HSBC Equity Fund An open-ended diversified equity Scheme

Transcription

1 HSBC Global Asset Management HSBC Equity Fund An open-ended diversified equity Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

2 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

3 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September 2008 *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

4 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Equity Fund (HEF) - an open-ended diversified Equity Scheme To generate long-term capital growth from an actively managed portfolio of equity and equity related securities. The Scheme offers investors two Options (1) Growth Option (2) Dividend Option. The Dividend Option offers Dividend Payout and Dividend Reinvestment Facilities. The net assets of the Scheme amounted to Rs crores as at March 31, 2009 as against Rs crores as at March 31, % of the net assets were invested in equities, and 17% were invested in debt and money market instruments as at March 31, HSBC Equity Fund's approach is to invest across a range of market capitalizations with a preference for medium and large companies. Income is not a primary consideration in the investment policies of HEF. The fund outperformed the benchmark by approximately 900 bps in FY09 by holding higher than usual levels of cash and a defensive (low beta) portfolio. Date of Inception : 10 December, 2002 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years 5 Years Since Inception HSBC Equity Fund - Growth BSE Past performance may or may not be sustained in future. Returns equal to or greater than 1 year are compounded annualized. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. 3

5 Trustees' Report For the year ended March 31, 2009 (Contd...) For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account 4

6 Trustees' Report For the year ended March 31, 2009 (Contd...) of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. 5

7 Trustees' Report For the year ended March 31, 2009 (Contd...) b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Summary of number of Investors & corresponding amount Unclaimed Dividends Unclaimed Redemptions Scheme Amount No. of Amount No. of (Rs.) Investors (Rs.) Investors HSBC Equity Fund 2,260, ,092, INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, 6

8 Trustees' Report For the year ended March 31, 2009 (Contd...) Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

9 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund HSBC Equity Fund ( The Scheme ) as at March 31, 2009, and the related Revenue Account for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the Management ). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet and the Revenue Account referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet, the Revenue Account together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund HSBC Equity Fund as at March 31, 2009, its net deficit and its Cash Flow for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 6,

10 Abridged Balance Sheet as at March 31, Rs. in Lakhs HSBC EQUITY FUND As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 39, , Reserves & Surplus 2.1 Unit Premium Reserves 2, (1,512.61) 2.2 Unrealised Appreciation Reserve , Other Reserves 67, , Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income/Deposits 4.2 Other Current Liabilities & Provisions 1, , TOTAL 110, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares 85, , Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 85, , Deposits 6, , Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending 16, , Others 2, , Deferred Revenue Expenditure (to the extent not written off) TOTAL 110, , Notes to Accounts - Annexure I

11 Abridged Revenue Account for the year ended March 31, Rs. in Lakhs HSBC EQUITY FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend 1, Interest 1, Realised Gain / (Loss) on Foreign Exchange Transactions (0.26) 1.4 Realised Gains / (Losses) on Interscheme sale of investments 1.5 Realised Gains / (Losses) on External sale / redemption of investments (28,846.88) 29, Realised Gains / (Losses) on Derivative Transactions 1, Other Income 2 EXPENSES (A) (24,461.39) 31, Management fees , Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses 1, Audit fees Other operating expenses (B) 2, , NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) (26,665.03) 29, Change in Unrealised Depreciation in value of investments (D) 16, , NET GAINS / (LOSSES) FOR THE YEAR /PERIOD [E = (C - D)] (43,348.20) 25, Change in unrealised appreciation in the value of investments (F) NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (43,348.20) 25, Add: Balance transfer from Unrealised Appreciation Reserve 7.2 Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation 31, , TOTAL (12,183.23) 32, Dividend Appropriation 9.1 Income Distributed during the year / period , Tax on income distributed during the year / period 10 Retained Surplus / (Deficit) carried forward to Balance Sheet (12,183.48) 9, Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses.

12 Key Statistics for the year ended March 31, 2009 HSBC EQUITY FUND Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option High Low End Regular Dividend Option Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 109, ,684 Average (AAuM) 1 108, , Gross income as % of AAuM % 28.07% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 2.03% 2.02% Regular Dividend Option 2.03% 2.01% b. Management Fee as % of AAuM (planwise) Regular Growth Option 0.64% 1.02% Regular Dividend Option 0.64% 1.02% 5. Net Income as a percentage of AAuM % 26.05% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year (planwise) Retail Regular Dividend Option Corporate Regular Dividend Option

13 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC EQUITY FUND Current Previous Year ended Year ended March 31, 2009 March 31, Returns: a. Last One Year Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchmark BSE 200 ( ) b. Since Inception Scheme Regular Growth Option Regular Dividend Option Benchmark BSE AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 12

14 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC EQUITY FUND 1 Investments: 1.1. It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme s unitholders Open Positions of derivatives amount to Rs. (123,697,400) and is 1.13% to Net Assets as of year end March 31, Open Positions of derivatives amount to Rs. 295,319,693 and is 2.79% to Net Assets as of year end March 31, Investments in Associates and Group Companies: (Rupees) Issuer Instrument Amount Aggregate Amount Aggregate Type Investments Investments by all schemes by all schemes The Hongkong & Fixed deposits 43,000,000 1,654,000,000 Shanghai Banking Corporation Ltd Open positions of Securities Borrowed and / or Lent by the scheme as of the Year ended March 31, 2009 and March 31, 2008 is NIL NPAs as at years ended March 31, 2009 and March 31, 2008 are NIL Aggregate Unrealised Gain / Loss as at the end of the Financial year and percentage to net assets. Company Amount (Rs.) Percentage to Amount (Rs.) Percentage to Name Net Assets Net Assets Equity Shares Appreciation 419,474, % 1,520,481, % Depreciation 921,216, % 361,734, % Equity Futures Appreciation 2,218, % 10,031, % Depreciation 15, % 1.7. The aggregate value of investments purchased (excluding accretion of discount of Rs. 14,024,158) and sold during the financial year is Rs. 20,051,454,038 and Rs. 15,984,411,730 respectively being % and % of the average daily net assets. The aggregate value of investments purchased (excluding accretion of discount of Rs. 795,592) and sold during the financial year is Rs. 16,301,508,784 and Rs. 18,801,319,483 respectively being % and % of the average daily net assets. 1.8 Non-Traded securities in the portfolio as on March 31, 2009 and March 31, 2008 are Nil. 13

15 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended. Year HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 1,965,799 on purchase and sale of investments. The Hongkong & Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection/bank charges amounting to Rs. 39,751, brokerage amounting to Rs. 72,415,284 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 2,429,235. The brokerage paid was at rates similar to those offered to other brokers / distributors. Year HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 1,527,000 on purchase and sale of investments. The Hongkong & Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 251,447, brokerage amounting to Rs. 40,535,389 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 1,457,655. The brokerage paid was at rates similar to those offered to other brokers / distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. 3 None of the Investors held more than 25% of the total net assets of the scheme at the years ended March 31, 2009 and March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 47,671, ,767, ,616, ,822, ,226, Regular Dividend Option 230,018, ,706, ,085, ,640, ,156,400, Description Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 51,373, ,228, ,930, ,671, ,713, Regular Dividend Option 209,212, ,213, ,407, ,018, ,300,185, Previous year figures have been re-grouped/re-arranged where necessary. 6 No contingent liabilities for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

16 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Equity Fund (HEF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): Entry % for investments/switch ins* < Rs. 5 crores, otherwise Nil. For switch transactions from HCF to HEF (excludes existing & prospective STP transactions) - Nil. Exit % for < Rs. 5 crores, if redeemed/switched out* within 1 year from date of investment, otherwise Nil. For switch transactions from HCF to HEF and subsequent switch transactions from HEF to any other debt or equity scheme (excludes existing & prospective STP transactions) % for < Rs. 5 crores, if above switch investments are redeemed / switched out within 1 year from the date of switch, otherwise Nil. *No load in case of switches between equity Schemes of HSBC Mutual Fund. 15

17 Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

18 HSBC Global Asset Management HSBC India Opportunities Fund An open-ended flexi-cap equity Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

19 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

20 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September 2008 *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

21 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC India Opportunities Fund (HIOF) - an open-ended flexi-cap Equity Scheme HIOF is a diversified equity scheme, which seeks long term capital growth through investments across all market capitalisations, including small, mid and large cap stocks. The fund aims to be predominantly invested in equity and equity related securities. However, it could move a significant portion of its assets towards fixed income securities if the fund manager becomes negative on equity markets. The net assets of the Scheme amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % of the net assets were invested in equities and 7.57% were invested in debt and money market instruments as at March 31, The fund outperformed the benchmark by 600 bps in the past 1 year on higher than normal cash levels and a defensive portfolio. In the Financial Year 2009, the fund completed 5 years of existence which is usually a metric tracked by various fund evaluators. Date of Inception : 24 February, 2004 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years 5 Years Since Inception HSBC India Opportunities Fund - Growth BSE Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. 3

22 Trustees' Report For the year ended March 31, 2009 (Contd...) For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account 4

23 Trustees' Report For the year ended March 31, 2009 (Contd...) of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. 5

24 Trustees' Report For the year ended March 31, 2009 (Contd...) b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Summary of number of Investors & corresponding amount Unclaimed Dividends Unclaimed Redemptions Scheme Amount No. of Amount No. of (Rs.) Investors (Rs.) Investors HSBC India Opportunities Fund 873, , INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, 6

25 Trustees' Report For the year ended March 31, 2009 (Contd...) Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

26 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund - HSBC India Opportunities Fund ("The Scheme") as at March 31, 2009, the related Revenue Account for the year ended on that date annexed thereto, and the Cash Flow Statement for the year ended on that date which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the "Management"). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian/others and registrar and transfer agents respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet, the Revenue Account and the Cash Flow Statement referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet, the Revenue Account and the Cash Flow Statement together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund - HSBC India Opportunities Fund as at March 31, 2009, its net deficit and its cash flows for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 6,

27 Abridged Balance Sheet as at March 31, 2009 LIABILITIES 9 Rs. in Lakhs HSBC INDIA OPPORTUNITIES FUND As at As at March 31, 2009 March 31, Unit Capital 22, , Reserves & Surplus 2.1 Unit Premium Reserves (4,967.16) (4,402.00) 2.2 Unrealised Appreciation Reserve , Other Reserves 10, , Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income / Deposits 4.2 Other Current Liabilities & Provisions TOTAL 28, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares 23, , Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 23, , Deposits 2, , Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending 1, , Others 1, , Deferred Revenue Expenditure (to the extent not written off) TOTAL 28, , Notes to Accounts - Annexure I

28 Abridged Revenue Account For the year ended March 31, 2009 Rs. in Lakhs HSBC INDIA OPPORTUNITIES FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments 1.5 Realised Gains / (Losses) on External sale / redemption of investments (11,630.40) 17, Realised Gains / (Losses) on Derivative Transactions 1, Other Income (A) (9,757.87) 18, EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses (B) , NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A -B = C) (10,635.32) 17, Change in Unrealised Depreciation in value of investments (D) 1, NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C-D)] (12,603.01) 17, Change in unrealised appreciation in the value of investments (F) (4,812.63) (4,409.29) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (17,415.64) 12, Add: Balance transfer from Unrealised Appreciation Reserve 4, , Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation (2,090.75) (5,422.07) 7.4 Transfer from Reserve Fund 1, Transfer from Unit Premium Reserve 8 TOTAL (14,693.76) 12, Dividend Appropriation 9.1 Income Distributed during the year / period (0.02) 5, Tax on income distributed during the year / period 10 Retained Surplus / (Deficit) carried forward to Balance Sheet (14,693.74) 7, Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 10

29 Key Statistics for the year ended March 31, 2009 HSBC INDIA OPPORTUNITIES FUND Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option High Low End Regular Dividend Option Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 27,993 52,238 Average (AAuM) 1 38,254 68, Gross income as % of AAuM % 26.91% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 2.29% 2.18% Regular Dividend Option 2.29% 2.18% b. Management Fee as % of AAuM (planwise) Regular Growth Option 1.07% 1.04% Regular Dividend Option 1.07% 1.04% 5. Net Income as a percentage of AAuM % 24.73% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year / period (planwise) Retail Dividend Corporate Dividend

30 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC INDIA OPPORTUNITIES FUND Current Previous Year ended Year ended March 31, 2009 March 31, Returns: a. Last One Year Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchmark BSE 500 ( ) b. Since Inception Scheme Regular Growth Option Regular Dividend Option Benchmark BSE AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 12

31 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC INDIA OPPORTUNITIES FUND 1 Investments: 1.1 It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme s unitholders. 1.2 Open Positions of derivatives as of March 31, 2009 is Rs. 61,203,450 and is 2.19% to the net assets. Open Positions of derivatives as of March 31, 2008 is Rs. 124,123,705 and is 2.38% to the net assets. 1.3 Investments in Associates and Group Companies (Rupees) Issuer Instrument Amount Aggregate Amount Aggregate Type Investments Investments by all schemes by all schemes The Hongkong & Fixed deposits 43,000,000 1,654,000,000 Shanghai Banking Corporation Ltd. 1.4 Open position of Securities Borrowed and / or Lent by the scheme as of financial years ended 2009 and 2008 are NIL. 1.5 The NPAs as on March 31, 2009 and March 31, 2008 are NIL. 1.6 Aggregate Unrealised Gain / Loss as at the end of the Financial years March 31, 2009 and March 31, 2008 are as under : Security Amount (Rs.) Percentage to Amount (Rs.) Percentage to Category Net Assets Net Assets Equity Shares Appreciation 216,543, % 1,007,175, % Depreciation 413,312, % 524,910, % Equity Futures - Appreciation 2,252, % 2,232, % - Depreciation 1,040, % 2,023, % 1.7 The aggregate value of investments purchased and sold during the financial year (excluding accretion of discount of Rs. 2,875,943) is Rs. 4,802,419,100 and Rs. 5,302,898,939 respectively being % and % of the average daily net assets. The aggregate value of investment purchased and sold during the financial year is Rs. 9,990,491,870 and Rs. 12,789,336,320 respectively being % and % of the average daily net assets. 1.8 Non-Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and percentage to net assets are as under Security Amount (Rs.) Percentage to Amount (Rs.) Percentage to Category Net Assets Net Assets Equities 13,500, % Money Market Instruments 13

32 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 As Amended for the year ended March 31, 2009 is as under During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 447,580 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges Rs. 22,424, brokerage amounting to Rs. 12,053,491 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 1,179,175. The brokerage paid was at rates similar to those offered to other brokers / distributors. HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 1,353,000 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges Rs. 115,527, brokerage amounting to Rs. 37,848,121 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 1,363,292. The brokerage paid was at rates similar to those offered to other brokers / distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. 3 No investors held more than 25% of the Net Assets of the scheme for 2008 and Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Growth 61,844, ,005, ,371, ,478, ,782, Dividend 200,642, ,255, ,620, ,277, ,672,775, Description Opening Units Subscription Redemption Closing Units Face Value Growth 76,571, ,619, ,347, ,844, ,443, Dividend 273,556, ,704, ,617, ,642, ,006,429, Previous year figures have been re-grouped/re-arranged where appropriate. 6 No contingent liabilities for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

33 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC India Opportunities Fund (HIOF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): Entry % for investments /switch ins* < Rs. 5 crores, otherwise Nil. Exit - 1% for < Rs. 5 crores, if redeemed/switched out* within 1 year from date of investment, otherwise Nil. *No load in case of switches between equity Schemes of HSBC Mutual Fund. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. 15

34 Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

35 HSBC Global Asset Management HSBC Midcap Equity Fund An open-ended diversified equity Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

36 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

37 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

38 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Midcap Equity Fund (HMEF) - an open-ended diversified Equity Scheme To generate long term capital growth from an actively managed portfolio of equity and equity related securities primarily being midcap stocks. However, it could move a portion of its assets towards fixed income securities if the fund manager becomes negative on the Indian equity markets. The net assets of the Scheme amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % of the net assets were invested in equities and 9.26% were invested in debt and money market instruments as at March 31, The fund outperformed its benchmark (BSE MIDCAP index) by 300 bps over the year. This was achieved by having higher than usual cash levels and a more defensive portfolio. Date of Inception : 19 May, 2005 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years Since Inception HSBC Midcap Equity Fund - Growth BSE MID CAP Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst 3

39 Trustees' Report For the year ended March 31, 2009 (Contd...) performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. 4

40 Trustees' Report For the year ended March 31, 2009 (Contd...) On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated 5

41 Trustees' Report For the year ended March 31, 2009 (Contd...) February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Summary of number of Investors & corresponding amount Unclaimed Dividends Unclaimed Redemptions Scheme Amount No. of Amount No. of (Rs.) Investors (Rs.) Investors HSBC Midcap Equity Fund 351, , INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 6

42 Trustees' Report For the year ended March 31, 2009 (Contd...) working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

43 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund HSBC Midcap Equity Fund ( The Scheme ) as at March 31, 2009, the related Revenue Account for the year ended on that date annexed thereto, and the Cash Flow Statement for the year ended on that date which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the Management ). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet, the Revenue Account and the Cash Flow Statement referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet, the Revenue Account and the Cash Flow Statement together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund HSBC Midcap Equity Fund as at March 31, 2009, its net deficit and cash flows for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 6,

44 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC MIDCAP EQUITY FUND As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 11, , Reserves & Surplus 2.1 Unit Premium Reserves (4,036.60) (3,978.14) 2.2 Unrealised Appreciation Reserve 2.3 Other Reserves 1, , Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income / Deposits 4.2 Other Current Liabilities & Provisions TOTAL 9, , ASSETS 1 Investments 1.1. Listed Securities Equity Shares 7, , Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 7, , Deposits Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending , Others , Deferred Revenue Expenditure (to the extent not written off) TOTAL 9, , Notes to Accounts - Annexure I 9

45 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC MIDCAP EQUITY FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments 1.5 Realised Gains / (Losses) on External sale / redemption of investments (9,650.58) 8, Realised Gains / (Losses) on Derivative Transactions Other Income 2 EXPENSES (A) (9,207.03) 9, Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses Less:Expenses to be Reimbursed by the Investment Manager (29.09) (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) (9,571.98) 8, Change in Unrealised Depreciation in value of investments (D) 1, , NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C-D)] (10,602.12) 6, Change in unrealised appreciation in the value of investments (F) (2,017.94) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (10,602.12) 4, Add: Balance transfer from Unrealised Appreciation Reserve 2, Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation (563.92) (2,121.83) 7.4 Transfer from Reserve Fund 2, Transfer from Unit Premium Reserve 8 TOTAL (11,166.04) 6, Dividend Appropriation 9.1 Income Distributed during the year / period 2, Tax on income distributed during the year / period 10 Retained Surplus / (Deficit) carried forward to Balance Sheet (11,166.04) 4, Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 10

46 Key Statistics for the year ended March 31, 2009 HSBC MIDCAP EQUITY FUND Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Dividend Option High Regular Growth Option Regular Dividend Option Low Regular Growth Option Regular Dividend Option End Regular Growth Option Regular Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 9,367 23,560 Average (AAuM) 1 15,190 30, Gross income as % of AAuM % 29.27% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 2.15% 2.32% Regular Dividend Option 2.15% 2.32% b. Management Fee as % of AAuM (planwise) Regular Growth Option 1.16% 1.08% Regular Dividend Option 1.16% 1.08% 5. Net Income as a percentage of AAuM % 26.94% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year / period (planwise) Retail Dividend Corporate Dividend

47 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC MIDCAP EQUITY FUND Current Previous Year ended Year ended March 31, 2009 March 31, Returns: a. Last One Year Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchmark BSE MID CAP b. Since Inception ( ) Scheme Regular Growth Option Regular Dividend Option Benchmark BSE MID CAP (2.4000) AAuM=Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 12

48 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC MIDCAP EQUITY FUND 1 Investments: 1.1 It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the Scheme s Unitholders. 1.2 Open Positions of derivatives amount to Rs. 47,250,950 and is 5.04% to Net Assets as at March 31, Open Positions of derivatives amount to Rs 14,080,500 and is 0.60% to Net Assets as at March 31, Investments in Associates and Group Companies Issuer Instrument Amount Aggregate Amount Aggregate Type (Rs.) Investments (Rs.) Investments by all schemes by all schemes The Hongkong & Fixed deposits 43,000,000 1,654,000,000 Shanghai Banking Corporation Ltd. 1.4 Open position of Securities Borrowed and / or Lent by the scheme as of financial years ended 2009 and 2008 are NIL. 1.5 The NPAs as on March 31, 2009 and March 31, 2008 are NIL. 1.6 Aggregate Unrealised Gain / Loss as at the end of the Financial year March 31, 2009 and March 31, 2008 are as under : Security Amount (Rs.) Percentage to Amount (Rs.) Percentage to Category Net Assets Net Assets Equity Shares Appreciation 33,463, % 231,329, % Depreciation 288,443, % 383,884, % Equity Futures Appreciation 575, % Depreciation 1,246, % 82, % 1.7 The aggregate value of investments purchased (excluding accretion of discount of Rs. 1,777,294) and sold (including matured) during the year is Rs. 2,819,476,499 and Rs. 3,005,664,350 respectively being % and % of the average daily net assets. The aggregate value of investments purchased and sold (including matured) during the year is Rs. 4,367,921,707 and Rs. 5,664,663,581 respectively being % and % of the average daily net assets. 1.8 Non-Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and percentage to net assets is as under Security Fair Value % to Net Fair Value % to Net Category (Rs.) Assets (Rs.) Assets Equities 14,045, Total 14,045,

49 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Details of Transaction with Associates under regulation 25(8). Provide details of name of associate, nature of payment and amount Year During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 179,416 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 23,153 and brokerage amounting to Rs. 3,850,949 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 445,071. The brokerage paid was at rates similar to those offered to other brokers / distributors. Year HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 572,000 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 117,536, brokerage amounting to Rs. 13,494,905 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 169,121. The brokerage paid was at rates similar to those offered to other brokers / distributors. 3 None of the Investors held more than 25% of the total net assets of the scheme at the year ended March 31, 2009 and March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Growth 48,009, ,377, ,935, ,452, ,520, Dividend 100,054, ,038, ,166, ,926, ,269, Description Opening Units Subscription Redemption Closing Units Face Value Growth 61,632, ,290, ,913, ,009, ,096, Dividend 131,005, ,628, ,579, ,054, ,000,548, Previous year s figures have been re grouped/re-arranged where appropriate. 6 No contingent liabilities for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8. The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

50 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Midcap Equity Fund (HMEF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): Entry % for investments /switch ins* < Rs. 5 crores, otherwise Nil. Exit - 1% for < Rs. 5 crores, if redeemed/switched out* within 1 year from date of investment, otherwise Nil. *No load in case of switches between equity Schemes of HSBC Mutual Fund. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. 15

51 Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

52 HSBC Global Asset Management HSBC Progressive Themes Fund (formerly HSBC Advantage India Fund) An open-ended flexi-theme equity Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

53

54 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

55 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September 2008 *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

56 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Advantage India Fund (HAIF)* - an open-ended flexi-theme Equity scheme w.e.f. 16 June, 2009, the scheme is renamed to HSBC Progressive Themes Fund (HPTF) The investment objective is to generate long term capital growth from an actively managed portfolio of equity and equity related securities by investing primarily in sectors, areas and themes that play an important role in, and / or benefit from, India's progress, reform process and economic development. The net assets of the Scheme amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % of the net assets were invested in equities and 11.89% were invested in debt and money market instruments as at March 31, HAIF underperformed its benchmark by 180 bps as one of the sectors in which the Scheme invested (infrastructure sector) underperformed its benchmark. Date of Inception : 23 February, 2006 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years Since Inception HSBC Advantage India Fund - Growth BSE Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst 3

57 Trustees' Report For the year ended March 31, 2009 (Contd...) performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered 4

58 Trustees' Report For the year ended March 31, 2009 (Contd...) fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 5

59 Trustees' Report For the year ended March 31, 2009 (Contd...) 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Summary of number of Investors & corresponding amount Unclaimed Dividends Unclaimed Redemptions Scheme Amount No. of Amount No. of (Rs.) Investors (Rs.) Investors HSBC Advantage India Fund 448, , INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of 6

60 Trustees' Report For the year ended March 31, 2009 (Contd...) redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

61 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund - HSBC Advantage India Fund ("The Scheme") as at March 31, 2009, the related Revenue Account for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the "Management"). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet, the Revenue Account and the Cash Flow Statement referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us; (i) The Balance Sheet, the Revenue Account and the Cash Flow Statement together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund - HSBC Advantage India Fund as at March 31, 2009, its net deficit and its Cash Flows for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 6,

62 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC ADVANTAGE INDIA FUND As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 46, , Reserves & Surplus 2.1 Unit Premium Reserves (21,788.97) (21,642.33) 2.2 Unrealised Appreciation Reserve , Other Reserves 10, , Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income/Deposits 4.2 Other Current Liabilities & Provisions , TOTAL 36, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares 28, , Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 28, , Deposits 3, , Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending 3, , Others 1, , Deferred Revenue Expenditure (to the extent not written off) TOTAL 36, , Notes to Accounts - Annexure I 9

63 Abridged Revenue Account for the year ended March 31, Rs. in Lakhs HSBC ADVANTAGE INDIA FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments Realised Gains / (Losses) on External sale / redemption of investments (21,835.57) 32, Realised Gains / (Losses) on Derivative Transactions (874.47) 1.7 Other Income 2 EXPENSES (A) (20,445.09) 32, Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses (B) 1, , NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) (21,702.11) 30, Change in Unrealised Depreciation in value of investments (D) 4, NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C - D)] (25,817.75) 30, Change in unrealised appreciation in the value of investments (F) (2,088.22) (5,300.50) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (27,905.97) 25, Add: Balance transfer from Unrealised Appreciation Reserve 2, , Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation (84.87) (3,944.85) 7.4 Transfer from Reserve Fund 17, , Transfer from Unit Premium Reserve 8 TOTAL (8,656.08) 36, Dividend Appropriation 9.1 Income Distributed during the year / period 2, , Tax on income distributed during the year / period 10 Retained Surplus / (Deficit) carried forward to Balance Sheet (11,337.93) 31, Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses.

64 Key Statistics for the year ended March 31, 2009 HSBC ADVANTAGE INDIA FUND Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Dividend Option High Regular Growth Option Regular Dividend Option Low Regular Growth Option Regular Dividend Option End Regular Growth Option Regular Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 35,755 71,231 Average (AAuM) 1 49,971 94, Gross income as % of AAuM % 34.80% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 2.22% 2.58% Regular Dividend Option 2.22% 2.59% b. Management Fee as % of AAuM (planwise) Regular Growth Option 0.97% 0.99% Regular Dividend Option 0.97% 0.99% 5. Net Income as a percentage of AAuM % 32.22% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year / period (planwise) Retail Regular Dividend Option Corporate Regular Dividend Option

65 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC ADVANTAGE INDIA FUND Current Previous Year ended Year ended March 31, 2009 March 31, Returns: a. Last One Year Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchmark BSE 200 ( ) b. Since Inception Scheme Regular Growth Option (5.7477) Regular Dividend Option (5.7750) Benchmark BSE 200 (3.6400) AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 12

66 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC ADVANTAGE INDIA FUND 1 Investments 1.1. It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme's unitholders Open Positions of derivatives amount to Rs. (32,362,600) and 0.91% to Net Assets as of year end 31 March, Open Positions of derivatives amount to Rs. 251,501,238 and 3.53% to Net Assets as of year end 31 March, Investments in Associates and Group Companies (Rupees) Issuer Instrument Amount Aggregate Amount Aggregate Type Investments Investments by all schemes by all schemes The Hongkong & Fixed deposits 43,000,000 1,654,000,000 Shanghai Banking Corporation Ltd Open positions of Securities Borrowed and / or Lent by the scheme as of the year ended March 31, 2009 and March 31, 2008 is NIL NPAs as at years ended March 31, 2009 and March 31, 2008 are NIL Aggregate Unrealised Gain / Loss as at the end of the Financial year and percentage to net assets. Company Amount (Rs.) Percentage to Amount (Rs.) Percentage to Name Net Assets Net Assets Equity Shares Appreciation 78,574, % 921,690, % Depreciation 490,138, % 716,298, % Equity Futures Appreciation 610, % 5,784, % Depreciation 3, % 1,748, % 1.7. The aggregate value of investments purchased (excluding accretion of discount of Rs. 667,794) and sold (including matured) during the financial year is 7,016,898,573 and 7,575,919,895 respectively being % and % of the average daily net assets. The aggregate value of investments purchased (excluding accretion of discount of Rs.149,299) and sold (including matured) during the financial year is 11,379,552,125 and 18,596,912,853 respectively being % and % of the average daily net assets Non-Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and percentage to net assets is as under Security Fair Value % to Net Fair Value % to Net Category (Rs.) Assets (Rs.) Assets Equities 13,853, Money market Instruments Total 13,853,

67 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended for the year ended March 31, 2009 is as under : Year During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 776,506 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection/bank charges amounting to Rs. 1,220,316, brokerage amounting to Rs. 7,349,775 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs 2,493. The brokerage paid was at rates similar to those offered to other brokers / distributors. Year During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 1,682,000 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection/bank charges amounting to Rs. 110,292, brokerage amounting to Rs. 22,388,210 for procuring Unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 1,289,244. The brokerage paid was at rates similar to those offered to other brokers / distributors. 3 None of the Investors held more than 25% of the total net assets of the scheme at the year ended March 31, 2009 and March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 236,466, ,953, ,438, ,981, ,239,819, Regular Dividend Option 275,824, ,656, ,734, ,745, ,417,459, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 404,829, ,954, ,316, ,466, ,364,667, Regular Dividend Option 581,716, ,544, ,436, ,824, ,758,241, Previous year s figures have been re-grouped / re-arranged where appropriate. 6 No contingent liabilities for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

68 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Progressive Themes Fund (HPTF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): Entry % for investments / switch ins* < Rs. 5 crores, otherwise Nil. Exit - 1% for < Rs. 5 crores, if redeemed/switched out* within 1 year from date of investment, otherwise Nil. *No load in case of switches between equity Schemes of HSBC Mutual Fund. Consult the nearest investor service centre for details. The entry / exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. 15

69 Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

70 HSBC Global Asset Management HSBC Tax Saver Equity Fund An open-ended Equity Linked Savings Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

71 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

72 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September 2008 *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

73 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Tax Saver Equity Fund (HTSF) - an open ended Equity linked Savings Scheme HTSF seeks to provide long term capital appreciation by investing in a diversified portfolio of equity & equity related instruments of companies across various sectors and industries, with no capitalisation bias. The Fund may also invest in fixed income securities. The net assets of HSBC Tax Saver Equity Fund amounted to Rs crores as at March 31, 2009 compared to Rs crores as at March 31, % of the net assets were invested in equities and 17.23% were invested in debt and money market instruments as at March 31, HTSF outperformed its benchmark by 1088 bps on the back of a defensive portfolio and higher levels of cash than the normal. Date of Inception : 5 January, 2007 Compounded Annualized Returns (%) Schemes (P2P) 1 Year Since Inception HSBC Tax Saver Equity Fund - Growth BSE Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% 3

74 Trustees' Report For the year ended March 31, 2009 (Contd...) and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a 4

75 Trustees' Report For the year ended March 31, 2009 (Contd...) surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. 5

76 Trustees' Report For the year ended March 31, 2009 (Contd...) b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Nil 6. INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts 6

77 Trustees' Report For the year ended March 31, 2009 (Contd...) have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

78 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund - HSBC Tax Saver Fund ("The Scheme") as at March 31, 2009, and the related Revenue Account for the year ended on that date, both of which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the "Management"). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agents respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet and the Revenue Account referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet, the Revenue Account together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund - HSBC Tax Saver Fund as at March 31, 2009 and its net deficit for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Mumbai July 6,2009 8

79 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC TAX SAVER EQUITY FUND As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 24, , Reserves & Surplus 2.1 Unit Premium Reserves Unrealised Appreciation Reserve 2.3 Other Reserves (6,942.74) Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income/Deposits 4.2 Other Current Liabilities & Provisions , TOTAL 18, , ASSETS 1 Investments 1.1. Listed Securities Equity Shares 14, , Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing : Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities : Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 14, , Deposits Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending 3, , Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 18, , Notes to Accounts - Annexure I 9

80 Abridged Revenue Account for the year ended March 31, Rs. in Lakhs HSBC TAX SAVER EQUITY FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments 1.5 Realised Gains / (Losses) on External sale / redemption of investments (5,922.92) 1, Realised Gains / (Losses) on Derivative Transactions Other Income 2 EXPENSES (A) (5,451.38) 1, Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A B = C) (5,918.43) 1, Change in Unrealised Depreciation in value of investments (D) 1, (746.58) 5 NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C D)] (7,049.30) 1, Change in unrealised appreciation in the value of investments (F) (0.61) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (7,049.30) 1, Add: Balance transfer from Unrealised Appreciation Reserve Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation (642.87) Transfer from Reserve Fund 7.5 Transfer from Unit Premium Reserve 8 TOTAL (7,692.17) 1, Dividend Appropriation 9.1 Income Distributed during the year / period 9.2 Tax on income distributed during the year / period 10 Retained Surplus / (Deficit) carried forward to Balance Sheet (7,692.17) 1, Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses.

81 Key Statistics for the year ended March 31, 2009 HSBC TAX SAVER EQUITY FUND Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Dividend Option High Regular Growth Option Regular Dividend Option Low Regular Growth Option Regular Dividend Option End Regular Growth Option Regular Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 18,059 22,853 Average (AAuM) 1 19,647 24, Gross income as % of AAuM % 6.69% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 2.38% 2.35% Regular Dividend Option 2.38% 2.35% b. Management Fee as % of AAuM (planwise) Regular Growth Option 0.91% 0.99% Regular Dividend Option 0.91% 0.99% 5. Net Income as a percentage of AAuM % 4.34% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year / period (planwise) Retail Dividend Corporate Dividend 11

82 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC TAX SAVER EQUITY FUND Current Previous Year ended Year ended March 31, 2009 March 31, Returns a. Last One Year Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchmark BSE200 ( ) b. Since Inception Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchmark BSE200 ( ) AAuM = Average daily net assets 2. Gross income = amount against (A) in the Revenue account i.e. Income. 3. Net income = amount against (C) in the Revenue account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4. Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 12

83 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC TAX SAVER EQUITY FUND 1 Investments: 1.1. It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme's unitholders Open Positions of derivatives as of March 31, 2009 and March 31, 2008 are Nil Investments in Associates and Group Companies are as under : (Rupees) Issuer Instrument Amount Aggregate Amount Aggregate Type Investments Investments by all schemes by all schemes The Hongkong & Fixed deposits 43,000,000 64,000,000 1,654,000,000 Shanghai Banking Corporation Ltd Open position of Securities Borrowed and / or Lent by the scheme as of the year ended 31 March, 2009 is NIL NPAs as at years ended March 31, 2009 and March 31, 2008 are NIL Aggregate Unrealised Gain / Loss as at the end of the Financial year ended and their percentages to net assets are as under: Company Amount Percentage to Amount Percentage to Name (Rs.) Net Assets (Rs.) Net Assets Equity Shares Appreciation 62,106, % 173,597, % Depreciation 215,491, % 213,895, % 1.7. The aggregate value of investments purchased (excluding accretion of discount of Rs. 5,489,967) and sold (including matured) during the financial year is Rs. 5,161,259,484 and Rs. 4,934,062,477 respectively being % and % of the average daily net assets. The aggregate value of investments purchased and sold (including matured) during the financial period is Rs. 5,074,169,543 and Rs. 4,915,754,870 respectively being % and % of the average daily net assets Non-Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and percentage to net assets is as under Security Fair Value % to Net Fair Value % to Net Category (Rs.) Assets (Rs.) Assets Equities 16,246, % Total 16,246, % 13

84 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Disclosure under Regulation 25(8) of the Securities and Exchange Board Of India (Mutual Funds) Regulations, 1996 as amended. Year During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 269,324 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection/bank charges amounting to Rs. 998, brokerage amounting to Rs. 608,172 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 95,784. The brokerage paid was at rates similar to those offered to other brokers / distributors Year HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 679,000 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 8,128, brokerage amounting to Rs. 2,050,035 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 95,784. The brokerage paid was at rates similar to those offered to other brokers / distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. 3 None of the Investors held more than 25% of the total net assets of the scheme at the years ended March 31, 2009 and March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Growth 132,777, ,336, , ,646, ,506,466, Dividend 83,983, ,249, , ,404, ,046, Description Opening Units Subscription Redemption Closing Units Face Value Growth 115,757, ,452, , ,777, ,327,778, Dividend 74,861, ,528, , ,983, ,839, Previous year s figures have been re-grouped / re-arranged where appropriate. 6 No contingent liabilities for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

85 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Tax Saver Equity Fund (HTSF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): Entry % for investments/switch ins* < Rs. 1 crore, otherwise Nil. Exit - Nil. *No load in case of switches between equity Schemes of HSBC Mutual Fund. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. 15

86 Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

87 HSBC Global Asset Management HSBC Unique Opportunities Fund A close-ended equity Scheme* Abridged Annual Report *A three year close-ended equity Scheme with automatic conversion into open-ended equity Scheme at the end of 3 years from the date of allotment of units. Issued by HSBC Asset Management (India) Private Limited

88 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

89 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

90 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Unique Opportunities Fund (HUOF) - a close ended equity scheme with automatic conversion into an open-ended equity scheme at the end of three years from the date of allotment of units HUOF seeks to provide long-term capital growth from a diversified portfolio of equity and equity related instruments. The focus would be to invest in stocks of companies facing "outof-ordinary" conditions. The net assets of HSBC Unique Opportunities Fund amounted to Rs crores as at March 31, 2009 compared to Rs crores as at March 31, % of the net assets were invested in equities, 13.80% was invested in debt and money market instruments as at March 31, HUOF underperformed the index by 640 bps over the past 1 year period on account of higher midcap allocations vis-à-vis the benchmark. Date of Inception : 21 March, 2007 Compounded Annualized Returns (%) Schemes (P2P) 1 Year Since Inception HSBC Unique Opportunities Fund - Growth BSE Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% 3

91 Trustees' Report For the year ended March 31, 2009 (Contd...) and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered 4

92 Trustees' Report For the year ended March 31, 2009 (Contd...) fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 5

93 Trustees' Report For the year ended March 31, 2009 (Contd...) 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Summary of number of Investors & corresponding amount Unclaimed Dividends Unclaimed Redemptions Scheme Amount No. of Amount No. of (Rs.) Investors (Rs.) Investors HSBC Unique Opportunities Fund 155, INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of 6

94 Trustees' Report For the year ended March 31, 2009 (Contd...) redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

95 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund - HSBC Unique Opportunities Fund (The "Scheme") as at March 31, 2009 and, the related Revenue Account for the year ended on that date annexed thereto, and the Cash Flow Statement for the year ended on that date which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the "Management"). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. The Balance Sheet, the Revenue Account and the Cash Flow Statement referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us; (i) The Balance Sheet, the Revenue Account and the Cash Flow Statement together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and the amendments thereto, as applicable, and also give respectively a true and fair view of the state of affairs of HSBC Mutual Fund - HSBC Unique Opportunities Fund as at March 31, 2009, its net deficit and its cash flows for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009, and the Revenue Account for the year ended on that date, together with the notes thereon, have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 6,

96 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC UNIQUE OPPORTUNITIES FUND As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 38, , Reserves & Surplus 2.1 Unit Premium Reserves (2,334.51) (3,847.33) 2.2 Unrealised Appreciation Reserve Other Reserves (14,444.07) 7, Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income/Deposits 4.2 Other Current Liabilities & Provisions 1, TOTAL 23, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares 17, , Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 17, , Deposits 1, , Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending 2, , Others 1, , Deferred Revenue Expenditure , (to the extent not written off) TOTAL 23, , Notes to Accounts - Annexure I 9

97 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC UNIQUE OPPORTUNITIES FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments 1.5 Realised Gains / (Losses) on External sale / redemption of investments (24,424.79) 14, Realised Gains / (Losses) on Derivative Transactions (575.58) Other Income 2 EXPENSES (A) (24,230.92) 15, Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses Expenses to be Reimbursed by the Investment Manager (6.60) (15.49) (B) 1, , NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) (25,571.18) 13, Change in Unrealised Depreciation in value of investments (D) (3,561.30) 6, NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C-D)] (22,009.88) 6, Change in unrealised appreciation in the value of investments (F) (4.72) (681.30) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (22,014.60) 6, Add: Balance transfer from Unrealised Appreciation Reserve Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation 7.4 Transfer from Reserve Fund 7.5 Transfer from Unit Premium Reserve 8 TOTAL (22,009.88) 6, Dividend Appropriation 9.1 Income Distributed during the year / period 9.2 Tax on income distributed during the year / period 10 Retained Surplus / (Deficit) carried forward to Balance Sheet (22,009.88) 6, Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 10

98 Key Statistics for the year ended March 31, NAV per unit (Rs.): Open High Low End HSBC UNIQUE OPPORTUNITIES FUND Current Previous Year ended Year ended March 31, 2009 March 31, 2008 Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 21,950 52,038 Average (AAuM) 1 34,924 68, Gross income as % of AAuM % 23.02% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Dividend Option 3.84% 3.17% Regular Growth Option 3.84% 3.17% b. Management Fee as % of AAuM (planwise) Regular Dividend Option 1.02% 1.00% Regular Growth Option 1.02% 1.00% 5. Net Income as a percentage of AAuM % 19.85% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year / period (planwise) Retail Dividend Corporate Dividend 11

99 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC UNIQUE OPPORTUNITIES FUND Current Previous Year ended Year ended March 31, 2009 March 31, Returns: a. Last One Year Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchmark BSE 200 ( ) b. Since Inception Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchmark BSE 200 ( ) AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 12

100 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC UNIQUE OPPORTUNITIES FUND 1 Investments: 1.1. It is confirmed that Investments of the Schemes are registered in the name of the Trustees for the benefits of the Schemes Unitholders Open Positions of derivatives amount to Rs. 10,647,000 and is 0.49% to Net Assets as at March 31, Open Positions of derivatives amount to Rs. 97,233,640 and is 1.87% to Net Assets as at March 31, Investments in Associates and Group Companies (Rupees) Issuer Instrument Amount Aggregate Amount Aggregate Type Investments Investments by all schemes by all schemes The Hongkong & Fixed deposits 43,000,000 64,000,000 1,654,000,000 Shanghai Banking Corporation Ltd Open position of Securities Borrowed and / or Lent by the scheme as of the year ended March 31, 2009 is NIL NPAs as at years ended March 31, 2009 and March 31, 2008 are NIL Aggregate Unrealised Gain / Loss as at the end of the Financial year ended and their percentages to net assets are as under: Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Equity Shares Appreciation 125,878, % 178,066, % Depreciation 435,753, % 844,071, % Equity Futures Appreciation 410, % 882, % Depreciation 1.7. The aggregate value of investments purchased and sold (including matured) during the financial period (excluding accretion of discount of Rs. 4,156,301) is Rs. 5,878,551,559 and Rs. 6,358,764,847 respectively being % and % of the average daily net assets. The aggregate value of investments purchased and sold (including matured) during the financial year end March 31, 2008 (excluding accretion of discount of Rs. 2,065,211) is Rs. 12,708,719,308 and Rs.15,732,027,099 respectively being % and % of the average daily net assets Non-Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and percentage to net assets is as under Security Fair Value % to Net Fair Value % to Net Category (Rs.) Assets (Rs.) Assets Equities 81,480, % Total 81,480, % 13

101 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended. Year During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 435,189 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid brokerage amounting to Rs. 6,446,967 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 565,239. The brokerage paid was at rates similar to those offered to other brokers / distributors. Year During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 1,985,000 on purchase and sale of investments. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 918, brokerage amounting to Rs. 55,187,005 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 829,819. The brokerage paid was at rates similar to those offered to other brokers / distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. 3 None of the Investors held more than 25% of the total net assets of the scheme at the year ended March 31, 2009 and March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Growth 167,242, ,949, ,864, ,326, ,463,269, Dividend 315,868, ,267, ,217, ,917, ,409,178, Description Opening Units Subscription Redemption Closing Units Face Value Growth 220,623, , ,956, ,242, ,672,424, Dividend 416,532, ,852, ,516, ,868, ,158,680, Previous year s figures have been re-grouped / re-arranged where appropriate. 6 No contingent liabilities for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

102 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Unique Opportunities Fund (HUOF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): During close ended period: Exit - Nil. However the investor will have to bear the proportionate unamortized initial issue expenses for exiting during the close ended period. SIP/SEP/STP in HUOF available after conversion to an openended scheme. *No load in case of switches between equity Schemes of HSBC Mutual Fund. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. 15

103 Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

104 HSBC Global Asset Management HSBC Dynamic Fund An open-ended Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

105 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

106 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September 2008 *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

107 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Dynamic Fund (HDF) - an open-ended Scheme HDF seeks to provide long term capital appreciation by allocating funds in equity and equity related instruments. It also has the flexibility to move, entirely if required, into debt instruments in times that the view on equity markets seems negative. The net assets of HSBC Dynamic Fund amounted to Rs crores as at March 31, % of the net assets were invested in equities and 12.02% were invested in debt and money market instruments as at March 31, HDF outperformed the benchmark by 625 bps over the past 1 year on its active asset allocation calls taken during the year. Date of Inception : 24 September, 2007 Compounded Annualized Returns (%) Schemes (P2P) 1 Year Since Inception HSBC Dynamic Fund - Growth BSE Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). 3

108 Trustees' Report For the year ended March 31, 2009 (Contd...) In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point 4

109 Trustees' Report For the year ended March 31, 2009 (Contd...) stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27,

110 Trustees' Report For the year ended March 31, 2009 (Contd...) The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Summary of number of Investors & corresponding amount Unclaimed Dividends Unclaimed Redemptions Scheme Amount No. of Amount No. of (Rs.) Investors (Rs.) Investors HSBC Dynamic Fund 127, INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March

111 Trustees' Report For the year ended March 31, 2009 (Contd...) On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

112 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund - HSBC Dynamic Fund ("The Scheme") as at March 31, 2009 and the related Revenue Account for year ended on that date, both of which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the "Management"). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet and the Revenue Account referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet and the Revenue Account together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund - HSBC Dynamic Fund as at March 31, 2009 and its net deficit for the year ended on that date. `(ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended March 31, 2009, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. (iii) The method used to value non-traded and thinly traded debt securities in accordance with the guidelines for valuation of securities for mutual funds dated September 18, 2000 and amendments thereto, as applicable, issued by the Securities and Exchange Board of India as at March 31, 2009 as determined by HSBC Asset Management (India) Private Limited under procedures approved by the Board of Trustees of HSBC Mutual Fund are fair and reasonable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 6,

113 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC DYNAMIC FUND As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 37, , Reserves & Surplus 2.1 Unit Premium Reserves (437.55) (430.34) 2.2 Unrealised Appreciation Reserve 2.3 Other Reserves (13,261.07) (970.53) 3 Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income / Deposits 4.2 Other Current Liabilities & Provisions , TOTAL 23, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares 16, , Preference Shares Equity Linked Debentures Other Debentures & Bonds 1, , Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds 2, Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 3, Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 18, , Deposits 2, , Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending 1, Others 1, , Deferred Revenue Expenditure (to the extent not written off) TOTAL 23, , Notes to Accounts - Annexure I 9

114 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC DYNAMIC FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments (76.49) 1.5 Realised Gains / (Losses) on External sale / redemption of investments (16,761.36) 3, Realised Gains / (Losses) on Derivative Transactions (57.04) 1.7 Other Income (A) (15,503.31) 3, EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) (16,233.16) 3, Change in Unrealised Depreciation in value of investments (D) (3,026.54) 3, NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C - D)] (13,206.62) (859.62) 6 Change in unrealised appreciation in the value of investments (F) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (13,206.62) (859.62) 7.1 Add: Balance transfer from Unrealised Appreciation Reserve 7.2 Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less) : Equalisation (110.91) 7.4 Transfer from Reserve Fund 7.5 Transfer from Unit Premium Reserve 8 TOTAL (12,290.54) (970.53) 9 Dividend Appropriation 9.1 Income Distributed during the year / period 9.2 Tax on income distributed during the year / period 10 Retained Surplus / (Deficit) carried forward to Balance Sheet (12,290.54) (970.53) Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 10

115 Key Statistics for the year ended March 31, 2009 HSBC DYNAMIC FUND Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Dividend Option High Regular Growth Option Regular Dividend Option Low Regular Growth Option Regular Dividend Option End Regular Growth Option Regular Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 23,413 40,528 Average (AAuM) 1 31,327 48, Gross income as % of AAuM % 7.70% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 2.33% 0.65% Regular Dividend Option 2.33% 0.65% b. Management Fee as % of AAuM (planwise) Regular Growth Option 1.08% 0.32% Regular Dividend Option 1.08% 0.32% 5. Net Income as a percentage of AAuM % 6.46% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year / period (planwise) Retail Regular Dividend Option Corporate Regular Dividend Option 11

116 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC DYNAMIC FUND Current Previous Year ended Year ended March 31, 2009 March 31, Returns: a. Last One Year Scheme Regular Growth Option ( ) NA Regular Dividend Option ( ) NA Benchmark BSE 200 ( ) b. Since Inception Scheme Regular Growth Option ( ) (3.3410) Regular Dividend Option ( ) (3.3410) Benchmark BSE 200 ( ) (6.6838) 1 AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 12

117 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC DYNAMIC FUND 1 Investments 1.1. It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme's unitholders Open Positions of derivatives amount to Rs. (47,034,850) and is 2.01% to Net Assets for the year end March 31, Open Positions of derivatives amount to 112,957,465 and is 2.79% to Net Assets for the year end March 31, There were no investments made in Associates and Group Companies by the scheme for the years ended March 31, 2009 and March 31, Open position of Securities Borrowed and / or Lent by the scheme as of the year ended March 31, 2009 is NIL NPAs as at years ended March 31, 2009 and March 31, 2008 are NIL Aggregate Unrealised Gain / Loss as at the end of the Financial year and percentage to net assets. Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Equity Shares Appreciation 103,451, % 49,719, % Depreciation 198,113, % 447,766, % NCDs and Bonds Listed / Awaiting Listing Appreciation 384, % 5, % Depreciation 1,741, % 1,158, % NCDs and Bonds Privately Placed Appreciation Depreciation 6, % Equity Futures Appreciation 163, % Depreciation 865, % 494, % 1.7. The aggregate value of investments purchased (excluding accretion of discount of Rs. 11,758,508) and sold during the financial year is Rs. 10,072,387,041 and Rs. 10,882,064,228 respectively being % and % of the average daily net assets. The aggregate value of investments purchased (excluding accretion of discount of Rs. 12,491,050) and sold during the financial year is Rs. 15,940,088,363 and Rs. 11,867,836,306 respectively being % and % of the average daily net assets Non -Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and percentages to net assets are as under : Security Fair Value Percentage to Fair Value Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Equities 10,390, % Debt Instruments 77,003, % 758,829, % Money market Instrument 395,738, % Total 77,003, % 1,164,958, % 13

118 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended : Year HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 750,929 on purchase and sale of investments. The Hongkong & Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection/bank charges amounting to Rs 1,292, brokerage amounting to Rs. 6,097,974 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs.1,169,977. The brokerage paid was at rates similar to those offered to other brokers / distributors. Year HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 747,000 on purchase and sale of investments. The Hongkong & Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection/bank charges amounting to Rs 8,379, brokerage amounting to Rs. 36,171,822 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 742,479. The brokerage paid was at rates similar to those offered to other brokers / distributors 3 None of the Investors held more than 25% of the total net assets of the scheme at the year ended March 31, 2009 and year ended March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 205,008, ,555, ,316, ,248, ,902,481, Regular Dividend Option 214,284, ,615, ,028, ,871, ,808,719, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 261,782, ,773, ,008, ,050,089, Regular Dividend Option 269,550, ,265, ,284, ,142,844, Previous year s figures have been re-grouped / re-arranged where appropriate. 6 No contingent liabilities for the year ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

119 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Dynamic Fund (HDF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): Entry % for investments / switch in* below Rs. 5 crores, otherwise Nil. Exit - 1% for investment below Rs. 5 crores, if redeemed / switched out* within 1 year from the date of allotment/investment, otherwise Nil. *No load in case of switches between equity Schemes of HSBC Mutual Fund. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. 15

120 Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

121 HSBC Global Asset Management HSBC Emerging Markets Fund An open-ended Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

122 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

123 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

124 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Emerging Markets Fund (HEMF) - an open-ended Scheme HEMF seeks to provide long term capital appreciation by investing in India and in the emerging markets, in equity and equity related instruments, share classes and units/securities issued by overseas mutual funds or unit trusts. The fund may also invest a limited proportion in debt and money market instruments. The net assets of HSBC Emerging Markets Fund amounted to Rs crores as at March 31, % of the net assets were invested in HSBC GEM Equity Fund (overseas mutual fund) and 4.29% were invested in debt and money market instruments as at March 31, The fund outperformed its benchmark by about 115 bps over the past 1 year period. Date of Inception : 17 March, 2008 Compounded Annualized Returns (%) Schemes (P2P) 1 Year Since Inception HSBC Emerging Markets Fund - Growth MSCI Emerging Markets Index Past performance may or may not be sustained in future.'since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were 3

125 Trustees' Report For the year ended March 31, 2009 (Contd...) buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision 4

126 Trustees' Report For the year ended March 31, 2009 (Contd...) for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27,

127 Trustees' Report For the year ended March 31, 2009 (Contd...) The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Nil. 6. INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment 6

128 Trustees' Report For the year ended March 31, 2009 (Contd...) Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

129 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund - HSBC Emerging Markets Fund ("The Scheme") as at March 31, 2009 and the related Revenue Account for the year ended on that date, both of which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the "Management"). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet and the Revenue Account referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet and the Revenue Account together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund - HSBC Emerging Markets Fund as at March 31, 2009 and its net deficit for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 6,

130 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC EMERGING MARKETS FUND As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 13, , Reserves & Surplus 2.1 Unit Premium Reserves (0.37) 2.2 Unrealised Appreciation Reserve 2.3 Other Reserves (5,322.96) Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income / Deposits 4.2 Other Current Liabilities & Provisions TOTAL 8, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities 8, , Total Investments 8, , Deposits 3 Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending , Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 8, , Notes to Accounts - Annexure I 9

131 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC EMERGING MARKETS FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend 1.2 Interest Realised Gain / (Loss) on Foreign Exchange Transactions (0.44) Realised Gains / (Losses) on Interscheme sale of investments 1.5 Realised Gains / (Losses) on External sale / redemption of investments (105.09) (0.60) 1.6 Realised Gains / (Losses) on Derivative Transactions 1.7 Other Income (A) (48.14) EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses Expenses to be Reimbursed by the Investment Manager (39.35) (0.91) (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) (123.37) Change in Unrealised Depreciation in value of investments*** (D) 4, NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C - D)] (5,099.22) Change in unrealised appreciation in the value of investments (F) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (5,099.22) Add: Balance transfer from Unrealised Appreciation Reserve 7.2 Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation (254.85) Transfer from Reserve Fund 7.5 Transfer from Unit Premium Reserve 8 TOTAL (5,354.07) Dividend Appropriation 9.1 Income Distributed during the year / period 9.2 Tax on income distributed during the year / period 10 Retained Surplus / (Deficit) carried forward to Balance Sheet (5,354.07) Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. *** Includes Unrealised Depreciation in the value of Foreign Currency Transactions. 10

132 Key Statistics for the year ended March 31, 2009 HSBC EMERGING MARKETS FUND Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Dividend Option High Regular Growth Option Regular Dividend Option Low Regular Growth Option Regular Dividend Option End Regular Growth Option Regular Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 8,459 10,257 Average (AAuM) 1 10,030 10, Gross income as % of AAuM % 0.68% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 0.75% 0.00%~ Regular Dividend Option 0.75% 0.00%~ b. Management Fee as % of AAuM (planwise) Regular Growth Option 0.05% 0.00%~ Regular Dividend Option 0.05% 0.00%~ 5. Net Income as a percentage of AAuM % 0.64% 6. Portfolio turnover ratio 4 7. Total Dividend per unit distributed during the year / period (planwise) Retail Regular Dividend Option Corporate Regular Dividend Option 11

133 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC EMERGING MARKETS FUND Current Previous Year ended Year ended March 31, 2009 March 31, Returns: a. Last One Year Scheme Regular Growth Option ( ) NA Regular Dividend Option ( ) NA Benchmark BSE 200 NA MSCI Emerging Markets Index ( ) NA b. Since Inception Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchnmark BSE MSCI Emerging Markets Index ( ) AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. ~ Less than

134 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC EMERGING MARKETS FUND 1 Investments: 1.1. It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme's unitholders Open Positions of derivatives as a % to Net Assets as of and is NIL There were no investments made in Associates and Group Companies by the Scheme for the year ended March 31, 2009 and March 31, Open positions of Securities Borrowed and / or Lent by the scheme as of the year ended March 31, 2009 is NIL NPAs as at year ended March 31, 2009 and March 31, 2008 are NIL Aggregate Unrealised Gain / Loss as at the end of the Financial year ended and their percentages to net assets are as under: Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Units in Mutual Fund Appreciation Depreciation 500,876, % 3,471, % 1.7 The aggregate value of investments purchased (excluding accretion of discount of Rs. NIL) and sold during the financial year is Rs. 870,578,912 and 51,463,615 respectively being 86.76% and 5.13% of the average daily net assets. The aggregate value of investments purchased (excluding accretion of discount of Rs. NIL) and sold during the financial year is Rs. 501,812,500 and Rs. NIL respectively being % and NIL of the average daily net assets Non-Traded securities in the portfolio as on March 31, 2009 is NIL. 2 Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended for the year ended March 31, 2009 is as under: During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 3,612, brokerage amounting to Rs. 16,768,200 for procuring unit subscriptions for the Scheme. The brokerage paid was at rates similar to those offered to other distributors During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs.100. The brokerage paid was at rates similar to those offered to other distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. 3 None of the Investors held more than 25% of the total net assets of the scheme at the year ended March 31, 2009 and year ended March 31,

135 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 61,213, ,092, ,003, ,302, ,024, Regular Dividend Option 41,049, ,057, ,184, ,922, ,229, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 61,445, , ,213, ,133, Regular Dividend Option 41,088, , ,049, ,498, Previous year s figures have been re-grouped / re-arranged where appropriate. 6 No contingent liabilities for the year ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

136 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Emerging Markets Fund (HEMF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): Entry % for investments / switch ins* < Rs. 5 crores, otherwise Nil. Exit - 1% for < Rs. 5 crores, if redeemed/switched out* within 1 year from date of investment, otherwise Nil. *No load in case of switches between equity Schemes of HSBC Mutual Fund. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. 15

137 Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

138 HSBC Global Asset Management HSBC Small Cap Fund An close-ended equity Scheme* Abridged Annual Report *A three year close-ended equity Scheme with automatic conversion into open-ended equity Scheme at the end of 3 years from the date of allotment of units. Issued by HSBC Asset Management (India) Private Limited

139 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

140 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

141 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Small Cap Fund (HSCF) - a close ended Equity Scheme with automatic conversion into open-ended equity scheme at the end of three years from the date of allotment of units. HSCF seeks to provide long-term capital appreciation primarily from a diversified portfolio of equity and equity related instruments of small cap companies. The net assets of HSBC Small Cap Fund amounted to Rs crores as at March 31, % of the net assets were invested in equities and 9.23% were invested in debt and money market instruments as at March 31, HSCF outperformed the BSE small cap index by 640 bps over the past 1 year on running higher cash levels in the early part of the year. Date of Inception : 24 March, 2008 Compounded Annualized Returns (%) Schemes (P2P) 1 Year Since Inception HSBC Small Cap Fund - Growth BSE SMALL CAP Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). 3

142 Trustees' Report For the year ended March 31, 2009 (Contd...) In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point 4

143 Trustees' Report For the year ended March 31, 2009 (Contd...) stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27,

144 Trustees' Report For the year ended March 31, 2009 (Contd...) The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Nil. 6. INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, 6

145 Trustees' Report For the year ended March 31, 2009 (Contd...) HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

146 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund HSBC Small Cap Fund ( The Scheme ) as at March 31, 2009, and the related Revenue Account for the year ended on that date both of which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the Management ). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet and the Revenue Account referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet, the Revenue Account together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund HSBC Small Cap Fund as at March 31, 2009 and its net deficit for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 6,

147 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC SMALL CAP FUND As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 7, , Reserves & Surplus 2.1 Unit Premium Reserves Unrealised Appreciation Reserve Other Reserves (4,183.98) Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income / Deposits 4.2 Other Current Liabilities & Provisions TOTAL 3, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares 2, , Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 2, , Deposits Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending , Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 3, , Notes to Accounts - Annexure I 9

148 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC SMALL CAP FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments 1.5 Realised Gains / (Losses) on External sale / redemption of investments (2,785.58) Realised Gains / (Losses) on Derivative Transactions Other Income (A) (2,590.31) EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) (2,902.03) Change in Unrealised Depreciation in value of investments (D) 1, NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C-D)] (4,218.30) Change in unrealised appreciation in the value of investments (F) (78.87) NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (4,297.17) Add: Balance transfer from Unrealised Appreciation Reserve Less: Balance transfer to Unrealised Appreciation Reserve Add / (Less): Equalisation 7.4 Transfer from Reserve Fund 7.5 Transfer from Unit Premium Reserve 8 TOTAL (4,218.30) Dividend Appropriation 9.1 Income Distributed during the year / period 9.2 Tax on income distributed during the year / period 10 Retained Surplus / (Deficit) carried forward to Balance Sheet (4,218.30) Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 10

149 Key Statistics for the year ended March 31, NAV per unit (Rs.): Open High Low End HSBC SMALL CAP FUND Current Previous Year ended Year ended March 31, 2009 March 31, 2008 Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Regular Growth Option Regular Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 3,556 8,597 Average (AAuM) 1 6,119 8, Gross income as % of AAuM % 0.54% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 2.34% 0.00%~ Regular Dividend Option 2.34% 0.00%~ b. Management Fee as % of AAuM (planwise) Regular Growth Option 1.17% 0.00%~ Regular Dividend Option 1.17% 0.00%~ 5. Net Income as a percentage of AAuM % 0.40% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year / period (planwise) Retail Dividend Corporate Dividend 11

150 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC SMALL CAP FUND Current Previous Year ended Year ended March 31, 2009 March 31, Returns a. Last One Year Scheme Regular Growth Option ( ) NA Regular Dividend Option ( ) NA Benchmark BSE SMALL CAP ( ) NA b. Since Inception Scheme Regular Growth Option ( ) Regular Dividend Option ( ) Benchnmark BSE SMALL CAP ( ) AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. ~ Less than

151 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC SMALL CAP FUND 1 Investments: 1.1. It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme s unitholders Open Positions of derivatives as of March 31, 2009 and March 31, 2008 are Nil There were no investments made in Associates and Group Companies by the scheme for the year ended March 31, 2009 and March 31, Open position of Securities Borrowed and / or Lent by the scheme as of the year ended March 31, 2009 is NIL NPAs as at years ended March 31, 2009 and March 31, 2008 are NIL Aggregate Unrealised Gain / Loss as at the end of the Financial year and their percentages to net assets are as under: Security Amount Percentage to Amount Percentage to Category (Rupees) Net Assets (Rupees) Net Assets Equity Shares Appreciation 11,913, % 10,312, % Depreciation 143,541, % 2,425, % 1.7 The aggregate value of investments purchased and sold during the year is Rs. 1,000,285,806 and Rs. 458,524,246 respectively being % and 74.93% of the average daily net assets. The aggregate value of investments purchased and sold during the financial year is Rs. 157,876,645 and Rs. 9,223,471 respectively being % and 8.43% of the average daily net assets Non-Traded securities in the portfolio as at the year ended March 31, 2008 are NIL. 2 Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended Year During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs. 64,968 on purchase and sale of investments. The Hongkong & Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 2,001, brokerage amounting to Rs. 311,641 for procuring unit subscriptions for the Scheme and clearing member charges on derivative transactions Rs. 18,271. The brokerage paid was at rates similar to those offered to other brokers / distributors. Year During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor was paid brokerage aggregating Rs.10,000 on purchase and sale of Investments. 3 None of the Investors held more than 25% of the total net assets of the scheme at the year ended March 31, 2009 and March 31,

152 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Growth 48,849, , ,823, ,079, ,798, Dividend 35,991, , ,083, ,259, ,596, Description Opening Units Subscription Redemption Closing Units Face Value Growth 48,849, ,849, ,496, Dividend 35,991, ,991, ,918, Previous year s figures have been re-grouped / re-arranged where appropriate. 6 No contingent liabilities for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

153 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Small Cap Fund (HSCF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): During close ended period: Entry - Nil; Exit # - If the investments are redeemed / switched out within: 1 year - 2%; 2 years - 1.5% and 3 years - 1%. # Balance proportionate unamortized NFO expenses to be recovered in case of exit within closeended period. Upon conversion into an open ended scheme: Entry - For investments / switched in below Rs. 5 Crores %, otherwise Nil; Exit - Nil. *No load in case of switches between equity Schemes of HSBC Mutual Fund. Consult the nearest investor service centre for details. 15

154 The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

155 HSBC Global Asset Management HSBC MIP * Abridged Annual Report * An open-ended fund. Monthly income is not assured and is subject to the availability of distributable surplus. Issued by HSBC Asset Management (India) Private Limited

156 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

157 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September 2008 *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

158 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC MIP (HMIP) - an open-ended Fund (Monthly income is not assured and is subject to availability of distributable surplus.) HMIP an open-ended Fund seeks to generate reasonable returns through investments in Debt and Money Market Instruments. The secondary objective of the scheme is to invest in equity and equity related instruments to seek capital appreciation. The Fund offers two Plans: Regular Plan and Savings Plan. The Regular Plan can have up to 15 per cent of the corpus invested in equities while the Savings Plan can have up to 25 per cent invested in equities. The net assets of HMIP Regular Plan (HMIP - R) amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % in debt and money market instruments & 2.90% of the net assets were invested in equities as at March 31, The net assets of HMIP Savings Plan (HMIP - S) amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % in debt and money market instruments & 5.25% of the net assets were invested in equities as at March 31, The performance of HMIP - R and HMIP - S is benchmarked against CRISIL MIP Blended Index. Therefore, HMIP - R, having lower equity allocation has outperformed its benchmark index over the said period whilst HMIP - S, with the higher equity portion has underperformed the index. Date of Inception : 24 February, 2004 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years Since Inception HSBC MIP - Regular Plan - Growth CRISIL MIP Blended Index Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. HMIP - Savings Plan Date of Inception : 24 February, 2004 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years Since Inception HSBC MIP - Savings Plan - Growth CRISIL MIP Blended Index Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably 3

159 Trustees' Report For the year ended March 31, 2009 (Contd...) Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were 4

160 Trustees' Report For the year ended March 31, 2009 (Contd...) running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities 5

161 Trustees' Report For the year ended March 31, 2009 (Contd...) and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Summary of number of Investors & corresponding amount Unclaimed Dividends Unclaimed Redemptions Scheme Amount No. of Amount No. of (Rs.) Investors (Rs.) Investors HSBC MIP - Regular 130, , HSBC MIP - Savings 276,

162 Trustees' Report For the year ended March 31, 2009 (Contd...) 6. INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

163 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund - HSBC MIP ("The Scheme") as at March 31, 2009 and the related Revenue Account for the year ended on that date, both of which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the "Management"). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet and the Revenue Account referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet and the Revenue Account together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund - HSBC MIP as at March 31, 2009 and its net surplus / (deficit) for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. (iii) The methods used to value: (a) non-traded debt securities in accordance with the guidelines for valuation of securities for mutual funds dated September 18, 2000 and amendments thereto, as applicable, issued by the Securities and Exchange Board of India and; (b) privately placed securities in good faith as at March 31, 2009 as determined in good faith by HSBC Asset Management (India) Private Limited under procedures approved by the Board of Trustees of HSBC Mutual Fund are fair and reasonable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 6,

164 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC MIP - REGULAR PLAN As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 4, , Reserves & Surplus 2.1 Unit Premium Reserves (21.68) Unrealised Appreciation Reserve Other Reserves Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income / Deposits 4.2 Other Current Liabilities & Provisions TOTAL 5, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds 2, Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds 3, Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1, , Government Securities Treasury Bills 1.6 Commercial Paper Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 5, , Deposits Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 5, , Notes to Accounts - Annexure I 9

165 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC MIP - SAVINGS PLAN As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 8, , Reserves & Surplus 2.1 Unit Premium Reserves Unrealised Appreciation Reserve Other Reserves 1, , Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income/Deposits 4.2 Other Current Liabilities & Provisions TOTAL 10, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares , Preference Shares Equity Linked Debentures Other Debentures & Bonds 4, , Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds 3, Securitised Debt securities 2, , Government Securities 1, Treasury Bills 1.6 Commercial Paper Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 8, , Deposits Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending 1, Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 10, , Notes to Accounts - Annexure I 10

166 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC MIP - REGULAR PLAN Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments (7.54) (0.62) 1.5 Realised Gains / (Losses) on External sale / redemption of investments (310.48) Realised Gains / (Losses) on Derivative Transactions (20.53) Other Income (A) EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses 2.87 (15.69) (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) Change in Unrealised Depreciation in value of investments (D) (55.64) 5 NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C - D)] Change in unrealised appreciation in the value of investments (F) (34.50) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) Add: Balance transfer from Unrealised Appreciation Reserve Less: Balance transfer to Unrealised Appreciation Reserve Add / (Less): Equalisation Transfer from Reserve Fund Transfer from Unit Premium Reserve 8 TOTAL Dividend Appropriation 9.1 Income Distributed during the year / period Tax on income distributed during the year / period Retained Surplus / (Deficit) carried forward to Balance Sheet Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. **Service Tax on Management Fees is included in Other Operating Expenses. 11

167 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC MIP - SAVINGS PLAN Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend Interest 1, Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments (11.03) Realised Gains / (Losses) on External sale / redemption of investments (1,076.36) Realised Gains / (Losses) on Derivative Transactions (71.24) Other Income (A) (92.49) EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses 3.82 (51.00) (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) (362.86) Change in Unrealised Depreciation in value of investments (D) (27.14) 5 NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C - D)] (409.53) Change in unrealised appreciation in the value of investments (F) (74.47) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (153.58) Add: Balance transfer from Unrealised Appreciation Reserve Less: Balance transfer to Unrealised Appreciation Reserve Add / (Less): Equalisation (430.86) 1, Transfer from Reserve Fund Transfer from Unit Premium Reserve 8 TOTAL (279.97) 2, Dividend Appropriation 9.1 Income Distributed during the year / period Tax on income distributed during the year / period Retained Surplus / (Deficit) carried forward to Balance Sheet (626.13) 1, Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. **Service Tax on Management Fees is included in Other Operating Expenses. 12

168 Key Statistics for the year ended March 31, 2009 HSBC MIP - REGULAR PLAN Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option High Regular Growth Option Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option Low Regular Growth Option Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option End Regular Growth Option Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 5,726 6,352 Average (AAuM) 1 6,671 5, Gross income as % of AAuM % 11.82% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Dividend Option Regular Growth Option 2.07% 1.95% Regular Monthly Dividend Option 2.07% 1.95% Regular Quarterly Dividend Option 2.07% 1.95% b. Management Fee as % of AAuM (planwise) Regular Dividend Option Regular Growth Option 0.97% 1.24% Regular Monthly Dividend Option 0.97% 1.24% Regular Quarterly Dividend Option 0.97% 1.24% 13

169 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC MIP - REGULAR PLAN Current Previous Year ended Year ended March 31, 2009 March 31, Net Income as a percentage of AAuM % 9.87% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year / period (planwise) Retail Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option Corporate Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option Returns: a. Last One Year Scheme Regular Dividend Option N/A N/A Regular Growth Option Regular Monthly Dividend Option Regular Quarterly Dividend Option Benchmark Crisil MIP Blended Index b. Since Inception Scheme Regular Dividend Option N/A Regular Growth Option Regular Monthly Dividend Option Regular Quarterly Dividend Option Benchnmark Crisil MIP Blended Index AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 14

170 Key Statistics for the year ended March 31, 2009 HSBC MIP - SAVINGS PLAN Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option High Regular Growth Option Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option Low Regular Growth Option Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option End Regular Growth Option Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 10,338 13,791 Average (AAuM) 1 13,157 8, Gross income as % of AAuM % 11.18% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Dividend Option Regular Growth Option 2.05% 1.94% Regular Monthly Dividend Option 2.05% 1.95% Regular Quarterly Dividend Option 2.05% 1.95% b. Management Fee as % of AAuM (planwise) Regular Dividend Option Regular Growth Option 1.09% 1.22% Regular Monthly Dividend Option 1.09% 1.22% Regular Quarterly Dividend Option 1.09% 1.22% 15

171 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC MIP - SAVINGS PLAN Current Previous Year ended Year ended March 31, 2009 March 31, Net Income as a percentage of AAuM % 9.24% 6. Portfolio turnover ratio Total Dividend per unit distributed during the year / period (planwise) Retail Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option Corporate 8. Returns: Regular Dividend Option Regular Monthly Dividend Option Regular Quarterly Dividend Option a. Last One Year Scheme Regular Dividend Option N/A N/A Regular Growth Option (0.2375) Regular Monthly Dividend Option (0.7722) N/A Regular Quarterly Dividend Option (0.8031) N/A Benchmark Crisil MIP Blended Index b. Since Inception Scheme Regular Dividend Option N/A Regular Growth Option Regular Monthly Dividend Option N/A Regular Quarterly Dividend Option N/A Benchnmark Crisil MIP Blended Index AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 16

172 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC MIP - REGULAR / SAVINGS PLAN 1 Investments: 1.1 It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme s unitholders. 1.2 Open Positions of derivatives in MIP Regular Plan as at March 31, 2009 is 2,412,200 is Rs. 0.42% to net assets. Open Positions of derivatives in MIP Regular Plan as at March 31, 2008 is NIL. Open Positions of derivatives in MIP Savings Plan as at March 31, 2009 is Rs. 6,935,075 and is 0.67% to net assets. Open Positions of derivatives in MIP Savings Plan as at March 31, 2008 is Rs. 8,044,910 and is 1.57% to net assets. 1.3 Investments in Associates and Group Companies Amount Amount (Rupees) Issuer Instrument MIP - MIP - Aggregate MIP - MIP - Aggregate Type Regular Savings Investments Regular Savings Investments Plan Plan by all schemes Plan Plan by all schemes The Hongkong & Fixed 43,000,000 5,000,000 5,000,000 1,654,000,000 Shanghai Banking Deposits Corporation Ltd. 1.4 Open positions of Securities Borrowed and / or Lent by the MIP Regular Plan as of financial years ended 2009 and 2008 are NIL. Open positions of Securities Borrowed and / or Lent by the MIP Savings Plan as of financial years ended 2009 and 2008 are NIL. 1.5 The NPAs for MIP Regular Plan as on March 31, 2009 and March 31, 2008 are NIL. The NPAs for MIP Savings Plan as on March 31, 2009 and March 31, 2008 are NIL. 1.6 Aggregate Unrealised Gain / Loss as at the end of the Financial years 2008 and 2009 and their percentage to net assets are as under : HSBC MIP - REGULAR PLAN Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Equity Shares March 31, 2009 March 31, 2008 Appreciation 930, % 4,506, % Depreciation 2,615, % 3,244, % NCDs and Bonds Listed / Awaitin Listing Appreciation 12,106, % 150, % Depreciation 2,573, % 1,565, % NCDs and Bonds Privately Placed Appreciation 61, % Depreciation % 17

173 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC MIP - REGULAR PLAN Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Asset Backed Securities March 31, 2009 March 31, 2008 Appreciation 1,988, % 79, % Depreciation 449, % 426, % Government of India Securities Appreciation Depreciation 3,575, % Equity Futures Appreciation % % Depreciation 8, % HSBC MIP - SAVINGS PLAN Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Equity Shares March 31, 2009 March 31, 2008 Appreciation 2,465, % 10,924, % Depreciation 9,075, % 14,011, % NCDs and Bonds Listed / Awaiting Listing Appreciation 24,617, % 350, % Depreciation 419, % 4,597, % NCDs and Bonds Privately Placed Appreciation 203, % Depreciation 486, % 145, % Asset Backed Securities Appreciation 2,586, % 104, % Depreciation 1,131, % 581, % Government of India Securities Appreciation Depreciation 5,394, % Equity Futures Appreciation Depreciation 1, % 16, % 18

174 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, The aggregate value of investment purchased and sold for MIP Regular Plan and MIP Savings Plan is as under : Aggregate Purchases Plan March 31, 2009 March 31, 2008 Rupees Percentage of Rupees Percentage of Average Daily Average Daily Net Assets Net Assets MIP - Regular Plan 1,264,636, % 1,191,206, % MIP - Savings Plan 3,297,754, % 2,536,083, % Aggregate Sales Plan March 31, 2009 March 31, 2008 Rupees Percentage of Rupees Percentage of Average Daily Average Daily Net Assets Net Assets MIP Regular Plan 1,360,346, % 1,059,761, % MIP Savings Plan 3,671,926, % 1,871,265, % 1.8 Non-Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and percentage to net assets is as under : HSBC MIP - REGULAR PLAN Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Equities 525, % Debt Instruments 439,709, % 540,616, % Money Market Instruments 29,960, % Total 439,709, % 571,101, % HSBC MIP - SAVINGS PLAN Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Equities 1,626, % Debt Instruments 670,139, % 1,083,866, % Money Market Instruments % 79,893, % Total 670,139, % 1,165,386, % 19

175 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended for the year ended March 31, 2009 is as under: Year During the year, HSBC Securities and Capital Markets (India) Private Limited, the Sponsor, was paid brokerage amounting to Rs. 25,017 and Rs. 68,515 on purchase and sale of investments for the Regular Plan and Savings Plan respectively. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid Collection/ Bank charges amounting to Rs. 169,266 and Rs. 170,403 for the Regular Plan and Savings Plan respectively, brokerage amounting to Rs. 559,017, Rs. 1,141,499 for procuring unit subscriptions for the Regular Plan and Savings Plan respectively and clearing member charges on derivative transactions amounting to Rs. 33,705 and Rs. 95,235 for the Regular Plan and Savings Plan respectively. The brokerage paid was at rates similar to those offered to other distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. Year HSBC Securities and Capital Markets (India) Private Limited, the Sponsor, was paid brokerage amounting to Rs. 16,000 and Rs. 49,000 on purchase and sale of investments for the Regular Plan and Savings Plan respectively. The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid Collection / Bank charges amounting to Rs. 339,405 and Rs. 344,193 for the Regular Plan and Savings Plan respectively, brokerage amounting to Rs. 1,191,572, Rs. 1,535,390 for procuring unit subscriptions for the Regular Plan and Savings Plan respectively and clearing member charges on derivative transactions amounting to Rs. 4,171 and Rs. 12,880 for the Regular Plan and Savings Plan respectively. The brokerage paid was at rates similar to those offered to other distributors. 3 None of the Investors held more than 25% of the total net assets of the schemes at the years ended March 31, 2009 and March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, MIP - REGULAR PLAN Description Opening Units Subscription Redemption Closing Units Face Value Growth 14,987, ,250, ,894, ,343, ,430, Monthly Dividend 24,470, ,911, ,202, ,179, ,793, Quarterly Dividend 15,012, ,136, ,083, ,065, ,652, Description Opening Units Subscription Redemption Closing Units Face Value Growth 14,079, ,193, ,285, ,987, ,870, Monthly Dividend 8,874, ,508, ,911, ,470, ,707, Quarterly Dividend 20,091, ,722, ,801, ,012, ,120,

176 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 MIP - SAVINGS PLAN Description Opening Units Subscription Redemption Closing Units Face Value Growth 38,287, ,735, ,759, ,263, ,633, Monthly Dividend 35,289, ,705, ,659, ,335, ,358, Quarterly Dividend 36,071, ,430, ,651, ,851, ,515, Description Opening Units Subscription Redemption Closing Units Face Value Growth 22,958, ,017, ,688, ,287, ,875, Monthly Dividend 13,879, ,703, ,292, ,289, ,899, Quarterly Dividend 18,003, ,066, ,997, ,071, ,719, Prior year amounts have been re-grouped and reclassified, wherever applicable, to confirm to current year s presentation. 6 No contingent liabilities for MIP Regular and MIP Savings funds for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8. The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

177 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/ AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC MIP (HMIP) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/ switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): HMIP-R : Entry - Nil. Exit - 1% - if redeemed/switched out within 1 year from date of investment. HMIP-S : Entry - Nil. Exit - 1.5% - if redeemed/switched out within 1 year from date of investment. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. 22

178 Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 23

179 This page is intentionally left blank.

180 HSBC Global Asset Management HSBC Gilt Fund An open-ended gilt Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

181 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

182 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

183 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Gilt Fund (HGF) - an open-ended Gilt Scheme HGF seeks to generate reasonable returns through investments in Government Securities (G-Secs) of various maturities. The AMC's view of interest rate trends and the nature of the plans will be reflected in the maturities of securities in which the Plans are invested. The net assets of HSBC Gilt Fund amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % of the net assets were invested in government securities, 26.56% of the net assets were invested in reverse repos and (3.03)% were invested in net current assets as at March 31, HGF underperformed the benchmark as low assets under management for an extended period had constrained ability to actively manage the fund. Date of Inception : 5 December, 2003 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years 5 Years Since Inception HSBC Gilt Fund - Growth I Sec Composite Index Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). 3

184 Trustees' Report For the year ended March 31, 2009 (Contd...) In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point 4

185 Trustees' Report For the year ended March 31, 2009 (Contd...) stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27,

186 Trustees' Report For the year ended March 31, 2009 (Contd...) The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Nil. 6. INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, 6

187 Trustees' Report For the year ended March 31, 2009 (Contd...) HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

188 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund - HSBC Gilt Fund (Formerly HSBC Gilt Fund - Short Term Plan) ("The Scheme") as at March 31, 2009, the related Revenue Account for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the "Management"). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian/others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet, the Revenue Account and the Cash Flow Statement referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet, the Revenue Account and the Cash Flow Statement together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund - HSBC Gilt Fund as at March 31, 2009, its net deficit and its cash flows for the year on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date: July 22,

189 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC GILT FUND As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 1, Reserves & Surplus 2.1 Unit Premium Reserves Unrealised Appreciation Reserve 2.3 Other Reserves (179.28) Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income / Deposits 4.2 Other Current Liabilities & Provisions TOTAL 1, ASSETS 1 Investments 1.1. Listed Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1, Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 1, Deposits 3 Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 1, Note: Name of HSBC Gilt Fund Short Term Plan changed to HSBC Gilt Fund Notes to Accounts - Annexure I 9

190 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC GILT FUND Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend 1.2 Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments 1.5 Realised Gains / (Losses) on External sale / redemption of investments (580.67) (0.03) 1.6 Realised Gains / (Losses) on Derivative Transactions 1.7 Other Income (A) (121.68) EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) (176.63) Change in Unrealised Depreciation in value of investments (D) NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C-D)] (225.11) Change in unrealised appreciation in the value of investments (F) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) (225.11) Add: Balance transfer from Unrealised Appreciation Reserve 7.2 Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation (5.65) 7.4 Transfer from Reserve Fund Transfer from Unit Premium Reserve 8 TOTAL (2.20) 9 Dividend Appropriation 9.1 Income Distributed during the year / period Tax on income distributed during the year / period Retained Surplus / (Deficit) carried forward to Balance Sheet (186.35) (3.56) Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 10

191 Key Statistics for the year ended March 31, 2009 HSBC GILT FUND Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Monthly Dividend Option Weekly Dividend Option High Regular Growth Option Monthly Dividend Option Weekly Dividend Option Low Regular Growth Option Monthly Dividend Option Weekly Dividend Option End Regular Growth Option Monthly Dividend Option Weekly Dividend Option Closing Assets Under Management (Rs. in Lakhs) End 1, Average (AAuM) 1 7, Gross income as % of AAuM % 4.96% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 0.75% 1.00% Monthly Dividend Option 0.75% 1.00% Weekly Dividend Option 0.75% b. Management Fee as % of AAuM (planwise) Regular Growth Option 0.31% 0.43% Monthly Dividend Option 0.31% 0.43% Weekly Dividend Option 0.31% 5. Net Income as a percentage of AAuM % 3.96% 6. Portfolio turnover ratio 4 11

192 Key Statistics for the year ended March 31, 2009 (Contd...) 7. Total Dividend per unit distributed during the year / period (planwise) Retail HSBC GILT FUND Current Previous Year ended Year ended March 31, 2009 March 31, 2008 Monthly Dividend Option Weekly Dividend Option Corporate 8. Returns: Monthly Dividend Option Weekly Dividend Option a. Last One Year Scheme Monthly Dividend Option (8.1709) Regular Growth Option (7.6725) Weekly Dividend Option Benchmark I-Sec Composite Index b. Since Inception Scheme Monthly Dividend Option Regular Growth Option Weekly Dividend Option ( ) Benchnmark I-Sec Composite Index AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 12

193 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC GILT FUND 1 Investments: 1.1. It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme s unitholders Open Positions of derivatives as of March 31, 2009 is NIL. Open Positions of derivatives as of March 31, 2008 end is NIL There were no investments made in Associates and Group Companies by the scheme for the years ended March 31, 2009 and March 31, Open positions of Securities Borrowed and / or Lent by the scheme as of the years ended March 31, 2009 and March 31, 2008 are NIL NPAs as at years ended March 31, 2009 and March 31, 2008 are NIL Aggregate Unrealised Gain / Loss as at the end of the Financial year ended and their percentages to net assets are as under: Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Government of India Securities Appreciation Depreciation 4,848, The aggregate value of investments securities purchased (excluding accretion of discount of Rs. NIL) and sold during the financial year is Rs. 1,184,011,556 and Rs. 994,165,715 respectively being % and % of the average daily net assets. The aggregate value of investments securities purchased (excluding accretion of discount of Rs. NIL) and sold during the financial year is Rs. NIL and Rs. NIL respectively being NIL and NIL of the average daily net assets Non-Traded securities in the portfolios as at March 31, 2009 and March 31, 2008 are NIL. 2 Disclosure Under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended are as under: Year During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 23 and brokerage amounting to Rs. 131,578 for procuring unit subscriptions. The brokerage paid was at rates similar to those offered to other distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. Year During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 23 and brokerage amounting to Rs. 1,641 for procuring Unit subscriptions. The brokerage paid was at rates similar to those offered to other distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time-to-time at competitive rates. 13

194 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. 3 Large Holdings in the Scheme (i.e. in excess of 25% of the net assets). Name of No. of % Holding No. of % Holding Scheme holders holders HSBC Gilt Fund Unit Capital movement during the year ended March 31, 2009 and March 31, 2008: Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 425, ,587, ,458, ,554, ,545, Monthly Dividend Option 449, ,376, ,788, ,037, ,373, Weekly Dividend Option 455,468, ,533, ,934, ,348, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 885, , ,189, , ,252, Monthly Dividend Option 39, , , , ,495, Previous year s figures have been re-grouped / re-arranged where appropriate. 6 No contingent liabilities for the year ended March 31, 2009 and March 31, Expenses other than Management Fees are Inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 22, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

195 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor / associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Gilt Fund (HGF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions / switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed / switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): Entry - Nil. Exit - 0.5%, if redeemed / switched out within 6 months from the date of investment. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. 15

196 Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 16

197 HSBC Global Asset Management HSBC Income Fund An open-ended income Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

198 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

199 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September 2008 *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

200 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Income Fund (HIF) - an open-ended Income Scheme HIF, launched in December 2002, seeks to generate reasonable income for the investor by investing in bonds, debentures, short-term instruments like commercial papers, repos, etc. The Scheme has two Plans - the Investment Plan and the Short Term Plan. The investment objective of HIF is to generate reasonable income through a diversified portfolio of fixed income securities. The AMC's view of interest rate trends and the nature of the Plans will be reflected in the type and maturities of securities in which the Short Term and Investment Plans are invested. The net assets of HSBC Income Fund - Investment Plan (HIF - IP) amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % in debt and money market instruments, 3.01% of the net assets were invested in reverse repos / CBLO and 3.47% in net current assets as at March 31, The net assets of HSBC Income Fund - Short Term Plan (HIF - STP) amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, Some 95.26% in debt and money market instruments, 1.08% of the net assets were invested in reverse repos and 3.66% in net current assets as at March 31, HIF-IP has outperformed the benchmark through relatively active management of duration. HIF - IP Date of Inception : 10 December, 2002 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years 5 Years Since Inception HSBC Income Fund - IP - Regular - Growth CRISIL Composite Bond Fund Index Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. HIF-STP has marginally underperformed the benchmark as low assets under management for an extended period had constrained ability to actively manage the fund. HIF - STP Date of Inception : 10 December, 2002 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 2 Years 5 Years Since Inception HSBC Income Fund - STP - Regular - Growth CRISIL Short-Term Bond Fund Index Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The 3

201 Trustees' Report For the year ended March 31, 2009 (Contd...) year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses 4

202 Trustees' Report For the year ended March 31, 2009 (Contd...) ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. 5

203 Trustees' Report For the year ended March 31, 2009 (Contd...) HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Summary of number of Investors & corresponding amount Unclaimed Dividends Unclaimed Redemptions Scheme Amount No. of Amount No. of (Rs.) Investors (Rs.) Investors HSBC Income Fund - Investment Plan 184, , HSBC Income Fund - Short Term Plan 52,

204 6. INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

205 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund HSBC Income Fund ( The Scheme ) as at March 31, 2009 and the related Revenue Account for the year ended on that date, both of which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the Management ). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet and the Revenue Account referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet and the Revenue Account together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund HSBC Income Fund as at March 31, 2009 and its net surplus for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. (iii) The methods used to value: (a) non-traded debt securities in accordance with the guidelines for valuation of securities for mutual funds dated September 18, 2000 and amendments thereto, as applicable, issued by the Securities and Exchange Board of India and: (b) privately placed securities in good faith as at March 31, 2009 as determined in good faith by HSBC Asset Management (India) Private Limited under procedures approved by the Board of Trustees of HSBC Mutual Fund are fair and reasonable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date: July 6,

206 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC INCOME FUND - INVESTMENT PLAN As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 9, , Reserves & Surplus 2.1 Unit Premium Reserves (99.56) (188.22) 2.2 Unrealised Appreciation Reserve Other Reserves 2, , Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income/Deposits 4.2 Other Current Liabilities & Provisions TOTAL 11, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds 6, , Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities Government Securities 4, Treasury Bills 1.6 Commercial Paper 1.7 Certificate of Deposits 1.8 Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 10, , Deposits Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending , Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 11, , Notes to Accounts - Annexure I 9

207 Abridged Balance Sheet as at March 31, 2009 (Contd...) Rs. in Lakhs HSBC INCOME FUND - SHORT TERM PLAN As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 13, Reserves & Surplus 2.1 Unit Premium Reserves (115.80) 2.2 Unrealised Appreciation Reserve Other Reserves Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income/Deposits 4.2 Other Current Liabilities & Provisions TOTAL 15, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds 8, Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.4 Government Securities 1.5 Treasury Bills 1.6 Commercial Paper Certificate of Deposits 6, Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 14, Deposits Other Current Assets 3.1 Cash & Bank Balance CBLO / Reverse Repo Lending Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 15, , Notes to Accounts - Annexure I 10

208 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC INCOME FUND - INVESTMENT PLAN Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend 1.2 Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments (33.67) Realised Gains / (Losses) on External sale / redemption of investments (61.70) Realised Gains / (Losses) on Derivative Transactions 1.7 Other Income (A) EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses Expenses to be Reimbursed by the Investment Manager (58.80) (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) Change in Unrealised Depreciation in value of investments (D) (50.42) 5 NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C-D)] Change in unrealised appreciation in the value of investments (F) NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) Add: Balance transfer from Unrealised Appreciation Reserve 7.2 Less: Balance transfer to Unrealised Appreciation Reserve Add / (Less): Equalisation 1, Transfer from Reserve Fund Transfer from Unit Premium Reserve 8 TOTAL 1, Dividend Appropriation 9.1 Income Distributed during the year / period Tax on income distributed during the year / period Retained Surplus / (Deficit) carried forward to Balance Sheet 1, Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 11

209 Abridged Revenue Account for the year ended March 31, 2009 (Contd...) Rs. in Lakhs HSBC INCOME FUND - SHORT TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend 1.2 Interest Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments 2.75 (39.52) 1.5 Realised Gains / (Losses) on External sale / redemption of investments (4.90) 1.6 Realised Gains / (Losses) on Derivative Transactions 1.7 Other Income (A) EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses Expenses to be Reimbursed by the Investment Manager (14.41) (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) Change in Unrealised Depreciation in value of investments (D) (66.33) 5 NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C-D)] Change in unrealised appreciation in the value of investments (F) NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) Add: Balance transfer from Unrealised Appreciation Reserve 7.2 Less : Balance transfer to Unrealised Appreciation Reserve Add / (Less): Equalisation (73.56) 7.4 Transfer from Reserve Fund Transfer from Unit Premium Reserve 8 TOTAL 1, Dividend Appropriation 9.1 Income Distributed during the year / period Tax on income distributed during the year / period Retained Surplus / (Deficit) carried forward to Balance Sheet Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 12

210 Key Statistics for the year ended March 31, 2009 HSBC INCOME FUND - INVESTMENT PLAN Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Dividend Option Regular Option - Weekly Dividend Institutional Growth Option Institutional Dividend Option Institutional Option - Weekly Dividend Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend High Regular Growth Option Regular Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend Low Regular Growth Option Regular Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend End Regular Growth Option Regular Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend 13

211 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC INCOME FUND - INVESTMENT PLAN Current Previous Year ended Year ended March 31, 2009 March 31, Closing Assets Under Management (Rs. in Lakhs) End 11,490 3,588 Average (AAuM) 1 4,163 2, Gross income as % of AAuM % 8.50% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 1.69% 1.50% Regular Dividend Option 1.69% 1.50% Regular Weekly Dividend Option Institutional Growth Option 1.06% 0.70% Institutional Dividend Option 1.06% Institutional Weekly Dividend Option Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend b. Management Fee as % of AAuM (planwise) Regular Growth Option 0.44% 0.69% Regular Dividend Option 0.44% 0.70% Regular Weekly Dividend Option Institutional Growth Option 0.44% Institutional Dividend Option 0.44% 0.23% Institutional Weekly Dividend Option Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend 5. Net Income as a percentage of AAuM % 7.13% 6. Portfolio turnover ratio 4 7. Total Dividend per unit distributed during the year / period (planwise) Retail Regular Dividend Option Regular Weekly Dividend Option Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend Corporate Regular Dividend Option Regular Weekly Dividend Option Institutional Dividend Option Institutional Weekly Dividend Option 14

212 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC INCOME FUND - INVESTMENT PLAN Current Previous Year ended Year ended March 31, 2009 March 31, 2008 Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend 8. Returns: a. Last One Year Scheme Regular Growth Option ( ) Regular Dividend Option N/A Regular Weekly Dividend Option N/A N/A Institutional Growth Option Institutional Dividend Option N/A Institutional Weekly Dividend Option N/A N/A Institutional Plus Option - Growth N/A N/A Institutional Plus Option - Weekly N/A N/A Institutional Plus Option - Monthly Dividend N/A N/A Benchmark CRISIL Composite Bond Fund Index (Investment Plan) b. Since Inception Scheme Regular Growth Option (0.6817) Regular Dividend Option Regular Weekly Dividend Option N/A N/A Institutional Growth Option Institutional Dividend Option (1.4250) Institutional Weekly Dividend Option N/A N/A Institutional Plus Option - Growth N/A N/A Institutional Plus Weekly Dividend Option N/A N/A Institutional Plus Option - Monthly Dividend N/A N/A Benchnmark CRISIL Composite Bond Fund Index (Investment Plan) AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 15

213 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC INCOME FUND - SHORT TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Dividend Option Regular Option - Weekly Dividend Institutional Growth Option Institutional Dividend Option Institutional Option - Weekly Dividend Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend High Regular Growth Option Regular Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend Low Regular Growth Option Regular Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend End Regular Growth Option Regular Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Growth Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend

214 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC INCOME FUND - SHORT TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, Closing Assets Under Management (Rs. in Lakhs) End 13,614 1,206 Average (AAuM) 1 5,472 1, Gross income as % of AAuM % 6.44% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 1.10% 1.00% Regular Dividend Option 1.10% 1.00% Regular Weekly Dividend Option 1.10% 0.76% Institutional Growth Option 0.60% 0.46% Institutional Dividend Option 0.60% 0.39% Institutional Weekly Dividend Option 0.60% 0.36% Institutional Plus Option - Growth 0.55% Institutional Plus Option - Weekly 0.55% Institutional Plus Option - Monthly Dividend 0.55% b. Management Fee as % of AAuM (planwise) Regular Growth Option 0.32% 0.49% Regular Dividend Option 0.32% 0.49% Regular Weekly Dividend Option 0.32% 0.36% Institutional Growth Option 0.32% 0.21% Institutional Dividend Option 0.32% 0.04% Institutional Weekly Dividend Option 0.32% 0.19% Institutional Plus Option - Growth 0.32% Institutional Plus Option - Weekly 0.32% Institutional Plus Option - Monthly Dividend 0.32% 5. Net Income as a percentage of AAuM % 5.51% 6. Portfolio turnover ratio 4 7. Total Dividend per unit distributed during the year / period (planwise) Retail Regular Dividend Option Regular Weekly Dividend Option Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend Corporate Regular Dividend Option Regular Weekly Dividend Option

215 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC INCOME FUND - SHORT TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, 2008 Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Weekly Institutional Plus Option - Monthly Dividend 8. Returns: a. Last One Year Scheme Regular Growth Option Regular Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Dividend Option N/A Institutional Weekly Dividend Option N/A Institutional Plus Option - Growth N/A N/A Institutional Plus Option - Weekly N/A N/A Institutional Plus Option - Monthly Dividend N/A N/A Benchmark CRISIL Short-Term Bond Fund Index (Short Term Plan) b. Since Inception Scheme Regular Growth Option Regular Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Dividend Option Institutional Weekly Dividend Option Institutional Plus Option - Growth N/A Institutional Plus Weekly Dividend Option Institutional Plus Option - Monthly Dividend N/A Benchnmark CRISIL Short-Term Bond Fund Index (Short Term Plan) AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 18

216 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC INCOME FUND 1 Investments: 1.1. It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme s unitholders Open Positions of derivatives for Income Fund Investment Plan are Nil as at March 31, 2009 and as at March 31, Open Positions of derivatives for Income Fund Short Term Plan are Nil as at March 31, 2009 and as at March 31, There were no investments made in Associates and Group Companies by the schemes for the year ended March 31, 2009 and March 31, Open position of Securities Borrowed and / or Lent by the schemes as of the years ended March 31, 2009 and March 31, 2008 are NIL NPAs for the schemes for the years ended March 31, 2009 and March 31, 2008 are NIL Aggregate Unrealised Gain / Loss as at the end of the Financial years 2008 and 2009 and their percentages to net assets are as under : HSBC INCOME FUND - SHORT TERM PLAN Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets NCDs and Bonds Listed / Awaiting Listing March 31, 2009 March 31, 2008 Appreciation 5,080, % 58, % Depreciation 142, % 40, % NCDs and Bonds Privately Placed Appreciation 49, % Depreciation 15, % Asset Backed Securities Appreciation Depreciation Government of India Securities Appreciation Depreciation HSBC INCOME FUND - INVESTMENT PLAN Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets March 31, 2009 March 31, 2008 NCDs and Bonds Listed / Awaiting Listing Appreciation 6,317, % 899, % Depreciation 3,411, % 555, % NCDs and Bonds Privately Placed Appreciation Depreciation Asset Backed Securities Appreciation Depreciation 781, % 1,507, % Government of India Securities Appreciation Depreciation 15,845, % 5, % 19

217 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, The aggregate value of investments purchased (excluding accretion of discount of Rs. 26,773,795 and Rs. 1,815,499 for Short Term Plan and Investment Plan respectively) and sold (including matured) during the year are : 2009 Plan Aggregate Purchases Aggregate Sales Amount Percentage of Amount Percentage of (Rs.) Average Daily (Rs.) Average Daily Net Assets Net Assets Short Term Plan 3,827,871, % 2,473,791, % Investment Plan 3,159,143, % 2,244,998, % The aggregate value of investments purchased (excluding accretion of discount of Rs. 9,353,629 and Rs. 4,231,436 for Short Term Plan and Investment Plan respectively) and sold (including matured) during the year are : 2008 Plan Aggregate Purchases Aggregate Sales Amount Percentage of Amount Percentage of (Rs.) Average Daily (Rs.) Average Daily Net Assets Net Assets Short Term Plan 347,984, % 493,516, % Investment Plan 670,393, % 747,303, % 1.8. Non-Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and percentage to net assets are as under: SHORT TERM PLAN Security Fair Value Percentage to Fair Value Percentage Category (Rs.) Net Assets (Rs.) to Net Assets Equities Debt Instruments 536,108, % 46,921, % Money market Instruments 602,153, % 7,887, % Total 1,138,262, % 54,809, % INVESTMENT PLAN Security Fair Value Percentage to Fair Value Percentage Category (Rs.) Net Assets (Rs.) to Net Assets Equities Debt Instruments 189,014, % 180,630, % Money market Instruments Total 189,014, % 180,630, % 20

218 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended. Year During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 3,854 for the Short Term Plan and Rs. 41,395 for the Investment Plan and brokerage amounting to Rs. 1,678,765 for the Short Term Plan and Rs. 5,263,325 for the Investment Plan for procuring unit subscriptions for the Scheme. The brokerage paid was at rates similar to those offered to other distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. Year During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 3,937 for the Short Term Plan and Rs. 102,302 for the Investment Plan and brokerage amounting to Rs. 251,473 for the Short Term Plan and Rs. 582,379 for the Investment Plan for procuring unit subscriptions for the Scheme. The brokerage paid was at rates similar to those offered to other distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. HSBC Mutual Fund also enters into transactions in Government securities at market rates with HSBC Primary Dealership (India) Private Limited, a subsidiary of the Sponsor. 3 None of the Investors held more than 25% of the total net assets of Income Short Term and Income Investment Plans as at the years ended on March 31, 2009 and March 31, Unit Capital movement during the years ended March 31, 2008 and March 31, SHORT TERM PLAN Description Opening Units Subscription Redemption Closing Units Face Value Regular Dividend 4,147, ,563, ,553, ,157, ,574, Regular Growth 4,652, ,603, ,805, ,450, ,504, Regular Weekly Dividend 505, ,883, ,921, ,467, ,672, Institutional Dividend 17,532, ,695, ,837, ,370, Institutional Growth 500, ,411, ,065, ,845, ,459, Institutional Weekly Dividend 83,021, ,026, ,995, ,951, Institutional Plus Option - Growth 14,250, ,250, ,500, Institutional Plus Option - Weekly Dividend 75,804, ,804, Institutional Plus Option - Monthly Dividend 1,000, ,000, ,000,

219 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 SHORT TERM PLAN Description Opening Units Subscription Redemption Closing Units Face Value Regular Dividend 6,518, ,955, ,326, ,147, ,477, Regular Growth 8,266, ,179, ,794, ,652, ,521, Regular Weekly Dividend 2,476, ,971, , ,053, Institutional Dividend 3,113, ,091, ,204, Institutional Growth 12,500, ,000, , ,000, Institutional Weekly Dividend 4,553, ,553, INVESTMENT PLAN Description Opening Units Subscription Redemption Closing Units Face Value Regular Dividend 6,441, ,571, ,362, ,649, ,499, Regular Growth 11,671, ,482, ,446, ,707, ,073, Regular Weekly Dividend Institutional Dividend 19,998, ,985, ,013, ,134, Institutional Growth 9,264, ,019, ,764, , ,192, Institutional Weekly Dividend INVESTMENT PLAN Description Opening Units Subscription Redemption Closing Units Face Value Regular Dividend 6,497, ,115, ,172, ,441, ,413, Regular Growth 13,759, ,542, ,630, ,671, ,715, Regular Weekly Dividend Institutional Dividend Institutional Growth 1,785, ,478, ,264, ,642, Institutional Weekly Dividend 5 Previous year s figures have been re-grouped / re-arranged where appropriate. 6 No contingent liabilities for Income Investment and Income Short Term funds for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8. The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

220 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Income Fund (HIF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): HIF-IP: Entry - Nil. Exit - Regular & Institutional Options: 1%, if redeemed / switched out within 1 year from date of investments. HIF-ST: Entry - Nil. Exit - 0.5% for investments in Regular Option, if redeemed/ switched out within 6 months from the date of investment. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. 23

221 Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 24

222 HSBC Global Asset Management HSBC Floating Rate Fund An open-ended income Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

223 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

224 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

225 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Floating Rate Fund (HFRF) - an open-ended Income Scheme HFRF, launched in November 2004, is an open ended Income Scheme that seeks to generate reasonable return with commensurate risk from a portfolio comprised of floating rate debt instruments and fixed rate debt instruments swapped for floating rate returns. The Scheme may also invest in fixed rate money market and debt instruments. There can be no assurance that the Scheme objective can be realised. The Scheme has two Plans - Long Term Plan and Short Term Plan. The net assets of HSBC Floating Rate Fund - Long Term Plan (HFRF - LTP) amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % in debt and money market instruments, 3.34% of the net assets were invested in reverse repos and (7.21)% in net current assets as at March 31, The net assets of HSBC Floating Rate Fund - Short Term Plan (HFRF - STP) amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % of the net assets were invested in reverse repos and 0.68% in net current assets as at March 31, HFRF-LTP has marginally underperformed the benchmark as focus on portfolio quality has impacted portfolio yield to some extent. HFRF - LTP Date of Inception : 16 November, 2004 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years Since Inception HSBC FRF - LTP - Regular Plan - Growth CRISIL Liquid Fund Index Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. HFRF-STP has underperformed the benchmark as incremental investments over the last few months have been made very conservatively in line with the general risk environment. HFRF - STP Date of Inception : 16 November, 2004 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years Since Inception HSBC FRF - STP - Regular Plan - Growth CRISIL Liquid Fund Index Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for 3

226 Trustees' Report For the year ended March 31, 2009 (Contd...) bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. 4

227 Trustees' Report For the year ended March 31, 2009 (Contd...) GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative 5

228 Trustees' Report For the year ended March 31, 2009 (Contd...) market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27, The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Nil. 6. INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and 6

229 Trustees' Report For the year ended March 31, 2009 (Contd...) Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

230 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund - HSBC Floating Rate Fund ("The Scheme") as at March 31, 2009, the related Revenue Account for the year ended on that date annexed thereto and the Cash Flow Statement as applicable for the year ended on that date which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the "Management"). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian/others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. The Balance Sheet, the Revenue Account and the Cash Flow Statement as applicable referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us, (i) The Balance Sheet, the Revenue Account and the Cash Flow Statement as applicable together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and also give respectively, a true and fair view of the state of affairs of HSBC Mutual Fund - HSBC Floating Rate Fund as at March 31, 2009, its net surplus and its cash flows as applicable for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009 and the Revenue Account for the year ended on that date, together with the notes thereon have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto as applicable. (iii) The method used to value: (a) non traded debt securities in accordance with the guidelines for valuation of securities for mutual funds dated September 18, 2000 and amendments thereto, as applicable, issued by the Securities and Exchange Board of India and (b) privately placed debt securities in good faith as at March 31, 2009 as determined by HSBC Asset Management (India) Private Limited under procedures approved by the Board of Trustees of HSBC Mutual Fund are fair and reasonable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date : July 22,

231 Abridged Balance Sheet as at March 31, 2009 Rs. in Lakhs HSBC FLOATING RATE FUND - LONG TERM PLAN As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 39, , Reserves & Surplus 2.1 Unit Premium Reserves 2, Unrealised Appreciation Reserve Other Reserves 3, Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income/Deposits 4.2 Other Current Liabilities & Provisions 3, TOTAL 48, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1, , Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 44, , Certificate of Deposits , Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 47, , Deposits Other Current Assets 3.1 Cash & Bank Balance CBLO/ Reverse Repo Lending 1, Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 48, , Notes to Accounts - Annexure I 9

232 Abridged Balance Sheet as at March 31, 2009 (Contd...) Rs. in Lakhs HSBC FLOATING RATE FUND - SHORT TERM PLAN As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 8, , Reserves & Surplus 2.1 Unit Premium Reserves (53.05) Unrealised Appreciation Reserve 2.3 Other Reserves Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income/Deposits 4.2 Other Current Liabilities & Provisions TOTAL 8, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds 3, Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 4, Certificate of Deposits 4, Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 13, Deposits Other Current Assets 3.1 Cash & Bank Balance CBLO/ Reverse Repo Lending 8, Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 8, , Notes to Accounts - Annexure I 10

233 Abridged Revenue Account for the year ended March 31, 2009 Rs. in Lakhs HSBC FLOATING RATE FUND - LONG TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend 1.2 Interest 2, Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments Realised Gains / (Losses) on External sale / redemption of investments Realised Gains / (Losses) on Derivative Transactions 1.7 Other Income (0.74) (A) 2, EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses Expenses to be Reimbursed by the Investment Manager (10.63) (4.55) (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) 2, Change in Unrealised Depreciation in value of investments (D) NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C-D)] 2, Change in unrealised appreciation in the value of investments (F) (5.48) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) 2, Add: Balance transfer from Unrealised Appreciation Reserve Less: Balance transfer to Unrealised Appreciation Reserve Add / (Less): Equalisation 2, (89.41) 7.4 Transfer from Reserve Fund Transfer from Unit Premium Reserve 8 TOTAL 4, Dividend Appropriation 9.1 Income Distributed during the year / period 1, Tax on income distributed during the year / period Retained Surplus / (Deficit) carried forward to Balance Sheet 2, Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 11

234 Abridged Revenue Account for the year ended March 31, 2009 (Contd...) Rs. in Lakhs HSBC FLOATING RATE FUND - SHORT TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend 1.2 Interest 1, , Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments Realised Gains / (Losses) on External sale / redemption of investments Realised Gains / (Losses) on Derivative Transactions 1.7 Other Income (0.01) (A) 1, , EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses Expenses to be Reimbursed by the Investment Manager (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) 1, , Change in Unrealised Depreciation in value of investments (D) (0.78) 5 NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C-D)] 1, , Change in unrealised appreciation in the value of investments (F) (10.00) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) 1, , Add: Balance transfer from Unrealised Appreciation Reserve Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation (225.10) (549.20) 7.4 Transfer from Reserve Fund Transfer from Unit Premium Reserve 8 TOTAL , Dividend Appropriation 9.1 Income Distributed during the year / period , Tax on income distributed during the year / period Retained Surplus / (Deficit) carried forward to Balance Sheet (43.04) Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 12

235 Key Statistics for the year ended March 31, 2009 HSBC FLOATING RATE FUND - LONG TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option High Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Low Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option 13

236 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC FLOATING RATE FUND - LONG TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, 2008 End Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option 2. Closing Assets Under Management (Rs. in Lakhs) End 45,444 6,944 Average (AAuM) 1 27,867 10, Gross income as % of AAuM % 9.26% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 0.93% 0.80% Regular Daily Dividend Option 0.93% Regular Weekly Dividend Option 0.93% Regular Monthly Dividend Option 0.93% 0.80% Institutional Growth Option 0.45% 0.55% Institutional Daily Dividend Option 0.45% Institutional Weekly Dividend Option 0.45% 0.55% Institutional Fortnightly Dividend Option 0.45% 0.26% Institutional Monthly Dividend Option 0.45% 0.55% Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option b. Management Fee as % of AAuM (planwise) Regular Growth Option 0.26% 0.37% Regular Daily Dividend Option 0.26% Regular Weekly Dividend Option 0.26% 14

237 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC FLOATING RATE FUND - LONG TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, 2008 Regular Monthly Dividend Option 0.26% 0.37% Institutional Growth Option 0.23% 0.32% Institutional Daily Dividend Option 0.23% Institutional Weekly Dividend Option 0.23% 0.32% Institutional Fortnightly Dividend Option 0.23% 0.12% Institutional Monthly Dividend Option 0.23% 0.27% Institutional Plus Growth Option 0.23% Institutional Plus Daily Dividend Option 0.23% Institutional Plus Weekly Dividend Option 0.23% Institutional Plus Monthly Dividend Option 0.23% 5. Net Income as a percentage of AAuM % 8.62% 6. Portfolio turnover ratio 4 7. Total Dividend per unit distributed during the year / period (planwise) Retail Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Corporate Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option 15

238 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC FLOATING RATE FUND - LONG TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, Returns: a. Last One Year Scheme Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option N.A. Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Benchmark CRISIL Liquid Fund Index b. Since Inception Scheme Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Benchnmark CRISIL Liquid Fund Index AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 16

239 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC FLOATING RATE FUND - SHORT TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option High Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Low Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option 17

240 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC FLOATING RATE FUND - SHORT TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, 2008 End Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option 2. Closing Assets Under Management (Rs. in Lakhs) End 8,785 13,994 Average (AAuM) 1 13,315 25, Gross income as % of AAuM % 8.59% 4. Expense Ratio: a. Total Expense as % of AAuM (plan wise) Regular Growth Option 0.70% 0.70% Regular Daily Dividend Option 0.70% 0.70% Regular Weekly Dividend Option 0.70% 0.70% Regular Monthly Dividend Option Institutional Growth Option 0.45% 0.45% Institutional Daily Dividend Option 0.45% 0.45% Institutional Weekly Dividend Option 0.45% 0.45% Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option 0.41% 0.45% Institutional Plus Growth Option 0.41% 0.50% Institutional Plus Daily Dividend Option 0.40% Institutional Plus Weekly Dividend Option 0.41% 0.08% Institutional Plus Monthly Dividend Option b. Management Fee as % of AAuM (plan wise) Regular Growth Option 0.33% 0.32% Regular Daily Dividend Option 0.33% 0.32% Regular Weekly Dividend Option 0.33% 0.32% 18

241 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC FLOATING RATE FUND - SHORT TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, 2008 Regular Monthly Dividend Option 0.33% Institutional Growth Option 0.33% 0.18% Institutional Daily Dividend Option 0.33% 0.18% Institutional Weekly Dividend Option 0.33% 0.19% Institutional Fortnightly Dividend Option 0.33% Institutional Monthly Dividend Option 0.33% 0.14% Institutional Plus Growth Option 0.27% 0.14% Institutional Plus Daily Dividend Option 0.27% 0.21% Institutional Plus Weekly Dividend Option 0.27% 0.06% Institutional Plus Monthly Dividend Option 0.27% 5. Net Income as a percentage of AAuM % 8.05% 6. Portfolio turnover ratio 4 7. Total Dividend per unit distributed during the year / period (planwise) Retail Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Corporate Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option 19

242 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC FLOATING RATE FUND - SHORT TERM PLAN Current Previous Year ended Year ended March 31, 2009 March 31, Returns: a. Last One Year Scheme Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option 6.24 Institutional Plus Monthly Dividend Option Benchmark CRISIL Liquid Fund Index b. Since Inception Scheme Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Regular Monthly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Fortnightly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Benchnmark CRISIL Liquid Fund Index AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. 3 Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 20

243 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC FLOATING RATE FUND 1 Investments: 1.1 It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme s unitholders. 1.2 Open Positions of derivatives for Floating Rate Long Term and Floating Rate Short Term Funds as of March 31, 2009 are NIL. Open Positions of derivatives for Floating Rate Long Term and Floating Rate Short Term Funds as of March 31, 2008 end are NIL. 1.3 There were no investments made in Associates and Group Companies by the schemes for the years ended March 31, 2009 and March 31, Open positions of Securities Borrowed and / or Lent by the schemes as of the year ended March 31, 2009 and March 31, 2008 are NIL. 1.5 NPAs as at years ended March 31, 2009 and March 31, 2008 are NIL. 1.6 Aggregate Unrealised Gain / Loss as at the end of the Financial year and percentage to net assets. FLOATING RATE - LONG TERM FUND PLAN Company Amount Percentage to Amount Percentage to Name (Rs.) Net Assets (Rs.) Net Assets NCDs and Bonds Listed / Awaiting Listing Appreciation Depreciation 663, % NCDs and Bonds Privately Placed Appreciation 837, % Depreciation Asset Backed Securities Appreciation 2,068, % Depreciation 21, % Aggregate Unrealised Gain / Loss at the end of the Financial year ended March 31, 2009 and March 31, 2008 for Floating Rate Short Term is Nil. 1.7 The aggregate value of investments purchased and sold (including matured) during the year (excluding accretion of discount of Rs. 135,102,262 and Rs. 81,656,313 for Long Term and Short Term Plan respectively) Year Plan Aggregate Purchases Aggregate Sales Amount Percentage of Amount Percentage of (Rs.) Average Daily (Rs.) Average Daily Net Assets Net Assets Long Term Plan 27,141,086, % 23,252,509, % Short Term Plan 2,241,718, % 3,687,513, % The aggregate value of investments purchased and sold (including matured) during the year (excluding accretion of discount of Rs. 75,902,327 and Rs. 132,020,767 for Long Term and Short Term Plan respectively) 21

244 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Year Plan Aggregate Purchases Aggregate Sales Amount Percentage of Amount Percentage of (Rs.) Average Daily (Rs.) Average Daily Net Assets Net Assets Long Term Plan 5,581,725, % 5,573,059, % Short Term Plan 19,300,258, % 20,447,395, % 1.8 Non -Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and their percentages to Net assets are as under : FLOATING RATE - LONG TERM FLOATING RATE - SHORT TERM Security Category Fair Value Percentage to Fair Value Percentage (Rs.) Net Assets (Rs.) to Net Assets Debt Instruments 167,973, % Money market Instruments 4,498,647, % TOTAL 4,666,620, % FLOATING RATE - LONG TERM FLOATING RATE - SHORT TERM Security Category Fair Value Percentage to Fair Value Percentage (Rs.) Net Assets (Rs.) to Net Assets Debt Instruments 149,797, % 400,626, % Money market Instruments 527,991, % 962,279, % TOTAL 677,788, % 1,362,906, % 2 Disclosure under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended for the year ended March 31, 2009 is as under: Year During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 12 and Rs. 1,385 and brokerage amounting to Rs. 955,380 and Rs. 1,557,875 for procuring unit subscriptions for the Long Term and Short Term Plan respectively. The brokerage paid was at rates similar to those offered to other distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. Year During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges amounting to Rs. 2,028 and Rs. 5,324 and brokerage amounting to Rs. 906,455 and Rs. 2,395,738 for procuring unit subscriptions for the Long Term and Short Term Plan respectively. The brokerage paid was at rates similar to those offered to other distributors. Further, The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates.

245 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, None of the Investors held more than 25% of the total net assets of the scheme at the years ended March 31, 2009 and March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, FLOATING RATE FUND - LONG TERM PLAN Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth 7,471, ,683, ,793, ,361, ,613, Daily Dividend 13,574, ,855, ,719, ,190, Weekly Dividend 5,879, , ,869, ,698, Monthly Dividend 16,372, ,848, ,084, ,136, ,366, Institutional Growth 16,920, ,657, ,046, ,532, ,323, Institutional Daily Dividend 1,113,238, ,100,776, ,461, ,618, Institutional Fortnightly Dividend 881, ,709, ,045, , ,453, Institutional Weekly Dividend 9,287, ,636, ,057, ,865, ,178,659, Institutional Monthly Dividend 11,075, ,585, ,550, ,109, ,096, FLOATING RATE FUND - SHORT TERM PLAN Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth 11,316, ,562, ,911, ,967, ,674, Regular Dividend 46,612, ,564, ,327, ,849, ,499, Regular Weekly Dividend 21,330, ,296, ,725, ,900, ,005, Institutional Growth 2,558, ,931, ,393, , , Institutional Daily Dividend 3,829, ,051, ,986, ,894, ,949, Institutional Weekly Dividend 10,011, ,733, ,304, ,440, ,409, Institutional Monthly Dividend 4,094, ,730, ,485, ,339, ,394, Institutional Plus Growth 6,400, ,717, ,130, ,987, ,873, Institutional Plus Daily Dividend 11,918, ,478, ,396, Institutional Plus Weekly Dividend 17,920, , ,871, ,580, ,805,

246 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 FLOATING RATE FUND - LONG TERM PLAN Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth 11,979, ,020, ,528, ,471, ,717, Monthly Dividend 27,261, ,417, ,306, ,372, ,721, Institutional Growth 3,394, ,759, ,233, ,920, ,206, Institutional Fortnightly Dividend 7,611, ,730, , ,815, Institutional Weekly Dividend 581, ,271, ,565, ,287, ,871, Institutional Monthly Dividend 14,924, ,380, ,229, ,075, ,750, FLOATING RATE FUND - SHORT TERM PLAN Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth 18,121, ,607, ,412, ,316, ,164, Regular Dividend 88,762, ,715, ,864, ,612, ,127, Regular Weekly Dividend 32,060, ,527, ,257, ,330, ,301, Institutional Growth 10,001, ,529, ,971, ,558, ,588, Institutional Daily Dividend 18,599, ,522, ,292, ,829, ,299, Institutional Weekly Dividend 17,912, ,657, ,558, ,011, ,115, Institutional Monthly Dividend 12,533, ,498, ,938, ,094, ,943, Institutional Plus Growth 1,133,178, ,126,778, ,400, ,003, Institutional Plus Daily Dividend 37,681, ,940,209, ,965,972, ,918, ,184, Institutional Plus Weekly Dividend 27,926, ,005, ,920, ,205, Institutional Monthly Dividend 5 Prior year amounts have been re-grouped and reclassified, wherever applicable, to confirm to current year s presentation. 6 No contingent liabilities for Floating Rate Long Term and Floating Rate Short Term funds for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are Inclusive of Service Tax where applicable. 8 The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 22, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

247 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor / associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Floating Rate Fund (HFRF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions / switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed / switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): HFRF-LT : Entry - Nil. Exit % for investments / switch-in Regular Option, if redeemed / switched out within 3 months from date of Investment. Daily dividend sub-option under Regular and Institutional Option - Nil HFRF-ST : Entry & Exit - Nil. Consult the nearest investor service centre for details. 25

248 The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 26

249 This page is intentionally left blank. 27

250 This page is intentionally left blank.

251 HSBC Global Asset Management HSBC Cash Fund An open-ended liquid Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited

252 Dear Investor, We thank you for investing with HSBC Mutual Fund. We are pleased to inform you that HSBC Mutual Fund has won prestigious awards* this year at various forums in India. The awards* won by our schemes in India are HSBC Equity Fund has been included in the 5 star rated fund category ( Top rated mutual funds by Value Research online) in March, Five-stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns. ICRA Mutual Fund Awards 2009 HSBC MIP - Savings has been ranked a 5-Star Fund by ICRA Online indicating performance among the top 10% in the category of 'Open Ended Marginal Equity' for 3 year performance ending 31 December, CNBC TV18 - CRISIL Mutual Fund Awards 2008 HSBC MIP - Savings was awarded the CNBC TV18 - CRISIL Mutual Fund of the Year Award for the year 2008 in the Monthly Income Plans - Aggressive Category. (Past performance is no guarantee of future results. * Please refer to Ranking methodology and disclaimer mentioned at the end of the Abridged Annual Report for the year ended March 31, 2009). At the global level, the HSBC Group won several awards at Euromoney's Awards for Excellence The top awards that HSBC won were the Best Global Bank and the Best Global Debt House. It was also honoured as the Best Debt House in 8 locations including Asia and the Best at Risk Management in Asia. (Past performance may or may not be sustained in the future and is no guarantee of future results). We continue to be one of the leading players in emerging markets and remain committed to our asset management business in India. HSBC Asset Management (India) Private Limited including the mutual fund business as well as the PMS business (including EPFO money deployed till date) manages assets of about Rs Crores as at 30 June, The core to our winning strategy is our endeavour to deliver consistent performance over the medium to long term for our investors in a risk controlled environment and aim for consistent wealth creation under varying market conditions. Through our product range, we aim to be true to our reputation in India of being a provider of international quality investment products and services. We remain committed to our philosophy of aiming for consistent wealth creation and service excellence and look forward to your continued investments in HSBC Mutual Fund. Yours sincerely, Vikramaaditya Chief Executive Officer HSBC Asset Management (India) Private Limited 1

253 SPONSOR HSBC Securities and Capital Markets (India) Private Limited Regd. Office: 52/60, Mahatma Gandhi Road, Fort, Mumbai TRUSTEE Board of Trustees Office: 314, D. N. Road, Fort, Mumbai ASSET MANAGEMENT COMPANY HSBC Asset Management (India) Private Limited Corp. & Regd. Office: 314, D. N. Road, Fort, Mumbai CUSTODIAN JP Morgan Chase Bank Corp. & Regd. Office: Mafatlal Centre, 9th Floor, Nariman Point, Mumbai AUDITORS TO THE SCHEME Price Waterhouse Chartered Accountants 252, Veer Savarkar Marg, Shivaji Park, Dadar (West), Mumbai LEGAL ADVISORS Bharucha & Partners 4th Floor, Cecil Court, Mahakavi Bhushan Marg, Colaba, Mumbai REGISTRAR & TRANSFER AGENTS Computer Age Management Services (P) Ltd. (CAMS) Rayala Towers, Tower I, III Floor, 158 Anna Salai, Chennai BOARD OF TRUSTEES Mr. N. P. Gidwani - Chairman Dr. Rudolf Apenbrink Mr. Nasser Munjee Mr. Manu Tandon Mr. Mehli Mistri Mr. Dilip J. Thakkar BOARD OF DIRECTORS Ms. Naina Lal Kidwai - Chairman Mr. Ayaz Ebrahim Mr. S. P. Mustafa** Mr. Vithal Palekar Ms. Kishori J. Udeshi* Mr. Vikramaaditya - Chief Executive Officer*** * Ms. Kishori Udeshi has been appointed as a Director with effect from 14 January 2009 and Mr. Jagjit Lal Pasricha has resigned as a Director with effect from 19 January ** Mr. S. P. Mustafa has been appointed as a Director with effect from 2 September 2008 and Mr. Nawshir Khurody has resigned as a Director with effect from 1 September *** Mr. Vikramaaditya has been appointed as the Chief Executive Officer with effect from 16 July 2008 and Mr. Sanjay Prakash has resigned as the Chief Executive Officer with effect from 16 July

254 Trustees' Report For the year ended March 31, 2009 The Trustees present the seventh report and the audited financial statements of the Schemes of HSBC Mutual Fund (the "Fund"), for the year ended March 31, SCHEME PERFORMANCE, FUTURE OUTLOOK AND OPERATIONS OF THE SCHEME a) Operations and Performance of the Scheme HSBC Cash Fund (HCF) - an open-ended Liquid Scheme HCF is a liquid scheme, aims to provide reasonable returns, commensurate with low risk while providing a high level of liquidity, through a portfolio of money market and debt securities. However, there can be no assurance that the scheme objective can be realised. The net assets of HSBC Cash Fund amounted to Rs crores as at March 31, 2009 as compared to Rs crores as at March 31, % were invested in debt and money market instruments, 86.19% of the net assets were invested in reverse repos and 3.66% in net current assets as at March 31, HCF has underperformed the benchmark as incremental investments over the last few months have been made very conservatively in line with the general risk environment. Date of Inception : 4 December, 2002 Compounded Annualized Returns (%) Schemes (P2P) 1 Year 3 Years 5 Years Since Inception HSBC Cash Fund - Regular - Growth CRISIL Liquid Fund Index Past performance may or may not be sustained in future. 'Since inception' returns are calculated on Rs. 10 invested at inception. Calculations are based on Growth NAVs. b) Market Overview & Outlook MARKET OVERVIEW (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Overview The financial year ended 31 March, 2009 was a highly eventful one with long standing institutions disappearing from the landscape in the whirlwind of the sub-prime crisis and derivative losses. The year can be split into three phases - the first from April 2008 till when Lehman Brothers filed for bankruptcy, which saw a blowout commodity rally (crude oil nudged close to USD 144/barrel) and the sub-prime situation turning progressively worse. The United States (US) Government / Federal Reserve bailed out major institutions thought to be critical to the functioning of the financial system. The second phase from September 2008 till January 2009 saw a spate of bankruptcies most notably Lehman Brothers which saw the appearance of an acute level of risk aversion pushing the credit markets into a gridlock. This phase also coincided with the fiscal / monetary stimuli by various governments to take the credit crisis head on. Globally, markets stabilized around their October 2008 lows and a semblance of normality started re-appearing in financial markets in this period. The third phase from February 2009 onwards witnessed a sharp rally as a weakening US Dollar spewed money into emerging markets. The sensex fell by 38% during the financial year. For the financial year 2009, the popular indices viz. BSE Sensex and CNX Nifty were down 37.94% and 36.19% respectively. The BSE Midcap (54.01)% and the broader indices like BSE 200 (40.98)% and BSE 500 (42.77)% also reflected the correction across the markets. Within sectoral indices the best performing indices were BSE FMCG (11.08)% and BSE Oil and Gas (29.58)% while the worst performing indices were BSE Realty (79.37)%, due to the high leverage on the balance sheets, BSE Metals (58.67)%, due to slowdown in global growth and BSE Consumer Durables (58.14)% and BSE Capital goods (53.84%). 3

255 Trustees' Report For the year ended March 31, 2009 (Contd...) In a year that saw sell-off across emerging markets, FIIs were net sellers of the tune USD 10.4 billion in the Indian equity markets while Domestic Institutional Investors (Insurance & Mutual Funds) were buyers to the tune of USD 13.1 billion. Further, FIIs were net sellers in the derivative markets as hedge funds, and p-notes unwound positions in a rapidly deleveraging world. Thus, sentiment remained negative as few US based investment banks filed for bankruptcy in the midst of the liquidity and credit crisis and safety took precedence over growth. Debt Market Overview Two contrarian forces one inflationary and the other deflationary had been in play since 2007: On the one hand strong demand from emerging economies were leading commodities higher and fuelling inflation, while on the other the housing led credit crisis in the US was starting to exert a deflationary force. The first force was dominant till early July 2008 leading commodity prices to fresh peaks and inflation to multi year highs. Since then, however, the second force took hold with the result that commodity prices fell sharply from the top, growth and inflation numbers toppled worldwide, and central bankers shifted focus to achieving financial stability and protecting growth. The financial crisis hit the domestic markets towards September 2008, leading to acute disruption in money markets. The Reserve Bank of India (RBI) acted proactively cutting the cash reserve ratio (CRR) by an unprecedented 400 bps between September 2008 and January Similarly, the reverse repo rate had been cut by 275 bps since October 2008 while the repo rate had been cut by 425 bps over the same period. Bond market yields fell in line with the unprecedented monetary easing up till the first week of January Thereon, supply pressures on bond markets rose as a result of government fiscal slippages aimed at stimulating the economy. The RBI, in line with similar measures elsewhere in the world, started buying government securities to lessen the impact on yields from the rise in government borrowing. Although this helped market sentiment, it could not prevent a general rise in yields towards fiscal close. As a result, the 10 year benchmark sovereign yield closed the fiscal at 7% from a low of sub 5% hit in early January Money market rates stabilized after the initial mayhem of September 2008 and October 2008 and liquidity came back to interbank markets. MARKET OUTLOOK (as furnished by HSBC Asset Management (India) Private Limited) Equity Market Outlook Financial Year (FY) was a year marked by a strong correlation between the Indian market and global markets with key indices ending deeply in the red on the back of the subprime crisis and derivative led losses across major financial stocks in the United States (US). Even in India, forex losses ran across corporate India though at a smaller magnitude. FY 10 has begun on a better note on account of various fundamental and technical factors. GDP for FY 09 grew at 6.7% against FY 08 levels of 9%. Agriculture posted a below trend growth rate of 1.6% and industry grew by 3.9% (versus 8.1% in FY 08) with services registering a close to 9.7% growth. IIP grew by a mere 2.6%. Although order books of engineering / capital goods were running at record high levels, there was possibility of delays in execution as funding sources for the developers (equity, ECB, private equity, FCCB) had dried up. A sharp increase in subsidy on account of oil, fertilizers and food led to a cut back in discretionary spending. Inflation rose on the back of a surging crude and higher prices of agricultural commodities to top at 12.91% for the week ending 2 August, A slow down in the growth rates in the US / EU and other markets finally tamed the surge in crude. As growth rates stumbled, governments / monetary authorities the world over triggered fiscal stimuli / monetary easing to escape recessionary forces. This was followed in India as well which started monetary easing / fiscal stimuli to keep growth rates buoyant. On the positive side, India continues to do better in relative terms and we expect GDP growth of 6-6.5% for FY10. The broad themes that are driving domestic growth viz. capital expenditure, infrastructure building and domestic consumption are still intact. The key concerns at this point 4

256 Trustees' Report For the year ended March 31, 2009 (Contd...) stems from a ballooning fiscal deficit at the consolidated level (Centre & State) with salary revision for Central / State Government employees threatening a cut back in discretionary spending. Inflation is likely to remain benign for the first half of FY10 on a favourable base effect but we anticipate it to go back to trend levels of 5-5.5% for the second half of FY10 as this base effect wears off. On a valuations perspective, the markets are currently trading at a P/E ratio of around 12 times FY 2010 earnings. This is well below the 10-year average given the extreme risk aversion prevailing in the markets. However, the underlying growth in the economy and corporate earnings growth (15% in the long term) makes the market attractive from a longer-term view. The short term could see enhanced volatility arising from various factors. Increase in commodity prices continues to be a risk in the medium term as the US dollar continues to struggle with the ballooning US fiscal situation. Debt Market Outlook Excess supply of government bonds, as a result of fiscal slippages to arrest the downward growth momentum, has been a reality for bond markets since January However, this is now compounded with some fatigue in buying longer duration as economic data is showing signs of recovery, commodities are showing signs of rally and expectations of incremental monetary easing from the RBI are beginning to unwind. However, system liquidity remains surplus and bank deposits continue to grow thereby providing resistance to bond yields from rising sharply. Given the above factors, we believe that the market would continue to provide tactical opportunities although the fundamental bias should be for lower duration. Also, any mitigation of bond supply pressure or a new downturn in the ongoing economic recovery may provide space for opportunistic longer duration plays. On the other hand, if the recovery cycle continues uninterrupted and commodity prices remain firm, central banks may start to worry about withdrawing the current monetary stimulus by sometime early 2010; with consequent impact on bond markets. 2. BRIEF BACKGROUND OF SPONSORS, BOARD OF TRUSTEES AND ASSET MANAGEMENT COMPANY a) Sponsor HSBC Mutual Fund is sponsored by HSBC Securities and Capital Markets (India) Private Limited (HSCI). The Sponsor is the Settler of the Mutual Fund Trust. The Sponsor has entrusted a sum of Rs. 1,00,000 (Rupees One Lakh only) to the Trustee as the initial contribution towards the corpus of the Mutual Fund. HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through long-established businesses in five regions: Europe, Asia-Pacific, Middle East, America and Africa. Through its global network of 10,000 offices in 86 countries and territories, HSBC provides a comprehensive range of financial services to personal, commercial, corporate, institutional investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I merchant banker and underwriter registered with Securities and Exchange Board of India. HSCI holds 100% of the paid-up equity share capital of the AMC. b) HSBC Mutual Fund HSBC Mutual Fund ("the Mutual Fund" or "the Fund") has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 (2 of 1882) vide a Trust Deed dated February 7, 2002 with HSBC Securities and Capital Markets (India) Private Limited, as the Sponsor and the Board of Individual Trustees. The Trustee has entered into an Investment Management Agreement dated February 7, 2002 with HSBC Asset Management (India) Private Limited (the AMC) to function as the Investment Manager for all the Schemes of the Fund. The Fund was registered with SEBI vide registration number MF/046/02/5 dated May 27,

257 Trustees' Report For the year ended March 31, 2009 (Contd...) The Trust has been formed for the purpose of pooling of capital from the public for collective investment in securities / any other property for the purpose of providing facilities for participation by persons as beneficiaries in such properties / investments and in the profits / income arising therefrom. c) Board of Trustees (the Trustees) The Board of Trustees are the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the unitholders. The Trustees have been discharging their duties and carrying out their responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustees seeks to ensure that the Fund and the Schemes floated thereunder are managed by the AMC in accordance with the Trust Deed, the said Regulations, directions and guidelines issued by SEBI, the Stock Exchanges, the Association of Mutual Funds of India and other regulatory agencies. d) Asset Management Company (the AMC) HSBC Asset Management (India) Private Limited (the Investment Manager or the AMC) is a private limited company incorporated under the Companies Act, 1956 on December 12, 2001 having its Registered Office at 314, D. N. Road, Fort, Mumbai HSBC Asset Management (India) Private Limited has been appointed as the Asset Management Company of the HSBC Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated February 7, 2002 and executed between the Trustees and the AMC. SEBI approved the AMC to act as the Investment Manager of the Fund vide. its letter No. MFD/BC/163/2002 dated May 27, The paid-up equity share capital of the AMC is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the paid-up equity share capital of the AMC. 3. INVESTMENT OBJECTIVE OF THE SCHEME The investment objective of the Scheme has been provided above under the heading "Scheme Performance, Future Outlook and Operation of the Scheme" (refer Section 1). 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies are in accordance with Securities and Exchange Board of India (Mutual Funds) Regulations, UNCLAIMED DIVIDENDS & REDEMPTIONS Nil. 6. INVESTOR SERVICES During the year, the number of official points of acceptance of transactions increased significantly to about 182 locations. In addition to the offices of the transfer agency, the company has Investor Service Centres in 14 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the facility of crediting investor bank accounts directly by way of NEFT / RTGS (for credit of redemption and dividend proceeds). The AMC endeavours to despatch dividend proceeds within 5 working days from the Record Date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan also increased to about 74 by March On the distribution front, the number of empanelled distributors increased from 7859 as on 31 March, 2008 to 8632 as on 31 March, During the year, the Asset Management Company initiated tie-ups for online distribution of the Mutual Fund's schemes with several channel partners taking the total number of such tie-ups to 24 (Angel Capital & Department Market Ltd., Bajaj Capital Limited, Bonanza Portfolio Limited, Citibank N.A., Citigroup Wealth Advisors India Private Limited, 6

258 Trustees' Report For the year ended March 31, 2009 (Contd...) HDFC Bank Limited, Hongkong & Shanghai Banking Corporation Limited, HSBC Corporate Investment Solution Services, ICICI Securities Limited, India Infoline Limited, Karvy Stock Broking Limited, Kotak Mahindra Bank Limited, Kotak Securities Limited, Motilal Oswal Securities Limited, NJ India Invest Private Limited, Reliance Securities Limited, RR Investors Capital Services Private Limited, SBICAP Securities Limited, Sharekhan Limited, SMC Global Securities Limited, Standard Chartered - STCI Capital Markets Ltd., Tom Distribution Services Limited, Yes Bank Limited). Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). 7. STATUTORY DETAILS a) The Sponsors are not responsible or liable for any loss resulting from the operation of the Schemes of the Fund beyond initial contribution of Rs. 1 lakh for setting up the Fund. b) The price and redemption value of the units, and income from them, can go up as well as down with fluctuations in the market value of its underlying investments. c) Full / Abridged Annual Report shall be disclosed on the website at and shall be available for inspection at the Head Office of the mutual fund. Present and prospective unit holder can obtain copy of the trust deed, the Full / Abridged Annual Report of the Scheme(s), the Annual Report of HSBC Asset Management (India) Private Limited and the text of the relevant Scheme(s) at a price. 8. ACKNOWLEDGEMENTS The Trustees wish to thank the Unitholders of the Schemes for their support throughout the year and also thank the Government of India, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) and the Association of Mutual Funds in India (AMFI) for the guidance provided by them. The Trustees also appreciate the service provided by the Registrar and Transfer Agent, Fund Accountant, Custodian, Bankers, Distributors and Brokers. The guidance and services provided by the Auditors and advocates and the ebullience, sincerity and dedication of the employees of HSBC Asset Management (India) Private Limited is also appreciated. The Trustees look forward to the continued support of everyone. For and on behalf of the Board of Trustees of HSBC Mutual Fund Dilip J. Thakkar Trustee MUMBAI July 6,

259 Auditors' Report To the Board of Trustees of HSBC MUTUAL FUND 1. We have audited the Balance Sheet of HSBC Mutual Fund HSBC Cash Fund (The Scheme ) as at March 31, 2009, the related Revenue Account for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date which we have signed under reference to this report. These financial statements are the responsibility of the Board of Trustees of HSBC Mutual Fund and the Management of HSBC Asset Management (India) Private Limited (the Management ). Our responsibility is to express an opinion on these financial statements based on our audit. 2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 and unit capital balances as at March 31, 2009 by correspondence with the custodian / others and registrar and transfer agent respectively. An audit also includes assessing the accounting principles used and significant estimates made by the Management as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. The Balance Sheet, the Revenue Account and the Cash Flow Statement referred to above are in agreement with the books of account of the Scheme. 4. In our opinion and to the best of our information and according to the explanations given to us; (i) The Balance Sheet, the Revenue Account and the Cash Flow Statement together with the notes thereon give the information required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and the amendments thereto, as applicable, and also give respectively a true and fair view of the state of affairs of HSBC Mutual Fund HSBC Cash Fund as at March 31, 2009, its net surplus and its cash flows for the year ended on that date. (ii) The Balance Sheet as at March 31, 2009, and the Revenue Account for the year ended on that date, together with the notes thereon, have been prepared in all material respects in accordance with the accounting policies and standards specified in the Ninth Schedule of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable. (iii) The method used to value: (a) non-traded debt securities in accordance with the guidelines for valuation of securities for mutual funds dated September 18, 2000 and amendments thereto, as applicable, issued by the Securities and Exchange Board of India and (b) privately placed securities in good faith as at March 31, 2009 as determined by HSBC Asset Management (India) Private Limited under procedures approved by the Board of Trustees of HSBC Mutual Fund are fair and reasonable. Partha Ghosh Partner Membership No. F / For and on behalf of PRICE WATERHOUSE Chartered Accountants Place : Mumbai Date: July 6,

260 Abridged Balance Sheet as at March 31, 2009 HSBC CASH FUND Rs. in Lakhs As at As at March 31, 2009 March 31, 2008 LIABILITIES 1 Unit Capital 46, , Reserves & Surplus 2.1 Unit Premium Reserves Unrealised Appreciation Reserve 2.3 Other Reserves 3, , Loans & Borrowings 4 Current Liabilities & Provisions 4.1 Provision for doubtful Income / Deposits 4.2 Other Current Liabilities & Provisions 1, , TOTAL 50, , ASSETS 1 Investments 1.1. Listed Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds 1, , Securitised Debt securities 1.2 Securities Awaited Listing: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds Securitised Debt securities 1.3 Unlisted Securities: Equity Shares Preference Shares Equity Linked Debentures Other Debentures & Bonds 1, Securitised Debt securities 6, Government Securities 1.5 Treasury Bills 1.6 Commercial Paper 2, , Certificate of Deposits , Bill Rediscounting 1.9 Units of Domestic Mutual Fund 1.10 Foreign Securities Total Investments 4, , Deposits 2, Other Current Assets 3.1 Cash & Bank Balance , CBLO / Reverse Repo Lending 42, Others Deferred Revenue Expenditure (to the extent not written off) TOTAL 50, , Notes to Accounts - Annexure I 9

261 Abridged Revenue Account for the year ended March 31, 2009 HSBC CASH FUND Rs. in Lakhs Current Previous Year ended Year ended March 31, 2009 March 31, INCOME 1.1 Dividend 1.2 Interest 12, , Realised Gain / (Loss) on Foreign Exchange Transactions 1.4 Realised Gains / (Losses) on Interscheme sale of investments Realised Gains / (Losses) on External sale / redemption of investments Realised Gains / (Losses) on Derivative Transactions 1.7 Other Income (A) 12, , EXPENSES 2.1 Management fees Service tax on Management fees ** 2.3 Transfer agents fees and expenses Custodian fees Trusteeship fees Commission to Agents * 2.7 Marketing & Distribution expenses Audit fees Other operating expenses Expenses to be Reimbursed by the Investment Manager (5.26) (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD (A - B = C) 11, , Change in Unrealised Depreciation in value of investments (D) (0.07) (7.10) 5 NET GAINS / (LOSSES) FOR THE YEAR / PERIOD [E = (C - D)] 11, , Change in unrealised appreciation in the value of investments (F) 7 NET SURPLUS / (DEFICIT) FOR THE YEAR / PERIOD (E + F = G) 11, , Add: Balance transfer from Unrealised Appreciation Reserve 7.2 Less: Balance transfer to Unrealised Appreciation Reserve 7.3 Add / (Less): Equalisation (9,632.76) (13,013.73) 7.4 Transfer from Reserve Fund Transfer from Unit Premium Reserve TOTAL 2, , Dividend Appropriation 9.1 Income Distributed during the year / period 5, , Tax on income distributed during the year / period 1, , Retained Surplus / (Deficit) carried forward to Balance Sheet (4,410.04) (4,363.83) Notes to Accounts - Annexure I * Commission to Agents is included in Marketing & Distribution Expenses. ** Service Tax on Management Fees is included in Other Operating Expenses. 10

262 Key Statistics for the year ended March 31, 2009 HSBC CASH FUND Current Previous Year ended Year ended March 31, 2009 March 31, NAV per unit (Rs.): Open Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option High Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Low Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option End Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option

263 Key Statistics for the year ended March 31, 2009 (Contd...) HSBC CASH FUND Current Previous Year ended Year ended March 31, 2009 March 31, Closing Assets Under Management (Rs. in Lakhs) End 49, ,903 Average (AAuM) 1 151, , Gross income as % of AAuM % 7.96% 4. Expense Ratio: a. Total Expense as % of AAuM (planwise) Regular Growth Option 0.79% 0.65% Regular Daily Dividend Option 0.79% 0.65% Regular Weekly Dividend Option 0.79% 0.65% Institutional Growth Option 0.57% 0.50% Institutional Daily Dividend Option 0.57% 0.50% Institutional Weekly Dividend Option 0.57% 0.50% Institutional Monthly Dividend Option 0.57% 0.50% Institutional Plus Growth Option 0.30% 0.36% Institutional Plus Daily Dividend Option 0.30% 0.32% Institutional Plus Weekly Dividend Option 0.30% 0.32% Institutional Plus Monthly Dividend Option 0.30% 0.35% b. Management Fee as % of AAuM (planwise) Regular Growth Option 0.24% 0.33% Regular Daily Dividend Option 0.24% 0.31% Regular Weekly Dividend Option 0.24% 0.31% Institutional Growth Option 0.24% 0.25% Institutional Daily Dividend Option 0.24% 0.26% Institutional Weekly Dividend Option 0.24% 0.27% Institutional Monthly Dividend Option 0.24% 0.26% Institutional Plus Growth Option 0.24% 0.25% Institutional Plus Daily Dividend Option 0.24% 0.20% Institutional Plus Weekly Dividend Option 0.24% 0.20% Institutional Plus Monthly Dividend Option 0.24% 0.11% 5. Net Income as a percentage of AAuM % 7.57% 6. Portfolio turnover ratio 4 7. Total Dividend per unit distributed during the year / period (planwise) Retail Regular Daily Dividend Option Regular Weekly Dividend Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Monthly Dividend Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Corporate Regular Daily Dividend Option Regular Weekly Dividend Option Institutional Daily Dividend Option Institutional Weekly Dividend Option

264 Key Statistics for the year ended March 31, 2009 (Contd...) Institutional Monthly Dividend Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Returns: a. Last One Year Scheme Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Benchmark CRISIL Liquid Fund Index b. Since Inception Scheme Regular Growth Option Regular Daily Dividend Option Regular Weekly Dividend Option Institutional Growth Option Institutional Daily Dividend Option Institutional Weekly Dividend Option Institutional Monthly Dividend Option Institutional Plus Growth Option Institutional Plus Daily Dividend Option Institutional Plus Weekly Dividend Option Institutional Plus Monthly Dividend Option Benchnmark CRISIL Liquid Fund Index AAuM = Average daily net assets 2 Gross income = amount against (A) in the Revenue Account i.e. Income. HSBC CASH FUND Current Previous Year ended Year ended March 31, 2009 March 31, Net income = amount against (C) in the Revenue Account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 4 Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year / period. 13

265 Notes to Accounts - Annexure I To the Abridged Balance Sheet and Revenue Account for the year ended March 31, 2009 HSBC CASH FUND 1 Investments: 1.1 It is confirmed that investments of the schemes are registered in the name of the Trustees for the benefit of the scheme s unitholders. 1.2 Open Positions of derivatives as of March 31, 2009 is NIL. Open Positions of derivatives as of March 31, 2008 end is NIL. 1.3 Investments in Associates and Group Companies: (Rupees) Issuer Instrument Amount Aggregate Amount Aggregate Type Investments Investments by all schemes by all schemes The Hongkong & Fixed Deposits 43,000,000 1,654,000,000 Shanghai Banking Corporation Ltd. 1.4 Open position of Securities Borrowed and / or Lent by the scheme as of financial years ended 2009 and 2008 are NIL. 1.5 The NPAs as on March 31, 2009 and March 31, 2008 are NIL. 1.6 Aggregate Unrealised Gain / Loss as at the end of the Financial year March 31, 2009 and March 31, 2008 are as under : Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets NCDs and Bonds Listed / Awaiting Listing Appreciation Depreciation 7, % 1.7 The aggregate value of investment purchased (excluding accretion of discount of Rs.765,499,693) and sold (including matured) during the financial year are Rs. 113,034,775,451 and Rs. 126,356,785,527 respectively being % and % of the average daily net assets. The aggregate value of investment purchased (excluding accretion of discount of Rs. 1,075,298,398) and sold (including matured) during the financial year are Rs. 139,051,689,509 and Rs. 144,543,000,959 respectively being % and % of the average daily net assets. 1.8 Non-Traded securities in the portfolio: Aggregate Value of Equity, Debt & Money Market Instruments and percentage to net assets is as under : Security Amount Percentage to Amount Percentage to Category (Rs.) Net Assets (Rs.) Net Assets Debt Instruments 254,528, % 2,760,396, % Money market Instruments 245,246, % 10,285,062, % Total 499,774, % 13,045,459, % 14

266 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Disclosure Under Regulation 25(8) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended. Year During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges Rs. 56,595 and brokerage amounting to Rs. 5,558,917 for procuring unit subscriptions for the Scheme. The brokerage paid was at rates similar to those offered to other distributors. Further The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. Year During the year, The Hongkong and Shanghai Banking Corporation Limited, an associate entity of HSBC Asset Management (India) Private Limited was paid collection / bank charges Rs. 68,500 and brokerage amounting to Rs. 8,336,258 for procuring unit subscriptions for the Scheme. The brokerage paid was at rates similar to those offered to other distributors. Further The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. Further The Hongkong and Shanghai Banking Corporation Limited, an associate of the Sponsor, is on the panel of bankers with whom HSBC Mutual Fund places money on fixed deposits and enters into reverse repo transactions from time to time at competitive rates. HSBC Mutual Fund also enters into transactions in Government securities at market rates with HSBC Primary Dealership (India) Private Limited, a subsidiary of the Sponsor. 3 None of the Investors held more than 25% of the total net assets of the scheme at the years ended March 31, 2009 and March 31, Unit Capital movement during the years ended March 31, 2009 and March 31, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 23,543, ,745, ,836, ,452, ,525, Regular Daily Dividend Option 168,782, ,519, ,348, ,952, ,179,529, Regular Weekly Dividend Option 31,459, ,387, ,662, ,184, ,842, Institutional Growth Option 17,227, ,060, ,661, ,626, ,267, Institutional Daily Dividend Option 139,058, ,679, ,958, ,779, ,793, Institutional Weekly Dividend Option 7,110, ,907, ,087, ,930, ,302, Institutional Monthly Dividend Option 2,187, ,871, ,504, , ,547, Institutional Plus Growth Option 206,514, ,440,717, ,602,240, ,991, ,919, Institutional Plus Daily Dividend Option 608,832, ,426,054, ,872,651, ,235, ,622,353, Institutional Plus Weekly Dividend Option 18,231, ,132,765, ,124,658, ,337, ,378, Institutional Plus Monthly Dividend Option 3,867, ,243, ,066, ,043, ,436,

267 Notes to Accounts - Annexure I (Contd...) To the Abridged Balance Sheet and Revenue Account for the year ended March 31, Description Opening Units Subscription Redemption Closing Units Face Value Regular Growth Option 93,905, ,012, ,374, ,543, ,433, Regular Daily Dividend Option 272,379, ,286, ,882, ,782, ,687,829, Regular Weekly Dividend Option 46,016, ,297, ,854, ,459, ,591, Institutional Growth Option 18,410, ,624, ,807, ,227, ,279, Institutional Daily Dividend Option 82,863, ,500,844, ,444,650, ,058, ,390,581, Institutional Weekly Dividend Option 22,430, ,117, ,437, ,110, ,103, Institutional Monthly Dividend Option 2,778, , ,431, ,187, ,876, Institutional Plus Growth Option 495,519, ,231,308, ,520,313, ,514, ,065,149, Institutional Plus Daily Dividend Option 630,269, ,896,483, ,917,920, ,832, ,088,323, Institutional Plus Weekly Dividend Option 82,607, ,121,520, ,185,896, ,231, ,314, Institutional Plus Monthly Dividend Option 3,639, ,373, ,146, ,867, ,671, Previous year s figures have been re-grouped / re-arranged where appropriate. 6 No contingent liabilities for the years ended March 31, 2009 and March 31, Expenses other than Management Fees are inclusive of Service Tax where applicable. 8. The Annual Accounts of the Schemes prepared in accordance with the accounting policies and standards specified in the Ninth Schedule of The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 has been approved by the Board of Directors of HSBC Asset Management (India) Private Limited and The Board of Trustees of HSBC Mutual Fund at their meeting held on July 06, The audit report attached herewith refers to the said annual accounts. The aforesaid abridged accounts are an extract of the Annual Accounts and are prepared in accordance with SEBI Circular No. IMD/Cir 8/132968/2008 dated July 24,

268 DISCLAIMERS The content of this report has been prepared by HSBC Asset Management (India) Private Limited (HSBC) for information purposes only and should not be construed as an offer or solicitation of an offer for purchase of any of the funds of HSBC Mutual Fund. The information is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds inherently involve risks and investors should read the relevant documents / information for details and risk factors and consult their legal, tax and financial advisors before investing. Investors should understand that statements made herein regarding future prospects may not be realised. Neither this document nor the units of HSBC Mutual Fund have been registered in any jurisdiction. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. Investors may obtain Statement of Additional Information, Combined Scheme Information Document and Common Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314, D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs. 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/ AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Cash Fund (HCF) is the names of the Scheme and does not in any manner indicate the quality of the Scheme or its future prospects or returns. Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/ switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. Load Structure (includes SIP/STP): Entry / Exit load: Nil. Consult the nearest investor service centre for details. The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. Mutual Fund investments are subject to market risks. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. 17

269 Value Research Online Disclaimer Value Research Fund Ratings: Value Research Fund Ratings are a composite measure of historical riskadjusted returns. In the case of equity funds this rating is based on the average monthly returns for the last 3-year and 5-year period. These ratings do not take into account any entry or exit load. Value Research Fund Ratings are subject to change every month. Current Fund Ratings are as on March 31, open-ended Equity: Diversified Funds were rated. The Rating is based on primary data provided by respective funds; Value Research does not guarantee the accuracy. Ranking Entity: Value Research Online. ICRA Online Ranking Methodology HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. CRISIL Ranking Methodology The selection for the awards is based on the CRISIL FundServices' Composite Performance Ranking (CRISIL~CPR) methodology. The CRISIL Composite Performance Ranking (CRISIL~CPR) is a quarterly ranking of mutual fund schemes based on two year performance (excepting for the liquid and short term debt categories where a one year performance horizon is considered). The methodology is based on global best practices, customized to account for Indian market nuances. Over time, the rankings have become the industry standard with good acceptance among Investors, Fund Intermediaries, Asset Management Companies, etc. The performance criteria covers not only risk adjusted returns, which are historical, but also the portfolio constitution to make the analysis forward looking. CRISIL Disclaimer The overall ranking is assigned to the scheme based on its weighted average score on a range of parameters: Superior Return Score, Concentration, Liquidity, Asset Quality - Measures the credit quality of the portfolio, Average Maturity and Asset Size. HSBC MIP - Savings was the only scheme that won the CNBC TV18 - CRISIL Mutual Fund of the Year Award in the Category - Monthly Income Plans - Aggressive. In total 13 schemes were eligible for the award universe. Schemes present in all four quarterly CRISIL CPRs were considered for the award. The award is based on consistency of the scheme's performance in the four quarterly CRISIL CPR rankings released during the calendar year The individual CRISIL CPR parameter scores averaged for the four quarters were further multiplied by the parameter weights as per the CRISIL CPR methodology to arrive at the final scores. A detailed methodology of the CRISIL CPR is available at Past performance is no guarantee of future results. Rankings and Award Source: CRISIL Fund Services, CRISIL Ltd. HSBC Monthly Income - Savings Plan has been ranked as a Five Star Fund in the category of 'Open Ended Marginal Equity' schemes for its 3 year performance till December 31, The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, portfolio turnover and liquidity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 27 schemes considered in 'Open Ended Marginal Equity' category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income - Savings Plan. Ranking Source & Publisher: ICRA Online Limited. 18

270 This page is intentionally left blank. 19

271 HSBC Global Asset Management HSBC Ultra Short Term Bond Fund An open-ended debt Scheme Abridged Annual Report Issued by HSBC Asset Management (India) Private Limited