HSBC FUNDS TRUST, N-30D, 1996-09-09

HSBC FUNDS TRUST
N-30D, 1996-09-09

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HSBC MUTUAL FUNDS TRUST
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HSBC FUND GROUP
- --------------------------------------------------------------------------------
HSBC Asset Management (LOGO) [GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
Short-Term U.S. Government Fund
Fixed Income Fund
New York Tax-Free Bond Fund

SEMI-ANNUAL REPORT (UNAUDITED)
June 30, 1996

Managed by:
HSBC ASSET MANAGEMENT AMERICAS INC.

Sponsored and distributed by:
BISYS FUND SERVICES

<PAGE>

HSBC MUTUAL FUNDS TRUST
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FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
HSBC Asset Management (LOGO) [GRAPHIC OMITTED]
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SHORT-TERM U.S. GOVERNMENT FUND
FIXED INCOME FUND
- --------------------------------------------------------------------------------
July 22, 1996

Dear Shareholder:

Over the past six months the fixed income market has had to come to grips with
an economy substantially stronger than predicted and a corresponding change in
expectations on monetary policy from an easier stance to the likelihood of rate
hikes by the Federal Reserve. Treasury interest rates are roughly one point
higher along the 2-30 year yield curve from levels at the beginning of the year.
The spread sectors, Corporates, Mortgages, Agencies and Asset Backed securities,
have performed quite well this year with relative outperformance over Treasuries
in all sectors on a curve adjusted basis.

HSBC SHORT-TERM U.S. GOVERNMENT FUND
- ------------------------------------
The Fund returned -.41% versus .78% for the Lehman Mutual Fund 1-5 year
Government/Corporate Index. Our returns were below the index because of
incorrect duration positioning in the first quarter. We were positioned slightly
long of index duration in a declining market. We have been underweight in the 2
year area of the curve, expecting a flatter yield curve in the 1-5 sector; this
has yet to help performance. The combination of these factors caused the Fund to
lag the index so far this year.

HSBC FIXED INCOME FUND
- ----------------------
The Fund returned -2.23% versus -1.22% for the Lehman Aggregate Index. Our
returns were below the index because of incorrect duration positioning in the
first quarter. We were positioned slightly long of index duration in a declining
market. The Corporate sector produced impressive returns so far this year. The
best performing securities within this sector have been the lower quality
securities. Although we have been very close to index weighted in the sector our
holdings were of higher rated issues which did not perform as well. The
combination of these factors caused the Fund to lag the index so far this year.

MARKET OUTLOOK
- --------------
The key to the second half performance for the bond market depends on whether
the widely expected second half economic slowdown actually comes to pass and at
what level the economy slows. At this juncture we expect the Federal Reserve to
raise short term interest rates 25-50 basis points sometime after the election.
Much of this scenario is already priced into the market and absent any new
twists this would result in modestly higher interest rates and a slightly
flatter yield curve.

<PAGE>

It seems the Fed is getting behind the curve and economic strength is starting
to cause price pressure, particularly in wages. It is an election year and there
is considerable political pressure on the Fed to refrain from raising rates.
This makes it understandable for the Fed to wait for incontrovertible evidence,
but if growth remains at or above trend they may have a bigger job to do in
containing inflation. The idea of a global re-synchronization of the developed
economies argues for foreign demand to take up any domestic slack and keep the
economy operating at a brisk pace.

Our outlook has been neutral to bearish in the near term with a more
constructive view twelve months out since late April. We remain in that camp but
the risk seems now to be shifting to a more bearish stance based on continued
economic strength and no sure signs of the expected slowdown.

Sincerely,

(/S/ James Lark)

James Lark

<PAGE>

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
SHORT-TERM U.S.GOVERNMENT FUND VS. LEHMAN MUTUAL FUND 1-5 YEAR
GOVERNMENT/CORPORATE INDEX

- -------------------------------------
Average Annual Total Return
- -------------------------------------
1 Year Inception
- -------------------------------------
Offering Price(1) 1.19% 3.68%
NAV(2) 3.24% 4.30%
- --------------------------------------

(GRAPHIC OMITTED)

Fund 1 Lehman Fund 2
March 1993 10,000 10,000 10,000
June 1993 9,930 10,140 10,125
September 1993 10,048 10,280 10,250
December 1993 10,121 10,345 10,324
March 1994 10,104 10,294 10,306
June 1994 10,108 10,295 10,310
September 1994 10,194 10,397 10,398
December 1994 10,207 10,291 10,411
March 1995 10,529 10,690 10,739
June 1995 10,928 11,118 11,146
September 1995 11,059 11,288 11,280
December 1995 11,330 11,618 11,556
March 1996 11,234 11,546 11,468
June 1996 11,283 11,645 11,509

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE

(1) INCLUDES THE MAXIMUM SALES CHARGE
(2) EXCLUDES THE MAXIMUM SALES CHARGE

THE ABOVE ILLUSTRATION COMPARES A $10,000 INVESTMENT IN THE SHORT-TERM
U.S.GOVERNMENT FUND ON MARCH 1, 1993, TO A $10,000 INVESTMENT IN THE LEHMAN
MUTUAL FUND 1-5 YEAR GOVERNMENT/CORPORATE INDEX ON THAT DATE. ALL DIVIDENDS AND
CAPITAL GAINS DISTRIBUTIONS ARE REINVESTED.

THE FUND'S PERFORMANCE TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES AND
WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED. THE LEHMAN MUTUAL
FUND 1-5 YEAR GOVERNMENT/CORPORATE INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF
OVERALL TREASURY, GOVERNMENT AGENCY AND CORPORATE BOND MARKET PERFORMANCE AND
DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER EXPENSES.

<PAGE>

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
FIXED INCOME FUND VS. LEHMAN AGGREGATE

- ----------------------------------------
Average Annual Total Return
- ----------------------------------------
1 Year Inception
- ----------------------------------------
Offering Price(1) (1.70%) 4.33%
NAV(2) 3.21% 5.81%
- ----------------------------------------

(GRAPHIC OMITTED)

Fund 1 Lehman Fund 2
January 1993 10,000 10,000 10,000
March 1993 9,788 10,315 10,277
June 1993 10,053 10,589 10,555
September 1993 10,343 10,865 10,860
December 1993 10,340 10,870 10,857
March 1994 10,164 10,558 10,672
June 1994 10,073 10,450 10,576
September 1994 10,112 10,514 10,618
December 1994 10,145 10,554 10,651
March 1995 10,580 11,086 11,108
June 1995 11,218 11,761 11,778
September 1995 11,374 11,993 11,941
December 1995 11,842 12,504 12,433
March 1996 11,548 12,281 12,123
June 1996 11,579 12,351 12,158

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE

(1) INCLUDES THE MAXIMUM SALES CHARGE
(2) EXCLUDES THE MAXIMUM SALES CHARGE

THE ABOVE ILLUSTRATION COMPARES A $10,000 INVESTMENT IN THE FIXED INCOME FUND ON
JANUARY 15, 1993, TO A $10,000 INVESTMENT IN THE LEHMAN AGGREGATE BOND INDEX ON
THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE REINVESTED.

THE FUND'S PERFORMANCE TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES AND
WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED. THE LEHMAN
AGGREGATE BOND INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL GOVERNMENT
CORPORATE/MORTGAGE BOND MARKET PERFORMANCE AND DOES NOT TAKE INTO ACCOUNT
CHARGES, FEES AND OTHER EXPENSES.

<PAGE>

NEW YORK TAX-FREE BOND FUND
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July 22, 1996

Dear Shareholder:

During the first half of 1996 the fixed income markets reacted to the signs of
economic strength that began to appear in the first quarter. Strength was
consumer driven and manifested itself in sectors such as employment, housing,
and consumer spending. The figures revealed an economy that was much stronger
than the consensus forecast had anticipated and inflation fears were triggered.
As a result the market began to factor in a tightening in the Federal Reserve
Board's monetary policy after a lowering in January of the Fed's target for the
Federal Fund's rate from 5.50% to 5.25%. As a consequence of the stronger
economic fundamentals, yields on thirty year high grade municipal bonds rose 50
basis points while intermediate term maturities saw a rise in yields of 45 basis
points against the closing yields of the previous year. Nevertheless, municipals
continued their strong performance relative to treasuries as yield ratios
improved quite dramatically.

Returns in the municipal bond markets reflected outperformance relative to the
taxable bond market. Year to date the Lehman Municipal Bond Market Index
returned -0.45%. The Lehman Aggregate Index posted a year to date return of
- -1.22%.

MANAGEMENT DISCUSSION OF FUND PERFORMANCE
- -----------------------------------------
The Fund's total return for the six months ended June 30, 1996 was -1.05%. The
fund outperformed the average of Lipper's New York Municipal Debt Funds which
stood at -1.40%. With the given rise in yields so far this year, new issuance
has remained relatively low. As a result quality spreads have narrowed with high
yield and lower quality bonds outperforming high grade bonds. However, the fund
preferred to maintain its high quality profile by staying in the high grade
sector. As of June 30, 1996 the fund's duration which takes into account interim
principal and income payments as well maturity levels was 7.51 years which
approximated that of the Lehman Municipal Bond Index. The average maturity of
the Fund was 11.92 years.

In terms of the portfolio's sector diversification the largest sectors consisted
of general obligations (32%), education (11.9%), and power revenue (8.3%).

In terms of credit quality the focus within the state centered on New York City.
The adopted budget closed a projected $2.7 billion gap. This was dependent on
the State's own adoption of a budget which kept city funding in a state of
uncertainty. The budget adopted by the city reduced but fell far short of
eliminating the dependence of nonrecurring and uncertain budget measures which
will consequently require creative financial measures in future budgets.

OUTLOOK
- -------
Our outlook for the fixed income markets is neutral to slightly bearish. The
probability that the Federal Reserve will move to tighten monetary policy has
increased with the only question being when. While we don't anticipate a sharp
rise in yields we are positioning the portfolio to reflect a slightly defensive
bias.

Sincerely,

(/S/ Jerry Samet)

Jerry Samet

<PAGE>

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
NEW YORK TAX-FREE BOND FUND VS. LEHMAN MUNICIPAL
BOND INDEX

- -------------------------------------------------
Average Annual Total Return
- -------------------------------------------------
1 Year 5 Years Inception
- -------------------------------------------------
Offering Price(1) 1.03% 6.38% 6.79%
NAV(2) 6.04% 7.42% 7.51%
- -------------------------------------------------

(GRAPHIC OMITTED)

Lehman
Fund 1 Muni Fund 2
March 1989 10,000 10,000 10,000
December 1989 10,203 11,005 10,713
December 1990 10,829 11,807 11,370
December 1991 12,192 13,242 12,802
December 1992 13,492 14,409 14,167
December 1993 15,417 16,178 16,188
December 1994 14,161 15,340 14,869
December 1995 16,310 18,018 17,125
June 1996 16,138 17,937 16,945

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE

(1) INCLUDES THE MAXIMUM SALES CHARGE
(2) EXCLUDES THE MAXIMUM SALES CHARGE

THE ABOVE ILLUSTRATION COMPARES A $10,000 INVESTMENT IN THE NEW YORK TAX-FREE
BOND FUND ON MARCH 21, 1989, TO A $10,000 INVESTMENT IN THE LEHMAN MUNICIPAL
BOND INDEX ON THAT DATE. ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS ARE
REINVESTED.

THE FUND'S PERFORMANCE TAKES INTO ACCOUNT ALL APPLICABLE FEES AND EXPENSES AND
WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED. THE LEHMAN
MUNICIPAL BOND INDEX IS A WIDELY ACCEPTED UNMANAGED INDEX OF OVERALL MUNICIPAL
BOND MARKET PERFORMANCE AND DOES NOT TAKE INTO ACCOUNT CHARGES, FEES AND OTHER
EXPENSES.

<PAGE>

BOARD OF TRUSTEES

JOHN P. PFANN* CHAIRMAN OF THE BOARD; Chairman and President,
JPP Equities, Inc.

WOLFE J. FRANKL* Former Director, North America, Berlin Economic
Development Corporation

WILLIAM L. KUFTA Chief Investment Officer, Beacon Trust Company

HARALD PAUMGARTEN President, Paumgarten and Company

ROBERT A. ROBINSON* Trustee, Henrietta and B. Frederick H. Bugher
Foundation

*Member of the Audit and Nominating Committees

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OFFICERS

WILLIAM B. BLUNDIN Chief Executive Officer

ANN E. BERGIN President

WILLIAM J. TOMKO Vice President

MARK E. NAGLE Treasurer

MARTIN R. DEAN Assistant Treasurer

STEVEN R. HOWARD Secretary

ROBERT L. TUCH Assistant Secretary

ALAINA V. METZ Assistant Secretary

<PAGE>

SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
SHORT-TERM U.S. GOVERNMENT FUND

SHARES OR
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
------ -------- ---------- ----------
<S> <C> <C> <C> <C>
CORPORATE BONDS (17.2%):
FINANCIAL SERVICES (7.2%):
Chase Manhattan Grantor Trust, Series 96-A ................... 5.20% 2/15/02 $ 432,881 $ 427,002
GMAC Grantor Trust, Series 1992-F ............................ 4.50% 9/15/97 11,734 11,697
International Bank R&D ....................................... 8.30% 11/1/96 275,000 277,516
----------
716,215
----------
INDUSTRIAL (10.0%):
Phillip Morris. .............................................. 8.88 7/1/96 500,000 500,000
Walt Disney Co ............................................... 6.38 3/31/01 500,000 490,489
----------
990,489
----------
Total Corporate Bonds (Cost - $1,802,558) ....................................................... 1,706,704
----------
U.S. GOVERNMENT AGENCIES (19.8%):
Federal Home Loan Bank ......................................... 7.94 2/21/00 500,000 510,529
----------
Federal National Mortgage Assoc.
REMIC, Series G34D ........................................... 7.25 10/25/96 42,277 42,176
REMIC, Series 92-20C ......................................... 7.50 1/25/97 68,335 68,307
Debenture .................................................... 5.55 2/12/99 500,000 488,515
Pool #310001 ................................................. 6.00 9/1/00 874,398 853,085
----------
1,452,083
----------
Total U.S. Government Agencies (Cost - $2,001,380) ................................................... 1,962,612
----------
U.S. TREASURY NOTES (53.0%):
.................................................................. 5.38 11/30/97 650,000 644,515
.................................................................. 6.88 7/31/99 1,500,000 1,521,563
.................................................................. 7.75 1/31/00 1,500,000 1,563,750
.................................................................. 7.13 2/29/00 1,500,000 1,534,218
----------
Total U.S. Treasury Notes (Cost - $5,278,174) ........................................................ 5,264,046
----------
MONEY MARKET MUTUAL FUNDS (8.6%):
Provident Institutional Temporary Investment Fund .................................... 467,000 467,000
FedFund Money Market ................................................................. 387,000 387,000
----------
Total Money Market Mutual Funds (Cost - $854,000) .................................................... 854,000
----------
Total (Cost - $9,936,113)(a) ............................................................................ $9,787,362
==========
<FN>
- --------------
Percentages indicated are based on net assets of $9,933,791.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
Unrealized appreciation ......................................................................... $ 60,389
Unrealized depreciation ......................................................................... (209,140)
----------
Net unrealized depreciation ..................................................................... $ (148,751)
==========
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
FIXED INCOME FUND

SHARES OR
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
------ -------- --------- -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS (21.8%):
FINANCIAL SERVICES (9.1%):
American Express ............................................. 6.13% 6/15/00 $3,000,000 $ 2,934,624
Chase Manhattan Grantor Trust, Series 96-A ................... 5.20 2/15/02 2,164,406 2,135,013
Provident Bank ............................................... 6.38 1/15/04 2,500,000 2,349,707
Travelers Aetna Property/Casualty Corp. ...................... 7.75 4/15/26 1,000,000 980,814
-----------
8,400,158
-----------
INDUSTRIAL (7.7%):
American Home Products ....................................... 7.90 2/15/05 2,500,000 2,615,812
Lockheed Martin .............................................. 6.85 5/15/01 2,000,000 1,990,406
Lockheed Martin .............................................. 7.75 5/1/26 2,500,000 2,478,045
-----------
7,084,263
-----------
UTILITIES (1.6%):
Cental Power & Light ......................................... 6.00 10/1/97 1,500,000 1,493,272
-----------
YANKEE (3.4%):
Ontario Province Bond ........................................ 6.00 2/21/06 2,500,000 2,293,025
Ontario Province Debenture ................................... 15.75 3/15/12 775,000 873,316
-----------
3,166,341
-----------
Total Corporate Bonds (Cost - $20,586,820) ......................................................... 20,144,035
-----------
U.S. GOVERNMENT AGENCIES (41.6%):
Export Development Corp. ....................................... 8.13 8/10/99 380,000 397,096
Federal Home Loan Mortgage Corp.:
Pool #220019 ................................................. 7.75 1/1/02 269,529 271,744
Series 1979-C ................................................ 10.00 9/15/09 420,393 425,631
Series 33-C .................................................. 8.00 9/15/18 816,488 822,653
Series 138-C ................................................. 8.85 4/15/20 31,021 30,901
Pool #C80297 ................................................. 8.50 5/1/25 2,958,180 3,037,660
Pool #D62926 ................................................. 6.50 8/1/25 2,931,611 2,746,532
Pool #D67571 ................................................. 6.50 1/1/26 3,036,388 2,844,695
Pool #380405 ................................................. 8.50 5/1/26 1,971,942 2,024,924
Federal National Mortgage Assoc.:
Debenture .................................................... 5.55 2/12/99 1,500,000 1,465,545
REMIC, Series 93-104C ........................................ 6.50 3/25/21 2,000,000 1,824,440
REMIC, Series 1994-56L ....................................... 6.50 9/25/22 4,449,717 4,268,613
Pool #250336 ................................................. 7.50 6/1/25 3,536,009 3,490,677
Pool #319225 ................................................. 7.00 10/1/25 1,917,707 1,845,179
Pool # 250414 ................................................ 7.00 12/1/25 4,916,679 4,730,730
Pool #334231 ................................................. 7.00 1/1/26 1,014,795 976,416
Pool #343195 ................................................. 7.50 5/1/26 1,978,287 1,952,925
Pool #343812 ................................................. 7.50 5/1/26 494,542 488,202
</TABLE>

<PAGE>

SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1996 (CONTINUED)

<TABLE>
<CAPTION>
FIXED INCOME FUND

SHARES OR
INTEREST MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
------ -------- --------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES-(CONTINUED)
Government National Mortgage Assoc.:
Pool #168414 ................................................. 10.00% 8/15/22 $ 957,700 $ 1,019,347
Pool #356578 ................................................. 7.50 6/15/23 3,826,725 3,794,694
Resolution Trust Corp. Mortgage:
Series 1992-MH3, Class A1 .................................... 6.80 12/15/11 10,691 10,666
-----------
Total U.S. Government Agencies (Cost - $39,182,999) .................................................. 38,469,270
-----------
U.S. TREASURY NOTES (27.0%):
....................................... 5.75 10/31/97 2,750,000 2,742,264
....................................... 5.38 11/30/97 2,500,000 2,478,905
....................................... 4.75 8/31/98 3,000,000 2,915,625
....................................... 6.75 6/30/99 4,400,000 4,452,250
....................................... 6.88 7/31/99 1,000,000 1,014,375
....................................... 8.00 8/15/99 1,000,000 1,045,937
....................................... 7.75 1/31/00 3,000,000 3,127,500
....................................... 7.50 5/15/02 2,500,000 2,614,842
....................................... 7.88 11/15/04 4,250,000 4,568,750
-----------
Total U.S. Treasury Notes (Cost - $25,040,222) ....................................................... 24,960,448
-----------
U.S TREASURY BONDS (7.8%):
....................................... 8.75 8/15/20 2,280,000 2,726,025
....................................... 7.88 2/15/21 1,000,000 1,095,625
....................................... 6.25 8/15/23 3,750,000 3,397,263
-----------
Total U.S. Treasury Bonds (Cost - $7,025,618) ........................................................ 7,218,913
-----------
MONEY MARKET MUTUAL FUNDS (1.0%):
Provident Institutional Temporary Investment Fund ...................................... 904,000 904,000
-----------
Total Money Market Mutual Funds (Cost - $904,000) .................................................... 904,000
-----------
Total (Cost - $92,739,659)(a) ........................................................................... $91,696,666
===========
<FN>
- --------------
Percentages indicated are based on net assets of $92,460,896.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
Unrealized appreciation ......................................................................... $ 349,025
Unrealized depreciation ......................................................................... (1,392,018)
-----------
Net unrealized depreciation ..................................................................... $(1,042,993)
===========
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
NEW YORK TAX-FREE BOND FUND

SHARES OR
SECURITY PRINCIPAL MARKET
DESCRIPTION VALUE VALUE
----------- ---------- ----------
<S> <C> <C>
MUNICIPAL BONDS (96.6%):
NEW YORK (91.9%):
Bethlehem CSD, GO, 7.10%, 11/1/07, AMBAC .......................................... $ 200,000 $ 231,250
Islip Public Improvement, GO, 7.10%, 6/15/98, AMBAC
Callable 6/15/97 @ 102 * ....................................................... 150,000 157,465
Monroe County, GO, Series B, (Collateral in U.S.
Government Securities) 7.00%, 6/1/04 ........................................... 40,000 42,800
Monroe County, Series B, 7.00%, 6/1/04,
Callable 6/1/98 @ 102 * ........................................................ 10,000 10,638
Municipal Assistance Corp. for NY, 6.00%, 7/1/03 .................................. 2,200,000 2,329,250
New York City, GO, Series A, 7.75%, 8/15/04,
Callable 8/15/01 @ 101.5 * ..................................................... 600,000 662,250
New York City, GO, Series A, 7.75%, 8/15/07,
Callable 8/15/01 @ 101.5 * ..................................................... 3,500,000 3,863,125
New York City, GO, Series B, 6.10%, 8/15/05 ....................................... 2,000,000 2,017,500
New York City, GO, Series B, 7.50%, 2/1/07,
Callable 2/1/02 @ 101.5 * ...................................................... 1,000,000 1,077,500
New York City, Series E, 6.50%, 2/15/06 ........................................... 2,000,000 2,062,500
New York City, GO, Series F, (Collateral in U.S. Government
Securities), 8.40%, 11/15/05, Pre-Refunded 11/15/01 @ 101.5 .................... 105,000 123,900
New York City Unrefunded Balance, Series F, 8.40%,
11/15/05, Callable 11/15/01 @ 101.5 * .......................................... 45,000 51,581
New York City, Series G, 6.75%, 2/1/09 ............................................ 1,000,000 1,042,500
New York City IDA Special Facility Revenue, One Group
Project, AMT, 6.13%, 1/1/24, Callable 1/1/04 @ 102 * ........................... 2,500,000 2,446,875
New York City Municipal Water, 5.75%, 6/15/26 ..................................... 2,000,000 1,962,500
New York City Trust for Cultural Research, Museum of Modern
Art, 6.40%, 1/1/04, AMBAC, Callable 1/1/02 @ 102 * ............................. 350,000 378,438
New York State Dormitory Authority, Revenue Bond,
5.88%, 5/15/11 ................................................................. 1,500,000 1,479,375
New York State Dormitory Authority Revenue, City University
Systems, Series A, 5.75%, 7/1/18 ............................................... 2,370,000 2,248,537
New York State Dormitory Authority, State University
(Collateral in U.S. Government Securities), 7.25%, 5/15/18,
Pre-Refunded 5/15/02 @ 102 ..................................................... 1,000,000 1,135,230
New York State Environmental Facilities Corp., PCR,
Revolving Fund, 7.00%, 6/15/12, Callable 6/15/01 @ 102 * ....................... 300,000 328,875
New York State Environmental Facilities Corp., PCR,
Revolving Fund, Series B, 7.50%, 3/15/11,
Callable 3/15/99 @ 102 * ....................................................... 250,000 271,875
New York State Environmental Facilities Corp., PCR,
Revolving Fund, Series 1990 C, 7.50%, 3/15/11,
Callable 3/15/00 @ 102 * ....................................................... 200,000 219,000
</TABLE>

<PAGE>

SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1996 (CONTINUED)

<TABLE>
<CAPTION>
NEW YORK TAX-FREE BOND FUND

SHARES OR
SECURITY PRINCIPAL MARKET
DESCRIPTION VALUE VALUE
----------- ---------- -----------
<S> <C> <C>
MUNICIPAL BONDS-(CONTINUED)
New York State Environmental Water, 4.95%, 6/15/10,
Callable 6/15/06 @ 102 * ....................................................... $2,000,000 $ 1,872,500
New York State HFA, Multi-Family, Series A, 7.00%,
8/15/22, FHA, Callable 8/15/02 @ 102 * ......................................... 900,000 940,500
New York State Local Assistance Corp., 7.00%, 4/1/21 .............................. 1,900,000 2,109,000
New York State Medical Care, Adult Day Care Facility,
Series A, 6.38%, 11/15/20,
Callable 11/15/05 @ 102 * ...................................................... 2,000,000 2,040,000
New York State Medical Care, Mental Health, Series A,
CAPGTY Certificates, 7.70%, 2/15/18, FSA,
Callable 2/15/98 @ 102 * ....................................................... 115,000 121,756
New York State Medical Care Facility, Mental
Health Services, Series F, 6.00%, 8/15/03 ...................................... 2,000,000 2,072,500
New York State Power Authority, 5.00%, 1/1/14 ..................................... 1,550,000 1,412,438
New York State Thruway Authority, Emergency Highway,
6.00%, 3/1/02, FSA ............................................................. 800,000 844,000
New York State Urban Development Corp. Revenue,
Series A, 5.50%, 4/1/16, Callable 4/1/06 @ 102 * ............................... 2,300,000 2,213,750
Niagara Frontier Transportation Authority, Buffalo
International Airport, AMT, 6.13%, 4/1/14, AMBAC,
Callable 4/1/04 @ 102 .......................................................... 2,400,000 2,439,000
Oyster Bay Public Improvement, GO, Series A,
6.60%, 2/15/98, FGIC ........................................................... 200,000 208,000
Syracuse, GO, (Collateral in U.S. Government Securities),
6.70%, 2/15/07, Pre-Refunded 2/15/01 @ 102 ..................................... 300,000 328,125
-----------
Total New York (Cost - $39,876,004) ............................................ 40,744,532
-----------
OTHER MUNICIPAL SECURITIES (4.7%):
Puerto Rico Electric Power Agency, Series S, 6.13%, 7/1/09 ........................ 2,000,000 2,115,000
-----------
Total Other Municipal Securities (Cost - $1,968,983) ........................... 2,115,000
-----------
Total Municipal Bonds (Cost - $41,844,987) ..................................... 42,859,533
-----------
MONEY MARKET MUTUAL FUNDS (4.5%):
New York Money Fund ............................................................... 1,867,000 1,867,000
Goldman New York Tax-Exempt Fund .................................................. 118,000 118,000
-----------
Total Money Market Mutual Funds (Cost - $1,985,000) ............................ 1,985,000
-----------
Total (Cost - $43,829,986)(a) ..................................................... $44,844,533
===========
<FN>
Percentages indicated are based on net assets of $44,350,628.
</FN>
</TABLE>

<PAGE>

SCHEDULE OF PORTFOLIO INVESTMENTS AS OF JUNE 30, 1996 (CONTINUED)

NEW YORK TAX-FREE BOND FUND

(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation ................................. $1,214,009
Unrealized depreciation ................................. (199,462)
----------
Net unrealized appreciation ............................. $1,014,547
==========
* Additional put and demand features exist allowing the Fund to require the
repurchase of the instrument within variable time periods at variable amounts.

AMBAC Insured by American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax Paper
CAPGTY Insured by Capital Guaranty
CSD Central School District
FGIC Insured by Financial Guaranty Insurance Corp.
FHA Insured by Federal Housing Administration
FSA Insured by Financial Security Assurance
GO General Obligation
HFA Insured by Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

STATEMENTS OF ASSETS AND LIABILITIES AS OF JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
SHORT-TERM FIXED NEW YORK
U.S. GOVERNMENT INCOME TAX-FREE
FUND FUND BOND FUND
--------------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investment in securities, at value (cost $9,936,113; $92,739,659;
and $43,829,986, respectively) ................................ $ 9,787,362 $91,696,666 $44,844,533
Cash ............................................................ 324 705 122
Interest and dividends receivable ............................... 202,070 1,279,055 884,751
Receivable from brokers for investments sold .................... -- 8,809 --
Deferred organization costs ..................................... 16,385 17,766 --
Prepaid expenses and other assets ............................... 3,093 9,255 20,820
----------- ----------- -----------
Total Assets .................................................. 10,009,234 93,012,256 45,750,226
----------- ----------- -----------
LIABILITIES:
Dividends payable ............................................... 45,019 465,040 187,642
Payable to brokers for investments purchased .................... -- -- 1,135,230
Accurred expenses and other payable:
Investment advisory fees ...................................... 1,623 41,946 9,063
Administration fees ........................................... 811 7,626 3,625
Distribution fees ............................................. -- -- 7,114
Fund accounting and transfer agent fees ....................... 1,371 299 758
Legal and audit fees .......................................... 15,002 20,774 18,934
Other ......................................................... 11,617 15,675 37,232
----------- ----------- -----------
Total Liabilities ............................................. 75,443 551,360 1,399,598
----------- ----------- -----------
Net Assets ......................................................... $ 9,933,791 $92,460,896 $44,350,628
=========== =========== ===========
Net Asset Value, Offering Price and Redemption Price per Share:
($.001 par value per share, unlimited number of shares authorized)
SHARES:
Net assets ...................................................... $ 9,933,791 $92,460,896 $44,350,628
Shares of beneficial interest issued and outstanding ............ 1,026,400 9,472,926 4,112,616
Net asset value ................................................. $ 9.68 $ 9.76 $ 10.78
----------- ----------- -----------
Sales charge-4.75%, 2.00%,
and 4.75%, respectively, of offering price .................... $ 0.20 $ 0.49 $ 0.54
----------- ----------- -----------
Maximum offering price .......................................... $ 9.88 $ 10.25 $ 11.32
----------- ----------- -----------
COMPOSITION OF NET ASSETS:
Paid-in capital ................................................. $10,546,326 $96,246,957 $45,623,626
Distributions in excess of net investment income ................ (1,388) (1,496) --
Accumulated undistributed net realized losses from
investment transactions ....................................... (462,396) (2,741,572) (2,287,545)
Net unrealized appreciation (depreciation) from investments ..... (148,751) (1,042,993) 1,014,547
----------- ----------- -----------
Net Assets ......................................................... $ 9,933,791 $92,460,896 $44,350,628
=========== =========== ===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
SHORT-TERM FIXED NEW YORK
U.S. GOVERNMENT INCOME TAX-FREE
FUND FUND BOND FUND
--------------- ---------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ...................................................... $ 10,240 $ 90,191 $ 18,863
Interest ....................................................... 328,758 3,168,637 1,382,455
--------- ----------- -----------
Total Income ................................................. 338,998 3,258,828 1,401,318
--------- ----------- -----------
EXPENSES:
Advisory fees .................................................. 28,328 262,865 105,028
Administration fees ............................................ 7,726 71,690 35,009
Co-administration fees ......................................... 3,605 33,455 16,338
Distribution expenses .......................................... 207 3,902 50,976
Shareholder servicing fees ..................................... 322 2,899 1,455
Audit fees ..................................................... 7,659 20,151 12,787
Accounting and transfer agent fees ............................. 9,242 27,738 19,465
Custodian fees and expenses .................................... 4,386 7,922 4,178
Printing expenses .............................................. 5,366 10,450 9,028
Registration fees .............................................. 2,028 3,457 704
Amortization of organization expenses .......................... 5,653 6,509 --
Legal fees ..................................................... 8,412 23,984 16,253
Trustees' fees and expenses .................................... 2,928 6,083 7,829
Other expenses ................................................. 14,721 7,823 7,890
--------- ----------- -----------
Total Expenses ............................................... 100,583 488,928 286,940
--------- ----------- -----------
Less: Fee waivers by advisor,
administrator, and distributor ............................... (22,680) (43,753) (67,517)
--------- ----------- -----------
Net Expenses ................................................. 77,903 445,175 219,423
--------- ----------- -----------
Net Investment Income .......................................... 261,095 2,813,653 1,181,895
--------- ----------- -----------
REALIZED AND UNREALIZED LOSSES FROM INVESTMENTS:
Net realized gains (losses) from investment transactions .......... (49,699) (1,631,658) 792,118
Net change in unrealized depreciation from investments ............ (255,716) (3,473,313) (2,477,057)
--------- ----------- -----------
Net realized and unrealized losses from investments ............... (305,415) (5,104,971) (1,684,939)
--------- ----------- -----------
Net decrease in net assets resulting from operations .............. $ (44,320) $(2,291,318) $ (503,044)
========= =========== ===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SHORT-TERM NEW YORK
U.S. GOVERNMENT FUND FIXED INCOME FUND TAX-FREE BOND FUND
----------------------------- --------------------------- ----------------------------
FOR THE SIX FOR THE FOR THE SIX FOR THE FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 1995 1996 1995 1996 1995
------------- ------------ ------------ ------------ ------------ -------------
From Investment Activities: (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income ................. $ 261,095 $ 703,752 $ 2,813,653 $ 5,089,310 $ 1,181,895 $ 2,614,697
Net realized gains (losses) from
investment transactions ............. (49,699) 10,304 (1,631,658) (89,155) 792,118 842,141
Net change in unrealized appreciation
(depreciation) from investments ..... (255,716) 619,944 (3,473,313) 8,168,553 (2,477,057) 3,785,950
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets resulting
from operations .................. (44,320) 1,334,000 (2,291,318) 13,168,708 (503,044) 7,242,788
----------- ----------- ----------- ----------- ----------- -----------
DIVIDENDS TO SHAREHOLDERS:
From net investment income ............ (262,483) (703,752) (2,815,149) (5,089,310) (1,181,895) (2,614,697)
From net realized gains from
investment transactions ............. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets from
shareholder distributions ........ (262,483) (703,752) (2,815,149) (5,089,310) (1,181,895) (2,614,697)
----------- ----------- ----------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ........... 216,690 2,948,477 15,721,173 31,114,026 948,547 3,178,116
Dividends reinvested .................. 8,131 24,680 35,342 92,653 595,199 1,572,970
Cost of shares redeemed ............... (892,036) (7,337,356) (18,131,197) (24,118,178) (6,184,943) (9,413,776)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets from
share transactions ............... (667,215) (4,364,199) (2,374,682) 7,088,501 (4,641,197) (4,662,690)
----------- ----------- ----------- ----------- ----------- -----------
Change in net assets ............. (974,018) (3,733,951) (7,481,149) 15,167,899 (6,326,136) (34,599)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS:
Beginning of period ................... 10,907,809 14,641,760 99,942,045 84,774,146 50,676,764 50,711,363
----------- ----------- ----------- ----------- ----------- -----------
End of period ......................... $ 9,933,791 $10,907,809 $92,460,896 $99,942,045 $44,350,628 $50,676,764
----------- ----------- ----------- ----------- ----------- -----------
SHARE TRANSACTIONS:
Issued ................................ 22,165 300,917 1,566,185 3,103,767 86,410 298,636
Reinvested ............................ 830 2,522 3,564 9,374 54,533 146,572
Redeemed .............................. (91,030) (751,431) (1,814,888) (2,464,690) (566,825) (875,996)
----------- ----------- ----------- ----------- ----------- -----------
Change in shares ......................... (68,035) (447,992) (245,139) 648,451 (425,882) (430,788)
=========== =========== =========== =========== =========== ===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION

HSBC Mutual Funds Trust, formerly known as Mariner Mutual Funds Trust, (the
"Trust") was organized on November 1, 1989 as a Massachusetts business
trust and is an open-end, diversified management investment company with
multiple investment portfolios, including the Short-Term U.S. Government
Fund (formerly known as the Short-Term Fixed Income Fund), the Fixed Income
Fund and the New York Tax-Free Bond Fund (herein referred to individually
as a "Fund" and collectively as the "Funds").

The investment objective of the Short-Term U.S. Government Fund is
preservation of capital and generation of current income by investing in
fixed-income securities with a dollar-weighted average portfolio maturity
of between one and three years. The Short-Term U.S. Government Fund will
invest primarily in securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities. The investment objective of the Fixed
Income Fund is generation of high current income consistent with
appreciation of capital by investing in a variety of fixed-income
securities. The investment objective of the New York Tax-Free Bond Fund is
to provide its investors with as high a level of current income exempt from
Federal, New York State and New York City income taxes as is consistent
with relative stability of capital.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income
and expenses for the period. Actual results could differ from those
estimates.

SECURITIES VALUATION: Portfolio securities for which market quotations are
readily available are valued at the quoted bid price. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Trust's
officers in accordance with guidelines which have been adopted by the Board
of Trustees. Such procedures include the use of independent pricing
services which use prices based on yields or prices of securities of
comparable quality, coupon, maturity and type, indicators as to value from
dealers and general market conditions. Short-term obligations having
maturities of 60 days or less are valued at amortized cost which
approximates market value.

TAXES: It is the Funds' policy to comply with the provisions of the
Internal Revenue Code, as amended, applicable to regulated investment
companies, and to distribute substantially all of its taxable income and
net realized capital gains to its shareholders for each taxable year.
Therefore, no provision is required for Federal income tax.

DIVIDENDS AND DISTRIBUTIONS: The Funds intend to declare as a dividend
substantially all of their net investment income at the end of each
business day and to pay within five business days after the end of each
month. Net capital gains, if any, are distributed at least annually.

The Fund distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax
return of capital. Differences in the recognition or classification of
income between the financial statements and tax earnings and profits which
result in temporary overdistributions for financial statement purposes, are
classified as distributions in excess of net investment income or
accumulated undistributed net realized gains.

<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SECURITY TRANSACTIONS AND RELATED INCOME: Security transactions are
recorded on trade date. Identified cost of investments sold is used for
both financial statement and Federal income tax purposes. Interest income
is recorded as earned.

EXPENSE ALLOCATION: Expenses directly attributed to each Fund in the Trust
are charged to that Fund's operations; expenses which are applicable to all
Funds are allocated among them.

ORGANIZATIONAL COSTS: Costs incurred in connection with the organization of
the Fund are being amortized on a straight-line basis over a five-year
period from the date operations commenced.

3. PORTFOLIO SECURITIES

Purchases and sales of securities (excluding short-term securities) for
the six months ended June 30, 1996 were as follows:

PURCHASES SALES
----------- -----------
Short-Term U.S. Government Fund ...... $ 3,730,313 $ 4,856,146
Fixed Income Fund .................... $92,308,583 $89,323,087
New York Tax Free Bond Fund .......... $23,792,075 $26,331,465

4. RELATED PARTY TRANSACTIONS

The Trust retains HSBC Asset Management Americas Inc. ("HSBC Americas") to
act as Investment Adviser for the Fund. HSBC Americas is the North American
investment affiliate of HSBC Holdings plc (Hong Kong and Shanghai Banking
Corporation). As Investment Adviser, HSBC Americas furnishes investment
guidance and policy direction in connection with the management of the
portfolio of the Funds, subject to policies established by the Board of
Trustees.

As compensation for its services, HSBC Americas is paid monthly advisory
fees at the following annual rates:

ADVISORY FEE RATE
-------------------------
SHORT-TERM FIXED
PORTIONS OF THE FUNDS' AVERAGE U.S. GOVERNMENT INCOME
DAILY NET ASSETS FUND FUND
------------------------------------------ --------------- ------
Not exceeding $400 million ............... 0.550% 0.550%
In excess of $400 million but not
exceeding $800 million ................. 0.505% 0.505%
In excess of $800 million but not
exceeding $1.2 billion ................. 0.460% 0.460%
In excess of $1.2 billion but not
exceeding $1.6 billion ................. 0.415% 0.415%
In excess of $1.6 billion but not
exceeding $2.0 billion ................. 0.370% 0.370%
In excess of $2.0 billion ................ 0.315% 0.315%

<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. RELATED PARTY TRANSACTIONS (CONTINUED)
ADVISORY FEE RATE
-----------------
NEW YORK
PORTIONS OF THE FUNDS' AVERAGE TAX-FREE BOND
DAILY NET ASSETS FUND
------------------------------------------ ----------------
Not exceeding $300 million ............... 0.450%
In excess of $300 million but not
exceeding $600 million ................. 0.420%
In excess of $600 million but not
exceeding $1.0 billion ................. 0.385%
In excess of $1.0 billion but not
exceeding $1.5 billion ................. 0.350%
In excess of $1.5 billion but not
exceeding $2.0 billion ................. 0.315%
In excess of $2.0 billion ................ 0.280%

At June 30, 1996, HSBC Americas earned approximately $10,311 from the
Short-Term U.S. Government Fund, $262,865 from the Fixed Income Fund, and
$58,763 from the New York Tax Free Bond Fund in advisory fees, net of fee
waivers of approximately $18,017, $0, and $46,265, respectively.

BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership is a subsidiary of the BISYS Group,
Inc. BISYS, with whom certain officers of the Trust are affiliated, serves
the Trust as distributor, administrator, transfer agent and fund
accountant. Such officers and trustee are not paid any fees directly by the
Funds for serving as officers and trustee of the Trust.

In accordance with the terms of the Administration and Accounting Servicing
agreements BISYS is paid a monthly asset based fee of 0.15% of the Fund's
first $200 million of average net assets; 0.125% of the Fund's next $200
million of average net assets; 0.10% of the Fund's next $200 million of
average net assets; and 0.08% of the Fund's average net assets in excess of
$600 million; exclusive of out-of-pocket expenses. At June 30, 1996, BISYS
earned approximately $5,062 from the Short-Term U.S. Government Fund,
$46,753 from the Fixed Income Fund, and $22,792 from the New York Tax-Free
Bond Fund , net of fee waivers of approximately $2,664, $24,937, and
$12,217, respectively, in administrative services fees.

HSBC Americas earned co-administration fees of 0.07% of the Fund's average
net assets totaling approximately $1,606 from the Short-Term U.S.
Government Fund, $14,639 from the Fixed Income Fund, and $7,303 from the
New York Tax Free Bond Fund. Of that total, HSBC Americas waived
approximately $1,999, $18,816, and $9,035, respectively, of these fees.

The Fund has adopted a Distribution Plan and Agreement (the "Plan")
pursuant to Rule 12b-1 of the Investment Company Act of 1940, as amended.
The Plan provides for a monthly payment by the Fund to BISYS Fund Services
for expenses incurred in connection with distribution services provided to
the Fund not to exceed an annual rate of 0.35% of the Funds' average net
assets during the preceding month.

HSBC Americas may enter into agreements (the "Service Agreements") with
certain banks, financial institutions and corporations ("Service
Organizations") whereby each Service Organization handles record keeping
and provides certain administrative services for its customers who invest
in the Funds through accounts maintained at that Service Organization. Each
Service Organization will receive monthly payments, which are based upon
expenses that the Service Organization has incurred in the performance of
its service under the Service Agreement. The payments from the Funds on an
annual basis will not exceed 0.25% of the average value of the Funds'
shares held in the subaccounts of the Service Organizations.

<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. RELATED PARTY TRANSACTIONS (CONTINUED)

A partner of Baker & McKenzie, legal counsel to the Trust, serves as
Secretary of the Trust. At June 30, 1996 the Funds incurred legal fees of
approximately $3,299 for the Short-Term U.S. Government Fund, $29,443 for
the Fixed Income Fund, and $14,784 for the New York Tax-Free Bond Fund to
Fund counsel.

<PAGE>

FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD

<TABLE>
<CAPTION>
SHORT-TERM U.S. GOVERNMENT FUND

FOR THE FOR THE FOR THE
SIX MONTHS YEAR YEAR FOR THE PERIOD
ENDED ENDED ENDED MARCH 1, 1993 TO
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993(a)
------------- ----------------- ----------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $ 9.97 $ 9.49 $ 9.91 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income ..................... 0.25 0.54 0.50 0.41
Net realized and unrealized gains (losses)
from investments ........................ (0.29) 0.48 (0.42) (0.09)
------- ------- ------- -------
Total from Investment Activities .......... (0.04) 1.02 0.08 0.32
------- ------- ------- -------
Distributions
From net investment income ................ (0.25) (0.54) (0.50) (0.41)
From net realized gains ................... -- -- -- --
------- ------- ------- -------
Total distributions ....................... (0.25) (0.54) (0.50) (0.41)
------- ------- ------- -------
Net Asset Value, End of Period ................. $ 9.68 $ 9.97 $ 9.49 $ 9.91
======= ======= ======= =======
Total Return(b) ................................ (0.41)%(d) 10.99% 0.86% 3.24%(d)
Ratios/Supplemental Data:
Net Assets at end of period (000) ......... $ 9,934 $10,908 $14,642 $17,511
Ratio of expenses to average net assets ... 1.51%(c) 1.04% 0.78% 0.60%(c)
Ratio of net investment income
to average net assets ................... 5.08%(c) 5.53% 5.18% 4.91%(c)
Ratio of expenses to average net assets* .. 1.95%(c) 1.44% 1.21% 1.29%(c)
Ratio of net investment income
to average net assets* .................. 4.64%(c) 5.13% 4.75% 4.22%(c)
Portfolio turnover rate ................... 39.98% 53.28% 68.13% 32.02%
<FN>
- ------------
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and expense reimbursements had not
occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Excludes sales charge.
(c) Annualized.
(d) Not annualized.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD

<TABLE>
<CAPTION>
FIXED INCOME FUND

FOR THE FOR THE FOR THE
SIX MONTHS YEAR YEAR FOR THE PERIOD
ENDED ENDED ENDED JANUARY 15, 1993 TO
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993(a)
------------- ----------------- ----------------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $ 10.28 $ 9.35 $ 10.13 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income ..................... 0.29 0.59 0.59 0.63
Net realized and unrealized gains (losses)
from investments ........................ (0.52) 0.93 (0.78) 0.21
------- ------- ------- -------
Total from Investment Activities .......... (0.23) 1.52 (0.19) 0.84
------- ------- ------- -------
Distributions
From net investment income ................ (0.29) (0.59) (0.59) (0.63)
From net realized gains ................... -- -- -- (0.08)
------- ------- ------- -------
Total distributions ....................... (0.29) (0.59) (0.59) (0.71)
------- ------- ------- -------
Net Asset Value, End of Period ................. $ 9.76 $ 10.28 $ 9.35 $ 10.13
======= ======= ======= =======
Total Return(b) ................................ (2.23)%(d) 16.73% (1.89)% 8.57%(d)
Ratios/Supplemental Data:
Net Assets at end of period (000) ......... $92,461 $99,942 $84,774 $90,907
Ratio of expenses to average net assets ... 0.93%(c) 0.93% 0.77% 0.22%(c)
Ratio of net investment income
to average net assets ................... 5.93%(c) 6.03% 6.10% 6.40%(c)
Ratio of expenses to average net assets* .. 1.02%(c) 0.96% 0.86% 0.87%(c)
Ratio of net investment income to
average net assets* ..................... 5.84%(c) 6.00% 6.01% 5.75%(c)
Portfolio turnover rate ................... 99.32% 41.58% 63.96% 107.34%
<FN>
- ------------
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and expense reimbursements had not
occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Excludes sales charge.
(c) Annualized.
(d) Not annualized.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD

<TABLE>
<CAPTION>
NEW YORK TAX-FREE BOND FUND

FOR THE
SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------------
JUNE 30, 1996 1995 1994 1993 1992 1991
------------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $ 11.17 $ 10.20 $ 11.70 $ 11.01 $ 10.66 $ 10.14
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income ....................... 0.27 0.54 0.53 0.59 0.66 0.66
Net realized and unrealized
gains (losses) from investments ........... (0.39) 0.97 (1.47) 0.95 0.44 0.57
------- ------- ------- ------- ------- -------
Total from Investment Activities ............ (0.12) 1.51 (0.94) 1.54 1.10 1.23
------- ------- ------- ------- ------- -------
Distributions
From net investment income .................. (0.27) (0.54) (0.53) (0.59) (0.66) (0.66)
From net realized gains ..................... -- -- (0.03) (0.26) (0.09) (0.05)
------- ------- ------- ------- ------- -------
Total distributions ......................... (0.27) (0.54) (0.56) (0.85) (0.75) (0.71)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ................. $ 10.78 $ 11.17 $ 10.20 $ 11.70 $ 11.01 $ 10.66
======= ======= ======= ======= ======= =======
Total Return(a) ................................ (1.05)%(c) 15.17% (8.13)% 14.27% 10.66% 12.59%
Ratios/Supplemental Data:
Net Assets at end of period (000) ........... $44,351 $50,677 $50,711 $61,740 $32,407 $14,929
Ratio of expenses to average net assets ..... 0.94%(b) 0.99% 0.84% 0.63% 0.38% 0.34%
Ratio of net investment income to average
net assets ................................ 5.03%(b) 5.07% 4.93% 4.98% 6.04% 6.36%
Ratio of expenses to average net assets* .... 1.23%(b) 1.20% 1.10% 1.06% 1.17% 1.32%
Ratio of net investment income to average
net assets* ............................... 4.74%(b) 4.86% 4.67% 4.55% 5.25% 5.38%
Portfolio turnover rate ..................... 52.40% 24.43% 122.43% 70.36% 66.44% 110.27%
<FN>
- ------------
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and expense reimbursements had not
occurred, the ratios would have been as indicated.
(a) Excludes sales charge.
(b) Annualized.
(c) Not annualized.
</FN>
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

<PAGE>

HSBC SM MUTUAL FUNDS TRUST
3435 Stelzer Road
Columbus, Ohio 43219

INFORMATION:
(800) 634-2536

INVESTMENT ADVISER AND CO-ADMINISTRATOR
HSBC Asset Management Americas Inc.
250 Park Avenue
New York, New York 10177

DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219

CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286

INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019

LEGAL COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022

This report is for the information of the shareholders of HSBC Mutual Funds
Trust. Its use in connection with any offering of the Trust's shares is
authorized only in the case of a concurrent or prior delivery of the Trust's
current prospectus.