HSBC MUTUAL FUNDS TRUST
- --------------------------------------------------------------------------------
HSBC FUND GROUP
- --------------------------------------------------------------------------------
HSBC Asset Management [GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
Short-Term U.S. Government Fund
Fixed Income Fund
New York Tax-Free Bond Fund
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.
ANNUAL REPORT
December 31, 1996
Managed by:
HSBC ASSET MANAGEMENT AMERICAS INC.
Sponsored and distributed by:
BISYS FUND SERVICES
<PAGE>
HSBC MUTUAL FUNDS TRUST
- --------------------------------------------------------------------------------
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
HSBC Asset Management [GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
SHORT-TERM U.S. GOVERNMENT FUND
FIXED INCOME FUND
January 17, 1997
Dear Shareholder:
The enthusiasm that characterized the fixed-income market at the beginning of
the year was quickly dashed as the prospect of a balanced budget faded and
strong employment data sparked concern that a wage-push inflation cycle was
starting. Over the course of the year, interest rates climbed higher with the
yield of the long bond rising 69 basis points from 5.95% at 1995 year-end to
6.64% on 12/30/96, although yields spiked as high as 7.19% in July. Using the
Lehman Aggregate Index as a proxy, the market returned 3.61% for the year.
HSBC FIXED INCOME FUND
- ----------------------
For the year, the Fund returned 2.11% versus 3.61% for the benchmark, the Lehman
Aggregate Index. Our duration positioning hurt relative performance during the
first half of the year. This was the primary reason for underperforming the
benchmark. In general, sector allocation was a positive contribution, as our
Mortgage overweight helped relative performance, but it was not enough to
overcome the duration impact.
HSBC SHORT-TERM U.S. GOVERNMENT BOND FUND
- -----------------------------------------
The Fund returned 3.17% for the year, versus 4.70% for the benchmark, the Lehman
Mutual Fund 1-5 year Government/Corporate Index. Our duration positioning hurt
relative performance in the first half, which was the primary reason for
underperformance. In sector allocation, we were slightly overweight in
Corporates, which marginally helped relative performance but did not overcome
the duration impact.
As of quarter end, the average quality of the portfolio was Agency; the
effective duration was 2.26 years; and the average coupon was 6.66%.
Sincerely,
/S/ JAMES LARK
James Lark
1
<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) 1.14% 4.15%
NAV(2) 3.17% 4.69%
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
September 1996 11,455 11,844 11,684
December 1996 11,689 12,095 11,923
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.
2
<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) (2.71%) 4.91%
NAV(2) 2.11% 6.21%
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
September 1996 11,768 12,578 12,356
December 1996 12,093 12,956 12,698
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.
3
<PAGE>
NEW YORK TAX-FREE BOND FUND
- --------------------------------------------------------------------------------
January 17, 1997
Dear Shareholder:
With a reduction in the political dialogue over the issue of tax reform,
municipals were able to outperform taxables this year on a total-return basis.
The one-year return on the Lehman Municipal Bond Index was 4.43%. By comparison
the Lehman Aggregate Index posted a one-year return of 3.63%. This reflected the
fact that yields across the municipal yield curve rose approximately 10-15 basis
points, while yields along the treasury curve rose approximately 70-85 basis
points.
The Fund's total return for the year was 3.99%. The Fund outperformed the
average of Lipper's New York Municipal Debt Funds, which stood at 3.15%. As of
December 31, 1996, the Fund's duration, which takes into account interim
principal and income payments as well as maturity levels, was 7.73 years, which
approximated that of the Lehman New York State Exempt Index. The average
maturity of the Fund was 12.09 years.
In terms of sector diversification, the largest sectors consisted of general
obligations (36.4%), medical revenue (11.1%), and higher education (9.8%).
In terms of credit quality, once again the focus within the state centered
around New York City. The short-term outlook for the credit improved as the city
expected to finish fiscal year 1996 with a surplus of $229 million in its
general fund. This is attributable to a strong year in the volatile
financial-services sector, which comprises 14% of all jobs in New York City and
about 25% of all earnings. Going forward, much attention will be paid both at
the state and local levels to how federal changes to welfare funding will impact
municipal finances, especially far reaching social programs within New York.
Nevertheless, the market was very confident in the short-term prospect of New
York City bonds, and the bonds, particularly intermediate-term bonds, performed
exceptionally well, as the spread in yields between New York City and national
high-grade paper narrowed quite dramatically. This was a strong reason why, in
general, the New York market outperformed the national market as a whole for the
year as measured by the returns of the Lehman New York State Exempt Index versus
the Lehman Municipal Bond Index (4.73% versus 4.44%).
Sincerely,
/S/ JERRY SAMET
Jerry Samet
4
<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 Retun
--------------------------------------------
1 Year 5 Years Inception
------- ------- ---------
Offering Price(1) (0.97%) 5.79% 7.02%
NAV(2) 3.99% 6.82% 7.69%
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
December 1996 16,960 18,817 17,808
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.
5
<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
WILLIAM B. BLUNDIN Senior Vice President, BISYS Fund Services, Inc.
*Member of the Audit and Nominating Committees
- --------------------------------------------------------------------------------
OFFICERS
WILLIAM B. BLUNDIN PRESIDENT
TONY TURNER EXECUTIVE VICE PRESIDENT
KAREN DOYLE VICE PRESIDENT
KEVIN MARTIN TREASURER
STEVEN R. HOWARD SECRETARY
CURTIS BARNES ASSISTANT SECRETARY
ALAINA V. METZ ASSISTANT SECRETARY
6
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM U.S. GOVERNMENT FUND
SHARES OR
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT VALUE
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (23.3%):
FINANCIAL SERVICES (13.1%):
ABN Amro Bank ............................................. 6.62% 10/31/01 $ 450,000 $ 449,677
Chase Manhattan Grantor Trust, Series 96-A ................ 5.20 2/15/02 344,585 341,953
GMAC Grantor Trust Series 1992-F .......................... 4.50 9/15/97 4,545 4,536
Provident Bank ............................................ 6.12 12/15/00 450,000 440,572
----------
1,236,738
----------
INDUSTRIAL (10.2%):
Lucent Technologies, Inc. ................................. 6.90 7/15/01 450,000 456,745
Walt Disney Co. ........................................... 6.37 3/30/01 500,000 497,800
----------
954,545
----------
Total Corporate Bonds (Cost - $2,186,963) 2,191,283
----------
U.S. GOVERNMENT AGENCIES (19.2%):
Federal Home Loan Bank .................................... 7.94 2/21/00 500,000 511,787
Federal National Mortgage Assoc.:
Debenture .............................................. 5.55 2/12/99 500,000 494,472
Pool #310001 ........................................... 6.00 9/1/00 810,834 800,699
REMIC, Series 92-20C ................................... 7.50 1/25/97 2,038 2,031
----------
Total U.S. Government Agencies (Cost - $1,826,255) 1,808,989
----------
U.S. TREASURY NOTES (53.8%):
............................................................... 5.37 11/30/97 900,000 895,500
............................................................... 8.25 7/15/98 500,000 516,875
............................................................... 6.87 7/31/99 1,500,000 1,530,469
............................................................... 7.75 1/31/00 1,050,000 1,098,891
............................................................... 7.12 2/29/00 1,000,000 1,029,375
----------
Total U.S. Treasury Notes (Cost - $5,086,266) ................................................ 5,071,110
----------
MONEY MARKET MUTUAL FUNDS (2.4%):
Provident Institutional Temporary Investment Fund ..................................... 223,000 223,000
----------
Total Money Market Mutual Funds (Cost - $223,000) ............................................ 223,000
----------
TOTAL INVESTMENTS (98.7%)
(Cost - $9,322,484)(a) ............................................................................ 9,294,382
----------
OTHER ASSETS, LESS LIABILITIES (1.3%) ................................................................ 124,226
----------
NET ASSETS (100.0%) .................................................................................. $9,418,608
<FN>
==========
- --------------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
Unrealized appreciation ...................................................................... $ 54,292
Unrealized depreciation ...................................................................... (82,394)
---------
Net unrealized depreciation .................................................................. $(28,102)
=========
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIXED INCOME FUND
SHARES OR
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT VALUE
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (15.9%):
FINANCIAL SERVICES (9.8%):
ABN Amro Bank ............................................. 7.30% 12/1/26 $2,000,000 $ 1,893,578
American Express Centurion Bank ........................... 6.12 6/15/00 3,000,000 2,972,679
Chase Manhattan Grantor Trust, Series 96-A ................ 5.20 2/15/02 1,722,926 1,709,764
Citicorp .................................................. 7.75 6/15/06 2,500,000 2,619,345
GMAC Grantor Trust Series 1992-F .......................... 4.50 9/15/97 11,363 11,341
Travelers/Aetna Property & Casualty Corp. ................. 7.75 4/15/26 1,000,000 1,022,704
------------
10,229,411
------------
INDUSTRIAL (5.3%):
Lockheed Martin Corp. ..................................... 6.85 5/15/01 2,500,000 2,523,315
Lucent Technologies, Inc. ................................. 6.90 7/15/01 2,550,000 2,588,219
Walt Disney Co. ........................................... 6.37 3/30/01 500,000 497,800
------------
5,609,334
------------
YANKEE (0.8%)
Ontario Province Debenture ................................ 15.75 3/15/12 775,000 837,666
------------
Total Corporate Bonds (Cost - $16,873,816) .................................................... 16,676,411
------------
U.S. GOVERNMENT AGENCIES (24.9%):
Export Development Corp. .................................... 8.12 8/10/99 380,000 397,191
Federal Home Loan Mortgage Corp.:
Pool #220019 .............................................. 7.75 1/1/02 203,570 207,343
REMIC, Series 33, Class C ................................. 8.00 9/15/18 432,158 433,195
Pool #D62926 .............................................. 6.50 8/1/25 2,873,597 2,746,981
Federal National Mortgage Association:
Pool #310001 .............................................. 6.00 9/1/00 810,834 800,699
REMIC, Series 93-104C ..................................... 6.50 3/25/21 2,000,000 1,883,869
REMIC, Series 1994-56L .................................... 6.50 9/25/22 4,433,894 4,304,957
Pool #250336 .............................................. 7.50 6/1/25 3,516,704 3,515,607
Pool #250414 .............................................. 7.00 12/1/25 4,809,719 4,706,012
Pool #343195 .............................................. 7.50 5/1/26 1,969,320 1,968,706
Pool #343812 .............................................. 7.50 5/1/26 486,886 486,735
Government National Mortgage Association:
Pool #168414 .............................................. 10.00 8/15/22 953,971 1,022,236
Pool #356578 .............................................. 7.50 6/15/23 3,610,277 3,626,090
------------
Total U.S. Government Agencies (Cost - $26,038,300) 26,099,621
------------
U.S. TREASURY NOTES (20.6%):
............................................................... 7.25 2/15/98 1,000,000 1,013,438
............................................................... 6.87 7/31/99 6,950,000 7,091,175
............................................................... 8.00 8/15/99 1,000,000 1,047,188
............................................................... 7.75 1/31/00 1,450,000 1,517,516
............................................................... 7.50 5/15/02 2,000,000 2,115,000
</TABLE>
8
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
FIXED INCOME FUND
SHARES OR
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT VALUE
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES (CONTINUED):
............................................................... 7.87% 11/15/04 $4,250,000 $ 4,637,813
............................................................... 6.87 5/15/06 2,000,000 2,061,876
............................................................... 7.00 7/15/06 2,000,000 2,078,126
------------
Total U.S. Treasury Notes (Cost - $19,414,068) ................................................ 21,562,132
------------
U.S. TREASURY BONDS (4.2%):
............................................................... 8.75 8/15/20 2,280,000 2,807,250
............................................................... 7.87 2/15/21 1,000,000 1,129,688
............................................................... 6.75 8/15/26 535,000 538,678
------------
Total U.S. Treasury Bonds (Cost - $6,248,806) ................................................. 4,475,616
------------
MONEY MARKET MUTUAL FUNDS (0.3%):
Provident Institutional Temporary Investment Fund ......... 295,000 295,000
------------
Total Money Market Mutual Funds (Cost - $295,000) ............................................. 295,000
------------
TOTAL INVESTMENTS (65.9%)
(Cost - $68,869,990)(a) ....................................................................... 69,108,780
------------
OTHER ASSETS, LESS LIABILITIES (34.1%) ........................................................ 35,766,269
------------
NET ASSETS (100.0%) ........................................................................... $104,875,049
<FN>
============
- --------------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation ....................................................................... $ 841,166
Unrealized depreciation ....................................................................... (602,376)
---------
Net unrealized appreciation ................................................................... $ 238,790
=========
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NEW YORK TAX-FREE BOND FUND
SHARES OR
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT VALUE
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
NEW YORK MUNICIPAL BONDS (95.6%)
Bethlehem CSD, GO, AMBAC .................................. 7.10% 11/1/07 $ 200,000 $ 236,500
Metropolitan Transportation Authority of
New York Series A, MBIA ................................ 5.25 4/1/26 1,250,000 1,190,625
Monroe County, GO, Series B,
Pre-Refunded 6/1/98 @102 ............................... 7.00 6/1/04 40,000 42,400
Monroe County, GO, Series B,
Pre-Refunded 6/1/98 @102 ............................... 7.00 6/1/04 10,000 10,575
Municipal Assistance Corp. for NYC ........................ 6.00 7/1/03 2,200,000 2,387,000
New York City, GO, Series A,
Callable 8/15/01 @101.5 ................................ 7.75 8/15/04 600,000 672,750
New York City, GO, Series A,
Callable 8/15/01 @101.5 ................................ 7.75 8/15/07 3,500,000 3,946,250
New York City, GO, Series B ............................... 6.10 8/15/05 2,000,000 2,077,500
New York City, GO, Series B,
Callable 2/1/02 @101.5 ................................. 7.50 2/1/07 1,000,000 1,116,250
New York City, GO, Series E ............................... 6.50 2/15/06 2,000,000 2,132,500
New York City, GO, Series F
Pre-Refunded 11/15/01 @101.5 ........................... 8.40 11/15/05 105,000 123,900
New York City, Series G ................................... 6.75 2/1/09 1,000,000 1,080,000
New York City, IDA Special Facility Revenue,
One Group Project, AMT, Callable 1/1/04 @102 ........... 6.12 1/1/24 1,500,000 1,501,875
New York City, Municipal Water & Sewer
Revenue Series A, Callable 6/15/06 @101 ................ 5.50 6/15/24 1,800,000 1,725,750
New York City Trust for Cultural Research,
Museum of Modern Art, AMBAC,
Callable 1/1/02 @102 ................................... 6.40 1/1/04 350,000 384,125
New York City Unrefunded Balance, Series F,
Callable 11/15/01 @101.5 ............................... 8.40 11/15/05 45,000 52,256
New York State Dormitory Authority, State University
Educational Facilities Revenue Bond ..................... 5.87 5/15/11 1,500,000 1,524,375
New York State Dormitory Authority Revenue,
City University Systems, Series A ...................... 5.75 7/1/18 2,370,000 2,358,150
New York State Environmental Facilities Corp.,
PCR, Revolving Fund, Series 1990 C,
Callable 3/15/00 @102 .................................. 7.20 3/15/11 200,000 218,000
New York State Environmental Facilities Corp.,
PCR, Revolving Fund, Series B,
Callable 3/15/99 @102 .................................. 7.50 3/15/11 250,000 270,625
New York State Environmental Facilities Corp.,
PCR, Revolving Fund, Callable 6/15/01 @102 ............. 7.00 6/15/12 300,000 330,750
New York State Environmental Facilities Corp.,
Riverbank State Park, AMBAC ............................ 5.00 4/01/05 1,000,000 1,002,500
New York State HFA, Multi-Family, Series A, FHA,
Callable 8/15/02 @102 .................................. 7.00 8/15/22 900,000 948,375
New York State Medical Care, Adult Day Care Facility,
Series A, SONYMA, Callable 11/15/05 @102 ............... 6.37 11/15/20 2,000,000 2,090,000
</TABLE>
10
<PAGE>
SCHEDULE OF PORTFOLIO INVESTMENTS AS OF DECEMBER 31, 1996 (CONTINUED)
<TABLE>
<CAPTION>
NEW YORK TAX-FREE BOND FUND
SHARES OR
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT VALUE
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (CONTINUED)
New York State Medical Care Facility, Mental
Health Services, Series F .............................. 6.00% 8/15/03 $1,900,000 $ 1,992,625
New York State Medical Care Facility, Mental Health,
Series A, CAPGTY Certificates, FSA,
Callable 2/15/98 @102 .................................. 7.70 2/15/18 115,000 120,750
New York State Power Authority, MBIA ...................... 5.00 1/1/14 1,550,000 1,458,938
New York State Urban Development Corp. .................... 5.50 7/1/16 2,000,000 1,990,000
New York State Urban Development Corp.
Correctional Cap. Facilities ........................... 5.70 1/1/16 2,000,000 1,940,000
Niagara Frontier Transportation Authority, Buffalo
International Airport, AMT, AMBAC,
Callable 4/1/04 @102 ................................... 6.12 4/1/14 2,400,000 2,502,000
Port Authority NY & NJ, AMBAC ............................. 5.12 7/15/14 1,000,000 970,000
Syracuse, GO, Pre-Refunded 2/15/01 @102 ................... 6.70 2/15/07 300,000 328,875
Triborough Bridge & Tunnel Authority ...................... 4.75 1/1/14 1,500,000 1,395,000
-----------
Total New York Municipal Bonds (Cost - $38,449,267) ............................................ 40,121,219
-----------
MONEY MARKET MUTUAL FUNDS (5.5%)
Goldman New York Tax-Exempt Fund ..................................................... 1,089,000 1,089,000
New York Money Fund .................................................................. 1,209,000 1,209,000
-----------
Total Money Market Mutual Funds (Cost - $2,298,000) ............................................ 2,298,000
-----------
TOTAL INVESTMENTS (101.1%)
(Cost $40,747,267)(a) .................................................................................. 42,419,219
-----------
LIABILITIES, LESS OTHER ASSETS (-1.1%) ................................................................. (444,534)
-----------
NET ASSETS (100.0%) .................................................................................... $41,974,685
<FN>
===========
- --------------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation ........................................................................ $1,721,067
Unrealized depreciation ........................................................................ (49,115)
----------
Net unrealized appreciation .................................................................... $1,671,952
==========
AMBAC Insured by American Municipal Bond Assurance Corp.
AMT Alternative Minimum Tax Paper
CAPGTY Insured by Capital Guaranty
CSD Central School District
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
MBIA Municipal Bond Insurance Association
PCR Pollutions ControlRevenue
SONYMA State of New York Mortgage Agency
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 1996
<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 $9,322,484; $68,869,990;
and $40,747,267, respectively) ................................. $9,294,382 $ 69,108,780 $42,419,219
Cash ............................................................. 923 796 335
Interest receivable .............................................. 184,494 1,417,470 796,100
Receivable from brokers from investments sold .................... -- 34,972,326 --
Deferred organization costs ...................................... 11,417 11,720 --
Prepaid expenses and other assets ................................ 1,609 11,550 5,234
---------- ------------ -----------
Total Assets ................................................... 9,492,825 105,522,642 43,220,888
---------- ------------ -----------
LIABILITIES:
Dividends payable ................................................ 48,985 537,327 171,487
Payable to brokers for investments purchased ..................... -- -- 1,000,000
Accrued expenses and other payable:
Investment advisory fees ....................................... 1,638 50,613 8,960
Administration fees ............................................ 832 9,345 3,639
Distribution fees .............................................. -- -- 4,337
Fund accounting and transfer agent fees ........................ 6,215 8,165 19,031
Legal and audit fees ........................................... 7,617 24,215 9,452
Deferred trustees fees ......................................... 5,963 -- --
Other .......................................................... 2,967 17,928 29,297
---------- ------------ -----------
Total Liabilities .............................................. 74,217 647,593 1,246,203
---------- ------------ -----------
Net Assets .......................................................... $9,418,608 $104,875,049 $41,974,685
========== ============ ===========
Net Asset Value, Offering Price and Redemption Price per Share:
($.001 par value per share, unlimited number of shares authorized)
SHARES:
Net assets ....................................................... $9,418,608 $104,875,049 $41,974,685
Shares of beneficial interest issued and outstanding ............. 967,143 10,608,588 3,799,558
Net asset value .................................................. $ 9.74 $ 9.89 $ 11.05
---------- ------------ -----------
Maximum sales charge - 2.00%, 4.75%,
and 4.75%, respectively, of offering price .................. 0.20 0.49 0.55
---------- ------------ -----------
Maximum offering price ......................................... $ 9.94 $ 10.38 $ 11.60
========== ============ ===========
COMPOSITION OF NET ASSETS:
Paid-in capital .................................................. $9,969,362 $107,196,988 $42,213,580
Accumulated undistributed net investment income .................. 7,729 10,321 --
Accumulated undistributed net realized losses from
investment transactions ........................................ (530,381) (2,571,050) (1,910,847)
Net unrealized appreciation (depreciation) from investments ...... (28,102) 238,790 1,671,952
---------- ------------ -----------
Net Assets, December 31, 1996 ....................................... $9,418,608 $104,875,049 $41,974,685
========== ============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHORT-TERM FIXED NEW YORK
U.S. GOVERNMENT INCOME TAX-FREE
FUND FUND BOND FUND
--------------- -------------- -----------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ...................................................... $ 18,929 $ 147,829 $ 41,281
Interest ....................................................... 640,321 6,820,919 2,623,122
-------- ---------- ----------
Total Income ................................................. 659,250 6,968,748 2,664,403
-------- ---------- ----------
EXPENSES:
Advisory ....................................................... 55,641 562,307 202,341
Administration ................................................. 15,185 153,464 67,490
Co-administration .............................................. 5,092 49,774 22,815
Distribution ................................................... 207 3,902 88,567
Shareholder servicing .......................................... 2,198 23,886 9,616
Audit .......................................................... 15,536 22,582 7,437
Accounting and transfer agent .................................. 20,388 47,830 75,777
Custodian ...................................................... 4,928 13,337 7,893
Printing ....................................................... 6,626 36,188 18,275
Registration ................................................... 5,257 9,747 4,085
Amortization of organization costs ............................. 10,621 12,555 --
Legal .......................................................... 3,412 41,865 17,558
Trustees ....................................................... 3,002 14,122 11,006
Other .......................................................... 7,794 12,351 10,708
-------- ---------- ----------
Total Expenses ............................................... 155,887 1,003,910 543,568
-------- ---------- ----------
Less: Fee waivers and reimbursements ........................... (45,908) (108,268) (136,209)
-------- ---------- ----------
Net Expenses ................................................. 109,979 895,642 407,359
-------- ---------- ----------
Net Investment Income .......................................... 549,271 6,073,106 2,257,044
-------- ---------- ----------
REALIZED AND UNREALIZED LOSSES FROM INVESTMENTS:
Net realized gains (losses) from investment transactions .......... (108,567) (1,449,259) 1,168,816
Net change in unrealized appreciation (depreciation)
from investments ............................................... (135,067) (2,191,530) (1,819,652)
-------- ---------- ----------
Net realized and unrealized losses from investments ............... (243,634) (3,640,789) (650,836)
-------- ---------- ----------
Net increase in net assets resulting from operations .............. $305,637 $2,432,317 $1,606,208
======== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SHORT-TERM
U.S. GOVERNMENT FUND FIXED INCOME FUND
----------------------------------- -----------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
From Investment Activities:
OPERATIONS:
Net investment income ............................ $ 549,271 $ 703,752 $ 6,073,106 $ 5,089,310
Net realized gains (losses) from
investment transactions ........................ (108,567) 10,304 (1,449,259) (89,155)
Net change in unrealized appreciation
(depreciation) from investments ................ (135,067) 619,944 (2,191,530) 8,168,553
----------- ----------- ------------ ------------
Change in net assets resulting
from operations ............................. 305,637 1,334,000 2,432,317 13,168,708
----------- ----------- ------------ ------------
DIVIDENDS TO SHAREHOLDERS:
From net investment income ....................... (549,271) (703,752) (6,073,106) (5,089,310)
In excess of net investment income ............... (1,388) -- (1,496) --
From net realized gains .......................... -- -- -- --
----------- ----------- ------------ ------------
Change in net assets from
shareholder distributions ................... (550,659) (703,752) (6,074,602) (5,089,310)
----------- ----------- ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ...................... 645,563 2,948,477 35,631,687 31,114,026
Dividends reinvested ............................. 16,201 24,680 76,121 92,653
Cost of shares redeemed .......................... (1,905,943) (7,337,356) (27,132,519) (24,118,178)
----------- ----------- ------------ ------------
Change in net assets from share
transactions ................................ (1,244,179) (4,364,199) 8,575,289 7,088,501
----------- ----------- ------------ ------------
Change in net assets ........................ (1,489,201) (3,733,951) 4,933,004 15,167,899
----------- ----------- ------------ ------------
NET ASSETS:
Beginning of period .............................. 10,907,809 14,641,760 99,942,045 84,774,146
----------- ----------- ------------ ------------
End of period .................................... $ 9,418,608 $10,907,809 $104,875,049 $ 99,942,045
=========== =========== ============ ============
Accumulated net investment income
included in net assets,
End of period .................................... $ 7,729 $ -- $ 10,321 $ --
=========== =========== ============ ============
SHARE TRANSACTIONS:
Issued ........................................... 66,401 300,917 3,608,906 3,103,767
Reinvested ....................................... 1,662 2,522 7,721 9,374
Redeemed ......................................... (195,354) (751,431) (2,726,104) (2,464,690)
----------- ----------- ------------ ------------
Change in shares .................................... (127,291) (447,992) 890,523 648,451
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
NEW YORK
TAX-FREE BOND FUND
-----------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
From Investment Activities:
OPERATIONS:
Net investment income ............................ $ 2,257,044 $ 2,614,697
Net realized gains (losses) from
investment transactions ........................ 1,168,816 842,141
Net change in unrealized appreciation
(depreciation) from investments ................ (1,819,652) 3,785,950
----------- -----------
Change in net assets resulting
from operations ............................. 1,606,208 7,242,788
----------- -----------
DIVIDENDS TO SHAREHOLDERS:
From net investment income ....................... (2,257,044) (2,614,697)
In excess of net investment income ............... -- --
From net realized gains .......................... -- --
----------- -----------
Change in net assets from
shareholder distributions ................... (2,257,044) (2,614,697)
----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares issued ...................... 1,426,786 3,178,116
Dividends reinvested ............................. 1,243,334 1,572,970
Cost of shares redeemed .......................... (10,721,363) (9,413,776)
----------- -----------
Change in net assets from share
transactions ................................ (8,051,243) (4,662,690)
----------- -----------
Change in net assets ........................ (8,702,079) (34,599)
----------- -----------
NET ASSETS:
Beginning of period .............................. 50,676,764 50,711,363
----------- -----------
End of period .................................... $41,974,685 $50,676,764
=========== ===========
Accumulated net investment income
included in net assets,
End of period .................................... $ -- $ --
=========== ===========
SHARE TRANSACTIONS:
Issued ........................................... 130,184 298,636
Reinvested ....................................... 114,042 146,572
Redeemed ......................................... (983,166) (875,996)
----------- -----------
Change in shares .................................... (738,940) (430,788)
=========== ===========
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 registered under the Investment Company Act of 1940, as a
diversified, open-end 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 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. Economic changes affecting the state and certain of its public
bodies and municipalities may affect the ability of issuers within the
state to pay interest on, or repay principal of, municipal obligations held
by the Fund.
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. Investments in mutual funds are
valued at their net asset value as reported by such investment companies.
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 their taxable income and
net realized capital gains to their shareholders for each taxable year.
Therefore, no provision is required for Federal income tax.
The Short-Term U.S. Government Fund has available $491,769 of capital loss
carryforwards which, if not utilized, $29,220, $278,476, $84,743, and
$99,330 will expire in the year 2001, 2002, 2003, and 2004, respectively.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Fixed Income Fund has available $2,524,512 of capital loss
carryforwards which, if not utilized, $1,082,278 and $1,442,234 will expire
in the year 2003 and 2004, respectively.
The New York Tax-Free Bond Fund has available $1,905,167 of capital loss
carryforward which, if not utilized, $1,261,112 and $644,055 will expire in
the year 2002 and 2003, respectively.
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 Funds distinguish 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.
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,
including amortization of discount and premium, 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
year ended December 31, 1996 were as follows:
PURCHASES SALES
------------ ------------
Short-Term U.S. Government Fund .... $ 6,576,413 $ 7,626,570
Fixed Income Fund .................. $145,958,773 $166,437,166
New York Tax Free Bond Fund ........ $ 37,838,183 $ 44,144,081
4. RELATED PARTY TRANSACTIONS
The Trust retains HSBC Asset Management Americas Inc. ("HSBC Americas") to
act as Investment Adviser for the Funds. 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 portfolios of the Funds, subject to policies established by the
Board of Trustees.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
As compensation for its services, HSBC Americas is paid monthly advisory
fees at the following annual rates:
<TABLE>
<CAPTION>
ADVISORY FEE RATE
-----------------------
SHORT-TERM FIXED
U.S. GOVERNMENT INCOME
PORTIONS OF EACH FUND'S AVERAGE DAILY NET ASSETS FUND FUND
-------------------------------------------------------- --------------- ------
<S> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
ADVISORY FEE RATE
-----------------------
NEW YORK
TAX-FREE BOND
PORTIONS OF THE FUND'S AVERAGE DAILY NET ASSETS FUND
-------------------------------------------------------- -----------------------
<S> <C>
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%
</TABLE>
As of December 31, 1996, HSBC Americas earned $20,242 from the Short-Term
U.S. Government Fund, $562,307 from the Fixed Income Fund, and $112,830
from the New York Tax-Free Bond Fund in advisory fees, net of fee waivers
of $35,399, $0, and $89,511, 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 and a trustee 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 each Fund's
first $200 million of average net assets; 0.125% of each Fund's next $200
million of average net assets; 0.10% of each Fund's next $200 million of
average net assets; and 0.08% of each Fund's average net assets in excess
of $600 million; exclusive of out-of-pocket expenses. At December 31, 1996,
BISYS earned $8,674 from the Short-Term U.S. Government Fund, $88,619 from
the Fixed Income Fund, and $38,260 from the New York Tax-Free Bond Fund,
net of fee waivers of $4,736, $48,426, and $21,167, respectively, in
administrative services fees.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
As previous Administrator, PFPC Inc. ("PFPC") was paid a monthly asset
based fee of 0.10% of each Fund's first $200 million of average net assets;
0.075% of each Fund's next $200 million of average net assets; 0.05% of
each Fund's next $200 million of average net assets; and 0.03% of each
Fund's average net assets in excess of $600 million; exclusive of
out-of-pocket expenses. For the two months ended February 29, 1996, PFPC
earned $1,686 from the Short-Term U.S. Government Fund, $15,598 from the
Fixed Income Fund, and $7,660 from the New York Tax-Free Bond Fund, net of
fee waivers of $89, $821, and $403, respectively, in administrative
services fees.
HSBC Americas earned co-administration/shareholder servicing fees of 0.07%
of each Fund's average net assets, respectively, totaling $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 $5,684, $59,021, and $25,128, respectively, of these fees.
The Funds have 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. The expenses incurred as a result of
these agreements totaled $207 from the Short-Term U.S. Government Fund,
$3,902 from the Fixed Income Fund, and $88,567 from the New York Tax-Free
Bond Fund.
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 administration 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.
A partner of Baker & McKenzie, legal counsel to the Trust, serves as
Secretary of the Trust. For the year ended December 31, 1996, the Funds
incurred legal fees of $3,261 for the Short-Term U.S. Government Fund,
$40,518 for the Fixed Income Fund, and $16,882 for the New York Tax-Free
Bond Fund to Fund counsel.
18
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
SHORT-TERM U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD
----------------------------------------- MARCH 1, 1993(a) TO
1996 1995 1994 DECEMBER 31, 1993
--------- --------- --------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $ 9.97 $ 9.49 $ 9.91 $ 10.00
------ ------- ------- -------
Investment Activities
Net investment income ..................... 0.53 0.54 0.50 0.41
Net realized and unrealized
gain (loss) from investments ........... (0.23) 0.48 (0.42) (0.09)
------ ------- ------- -------
Total from Investment Activities .......... 0.30 1.02 0.08 0.32
------ ------- ------- -------
Distributions
From net investment income ................ (0.53) (0.54) (0.50) (0.41)
------ ------- ------- -------
Net Asset Value, End of Period ................. $ 9.74 $ 9.97 $ 9.49 $ 9.91
====== ======= ======= =======
Total Return(b) ................................ 3.17% 10.99% 0.86% 3.24%(d)
Ratios/Supplemental Data:
Net Assets at end of period (000) ......... $9,419 $10,908 $14,642 $17,511
Ratio of expenses to average
net assets ............................. 1.09% 1.04% 0.78% 0.60%(c)
Ratio of net investment income to
average net assets ..................... 5.43% 5.53% 5.18% 4.91%(c)
Ratio of expenses to average
net assets* ............................ 1.54% 1.44% 1.21% 1.29%(c)
Ratio of net investment income to
average net assets* .................... 4.98% 5.13% 4.75% 4.22%(c)
Portfolio Turnover Rate ........................ 70.15% 53.28% 68.13% 32.02%(d)
<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) Commencement of operations.
(b) Excludes sales charge.
(c) Annualized.
(d) Not annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
FIXED INCOME FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD
----------------------------------------- JANUARY 15,1993(a) TO
1996 1995 1994 DECEMBER 31, 1993
--------- --------- --------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........... $ 10.28 $ 9.35 $ 10.13 $ 10.00
-------- ------- ------- -------
Investment Activities
Net investment income ..................... 0.59 0.59 0.59 0.63
Net realized and unrealized
gain (loss) from investments ........... (0.39) 0.93 (0.78) 0.21
-------- ------- ------- -------
Total from Investment Activities .......... 0.20 1.52 (0.19) 0.84
-------- ------- ------- -------
Distributions
From net investment income ................ (0.59) (0.59) (0.59) (0.63)
From net realized gain .................... -- -- -- (0.08)
-------- ------- ------- -------
Total distributions ....................... (0.59) (0.59) (0.59) (0.71)
-------- ------- ------- -------
Net Asset Value, End of Period ................. $ 9.89 $ 10.28 $ 9.35 $ 10.13
======== ======= ======= =======
Total Return(b) ................................ 2.11% 16.73% (1.89)% 8.57%(d)
Ratios/Supplemental Data:
Net Assets at end of period (000) ......... $104,875 $99,942 $84,774 $90,907
Ratio of expenses to average
net assets ............................. 0.88% 0.93% 0.77% 0.22%(c)
Ratio of net investment income to
average net assets ..................... 5.94% 6.03% 6.10% 6.40%(c)
Ratio of expenses to average
net assets* ............................ 0.98% 0.96% 0.86% 0.87%(c)
Ratio of net investment income to
average net assets* .................... 5.84% 6.00% 6.01% 5.75%(c)
Portfolio Turnover Rate ........................ 156.05% 41.58% 63.96% 107.34%(d)
<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) Commencement of operations.
(b) Excludes sales charge.
(c) Annualized.
(d) Not annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
NEW YORK TAX-FREE BOND FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............ $ 11.17 $ 10.20 $ 11.70 $ 11.01 $ 10.66
------- ------- ------- ------- -------
Investment Activities
Net investment income ...................... 0.55 0.54 0.53 0.59 0.66
Net realized and unrealized
gain (loss) from investments ............ (0.12) 0.97 (1.47) 0.95 0.44
------- ------- ------- ------- -------
Total from Investment Activities ........... 0.43 1.51 (0.94) 1.54 1.10
------- ------- ------- ------- -------
Distributions
From net investment income ................. (0.55) (0.54) (0.53) (0.59) (0.66)
From net realized gain ..................... -- -- (0.03) (0.26) (0.09)
------- ------- ------- ------- -------
Total distributions ........................ (0.55) (0.54) (0.56) (0.85) (0.75)
------- ------- ------- ------- -------
Net Asset Value, End of Period .................. $ 11.05 $ 11.17 $ 10.20 $ 11.70 $ 11.01
======= ======= ======= ======= =======
Total Return(a) ................................. 3.99% 15.17% (8.13)% 14.27% 10.66%
Ratios/Supplemental Data:
Net Assets at end of period (000) .......... $41,975 $50,677 $50,711 $61,740 $32,407
Ratio of expenses to average
net assets .............................. 0.91% 0.99% 0.84% 0.63% 0.38%
Ratio of net investment income to
average net assets ...................... 5.02% 5.07% 4.93% 4.98% 6.04%
Ratio of expenses to average
net assets* ............................. 1.21% 1.20% 1.10% 1.06% 1.17%
Ratio of net investment income to
average net assets* ..................... 4.72% 4.86% 4.67% 4.55% 5.25%
Portfolio Turnover Rate ......................... 87.40% 24.43% 122.43% 70.36% 66.44%
<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.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
HSBC Mutual Funds Trust
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of 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 (three of the portfolios comprising HSBC Mutual
Funds Trust) as of December 31, 1996, the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
years indicated therein. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Short-Term U.S. Government Fund, the Fixed Income Fund and the New York Tax-Free
Bond Fund at December 31, 1996, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended and their financial highlights for each of the indicated
years, in conformity with generally accepted accounting principles.
/S/ ERNEST & YOUNG LLP
New York, New York
February 10, 1997
22
