.03)
- ----------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (g) $ 10.00 (0.01) 0.79 0.78 -- --
Year ended October 31, 2006 10.78 0.02 1.66 1.68 (0.03) (0.03)
- ----------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (h) $ 10.00 (0.02) 0.84 0.82 -- --
Year ended October 31, 2006 10.82 0.02 1.67 1.69 (0.03) (0.03)
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA
-----------------------------------------------------------------------
RATIO OF NET
NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF
VALUE, AT END OF EXPENSES TO INCOME (LOSS) EXPENSES TO
END OF TOTAL PERIOD AVERAGE TO AVERAGE AVERAGE NET PORTFOLIO
PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e)
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.72 7.20% $ 2,814 1.50% 0.42% 5.19% 69.23%
Year ended October 31, 2006 12.45 16.41% 12,562 1.50% 0.87% 2.19% 80.30%
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (g) $ 10.78 7.80% $ 2,670 2.25% (0.38)% 5.74% 69.23%
Year ended October 31, 2006 12.43 15.57% 8,702 2.25% 0.11% 2.94% 80.30%
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (h) $ 10.82 8.20% $ 106 2.25% (0.55)% 5.24% 69.23%
Year ended October 31, 2006 12.48 15.61% 585 2.25% 0.14% 2.90% 80.30%
- -----------------------------------------------------------------------------------------------------------------------------------
(a) The per share amounts and percentages reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the applicable HSBC Investor Portfolios.
(b) Not annualized for periods less than one year. Total return calculations
do not include any sales or redemption charges.
(c) Annualized for periods less than one year.
(d) During the period certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
(e) Portfolio turnover is calculated by aggregating the results of multiplying
the Fund's investment percentage in the respective Portfolios by the
corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates.
Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(f) Class A Shares commenced operations on February 8, 2005.
(g) Class B Shares commenced operations on February 1, 2005.
(h) Class C Shares commenced operations on April 27, 2005.
SEE NOTES TO FINANCIAL STATEMENTS.
29 HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
HSBC INVESTOR MODERATE GROWTH STRATEGY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS
---------------------------------------- ------------------------------------------
NET REALIZED AND NET REALIZED
NET ASSET NET UNREALIZED GAINS TOTAL GAINS FROM
VALUE, INVESTMENT (LOSSES) FROM FROM NET INVESTMENT
BEGINNING INCOME INVESTMENT INVESTMENT INVESTMENT AND TOTAL
OF PERIOD (LOSS) TRANSACTIONS ACTIVITIES INCOME TRANSACTIONS DIVIDENDS
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.00 0.04 0.45 0.49 -- (g) -- -- (g)
Year ended October 31, 2006 10.49 0.17 1.23 1.40 (0.17) (0.01) (0.18)
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (h) $ 10.00 0.01 0.49 0.50 -- (g) -- -- (g)
Year ended October 31, 2006 10.50 0.09 1.22 1.31 (0.08) (0.01) (0.09)
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (i) $ 10.00 -- (g) 0.28 0.28 -- -- --
Year ended October 31, 2006 10.28 0.09 1.19 1.28 (0.08) (0.01) (0.09)
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA
----------------------------------------------------------------------
RATIO OF NET
NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF
VALUE, AT END OF EXPENSES TO INCOME TO EXPENSES TO
END OF TOTAL PERIOD AVERAGE AVERAGE AVERAGE NET PORTFOLIO
PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e)
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.49 4.94% $ 3,241 1.50% 0.95% 4.30% 84.55%
Year ended October 31, 2006 11.71 13.40% 11,973 1.50% 1.65% 2.12% 101.57%
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (h) $ 10.50 5.03% $ 3,604 2.25% 0.18% 5.01% 84.55%
Year ended October 31, 2006 11.72 12.45% 10,731 2.25% 0.91% 2.87% 101.57%
- --------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (i) $ 10.28 2.80% $ 278 2.25% 0.05% 4.69% 84.55%
Year ended October 31, 2006 11.47 12.53% 763 2.25% 0.87% 2.83% 101.57%
- --------------------------------------------------------------------------------------------------------------------------------
(a) The per share amounts and percentages reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the applicable HSBC Investor Portfolios.
(b) Not annualized for periods less than one year. Total return calculations
do not include any sales or redemption charges.
(c) Annualized for periods less than one year.
(d) During the period certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
(e) Portfolio turnover is calculated by aggregating the results of multiplying
the Fund's investment percentage in the respective Portfolios by the
corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates.
Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(f) Class A Shares commenced operations on February 3, 2005.
(g) Rounds to less than $0.01.
(h) Class B Shares commenced operations on February 1, 2005.
(i) Class C Shares commenced operations on June 10, 2005.
SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR LIFELINE FUNDS 30
- --------------------------------------------------------------------------------
HSBC INVESTOR CONSERVATIVE GROWTH STRATEGY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS
------------------------------------------ ----------------------
NET REALIZED AND
NET ASSET NET UNREALIZED GAINS
VALUE, INVESTMENT (LOSSES) FROM TOTAL FROM NET
BEGINNING INCOME INVESTMENT INVESTMENT INVESTMENT TOTAL
OF PERIOD (LOSS) TRANSACTIONS ACTIVITIES INCOME DIVIDENDS
- -----------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.00 0.04 0.26 0.30 (0.01) (0.01)
Year ended October 31, 2006 10.29 0.22 0.85 1.07 (0.25) (0.25)
- -----------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (g) $ 10.00 0.03 0.16 0.19 -- (h) -- (h)
Year ended October 31, 2006 10.19 0.15 0.83 0.98 (0.16) (0.16)
- -----------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (i) $ 10.00 0.03 0.38 0.41 -- --
Year ended October 31, 2006 10.41 0.15 0.85 1.00 (0.17) (0.17)
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA
------------------------------------------------------------------------
RATIO OF NET
NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF
VALUE, AT END OF EXPENSES TO INCOME TO EXPENSES TO
END OF TOTAL PERIOD AVERAGE AVERAGE AVERAGE NET PORTFOLIO
PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e)
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.29 2.96% $ 1,054 1.50% 1.28% 8.01% 72.14%
Year ended October 31, 2006 11.11 10.48% 3,069 1.50% 2.33% 3.22% 96.58%
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (g) $ 10.19 1.92% $ 1,306 2.25% 0.53% 9.21% 72.14%
Year ended October 31, 2006 11.01 9.65% 2,567 2.25% 1.54% 3.98% 96.58%
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (i) $ 10.41 4.10% $ 82 2.25% 0.66% 7.94% 72.14%
Year ended October 31, 2006 11.24 9.66% 320 2.25% 1.56% 3.92% 96.58%
- ------------------------------------------------------------------------------------------------------------------------------------
(a) The per share amounts and percentages reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the applicable HSBC Investor Portfolios.
(b) Not annualized for periods less than one year. Total return calculations
do not include any sales or redemption charges.
(c) Annualized for periods less than one year.
(d) During the period certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
(e) Portfolio turnover is calculated by aggregating the results of multiplying
the Fund's investment percentage in the respective Portfolios by the
corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates.
Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(f) Class A Shares commenced operations on February 23, 2005.
(g) Class B Shares commenced operations on February 17, 2005.
(h) Rounds to less than $0.01.
(i) Class C Shares commenced operations on April 19, 2005.
SEE NOTES TO FINANCIAL STATEMENTS.
31 HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
HSBC INVESTOR CONSERVATIVE INCOME STRATEGY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (a)
INVESTMENT ACTIVITIES DIVIDENDS
------------------------------------------ -----------------------
NET REALIZED AND
NET ASSET NET UNREALIZED GAINS TOTAL
VALUE, INVESTMENT (LOSSES) FROM FROM NET
BEGINNING OF INCOME INVESTMENT INVESTMENT INVESTMENT TOTAL
PERIOD (LOSS) TRANSACTIONS ACTIVITIES INCOME DIVIDENDS
- --------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.00 0.11 0.01 0.12 (0.11) (0.11)
Year ended October 31, 2006 10.01 0.32* 0.29 0.61 (0.33) (0.33)
- --------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (g) $ 10.00 0.06 0.01 0.07 (0.04) (0.04)
Year ended October 31, 2006 10.03 0.24* 0.30 0.54 (0.26) (0.26)
- --------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (h) $ 10.00 0.06 0.08 0.14 (0.06) (0.06)
Year ended October 31, 2006 10.08 0.22* 0.27 0.49 (0.23) (0.23)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTARY DATA
------------------------------------------------------------------------
RATIO OF NET
NET ASSET NET ASSETS RATIO OF INVESTMENT RATIO OF
VALUE, AT END OF EXPENSES TO INCOME EXPENSES TO
END OF TOTAL PERIOD AVERAGE TO AVERAGE AVERAGE NET PORTFOLIO
PERIOD RETURN(b) (000'S) NET ASSETS(c) NET ASSETS(c) ASSETS(c)(d) TURNOVER(e)
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Period ended October 31, 2005 (f) $ 10.01 1.18% $ 419 1.50% 1.79% 14.10% 79.90%
Year ended October 31, 2006 10.29 6.19% 1,320 1.50% 3.19% 5.50% 110.57%
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Period ended October 31, 2005 (g) $ 10.03 0.68% $ 478 2.25% 1.21% 12.16% 79.90%
Year ended October 31, 2006 10.31 5.40% 763 2.25% 2.39% 6.43% 110.57%
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Period ended October 31, 2005 (h) $ 10.08 1.41% $ 245 2.25% 1.24% 9.60% 79.90%
Year ended October 31, 2006 10.34 4.92% 23 2.25% 2.15% 6.58% 110.57%
- ------------------------------------------------------------------------------------------------------------------------------------
* Calculated based on average shares outstanding.
(a) The per share amounts and percentages reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the applicable HSBC Investor Portfolios.
(b) Not annualized for periods less than one year. Total return calculations
do not include any sales or redemption charges.
(c) Annualized for periods less than one year.
(d) During the period certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
(e) Portfolio turnover is calculated by aggregating the results of multiplying
the Fund's investment percentage in the respective Portfolios by the
corresponding Portfolio's entire 2005 or 2006 portfolio turnover rates.
Portfolio turnover rate is calculated on the basis of the Fund as a whole
without distinguishing between classes of shares issued.
(f) Class A Shares commenced operations on February 8, 2005.
(g) Class B Shares commenced operations on February 14, 2005.
(h) Class C Shares commenced operations on May 4, 2005.
SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR LIFELINE FUNDS 32
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006
1. ORGANIZATION:
The HSBC Investor Funds (the "Trust"), a Massachusetts business
trust organized on April 22, 1987, is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. As of October 31, 2006, the Trust is comprised of 24
separate funds, each a diversified series of the HSBC Investor Family of
Funds. The accompanying financial statements are presented for the
following 5 funds (individually a "Fund", collectively the "LifeLine
Funds"):
FUND SHORT NAME
- ---- ----------
HSBC Investor Aggressive Growth Strategy Fund Aggressive Growth Fund
HSBC Investor Growth Strategy Fund Growth Strategy Fund
HSBC Investor Moderate Growth Strategy Fund Moderate Growth Fund
HSBC Investor Conservative Growth Strategy Fund Conservative Growth Fund
HSBC Investor Conservative Income Strategy Fund Conservative Income Fund
Financial statements for all other funds of the HSBC Investor Family
of Funds are published separately.
The HSBC Investor Money Market Fund (the "Money Market Fund") is an
open-end management investment company and, like each LifeLine Fund, is a
diversified series of the Trust.
The LifeLine Funds utilize a master feeder fund structure and seek
to achieve their investment objectives by investing all of their
investable assets in the Portfolios and the Money Market Fund
(collectively the "Underlying Portfolios") per the following schedule from
April 28, 2006 to October 31, 2006:
LIFELINE FUNDS PORTFOLIO WEIGHTINGS
AGGRESSIVE GROWTH MODERATE CONSERVATIVE CONSERVATIVE
GROWTH STRATEGY GROWTH GROWTH INCOME
UNDERLYING PORTFOLIOS FUND FUND FUND FUND FUND
- --------------------- ---------- -------- -------- ------------ ------------
Core Plus Fixed Income Portfolio ..................... None 15% 26% 25% 15%
High Yield Fixed Income Portfolio .................... None 2% 5% 8% 10%
Intermediate Duration Fixed Income Portfolio ......... None None None 3% 25%
Growth Portfolio ..................................... 21% 21% 19% 15% 8%
International Equity Portfolio ....................... 23% 20% 15% 10% 4%
Small Cap Equity Portfolio ........................... 34% 20% 11% 4% None
Value Portfolio ...................................... 21% 21% 18% 14% 8%
Money Market Fund .................................... 1% 1% 6% 21% 30%
---------- -------- -------- ------------ ------------
Total ................................................ 100% 100% 100% 100% 100%
========== ======== ======== ============ ============
Prior to April 28, 2006, the Lifeline Funds utilized the following
schedule:
AGGRESSIVE GROWTH MODERATE CONSERVATIVE CONSERVATIVE
GROWTH STRATEGY GROWTH GROWTH INCOME
UNDERLYING PORTFOLIOS FUND FUND FUND FUND FUND
- --------------------- ---------- -------- -------- ------------ ------------
Core Plus Fixed Income Portfolio ..................... None 17% 31% 20% 25%
Intermediate Duration Fixed Income Portfolio ......... None None None 15% 25%
Growth Portfolio ..................................... 21% 21% 19% 15% 8%
International Equity Portfolio ....................... 23% 20% 15% 10% 4%
Small Cap Equity Portfolio ........................... 34% 20% 11% 5% None
Value Portfolio ...................................... 21% 21% 18% 15% 8%
Money Market Fund .................................... 1% 1% 6% 20% 30%
---------- -------- -------- ------------ ------------
Total ................................................ 100% 100% 100% 100% 100%
========== ======== ======== ============ ============
The HSBC Investor Core Plus Fixed Income Portfolio (formerly the
HSBC Investor Fixed Income Portfolio), HSBC Investor High Yield Fixed
Income Portfolio, HSBC Investor Intermediate Duration Fixed Income
Portfolio (formerly the HSBC Investor Limited Maturity Portfolio), HSBC
Investor Growth Portfolio, HSBC Investor International Equity Portfolio,
HSBC Investor Small Cap Equity Portfolio and the HSBC Investor Value
Portfolio
33 HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
(individually a "Portfolio," collectively the "Portfolios") are
diversified series of the HSBC Investor Portfolios (the "Portfolio
Trust"). The Portfolios operate as master funds in master-feeder
arrangements.
The financial statements of the Portfolios, including the Schedules
of Portfolio Investments, are included elsewhere in this report. The
financial statements of the Portfolios should be read in conjunction with
the financial statements of the LifeLine Funds.
The LifeLine Funds are authorized to issue an unlimited number of
shares of beneficial interest with a par value of $0.001 per share. Each
Fund offers four classes of shares: Class A Shares, Class B Shares, Class
C Shares, and Class R Shares (currently not operational with assets).
Class A Shares of the Aggressive Growth Fund, Growth Strategy Fund,
Moderate Growth Fund, and the Conservative Growth Fund have a maximum
sales charge of 5.00% as a percentage of the original purchase price while
Class A Shares of the Conservative Income Fund has a maximum sales charge
of 4.75% as a percentage of the original purchase price. The Class B
Shares of the Lifeline Funds are offered without any front-end sales
charge but will be subject to a contingent deferred sales charge ("CDSC")
ranging from a maximum of 4.00% if redeemed less than one year after
purchase to 0.00% if redeemed more than four years after purchase. Class C
Shares of the Lifeline Funds are offered without any front-end sales
charge but will be subject to a maximum CDSC of 1.00% if redeemed less
than one year after purchase. No sales charges are assessed with respect
to Class R Shares of the Funds. Each class of shares in the LifeLine Funds
has identical rights and privileges except with respect to arrangements
pertaining to shareholder servicing or distribution, class-related
expenses, voting rights on matters affecting a single class of shares, and
the exchange privileges of each class of shares.
Under the Trust's organizational documents, the LifeLine Funds'
officers and trustees are indemnified against certain liabilities arising
out of the performance of their duties to the LifeLine Funds. In addition,
in the normal course of business, the LifeLine Funds enter into contracts
with service providers, which also provide for indemnifications by the
LifeLine Funds. The LifeLine Funds' maximum exposure under these
arrangements is unknown as this would involve any future claims that may
be made against the LifeLine Funds. However, based on experience, the
LifeLine Funds expect that risk of loss to be remote.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies
followed by the LifeLine Funds in the preparation of their financial
statements. The policies are in conformity with accounting principles
generally accepted in the United States of America ("GAAP"). The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent 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 LifeLine Funds record their investments in the Underlying
Portfolios at fair value. The LifeLine Funds record their investments in
the Money Market Fund at the respective net asset value reported by the
Fund. The underlying securities of the Portfolios' and the Money Market
Fund are recorded at fair value and at amortized cost, respectively, as
more fully discussed in the notes to those financial statements.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The LifeLine Funds record daily their pro-rata income, expenses and
unrealized/realized gains and losses derived from their respective
Portfolio. Dividend income is recorded on the ex-dividend date for the
Money Market Fund. Changes in holdings of the Money Market Fund for each
LifeLine Fund are reflected no later than the first business day following
trade date. However, for financial reporting purposes, changes in holdings
of the Money Market Fund are reflected as of trade date. In addition, the
LifeLine Funds accrue their own expenses daily as incurred.
ALLOCATIONS:
Expenses directly attributable to a Fund are charged to that Fund.
Expenses not directly attributable to a Fund are allocated proportionately
among various or all LifeLine Funds within the HSBC Investor Family of
Funds in relation to the net assets of each Fund or on another reasonable
basis. Expenses specific to a class are charged to that class. In
HSBC INVESTOR LIFELINE FUNDS 34
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
addition, income, expenses (other than class specific expenses), and
unrealized/realized gains and losses are allocated to each class based on
relative net assets on a daily basis.
DIVIDENDS TO SHAREHOLDERS:
The Conservative Income Fund declares and distributes all net
investment income as dividends to its shareholders monthly. Dividends from
net investment income, if any, are declared and distributed quarterly in
the case of the Moderate Growth Fund and Conservative Growth Fund, and
annually in the case of the Aggressive Growth Fund and Growth Strategy
Fund.
The LifeLine Funds' net realized gains, if any, are distributed to
shareholders at least annually. Additional distributions are also made to
the LifeLine Funds' shareholders to the extent necessary to avoid the
federal excise tax on certain undistributed income and net capital gains
of regulated investment companies.
The amount and character of net investment income and net realized
gains distributions are determined in accordance with federal income tax
regulations which may differ from GAAP. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature (e.g., reclassification of market
discounts, certain gain/loss, paydowns, and certain distributions), such
amounts are reclassified within the components of net assets; temporary
differences (e.g., wash losses and post-october loss deferrals) do not
require reclassification. The LifeLine Funds may utilize equalization
accounting for tax purposes and designate earnings and profits, including
net realized gains distributed to shareholders on redemption of shares, as
a part of the dividends paid deduction for income tax purposes.
REDEMPTION FEE:
A redemption fee of 2.00% will be charged and recorded as
paid-in-capital for any shares redeemed or exchanged after holding them
for less than 30 days. This fee does not apply to shares purchased through
reinvested dividends or capital gains or shares held in certain omnibus
accounts or retirement plans that cannot implement the fee. For the year
ended October 31, 2006, the following LifeLine Funds collected redemption
fees as follows:
FUND FEES COLLECTED
---- --------------
Aggressive Growth Fund ................... $ 363
Growth Strategy Fund ..................... 514
Moderate Growth Fund ..................... 429
Conservative Growth Fund ................. 54
Conservative Income Fund ................. 70
FEDERAL INCOME TAXES:
Each Fund is a separate taxable entity for federal income tax
purposes. Each Fund has qualified and intends to continue to qualify each
year as a "regulated investment company" under Subchapter M of the
Internal Revenue Code, as amended, and to distribute substantially all of
their taxable net investment income and net realized gains, if any, to
their shareholders. Accordingly, no provision for federal income or excise
tax is required.
NEW ACCOUNTING PRONOUNCEMENTS:
In September 2006 the Financial Accounting Standards Board (FASB)
issued Statement on Financial Accounting Standards (SFAS) No. 157, "Fair
Value Measurements." This standard establishes a single authoritative
definition of fair value, sets out a framework for measuring fair value
and requires additional disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted
by existing standards. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. The changes to current GAAP from the
application of this Statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about
fair value measurements. As of October 31, 2006, the LifeLine Funds do not
believe the adoption of SFAS No. 157 will impact the financial statement
amounts, however, additional disclosures will be required about the inputs
used to develop the measurements and the effect of certain of the
measurements on changes in net assets for the period.
35 HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
On July 13, 2006, the FASB released FASB Interpretation No. 48
"Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides
guidance for how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. FIN 48 requires the
evaluation of tax positions taken or expected to be taken in the course of
preparing the LifeLine Funds' tax return to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable
tax authority. Tax positions not deemed to meet the more likely-than-not
threshold would be recorded as a tax benefit or expense in the year of
determination. Adoption of FIN 48 is required for fiscal years beginning
after December 15, 2006 and is to be applied to all open tax years as of
the effective date. Management is in the process of completing their
analysis on whether the adoption of FIN 48 will have an impact to the
financial statements upon adoption.
3. RELATED PARTY TRANSACTIONS:
INVESTMENT MANAGEMENT:
HSBC Investments (USA) Inc. ("HSBC" or the "Investment Adviser"), a
wholly owned subsidiary of HSBC Bank USA, a New York State chartered bank,
acts as Investment Adviser to the LifeLine Funds. As Investment Adviser,
HSBC manages the investments of the LifeLine Funds and continuously
reviews, supervises and administers the LifeLine Funds' investments. For
its services as Investment Adviser, HSBC is entitled to receive a fee,
computed daily and paid monthly, based on average daily net assets, at an
annual rate of 0.05% for each Fund.
ADMINISTRATION:
HSBC serves the LifeLine Funds as Administrator. Under the terms of
the administration agreement, HSBC receives from the LifeLine Funds a fee
accrued daily and paid monthly at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS FEE RATE
- --------------------------------- --------
Up to $8 billion ........................................................................ 0.075%
In excess of $8 billion but not exceeding $9.25 billion ................................. 0.070%
In excess of $9.25 billion but not exceeding $12 billion ................................ 0.050%
In excess of $12 billion ................................................................ 0.030%
The fee breakpoints are determined on the basis of the aggregate
average daily net assets of the HSBC Investor Family of Funds. The fee is
allocated to each series of the HSBC Investor Family of Funds based upon
its pro-rata share of net assets. For assets invested in Underlying
Portfolios by LifeLine Funds, the Portfolios pay half of the
administration fee, and the LifeLine Funds pay the other half, for a
combination of the total fee rate above.
The administration fees accrued for each class by Fund, of which 50%
of such fees are deemed to be class specific since June 1, 2006 (100% was
deemed class specific prior to that date), are as follows:
AGGRESSIVE MODERATE CONSERVATIVE CONSERVATIVE
GROWTH GROWTH GROWTH GROWTH INCOME
STRATEGY FUND STRATEGY FUND FUND FUND FUND
------------- ------------- ------------ ------------ ------------
Class A Shares ......... $ 774 $ 2,593 $ 2,823 $ 801 $ 406
Class B Shares ......... 693 2,141 2,664 750 221
Class C Shares ......... 52 176 272 103 63
------------- ------------- ------------ ------------ ------------
Total Shares ........... $ 1,519 $ 4,910 $ 5,759 $ 1,654 $ 690
============= ============= ============ ============ ============
Pursuant to a Sub-Administration Agreement with HSBC, BISYS Fund
Services Ohio, Inc. ("BISYS Ohio") a wholly-owned subsidiary of The BISYS
Group, Inc, serves as the Trust's sub-administrator to each Fund subject
to the general supervision of the Trust's Board of Trustees and HSBC. For
these services, BISYS Ohio is entitled to a fee, payable by HSBC, at an
annual rate equivalent to the fee rates set forth above, minus 0.02% (2
basis points) which is retained by HSBC.
Under a Compliance Services Agreement between the Trusts and BISYS
Ohio (the "CCO Agreement"), BISYS Ohio makes an employee available to
serve as the Trust's Chief Compliance Officer (the "CCO"). Under the CCO
Agreement, BISYS Ohio also provides infrastructure and support in
implementing the written policies and procedures comprising the Trust's
compliance program, including support services to the CCO. For the
services provided under the
HSBC INVESTOR LIFELINE FUNDS 36
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
CCO Agreement, the HSBC Investor Family of Funds paid BISYS Ohio $240,000
for the year ended October 31, 2006, plus reimbursement of certain out of
pocket expenses. Expenses incurred are reflected on the Statements of
Operations as "Compliance service." BISYS Ohio pays the salary and other
compensation earned by any such individuals as employees of BISYS Ohio.
DISTRIBUTION PLAN:
BISYS Fund Services Limited Partnership ("BISYS"), a wholly-owned
subsidiary of BISYS Fund Services, Inc., serves the LifeLine Funds as
Distributor (the "Distributor"). The Trust has adopted a non-compensatory
Distribution Plan and Agreement (the "Plan") pursuant to Rule 12b-1 of the
Act. The Plan provides for reimbursement of expenses incurred by the
Distributor related to distribution and marketing, at a rate not to exceed
0.25%, 1.00% and 1.00% of the average daily net assets of Class A Shares
(currently not being charged), Class B Shares (currently charging 0.75%)
and Class C Shares (currently charging 0.75%) of the LifeLine Funds,
respectively. BISYS, as Distributor, also received $1,248,150, $797,394
and $18,602 in commissions from sales of HSBC Investor Family of Funds,
for Class A Shares, Class B Shares and Class C Shares, respectively of
which $1,247,785, $797,194 and $18,602, was reallowed to affiliated
brokers and dealers, for Class A Shares, Class B Shares and Class C
Shares, respectively.
SHAREHOLDER SERVICING:
The Trust has adopted an Administrative Services Plan which provides
for payments to shareholder servicing agents (which currently consists of
HSBC and its affiliates) for providing various shareholder services. For
performing these services, the shareholder servicing agents receive a fee
up to 0.25%, 0.25%, 0.25% and 0.75% that is computed daily and paid
monthly equal to a percentage of average daily net assets of Class A
Shares, Class B Shares, Class C Shares and Class R Shares of the Lifeline
Funds, respectively. The fees paid to the Distributor pursuant to the
Distribution Plan and to shareholder servicing agents pursuant to the
Administrative Services Plan currently are not intended to exceed, in the
aggregate, 0.25% of the average daily net assets of Class A Shares, 1.00%
of the average daily net assets of Class B Shares and Class C Shares, and
0.75% of the average daily net assets of Class R Shares.
FUND ACCOUNTING, TRANSFER AGENCY, CUSTODIAN AND TRUSTEE:
BISYS Ohio provides fund accounting and transfer agency services for
each Fund. As transfer agent for the LifeLine Funds, BISYS receives a fee
based on the number of LifeLine Funds and shareholder accounts, subject to
certain minimums and reimbursement of certain expenses. As fund accountant
for the LifeLine Funds, BISYS receives an annual fee per Fund and share
class, subject to certain minimums and reimbursement of certain expenses.
HSBC Bank is the named Custodian for the LifeLine Funds, however, the
LifeLine Funds maintained no securities for which such services were
rendered during the period.
Effective May 18, 2006 each of the six non-interested Trustees are
compensated with a $35,000 annual Board retainer, as well as a $3,000
annual retainer for each Committee of the Board. Each non-interested
Trustee also receives a $5,000 and $3,000 meeting fee for each regular
in-person Board meeting and Committee meeting, respectively. Furthermore,
each non-interested Trustee receives compensation for attending special
meetings and/or functioning as a Committee Chairperson or Lead Trustee. In
addition, the non-interested Trustees are reimbursed for certain expenses
incurred in connection with their Board membership.
Prior to May 18, 2006 each of the six non-interested Trustees were
compensated with a $24,000 annual Board retainer, as well as a $1,000
annual retainer for each Committee of the Board. Each non-interested
Trustee also received a $4,000 and $2,000 meeting fee for each regular
in-person Board meeting and Committee meeting, respectively.
FEE REDUCTIONS:
The Investment Adviser has agreed to contractually limit through
March 1, 2007 the total expenses, exclusive of interest, taxes, brokerage
commissions and extraordinary expenses, of the LifeLine Funds. Each Fund
Class has its own expense limitations based on the average daily net
assets for any full fiscal year as follows: Class A 1.50%, Class B 2.25%,
Class C 2.25% and Class R 2.00%.
The Administrator and BISYS Ohio may voluntarily waive/reimburse
fees to help support the expense limits of each Fund. In addition, the
Investment Adviser may waive/reimburse additional fees at their
discretion. Amounts
37 HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
waived/reimbursed by the Investment Adviser, Administrator and BISYS Ohio
are reported separately on the statements of operations. All contractual
and any voluntary fee waivers/reimbursements are not subject to recoupment
in subsequent fiscal periods. Voluntary waivers/reimbursements may be
stopped at any time.
4. INVESTMENT TRANSACTIONS:
Aggregate contributions and withdrawals of the Underlying Portfolios
for the period ended October 31, 2006 totaled:
CONTRIBUTIONS WITHDRAWALS
------------- ------------
Aggressive Growth Fund ......... $ 5,529,094 $ 354,750
Growth Strategy Fund ........... 15,742,029 1,471,960
Moderate Growth Fund ........... 15,822,725 2,221,828
Conservative Growth Fund ....... 3,879,066 1,572,299
Conservative Income Fund ....... 1,194,406 629,755
5. LEGAL AND REGULATORY MATTERS:
On September 26, 2006 BISYS Fund Services, Inc. ("BISYS"), an
affiliate of BISYS Fund Services Ohio, Inc. which provides various
services to the Funds as described in footnote 3, reached a settlement
with the Securities and Exchange Commission ("SEC") regarding the SEC's
investigation related to BISYS' past payment of certain marketing and
other expenses with respect to certain of its mutual fund clients.
Although BISYS has reached a settlement with the SEC, the LifeLine Funds'
management is not aware that any determination has been made as to how the
BISYS settlement monies will be distributed. The SEC's examination of
BISYS' mutual fund clients and their advisers, including HSBC, has not
been completed. While the LifeLine Funds' management is currently unable
to determine the impact, if any, of such matters on the LifeLine Funds or
the LifeLine Funds' financial statements, management does not anticipate a
material, adverse impact to the LifeLine Funds or the Lifeline Funds'
Financial Statements.
6. FEDERAL INCOME TAX INFORMATION:
The tax characteristics of dividends paid by the LifeLine Funds
during the fiscal year ended October 31, 2006 were as follows:
DIVIDENDS PAID FROM
--------------------------
ORDINARY NET LONG TERM TOTAL TAXABLE TAX EXEMPT TOTAL DIVIDENDS
FUND INCOME CAPITAL GAINS DIVIDENDS DISTRIBUTIONS PAID(1)
- ---- ---------- ------------- ------------- ------------- ---------------
Aggressive Growth Fund ........... $ -- $ 9,058 $ 9,058 $ -- $ 9,058
Growth Strategy Fund ............. 22 16,108 16,130 -- 16,130
Moderate Growth Fund ............. 188,594 7,543 196,137 -- 196,137
Conservative Growth Fund ......... 87,312 -- 87,312 -- 87,312
Conservative Income Fund ......... 52,647 -- 52,647 -- 52,647
The tax characteristics of dividends paid by the LifeLine Funds
during the fiscal year ended October 31, 2005 were as follows:
DIVIDENDS PAID FROM
--------------------------
ORDINARY NET LONG TERM TOTAL TAXABLE TAX EXEMPT TOTAL DIVIDENDS
FUND INCOME CAPITAL GAINS DIVIDENDS DISTRIBUTIONS PAID(1)
- ---- ---------- ------------- ------------- ------------- ---------------
Moderate Growth Fund ............. $ 189 $ -- $ 189 $ -- $ 189
Conservative Growth Fund ......... 208 -- 208 -- 208
Conservative Income Fund ......... 3,499 -- 3,499 -- 3,499
HSBC INVESTOR LIFELINE FUNDS 38
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
As of October 31, 2006, the components of accumulated
earnings/(deficit) on a tax basis for the LifeLine Funds were as follows:
UNDISTRIBUTED ACCUMULATED TOTAL
UNDISTRIBUTED UNDISTRIBUTED LONG TERM CAPITAL AND UNREALIZE ACCUMULATED
ORDINARY TAX EXEMPT CAPITAL ACCUMULATED DIVIDENDS OTHER APPRECIATION/ EARNINGS/
FUND INCOME INCOME GAINS EARNINGS PAYABLE(2) LOSSES (DEPRECIATION)(3) (DEFICIT)
---- ------------- ------------- ------------- ----------- ---------- ----------- ----------------- -----------
Aggressive Growth
Fund ......... $ -- $ -- $ -- $ -- $ -- $ (6,368) $ 603,158 $ 596,790
Growth Strategy
Fund ......... 94,306 -- 164,526 258,832 -- -- 1,596,082 1,854,914
Moderate Growth
Fund ......... 35,375 -- 208,376 243,751 -- -- 1,378,241 1,621,992
Conservative
Growth Fund .. 9,529 -- 67,208 76,737 -- -- 277,976 354,713
Conservative
Income Fund .. 6,349 -- 1,845 8,194 (5,720) -- 47,100 49,574
- ----------
(1) Total dividends paid may differ from the amount reported in the Statement
of Changes in Net Assets because dividends are recognized when actually
paid for tax purposes.
(2) Dividends payable may differ from the amount reported in the Statements of
Assets and Liabilities because dividends reinvested on October 31, 2006
are booked as capital for financial reporting purposes but are reflected
as a payable for tax purposes.
(3) The differences between book-basis and tax-basis unrealized
appreciation/deprecation are attributable primarily to: tax deferral of
losses on wash sales, the realization for tax purposes of unrealized
gains/losses on certain derivative instruments, the difference between
book and tax amortization methods for premium and market discount, the
realization for tax purposes of unrealized gains/losses on investments in
passive foreign investment companies, and the return of capital
adjustments from real estate investment trusts.
As of October 31, 2006, the following Fund had net capital loss
carryforwards, which are available to offset future realized gains.
FUND AMOUNT EXPIRES
---- ------ -------
Aggressive Growth Fund .................... $6,368 2014
39 HSBC INVESTOR LIFELINE FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and
Board of Trustees of
HSBC Investor LifeLine Funds:
We have audited the accompanying statements of assets and liabilities of
HSBC Investor Aggressive Growth Strategy Fund, HSBC Investor Growth Strategy
Fund, HSBC Investor Moderate Growth Strategy Fund, HSBC Investor Conservative
Growth Strategy Fund and HSBC Investor Conservative Income Strategy Fund (the
Funds), including the related statements of operations for the year then ended
and the statements of changes in net assets and the financial highlights for
each period in the two-year period then ended. These financial statements and
financial highlights are the responsibility of the Funds' 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 the standards of the Public
Company Accounting Oversight Board (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. 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
Funds as of October 31, 2006, and the results of their operations for the year
then ended and the changes in their net assets and the financial highlights for
each period in the two-year period then ended, in conformity with U.S. generally
accepted accounting principles.
KPMG LLP
Columbus, Ohio
December 22, 2006
HSBC INVESTOR LIFELINE FUNDS 40
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
OTHER FEDERAL INCOME TAX INFORMATION--OCTOBER 31, 2006 (UNAUDITED)
For the fiscal year ended October 31, 2006, the following percentage
of the total ordinary income dividends paid by the LifeLine Funds qualify
for the corporate dividends received deduction available to corporate
shareholders.
DIVIDENDS
FUND RECEIVED DEDUCTION
---- ------------------
Growth Strategy Fund ........................ 80%
Moderate Growth Fund ........................ 37%
Conservative Growth Fund .................... 20%
Conservative Income Fund .................... 7%
For the fiscal year ended October 31, 2006, dividends paid by the
LifeLine Funds may be subject to a maximum tax rate of 15%, as provided
for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The
LifeLine Funds intend to designate the maximum amount allowable as taxed
at a maximum rate of 15%. Complete information will be reported in
conjunction with your 2006 Form 1099-DIV.
QUALIFIED
DIVIDEND
FUND INCOME
---- ---------
Growth Strategy Fund ........................ 100%
Moderate Growth Fund ........................ 66%
Conservative Growth Fund .................... 36%
Conservative Income Fund .................... 11%
During the fiscal year ended October 31, 2006, the following
LifeLine Funds declared net long term capital gains distributions:
AMOUNT
------
Aggressive Growth Fund ...................... $ 9,058
Growth Strategy Fund ........................ 16,108
Moderate Growth Fund ........................ 7,543
41 HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
TABLE OF SHAREHOLDERS EXPENSES--OCTOBER 31, 2006 (UNAUDITED)
As a shareholder of the HSBC Investor LifeLine Funds, you incur two
types of costs: (1) transaction costs, including sales charges (loads) on
purchases; redemption fees; and exchange fees; and (2) ongoing costs,
including management fees; distribution and shareholder servicing fees;
and other fund expenses. These examples are intended to help you
understand your ongoing costs (in dollars) of investing in the HSBC
Investor LifeLine Funds and to compare these costs with the ongoing costs
of investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the
beginning of the period and held for the entire period from May 1, 2006
through October 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and
actual expenses. You may use the information below, together with the
amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the
number in the table under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this
period.
ANNUALIZED
BEGINNING ENDING EXPENSE PAID EXPENSE RATIO
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD
5/1/06 10/31/06 5/1/06-10/31/06 5/1/06-10/31/06
------------- ------------- --------------- ---------------
Aggressive Growth Strategy Fund Class A $1,000.00 $1,014.50 $ 7.62 1.50%
Class B 1,000.00 1,010.60 11.40 2.25%
Class C 1,000.00 1,010.60 11.40 2.25%
Conservative Growth Strategy Fund Class A 1,000.00 1,028.10 8.33 1.63%
Class B 1,000.00 1,023.50 12.24 2.40%
Class C 1,000.00 1,024.20 12.30 2.41%
Conservative Income Strategy Fund Class A 1,000.00 1,027.90 8.43 1.65%
Class B 1,000.00 1,024.00 12.24 2.40%
Class C 1,000.00 1,019.50 14.35 2.82%
Growth Strategy Fund Class A 1,000.00 1,022.20 7.80 1.53%
Class B 1,000.00 1,018.90 11.65 2.29%
Class C 1,000.00 1,018.80 11.65 2.29%
Moderate Growth Strategy Fund Class A 1,000.00 1,028.00 8.08 1.58%
Class B 1,000.00 1,023.30 11.88 2.33%
Class C 1,000.00 1,023.30 12.04 2.36%
- ----------
* Expenses are equal to the average account value times the Fund's
annualized expense ratio multiplied by the number of days in the most
recent fiscal half-year divided by the number of days in the fiscal year.
HSBC INVESTOR LIFELINE FUNDS 42
- --------------------------------------------------------------------------------
HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
TABLE OF SHAREHOLDERS EXPENSES--OCTOBER 31, 2006 (UNAUDITED) (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account
values and hypothetical expenses based on each HSBC Investor LifeLine
Funds' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other
funds.
Please note that the expenses shown in the table are meant to
highlight your ongoing costs only and do not reflect any transactional
costs, such as sales charges (loads), redemption fees, or exchange fees.
Therefore, the table is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different funds.
In addition, if these transactional costs were included, your costs would
have been higher.
ANNUALIZED
BEGINNING ENDING EXPENSE PAID EXPENSE RATIO
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD
5/1/06 10/31/06 5/1/06-10/31/06 5/1/06-10/31/06
------------- ------------- --------------- ---------------
Aggressive Growth Strategy Fund Class A $1,000.00 $1,017.64 $ 7.63 1.50%
Class B 1,000.00 1,013.86 11.42 2.25%
Class C 1,000.00 1,013.86 11.42 2.25%
Conservative Growth Strategy Fund Class A 1,000.00 1,016.99 8.29 1.63%
Class B 1,000.00 1,013.11 12.18 2.40%
Class C 1,000.00 1,013.06 12.23 2.41%
Conservative Income Strategy Fund Class A 1,000.00 1,016.89 8.39 1.65%
Class B 1,000.00 1,013.11 12.18 2.40%
Class C 1,000.00 1,010.99 14.29 2.82%
Growth Strategy Fund Class A 1,000.00 1,017.49 7.78 1.53%
Class B 1,000.00 1,013.66 11.62 2.29%
Class C 1,000.00 1,013.66 11.62 2.29%
Moderate Growth Strategy Fund Class A 1,000.00 1,017.24 8.03 1.58%
Class B 1,000.00 1,013.46 11.82 2.33%
Class C 1,000.00 1,013.31 11.98 2.36%
- ----------
* Expenses are equal to the average account value times the Fund's
annualized expense ratio multiplied by the number of days in the most
recent fiscal half-year divided by the number of days in the fiscal year.
43 HSBC INVESTOR LIFELINE FUNDS
- --------------------------------------------------------------------------------
HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 44.7%
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
FEDERAL HOME LOAN MORTGAGE CORP. - 4.3%
Pool #1B2655, 4.14%, 12/1/34 (a) ................... 1,559,661 1,545,870
Pool #1J1313, 6.58%, 6/1/36 ........................ 2,055,189 2,085,555
Pool #C00368, 8.50%, 10/1/24 ....................... 33,810 36,238
Pool #C00922, 8.00%, 2/1/30 ........................ 218,412 229,944
Pool #C54447, 7.00%, 7/1/31 ........................ 39,406 40,662
Pool #C60712, 6.50%, 11/1/31 ....................... 625,614 641,534
Pool #C80387, 6.50%, 4/1/26 ........................ 33,745 34,679
Pool #D62926, 6.50%, 8/1/25 ........................ 20,404 20,940
Pool #G01317, 7.00%, 10/1/31 ....................... 175,627 181,224
-----------
4,816,646
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 20.7%
Pool #253438, 8.50%, 9/1/30 ........................ 55,696 59,891
Pool #255770, 5.50%, 7/1/35 ........................ 4,358,875 4,310,043
Pool #329530, 7.00%, 12/1/25 ....................... 101,168 104,672
Pool #329655, 7.00%, 11/1/25 ....................... 44,889 46,444
Pool #356905, 7.06%, 10/1/36 (a) ................... 261,927 264,909
Pool #398958, 6.50%, 10/1/12 ....................... 79,173 80,745
Pool #535332, 8.50%, 4/1/30 ........................ 50,442 54,216
Pool #535440, 8.50%, 8/1/30 ........................ 59,918 64,430
Pool #548965, 8.50%, 7/1/30 ........................ 55,685 59,879
Pool #568486, 7.00%, 1/1/31 ........................ 39,878 41,204
Pool #573752, 8.50%, 2/1/31 ........................ 46,926 50,460
Pool #575328, 6.50%, 4/1/31 ........................ 57,635 59,079
TBA December, 5.00%, 12/1/35 ....................... 7,370,000 7,112,050
TBA December, 6.50%, 12/1/35 ....................... 1,910,000 1,946,894
TBA December, 6.00%, 12/15/35 ...................... 2,900,000 2,915,405
TBA November, 5.50%, 11/15/36 ...................... 5,950,000 5,879,344
-----------
23,049,665
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.3%
Pool #346406, 7.50%, 2/15/23 ....................... 70,219 73,232
Pool #412530, 7.50%, 12/15/25 ...................... 92,567 96,644
Pool #781300, 7.00%, 6/15/31 ....................... 166,934 172,709
TBA November, 6.00%, 11/15/36 ...................... 1,080,000 1,094,514
-----------
1,437,099
-----------
U.S. TREASURY BONDS - 3.4%
4.50%, 2/15/36 ..................................... 3,890,000 3,754,457
-----------
U.S. TREASURY INFLATION PROTECTED BONDS - 1.0%
2.50%, 7/15/16 ..................................... 1,050,000 1,075,372
-----------
U.S. TREASURY NOTES - 14.0%
4.875%, 4/30/08 .................................... 1,398,000 1,399,911
4.875%, 5/31/08 .................................... 5,850,000 5,859,829
5.125%, 6/30/08 .................................... 350,000 352,078
4.875%, 10/31/08 ................................... 800,000 802,687
4.50%, 2/15/09 ..................................... 2,350,000 2,342,015
4.875%, 5/15/09 .................................... 450,000 452,566
4.75%, 3/31/11 ..................................... 470,000 473,176
4.50%, 9/30/11 ..................................... 950,000 946,697
4.875%, 8/15/16 .................................... 2,830,000 2,888,810
-----------
15,517,769
-----------
TOTAL U.S. GOVERNMENT
AND GOVERNMENT AGENCY
OBLIGATIONS (COST $49,270,548) .................. $49,651,008
-----------
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 24.4%
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
AUTO MANUFACTURERS - 0.3%
General Motors Corp., 7.125%, 7/15/13 .............. 400,000 358,000
-----------
BANKS - 0.3%
JP Morgan Chase Bank NA, 2.53%,
1/3/12 (b)** .................................... 845,000 356,763
-----------
BUILDING PRODUCTS - 1.1%
Masco Corp., 6.125%, 10/3/16 ....................... 1,200,000 1,204,788
-----------
CABLE - 0.6%
Comcast Corp., 6.50%, 1/15/15 ...................... 650,000 680,237
-----------
CHEMICALS - 0.4%
Lyondell Chemical Co., 8.25%, 9/15/16,
Callable 9/15/11 @ 104.125 ...................... 400,000 412,000
-----------
COLLEGES & UNIVERSITIES - 1.5%
Tulane University of Louisiana, 6.21%,
11/15/12 (a) (c) ................................ 1,700,000 1,705,100
-----------
ELECTRIC - 2.4%
General Electric Co., 5.00%, 2/1/13 ................ 1,700,000 1,685,023
Progress Energy, Inc., 5.80%, 11/14/08,
Callable 11/14/06 @ 100 (a) ..................... 1,000,000 1,001,631
-----------
2,686,654
-----------
FINANCE - 4.0%
Ford Motor Credit Corp., 5.80%, 1/12/09 ............ 1,250,000 1,193,950
General Motors Acceptance Corp., 4.375%,
12/10/07 ........................................ 2,250,000 2,207,196
International Lease Finance Corp., 5.70%,
7/1/11 (a) ...................................... 1,000,000 1,004,873
-----------
4,406,019
-----------
HOTELS & LODGING - 0.7%
MGM Mirage, Inc., 6.00%, 10/1/09 ................... 800,000 790,000
-----------
OFFICE EQUIPMENT & SERVICES - 1.4%
Xerox Corp., 6.16%, 12/18/09 (a) ................... 550,000 552,750
Xerox Corp., 6.875%, 8/15/11 ....................... 950,000 973,750
-----------
1,526,500
-----------
OIL & GAS - 0.4%
Williams Partners LP, 7.50%, 6/15/11 (c) ........... 400,000 410,000
-----------
REAL ESTATE - 1.1%
Realogy, Corp., 6.50%, 10/15/16 (c) ................ 1,150,000 1,178,743
-----------
RETAIL - 0.7%
Federated Department Stores, 6.90%,
4/1/29 .......................................... 750,000 774,291
-----------
TELECOMMUNICATIONS - 7.0%
AOL Time Warner, Inc., 7.70%, 5/1/32 ............... 1,000,000 1,138,892
AT&T, Inc., 5.10%, 9/15/14 ......................... 1,150,000 1,120,293
Bell Atlantic Virginia, 7.625%, 12/1/12 ............ 1,000,000 1,083,364
Bell Telephone Co. Pennsylvania, 8.75%,
8/15/31 ......................................... 850,000 1,027,181
Sprint Capital Corp., 8.75%, 3/15/32 ............... 1,600,000 1,976,730
Time Warner Entertainment Co., 8.375%,
3/15/23 ......................................... 1,300,000 1,534,449
-----------
7,880,909
-----------
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 44
- --------------------------------------------------------------------------------
HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
TRANSPORTATION - 1.5%
Burlington Northern Santa Fe Railway Co.,
7.57%, 1/2/21 ................................... 309,623 349,673
Union Pacific Corp., 6.85%, 1/2/19 ................. 1,218,585 1,308,711
-----------
1,658,384
-----------
WASTE DISPOSAL - 1.0%
Allied Waste North America, 7.125%,
5/15/16, Callable 5/15/11 @ 103.563 ............. 1,150,000 1,138,500
-----------
TOTAL CORPORATE OBLIGATIONS
(COST $26,889,337) .............................. 27,166,888
-----------
- --------------------------------------------------------------------------------
ASSET BACKED SECURITIES - 13.8%
- --------------------------------------------------------------------------------
Americredit Auto Receivables Trust
Series 2004-DF, Class A3, 2.98%,
7/6/09 .......................................... 610,420 605,432
Asset Backed Funding Certificates
Series 2003-AHL1, Class A1, 3.68%,
3/25/33 ......................................... 738,743 722,079
Capital Auto Receivables Asset Trust
Series 2006-1, Class A2A, 5.03%,
9/15/08 ......................................... 1,447,890 1,445,442
Capital One Auto Finance Trust
Series 2006-B, Class A2, 5.53%,
5/15/09 ......................................... 600,000 601,508
Citigroup Mortgage Loan Trust, Inc.
Series 2005-WF2, Class AF2, 4.92%,
8/25/35 ......................................... 694,366 687,133
Countrywide Asset-Backed Certificates
Series 2006-S4, Class A3, 5.80%,
10/25/36 ........................................ 1,060,000 1,057,875
DB Master Finance LLC Series 2006-1,
Class A2, 5.78%, 6/20/31, (c) ................... 650,000 660,930
GMAC Mortgage Corp. Loan Trust
Series 2006-HE3, Class A3, 5.805%,
10/25/36 ........................................ 900,000 903,622
GSAA Home Equity Trust Series 2006-15,
Class AF3A, 5.88%, 9/25/36 ...................... 870,000 872,071
MBNA Credit Card Master Note Trust
Series 2006-A4, Class A4, 5.31%,
9/15/11 (a) ..................................... 2,000,000 2,000,452
Nomura Asset Acceptance Corp.
Series 2006-AP1, Class A2, 5.515%,
2/25/36 ......................................... 750,000 745,483
SLM Student Loan Trust Series 2003-12,
Class A3, 5.51%, 12/15/15 (a) ................... 1,838,989 1,843,552
Target Credit Card Master Trust
Series 2002-1, Class A, 5.515%,
6/27/11 (a) ..................................... 3,200,000 3,202,795
-----------
TOTAL ASSET BACKED SECURITIES
(COST $15,333,281) .............................. 15,348,374
-----------
- --------------------------------------------------------------------------------
COMMERCIAL MORTGAGE BACKED SECURITIES - 10.6%
- --------------------------------------------------------------------------------
Banc of America Commercial Mortgage,
Inc. Series 2006-3, Class A4, 5.89%,
7/10/44 ......................................... 760,000 792,415
Bear Stearns Commercial Mortgage
Securities Series 2006-T24, Class A4,
5.54%, 10/12/41 ................................. 1,100,000 1,119,422
Citigroup Commercial Mortgage Trust
Series 2006-C4, Class A3, 5.72%,
3/15/49 (a) ..................................... 1,000,000 1,035,973
- --------------------------------------------------------------------------------
COMMERCIAL MORTGAGE BACKED SECURITIES, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
Citigroup/Deutsche Bank Commercial
Mortgage Series 2006-CD3, Class A2,
5.56%, 10/15/48 ................................. 1,100,000 1,114,007
Commercial Mortgage Pass-Through
Certificate Series 2005-FL11, Class A1,
5.47%, 11/15/17 (a) (c) ......................... 569,916 569,990
DLJ Mortgage Acceptance Corp. IO
Series 1997-CF1, Class S, 0.90%,
5/15/30 (c) (d) ................................. 275,857 2,151
GMAC Commercial Mortgage Securities,
Inc. IO Series 1996-C1, Class X2,
2.89%, 10/15/28 (d) ............................. 42,404 3
GMAC Commercial Mortgage Securities,
Inc. Series 1999-C3, Class A2, 7.18%,
8/15/36 ......................................... 1,340,049 1,396,306
Greenwich Capital Commercial Funding
Corp. Series 2005-GG3, Class A2,
4.305%, 8/10/42 ................................. 1,260,000 1,230,874
Greenwich Capital Commercial Funding
Corp. Series 2006-GG7, Class A4,
5.91%, 7/10/38 (a) .............................. 1,000,000 1,050,190
GS Mortgage Securities Corp. IO
Series 1997-GL, Class X2, 0.82%,
7/13/30 (d) ..................................... 360,933 2,135
LB-UBS Commercial Mortgage Trust
Series 2000-C3, Class A1, 7.95%,
7/15/09 ......................................... 45,349 45,564
LB-UBS Commercial Mortgage Trust
Series 2006-C1, Class A4, 5.16%,
2/15/31 ......................................... 1,300,000 1,288,178
LB-UBS Commercial Mortgage Trust
Series 2006-C6, Class A4, 5.37%,
9/15/39 ......................................... 1,100,000 1,105,918
Morgan Stanley Capital I
Series 2006-IQ11, Class AM, 5.95%,
10/15/42 (a) .................................... 1,000,000 1,035,638
-----------
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES
(COST $11,632,494) .............................. 11,788,764
-----------
- --------------------------------------------------------------------------------
FOREIGN BONDS - 8.8%
- --------------------------------------------------------------------------------
CANADA - 1.9%
Conocophilips Canada, 5.625%, 10/15/16 ............. 1,000,000 1,014,030
Nova Chemicals Corp., 6.50%, 1/15/12 ............... 1,200,000 1,128,000
-----------
2,142,030
-----------
CAYMAN ISLANDS - 1.0%
Preferred Term Securities XXII, 5.73%,
9/22/36, Callable 6/22/11 @ 100
(a) (c) ......................................... 1,100,000 1,102,750
-----------
DOMINICAN REPUBLIC - 0.2%
Dominican Republic Treasury Bill, 13.00%,
10/22/07 (b) (c) ................................ 300,000 261,790
-----------
ICELAND - 2.5%
Kaupthing Bank, 6.07%, 1/15/10 (a) (c) ............. 500,000 499,745
Kaupthing Bank, 7.125%, 5/19/16 (c) ................ 500,000 532,627
Kaupthing Bank, 6.125%, 10/4/16 (c) ................ 500,000 508,027
Landsbanki Islands HF, 6.10%,
8/25/09 (a) (c) ................................. 1,250,000 1,250,262
-----------
2,790,661
-----------
45 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
FOREIGN BONDS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
KOREA - 1.3%
Citibank Korea Inc., 4.68%, 6/18/13,
Callable 6/18/08 @ 100 (a) ...................... 1,400,000 1,402,759
-----------
UNITED KINGDOM - 1.9%
Barclays Bank plc, 5.93%, 12/15/16 (c) ............. 700,000 706,734
Granite Master Issuer plc Series 2005-4,
Class A3, 5.46%, 12/20/54 (a) ................... 1,400,000 1,400,154
-----------
2,106,888
-----------
TOTAL FOREIGN BONDS
(COST $9,707,560) ............................... 9,806,878
-----------
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 8.4%
- --------------------------------------------------------------------------------
Countrywide Home Loans
Series 2005-HYB8, Class 2A1, 5.34%,
12/20/35 (a) .................................... 1,520,345 1,520,676
Fannie Mae IO Series 2000-16, Class PS,
3.28%, 10/25/29 (d) ............................. 65,854 3,870
Fannie Mae IO Series 2000-32, Class SV,
3.28%, 3/18/30 (d) .............................. 14,957 248
Fannie Mae IO Series 2001-4, Class SA,
2.23%, 2/17/31 (d) .............................. 271,370 17,121
Fannie Mae IO Series 270, Class 2,
8.50%, 9/1/23 (d) ............................... 56,363 12,295
Fannie Mae IO Series 296, Class 2,
8.00%, 4/1/24 (d) ............................... 66,174 15,577
Fannie Mae IO Series 306, Class IO,
8.00%, 5/1/30 (d) ............................... 80,259 18,792
FHA Weyerhauser, 7.43%, 1/1/24 (e) (f) ............. 33,926 33,926
Freddie Mac IO Series 1534, Class K,
2.025%, 6/15/23 (d) ............................. 175,172 7,814
Freddie Mac IO Series 2141, Class SD,
2.83%, 4/15/29 (d) .............................. 136,110 12,717
Freddie Mac IO Series 2247, Class SC,
2.18%, 8/15/30 (d) .............................. 90,779 3,361
Freddie Mac Reference Remic
Series R009, Class AJ, 5.75%, 12/15/18 .......... 1,350,000 1,357,863
Freddie Mac Series 2962, Class CJ, 5.50%,
11/15/23 ........................................ 1,926,276 1,927,686
Government National Mortgage Association
IO Series 1999-30, Class S, 3.28%,
8/16/29 (d) ..................................... 75,200 5,169
Government National Mortgage Association
IO Series 1999-30, Class SA, 2.68%,
4/16/29 (d) ..................................... 101,630 5,587
Government National Mortgage Association
IO Series 1999-32, Class SB, 2.68%,
7/16/27 (d) ..................................... 16,710 225
J.P. Morgan Alternative Loan Trust
Series 2005-S1, Class 2A9, 6.00%,
12/25/35 ........................................ 2,169,565 2,165,861
Morgan Stanley Mortgage Loan Trust
Series 2006-3AR, Class 2A3, 5.90%,
3/25/36 (a) ..................................... 1,515,739 1,530,967
Residential Asset Securitization Trust
Series 2006-A1, Class 1A3, 6.00%,
4/25/36 ......................................... 687,899 694,193
-----------
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $9,350,400) ............................... 9,333,948
-----------
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 2.7%
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 2.7%
HSBC Investor Money Market Fund
Class I Shares, 5.23% (g) * ..................... 2,998,076 2,998,076
-----------
TOTAL INVESTMENT COMPANIES
(COST $2,998,076) ............................... 2,998,076
-----------
TOTAL INVESTMENTS
(COST $125,181,696) - 113.4% .................... 126,093,936
===========
- ----------
Percentages indicated are based on net assets of $111,191,931.
(a) Variable rate security. The interest rates on these securities are
adjusted periodically to reflect then-current short-term interest rates.
The rates presented represent the rates in effect on October 31, 2006. The
maturity dates presented reflect the final maturity date. However, some of
these securities may contain put or demand features that allow the fund to
require the issuer to repurchase the security from the fund within various
time periods, including daily, weekly, monthly, or semi-annually.
(b) Discount note. Rate presented represents the effective yield at time of
purchase.
(c) Security exempt from registration under Rule 144a of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. These securities
have been deemed liquid by the Investment Adviser based on procedures
approved by the Board of Trustees.
(d) Interest-Only represents securities that entitle holders to receive only
interest payments on the underlying mortgages. The yield to maturity of an
Interest-Only is extremely sensitive to the rate of principal payments on
the underlying mortgage assets. A rapid (slow) rate of principal
repayments may have an adverse (positive) effect on yield to maturity.
Interest rate adjusts periodically based on the pay off of the underlying
mortgage. The interest rate presented represents the rates in effect on
October 31, 2006. The principal amount shown is the notional amount of the
underlying mortgages.
(e) Rule 144a, section 4(2) or other security which is restricted as to resale
to institutional investors. The Investment Adviser, using Board approved
procedures, has deemed these securities to be illiquid. Represents 0.03%
of net assets.
(f) Security was fair valued as of October 31, 2006. Represents 0.03% of net
assets.
(g) Variable rate security. The rates presented represent the annualized one
day yield that was in effect on October 31, 2006.
* Investment in affiliate.
** The principal amount of the security is denominated in Brazilian Real.
IO - Interest-only security. Represents 0.10% of net assets.
TBA - Security was traded on a "to be announced" basis. Represents 17.04% of
net assets.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 46
- --------------------------------------------------------------------------------
HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED)
At October 31, 2006, the Portfolio's open forward currency contracts were as
follows:
CONTRACT
AMOUNT CONTRACT UNREALIZED
DELIVERY (LOCAL VALUE APPRECIATION/
CURRENCY DATE CURRENCY) (U.S. DOLLAR) VALUE (DEPRECIATION)
- -------- --------- ---------- ------------- --------- --------------
SHORT CONTRACTS
Icelandic Krona vs. U.S. Dollar ........ 11/2/2006 18,643,438 $ 273,436 $ 275,668 $ (2,232)
Mexican Nuevo Peso vs. U.S. Dollar ..... 11/1/2006 6,143,733 573,966 571,494 2,472
--------- --------- ---------
TOTAL SHORT CONTRACTS ............................................ $ 847,402 $ 847,162 $ 240
========= ========= =========
47 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 96.7%
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
ADVERTISING SERVICES - 3.4%
Iron Mountain, Inc., 8.625%, 4/1/13,
Callable 4/1/06 @ 104.313 ....................... 250,000 257,500
R.H. Donnelley Corp., 6.875%, 1/15/13,
Callable 1/15/09 @ 103.438 ...................... 100,000 94,125
R.H. Donnelley Corp., 6.875%, 1/15/13,
Callable 1/15/09 @ 103.438 ...................... 90,000 84,713
-----------
436,338
-----------
AEROSPACE & DEFENCE - 0.8%
DRS Technologies, Inc., 7.625%, 2/1/18,
Callable 2/1/11 @ 103.813 ....................... 100,000 102,250
-----------
APPAREL MANUFACTURERS - 1.5%
Levi Strauss & Co., 8.875%, 4/1/16,
Callable 4/1/11 @ 104.44 ........................ 50,000 51,375
Quiksilver, Inc., 6.875%, 4/15/15, Callable
04/15/10 @ 103.44 ............................... 150,000 144,375
-----------
195,750
-----------
AUTO MANUFACTURERS - 1.1%
General Motors Corp., 7.125%, 7/15/13 .............. 150,000 134,250
-----------
BUILDING & CONSTRUCTION PRODUCTS - 2.3%
Ainsworth Lumber Co. Ltd., 7.25%,
10/1/12, Callable 10/1/08 @ 103.63 .............. 150,000 111,375
Interline Brands, Inc., 8.125%, 6/15/14,
Callable 6/15/10 @ 104.06 ....................... 50,000 51,125
Ply Gem Industries, Inc., 9.00%, 2/15/12,
Callable 2/15/08 @ 104.50 ....................... 150,000 125,250
-----------
287,750
-----------
CABLE TELEVISION - 3.9%
Cablevision Systems Corp., 8.00%, 4/15/12 .......... 250,000 242,813
Mediacom LLC, 7.875%, 2/15/11, Callable
2/15/06 @ 103.938 ............................... 250,000 248,750
-----------
491,563
-----------
CHEMICALS - 4.6%
Georgia Gulf Corp., 9.50%, 10/15/14,
Callable 10/15/10 @ 104.75 (a) .................. 75,000 73,875
Huntsman International LLC, 7.875%,
11/15/14, Callable 11/15/10 @103.94 (a) ......... 35,000 35,219
JohnsonDiversey, Inc., 9.625%, 5/15/12,
Callable 5/15/07 @ 104.813 ...................... 250,000 255,312
Lyondell Chemical Co., 8.00%, 9/15/14,
Callable 9/15/10 @ 104 .......................... 25,000 25,563
Lyondell Chemical Co., 8.25%, 9/15/16,
Callable 9/15/11 @ 104.125 ...................... 25,000 25,750
Millennium America, Inc., 9.25%, 6/15/08 ........... 25,000 25,750
PQ Corp., 7.50%, 2/15/13, Callable
02/15/09 @ 103.75 ............................... 150,000 143,624
-----------
585,093
-----------
COMPUTER SERVICES - 0.2%
Compucom Systems, Inc., 12.00%, 11/1/14,
Callable 11/1/10 @ 106 (a) ...................... 25,000 25,156
-----------
COMPUTER SOFTWARE - 0.4%
Activant Solutions Holdings, Inc., 9.50%,
5/1/16, Callable 5/1/11 @ 104.75 (a) ............ 50,000 46,500
-----------
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
CONTAINERS-PAPER AND PLASTIC - 3.5%
Solo Cup Co., 8.50%, 2/15/14, Callable
2/15/09 @ 104.25 ................................ 250,000 211,250
Stone Container Finance Co. of Canada,
7.375%, 7/15/14, Callable 7/15/09
@ 103.688 ....................................... 250,000 229,688
-----------
440,938
-----------
DISTRIBUTION & WHOLESALE - 0.8%
Baker & Taylor, Inc., 11.50%, 7/1/13,
Callable 7/1/10 @ 105.75 (a) .................... 100,000 100,000
-----------
DIVERSIFIED OPERATIONS - 0.6%
Stripes Acquisition LLC/Susser Finance
Corp., 10.625%, 12/15/13, Callable
12/15/09 @ 105.313 (a) .......................... 72,000 78,120
-----------
EDUCATION - 0.4%
Education Management LLC, 8.75%,
6/1/14, Callable 6/1/10 @104.38 (a) ............. 25,000 25,625
Education Management LLC, 10.25%,
6/1/16, Callable 6/1/11 @ 105.13 (a) ............ 25,000 25,938
-----------
51,563
-----------
ELECTRIC - 1.3%
AES Corp., 7.75%, 3/1/14 ........................... 60,000 62,850
CMS Energy Corp., 6.875%, 12/15/15 ................. 100,000 101,750
-----------
164,600
-----------
ENERGY - 3.7%
Copano Energy LLC, 8.125%, 3/1/16,
Callable 3/1/11 @ 104.06 ........................ 80,000 81,400
Massey Energy, Co., 6.875%, 12/15/13,
Callable 12/15/09 @ 103.44 ...................... 100,000 93,750
Mirant North America LLC, 7.375%,
12/31/13, Callable 12/31/09 @ 103.688 ........... 50,000 50,563
Williams Cos., 6.375%, 10/1/10 (a) ................. 250,000 248,750
-----------
474,463
-----------
FINANCE - 10.6%
Basell AF SCA, 8.375%, 8/15/15, Callable
8/15/10 @ 104.188 (a) ........................... 250,000 253,750
CCM Merger, Inc., 8.00%, 8/1/13, Callable
8/1/09 @ 104 (a) ................................ 250,000 240,938
Crystal U.S. Holdings Corp., 0.00%,
10/1/14, Rate set to step up to 10.5%
on 10/1/09, Callable 10/1/09 @
105.25 (b) (c) .................................. 250,000 210,000
Ford Motor Credit Co., 7.375%, 10/28/09 ............ 250,000 243,343
Ford Motor Credit Co., 7.375%, 2/1/11 .............. 50,000 47,774
General Motors Accept Corp., 6.875%,
8/28/12 ......................................... 300,000 300,804
Nalco Finance Holdings, Inc., 0.00%,
2/1/14, Rate set to step to 9.0% on
2/1/09, Callable 2/1/09 @ 104.5 (b) (c) ......... 75,000 60,750
-----------
1,357,359
-----------
GAMBLING - 6.5%
Choctaw Resort Development
Entertainment, 7.25%, 11/15/19, Callable
11/15/11 @ 103.63 (b) ........................... 50,000 49,750
Greektown Holdings, Inc., 10.75%, 12/1/13,
Callable 12/1/10 @ 105.375 (b) .................. 100,000 105,749
Inn of the Mountain Gods, 12.00%,
11/15/10, Callable 11/15/07 @ 106 ............... 50,000 53,500
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 48
- --------------------------------------------------------------------------------
HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
Isle of Capri Casinos, Inc., 7.00%, 3/1/14,
Callable 3/1/09 @ 103.50 ........................ 250,000 239,999
MGM MIRAGE, Inc., 6.75%, 4/1/13 .................... 100,000 97,000
MTR Gaming Group, Inc., 9.00%, 6/1/12,
Callable 6/1/09 @ 104.50 (a) .................... 100,000 101,375
Pokagon Gaming Authority, 10.375%,
6/15/14, Callable 6/15/10 @ 105.19 (a) .......... 75,000 80,438
San Pasqual Casino, 8.00%, 9/15/13,
Callable 9/15/09 @ 104 (b) ...................... 25,000 25,500
Turning Stone Resort Casino, 9.125%,
9/15/14, Callable 9/15/10 @ 104.563 (a) ......... 75,000 76,313
-----------
829,624
-----------
INTERNET SERVICES - 0.4%
Atlantic Broadband Finance LLC, 9.375%,
1/15/14, Callable 01/15/09 @ 104.69 ............. 50,000 49,750
-----------
LEISURE - 2.9%
AMC Entertainment, Inc., 11.00%, 2/1/16,
Callable 2/1/11 @ 105.5 ......................... 100,000 110,625
K2, Inc., 7.375%, 7/1/14, Callable 7/1/09
@ 103.688 ....................................... 258,000 255,420
-----------
366,045
-----------
MACHINERY--FARM - 0.4%
Case New Holland, Inc., 7.125%, 3/1/14,
Callable 3/1/10 @ 103.563 ....................... 50,000 50,375
-----------
MANUFACTURING - 0.8%
AGY Holding Corp., 11.00%, 11/15/14,
Callable 11/15/10 @ 105.50 (a) .................. 50,000 50,250
Libbey Glass, Inc., 12.435%, 6/1/11,
Callable 6/1/08 @ 107.50 (a) .................... 25,000 26,500
Nutro Products, Inc., 10.75%, 4/15/14,
Callable 4/15/09 @ 108.063 (a) .................. 25,000 26,875
-----------
103,625
-----------
MEDICAL - 1.6%
MultiPlan, Inc., 10.375%, 4/15/16, Callable
4/15/11 @ 105.188 (a) ........................... 100,000 100,000
Omnicare, Inc., 6.75%, 12/15/13, Callable
12/15/09 @ 103.375 .............................. 100,000 98,000
-----------
198,000
-----------
METAL PROCESSORS & FABRICATION - 1.1%
PNA Group, Inc., 10.75%, 9/1/16, Callable
9/1/11 @ 105.375 (a) ............................ 50,000 51,500
TriMas Corp., 9.875%, 6/15/12, Callable
6/15/07 @ 104.938 ............................... 100,000 94,250
-----------
145,750
-----------
METALS & MINING - 3.1%
AK Steel Corp., 7.75%, 6/15/12, Callable
6/15/07 @ 103.875 ............................... 200,000 200,000
Gibraltar Industries, Inc., 8.00%, 12/1/15,
Callable 12/1/10 @ 104 .......................... 150,000 148,500
International Coal Group, Inc., 10.25%,
7/15/14, Callable 7/15/10 @ 105.13 (a) .......... 50,000 48,625
-----------
397,125
-----------
OIL & GAS - 10.5%
Chaparral Energy, Inc., 8.50%, 12/1/15,
Callable 12/1/10 @ 104.25 ....................... 100,000 99,750
Chesapeake Energy Corp., 6.875%,
1/15/16, Callable 1/15/09 @ 103.438 ............. 250,000 248,124
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
Clayton Williams Energy, Inc., 7.75%,
8/1/13, Callable 8/1/09 @ 103.875 ............... 200,000 184,500
Colorado Interstate Gas Co., 6.80%,
11/15/15 ........................................ 150,000 152,440
Compton Petroleum Finance Corp.,
7.625%, 12/1/13, Callable 12/1/09 @
103.813 ......................................... 250,000 236,875
El Paso Production Holdings, 7.75%,
6/1/13, Callable 6/1/08 @ 103.875 ............... 150,000 153,750
Inergy LP/Inergy Finance, 8.25%, 3/1/16,
Callable 3/1/11 @ 104.13 ........................ 100,000 103,750
Pogo Producing Co., 7.875%, 5/1/13,
Callable 5/1/10 @ 103.94 (a) .................... 100,000 101,750
Swift Energy Co., 7.625%, 7/15/11,
Callable 7/15/08 @ 103.81 ....................... 50,000 50,125
-----------
1,331,064
-----------
PAPER & RELATED PRODUCTS - 4.1%
Abitibi-Consolidated Co. of Canada,
8.375%, 4/1/15 .................................. 250,000 217,813
Exopack Holding Corp., 11.25%, 2/1/14,
Callable 2/1/10 @ 105.625 (a) ................... 50,000 52,375
Georgia-Pacific Corp., 7.70%, 6/15/15 .............. 150,000 152,250
Norampac, Inc., 6.75%, 6/1/13, Callable
6/1/08 @ 103.38 ................................. 100,000 96,250
-----------
518,688
-----------
PIPELINES - 1.6%
Dynegy Holdings, Inc., 8.375%, 5/1/16 .............. 150,000 154,125
Semgroup LP, 8.75%, 11/15/15, Callable
11/15/10 @ 104.375 (a) .......................... 50,000 50,375
-----------
204,500
-----------
PRINTING - 0.8%
Sheridan Group, Inc., 10.25%, 8/15/11,
Callable 08/15/07 @ 105.12 ...................... 100,000 102,000
-----------
PUBLISHING - 2.3%
Block Communications, Inc., 8.25%,
12/15/15, Callable 12/15/10 @
104.125 (a) ..................................... 50,000 49,250
Morris Publishing, 7.00%, 8/1/13, Callable
8/1/08 @ 103.50 ................................. 250,000 237,813
-----------
287,063
-----------
RENTAL--AUTO AND EQUIPMENT - 1.6%
Avis Budget Car Rental, Inc., 7.625%,
5/15/14, Callable 5/15/10 @ 103.81 (a) .......... 100,000 97,750
Hertz Corp., 8.875%, 1/1/14, Callable
1/1/10 @ 104.44 (b) ............................. 100,000 104,500
-----------
202,250
-----------
RESEARCH AND TESTING SERVICES - 0.4%
Sensata Technologies BV, 8.00%, 5/1/14,
Callable 5/1/10 @ 104 (a) ....................... 50,000 48,250
-----------
RESTAURANTS - 2.7%
Buffets, Inc., 12.50%, 11/1/14, Callable
11/1/10 @ 106.25 (a) ............................ 50,000 50,250
Dave & Busters, Inc., 11.25%, 3/15/14,
Callable 3/15/10 @ 105.62 ....................... 50,000 48,500
Landry's Restaurants, Inc., 7.50%,
12/15/14, Callable 12/15/09 @ 103.75 ............ 200,000 191,000
49 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
HSBC INVESTOR HIGH YIELD FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
NPC International, Inc., 9.50%, 5/1/14,
Callable 5/1/10 @ 104.75 (a) .................... 50,000 50,625
-----------
340,375
-----------
RETAIL - 2.3%
Linens 'N Things, Inc., 11.00%, 1/15/14,
Callable 1/15/08 @ 102 (b) ...................... 50,000 49,000
The Jean Coutu Group PJC, Inc., 8.50%,
8/1/14, Callable 8/1/09 @ 104.25 ................ 250,000 245,313
-----------
294,313
-----------
SEISMIC DATA COLLECTION - 0.4%
CIE Gener de Geophysique, 7.50%,
5/15/15, Callable 5/15/10 @ 103.75 .............. 50,000 49,375
-----------
SPECIAL PURPOSE ENTITY - 0.4%
TFS Acquisition Corp., 12.90%, 8/1/14,
Callable 8/1/10 @ 106.50 (a) (b) ................ 50,000 49,438
-----------
TELECOMMUNICATIONS - 11.7%
Centennial Communications Corp., 10.00%,
1/1/13, Callable 1/1/09 @ 107.50 ................ 100,000 103,750
Cincinnati Bell, Inc., 8.375%, 1/15/14,
Callable 1/15/09 @ 104.1885 ..................... 250,000 254,999
Cricket Communications I, 9.375%,
11/1/14, Callable 11/1/10 @ 104.69 (a) .......... 50,000 51,000
Insight Midwest L.P., 9.75%, 10/1/09,
Callable 10/1/07 @ 100 .......................... 250,000 254,374
Level 3 Financing, Inc., 9.25%, 11/1/14,
Callable 11/1/10 @ 104.63 (a) ................... 50,000 50,313
Metropcs Wireless, Inc., 9.25%, 11/1/14,
Callable 11/1/10 @ 104.625 (a) .................. 50,000 50,438
Nordic Telephone Co. Holdings, 8.875%,
5/1/16, Callable 5/1/11 @ 104.438 (a) ........... 50,000 52,375
NTL Cable plc, 9.125%, 8/15/16, Callable
8/15/11 @ 104.56 ................................ 125,000 131,406
Panamsat Corp., 9.00%, 6/15/16, Callable
6/15/11 @ 104.50 (a) ............................ 50,000 52,250
Qwest Corp., 5.625%, 11/15/08 ...................... 150,000 149,437
Rural Cellular Corp., 9.75%, 1/15/10,
Callable 1/15/07 @ 103.25 ....................... 50,000 50,625
Suncom Wireless Holdings, Inc., 8.50%,
6/1/13, Callable 6/1/08 @ 104.25 ................ 150,000 142,500
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
West Corp., 11.00%, 10/15/16, Callable
10/15/11 @ 105.50 (b) ........................... 25,000 25,063
Wind Acquisition Financial SA, 10.75%,
12/1/15, Callable 12/1/10 @ 105.375 (a) ......... 100,000 111,125
Windstream Corp., 8.625%, 8/1/16,
Callable 8/1/11 @ 104.31 (a) .................... 25,000 26,969
-----------
1,506,624
-----------
WASTE DISPOSAL - 2.0%
Allied Waste North America, Inc., 7.375%,
4/15/14, Callable 4/15/09 @ 103.688 ............. 250,000 248,750
-----------
TOTAL CORPORATE OBLIGATIONS
(COST $12,228,088) .............................. 12,294,677
-----------
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 2.2%
- --------------------------------------------------------------------------------
Investors Bank Trust Cash Reserve,
3.65% (d) ....................................... 281,588 281,588
-----------
TOTAL INVESTMENT COMPANIES
(COST $281,588) ................................. 281,588
-----------
TOTAL INVESTMENTS
(COST $12,509,676) - 98.9% ...................... 12,576,265
===========
- ----------
Percentages indicated are based on net assets of $12,718,765.
(a) Variable rate security. The interest rates on these securities are
adjusted periodically to reflect then-current short-term interest rates.
The rates presented represent the rates in effect on October 31, 2006. The
maturity dates presented reflect the final maturity date. However, some of
these securities may contain put or demand features that allow the fund to
require the issuer to repurchase the security from the fund within various
time periods, including daily, weekly, monthly, or semi-annually.
(b) Security exempt from registration under Rule 144a of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. These securities
have been deemed liquid by the Investment Adviser based on procedures
approved by the Board of Trustees.
(c) Step Bond. Income recognition is on the effective yield method for Step
Bonds.
(d) Variable rate security. The rates presented represent the annualized one
day yield that was in effect on October 31, 2006.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 50
- --------------------------------------------------------------------------------
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 36.9%
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
FEDERAL HOME LOAN MORTGAGE CORP. - 3.5%
Pool #1B2655, 4.14%, 12/1/34 (a) ................... 288,826 286,272
Pool #1J1313, 6.58%, 6/1/36 ........................ 382,361 388,010
-----------
674,282
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 22.0%
Pool #255770, 5.50%, 7/1/35 ........................ 888,703 878,747
Pool #740686, 6.50%, 10/1/33 ....................... 539,712 552,694
TBA December, 5.00%, 12/1/35 ....................... 1,300,000 1,254,500
TBA December, 6.00%, 12/15/35 ...................... 600,000 603,187
TBA November, 5.50%, 11/15/36 ...................... 1,000,000 988,125
-----------
4,277,253
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.0%
TBA November, 6.00%, 11/15/36 ...................... 200,000 202,688
-----------
U.S. TREASURY INFLATION PROTECTED BONDS - 1.0%
2.50%, 7/15/16 ..................................... 200,000 204,833
-----------
U.S. TREASURY NOTES - 9.4%
5.125%, 6/30/08 .................................... 50,000 50,297
4.625%, 9/30/08 .................................... 1,200,000 1,198,077
4.875%, 10/31/08 ................................... 150,000 150,504
4.50%, 9/30/11 ..................................... 265,000 264,079
4.875%, 8/15/16 .................................... 150,000 153,117
-----------
1,816,074
-----------
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (COST $7,153,629) ................... 7,175,130
-----------
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 26.6%
- --------------------------------------------------------------------------------
AUTO MANUFACTURERS - 0.2%
General Motors Corp., 7.125%, 7/15/13 .............. 50,000 44,750
-----------
BUILDING PRODUCTS - 1.0%
Masco Corp., 6.125%, 10/3/16 ....................... 200,000 200,798
-----------
CABLE - 1.6%
Comcast Corp., 6.50%, 1/15/15 ...................... 300,000 313,956
-----------
CHEMICALS - 0.4%
Lyondell Chemical Co., 8.25%, 9/15/16,
Callable 9/15/11 @ 104.125 ...................... 75,000 77,250
-----------
COLLEGES & UNIVERSITIES - 2.1%
Tulane University of Louisiana, 6.21%,
11/15/12 (a) (b) ................................ 400,000 401,200
-----------
ELECTRIC - 2.8%
General Electric Co., 5.00%, 2/1/13 ................ 300,000 297,357
Progress Energy, Inc., 5.80%, 11/14/08,
Callable 11/14/06 @ 100 (a) ..................... 250,000 250,408
-----------
547,765
-----------
FINANCE - 4.9%
Ford Motor Credit Corp., 5.80%, 1/12/09 ............ 275,000 262,669
General Motors Acceptance Corp., 4.375%,
12/10/07 ........................................ 500,000 490,488
International Lease Finance Corp., 5.70%,
7/1/11 (a) ...................................... 200,000 200,975
-----------
954,132
-----------
HOTELS & LODGING - 0.5%
MGM Mirage, Inc., 6.00%, 10/1/09 ................... 100,000 98,750
-----------
MEDIA - 2.1%
Time Warner Entertainment, 8.875%, 10/1/12 ......... 350,000 403,788
-----------
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
OFFICE EQUIPMENT & SERVICES - 1.6%
Xerox Corp., 6.16%, 12/18/09 (a) ................... 100,000 100,500
Xerox Corp., 6.875%, 8/15/11 ....................... 200,000 205,000
-----------
305,500
-----------
OIL & GAS - 0.4%
Williams Partners LP, 7.50%, 6/15/11, (b) .......... 75,000 76,875
-----------
TELECOMMUNICATIONS - 5.0%
AT&T, Inc., 5.10%, 9/15/14 ......................... 300,000 292,250
Bell Atlantic Virginia, 7.625%, 12/1/12 ............ 200,000 216,673
Sprint Capital Corp., 8.75%, 3/15/32 ............... 150,000 185,318
Verizon Pennsylvania, Inc., 5.65%, 11/15/11 ........ 275,000 276,690
-----------
970,931
-----------
TRANSPORTATION - 2.9%
Burlington Northern Santa Fe Railway Co.,
4.83%, 1/15/23 .................................. 279,656 279,326
Union Pacific Railroad, 5.08%, 1/2/29 .............. 299,958 290,887
-----------
570,213
-----------
WASTE DISPOSAL - 1.1%
Allied Waste North America, 7.125%,
5/15/16, Callable 5/15/11 @ 103.563 ............. 225,000 222,750
-----------
TOTAL CORPORATE OBLIGATIONS
(COST $5,160,758) ............................... 5,188,658
-----------
- --------------------------------------------------------------------------------
ASSET BACKED SECURITIES - 16.9%
- --------------------------------------------------------------------------------
Americredit Auto Receivables Trust Series
2004-DF, Class A3, 2.98%, 7/6/09 ................ 122,084 121,086
Asset Backed Funding Certificates Series
2003-AHL1, Class A1, 3.68%, 3/25/33 ............. 210,318 205,574
Capital One Auto Finance Trust Series
2006-B, Class A2, 5.53%, 5/15/09 ................ 110,000 110,277
Citigroup Mortgage Loan Trust, Inc. Series
2005-WF2, Class AF2, 4.92%, 8/25/35 ............. 121,819 120,550
Countrywide Asset-Backed Certificates Series
2006-S4, Class A3, 5.80%, 7/25/34 ............... 210,000 209,579
DB Master Finance LLC Series 2006-1,
Class A2, 5.78%, 6/20/31 (b) .................... 130,000 132,186
GMAC Mortgage Corp. Loan Trust Series
2006-HE3, Class A3, 5.805%, 10/25/36 ............ 170,000 170,684
GSAA Home Equity Trust Series 2006-15,
Class AF3A, 5.88%, 9/25/36 ...................... 160,000 160,381
MBNA Credit Card Master Note Trust Series
2003-A3, Class A3, 5.44%, 8/16/10 (a) ........... 500,000 500,804
MBNA Credit Card Master Note Trust Series
2006-A4, Class A4, 5.31%, 9/15/11 (a) ........... 500,000 500,113
Nomura Asset Acceptance Corp. Series
2006-AP1, Class A2, 5.515%, 2/25/36 ............. 150,000 149,097
SLM Student Loan Trust Series 2003-12,
Class A3, 5.51%, 12/15/15 (a) ................... 367,798 368,710
Target Credit Card Master Trust Series
2002-1, Class A, 5.515%, 6/27/11 (a) ............ 550,000 550,479
-----------
TOTAL ASSET BACKED SECURITIES
(COST $3,297,802) ............................... 3,299,520
-----------
51 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
COMMERCIAL MORTGAGE BACKED SECURITIES - 10.9%
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
Banc of America Commercial Mortgage, Inc.
Series 2006-3, Class A4, 5.89%, 7/10/44 ......... 140,000 145,971
Bear Stearns Commercial Mortgage Securities
Series 2006-T24, Class A4, 5.54%, 10/12/41 ...... 200,000 203,531
Citigroup Commercial Mortgage Trust Series
2006-C4, Class A3, 5.72%, 3/15/49 (a) ........... 180,000 186,475
Citigroup/Deutsche Bank Commercial
Mortgage Series 2006-CD3, Class A2,
5.56%, 10/15/48 ................................. 200,000 202,547
Commercial Mortgage Pass-Through
Certificate Series 2005-FL11, Class A1,
5.47%, 11/15/17 (a) (b) ......................... 140,143 140,161
GMAC Commercial Mortgage Securities, Inc.
Series 1999-C3, Class A2, 7.18%, 8/15/36 ........ 211,587 220,470
Greenwich Capital Commercial Funding
Corp. Series 2005-GG3, Class A2, 4.305%,
8/10/42 ......................................... 225,000 219,799
Greenwich Capital Commercial Funding
Corp. Series 2006-GG7, Class A4, 6.11%,
6/10/16 (a) ..................................... 200,000 210,038
LB-UBS Commercial Mortgage Trust Series
2006-C1, Class A4, 5.16%, 2/15/31 ............... 200,000 198,181
LB-UBS Commercial Mortgage Trust Series
2006-C6, Class A4, 5.37%, 9/15/39 ............... 200,000 201,076
Morgan Stanley Capital I Series 2006-IQ11,
Class AM, 5.95%, 10/15/42 (a) ................... 200,000 207,128
-----------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(COST $2,104,723) ............................... 2,135,377
-----------
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 9.5%
- --------------------------------------------------------------------------------
Countrywide Home Loans Series
2005-HYB8, Class 2A1, 5.34%,
12/20/35 (a) .................................... 382,035 382,119
Freddie Mac Reference Remic Series R009,
Class AJ, 5.75%, 12/15/18 ....................... 250,000 251,456
Freddie Mac Series 2962, Class CJ, 5.50%,
11/15/23 ........................................ 308,204 308,430
J.P. Morgan Alternative Loan Trust Series
2005-S1, Class 2A9, 6.00%, 12/25/35 ............. 467,945 467,146
Morgan Stanley Mortgage Loan Trust Series
2006-3AR, Class 2A3, 5.90%, 3/25/36 (a) ......... 324,801 328,064
Residential Asset Securitization Trust Series
2006-A1, Class 1A3, 6.00%, 4/25/36 .............. 122,503 123,623
-----------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $1,863,431) ............................... 1,860,838
-----------
- --------------------------------------------------------------------------------
FOREIGN BONDS - 8.0%
- --------------------------------------------------------------------------------
CANADA - 1.7%
Conocophilips Canada, 5.625%, 10/15/16 ............. 150,000 152,105
Nova Chemicals Corp., 6.50%, 1/15/12 ............... 200,000 188,000
-----------
340,105
-----------
- --------------------------------------------------------------------------------
FOREIGN BONDS, CONTINUED
- --------------------------------------------------------------------------------
SHARES OR
PRINCIPAL
AMOUNT($) VALUE($)
---------- -----------
CAYMAN ISLANDS - 1.0%
Preferred Term Securities XXII, 5.73%,
9/22/36, Callable 6/22/11 @ 100 (a) (b) ......... 200,000 200,500
-----------
DOMINICAN REPUBLIC - 0.2%
Dominican Republic Treasury Bill, 13.00%,
10/22/07 (c) .................................... 50,000 43,632
-----------
ICELAND - 2.8%
Kaupthing Bank, 6.07%, 1/15/10 (a) (b) ............. 100,000 99,949
Kaupthing Bank, 7.125%, 5/19/16 (b) ................ 100,000 106,525
Kaupthing Bank, 6.125%, 10/4/16 (b) ................ 100,000 101,605
Landsbanki Islands HF, 6.10%, 8/25/09 (a) (b) ...... 225,000 225,047
-----------
533,126
-----------
KOREA - 1.3%
Citibank Korea Inc., 4.68%, 6/18/13, Callable
6/18/08 @ 100 (a) ............................... 250,000 250,493
-----------
UNITED KINGDOM - 1.0%
Granite Master Issuer plc Series 2005-4,
Class A3, 5.46%, 12/20/54 (a) ................... 200,000 200,022
-----------
TOTAL FOREIGN BONDS
(COST $1,549,956) ............................... 1,567,878
-----------
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 3.2%
- --------------------------------------------------------------------------------
HSBC Investor Money Market Fund Class I
Shares, 5.23% (d) * ............................. 634,275 634,275
-----------
TOTAL INVESTMENT COMPANIES
(COST $634,275) ................................. 634,275
-----------
TOTAL INVESTMENTS
(COST $21,764,574) - 112.0% ..................... 21,861,676
===========
- ----------
Percentages indicated are based on net assets of $19,516,568.
(a) Variable rate security. The interest rates on these securities are
adjusted periodically to reflect then-current short-term interest rates.
The rates presented represent the rates in effect on October 31, 2006. The
maturity dates presented reflect the final maturity date. However, some of
these securities may contain put or demand features that allow the fund to
require the issuer to repurchase the security from the fund within various
time periods, including daily, weekly, monthly, or semi-annually.
(b) Security exempt from registration under Rule 144a of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. These securities
have been deemed liquid by the Investment Adviser based on procedures
approved by the Board of Trustees.
(c) Discount note. Rate presented represents the effective yield at time of
purchase.
(d) Variable rate security. The rates presented represent the annualized one
day yield that was in effect on October 31, 2006.
* Investment in affiliate.
TBA--Security was traded on a "to be announced" basis. Represents 15.62% of net
assets.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 52
- --------------------------------------------------------------------------------
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED)
At October 31, 2006, the Portfolio's open forward currency contracts were as
follows:
CURRENCY CONTRACT UNREALIZED
DELIVERY AMOUNT VALUE APPRECIATION/
CURRENCY DATE (LOCAL CURRENCY) (U.S. DOLLAR) VALUE (DEPRECIATION)
- -------- --------- ---------------- ------------- --------- --------------
SHORT CONTRACTS
Icelandic Krona vs. U.S. Dollar ............. 11/2/2006 3,699,858 $ 54,264 $ 54,707 $ (443)
Mexican Nuevo Peso vs. U.S. Dollar .......... 11/1/2006 1,165,191 108,856 108,387 469
--------- --------- ------
TOTAL SHORT CONTRACTS ...................................................... $ 163,120 $ 163,094 $ 26
========= ========= ======
53 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
HSBC INVESTOR GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006
- --------------------------------------------------------------------------------
COMMON STOCKS - 97.0%
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
AEROSPACE & DEFENSE - 3.4%
General Dynamics Corp. ............................. 15,700 1,116,270
The Boeing Co. ..................................... 11,250 898,425
-----------
2,014,695
-----------
BIOTECHNOLOGY - 3.5%
Gilead Sciences, Inc.(a) ........................... 30,600 2,108,340
-----------
BUSINESS SERVICES - 2.9%
Paychex, Inc. ...................................... 43,700 1,725,276
-----------
CHEMICALS - 2.9%
Monsanto Co. ....................................... 39,250 1,735,635
-----------
COMPUTER SOFTWARE - 10.3%
Adobe Systems, Inc. (a) ............................ 32,600 1,246,950
Automatic Data Processing, Inc. .................... 12,800 632,832
CheckFree Corp. (a) ................................ 24,100 951,468
Electronic Arts, Inc. (a) .......................... 18,250 965,243
Microsoft Corp. .................................... 61,500 1,765,665
SAP AG-ADR ......................................... 11,900 590,716
-----------
6,152,874
-----------
COMPUTERS - 5.0%
Apple Computer, Inc. (a) ........................... 21,400 1,735,112
Research In Motion Ltd. (a) ........................ 10,700 1,257,036
-----------
2,992,148
-----------
CONSUMER PRODUCTS -- 11.6%
Colgate-Palmolive Co. .............................. 37,700 2,411,668
Harman International Industries, Inc. .............. 4,100 419,635
PepsiCo, Inc. ...................................... 31,700 2,011,048
The Procter & Gamble Co. ........................... 31,900 2,022,141
-----------
6,864,492
-----------
DIVERSIFIED MANUFACTURING OPERATIONS -- 3.2%
General Electric Co. ............................... 54,562 1,915,672
-----------
ELECTRONIC COMPONENTS & SEMICONDUCTORS - 4.0%
Broadcom Corp., Class A (a) ........................ 9,850 298,160
Emerson Electric Co. ............................... 10,200 860,880
Microchip Technology, Inc. ......................... 38,000 1,251,340
-----------
2,410,380
-----------
FINANCIAL SERVICES - 10.6%
Goldman Sachs Group, Inc. .......................... 7,250 1,375,978
SLM Corp. .......................................... 30,050 1,462,834
The Chicago Mercantile Exchange Holdings, Inc. ..... 4,000 2,003,999
UBS AG-ADR ......................................... 25,050 1,498,992
-----------
6,341,803
-----------
GAMING - 1.4%
International Game Technology ...................... 20,300 862,953
-----------
HEALTH CARE - 4.2%
Baxter International, Inc. ......................... 18,850 866,535
DENTSPLY International, Inc. ....................... 18,050 564,604
Medtronic, Inc. .................................... 22,250 1,083,130
-----------
2,514,269
-----------
- --------------------------------------------------------------------------------
COMMON STOCKS, CONTINUED
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
HOTELS & LODGING - 2.2%
Las Vegas Sands Corp. (a) .......................... 17,500 1,333,500
-----------
INSURANCE - 0.5%
AFLAC, Inc. ........................................ 6,900 309,948
-----------
INTERNET RELATED - 3.0%
Google, Inc., Class A (a) .......................... 3,800 1,810,282
-----------
MOTOR VEHICLES - 0.5%
Harley-Davidson, Inc. .............................. 4,200 288,246
-----------
OIL & GAS - 5.9%
Schlumberger Ltd. .................................. 26,450 1,668,466
Smith International, Inc. .......................... 46,450 1,833,846
-----------
3,502,312
-----------
PHARMACEUTICALS - 11.8%
Abbott Laboratories ................................ 11,750 558,243
Alcon, Inc.-ADR .................................... 6,050 641,784
Allergan, Inc. ..................................... 8,700 1,004,850
Genentech, Inc. (a) ................................ 21,229 1,768,375
Johnson & Johnson .................................. 28,150 1,897,309
Roche Holdings Ltd.-ADR ............................ 6,300 551,317
Schering-Plough Corp. .............................. 27,050 598,887
-----------
7,020,765
-----------
RETAIL - 2.9%
Kohl's Corp. (a) ................................... 6,000 423,600
Target Corp. ....................................... 7,850 464,563
Walgreen Co. ....................................... 19,867 867,791
-----------
1,755,954
-----------
TELECOMMUNICATIONS -- 5.2%
Cisco Systems, Inc. (a) ............................ 106,950 2,580,703
QUALCOMM, Inc. ..................................... 15,350 558,587
-----------
3,139,290
-----------
TRANSPORTATION - 2.0%
Expeditors International of Washington, Inc. ....... 25,450 1,206,585
-----------
TOTAL COMMON STOCKS
(COST $52,398,200) .............................. 58,005,419
-----------
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 3.5%
- --------------------------------------------------------------------------------
HSBC Investor Money Market Fund
Class I Shares, 5.23% (b)* ...................... 2,114,763 2,114,763
-----------
TOTAL INVESTMENT COMPANIES
(COST $2,114,763) ............................... 2,114,763
-----------
TOTAL INVESTMENTS
(COST $54,512,963) -- 100.5% .................... 60,120,182
===========
- ----------
Percentages indicated are based on net assets of $59,827,764.
(a) Represents non-income producing security.
(b) Variable rate security. The rates presented represent the annualized one
day yield that was in effect on October 31, 2006.
* Investment in affiliate.
ADR--American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 54
- --------------------------------------------------------------------------------
HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.1%
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
AUSTRALIA - 1.2%
Coles Myer, Ltd. ................................... 148,900 1,565,282
Macquarie Airports ................................. 966,900 2,402,617
-----------
3,967,899
-----------
AUSTRIA - 1.6%
Omv AG ............................................. 49,300 2,679,403
Voestalpine AG ..................................... 59,600 2,810,244
-----------
5,489,647
-----------
BELGIUM - 1.7%
Fortis ............................................. 106,100 4,453,102
KBC Bankverzekeringsholding ........................ 11,300 1,234,342
-----------
5,687,444
-----------
BRAZIL - 1.5%
Gerdau SA ADR ...................................... 75,150 1,109,966
Petroleo Brasileiro SA ADR ......................... 27,700 2,242,591
Unibanco ADR ....................................... 8,100 637,875
Usinas Siderurgicas de Minas Gerais SA ............. 30,200 1,027,125
-----------
5,017,557
-----------
CANADA - 3.5%
Canadian Natural Resources Ltd. .................... 40,300 2,098,098
EnCana Corp. ....................................... 30,000 1,425,047
Gerdau Ameristeel Corp. ............................ 102,700 1,047,399
ING Canada, Inc. ................................... 43,693 2,302,755
IPSCO, Inc. ........................................ 16,449 1,511,757
Nexen, Inc. ........................................ 20,018 1,068,057
Teck Cominco, Ltd., B shares ....................... 32,300 2,378,123
-----------
11,831,236
-----------
CHINA - 0.3%
China Petroleum & Chemical Corp. ................... 592,000 411,074
China Telecom Corp., Ltd. .......................... 1,264,000 476,233
-----------
887,307
-----------
FRANCE - 12.1%
Air France-KLM ..................................... 6,400 227,941
BNP Paribas SA ..................................... 57,980 6,374,071
Credit Agricole SA ................................. 89,990 3,825,184
France Telecom SA .................................. 107,200 2,783,829
Michelin, B Shares ................................. 20,900 1,704,239
Renault SA ......................................... 62,300 7,286,248
Sanofi-Aventis ..................................... 57,800 4,912,307
Societe Generale ................................... 35,385 5,879,137
Total SA ........................................... 110,600 7,487,277
-----------
40,480,233
-----------
GERMANY - 9.6%
Allianz AG ......................................... 9,300 1,720,104
Continental AG ..................................... 51,400 5,745,145
DaimlerChrysler AG ................................. 23,300 1,322,823
Deutsche Lufthansa AG .............................. 162,600 3,741,103
E.ON AG (a) ........................................ 41,000 4,900,809
Fresenius Medical Care AG .......................... 11,800 1,570,543
Muenchener Rueckversicherungs-Gesellschaft AG ...... 43,400 7,021,402
RWE AG ............................................. 44,500 4,385,037
TUI AG ............................................. 75,300 1,643,140
-----------
32,050,106
-----------
GREECE - 0.5%
Public Power Corp. ................................. 61,000 1,556,837
-----------
HONG KONG - 0.5%
China Netcom Group Corp., Ltd. ..................... 462,000 821,022
Sino Land Co., Ltd. ................................ 406,695 708,096
-----------
1,529,118
-----------
HUNGARY - 0.3%
MOL Magyar Olaj-es Gazipari Rt. GDR ................ 9,600 955,200
-----------
- --------------------------------------------------------------------------------
COMMON STOCKS, CONTINUED
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
INDIA - 0.3%
State Bank of India GDR ............................ 17,600 1,105,280
-----------
ISRAEL - 0.4%
Bank Hapoalim BM ................................... 286,600 1,428,975
-----------
ITALY - 3.7%
Buzzi Unicem SpA ................................... 91,400 2,408,517
ENI SpA ............................................ 166,500 5,020,666
Fondiaria-SAI SpA .................................. 45,600 2,029,667
Fondiaria-SAI SpA-RNC .............................. 18,700 621,392
Italcementi SpA .................................... 91,700 2,428,124
-----------
12,508,366
-----------
JAPAN - 23.6%
Alps Electric Co., Ltd. ............................ 55,000 550,753
Canon, Inc. ........................................ 32,250 1,729,156
East Japan Railway Co. ............................. 195 1,364,033
EDION Corp. ........................................ 67,800 976,937
Hitachi, Ltd. ...................................... 144,000 831,195
Honda Motor Co., Ltd. .............................. 47,000 1,663,930
Isuzu Motors, Ltd. ................................. 342,000 1,184,454
ITOCHU Corp. ....................................... 167,000 1,330,973
Japan Tobacco, Inc. ................................ 1,200 5,233,453
JFE Holdings, Inc. ................................. 140,100 5,630,836
Kobe Steel, Ltd. ................................... 958,000 2,932,820
Leopalace21 Corp. .................................. 24,900 936,891
Mitsubishi Corp. ................................... 129,000 2,493,073
Mitsubishi UFJ Financial Group, Inc. ............... 172 2,162,134
Mitsui & Co., Ltd. ................................. 171,000 2,335,275
Mitsui Chemicals, Inc. ............................. 417,000 2,863,443
Mitsui O.S.K. Lines, Ltd. .......................... 451,000 3,760,262
Nippon Mining Holdings, Inc. ....................... 360,000 2,690,611
Nippon Telegraph & Telephone Corp. ................. 728 3,666,769
Nissan Motor Co., Ltd. ............................. 225,100 2,696,811
ORIX Corp. ......................................... 19,300 5,438,131
Sharp Corp. ........................................ 216,000 3,851,206
Sony Corp. ......................................... 12,510 518,843
Sumitomo Heavy Industries, Ltd. .................... 163,000 1,396,665
Sumitomo Metal Industries, Ltd. .................... 294,000 1,106,208
Sumitomo Mitsui Financial Group, Inc. .............. 598 6,545,579
The Tokyo Electric Power Co., Inc. ................. 90,600 2,634,171
Tokyo Gas Co., Ltd. ................................ 293,000 1,495,818
Toyota Motor Corp. ................................. 123,900 7,342,459
UNY Co., Ltd. ...................................... 90,000 1,130,580
-----------
78,493,469
-----------
NETHERLANDS - 8.1%
ABN AMRO Holding NV ................................ 97,283 2,836,655
European Aeronautic Defence and Space Co. .......... 125,160 3,393,969
ING Groep NV ....................................... 190,468 8,436,457
Koninklijke Philips Electronics NV ................. 52,120 1,820,382
Mittal Steel Co. NV ................................ 107,652 4,622,645
Royal Dutch Shell plc, A Shares .................... 98,400 3,409,167
Wolters Kluwer NV .................................. 89,700 2,465,594
-----------
26,984,869
-----------
SINGAPORE - 0.6%
Flextronics International, Ltd. (a) ................ 162,400 1,883,840
-----------
55 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED)
- --------------------------------------------------------------------------------
COMMON STOCKS, CONTINUED
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
SOUTH AFRICA - 0.7%
Sanlam, Ltd. ....................................... 554,040 1,318,031
Standard Bank Group, Ltd. .......................... 59,000 693,769
Tiger Brands, Ltd. ................................. 20,800 432,586
-----------
2,444,386
-----------
SOUTH KOREA - 1.9%
Honam Petrochemical Corp. .......................... 8,100 507,379
Hyundai Motors Co., Second Preferred ............... 15,950 753,557
Industrial Bank of Korea GDR ....................... 88,300 1,546,133
Kookmin Bank ADR ................................... 14,600 1,158,656
LG.Philips LCD Co., Ltd. (a) ....................... 13,600 433,167
POSCO ADR .......................................... 29,000 2,045,079
-----------
6,443,971
-----------
SPAIN - 1.7%
Endesa SA .......................................... 22,200 984,161
Repsol YPF SA ...................................... 141,100 4,681,486
-----------
5,665,647
-----------
SWEDEN - 0.6%
Svenska Cellusoa AB, B Shares ...................... 44,800 2,057,038
-----------
SWITZERLAND - 1.9%
Credit Suisse Group ................................ 81,100 4,890,649
Novartis AG ........................................ 24,830 1,507,329
-----------
6,397,978
-----------
TAIWAN - 1.4%
China Steel Corp. GDR .............................. 37,746 666,217
Compal Electronics, Inc. GDR ....................... 229,388 1,000,131
Gigabyte Technology Co., Ltd. ...................... 261,112 189,394
Siliconware Precision Industries Co. ............... 694,000 881,442
Taiwan Semiconductor Manufacturing Co., Ltd. ....... 505,870 928,733
United Microelectronics Corp. ...................... 1,570,000 876,527
-----------
4,542,444
-----------
THAILAND - 0.2%
PTT Public Company Ltd. plc ........................ 121,400 728,234
-----------
UNITED KINGDOM - 18.2%
AstraZeneca plc .................................... 61,200 3,616,204
Aviva plc .......................................... 346,270 5,118,429
Barclays plc ....................................... 410,200 5,535,314
BHP Billiton plc ................................... 47,100 908,222
- --------------------------------------------------------------------------------
COMMON STOCKS, CONTINUED
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
UNITED KINGDOM, CONTINUED
BP Amoco plc ....................................... 125,000 1,389,949
British Aerospace plc .............................. 485,500 3,884,556
British American Tobacco plc ....................... 75,900 2,068,684
Friends Provident plc .............................. 782,500 3,089,405
George Wimpey plc .................................. 167,400 1,679,428
HBOS plc ........................................... 260,121 5,392,934
Mitchells & Butlers plc ............................ 99,346 1,129,323
Punch Taverns plc .................................. 91,000 1,785,981
Royal & Sun Alliance Insurance Group plc ........... 752,249 2,116,283
Royal Bank of Scotland Group plc ................... 169,100 6,024,772
Royal Dutch Shell plc, B Shares .................... 45,973 1,646,716
Sainsbury plc ...................................... 410,062 3,063,929
Taylor Woodrow plc ................................. 235,300 1,632,469
Vodafone Group plc ................................. 2,512,958 6,470,520
Whitbread plc ...................................... 1,220 32,600
Xstrata plc ........................................ 96,000 4,101,469
-----------
60,687,187
-----------
TOTAL COMMON STOCKS
(COST $241,761,903) ............................. 320,824,268
-----------
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 2.4%
- --------------------------------------------------------------------------------
Investors Bank & Trust, 3.52%, purchased on
10/31/06, due 11/1/06 with a maturity
value of $7,901,801 (Collateralized
fully by various U.S. Government Obligations) ... 7,901,028 7,901,028
-----------
TOTAL REPURCHASE AGREEMENTS
(COST $7,901,028) ............................... 7,901,028
-----------
- --------------------------------------------------------------------------------
RIGHTS & WARRANTS - 0.0%
- --------------------------------------------------------------------------------
UNITED KINGDOM
TI Automotive Ltd., Class A (b) .................... 190,000 0
-----------
TOTAL RIGHTS & WARRANTS
(COST $0) ....................................... 0
-----------
TOTAL INVESTMENTS
(COST $249,662,931) -- 98.5% .................... 328,725,296
===========
- ----------
Percentages indicated are based on net assets of $333,754,693.
(a) Represents non-income producing security.
(b) Illiquid security, representing 0.00% of net assets.
ADR-American Depositary Receipt
GDR-Global Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 56
- --------------------------------------------------------------------------------
HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006 (CONTINUED)
PERCENT OF
INDUSTRY NET ASSETS
- -------- ----------
Aerospace & Defense .............................................. 2.2%
Automotive ....................................................... 8.9%
Banking & Financial Services ..................................... 22.7%
Building & Construction .......................................... 3.3%
Chemicals ........................................................ 1.0%
Computer Related ................................................. 0.4%
Drugs--Medical ................................................... 3.5%
Electrical ....................................................... 5.2%
Electronic Components & Semiconductors ........................... 2.6%
Food & Beverage .................................................. 0.9%
Insurance ........................................................ 7.6%
Manufacturing .................................................... 2.1%
Metals & Mining .................................................. 9.6%
Oil & Gas ........................................................ 12.8%
Publishing ....................................................... 0.7%
Real Estate ...................................................... 0.2%
Repurchase Agreement ............................................. 2.4%
Retail ........................................................... 2.0%
Telecommunications ............................................... 4.3%
Tobacco .......................................................... 2.2%
Tourism .......................................................... 0.5%
Transportation Services .......................................... 3.4%
-----
Total Investments ................................................ 98.5%
-----
Other assets in excess of liabilities ............................ 1.5%
-----
Net Assets ....................................................... 100.0%
=====
57 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006
- --------------------------------------------------------------------------------
COMMON STOCKS - 95.5%
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
ADVERTISING - 1.5%
Monster Worldwide, Inc. (a) ........................ 87,000 3,524,370
-----------
AEROSPACE & DEFENSE - 1.7%
Esterline Technologies Corp. (a) ................... 41,800 1,575,860
Hexcel Corp. (a) ................................... 162,900 2,637,351
-----------
4,213,211
-----------
BANKING - 1.6%
East West Bancorp, Inc. ............................ 107,500 3,924,825
-----------
BIOTECHNOLOGY - 3.7%
Celgene Corp. (a) .................................. 97,400 5,205,056
Invitrogen Corp. (a) ............................... 63,200 3,666,232
-----------
8,871,288
-----------
COMMERCIAL SERVICES - 3.5%
Alliance Data Systems Corp. (a) .................... 62,500 3,795,000
Schawk, Inc., Class A .............................. 107,700 2,030,145
Sotheby's Holdings, Inc. ........................... 67,200 2,553,600
-----------
8,378,745
-----------
COMPUTER SOFTWARE - 9.4%
CheckFree Corp. (a) ................................ 94,900 3,746,652
Red Hat, Inc. (a) .................................. 148,900 2,438,982
Satyam Computer Services Ltd. ADR .................. 190,600 4,214,166
Sina Corp. (a) ..................................... 99,300 2,553,003
SRA International, Inc., Class A (a) ............... 148,300 4,753,015
Transaction Systems Architects, Inc., Class A (a) .. 148,700 5,012,677
-----------
22,718,495
-----------
CONSUMER PRODUCTS - 0.9%
Jarden Corp. (a) ................................... 62,600 2,252,348
-----------
DIVERSIFIED MANUFACTURING OPERATIONS - 6.5%
Actuant Corp., Class A ............................. 41,600 2,135,744
AMETEK, Inc. ....................................... 156,400 7,300,752
IDEX Corp. ......................................... 135,300 6,345,570
-----------
15,782,066
-----------
EDUCATION - 1.5%
Corinthian Colleges, Inc. (a) ...................... 304,379 3,728,643
-----------
ELECTRONIC COMPONENTS & SEMICONDUCTORS - 11.2%
Atmel Corp. (a) .................................... 647,500 3,723,125
ATMI, Inc. (a) ..................................... 102,400 3,245,056
Cognos, Inc. (a) ................................... 192,300 7,015,104
Silicon Laboratories, Inc. (a) ..................... 57,000 1,859,910
Thermo Electron Corp. (a) .......................... 143,400 6,147,558
Varian Semiconductor Equipment Associates,
Inc. (a) ........................................ 138,050 5,037,445
-----------
27,028,198
-----------
ENVIRONMENTAL SERVICES - 1.1%
Waste Connections, Inc. (a) ........................ 63,100 2,567,539
-----------
FINANCIAL SERVICES - 4.2%
Affiliated Managers Group, Inc. (a) ................ 59,700 5,978,358
eFunds Corp. (a) ................................... 165,700 4,109,360
-----------
10,087,718
-----------
HEALTH CARE - 13.4%
Charles River Laboratories International,
Inc. (a) ........................................ 83,000 3,562,360
CYTYC Corp. (a) .................................... 145,600 3,846,752
Manor Care, Inc. ................................... 90,400 4,338,296
Omnicare, Inc. ..................................... 116,600 4,416,808
Pediatrix Medical Group, Inc. (a) .................. 78,300 3,518,019
Respironics, Inc. (a) .............................. 212,400 7,501,968
Ventana Medical Systems (a) ........................ 126,000 5,089,140
-----------
32,273,343
-----------
- --------------------------------------------------------------------------------
COMMON STOCKS, CONTINUED
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
HOTELS & LODGING - 1.1%
Strategic Hotels and Resorts, Inc. ................. 121,100 2,575,797
-----------
MEDIA - 3.0%
Dreamworks Animation SKG, Inc. (a) ................. 95,500 2,525,975
Meredith Corp. ..................................... 88,800 4,662,000
-----------
7,187,975
-----------
OIL & GAS - 9.0%
Chesapeake Energy Corp. ............................ 103,500 3,357,540
Consol Energy, Inc. ................................ 86,000 3,043,540
Denbury Resources, Inc. (a) ........................ 163,200 4,690,368
Grant Prideco, Inc. (a) ............................ 86,500 3,267,105
Massey Energy Co. .................................. 148,300 3,744,575
Smith International, Inc. .......................... 92,600 3,655,848
-----------
21,758,976
-----------
PHARMACEUTICALS - 10.0%
Alexion Pharmaceuticals, Inc. (a) .................. 68,104 2,544,365
Elan Corp. PLC ADR (a) ............................. 438,300 6,346,584
MGI Pharma, Inc. (a) ............................... 213,000 4,053,390
OSI Pharmaceuticals, Inc. (a) ...................... 217,100 8,310,588
Santarus, Inc. (a) ................................. 384,400 2,956,036
-----------
24,210,963
-----------
REAL ESTATE - 0.4%
Northstar Realty Finance Corp. ..................... 62,000 939,300
-----------
RETAIL - 6.2%
Advance Auto Parts, Inc. ........................... 6,500 227,630
Dick's Sporting Goods, Inc. (a) .................... 105,800 5,264,608
P.F. Chang's China Bistro, Inc. (a) ................ 38,900 1,626,798
PETsMART, Inc. ..................................... 144,200 4,150,076
Williams-Sonoma, Inc. .............................. 108,400 3,686,684
-----------
14,955,796
-----------
TELECOMMUNICATIONS - 3.7%
Comverse Technology, Inc. (a) ...................... 117,300 2,553,621
Polycom, Inc. (a) .................................. 236,700 6,485,580
-----------
9,039,201
-----------
TRANSPORTATION - 1.9%
J.B. Hunt Transport Services, Inc. ................. 210,200 4,548,728
-----------
TOTAL COMMON STOCKS
(COST $189,713,278) ............................. 230,567,525
-----------
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 5.5%
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
HSBC Investor Money Market Fund Class I
Shares, 5.23% (b)* .............................. 13,240,979 13,240,979
-----------
TOTAL INVESTMENT COMPANIES
(COST $13,240,979) .............................. 13,240,979
-----------
TOTAL INVESTMENTS
(COST $202,954,257) - 101.0% .................... 243,808,504
===========
- ----------
Percentages indicated are based on net assets of $241,494,843.
(a) Represents non-income producing security.
(b) Variable rate security. The rates presented represent the annualized one
day yield that was in effect on October 31, 2006.
* Investment in affiliate.
ADR-American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 58
- --------------------------------------------------------------------------------
HSBC INVESTOR VALUE PORTFOLIO
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS--OCTOBER 31, 2006
- --------------------------------------------------------------------------------
COMMON STOCKS - 93.1%
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
AEROSPACE & DEFENSE - 4.6%
Lockheed Martin Corp. .............................. 19,400 1,686,442
Raytheon Co. ....................................... 28,300 1,413,585
-----------
3,100,027
-----------
BANKING - 4.7%
Bank of America Corp. .............................. 23,600 1,271,332
Wells Fargo & Co. .................................. 51,600 1,872,564
-----------
3,143,896
-----------
BUSINESS SERVICES - 2.9%
Pitney Bowes, Inc. ................................. 42,100 1,966,491
-----------
COMPUTER SOFTWARE - 6.4%
CA, Inc. ........................................... 110,800 2,743,408
Microsoft Corp. .................................... 54,300 1,558,953
-----------
4,302,361
-----------
CONGLOMERATES - 1.9%
Loews Corp. ........................................ 33,600 1,307,712
-----------
CONSUMER PRODUCTS - 7.7%
Altria Group, Inc. ................................. 35,700 2,903,481
Kimberly-Clark Corp. ............................... 27,000 1,796,040
Tyson Foods, Inc., Class A ......................... 34,200 494,190
-----------
5,193,711
-----------
DIVERSIFIED MANUFACTURING OPERATIONS - 1.6%
Ingersoll-Rand Co., Class A ........................ 29,800 1,093,958
-----------
ELECTRONIC COMPONENTS & SEMICONDUCTORS - 1.3%
Agilent Technologies, Inc. (a) ..................... 24,564 874,478
-----------
FINANCIAL SERVICES - 16.6%
Citigroup, Inc. .................................... 36,707 1,841,223
Countrywide Financial Corp. ........................ 76,600 2,919,993
Fannie Mae ......................................... 41,500 2,459,290
Genworth Financial, Inc., Class A .................. 50,900 1,702,096
J.P. Morgan Chase & Co. ............................ 34,150 1,620,076
MGIC Investment Corp. .............................. 11,800 693,368
-----------
11,236,046
-----------
GAS & ELECTRIC UTILITY - 2.0%
Dominion Resources, Inc. ........................... 17,000 1,376,830
-----------
INSURANCE - 8.1%
Aetna, Inc. ........................................ 16,600 684,252
AON Corp. .......................................... 46,400 1,614,256
Radian Group, Inc. ................................. 17,400 927,420
The Hartford Financial Services Group, Inc. ........ 25,700 2,240,269
-----------
5,466,197
-----------
MEDIA - 11.2%
CBS Corp., Class B ................................. 33,050 956,467
Clear Channel Communications, Inc. ................. 33,500 1,167,475
Comcast Corp., Special Class A (a) ................. 42,300 1,712,304
Liberty Media Capital Group, Class A (a) ........... 5,017 446,814
Liberty Media Interactive Group, Class A (a) ....... 37,087 818,510
Viacom Inc., Class B (a) ........................... 63,800 2,483,096
-----------
7,584,666
-----------
- --------------------------------------------------------------------------------
COMMON STOCKS, CONTINUED
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
METALS & MINING - 6.2%
Barrick Gold Corp. ................................. 62,700 1,943,700
POSCO ADR .......................................... 11,800 832,136
Rio Tinto PLC ADR .................................. 2,900 642,031
United States Steel Corp. .......................... 10,900 736,840
-----------
4,154,707
-----------
OIL & GAS - 7.4%
Apache Corp. ....................................... 12,200 796,904
ConocoPhillips ..................................... 16,271 980,165
Noble Energy, Inc. ................................. 65,500 3,185,265
-----------
4,962,334
-----------
PAPER PRODUCTS - 1.3%
International Paper Co. ............................ 26,800 893,780
-----------
TELECOMMUNICATIONS - 7.4%
AT&T, Inc. ......................................... 44,900 1,537,825
BellSouth Corp. .................................... 21,050 949,355
Motorola, Inc. ..................................... 70,200 1,618,812
Sprint Nextel Corp. ................................ 45,600 852,264
-----------
4,958,256
-----------
TRANSPORTATION - 1.8%
Union Pacific Corp. ................................ 13,200 1,196,316
-----------
TOTAL COMMON STOCKS
(COST $50,318,029) .............................. 62,811,766
-----------
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES - 6.7%
- --------------------------------------------------------------------------------
SHARES VALUE($)
---------- -----------
HSBC Investor Money Market Fund
Class I Shares, 5.23% (b)* ...................... 4,508,066 4,508,066
-----------
TOTAL INVESTMENT COMPANIES
(COST $4,508,066) ............................... 4,508,066
-----------
- --------------------------------------------------------------------------------
RIGHTS AND WARRANTS - 0.1%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE
Raytheon Co., 37.5 strike price, expires
6/16/11 (a) ..................................... 4,833 75,975
-----------
TOTAL RIGHTS AND WARRANTS
(COST $0) ....................................... 75,975
-----------
TOTAL INVESTMENTS
(COST $54,826,095) - 99.9% ...................... 67,395,807
===========
- ----------
Percentages indicated are based on net assets of $67,432,095.
(a) Represents non-income producing security.
(b) Variable rate security. The rates presented represent the annualized one
day yield that was in effect on October 31, 2006.
* Investment in affiliate.
ADR-American Depository Receipt
59 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES--OCTOBER 31, 2006
INTERMEDIATE
CORE PLUS HIGH YIELD DURATION] INTERNATIONAL
FIXED INCOME FIXED INCOME FIXED INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in non-affiliates, at value $ 123,095,860 $ 12,576,265 $ 21,227,401 $ 58,005,419 $ 328,725,296
Investments in affiliates, at value 2,998,076 -- 634,275 2,114,763 --
Cash -- 16 -- -- 44,591
Foreign currency -- -- -- -- 2,125,252
Interest and dividends receivable 989,785 261,881 155,141 50,388 636,904
Receivable for investments sold 13,281,508 32,289 2,026,784 142,543 2,718,203
Unrealized appreciation on forward
foreign currency contracts 2,472 -- 469 -- --
Prepaid expenses and other assets 1,698 301 490 774 4,559
------------- ------------ ------------ ------------ -------------
TOTAL ASSETS 140,369,399 12,870,752 24,044,560 60,313,887 334,254,805
------------- ------------ ------------ ------------ -------------
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 29,121,190 135,219 4,517,975 457,514 192,318
Unrealized depreciation on forward
foreign currency contracts 2,232 -- 443 -- --
Accrued expenses and other liabilities:
Investment management 44,042 6,316 6,626 24,589 238,047
Administration 6,794 404 1,822 1,966 14,078
Accounting -- -- -- 388 --
Compliance service 1 -- -- -- --
Custodian -- 9,975 516 -- 46,608
Trustee 167 17 34 83 465
Other 3,042 56 576 1,583 8,596
------------- ------------ ------------ ------------ -------------
TOTAL LIABILITIES 29,177,468 151,987 4,527,992 486,123 500,112
------------- ------------ ------------ ------------ -------------
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Applicable to investors' beneficial interest $ 111,191,931 $ 12,718,765 $ 19,516,568 $ 59,827,764 $ 333,754,693
============= ============ ============ ============ =============
Total Investments, at cost $ 125,181,696 $ 12,509,676 $ 21,764,574 $ 54,512,963 $ 249,662,931
============= ============ ============ ============ =============
Foreign currency, at cost $ 2,091,355
=============
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 60
HSBC INVESTOR PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES--OCTOBER 31, 2006 (CONTINUED)
SMALL CAP
EQUITY VALUE
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------
ASSETS:
Investments in non-affiliates, at value $ 230,567,525 $ 62,887,741
Investments in affiliates, at value 13,240,979 4,508,066
Cash 4,765 --
Interest and dividends receivable 61,218 69,383
Receivable for investments sold 4,265,643 --
Prepaid expenses and other assets 7,919 805
------------- ------------
TOTAL ASSETS 248,148,049 67,465,995
------------- ------------
- ---------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 6,470,680 --
Accrued expenses and other liabilities:
Investment management 163,675 29,600
Administration 12,040 2,202
Accounting 114 200
Trustee 329 95
Other 6,368 1,803
------------- ------------
TOTAL LIABILITIES 6,653,206 33,900
------------- ------------
- ---------------------------------------------------------------------------------
NET ASSETS:
Applicable to investors' beneficial interest $ 241,494,843 $ 67,432,095
============= ============
Total Investments, at cost $ 202,954,257 $ 54,826,095
============= ============
61 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR PORTFOLIOS
STATEMENTS OF OPERATIONS--FOR THE YEAR ENDED OCTOBER 31, 2006
INTERMEDIATE
CORE PLUS HIGH YIELD DURATION INTERNATIONAL
FIXED INCOME FIXED INCOME FIXED INCOME GROWTH EQUITY
PORTFOLIO PORTFOLIO (a) PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 6,074,170 $ 764,816 $ 1,208,927 $ 1 $ 134,644
Dividends -- 10,683 -- 499,254 9,042,924
Dividend income from affiliated investments 97,176 -- 26,213 95,644 --
Foreign tax withholding -- -- -- -- (974,388)
Income from securities lending 17,878 -- 3,075 19 --
------------- ------------- ------------ ------------ -------------
TOTAL INVESTMENT INCOME 6,189,224 775,499 1,238,215 594,918 8,203,180
------------- ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Investment management 521,319 56,612 92,601 274,052 1,905,467
Administration 41,473 3,535 8,677 20,859 106,142
Accounting 65,688 57,056 59,562 52,882 92,992
Compliance service 1,593 131 341 789 3,930
Custodian 45,750 57,077 13,418 25,798 276,849
Interest 4,939 -- -- -- --
Trustee 3,105 217 689 1,477 7,462
Other 18,240 1,101 4,014 8,815 42,574
------------- ------------- ------------ ------------ -------------
TOTAL EXPENSES 702,107 175,729 179,302 384,672 2,435,416
------------- ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 5,487,117 599,770 1,058,913 210,246 5,767,764
------------- ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED/UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gains (losses) from investments
and foreign currency transactions (2,015,195) 36,553 (458,266) 3,913,855 31,508,299
Change in unrealized
appreciation/depreciation from
investments and foreign currencies 2,496,112 66,589 518,623 (380,204) 39,700,669
------------- ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized/unrealized gains (losses) from
investments and foreign currency
transactions 480,917 103,142 60,357 3,533,651 71,208,968
------------- ------------- ------------ ------------ -------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,968,034 $ 702,912 $ 1,119,270 $ 3,743,897 $ 76,976,732
============= ============= ============ ============ =============
(a) The High Yield Fixed Income Portfolio commenced operations on November 18,
2005.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 62
HSBC INVESTOR PORTFOLIOS
STATEMENTS OF OPERATIONS--FOR THE YEAR ENDED OCTOBER 31, 2006 (CONTINUED)
SMALL CAP
EQUITY VALUE
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 947,741 $ 1,051,111
Dividend income from affiliated investments 244,837 115,771
Income from securities lending 7,230 113
------------- -------------
TOTAL INVESTMENT INCOME 1,199,808 1,166,995
------------- -------------
- ------------------------------------------------------------------------------------
EXPENSES:
Investment management 1,868,748 316,677
Administration 87,545 22,605
Accounting 53,770 52,651
Compliance service 3,296 849
Custodian 86,396 21,762
Trustee 6,294 1,607
Other 31,376 9,827
------------- -------------
TOTAL EXPENSES 2,137,425 425,978
------------- -------------
- ------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (937,617) 741,017
------------- -------------
- ------------------------------------------------------------------------------------
NET REALIZED/UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS AND FOREIGN CURRENCIES:
Net realized gains (losses) from investments
and foreign currency transactions 38,504,562 5,586,911
Change in unrealized
appreciation/depreciation from
investments and foreign currencies 3,658,201 5,704,297
------------- -------------
- ------------------------------------------------------------------------------------
Net realized/unrealized gains (losses)
from investments and foreign currency
transactions 42,162,763 11,291,208
------------- -------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 41,225,146 $ 12,032,225
============= =============
63 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
CORE PLUS HIGH YIELD
FIXED INCOME FIXED INCOME
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006 (a)
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 5,487,117 $ 6,493,010 $ 599,770
Net realized gains (losses) from investment
and foreign currency transactions (2,015,195) 7,083,274 36,553
Change in unrealized appreciation/depreciation
from investments and foreign currencies 2,496,112 (10,643,468) 66,589
---------------- ---------------- --------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 5,968,034 2,932,816 702,912
---------------- ---------------- --------------------
Proceeds from contributions 23,850,640 31,409,368 13,667,509
Value of withdrawals (41,156,523) (81,271,788) (1,651,656)
---------------- ---------------- --------------------
CHANGE IN NET ASSETS FROM TRANSACTIONS IN
INVESTORS' BENEFICIAL INTEREST (17,305,883) (49,862,420) 12,015,853
---------------- ---------------- --------------------
CHANGE IN NET ASSETS (11,337,849) (46,929,604) 12,718,765
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 122,529,780 169,459,384 --
---------------- ---------------- --------------------
End of period $ 111,191,931 $ 122,529,780 $ 12,718,765
================ ================ ====================
- ----------
(a) The High Yield Fixed Income Portfolio commenced operations on November 18,
2005.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 64
HSBC INVESTOR PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
INTERMEDIATE DURATION
FIXED INCOME
PORTFOLIO
- ------------------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
- ------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 1,058,913 $ 1,897,871
Net realized gains (losses) from investment
and foreign currency transactions (458,266) (162,231)
Change in unrealized appreciation/depreciation
from investments and foreign currencies 518,623 (1,247,772)
---------------- ----------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,119,270 487,868
---------------- ----------------
Proceeds from contributions 1,801,738 6,926,443
Value of withdrawals (16,214,126) (38,301,414)
---------------- ----------------
CHANGE IN NET ASSETS FROM TRANSACTIONS IN
INVESTORS' BENEFICIAL INTEREST (14,412,388) (31,374,971)
---------------- ----------------
CHANGE IN NET ASSETS (13,293,118) (30,887,103)
- ------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 32,809,686 63,696,789
---------------- ----------------
End of period $ 19,516,568 $ 32,809,686
================ ================
65 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
HSBC INVESTOR PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
GROWTH INTERNATIONAL EQUITY
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006 OCTOBER 31, 2005
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 210,246 $ 403,238 $ 5,767,764 $ 4,381,037
Net realized gains (losses) from investment
and foreign currency transactions 3,913,855 2,375,542 31,508,299 18,977,305
Change in unrealized appreciation/depreciation
from investments and foreign currencies (380,204) 3,995,556 39,700,669 17,737,274
---------------- ---------------- ---------------- ----------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 3,743,897 6,774,336 76,976,732 41,095,616
---------------- ---------------- ---------------- ----------------
Proceeds from contributions 15,350,040 15,081,868 62,831,133 68,931,727
Value of withdrawals (8,680,872) (22,121,709) (36,283,024) (99,822,646)
---------------- ---------------- ---------------- ----------------
CHANGE IN NET ASSETS FROM TRANSACTIONS IN
INVESTORS' BENEFICIAL INTEREST 6,669,168 (7,039,841) 26,548,109 (30,890,919)
---------------- ---------------- ---------------- ----------------
CHANGE IN NET ASSETS 10,413,065 (265,505) 103,524,841 10,204,697
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 49,414,699 49,680,204 230,229,852 220,025,155
---------------- ---------------- ---------------- ----------------
End of period $ 59,827,764 $ 49,414,699 $ 333,754,693 $ 230,229,852
================ ================ ================ ================
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 66
HSBC INVESTOR PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
SMALL CAP EQUITY VALUE
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005 OCTOBER 31, 2006 OCTOBER 31, 2005
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss) $ (937,617) $ (1,294,078) $ 741,017 $ 721,613
Net realized gains (losses) from investment
transactions 38,504,562 62,035,547 5,586,911 4,124,126
Change in unrealized appreciation/depreciation
from investments 3,658,201 (17,237,446) 5,704,297 4,254,259
---------------- ---------------- ---------------- ----------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 41,225,146 43,504,023 12,032,225 9,099,998
---------------- ---------------- ---------------- ----------------
Proceeds from contributions 22,244,597 24,917,377 13,285,641 14,013,050
Value of withdrawals (a) (40,753,125) (208,976,448) (12,036,219) (30,376,597)
---------------- ---------------- ---------------- ----------------
CHANGE IN NET ASSETS FROM TRANSACTIONS IN
INVESTORS' BENEFICIAL INTEREST (18,508,528) (184,059,071) 1,249,422 (16,363,547)
---------------- ---------------- ---------------- ----------------
CHANGE IN NET ASSETS 22,716,618 (140,555,048) 13,281,647 (7,263,549)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 218,778,225 359,333,273 54,150,448 61,413,997
---------------- ---------------- ---------------- ----------------
End of period $ 241,494,843 $ 218,778,225 $ 67,432,095 $ 54,150,448
================ ================ ================ ================
- ----------
(a) During the year ended October 31, 2005, the Small Cap Equity Portfolio
delivered cash and securities with a market value of $61,810,186 in
connection with a redemption in-kind of the HSBC Investor Small Cap Equity
Fund.
67 HSBC INVESTOR PORTFOLIOS SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
HSBC INVESTOR PORTFOLIOS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
RATIOS/SUPPLEMENTARY DATA
---------------------------------------------------------------------------------
RATIO OF RATIO OF NET
NET ASSETS AT EXPENSES INVESTMENT RATIO OF
END OF TO AVERAGE INCOME (LOSS) EXPENSES
TOTAL PERIOD NET TO AVERAGE TO AVERAGE PORTFOLIO
RETURN(a) (000'S) ASSETS(b) NET ASSETS(b) NET ASSETS(b)(c) TURNOVER (a)
- -----------------------------------------------------------------------------------------------------------------------------------
CORE PLUS FIXED INCOME PORTFOLIO
Year ended October 31, 2002 $ 385,802 0.48% 5.14% 0.48% 77.82%
Year ended October 31, 2003 5.80% 203,551 0.48% 4.38% 0.48% 70.91%
Year ended October 31, 2004 5.56% 169,459 0.52% 4.31% 0.52% 34.88%
Year ended October 31, 2005 1.64% (d) 122,530 0.40% (d) 4.25% (d) 0.53% 176.60%
Year ended October 31, 2006 5.55% 111,192 0.63% 4.96% 0.63% 273.91%
- -----------------------------------------------------------------------------------------------------------------------------------
HIGH YIELD FIXED INCOME PORTFOLIO
Period ended October 31, 2006 (e) 7.41% $ 12,719 1.86% 6.33% 1.86% 13.61%
- -----------------------------------------------------------------------------------------------------------------------------------
INTERMEDIATE DURATION FIXED
INCOME PORTFOLIO
Year ended October 31, 2002 $ 149,815 0.51% 4.60% 0.51% 44.04%
Year ended October 31, 2003 4.42% 84,488 0.53% 3.70% 0.53% 98.42%
Year ended October 31, 2004 4.48% 63,697 0.57% 3.54% 0.57% 50.06%
Year ended October 31, 2005 0.76% (d) 32,810 0.49% (d) 3.85% (d) 0.58% 107.26%
Year ended October 31, 2006 5.29% 19,517 0.78% 4.58% 0.78% 236.51%
- ------------------------------------------------------------------------------------------------------------------------------- ---
GROWTH PORTFOLIO
Period ended October 31, 2004 (e) (0.86%) $ 49,680 0.72% 0.06% 0.72% 53.08%
Year ended October 31, 2005 13.59% (d) 49,415 0.63% (d) 0.77% (d) 0.68% 79.54%
Year ended October 31, 2006 7.53% 59,828 0.69% 0.38% 0.69% 75.06%
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
Year ended October 31, 2002 $ 256,616 0.91% 0.63% 0.91% 31.63%
Year ended October 31, 2003 23.70% 201,805 0.96% 1.00% 0.96% 68.51%
Year ended October 31, 2004 20.29% 220,025 0.94% 1.53% 0.94% 106.11%
Year ended October 31, 2005 19.54% 230,230 0.84% 1.92% 0.84% 31.32%
Year ended October 31, 2006 32.79% 333,755 0.86% 2.03% 0.86% 33.39%
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP EQUITY PORTFOLIO
Year ended October 31, 2002 $ 266,217 0.99% (0.78%) 0.99% 103.90%
Year ended October 31, 2003 33.30% 426,181 0.91% (0.62%) 0.91% 152.05%
Year ended October 31, 2004 5.93% 359,333 0.88% (0.52%) 0.88% 81.75%
Year ended October 31, 2005 14.35% (d) 218,778 0.85% (d) (0.45%)(d) 0.90% 63.95%
Year ended October 31, 2006 19.54% 241,495 0.91% (0.40%) 0.91% 60.83%
- -----------------------------------------------------------------------------------------------------------------------------------
VALUE PORTFOLIO
Period ended October 31, 2004 (e) 6.12% $ 61,414 0.71% 1.28% 0.71% 10.33%
Year ended October 31, 2005 15.23% (d) 54,150 0.64% (d) 1.15% (d) 0.69% 16.45%
Year ended October 31, 2006 22.21% 67,432 0.71% 1.23% 0.71% 20.63%
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Not annualized for periods less than one year.
(b) Annualized for periods less than one year.
(c) During the period, certain fees were reduced. If such fee reductions had
not occurred, the ratio would have been as indicated.
(d) During the year ended October 31, 2005, HSBC reimbursed certain amounts to
the Portfolios related to violations of certain investment policies and
limitations. The corresponding impact to the net expense ratio, net income
ratio and total return were 0.12%, 0.09%, 0.05%, 0.04% and 0.05% for the
Core Plus Fixed Income Portfolio, Intermediate Duration Fixed Income
Portfolio, Growth Portfolio, Small Cap Equity Portfolio and Value
Portfolio, respectively.
(e) High Yield Fixed Income Portfolio commenced operations on November 18,
2005.
Growth Portfolio commenced operations on May 7, 2004.
Value Portfolio commenced operations on May 7, 2004.
SEE NOTES TO FINANCIAL STATEMENTS. HSBC INVESTOR PORTFOLIOS 68
- --------------------------------------------------------------------------------
HSBC INVESTOR PORTFOLIOS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006
1. ORGANIZATION:
The HSBC Investor Portfolios (the "Portfolio Trust"), is an open-end
management investment company organized as a New York trust under the laws
of the State of New York on November 1, 1994. The Portfolio Trust contains
the following master funds (individually a "Portfolio," collectively the
"Portfolios"):
PORTFOLIO SHORT NAME
- --------- ----------
HSBC Investor Core Plus Fixed Income Portfolio Core Plus Fixed Income Portfolio
(formerly the HSBC Investor Fixed Income
Portfolio)
HSBC Investor High Yield Fixed Income Portfolio High Yield Fixed Income Portfolio
HSBC Investor Intermediate Duration Fixed Intermediate Duration Fixed Income
Income Portfolio (formerly the HSBC Investor Portfolio
Limited Maturity Portfolio)
HSBC Investor Growth Portfolio Growth Portfolio
HSBC Investor International Equity Portfolio International Equity Portfolio
HSBC Investor Small Cap Equity Portfolio Small Cap Equity Portfolio
HSBC Investor Value Portfolio Value Portfolio
The Portfolios operate as master funds in master-feeder
arrangements, in which other funds invest their assets in the Portfolios.
The Declaration of Trust permits the Board of Trustees to issue an
unlimited number of beneficial interests in the Portfolios.
The Portfolios are diversified series of the Portfolio Trust and are
part of the HSBC Investor Family of Funds. Financial Statements for all
other funds of the HSBC Investor Family of Funds are published separately.
Under the Portfolio Trust's organizational documents, the
Portfolios' officers and trustees are indemnified against certain
liabilities arising out of the performance of their duties to the
Portfolios. In addition, in the normal course of business, the Portfolios
enter into contracts with their service providers, which also provide for
indemnifications by the Portfolios. The Portfolios' maximum exposure under
these arrangements is unknown as this would involve any future claims that
may be made against the Portfolios. However, based on experience, the
Portfolios expect that risk of loss to be remote.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the significant accounting policies
followed by the Portfolios in the preparation of their financial
statements. The policies are in conformity with accounting principles
generally accepted in the United States of America ("GAAP"). The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent 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:
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 service, the use of which has been
approved by the Portfolios' Board of Trustees. In making such valuations,
the pricing service utilizes both dealer-supplied valuations and the use
of matrix 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 portfolio securities with a remaining maturity of 60 days or less are
valued at amortized cost. Under the amortized cost method, premium or
discount, if any, is amortized or accreted, respectively, on a constant
(straight-line) basis to the maturity of the security.
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
69 HSBC INVESTOR PORTFOLIOS
- --------------------------------------------------------------------------------
HSBC INVESTOR PORTFOLIOS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
market. Securities or other assets for which market quotations are not
readily available, or are deemed unreliable due to a significant event or
otherwise, are valued by or at the direction of the Portfolios' Board of
Trustees. Examples of potentially significant events that could affect the
value of an individual security include corporate actions by the issuer,
announcements by the issuer relating to its earnings or products,
regulatory news, natural disasters and litigation. Examples of potentially
significant events that could affect multiple securities held by a
Portfolio include governmental actions, natural disasters and armed
conflicts. In addition, if events materially affecting the value of
foreign securities occur between the time when the exchange on which they
are traded closes and the time when the Portfolios' net assets are
calculated, such securities may be valued using fair value pricing in
accordance with procedures adopted by the Board of Trustees. Management
identifies possible fluctuations in foreign securities by monitoring the
rise or fall in the value of a designated benchmark index. In the event of
a rise or fall greater than predetermined levels, the International Equity
Portfolio may use a systematic valuation model provided by an independent
third party to value its foreign securities, rather than local market
closing prices. When the International Equity Portfolio uses such a
valuation model, the value assigned to the International Equity
Portfolio's foreign securities may not be the quoted or published prices
of the investment on their primary markets or exchanges.
SECURITIES TRANSACTIONS AND RELATED INCOME:
During the period, security transactions are accounted for no later
than one business day following trade date. For financial reporting
purposes, however, changes in holdings are accounted for on trade date on
the last business day of the reporting period. Securities gains and losses
are calculated on the identified cost basis. Interest income is recognized
on the accrual basis and includes, where applicable, the amortization or
accretion of premium or discount. Dividend income is recorded on the
ex-dividend date.
FOREIGN CURRENCY TRANSLATION:
The accounting records of the Portfolios 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 Portfolios do not isolate the 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 Portfolios may enter 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 Portfolios could be exposed to risks if the
counterparties 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.
FUTURES CONTRACTS:
Each Portfolio may invest in futures contracts for the purpose of
hedging their existing portfolio securities or securities it intends to
purchase against fluctuations in fair value caused by changes in
prevailing market interest rates. Upon entering into a futures contract,
the Portfolio is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount (initial
margin deposit). Subsequent payments, known as "variation margin," are
made or received by the Portfolio each day, depending on the daily
fluctuations in the fair value of the underlying security. The Portfolio
recognizes a gain or loss equal to the daily variation margin. Should
market conditions move unexpectedly, the Portfolio may not achieve the
anticipated benefits of the futures contracts and may realize a loss. The
use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the
underlying hedged assets.
HSBC INVESTOR PORTFOLIOS 70
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HSBC INVESTOR PORTFOLIOS
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NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
MORTGAGE DOLLAR ROLL TRANSACTIONS:
The Core Plus Fixed Income Portfolio, the High Yield Fixed Income
Portfolio and the Intermediate Duration Fixed Income Portfolio may engage
in dollar roll transactions with respect to mortgage securities issued by
the Government National Mortgage Association, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation. In a
dollar roll transaction, the Portfolio sells a mortgage-backed security
and simultaneously agrees to repurchase a similar security on a specified
future date at an agreed upon price. During the roll period, the Portfolio
will not be entitled to receive any interest or principal paid on the
securities sold. The Portfolio is compensated for the lost interest on the
securities sold by the difference between the sales price and the lower
price for the future repurchase as well as by the interest earned on the
reinvestment of the sales proceeds. The Portfolio may also be compensated
by receipt of a commitment fee.
RESTRICTED AND ILLIQUID SECURITIES:
A restricted security is a security which has been purchased through
a private offering and cannot be resold to the general public without
prior registration under the Securities Act of 1933 (the "1933 Act") or
pursuant to the resale limitations provided by Rule 144 under the 1933
Act, or an exemption from the registration requirements of the 1933 Act.
Certain restricted securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers, and may be
deemed liquid by the investment adviser based on procedures established by
the Board of Trustees. Therefore, not all restricted securities are
considered illiquid. At October 31, 2006 the HSBC Core Plus Fixed Income
Portfolio held restricted securities that were illiquid, representing
0.03% of net assets, as follows:
ACQUISITION ACQUISITION PRINCIPAL
SECURITY NAME DATE COST($) AMOUNT($) VALUE($)
- ------------- ----------- ----------- --------- --------
FHA Weyerhauser, 7.43%, 1/1/24 ....... 3/28/2002 32,060 33,926 33,926
SECURITY LOANS:
To generate additional income, the Portfolios may lend portfolio
securities in amounts up to 33 1/3%, except for the Small Cap Equity
Portfolio, which may lend up to 30%, of its respective assets pursuant to
agreements requiring that the loan be collateralized by cash, U.S.
Government or U.S. Government agency securities, equal at all times to at
least 100% of the fair value of the loaned securities. HSBC Bank USA
("HSBC Bank"), an affiliate of the Investment Adviser (defined below),
acted as the securities lending agent for this activity through March 30,
2006. The Portfolios receive payments from borrowers equivalent to the
dividends and interest that would have been earned on securities loaned
while simultaneously seeking to earn income on the investment of
collateral. Collateral is marked to market daily to provide the required
level of collateral. There may be risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of
the securities fail financially. However, loans will be made only to
borrowers, such as broker-dealers, banks or institutional borrowers of
securities, deemed by HSBC Bank to be of good standing and creditworthy
under guidelines approved by the Board of Trustees and when, in the
judgment of HSBC Bank, the amounts that can be earned currently from such
securities loans justifies the attendant risks. Loans are subject to
termination by the Portfolios or the borrower at any time and are,
therefore, not considered to be illiquid investments. As of October 31,
2006 the Portfolios did not have any securities on loan.
REPURCHASE AGREEMENTS:
The Funds may enter into repurchase agreements with an entity which
is a member of the Federal Reserve System or which is a "primary dealer"
(as designated by the Federal Reserve Bank of New York) in U.S. Government
obligations. The repurchase price generally equals the price paid by a
Portfolio plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying portfolio
securities. The seller, under a repurchase agreement, is required to
maintain the collateral held pursuant to the agreement, with a fair value
equal to or greater than the repurchase price (including accrued
interest). Collateral subject to repurchase agreements is held by the
Portfolios' custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. In the event of counterparty default,
the Portfolio has the right to use the collateral to offset losses
incurred. There is potential for loss to the Portfolio in the event the
Portfolio is delayed or prevented from exercising its rights to dispose
71 HSBC INVESTOR PORTFOLIOS
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HSBC INVESTOR PORTFOLIOS
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NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
of the collateral securities, including the risk of a possible decline in
the fair value of the underlying securities during the period while the
Portfolio seeks to assert its rights.
LINE OF CREDIT:
The Portfolios may borrow up to $50 million under the terms of a
short-term, demand note agreement with HSBC Bank. The purpose of the
agreement is to meet temporary or emergency cash needs, including
redemption requests that might otherwise require the untimely disposition
of securities.
During the year ended October 31, 2006, the details of the
borrowings were as follows (based on actual number of days in which the
respective Portfolios borrowed monies):
AVERAGE AMOUNT AVERAGE
FUND OUTSTANDING INTEREST RATE
- ---- -------------- -------------
Core Plus Fixed Income Portfolio ....................... $7,732,592 4.60%
EXPENSE ALLOCATIONS:
Expenses directly attributable to a Portfolio are charged to that
Portfolio. Expenses not directly attributable to a Portfolio are allocated
proportionally among various or all funds within the HSBC Investor Family
of Funds in relation to net assets or on another reasonable basis.
FEDERAL INCOME TAXES:
Each Portfolio will be treated as a partnership for U.S. Federal
income tax purposes. Accordingly, each Portfolio passes through all of its
net investment income and gains and losses to its feeder funds, and is
therefore not subject to U.S. Federal income tax. As such, investors in
the Portfolios will be taxed on their respective share of the Portfolios'
ordinary income and realized gains. It is intended that the Portfolios
will be managed in such a way that an investor will be able to satisfy the
requirements of the Internal Revenue Code applicable to regulated
investment companies.
NEW ACCOUNTING PRONOUNCEMENTS:
In September 2006 the Financial Accounting Standards Board (FASB)
issued Statement on Financial Accounting Standards (SFAS) No. 157, "Fair
Value Measurements." This standard establishes a single authoritative
definition of fair value, sets out a framework for measuring fair value
and requires additional disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted
by existing standards. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. The changes to current GAAP from the
application of this Statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about
fair value measurements. As of October 31, 2006, the Portfolios do not
believe the adoption of SFAS No. 157 will impact the financial statement
amounts, however, additional disclosures may be required about the inputs
used to develop the measurements and the effect of certain of the
measurements on changes in net assets for the period.
On July 13, 2006, the FASB released FASB Interpretation No. 48
"Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides
guidance for how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. FIN 48 requires the
evaluation of tax positions taken or expected to be taken in the course of
preparing the Portfolios' tax return to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable
tax authority. Tax positions not deemed to meet the more likely-than-not
threshold would be recorded as a tax benefit or expense in the year of
determination. Adoption of FIN 48 is required for fiscal years beginning
after December 15, 2006 and is to be applied to all open tax years as of
the effective date. Management is in the process of completing their
analysis on whether the adoption of FIN 48 will have an impact to the
financial statements upon adoption.
HSBC INVESTOR PORTFOLIOS 72
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HSBC INVESTOR PORTFOLIOS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
3. RELATED PARTY TRANSACTIONS:
INVESTMENT MANAGEMENT:
HSBC Investments (USA) Inc. ("HSBC" or the "Investment Adviser"), a
wholly owned subsidiary of HSBC Bank USA, a New York State chartered bank,
acts as the Investment Adviser to the Portfolios pursuant to an investment
management contract with the Portfolio Trust. As Investment Adviser, HSBC
manages the investments of the Portfolios and continuously reviews,
supervises and administers the Portfolios' investments, except that
Waddell & Reed Investment Management Company, AllianceBernstein Investment
Research and Management, Westfield Capital Management, LLC and NWQ
Investment Management Co., LLC serve as sub-investment advisers for the
Growth Portfolio, International Equity Portfolio, Small Cap Equity
Portfolio and the Value Portfolio, respectively, and are paid for their
services directly by the respective Portfolios.
For its services, the Investment Adviser receives a fee, accrued
daily and paid monthly, at an annual rate of 0.60% of the High Yield Fixed
Income Portfolio's average daily net assets and 0.40% of the Intermediate
Duration Fixed Income Portfolio's average daily net assets.
For its services as Investment Adviser, HSBC receives, from the Core
Plus Fixed Income Portfolio, a fee accrued daily and paid monthly at an
annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE
- ------------------------------------ --------
Up to $50 million ............................................................. 0.575%
In excess of $50 million but not exceeding $95 million ........................ 0.450%
In excess of $95 million but not exceeding $150 million ....................... 0.200%
In excess of $150 million but not exceeding $250 million ...................... 0.400%
In excess of $250 million ..................................................... 0.350%
For their services, the Investment Adviser and Waddell & Reed
Investment Management Company receive in aggregate, from the Growth
Portfolio, a fee, accrued daily and paid monthly, at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE
- ------------------------------------ --------
Up to $50 million ............................................................. 0.500%
In excess of $50 million but not exceeding $100 million ....................... 0.425%
In excess of $100 million but not exceeding $200 million ...................... 0.375%
In excess of $200 million ..................................................... 0.325%
For their services, the Investment Adviser and AllianceBernstein
Investment Research and Management receive in aggregate, from the
International Equity Portfolio, a fee, accrued daily and paid monthly, at
an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE
- ------------------------------------ --------
Up to $10 million ............................................................. 1.015%
In excess of $10 million but not exceeding $25 million ........................ 0.925%
In excess of $25 million but not exceeding $50 million ........................ 0.79%
In excess of $50 million but not exceeding $100 million ....................... 0.70%
In excess of $100 million ..................................................... 0.61%
For their services, the Investment Adviser and Westfield Capital
Management, LLC receive in aggregate, a fee, accrued daily and paid
monthly, at an annual rate of 0.80% of the Small Cap Equity Portfolio's
average daily net assets.
For their services, the Investment Adviser and NWQ Investment
Management Co., LLC receive in aggregate, from the Value Portfolio, a fee,
accrued daily and paid monthly, at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE
- ------------------------------------ --------
Up to $500 million ............................................................ 0.525%
In excess of $500 million but not exceeding $1 billion ........................ 0.475%
In excess of $1 billion ....................................................... 0.425%
73 HSBC INVESTOR PORTFOLIOS
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HSBC INVESTOR PORTFOLIOS
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NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
ADMINISTRATION:
HSBC serves the Portfolios as Administrator. Under the terms of the
administration agreement, HSBC receives from the Portfolios a fee, accrued
daily and paid monthly, at an annual rate of:
BASED ON AVERAGE DAILY NET ASSETS OF FEE RATE
- ------------------------------------ --------
Up to $8 billion .............................................................. 0.075%
In excess of $8 billion but not exceeding $9.25 billion ....................... 0.070%
In excess of $9.25 billion but not exceeding $12 billion ...................... 0.050%
In excess of $12 billion ...................................................... 0.030%
The fee rates and breakpoints are determined on the basis of the
aggregate average daily net assets of the HSBC Investor Family of Funds,
however, the assets of the Portfolios and Feeder Funds that invest in the
Portfolios are not double-counted. The total administration fee paid to
BISYS is allocated to each series in the HSBC Investor Family of Funds
based upon its proportionate share of the aggregate net assets of the
Family of Funds. For assets invested in the Portfolios by Feeder Funds,
the Portfolios pay half of the administration fee and the Feeder Funds pay
half of the administration fee, for a combination of the total fee rate
set forth above.
Pursuant to a Sub-Administration Agreement with HSBC, BISYS Fund
Services Ohio, Inc. ("BISYS Ohio"), a wholly-owned subsidiary of The BISYS
Group, Inc., serves as the Portfolio Trust's sub-administrator subject to
the general supervision of the Portfolio Trust's Board of Trustees and
HSBC. For these services, BISYS Ohio is entitled to a fee, payable by
HSBC, at an annual rate equivalent to the fee rates set forth above, minus
0.02% (2 basis points) which is retained by HSBC.
Under a Compliance Services Agreement between the Portfolios' and
BISYS Ohio (the "CCO Agreement"), BISYS Ohio makes an employee available
to serve as the Portfolios' Chief Compliance Officer (the "CCO"). Under
the CCO Agreement, BISYS Ohio also provides infrastructure and support in
implementing the written policies and procedures comprising the
Portfolios' compliance program, including support services to the CCO. For
the services provided under the CCO Agreement, the HSBC Investor Family of
Funds paid BISYS Ohio $240,000 for the year ended October 31, 2006, plus
reimbursement of certain expenses. Expenses incurred by each Portfolio are
reflected on the Statements of Operations as "Compliance Service". BISYS
Ohio pays the salary and other compensation earned by any such individuals
as employees of BISYS Ohio.
FUND ACCOUNTING, CUSTODIAN AND TRUSTEE:
BISYS Ohio provides fund accounting services for the Portfolios. For
its services to the Portfolios, BISYS Ohio receives an annual fee per
Portfolio, including reimbursement of certain expenses, that is accrued
daily and paid monthly.
Investor's Bank & Trust Company ("IBT") serves as custodian for the
High Yield Fixed Income Portfolio and the International Equity Portfolio.
HSBC Bank serves as custodian to all the other Portfolios. Compensation
paid to IBT and HSBC Bank for services to the Portfolios as custodian is
presented in the Statements of Operations as custodian fees.
Effective May 18, 2006 each of the six non-interested Trustees are
compensated with a $35,000 annual Board retainer, as well as a $3,000
annual retainer for each Committee of the Board. Each non-interested
Trustee also receives a $5,000 and $3,000 meeting fee for each regular
in-person Board meeting and Committee meeting, respectively. Furthermore,
each non-interested Trustee receives compensation for attending special
meetings and/or functioning as a Committee Chairperson or Lead Trustee. In
addition, the non-interested Trustees are reimbursed for certain expenses
incurred in connection with their Board membership. Prior to May 18, 2006
each of the six non-interested Trustees were compensated with a $24,000
annual Board retainer, as well as a $1,000 annual retainer for each
Committee of the Board. Each non-interested Trustee also received a $4,000
and $2,000 meeting fee for each regular in-person Board meeting and
Committee meeting, respectively.
OTHER:
For its services as securities lending agent, HSBC Bank (see note
2--Security Loans) received a fee equal to 0.06% of the average dollar
value of the loans outstanding from the Portfolios. Income from securities
lending, net of
HSBC INVESTOR PORTFOLIOS 74
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HSBC INVESTOR PORTFOLIOS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
related expenses, is recorded as earned by the Portfolios. The fees
collected by HSBC Bank for the period ended October 31, 2006 were:
PORTFOLIO FEE
- --------- --------
Core Plus Fixed Income Portfolio .............................................. $ 940
Intermediate Duration Fixed Income Portfolio .................................. 161
Growth Portfolio .............................................................. 38
Small Cap Equity Portfolio .................................................... 7,966
Value Portfolio ............................................................... 188
The HSBC Investor Family of Funds may use affiliated broker/dealers
for the execution of portfolio investment trades. For the year ended
October 31, 2006, affiliated broker/dealers received $31 in commissions on
the execution of trades related to the HSBC Investor Family of Funds.
4. INVESTMENT TRANSACTIONS:
For the year ended October 31, 2006, each Portfolio purchased and
sold securities, excluding short-term securities, in the following
amounts:
PURCHASES SALES PURCHASES SALES
(EXCLUDING U.S. (EXCLUDING U.S. OF U.S. OF U.S.
PORTFOLIO NAME GOVERNMENT) GOVERNMENT) GOVERNMENT GOVERNMENT
- -------------- --------------- --------------- ------------- -------------
Core Plus Fixed Income Portfolio ............... $ 134,526,696 $ 172,510,986 $ 118,026,656 $ 113,130,153
High Yield Fixed Income Portfolio .............. 12,433,301 1,205,330 -- --
Intermediate Duration Fixed Income Portfolio ... 23,023,323 36,797,439 22,747,051 22,556,861
Growth Portfolio ............................... 46,482,340 40,299,206 -- --
International Equity Portfolio ................. 115,023,721 92,278,196 -- --
Small Cap Equity Portfolio ..................... 139,376,585 166,871,695 -- --
Value Portfolio ................................ 11,960,212 12,990,518 -- --
5. LEGAL AND REGULATORY MATTERS:
On September 26, 2006 BISYS Fund Services, Inc. ("BISYS"), an
affiliate of BISYS Fund Services Ohio, Inc. which provides various
services to the Portfolios as described in footnote 3, reached a
settlement with the Securities and Exchange Commission ("SEC") regarding
the SEC's investigation related to BISYS' past payment of certain
marketing and other expenses with respect to certain of its mutual fund
clients. Although BISYS has reached a settlement with the SEC, the
Portfolios' management is not aware that any determination has been made
as to how the BISYS settlement monies will be distributed. The SEC's
examination of BISYS' mutual fund clients and their advisers, including
HSBC, has not been completed. While the Portfolios' management is
currently unable to determine the impact, if any, of such matters on the
Portfolios or the Portfolios' financial statements, management does not
anticipate a material, adverse impact to the Portfolios or the Portfolios'
financial statements.
75 HSBC INVESTOR PORTFOLIOS
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HSBC INVESTOR PORTFOLIOS
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NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2006 (CONTINUED)
6. FEDERAL INCOME TAX INFORMATION:
As of October 31, 2006, the cost, gross unrealized appreciation and
gross unrealized depreciation on securities, for federal income tax
purposes, were as follows:
NET UNREALIZED
TAX UNREALIZED TAX UNREALIZED APPRECIATION
PORTFOLIO NAME TAX COST APPRECIATION DEPRECIATION (DEPRECIATION)
- -------------- --------------- -------------- -------------- --------------
Core Plus Fixed Income Portfolio ............... $ 125,300,474 $ 1,085,114 $ (291,652) $ 793,462
High Yield Fixed Income Portfolio .............. 12,509,676 66,589 0 66,589
Intermediate Duration Fixed Income Portfolio ... 21,771,631 143,186 (53,141) 90,045
Growth Portfolio ............................... 54,631,776 6,517,205 (1,028,799) 5,488,406
International Portfolio ........................ 252,905,339 79,099,774 (3,279,816) 75,819,958
Small Cap Equity Portfolio ..................... 203,854,870 46,004,811 (6,051,177) 39,953,634
Value Portfolio ................................ 54,501,953 14,341,092 (1,447,238) 12,893,854
HSBC INVESTOR PORTFOLIOS 76
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
HSBC Investor Portfolios:
We have audited the accompanying statements of assets and liabilities of
HSBC Investor Core Plus Fixed Income Portfolio, HSBC Investor High Yield Fixed
Income Portfolio, HSBC Investor Intermediate Duration Fixed Income Portfolio,
HSBC Investor Growth Portfolio, HSBC Investor International Equity Portfolio,
HSBC Investor Small Cap Equity Portfolio and HSBC Investor Value Portfolio (the
Funds), including the schedules of portfolio investments, as of October 31,
2006, and the related statements of operations for the year or period then
ended, the changes in net assets for each period in the two-year period then
ended and the financial highlights for each period in the five-year period then
ended. These financial statements and financial highlights are the
responsibility of the Funds' 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 the standards of the Public
Company Accounting Oversight Board (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. Our procedures included
confirmation of securities owned as of October 31, 2006, by correspondence with
the custodians and brokers; or other appropriate auditing procedures. 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
Funds as of October 31, 2006, and the results of their operations for the year
or period then ended, the changes in their net assets for each period in the
two-year period then ended, and the financial highlights for each period in the
five-year period then ended, in conformity with U.S. generally accepted
accounting principles.
KPMG LLP
Columbus, Ohio
December 22, 2006
77 HSBC INVESTOR PORTFOLIOS
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HSBC INVESTOR FAMILY OF FUNDS
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TABLE OF SHAREHOLDER EXPENSES (UNAUDITED)--OCTOBER 31, 2006
As a shareholder of the HSBC Investor Funds, you incur two types of
costs: (1) transaction costs, including sales charges (loads) on
purchases; redemption fees; and exchange fees; and (2) ongoing costs,
including management fees; distribution and/or shareholder servicing fees;
and other fund expenses. These examples are intended to help you
understand your ongoing costs (in dollars) of investing in the HSBC
Investor Funds and to compare these costs with the ongoing costs of
investing in other mutual funds.
These examples are based on an investment of $1,000 invested at the
beginning of the period and held for the entire period from May 1, 2006
through October 31, 2006.
ACTUAL EXPENSES
The table below provides information about actual account values and
actual expenses. You may use the information below, together with the
amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the
number in the table under the heading entitled "Expenses Paid During
Period" to estimate the expenses you paid on your account during this
period.
ANNUALIZED
BEGINNING ENDING EXPENSE PAID EXPENSE RATIO
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* DURING PERIOD
5/1/06 10/31/06 5/1/06-10/31/06 5/1/06-10/31/06
------------- ------------- --------------- ---------------
Core Plus Fixed Income Portfolio $1,000.00 $1,046.30 $3.30 0.64%
High Yield Fixed Income Portfolio 1,000.00 1,026.10 9.50 1.86%
Intermediate Duration Fixed Income
Portfolio 1,000.00 1,043.70 4.02 0.78%
Growth Portfolio 1,000.00 992.70 3.47 0.69%
International Equity Portfolio 1,000.00 1,036.40 4.41 0.86%
Small Cap Equity Portfolio 1,000.00 987.40 4.61 0.92%
Value Portfolio 1,000.00 1,076.00 3.61 0.69%
- ----------
* Expenses are equal to the average account value times the Portfolio's
annualized expense ratio multiplied by the number of days in the most
recent fiscal half-year divided by the number of days in the fiscal year.
HSBC INVESTOR FAMILY OF FUNDS 78
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HSBC INVESTOR FAMILY OF FUNDS
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TABLE OF SHAREHOLDER EXPENSES (UNAUDITED)--OCTOBER 31, 2006 (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below provides information about hypothetical account
values and hypothetical expenses based on each HSBC Investor Funds's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information
to compare this 5% hypothetical example with the 5% hypothetical examples
that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to
highlight your ongoing costs only and do not reflect any transactional
costs, such as sales charges (loads), redemption fees, or exchange fees.
Therefore, the table is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different funds.
In addition, if these transactional costs were included, your costs would
have been higher.
EXPENSE PAID ANNUALIZED
BEGINNING ENDING DURING EXPENSE RATIO
ACCOUNT VALUE ACCOUNT VALUE PERIOD* DURING PERIOD
5/1/06 10/31/06 5/1/06-10/31/06 5/1/06-10/31/06
------------- ------------- --------------- ---------------
Core Plus Fixed Income Portfolio $1,000.00 $1,021.98 $3.26 0.64%
High Yield Fixed Income Portfolio 1,000.00 1,015.83 9.45 1.86%
Intermediate Duration Fixed Income
Portfolio 1,000.00 1,021.27 3.97 0.78%
Growth Portfolio 1,000.00 1,021.73 3.52 0.69%
International Equity Portfolio 1,000.00 1,020.87 4.38 0.86%
Small Cap Equity Portfolio 1,000.00 1,020.57 4.69 0.92%
Value Portfolio 1,000.00 1,021.73 3.52 0.69%
- ----------
* Expenses are equal to the average account value times the Fund's
annualized expense ratio multiplied by the number of days in the most
recent fiscal half-year divided by the number of days in the fiscal year.
79 HSBC INVESTOR FAMILY OF FUNDS
- --------------------------------------------------------------------------------
HSBC INVESTOR FAMILY OF FUNDS
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES (UNAUDITED)
The following table contains information regarding HSBC Investor Family of Funds
Board of Trustees. Asterisks indicate those Trustees who are "interested
persons," as defined in the Investment Company Act of 1940, as amended, of the
Funds. The Funds' Statement of Additional Information includes additional
information about the Trustees and is available by calling (888) 525-5757.
NUMBER OF PORTFOLIOS
TERM OF OFFICE AND IN THE FUND
NAME, ADDRESS POSITION HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN OTHER DIRECTORSHIPS
AND AGE WITH THE FUNDS SERVED WITH THE FUNDS DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Frederick C. Chen Emeritus Trustee Indefinite; Trustee Management Consultant, 38 None
P.O. Box 182845 from 1990 to June since 1988
Columbus, Ohio 43218 2005;
Age: 79 16 years
- ------------------------------------------------------------------------------------------------------------------------------------
Larry M. Robbins Trustee Indefinite; 19 years Director, Center for 38 None
P.O. Box 182845 Teaching and Learning,
Columbus, Ohio 43218 University of Pennsylvania
Age: 68
- ------------------------------------------------------------------------------------------------------------------------------------
Alan S. Parsow Trustee Indefinite; 19 years General Partner of Elkhorn 38 None
P.O. Box 182845 Partners, L.P., since 1989
Columbus, Ohio 43218
Age: 56
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Seely Trustee Indefinite; 19 years Private Investor; Finance 38 None
P.O. Box 182845 Chair of the Vermont
Columbus, Ohio 43218 Republican Party;
Age: 61 President of Investor
Access Corporation,
1981-2004
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas Robards Trustee Indefinite; 2 years Private Investor; Chief 38 Financial Federal
P.O. Box 182845 Financial Officer, Corporation and
Columbus, Ohio 43218 American Museum of Natural Overseas
Age: 60 History (2003 to 2004); Shipholding
Chief Financial Officer, Group
Datek Online Holding Corp.
(2000 to 2002); Executive
member of Board of
Directors, Executive Vice
President and Chief
Financial Officer,
Republic New York
Corporation (1976 to 1999)
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Brealey Trustee Indefinite; 2 years Emeritus Professor, London 38 None
P.O. Box 182845 School of Business (2002
Columbus, Ohio 43218 to present); Deputy
Age: 70 Chairman, Balancing and
Settlement Code Panel
(September 2000 to
present)
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen J. Baker* Trustee Indefinite; 3 years Chief Executive Officer, 38 None
P.O. Box 182845 HSBC Investments (USA),
Columbus, Ohio 43218 Inc. (2003 to present);
Age: 50 Chief Executive Officer,
HSBC Asset Management
(Canada) Limited (1998 to
2003)
- ------------------------------------------------------------------------------------------------------------------------------------
HSBC INVESTOR FAMILY OF FUNDS 80
- --------------------------------------------------------------------------------
HSBC INVESTOR FAMILY OF FUNDS
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES (UNAUDITED) (CONTINUED)
The names of the Officers, their addresses, ages, position(s) held with each
Trust, and principal occupation(s) during the past five years are described in
the table below. Unless otherwise indicated, the address for each Officer is
3435 Stelzer Road, Columbus, Ohio 43219-3035.
TERM OF OFFICE AND
NAME, ADDRESS POSITION(S) HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S)
AND AGE WITH THE FUNDS SERVED WITH THE FUNDS DURING PAST 5 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
Richard A. Fabietti President Indefinite; March 2004-Present Senior Vice President, Head of Product Management,
3435 Stelzer Road HSBC Investments (USA) Inc., 1998-Present
Columbus, Ohio 43219
Age: 48
- ------------------------------------------------------------------------------------------------------------------------------------
Elba Vasquez Vice President Indefinite; 2006-Present Vice President of Product Administration, HSBC
452 Fifth Avenue Investments (USA) Inc. (2005 to present); Vice President
New York, NY 10018 of Client Services, BISYS Fund Services, Inc. (1996 to
Age: 45 2005)
- ------------------------------------------------------------------------------------------------------------------------------------
Marc Schuman Secretary Indefinite; 2005-Present Senior Counsel of BISYS Fund Services, Inc., 2005-
90 Park Avenue Present; Senior Corporate Counsel of The BISYS Group,
10th Floor Inc. 2001-2005; Of Counsel to Morgan, Lewis & Bockius
New York, NY 10016 LLP (law firm) 2000-2001.
Age: 46
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Lawlor Assistant Secretary Indefinite; March 2005-Present Assistant Counsel of BISYS Fund Services, Inc. 2005-
100 Summer Street Present; Associate Counsel of IXIS Advisors Group
Suite 1500 2003-2005; Staff Counsel Loomis, Sayles & Company, L.P.
Boston, MA 02110 2000-2003; Legal Product Manager, Scudder Kemper
Age: 37 Investments 1999-2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Troy Sheets * Treasurer Indefinite; 2004-Present Employee of BISYS Fund Services, Inc., 2002-Present;
3435 Stelzer Road Senior Manager, KPMG LLP, 1993-2002
Columbus, Ohio 43219
Age: 35
- ------------------------------------------------------------------------------------------------------------------------------------
Frederick J. Schmidt* Chief Compliance Expires 2006; 2004-Present Senior Vice President and Chief Compliance Officer, CCO
90 Park Avenue Officer Services of BISYS Fund Services, 2004-Present;
10th Floor President, FJS Associates, 2002-2004; Vice President,
New York, NY 10016 Credit Agricole Asset Mangement, U.S., 1987-2002
Age: 47
- ------------------------------------------------------------------------------------------------------------------------------------
* Messrs. Sheets and Schmidt also are officers of certain other investment
companies of which BISYS or an affiliate is the administrator.
81 HSBC INVESTOR FAMILY OF FUNDS
A description of the policies and procedures that the Funds use to
determine how to vote proxies relating to the portfolio securities is available
without charge, upon request, by calling 1-800-525-5757 for HSBC Bank USA and
HSBC Brokerage (USA) Inc. clients and 1-800-782-8183 for all other shareholders
or on the Fund's website at WWW.INVESTORFUNDS.US.HSBC.COM and the Securities and
Exchange Commission's website at HTTP://WWW.SEC.GOV. A copy of the Fund's voting
record for the most recent 12 month period ending June 30 is available at the
Security and Exchange Commission's website at HTTP://WWW.SEC.GOV.
Schedules of Portfolio Investments for fiscal quarters ending January 31
and July 31 will be available no later than 60 days after each period end,
without charge, on the Fund's website at WWW.INVESTORFUNDS.US.HSBC.COM and on
the Securities and Exchange Commission's website at HTTP://WWW.SEC.GOV.
An investment in a Fund is not a deposit of HSBC Bank USA, National
Association, and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
HSBC INVESTOR LIFELINE FUNDS:
INVESTMENT ADVISER AND ADMINISTRATOR
HSBC Investments (USA) Inc.
452 Fifth Avenue
New York, NY 10018
SUB-ADVISERS
HSBC INVESTOR GROWTH PORTFOLIO
Waddell & Reed Investment Management Company
6300 Lamar Avenue
Overland Park, KS 66202
HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO
AllianceBernstein Investment Research and Management
1345 Avenue of the Americas, 39th Floor
New York, NY 10105
HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO
Westfield Capital Management, LLC
One Financial Center
Boston, MA 02111
HSBC INVESTOR VALUE PORTFOLIO
NWQ Investment Management Co., LLC
2049 Century Park East, 16th Floor
Los Angeles, CA 90067
SHAREHOLDER SERVICING AGENTS
FOR HSBC BANK USA, N.A. AND
HSBC SECURITIES (USA) INC. CLIENTS
HSBC Bank USA, N.A.
452 Fifth Avenue
New York, NY 10018
1-888-525-5757
FOR ALL OTHER SHAREHOLDERS
HSBC Investor Funds
P.O. Box 182845
Columbus, OH 43218-2845
1-800-782-8183
TRANSFER AGENT,
DISTRIBUTOR AND SPONSOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
CUSTODIANS
HSBC INVESTOR CORE PLUS FIXED INCOME PORTFOLIO
HSBC INVESTOR INTERMEDIATE DURATION FIXED INCOME PORTFOLIO
HSBC INVESTOR GROWTH PORTFOLIO
HSBC INVESTOR SMALL CAP EQUITY PORTFOLIO
HSBC INVESTOR VALUE PORTFOLIO
HSBC Bank USA, N.A.
452 Fifth Avenue
New York, NY 10018
HSBC INVESTOR HIGH YIELD FIXED INCOME FUND
HSBC INVESTOR INTERNATIONAL EQUITY PORTFOLIO
Investors Bank & Trust Company
200 Clarendon Street - 16th Floor
Boston, MA 02116
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
191 West Nationwide Blvd., Suite 500
Columbus, OH 43215
LEGAL COUNSEL
Dechert LLP
1775 Eye Street, N.W.
Washington, D.C. 20006
The HSBC LifeLine Funds are distributed by BISYS Fund Services. This document
must be preceded or accompanied by a current prospectus for the HSBC Investor
Funds, which you should read carefully before you invest or send money.
-- NOT FDIC INSURED -- NO BANK GUARANTEE -- MAY LOSE VALUE
HSB-SR-LL 12/06
ITEM 2. CODE OF ETHICS.
(A) THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER, PRINCIPAL FINANCIAL OFFICER,
PRINCIPAL ACCOUNTING OFFICER OR CONTROLLER, OR PERSONS PERFORMING SIMILAR
FUNCTIONS. THIS CODE OF ETHICS IS INCLUDED AS EXHIBIT 12(A)(I).
(B)DURING THE PERIOD COVERED BY THE REPORT, WITH RESPECT TO THE
REGISTRANT'S CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE
OFFICER, PRINCIPAL FINANCIAL OFFICER, PRINCIPAL ACCOUNTING OFFICER OR
CONTROLLER, OR PERSONS PERFORMING SIMILAR FUNCTIONS; THERE HAVE BEEN NO
AMENDMENTS TO, NOR ANY WAIVERS GRANTED FROM, A PROVISION THAT RELATES TO
ANY ELEMENT OF THE CODE OF ETHICS DEFINITION ENUMERATED IN PARAGRAPH (B) OF
THIS ITEM 2.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
3(a)(1) THE REGISTRANT'S BOARD OF DIRECTORS HAS DETERMINED THAT THE REGISTRANT
HAS AT LEAST ONE AUDIT COMMITTEE FINANCIAL EXPERT SERVING ON ITS AUDIT
COMMITTEE.
3(a)(2) THE AUDIT COMMITTEE FINANCIAL EXPERT IS THOMAS ROBARDS, WHO IS
"INDEPENDENT" FOR PURPOSES OF THIS ITEM 3 OF FORM N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES
2005 $255,000
2006 $284,700
(b) AUDIT-RELATED FEES
2005 $40,000
2006 $41,600
2005 - Fees of $5,000 relate to the consent of N1A filing and $35,000
relate to the performance of the Funds' 17f-2 examinations.
2006 - Fees of $5,200 relate to the consent of N1A filing and $36,400
relate to the performance of the Funds' 17f-2 examinations.
(c) TAX FEES
2005 $139,200
2006 $154,800
Fees for both 2005 and 2006 relate to the preparation of federal income
and excise tax returns and the review of excise tax distributions.
(d) ALL OTHER FEES
2005 $0
2006 $0
(e)(1) Except as permitted by Rule 2-01(c)(7)(i)(C) of Regulation S-X,
the Trust's Audit Committee must preapprove all audit and non-audit services by
the independent accountants relating to the operations or financial reporting of
the Funds. Prior to the commencement of any audit or non-audit services to a
fund, the Audit Committee reviews the services to determine whether they are
appropriate and permissible under applicable law.
(2) None of the services summarized in (b) - (d), above, were
approved by the audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation
S-X.
(f) Not applicable.
(g) Aggregate non-audit fees
2005 $228,200
2006 $238,800
(h) THE AUDIT COMMITTEE CONSIDERED THE NONAUDIT SERVICES RENDERED TO
THE REGISTRANT'S INVESTMENT ADVISER AND ANY ENTITY CONTROLLING, CONTROLLED BY,
OR UNDER COMMON CONTROL WITH THE INVESTMENT ADVISER, AND BELIEVES THE SERVICES
ARE COMPATIBLE WITH THE PRINCIPAL ACCOUNTANT'S INDEPENDENCE.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
HAVE CONCLUDED, BASED ON THEIR EVALUATION OF THE REGISTRANT'S DISCLOSURE
CONTROLS AND PROCEDURES AS CONDUCTED WITHIN 90 DAYS OF THE FILING DATE OF THIS
REPORT, THAT THESE DISCLOSURE CONTROLS AND PROCEDURES ARE ADEQUATELY DESIGNED
AND ARE OPERATING EFFECTIVELY TO ENSURE THAT INFORMATION REQUIRED TO BE
DISCLOSED BY THE REGISTRANT ON FORM N-CSR IS RECORDED, PROCESSED, SUMMARIZED AND
REPORTED WITHIN THE TIME PERIODS SPECIFIED IN THE SECURITIES AND EXCHANGE
COMMISSION'S RULES AND FORMS.
(b) THERE WERE NO CHANGES IN THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL
REPORTING THAT OCCURRED DURING THE SECOND FISCAL QUARTER OF THE PERIOD COVERED
BY THIS REPORT THAT HAVE MATERIALLY AFFECTED OR ARE REASONABLY LIKELY TO
MATERIALLY AFFECT, THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL REPORTING.
ITEM 12. EXHIBITS.
(a)(1) THE CODE OF ETHICS THAT IS THE SUBJECT OF THE DISCLOSURE REQUIRED BY ITEM
2 IS ATTACHED HERETO.
(a)(2) CERTIFICATIONS PURSUANT TO RULE 30A-2(A) ARE ATTACHED HERETO.
(a)(3) NOT APPLICABLE.
(b) CERTIFICATIONS PURSUANT TO RULE 30A-2(B) ARE FURNISHED HEREWITH.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) HSBC INVESTOR PORTFOLIOS
By (Signature and Title)* /s/ RICHARD A. FABIETTI
-------------------------------------------------------
Richard A. Fabietti
President
Date_____January 5, 2007_______________________________
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ RICHARD A. FABIETTI
-------------------------------------------------------
Richard A. Fabietti
President
Date____January 5, 2007________________________________
By (Signature and Title)* /s/ TROY A. SHEETS
-------------------------------------------------------
Troy A. Sheets
Treasurer
Date___January 5, 2007_________________________________
* Print the name and title of each signing officer under his or her signature.