HSBC RMB Currency Fund | HSBC RMB Currency Fund

HSBC RMB Currency Fund

Investment Objective

The investment objective of the HSBC RMB Currency Fund (the “Fund”) is to replicate the return of the Renminbi (“RMB”) relative to the U.S. dollar.

Fees and Expenses of the Fund

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in the HSBC Family of Funds. More information about these and other discounts is available from your financial professional, and is explained in “Distribution Arrangements/Sales Charges” on page 24 of this prospectus and in the Fund’s Statement of Additional Information (“SAI”) in “Right of Accumulation” on page 70.

Shareholder Fees (fees paid directly from your investment)

Shareholder Fees HSBC RMB Currency Fund	Class A Shares	Class I Shares
Maximum Sales Charge (load) Imposed on Purchases (as a % of offering price)	5.00%	none
Maximum Deferred Sales Charge (load) (as a % of amount redeemed)	none	none

Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)

Annual Fund Operating Expenses HSBC RMB Currency Fund		Class A Shares	Class I Shares
Management Fee		0.15%	0.15%
Distribution (12b-1) Fee		none	none
Shareholder Servicing Fee		0.25%	0.15%
Other Operating Expenses		0.38%	0.38%
Total Other Expenses	[1]	0.63%	0.53%
Total Annual Fund Operating Expenses		0.78%	0.68%
Fee Waiver and/or Expense Reimbursement	[2]	0.13%	0.13%
Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement		0.65%	0.55%

Example

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. The Example takes the Fund’s Expense Limitation Agreement into account for the first year only. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

Expense Example HSBC RMB Currency Fund (USD $)	1 Year	3 Years
Class A Shares	563	724
Class I Shares	56	204

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in Annual Fund Operating Expenses or in the Example, affect the Fund’s performance.

Principal Investment Strategies

Under normal market conditions, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in securities or instruments that provide exposure to RMB, China’s currency. In order to gain this exposure, the Fund may (i) invest in RMB denominated debt instruments with remaining maturities of up to one year through the RMB market in Hong Kong, which is termed the “offshore” market, and (ii) enter into offshore deliverable forward and non-deliverable forward currency contracts. The Fund may also invest in U.S. dollar denominated debt instruments with remaining maturities of up to one year. The Fund’s net asset value is expected to increase and decrease in a manner that is correlated with changes in the value of the RMB relative to the U.S. dollar.

The Fund is not a money market fund and does not meet the requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund does not attempt to maintain a stable net asset value or expect to generate significant current income.

The designation by China of an offshore market for RMB has resulted in the currency trading in two separate and distinct jurisdictions and market places at different exchange rates. RMB traded offshore, which is known as CNH, trades primarily in Hong Kong, while RMB traded onshore in mainland China is known as CNY. While the same currency, CNH and CNY trade at different exchange rates and do not correlate perfectly. Due to limited access to onshore markets, the offshore RMB market provides offshore investors, such as the Fund, with direct access to Chinese RMB and RMB-denominated debt instruments. The offshore RMB market is relatively new and may not be as liquid as more established markets.

The Fund may enter in to offshore deliverable forward and non-deliverable forward currency contracts settled in U.S. dollars. A forward currency contract is an agreement to buy or sell a specific currency at a future date at a price set at the time of the contract. A non-deliverable forward currency contract is a forward contract where there is no physical settlement of the two currencies at maturity. Rather, on the contract settlement date, a net cash settlement will be made by one party to the other based on the difference between the contracted forward rate and the prevailing spot rate, on an agreed notional amount. The Fund may purchase forward currency contracts of various terms, but expects for the terms generally not to exceed one year. The Fund may purchase U.S. dollar denominated debt instruments, such as U.S. Treasury notes, certificates of deposit and commercial paper.

The Fund will not purchase any debt instrument with a remaining maturity of more than one year. The Fund expects, under normal market conditions, to maintain a weighted average portfolio maturity of 90 days or less and a weighted average portfolio life of 120 days or less with respect to the debt instruments held in its portfolio. Debt instruments acquired by the Fund will be rated by at least one nationally recognized statistical ratings organization (“NRSRO”) at the time of acquisition in the highest short-term ratings category (e.g., A-1 by Standard & Poor’s Ratings Services (“S&P”) or P-1 by Moody’s Investors Service (“Moody’s”)) or the highest long-term ratings category (e.g., “AAA,” by S&P or Fitch, Inc. (“Fitch”) or “Aaa”, by Moody’s), or, if unrated, judged to be equivalent quality by HSBC Global Asset Management (Hong Kong) Limited, the Fund’s subadviser (“AMHK” or the “Subadviser”).

The Subadviser will select investments for purchase or sale through an investment process that focuses on managing credit risk and liquidity. The Subadviser will seek to identify risk differentiation across issuers while attempting to manage credit, liquidity and interest rate risks.

In light of the nature of the Fund’s investment strategy, the Fund will, under normal market conditions, invest more than 25% of its total assets (measured at the time of purchase) in issuers that are in the financial services group of industries. For purposes of the Fund’s investments, the financial services group of industries includes, among other things, banks, asset management companies, investment banking companies, brokerage companies, custody banks and insurance companies.

The Fund is considered to be “non-diversified” under the Investment Company Act of 1940, as amended (“1940 Act”), which means that the Fund can invest a greater percentage of its assets in a more limited number of issuers than a diversified fund.

Principal Investment Risks

The Fund is not a money market fund that meets the requirements of Rule 2a-7 under the 1940 Act. There can be no assurance that the Fund’s investment objective will be achieved. In addition, the Fund’s investment policies, as well as the relatively short maturity of obligations purchased by the Fund, may result in frequent changes in the Fund’s portfolio, which may give rise to taxable gains and reduce investment returns. You could lose money by investing in the Fund. The Fund has the following principal investment risks:

• Fixed Income/Debt Instruments Risk: The Fund could lose money or experience a lower rate of return if the Fund holds a fixed income or debt instrument whose issuer is unable to meet its financial obligations, or in the event that interest rates decrease or increase, depending on the Fund’s investments. In addition, these securities may accrue income that is distributable to shareholders even though the income may not yet have been paid to the Fund. If so, the Fund may need to liquidate some of its holdings and forego the purchase of additional income-producing assets.

• Credit Risk: The Fund could lose money if it holds a fixed income or debt instrument whose issuer or guarantor is unable to meet its financial obligations.
   
• Interest Rate Risk: Fluctuations in interest rates may affect the yield and value of the Fund’s investments in income-producing or fixed income or debt instruments. Generally, if interest rates rise, the value of the Fund’s investments will fall. Investors should note that interest rates are at, or near, historic lows, but will ultimately increase, with unpredictable effects on the markets and the Fund’s investments.
   
• Inventory Risk: The market-making capacity in debt markets has declined as a result of reduced broker-dealer inventories relative to fund assets, reduced broker-dealer proprietary trading activity and increased regulatory capital requirements for financial institutions such as banks. Because market makers provide stability to a market through their intermediary services, a significant reduction in dealer market-making capacity has the potential to decrease liquidity and increase volatility in the debt markets.

• Risks of China-Related Investments: Investing in RMB-denominated investments that may be issued by issuers located in Hong Kong and China, as well as other developing or emerging markets, involves special risks, including the following:

• Currency Risk: The U.S. dollar value of your investment in the Fund is expected normally to decline if the value of the RMB depreciates against the U.S. dollar. Conversely, the dollar value of your investment in the Fund is expected normally to increase if the value of the RMB appreciates against the U.S. dollar. Currency exchange rates can be very volatile and can change quickly and unpredictably. As a result, the value of an investment in the Fund may change quickly and without warning. In addition, the Fund may incur costs in connection with conversions between U.S. dollars and Chinese RMB. The RMB is currently not a freely convertible currency. The Chinese government places strict regulation on the RMB and regularly intervenes in the RMB market.
   
• Political and Economic Risk: The economy of China, which has been in a state of transition from a planned economy to a more market oriented economy, differs from the economies of most developed countries in many respects, including the level of government involvement, its state of development, its growth rate, control of foreign exchange, and allocation of resources. Although the majority of productive assets in China are still owned by the government at various levels, in recent years, the government has implemented economic reform measures emphasizing utilization of market forces in the development of the economy of China and a higher level of management autonomy.
  
  

     Political changes, social instability and adverse diplomatic developments in China could result in the imposition of additional government restrictions including expropriation of assets, confiscatory taxes or nationalization of some or all of the property held by issuers of instruments in which the Fund may invest.

     The Chinese government strictly regulates the payment of foreign currency denominated obligations and sets monetary policy. Through its policies, the government may provide preferential treatment to particular industries or companies. The policies set by the government could have a substantial effect on the Chinese economy and thus the Fund’s investments in RMB denominated instruments.

• Inflation: Economic growth in China historically has been accompanied by periods of high inflation. The Chinese government enforces various measures to control inflation and restrain the rate of economic growth, which included the tightening of the money supply, the raising of interest rates and more stringent control over certain industries. If these measures are unsuccessful, and if inflation were to steadily increase, the performance of the Chinese economy and the value of the Fund’s investments could be negatively impacted.
   
• Market Access to China: It is difficult for investors located outside of China to directly access debt instruments in China because of investment and trading restrictions. For this reason, the Fund has to obtain exposure to the RMB by making investments outside of China, and generally in Hong Kong. These limitations and restrictions on access to the markets in China may impact the availability, liquidity, and pricing of investments designed to provide investors with exposure to Chinese markets and the RMB. As a result, returns achieved by the Fund could differ from those available to domestic investors in China. 
   
• Hong Kong Policy: As part of Hong Kong’s transition from British to Chinese sovereignty in 1997, China agreed to allow Hong Kong to maintain a high degree of autonomy with regard to its political, legal and economic systems for a period of at least 50 years. China controls matters that relate to defense and foreign affairs. Under the agreement, China does not tax Hong Kong and does not place restrictions on free trade in Hong Kong. However, there is no guarantee that China will continue to honor the agreement, and China may change its policies regarding Hong Kong at any time. Any such change could adversely affect market conditions and the performance of the Chinese economy and the Fund’s investments.
   
• Regulatory Risk: Disclosure and regulatory standards in emerging market countries, such as China, are in many respects less stringent than U.S. standards. Therefore, disclosure of certain material information may not be made, and less information may be available to the Fund and other investors than would be the case if the Fund’s investments were restricted to securities of U.S. issuers. Chinese issuers are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly and potentially undesirably, from those applicable to U.S. issuers.
   
• Risks of Change in Regulatory Regime: RMB denominated instrument issuance in Hong Kong is subject to Hong Kong laws and regulations. The Chinese government currently views Hong Kong as one of the key offshore RMB instrument centers and has established a cooperative relationship with Hong Kong’s local government to develop the RMB instrument market. There can be no assurance that the Chinese government will continue to encourage issuance of RMB instruments outside of mainland China and any change in the Chinese government’s policy or the regulatory regime governing the issuance of RMB instruments in Hong Kong may adversely affect the Fund.
  

• Tax Risk: The Chinese system of taxation is not as well settled as that of the United States. Changes in the Chinese tax system may have retroactive effects. In addition, interest payable on RMB instruments may be deemed to be profits arising in or derived from Hong Kong from a trade, profession or business carried out in Hong Kong. Sums derived from the sale, disposal or redemption of RMB denominated instruments by the Fund may be subject to Hong Kong profits tax where the Fund’s dealing in the RMB instruments is deemed to have carried on a trade, profession or business in Hong Kong and the sum has a Hong Kong source. There is no assurance that the current tax regime will not be changed. Any change of the tax regime could adversely affect the Fund’s investments in RMB denominated instruments.  
   
• Capital Controls Risk: Economic conditions, such as volatile currency exchange rates and interest rates, political events and other conditions may, without prior warning, lead to intervention by the government of China and the imposition of “capital controls.” Capital controls include the prohibition of, or restrictions on, the ability to transfer currency, securities or other assets. Levies may be placed on profits repatriated by foreign entities (such as the Fund). Capital controls may impact the ability of the Fund to buy, sell or otherwise transfer securities or currency, may adversely affect the trading market and price for shares of the Fund, and may cause the Fund to decline in value. 
   
• Trading and Settlement Risk: Trading and settlement practices for transactions in the markets in which the Fund may trade to achieve RMB exposure may differ from those in U.S. markets. Such differences may include delays beyond periods customary in the United States and practices, such as delivery of securities prior to receipt of payment, which increase the likelihood of a “failed settlement.” Failed settlements can result in losses.

• Forward Contracts Risk: The Fund’s use of forward and non-deliverable forward currency contracts, which are a type of derivative instrument, involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments, and could increase the volatility of the Fund’s net asset value per share and cause you to lose money. Associated risks include the risk that the forward contract is not well correlated with the performance of the RMB; the risk that such investments may result in losses or missed opportunities; the risk that the Fund will be unable to sell or close the contract; the risk that a counterparty is unwilling or unable to meet its obligation; and the risk that the transaction could expose the Fund to the effects of leverage, which could increase the Fund’s exposure to the market and magnify potential losses. There is no guarantee that forward currency contracts, to the extent employed, will have the intended effect, and their use could cause lower returns or even losses to the Fund.

These risks are heightened in light of the fact that the Subadviser is using forward contracts as a substitute for a direct holding in RMB, rather than as a hedge (or offset) the risk of a position or security held by the Fund. The success of the Subadviser’s strategy for forward contracts will also be affected by its ability to assess and predict the impact of market or economic developments on the RMB and the forward contracts it has entered into, without the benefit of observing the performance of the forward contracts under all possible market conditions. Forward contracts may be difficult to close out when the Fund’s portfolio manager may believe it would be appropriate to do so.

• Concentrated Country Risk: The performance of the Fund is likely to be more volatile than the performance of other mutual funds due to its focused investment in instruments having exposure to China. Because the Fund concentrates its investments in China, the Fund’s performance is expected to be closely tied to social, political, and economic conditions within China and to be more volatile than the performance of more geographically diversified funds.
   
• Industry Concentration Risk: The Fund will normally invest more than 25% of its total assets in securities issued by companies in the financial services group of industries, including banks, broker-dealers, insurance companies and finance companies (e.g., automobile finance). As a result, the Fund’s performance may be significantly impacted by developments in the financial services group of industries and the Fund will be more susceptible to such developments than other funds that do not concentrate their investments.

• Leverage Risk: The use of forward contracts may create leverage. The use of leverage may cause the Fund to liquidate portfolio positions when it may not be advantageous to do so. Leveraging may cause the Fund to be more volatile than if the Fund had not been leveraged. This is because leverage tends to increase the Fund’s exposure to market risk, interest rate risk or other risks by, in effect, increasing assets available for investment. 
   
• Counterparty Risk: When the Fund enters into an investment contract, such as a forward contract, the Fund is exposed to the risk that the other party will not fulfill its contractual obligation. The Fund will not expose more than 5% of its total assets to individual counterparties. 
   
• Liquidity Risk/Illiquid Securities Risk: The Fund may, at times, hold illiquid instruments, by virtue of the absence of a readily available market for certain of its investments, or because of legal or contractual restrictions on sales. The Fund will not make investments in illiquid instruments to the extent that it would hold 15% of its net assets in investments deemed to be illiquid following the investment. The Fund could lose money if it is unable to dispose of an investment at a time that is most beneficial. 
   
• Issuer Diversification Risk: Focusing investments in a smaller number of issuers increases risk. The Fund is “non-diversified” and may invest a greater percentage of its assets in the securities of a single issuer than a fund that is “diversified.” Funds that invest in a relatively small number of issuers are more susceptible to risks associated with a single economic, political or regulatory occurrence than a more diversified portfolio might be. The decline in value of one investment will impact the Fund to a greater degree than if the Fund was more broadly diversified. Similarly, the Fund may be more sensitive to adverse economic, business or political developments if it invests a substantial portion of its assets in instruments issued by a small number of issuers. 
   
• Tax Risk: Additionally, a high rate of portfolio turnover (over 100%) may result in the realization of substantial net short-term capital gains, which when distributed are taxable to shareholders. The tax effects associated with turnover may adversely affect the Fund’s performance. See Portfolio Turnover Risk below. 
   
• Portfolio Turnover: The Fund is actively managed and, in some cases the Fund’s portfolio turnover may exceed 100%. A higher rate of portfolio turnover increases brokerage and other expenses, which must be borne by the Fund and its shareholders and may result in a lower net asset value. High portfolio turnover (over 100%) also may result in the realization of substantial net short-term capital gains, which when distributed are taxable to shareholders. The trading costs and tax effects associated with turnover may adversely affect the Fund’s performance.

An investment in the Fund is not a deposit of HSBC Bank USA, N.A. and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Performance Information

The Fund had not yet commenced investment operations as of the date of this Prospectus. Therefore, performance information is not available and has not been presented for the Fund.

[1] Based on estimated amounts for the current fiscal year.

[2] HSBC Global Asset Management (USA) Inc., the Fund's investment adviser ("Adviser"), has entered into a contractual expense limitation agreement ("Expense Limitation Agreement") with the Fund under which it will limit total expenses of the Fund (excluding interest, taxes, brokerage commissions and extraordinary expenses) to an annual rate of 0.65% for Class A Shares and 0.55% for Class I Shares. Any amounts contractually waived or reimbursed by the Adviser will be subject to repayment by the Fund to the Adviser within three years to the extent that the repayment will not cause the Fund's operating expenses to exceed the contractual expense limit that was in effect at the time of such waiver or reimbursement. The expense limitation shall be in effect until February 28, 2015. The Expense Limitation Agreement shall terminate upon the termination of the Amended and Restated Master Investment Advisory Contract between HSBC Funds (the "Trust") and the Adviser, or it may be terminated upon written notice to the Adviser by the Trust.