HSBC Portfolios. Audited Annual Report for the year ended 31 July 2014

Transcription

1 HSBC Portfolios Audited Annual Report for the year ended 31 July 2014 R.C.S. Luxembourg B , boulevard d Avranches L-1160 Luxembourg Grand Duchy of Luxembourg

2 No subscription can be received on the basis of financial reports. Subscriptions are only valid if made on the basis of the current Prospectus accompanied by the latest annual and the most recent semi-annual report, if published thereafter. Audited annual report for the year ended 31 July 2014

3 Table of Contents General Information 2 Directors Report 6 Report of the Réviseur d Entreprises agréé 9 Statement of Net Assets 10 Statement of Operations 11 Statement of Changes in Net Assets 12 Statement of Changes in Shares Issued 13 Statistical Information 15 Notes to the Financial Statements 17 Schedules of Investments and Other Net Assets HSBC Portfolios World Selection 1 28 HSBC Portfolios World Selection 2 38 HSBC Portfolios World Selection 3 48 HSBC Portfolios World Selection 4 56 HSBC Portfolios World Selection 5 64 Fund Holiday Calendar for

4 General Information Directors George Efthimiou (Chairman), Global Chief Operating Officer (Appointed as Chairman with effect from 9 July 2014) HSBC Global Asset Management Limited, 78 St James Street, London SW1A 1HL, United Kingdom Dr. Michael Boehm, Chief Operating Officer HSBC Global Asset Management (Deutschland) GmbH Königsallee 21/23, Düsseldorf, Germany Dean Lam, Managing Director HSBC Bank (Mauritius) Limited, 6 th Floor, HSBC Centre, 18 CyberCity, Ebene, Mauritius Eimear Cowhey, Independent Director (Appointed with effect from 9 July 2014) Resident in the Republic of Ireland Peter Dew, Independent Director (Appointed with effect from 29 August 2014) Resident in the United Kingdom Jean de Courrèges, Independent Director (Appointed with effect from 20 September 2013) Carne Global Financial Services Luxembourg S.à r.l., European Banking and Business Centre, 6B route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg John Li, Independent Director (Appointed with effect from 20 September 2013) The Directors Office S.A., 19 rue de Bitbourg, L-1273 Luxembourg, Grand Duchy of Luxembourg Didier Deleage, Chief Operating Officer (Resigned 30 May 2014) HSBC Global Asset Management (France), Immeuble Ile de France, 4, Place de la Pyramide, La Défense 9, Puteaux, France Thies Clemenz, Chief Executive Officer (Resigned 19 September 2013) HSBC BANK ARMENIA CJSC Main Office, 66 Teryan Street, Yerevan 0009 Republic of Armenia Edgar Ng, Director, Head of Business Support Asia Pacific (Resigned 19 September 2013) HSBC Global Asset Management (Hong Kong) Limited, HSBC Main Building, 1 Queen's Road Central, Hong Kong David Silvester, Head of Product Governance and Regulation Global Funds (Resigned 23 September 2014) HSBC Global Asset Management (UK) Limited, 78 St James Street, London SW1A 1HL, United Kingdom Sylvie Vigneaux, Head of Regulatory and Wealth Engineering (Resigned 9 July 2014) HSBC Global Asset Management (France), Immeuble Ile de France, 4, Place de la Pyramide, La Défense 9, Puteaux, France 2

5 General Information (continued) Registered Office 16, boulevard d Avranches L-1160 Luxembourg Grand Duchy of Luxembourg Administrator, Custodian, Corporate and Domiciliary Agent HSBC Securities Services (Luxembourg) S.A.** 16, boulevard d Avranches L-1160 Luxembourg Grand Duchy of Luxembourg Paying Agent HSBC Securities Services (Luxembourg) S.A.** 16, boulevard d Avranches L-1160 Luxembourg Grand Duchy of Luxembourg Registrar and Transfer Agent RBC Investor Services Bank S.A.* (Until 23 March 2014) 14, Porte de France L-4360 Esch-sur-Alzette Grand Duchy of Luxembourg HSBC Securities Services (Luxembourg) S.A.** (Appointed with effect from 24 March 2014) 16, boulevard d Avranches L-1160 Luxembourg Grand Duchy of Luxembourg Management Company HSBC Investment Funds (Luxembourg) S.A. 16, boulevard d'avranches L-1160 Luxembourg Grand Duchy of Luxembourg Réviseur d'entreprises agréé KPMG Luxembourg S.à r.l. 9, Allée Scheffer L-2520 Luxembourg Grand Duchy of Luxembourg Legal Advisers Elvinger, Hoss & Prussen 2, Place Winston Churchill L-1340 Luxembourg Grand Duchy of Luxembourg Investment Adviser HSBC Global Asset Management (UK) Limited 78 St James's Street London SW1A 1EJ United Kingdom *RBC Investor Services Limited, the holding company of RBC Investor Services Bank S.A., was put into liquidation on 5 September As a result of this liquidation and the transfer of the participation, RBC Investor Services Bank S.A. became 100% owned by Royal Bank Holding Inc., a 100% owned subsidiary of Royal Bank of Canada. There was no impact on the main operating entities, their subsidiaries or branches. ** With effect from close of business on 14th November 2014, these activities have been transferred to HSBC Bank plc, Luxembourg branch. 3

6 General Information (continued) Distributors Global Distributor HSBC Investment Funds (Luxembourg) S.A. 16, boulevard d'avranches L-1160 Luxembourg Grand Duchy of Luxembourg Austria and Eastern Europe Distributor HSBC Trinkaus & Burkhardt AG Königsallee 21/23 D Düsseldorf Germany Continental Europe Distributor HSBC Global Asset Management (France) Immeuble Ile de France, 4, Place de la Pyramide, La Défense Puteaux France Hong Kong Representative and Distributor HSBC Investment Funds (Hong Kong) Limited HSBC Main Building, 1 Queen's Road Central Hong Kong Jersey Representative and Distributor HSBC Global Asset Management (International) Limited HSBC House, Esplanade, St Helier Jersey JE4 8WP Channel Islands Middle East Distributor HSBC Bank Middle East Limited HSBC House, Esplanade, St Helier Jersey JE4 8UB Channel Islands Singapore Representative and Distributor HSBC Global Asset Management (Singapore) Limited 21 Collyer Quay, #06-01 HSBC Building Singapore Singapore United Kingdom Representative and Distributor HSBC Global Asset Management (UK) Limited 8 Canada Square London E14 5HQ United Kingdom 4

7 General Information (continued) Note on the risk management HSBC Investment Funds (Luxembourg) S.A. (the Management Company ) uses a risk management process that allows monitoring the risk of the portfolio positions and their share of the overall risk profile of the portfolios on the managed funds at any time. In accordance with the Law of 17 December 2010 and the applicable regulatory requirements of the Commission de Surveillance du Secteur Financier ("CSSF") the Management Company reports to the CSSF on a regular basis on the risk management process. The Management Company assures, at the basis of appropriate and reasonable methods, that the overall risk, associated with derivatives, does not exceed the net asset value of the portfolio. For HSBC Portfolios, the Management Company uses the "commitment approach" for the calculation of the global exposure. The "commitment approach" is based on the positions of derivative financial instruments, converted into their corresponding underlying equivalents using the delta approach. Netting and Hedging might be considered for derivative financial instruments and their underlying assets. The sum of these underlying equivalents must not exceed the net asset value of the portfolio. 5

8 Directors Report Directors Comments The Board of Directors present the Audited Annual Report for HSBC Portfolios (the Company ) for the year ending 31 July The Fund The Company is a variable capital investment company, incorporated under the laws of the Grand Duchy of Luxembourg and is organized as an umbrella with a number of sub-funds, each of which has their own investment policies and restrictions. At present, the Company has issued shares in 5 sub-funds. During the financial year, total net assets of the Company increased from USD 2, million to USD 2, million at year end. The Company qualifies as an Undertaking for Collective Investments in Transferable Securities under Directive 2009/65/EC of 13 July 2009, as amended, and may therefore be offered for sale in European Union Member States, subject to registration in countries other than the Grand Duchy of Luxembourg. In addition, applications to register the Company and its sub-funds may be made in other countries. The Company and its sub funds are currently registered for offer and distribution in the Grand Duchy of Luxembourg and in the following jurisdictions: Bahrain, Brunei, France, Germany, Greece, Guernsey, Hong Kong, Isle of Man, Japan, Jersey, Jordan, Lebanon, Macau, Malta, Oman, Poland, Qatar, Singapore, United Arab Emirates, United Kingdom and Vietnam. Responsibility of the Directors The responsibility of the Directors of the Company is governed exclusively by Luxembourg law. With respect to these financial statements, the duties of the Directors are governed by general corporate law and the law of 19 December 2002 on, inter alia, the accounting and annual accounts of undertakings, as amended, and by the law of 17 December 2010 relating to undertakings for collective investments. Annual General Meeting The next Annual General Meeting of the Company will be held on 28 November Market review Overview After months of keeping the market in thrall, in Q the Federal Reserve (Fed) finally decided that the US economy had enough momentum to warrant a measured reduction in its asset purchase programme. Surprisingly, developed equity markets held up well, reacting with relative calm to the announcement and belying the market turmoil that had accompanied the first mention of tapering back in May. The modest size of the proposed reduction, some stronger interest rate forward guidance and a strengthening economy something that was notably absent back in May all helped to underpin investor sentiment. Core government bonds anticipating the start of a normalisation process for US monetary policy declined in value, with the 10 year Treasury yield rising over 40 basis points in Q4 to reach the 3% mark by year-end. After what was an exceptionally strong year for risk assets in 2013, global equity markets made a rather inauspicious start into the New-Year, with a sharp sell-off in emerging market assets leaving sentiment badly shaken. The prospect of declining global liquidity as the Fed moved to begin tapering its asset purchases set a difficult backdrop as a number of idiosyncratic emerging market issues came to the fore; chiefly amongst these were softening growth in China and instability in South Africa, Argentina and Turkey. This led to a sharp depreciation in emerging market currencies which in turn prompted action from several emerging market central banks. In unexpected moves, the central banks of Turkey, India and South Africa all increased policy rates, whilst China, Russia and Argentina also took steps to address the alarming depreciation of their currencies. Emerging market equities finished the month of January firmly down, therefore, with events also weighing heavily on developed stock markets. Markets staged a sharp rebound in February, with most stock markets rallying strongly, before trading effectively sideways in March. In the end, however, Q1 represented something of a soft start to the year for equity markets, with developed markets up modestly with the glaring exception of Japan and emerging markets, in the aggregate, down. Core government bond yields declined over the quarter, reversing the trend higher that took place in the closing months of Despite the Fed beginning to taper its monthly asset purchases, government bonds benefitted from the heightened risk aversion of January s sell-off and some soft, weather-affected US economic data. 10 year US Treasury yields fell away from the 3% level, therefore, declining 30 basis points in Q1. 6

9 Directors Report (continued) Market review (continued) Overview (continued) Global equities resumed their ascent higher in Q2 in the face of a number of notable headwinds, including a hugely disappointing final Q1 US GDP print (albeit caused by unseasonally poor weather), genuinely slower economic momentum in Europe and flashpoints of geopolitical risk in Iraq and Ukraine. The ongoing support of highly accommodative global monetary conditions was a clear factor in fuelling this risk appetite, further tapering from the Fed notwithstanding. Indeed, US policy makers remained resolutely dovish throughout Q2, despite an uptick in inflation and further improvement in the labour market; whilst the European Central Bank took steps to arrest persistent disinflation, including cutting its deposit rate to negative for the first time. The reporting period ended with most developed equity markets trending lower in July, due largely to weakness late in the month. Funds World Selection Portfolios 1-5 In August 2013, the first month of the reporting period, increasingly positive economic newsflow from the developed world was offset by concerns around an anticipated reduction in Federal Reserve bond purchases and the prospect of military intervention in Syria. As a result, all World Selection Portfolios declined in value over the month. Conversely, all World Selection portfolios posted strong returns in September. Investor sentiment improved considerably over the month with risk appetite benefitting from the US Federal Reserve s surprise decision not to reduce the size of its asset purchase programme yet. Core government bond markets also benefitted, with the surprise decision not to taper seeing yields fall back from recent highs. Prior to the decision, yields had been rising steadily. This healthy risk appetite continued into the month of October and was spurred on by a resolution of the US partial government shutdown and an end to the debt ceiling stalemate. At the close of the month, the Federal Reserve again opted to leave its asset purchase programme unchanged and further postpone the start of tapering, lifting sentiment even higher. As a result, the World Selection portfolios enjoyed another month of strong returns. World Selection performance was more mixed in November, however, with the lower risk portfolios posting marginally negative returns and the more adventurous portfolios flat to slightly positive. Developments in US monetary policy continued to hold sway over market sentiment. Core government bond yields rose, meaning prices fell. Emerging market assets struggled. Most developed equity markets did rise over the course of the month, however, helping to smooth performance and benefitting the higher risk, more adventurous World Selection portfolios in particular. In December the US Federal Reserve finally made the long awaited decision to start reducing its monthly asset purchases. Markets reacted calmly to the news, with most equity markets actually rising over the course of the month. Unsurprisingly, core government bonds yields moved higher. The World Selection portfolios posted positive returns for the month, closing out what was an exceptionally strong performance year for the higher risk portfolios in the range. All five World Selection portfolios registered a negative return for the first month of Following impressive risk asset performance in 2013, markets made a rather poor start to the year with an aggressive sell-off in emerging market assets and currencies leaving investor sentiment badly shaken. The US Federal Reserve decided to reduce its monthly asset purchase programme further. February was a very good month for World Selection. Developed market equities rebounded well after January s acute sell-off, with emerging market assets and currencies one of the main drivers of January s weakness also stabilising. Core government bonds posted modest positive returns for the month, with yields largely range bound. World Selection performance varied across the different risk profiles in March. Whilst portfolio 1 posted a marginally positive return and portfolio 2 was effectively flat, portfolios 3-5 registered negative returns. Developed stocks had a lacklustre month and were comfortably outperformed by emerging markets. The portfolios tactical preference for developed over emerging markets did not help performance, therefore. Core government bonds were effectively flat for the month, with 10 year US Treasury yields up slightly. All portfolios posted a positive return in April. Developed stocks rose modestly, outperforming emerging markets. 10 year US Treasury yields were again little changed, with core government bonds up marginally for the month. Riskier assets, such as equities, performed well over the course of May, with investor risk appetite gaining on generally positive macroeconomic data and an easing of geopolitical tension in Ukraine. Equities, emerging market assets and corporate bonds all posted good returns over the month, outperforming global developed market government bonds. This benefitted the portfolios performance given an ongoing preference for risk assets over bonds. Again, all five World Selection portfolios gained over the month. 7

10 Directors Report (continued) Funds (continued) World Selection Portfolios 1-5 (continued) Global equities rose further in June, outperforming core government bonds. Japan led the performance of major equity markets whilst European equities underperformed, posting a negative return. In the aggregate, developed stock markets lagged emerging markets. Emerging market fixed income also had a good month, with emerging market bonds both local and hard currency denominated registering positive returns. For the third consecutive month, all World Selection portfolios posted positive returns. After a run of good performance, most major developed equity markets saw negative returns in July, due largely to weakness late in the month. A strengthening US economy, underscored by an impressive Q2 GDP data release, brought the timing of interest rate hikes back into question, whilst rising geopolitical tension also weighed on sentiment. Emerging markets, by contrast, continued to perform well, again outperforming developed stock markets in the aggregate. 10 year US Treasury yields were little changed. Global high yield bonds a standout performer of the last two years posted a negative return for the month. Over the reporting period as a whole, World Selection performance was strong, with the lowest risk portfolio portfolio 1 returning in excess of 5.5% (net of fees in USD) and the highest risk portfolio portfolio 5 returning over 12% (net of fees in USD). 8

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12 Statement of Net Assets as at 31 July 2014 HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios Notes Combined World Selection 1 World Selection 2 World Selection 3 World Selection 4 World Selection 5 USD USD USD USD USD USD ASSETS Investments in securities at cost 2,171,648, ,878, ,830, ,100, ,388, ,450,866 Unrealised appreciation / (depreciation) 18,495,601 2,069,645 4,486,555 8,584,313 4,061,381 (706,293) Investments in securities at market value 3 b 2,190,144, ,948, ,317, ,684, ,450, ,744,573 OTHER ASSETS Cash at bank 579,938,755 33,910, ,111, ,608, ,440, ,867,963 Amounts receivable on sale of Investments 52,449,057 2,921,437 25,910,487 17,965,436 5,644,742 6,955 Amounts receivable on subscriptions 16,317,848 2,754,039 4,237,025 4,428,071 3,662,601 1,236,112 Accounts receivable and accrued income 19,694,689 5,084,178 4,278,771 4,469,556 3,988,410 1,873,774 OTHER ASSETS 668,400,349 44,669, ,538, ,471, ,736, ,984,804 TOTAL ASSETS 2,858,544, ,617, ,855, ,156, ,186, ,729,377 LIABILITIES Unrealised loss on forward foreign exchange contracts 3 h, 6 9,427, ,884 1,291,370 2,114,130 3,765,328 1,522,212 Bank overdraft 96,830, ,060 59,478,631 20,105,809 13,949,386 2,375,432 Amounts payable on purchase of Investments 36,040,494 2,371,404 25,650,070 6,301,271 1,717,749 - Amounts payable on redemptions 9,219,911 2,129,769 1,951,542 2,428, ,054 1,976,818 Management fees payable 2,631, , , , , ,663 Accounts payable and accrued expenses 2,080, , , , , ,593 TOTAL LIABILITIES 156,230,782 6,882,574 89,256,717 32,034,433 21,468,340 6,588,718 NET ASSETS 2,702,313, ,735, ,598, ,121, ,717, ,140,659 The accompanying notes form an integral part of these financial statements. 10

13 Statement of Operations for the year ended 31 July 2014 HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios Notes Combined World Selection 1 World Selection 2 World Selection 3 World Selection 4 World Selection 5 USD USD USD USD USD USD INCOME Income from investments 3 c 11,873,466 2,197,984 2,195,788 2,924,029 2,882,769 1,672,896 Deposit interest 3, , , Management fees rebate 4 a 3,119, , , , , ,030 Other income 24, ,959 1,543 8,905 4,416 TOTAL INCOME 15,020,433 2,573,193 2,694,540 3,646,170 3,815,974 2,290,556 EXPENSES 3 c Management fees 4 a 27,548,123 4,731,534 4,566,449 6,221,435 7,350,074 4,678,631 Operating, administrative and servicing expenses 4 b 7,655,421 1,448,626 1,389,105 1,658,254 2,010,613 1,148,823 Bank interest and charges 13, ,670 1,834 4,202 3,527 TOTAL EXPENSES 35,216,594 6,180,977 5,958,224 7,881,523 9,364,889 5,830,981 NET OPERATING LOSS FOR THE YEAR (20,196,161) (3,607,784) (3,263,684) (4,235,353) (5,548,915) (3,540,425) The accompanying notes form an integral part of these financial statements. 11

14 Statement of Changes in Net Assets for the year ended 31 July 2014 HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios Notes Combined World Selection 1 World Selection 2 World Selection 3 World Selection 4 World Selection 5 USD USD USD USD USD USD Net operating loss for the year (20,196,161) (3,607,784) (3,263,684) (4,235,353) (5,548,915) (3,540,425) Net realised gains / (losses) on: - Investments in securities 3 b, 3 e 380,393,020 56,353,786 64,405,430 78,679, ,000,303 70,954,120 - Forward foreign exchange contracts 3 h 42,086,714 9,199,195 9,207,905 7,485,257 10,860,687 5,333,670 - Futures contracts 3 i 3,535, , , ,480 1,382,287 1,429,930 - Foreign exchange transactions 3 d (5,513,513) (342,150) (468,515) (389,949) (2,850,137) (1,462,762) NET REALISED GAIN 400,305,671 61,911,631 70,054,466 81,780, ,844,225 72,714,533 Net change in unrealised (depreciation) / appreciation on: - Investments in securities (156,838,047) (27,787,446) (28,781,779) (28,410,710) (44,617,753) (27,240,359) - Forward foreign exchange contracts 3 h (11,084,958) (1,751,856) (1,600,003) (2,434,116) (3,905,731) (1,393,252) - Futures contracts 3 i (1,922,938) (111,439) (111,985) (325,479) (1,014,379) (359,656) INCREASE IN NET ASSETS FROM OPERATIONS 230,459,728 32,260,890 39,560,699 50,610,511 64,306,362 43,721,266 CAPITAL TRANSACTIONS Received on issue of shares 1,249,055,166 79,135, ,136, ,091, ,161, ,529,862 Paid on redemptions of shares (841,153,743) (190,744,664) (140,954,794) (139,521,589) (122,046,599) (247,886,097) TOTAL INCREASE / (DECREASE) IN NET ASSETS FOR THE YEAR 638,361,151 (79,348,022) 49,742, ,180, ,421, ,365,031 NET ASSETS Beginning of year 2,063,952, ,083, ,855, ,941, ,296, ,775,628 End of year 2,702,313, ,735, ,598, ,121, ,717, ,140,659 The accompanying notes form an integral part of these financial statements. 12

15 Statement of Changes in Shares Issued for the year ended 31 July 2014 HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios World Selection 1 World Selection 2 World Selection 3 World Selection 4 World Selection 5 Class A (C) (USD) Shares outstanding, beginning of year 6,803, ,971, ,240, ,304, ,033, Shares issued 2,466, ,095, ,899, ,285, ,082, Shares redeemed (3,383,845.44) (3,633,143.93) (5,365,342.40) (5,915,014.73) (16,499,993.02) Shares outstanding, end of year 5,886, ,433, ,774, ,675, ,615, Class A (C) (HAUD)* Shares outstanding, beginning of year Shares issued , , , Shares redeemed - - (18.88) (151,912.22) (18.02) Shares outstanding, end of year , , , Class A (C) (HGBP)* Shares outstanding, beginning of year 1,642, ,295, ,050, ,786, ,957, Shares issued 351, , ,494, , , Shares redeemed (588,629.44) (1,165,825.23) (974,933.50) (1,037,824.78) (745,797.90) Shares outstanding, end of year 1,405, ,936, ,569, ,646, ,679, Class A (C) (HEUR)* Shares outstanding, beginning of year 26,822, ,986, ,560, ,589, ,557, Shares issued 2,412, ,537, ,119, ,159, ,580, Shares redeemed (8,601,533.05) (4,433,019.34) (2,930,002.30) (1,316,036.85) (976,762.08) Shares outstanding, end of year 20,634, ,090, ,750, ,433, ,160, Class A (C) (HSGD)* Shares outstanding, beginning of year Shares issued Shares redeemed Shares outstanding, end of year Class A (M) (USD) Shares outstanding, beginning of year Shares issued 92, , , Shares redeemed (0.03) - (0.03) - (0.03) Shares outstanding, end of year 92, , , Class A (M) (HKD) Shares outstanding, beginning of year Shares issued 821, ,229, , , Shares redeemed (0.16) - - (2.49) - Shares outstanding, end of year 821, ,229, , , Class A (M) (HAUD)* Shares outstanding, beginning of year Shares issued , Shares redeemed Shares outstanding, end of year , Class A (M) (HGBP)* Shares outstanding, beginning of year Shares issued , , , Shares redeemed Shares outstanding, end of year , , , * Hedged Classes 13

16 Statement of Changes in Shares Issued (continued) for the year ended 31 July 2014 HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios World Selection 1 World Selection 2 World Selection 3 World Selection 4 World Selection 5 Class A (M) (HEUR)* Shares outstanding, beginning of year Shares issued , Shares redeemed Shares outstanding, end of year , Class A (M) (HSGD)* Shares outstanding, beginning of year Shares issued Shares redeemed Shares outstanding, end of year Class B (C) (USD) Shares outstanding, beginning of year Shares issued , , , Shares redeemed Shares outstanding, end of year , , , Class B (C) (HGBP)* Shares outstanding, beginning of year 7, , , , , Shares issued 68, , , , , Shares redeemed (7,141.75) (300.00) (1,159.56) (300.00) (15,029.86) Shares outstanding, end of year 68, , , , , Class B (C) (HEUR)* Shares outstanding, beginning of year Shares issued - 10, , , Shares redeemed Shares outstanding, end of year - 10, , , Class Z (C) (USD) Shares outstanding, beginning of year , Shares issued Shares redeemed (484.00) - Shares outstanding, end of year , Class Z (C) (HGBP)* Shares outstanding, beginning of year , Shares issued Shares redeemed - - (131,240.00) - - Shares outstanding, end of year Class Z (C) (HEUR)* Shares outstanding, beginning of year 10, , Shares issued 1, Shares redeemed - - (742.00) - - Shares outstanding, end of year 11, , Class S1 (C) (USD) Shares outstanding, beginning of year 19, , , Shares issued Shares redeemed (11,477.74) - (37,073.67) - (8,976.02) Shares outstanding, end of year 7, , , * Hedged Classes 14

17 Statistical Information HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios World Selection 1 World Selection 2 World Selection 3 World Selection 4 World Selection 5 NUMBER OF SHARES OUTSTANDING: as at 31 July 2014 Class A (C) (USD) 5,886, ,433, ,774, ,675, ,615, Class A (C) (HAUD)* , , , Class A (C) (HGBP)* 1,405, ,936, ,569, ,646, ,679, Class A (C) (HEUR)* 20,634, ,090, ,750, ,433, ,160, Class A (C) (HSGD)* Class A (M) (USD) 92, , , Class A (M) (HKD) 821, ,229, , , Class A (M) (HAUD)* , Class A (M) (HGBP)* , , , Class A (M) (HEUR)* , Class A (M) (HSGD)* Class B (C) (USD) , , , Class B (C) (HGBP)* 68, , , , , Class B (C) (HEUR)* - 10, , , Class Z (C) (USD) , Class Z (C) (HEUR)* 11, , Class S1 (C) (USD) 7, , , NET ASSET VALUE PER SHARE: as at 31 July 2014 Class A (C) (USD) USD USD USD USD USD Class A (C) (HAUD)* - - AUD AUD AUD Class A (C) (HGBP)* GBP GBP GBP GBP GBP Class A (C) (HEUR)* EUR EUR EUR EUR EUR Class A (C) (HSGD)* SGD SGD SGD Class A (M) (USD) USD USD USD USD USD Class A (M) (HKD) HKD HKD HKD HKD HKD Class A (M) (HAUD)* AUD AUD AUD AUD AUD Class A (M) (HGBP)* GBP GBP GBP GBP GBP Class A (M) (HEUR)* EUR EUR EUR EUR EUR Class A (M) (HSGD)* SGD SGD SGD Class B (C) (USD) USD USD USD USD USD Class B (C) (HGBP)* GBP GBP GBP GBP GBP Class B (C) (HEUR)* - EUR EUR EUR Class Z (C) (USD) USD Class Z (C) (HEUR)* EUR EUR Class S1 (C) (USD) USD USD USD NUMBER OF SHARES OUTSTANDING: as at 31 July 2013 Class A (C) (USD) 6,803, ,971, ,240, ,304, ,033, Class A (C) (HGBP)* 1,642, ,295, ,050, ,786, ,957, Class A (C) (HEUR)* 26,822, ,986, ,560, ,589, ,557, Class B (C) (HGBP)* 7, , , , , Class Z (C) (USD) , Class Z (C) (HGBP)* , Class Z (C) (HEUR)* 10, , Class S1 (C) (USD) 19, , , NET ASSET VALUE PER SHARE: as at 31 July 2013 Class A (C) (USD) USD USD USD USD USD Class A (C) (HGBP)* GBP GBP GBP GBP GBP Class A (C) (HEUR)* EUR EUR EUR EUR EUR Class B (C) (HGBP)* GBP GBP GBP GBP GBP Class Z (C) (USD) USD Class Z (C) (HGBP)* - - GBP Class Z (C) (HEUR)* EUR EUR Class S1 (C) (USD) USD USD USD * Hedged Classes 15

18 Statistical Information (continued) HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios HSBC Portfolios World Selection 1 World Selection 2 World Selection 3 World Selection 4 World Selection 5 NUMBER OF SHARES OUTSTANDING: as at 31 July 2012 Class A (C) (USD) 4,448, ,748, ,393, ,878, ,550, Class A (C) (HGBP)* 1,332, ,167, ,539, ,857, ,851, Class A (C) (HEUR)* 19,826, ,061, ,789, ,650, ,713, Class Z (C) (USD) 45, , , Class Z (C) (HGBP)* , Class Z (C) (HEUR)* , , , Class S1 (C) (USD) 24, , , NET ASSET VALUE PER SHARE: as at 31 July 2012 Class A (C) (USD) USD USD USD USD USD Class A (C) (HGBP)* GBP GBP GBP GBP GBP Class A (C) (HEUR)* EUR EUR EUR EUR EUR Class Z (C) (USD) USD USD USD Class Z (C) (HGBP)* - - GBP Class Z (C) (HEUR)* - - EUR EUR EUR Class S1 (C) (USD) USD USD USD * Hedged Classes 16

19 Notes to the Financial Statements for the year ended 31 July General Information HSBC Portfolios (the Company ) was incorporated under the laws of the Grand Duchy of Luxembourg as an investment company (Société d'investissement à Capital Variable or "SICAV") on 21 July The capital comprises various classes of shares each relating to a separate sub-fund (hereafter called a "Portfolio") consisting of securities, cash and other sundry assets and liabilities. The accompanying Financial Statements present the assets and liabilities of the individual Portfolios and of the Company taken as a whole. The Financial Statements of each individual Portfolio are expressed in the currency designated in the prospectus for that particular Portfolio and the Financial Statements of the Company are expressed in US Dollar ( USD ). The financial statements have been prepared in accordance with the format prescribed by the Luxembourg authorities for Luxembourg investment companies. The Company is an officially registered investment fund under part I of the Luxembourg law of 17 December 2010 on undertakings for collective investment (the 2010 Law ) and qualifies as a UCITS fund under the European directive 2009/65/EC. The Company seeks to provide a comprehensive range of Portfolios with the purpose of spreading investment risk and satisfying the requirements of investors seeking to emphasise income, capital conservation and/or capital growth. The Company offers investors, within the same vehicle, a choice of investments in one or more Portfolios. The Company may issue different classes of shares in one or several Portfolios. Details of the characteristics of such share classes, if and when offered, by one or several Portfolios will be determined by the directors of the Company (the Directors and each a Director ). As at 31 July 2014, the Company was comprised of the following Portfolios: HSBC Portfolios World Selection 1 HSBC Portfolios World Selection 2 HSBC Portfolios World Selection 3 HSBC Portfolios World Selection 4 HSBC Portfolios World Selection 5 2. Share Capital The Company currently offers the following Classes of Shares: Class Class A Class B Class E Class S* Class Z Description A Shares are available to all investors. B Shares are available in the United Kingdom and Jersey through specific distributors selected by the Distributor. B Shares may be available in other countries through specific distributors selected by the Distributor on application to the Company. E Shares will be available in certain countries, subject to the relevant regulatory approval, through specific distributors selected by the Distributor on application to the Company. S Shares are available in certain jurisdictions or through certain distributors selected by the Distributor provided that the investors qualify as institutional investors within the meaning of article 174 of 2010 Law. Z Shares are available to investors having entered into a discretionary management agreement with an HSBC Group entity and to investors subscribing via distributors selected by the Distributor provided that such investors qualify as institutional investors within the meaning of article 174 of 2010 Law. * Successive issue of Classes S Shares are numbered 1, 2, 3, etc. and respectively referred to as S 1, S 2, S 3, etc. A series of Class S Shares may be issued in one or more Portfolios and each series may or may not be available in all Portfolios. Within each share class of a Portfolio, the Company is entitled to create different sub-classes, distinguished by their class name, by their distribution policy (Capital-Accumulation ( C ), Distribution ( D ), Quarterly Distribution ( Q ) and Monthly Distribution ( M ) shares), their reference currency, their hedging activity ( H ) and/or by any other criterion to be stipulated by the Board of Directors. Within each share class of a Portfolio, separate currency hedged classes may be issued (suffixed by "H" and the currency into which the Base Currency is hedged e.g. "HEUR" or "HGBP"). Any fees of the Administration Agent relating to the execution of the currency hedging policy will be borne by the relevant currency hedged class. 17

20 Notes to the Financial Statements for the year ended 31 July 2014 (continued) 2. Share Capital (continued) Investment Minima: Class of Shares A, B and E S and Z Dealing Currency USD EUR GBP USD EUR GBP Minimum initial investment and minimum holding 5,000 5,000 5,000 1,000,000 1,000,000 1,000,000 Minimum subsequent investment 1,000 1,000 1, , , , Accounting Policies The following accounting policies have been used consistently in dealing with items which are considered material in relation to the Company s financial statements. a) Accounting convention The financial statements have been prepared under the historical cost convention modified by the revaluation of investments. b) Assets and portfolio securities valuation Securities are initially recognised at cost, being the fair value of the consideration given. All purchases and sales of securities are recognised on the trade date, i.e. the date the Company commits to purchase or sell the security. Portfolio securities and/or financial derivative instruments which are listed on an official stock exchange are valued at the last available price on the principal market on which such securities are traded. Securities traded on other organised markets are valued at the last available price or yield equivalents obtained from one or more dealers in such organised markets at the time of valuation. If such prices are not representative of their fair value, all such securities and all other permitted assets shall be valued at their fair value at which it is expected they may be resold as determined in good faith by or under the direction of the Directors. Shares or units in open-ended undertakings for collective investment, which do not have a price quotation on a regulated market, will be valued at the actual net asset value for such shares or units as of the relevant dealing day, failing which they shall be valued at the last available net asset value which is calculated prior to such dealing day. In the case where events have occurred which have resulted in a material change in the net asset value of such shares or units since the last net asset value was calculated, the value of such shares or units may be adjusted at their fair value in order to reflect, in the reasonable opinion of the Board of Directors, such change. The financial derivative instruments which are not listed on any official stock exchange or traded on any other organised market are valued in accordance with market practice. c) Income and Expenses Interest is accrued on a day-to-day basis. Dividends are accounted for on an ex-dividend basis. Expenses are recognised on an accrual basis. d) Foreign Exchange The cost of investments, income and expenses in currencies other than the Company relevant reporting currency have been recorded at the rate of exchange ruling at the time of the transaction. The market value of the investments and other assets and liabilities in currencies other than the relevant reporting currency has been converted at the rates of exchange ruling at the date of these financial statements. The exchange rates used as at 31 July 2014 are as follows: USD/EUR: USD/GBP: e) Realised Profit/(Loss) on Sale of Investments Realised profit/(loss) on sale of investments is the difference between the historical average cost of the investment and the sale proceeds. 18

21 Notes to the Financial Statements for the year ended 31 July 2014 (continued) 3. Accounting Policies (continued) f) Segregated Liability The Company has segregated liability between its Portfolios; meaning, the assets of a Portfolio are exclusively available to satisfy the rights of shareholders in relation to that Portfolio and the rights of creditors whose claims have arisen in connection with the creation, operation and liquidation of that Portfolio. g) Dividends payable Dividends payable by the Company are recorded on the ex-date. h) Forward Foreign Exchange Contracts Outstanding forward currency contracts are valued at the closing date by reference to the forward rate of exchange applicable to the outstanding life of the contract. The unrealised gain or loss is shown in the Statement of Net Assets. Realised gains or losses and change in unrealised appreciation or depreciation are disclosed in the Statement of Changes in Net Assets. i) Futures contracts Futures contracts, which are carried at market value, provide for the delayed delivery of the underlying instrument at a fixed price or for a cash amount based on the change in the value of the underlying instrument at a specific date in the future. The unrealised gain or loss on futures contracts is disclosed in the Statement of Net Assets. Changes in the market value of open futures contracts and realised gains or losses are reported in the Statement of Changes in Net Assets. j) Net Asset Value per Share The net asset value per share of the Company (the Net Asset Value per Share ) is calculated by dividing the net assets of the relevant Class of Shares in a Portfolio included in the Statement of Net Assets by the number of Shares of the relevant class in that Portfolio in issue at the year end. 4. Charges and Expenses a) Management Fee The Company pays to the Management Company an annual management fee calculated as a percentage of the net asset value of each Portfolio or Share Class ( Management Fee ). The Management Fee is accrued daily and payable monthly in arrears. The fee rate per annum actually charged and applicable to each Class of Shares is set below: HSBC Portfolios World Selection 1 Until 9 June 2014 From 10 June 2014 Class A Shares 1.00% 1.00% Class B Shares 0.50% 0.50% Class E Shares 0.00% 1.30% Class S 1 Shares 0.50% 0.50% Class Z Shares 0.00% 0.00% HSBC Portfolios World Selection 2 Until 9 June 2014 From 10 June 2014 Class A Shares 1.00% 1.00% Class B Shares 0.50% 0.50% Class E Shares 0.00% 1.30% Class S 1 Shares 0.50% 0.50% Class Z Shares 0.00% 0.00% HSBC Portfolios World Selection 3 Until 9 June 2014 From 10 June 2014 Class A Shares 1.20% 1.20% Class B Shares 0.60% 0.60% Class E Shares 0.00% 1.30% Class S 1 Shares 0.60% 0.60% Class Z Shares 0.00% 0.00% 19

22 Notes to the Financial Statements for the year ended 31 July 2014 (continued) 4. Charges and Expenses (continued) a) Management Fee (continued) HSBC Portfolios World Selection 4 Until 9 June 2014 From 10 June 2014 Class A Shares 1.20% 1.20% Class B Shares 0.60% 0.60% Class E Shares 0.00% 1.30% Class S 1 Shares 0.60% 0.60% Class Z Shares 0.00% 0.00% HSBC Portfolios World Selection 5 Until 9 June 2014 From 10 June 2014 Class A Shares 1.30% 1.30% Class B Shares 0.65% 0.65% Class E Shares 0.00% 1.30% Class S 1 Shares 0.65% 0.65% Class Z Shares 0.00% 0.00% The Management Fee covers management and distribution services provided in relation to the relevant Portfolio of the Company by the Management Company, the Investment Advisers and the Share Distributors. The Management Company is responsible for discharging, out of such fee, the fees of the Investment Advisers and the Share Distributors and may pay part of such fee to recognised intermediaries or such other person as the Management Company may determine, at its discretion. The Management Company may instruct the Company to pay a portion of the Management Fee directly out of the assets of the Company to any of such service providers. In such case the Management Fee due to Management Company is reduced accordingly. The Management Company is also acting as a management company for other investment funds, namely HSBC Global Investment Funds, HSBC International Select Fund and HSBC Amanah Funds. Management Fees Rebate The Directors endeavour to reduce duplication of management charges by negotiating rebates where applicable in favour of the Company with the collective investment schemes or their managers. These rebates amount to USD 3,119,622 for the year ended 31 July 2014 (USD 2,737,628 for year ended 31 July 2013). b) Operating, Administrative and Servicing Expenses Operating, Administrative and Servicing Expenses cover the ongoing custody fees and safekeeping charges payable to the Custodian and its correspondent banks, fees for fund accounting and administration services (including domiciliary services) payable to the Administrative Agent and transfer agency fees for registrar and transfer agency services payable to the Transfer Agent. Operating, Administrative and Servicing Expenses also cover expenses relating to the creation of new Portfolio; the Luxembourg asset-based taxe d abonnement; reasonable out-of-pocket expenses incurred by the Board of Directors; legal, auditing fees and expenses; ongoing registration and listing fees, including translation expenses; the costs and expenses of preparing, printing, and distributing the Company s Prospectus, financial reports, statements and other documents made available directly or through intermediaries to its shareholders. The only operating expenses which are not covered by the fee rate paid to the management company and which are included under this caption are ' hedging fees' incurred by the respective portfolios for hedging the different share classes. Until 9 June 2014 The Company pays to the Management Company a fee to cover certain Operating, Administrative and Servicing Expenses. The Management Company is responsible for discharging out of this fee, the expenses described below, inter alia, payable to the Custodian, the Administration Agent and the Transfer Agent. This fee is set, for each Portfolio or Share Class, at a fixed percentage of the Net Asset Value of the relevant Portfolio or Share Class specified in the Company s prospectus. Such fee is accrued daily and payable monthly in arrears. The rate for class A, B, Z, S 1 and S 2 Shares is 0.25%. However, the Board of Directors reserves the right to amend the fixed level of the Operating, Administrative and Servicing Expenses applicable to each Portfolio or Class of Shares. 20

23 Notes to the Financial Statements for the year ended 31 July 2014 (continued) b) Operating, Administrative and Servicing Expenses (continued) From 10 June 2014 The Company pays the expenses directly to the service providers and as such the ongoing charge for each Share Class will vary. The expenses paid by the Company will not exceed 0.25% of the net assets per annum on a rolling basis of each Share Class. Where actual expenses exceed 0.25% per annum, the excess will be borne directly by the Management Company or by HSBC Asset Management distributors. c) Directors Fees, Expenses and Interests A Director may be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is interested, provided that he has disclosed to the other Directors, prior to the conclusion of any such transaction or arrangement, the nature and extent of any interest of his therein. A Director may vote in respect of any contract or arrangement or any proposal whatsoever in which he has an interest, having first disclosed such interest. He shall not be disqualified by his office from contracting with the Company. If a Director declares his interest in any contract which the Company is considering entering into, he may be counted in the quorum of any meeting to consider the contract and may vote on any resolution to enter into such contract. The Company pays an annual fee to each of the independent directors amounting to EUR 10,000. The amount is accrued with every NAV calculation and paid quarterly in arrears. As at 31 July 2014, EUR 5,000 was payable to the Independent Directors. 5. Taxation The Company is liable in Luxembourg to a tax (taxe d abonnement) of 0.05% per annum of its net assets, such tax being payable quarterly and calculated on the Net Asset Value of the Company at the end of the relevant calendar quarter. The taxe d abonnement is levied at a rate of 0.01% per annum on Portfolios or Classes reserved to Institutional Investors. This tax is not due on that portion of the Company s assets invested in other Luxembourg UCIs. In addition, the issue of Shares in the Company is not subject to any registration duties or other taxes in Luxembourg. Under current law and practice, the Company is not liable to Luxembourg taxes on income or capital gains, nor the dividends paid by the Company, are liable to any Luxembourg withholding tax. Interest, dividends and capital gains on securities may be subject to withholding or capital gains taxes in certain countries. The taxe d abonnement is paid out of the operating, administrative and servicing expenses fees. Worldwide In many markets the Company, as a foreign investment fund, may be subject to non-recoverable tax on income and gains (either by withholding or direct assessment) in relation to the investment returns it realizes from its holdings of shares and securities in those markets. Where practicable the Company will make claims under the relevant double tax treaties and domestic law of the countries concerned in order to minimize the impact of local taxation on the investment return and to obtain the best return for its shareholders. Those claims will be made on the basis of the Company s understanding of the validity of such claims given the information available from the Company s custodians, external advisers and other sources as` to the interpretation and application of the relevant legal provisions by the tax authorities in the country concerned. The Company will seek to provide for tax on capital gains where it considers that it is more likely than not that the tax will be payable, given the advice and information available to the Company at the date concerned. However, any provision held may be insufficient to cover, or be in excess of, any final liability. The Company will seek to claim concessionary tax treatment and account for tax on a best efforts basis, given the tax law and practice at that date. Any change in tax law or practice in any country where the Company is registered, marketed or invested could affect the value of the Company s investments in the affected country. In particular, where retrospective changes to tax law or practice are applied by the legislature or tax authorities in a particular country these may result in a loss for current Shareholders in the affected sub fund. The Company does not offer any warranty as to the tax position of returns from investments held in a particular market nor of the risk of a retrospective assessment to tax in a particular market or country. 21