MARINER MUTUAL FUNDS TRUST
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U.S. GOVERNMENT SECURITIES FUND
HSBC Asset Management (LOGO)
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ANNUAL REPORT
December 31, 1995
Managed by:
HSBC ASSET MANAGEMENT AMERICAS INC.
Sponsored and distributed by:
MARINER FUNDS SERVICES
<PAGE>
MARINER MUTUAL FUNDS TRUST
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U.S. GOVERNMENT SECURITIES FUND
HSBC Asset Management (LOGO)
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February 8, 1996
Dear Shareholder:
This was a record year in the fixed income markets.The total return of the
market, as measured by the Lehman Aggregate Index was 18.47%, the highest in
over a decade and third highest in history. The forces driving the market were
low inflation, slowing economic activity and the prospect of a balanced budget.
This combination has been potent and we have finished the year with a strong
rally.
MANAGER'S DISCUSSION OF PERFORMANCE
- -----------------------------------
The Fund returned 17.19% versus 17.81% for the benchmark, the Lehman Mutual Fund
Government/ Mortgage Index.Our underperformance relative to the benchmark is
mainly due to incorrect duration positioning. Our sector positioning has
generally been a positive contribution but not enough to overcome the drag of
the duration.
Sincerely,
/s/ JAMES LARK
James Lark
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
U.S. GOVERNMENT SECURITIES FUND VS. LEHMAN MUTUAL FUND
GOVERNMENT/MORTGAGE INDEX
<TABLE>
<CAPTION>
Total Return
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1 Year Inception
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<S> <C> <C>
Offering Price(1) 11.65% 4.04%
NAV(2) 17.19% 6.14%
- --------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CHART
{GRAPHIC OMITTED]
Plot Points:
FUND (1) LEHMAN MF FUND (2)
<S> <C> <C> <C>
JULY 1993 $10,000 $10,000 $10,000
SEPTEMBER 1993 9,793 10,189 10,282
DECEMBER 1993 9,770 10,199 10,259
MARCH 1994 9,566 9,917 10,044
JUNE 1994 9,468 9,823 9,942
SEPTEMBER 1994 9,469 9,880 9,943
DECEMBER 1994 9,395 9,918 9,864
MARCH 1995 9,892 10,403 10,387
JUNE 1995 10,463 10,904 10,986
SEPTEMBER 1995 10,595 11,109 11,125
DECEMBER 1995 11,010 11,568 11,561
<FN>
Past performance is not predictive of future performance
(1) Includes the maximum sales charge
(2) Excludes the maximum sales charge
</FN>
</TABLE>
The above illustration compares a $10,000 investment in the U.S. Government
Securities Fund on July 27, 1993, to a $10,000 investment in the Lehman Mutual
Fund Gov't/Mortgage Index on that date. All dividends and capital gain
distributions are reinvested.
The Fund's performance takes into account all applicable fees and expenses. The
Lehman Mutual Fund Gov't Mortgage Index is a widely accepted unmanaged index of
overall government/mortgage bond market performance and does not take into
account charges, fees and other expenses.
2
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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
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
ROBERT L. TUCH ASSISTANT SECRETARY
ALAINA V. METZ ASSISTANT SECRETARY
3
<PAGE>
STATEMENT OF NET ASSETS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT VALUE
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS-63.8%
U.S. Treasury Notes 6.500% 08/15/97 $ 1,000,000 $ 1,020,000
5.625 08/31/97 1,750,000 1,760,938
7.500 05/15/02 1,300,000 1,442,188
7.500 02/15/05 2,900,000 3,291,500
6.500 08/15/05 1,000,000 1,065,312
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8,579,938
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U.S. Treasury Bond 7.125 02/15/23 250,000 285,547
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Total U.S. Treasury Obligations (Cost-$8,491,829) 8,865,485
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AGENCY OBLIGATIONS-28.7%
Federal Home Loan Mortgage Corp.
(Cost-$3,906,830) 7.500 09/01/25 3,882,366 3,980,668
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SHORT-TERM INVESTMENTS-5.5%
Provident Institutional Temporary
Investment Fund 5.590 On Demand 648,000 648,000
Provident Institutional Fund - Trust
for Federal Securities 5.460 On Demand 122,000 122,000
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Total Short-Term Investments (Cost-$770,000) 770,000
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TOTAL INVESTMENTS-98.0%
(Cost-$13,168,659)* 13,616,153
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OTHER ASSETS (LIABILITIES)-2.0%
Cash 526
Interest and dividends receivable 211,399
Organizational costs, net 35,416
Receivable from investment adviser 70,378
Prepaid expenses 1,473
Dividends payable (4,278)
Accrued expenses (27,490)
Due to affiliates (12,396)
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Other assets in excess of liabilities-net 275,028
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NET ASSETS-100% $13,891,181
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NET ASSET VALUE PER SHARE-applicable to 1,383,377 shares
($0.001 par value) outstanding $10.04
======
<FN>
* Also cost for Federal income tax purposes. As of December 31, 1995, net
unrealized appreciation for Federal income tax purposes aggregated $447,494,
of which $453,181 related to appreciated securities and $5,687 related to
depreciated securities. See Notes to Financial Statements.
</FN>
</TABLE>
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
U.S. GOVERNMENT SECURITIES FUND
INVESTMENT INCOME:
Income:
Interest $ 846,488
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Expenses:
Advisory fees 52,549
Audit fee 25,653
Distribution expenses 21,805
Legal fees 18,512
Amortization of organizational costs 13,450
Administrative services fee 13,137
Trustees' fees and expenses 12,409
Printing 10,965
Co-administrative and shareholder servicing fees 9,212
Transfer agent fees 8,622
Custodian fee 3,725
Miscellaneous expenses 4,254
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Total expenses 194,293
Less expense waivers / reimbursements (102,084)
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Net expenses 92,209
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Net investment income 754,279
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (151,246)
Net change in unrealized appreciation on investments 1,477,385
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Net gain on investments 1,326,139
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Net increase in net assets resulting from operations $2,080,418
==========
See Notes to Financial Statements.
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 754,279 $ 739,218
Net realized loss on investments (151,246) (191,680)
Net change in unrealized appreciation (depreciation) on investments 1,477,385 (1,078,849)
----------- -----------
Net increase (decrease) in net assets resulting from operations 2,080,418 (531,311)
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (754,279) (739,218)
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CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of 52,673 and 215,718 shares, respectively 504,216 2,069,306
Net asset value of 72,081 and 79,239 shares issued in reinvestment
of distributions, respectively 697,045 751,558
Payments for redemptions of 80,253 and 173,394 shares, respectively (779,496) (1,642,290)
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Net increase in net assets from capital share transactions 421,765 1,178,574
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Total increase (decrease) in net assets 1,747,904 (91,955)
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NET ASSETS:
Beginning of year 12,143,277 12,235,232
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End of year $13,891,181 $12,143,277
=========== ===========
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Mariner U.S. Government Securities Fund (the "Fund") is an investment
portfolio of Mariner Mutual Funds Trust (the "Trust"). The Trust is a
Massachusetts business trust and is an open-end, diversified investment
company with multiple investment portfolios, including the Fund.
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 Fund's 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.
The Fund has available a $326,769 capital loss carryforward which, if
not utilized, $208,278 and $118,491 will expire in year 2002 and 2003,
respectively.
DIVIDENDS AND DISTRIBUTIONS: The Fund intends to declare as a dividend
substantially all of its net investment income at the end of each
business day and pay within five business days after the end of each
month. Net capital gains, if any, will be distributed annually.
SECURITIES TRANSACTIONS AND INVESTMENT 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.
2. CAPITAL
The Trust is authorized to issue an unlimited number of shares of
beneficial interest each with a par value of $0.001 per share. At
December 31, 1995, the composition of net assets of the Fund was as
follows:
Paid-in capital $13,803,188
Accumulated net realized loss on investments (359,501)
Net unrealized depreciation on investments 447,494
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Total net assets $13,891,181
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8
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PORTFOLIO SECURITIES
The cost of securities purchased and proceeds from securities sold
(excluding short-term securities) for the year ended December 31, 1995
were approximately $11,788,000 and $6,987,000, respectively.
4. AGREEMENTS
The Trust retains Marine Midland Bank N.A. ( Marine Midland ), as
advised by 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, Marine Midland
furnishes investment guidance and policy direction in connection with
the management of the portfolio of the Fund, subject to policies
established by the Board of Trustees.
As compensation for its services, Marine Midland is paid monthly
advisory fees at the following annual rates:
<TABLE>
<CAPTION>
ADVISORY
PORTION OF THE FUND'S AVERAGE DAILY NET ASSETS FEE RATE
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<S> <C>
Not exceeding $400 million 0.400%
In excess of $400 million but not exceeding $800 million 0.365%
In excess of $800 million but not exceeding $1.2 billion 0.330%
In excess of $1.2 billion but not exceeding $1.6 billion 0.295%
In excess of $1.6 billion but not exceeding $2 billion 0.260%
In excess of $2 billion 0.230%
</TABLE>
For the year ended December 31, 1995, Marine Midland waived its entire
advisory fee of approximately $52,600. In addition, HSBC Americas will
reimburse approximately $47,800 of other operating expenses incurred by
the Fund for the year ended December 31, 1995.
As administrator, PFPC Inc. ("PFPC") is paid a monthly asset based fee
of 0.10% of the Fund's first $200 million of average net assets; 0.075%
of the Fund's next $200 million of average net assets; 0.05% of the
Fund's next $200 million of average net assets; and 0.03% of the Fund's
average net assets in excess of $600 million; exclusive of
out-of-pocket expenses. PFPC has agreed to waive 10% and 5% of its fee
during the first and second year of its administration, respectively.
For the year ended December 31, 1995, PFPC earned approximately
$12,100, net of fee waivers of approximately $1,000, in administrative
services fees. Effective March 1996, PFPC will be terminated as
administrator and transfer agent for the Fund.
HSBC Americas may enter into agreements (the "Service Agreements") with
certain banks, financial institutions and corporations ("Service
Organizations") whereby each Service Organization handles recordkeeping
and provides certain administrative services for its customers who
invest in the Fund through accounts maintained at that Service
Organization. Each Service Organization will receive monthly payments,
which are based on expenses that the Service Organization has incurred
in the performance of its services under the Service Agreement. The
payments from the Fund on an annual basis will not exceed 0.25% of the
average value of the Fund's shares held in the subaccounts of the
Service Organizations.
9
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. AGREEMENTS (CONTINUED)
Effective September 25, 1995, Bank of New York replaced Marine Midland
as custodian for the Fund. For furnishing custodian services, Marine
Midland was paid a monthly fee with respect to the Fund for safekeeping
its assets plus certain transaction charges and out-of-pocket expenses.
For the period January 1, 1995 through September 25, 1995, Marine
Midland earned approximately $2,500 in custodian fees.
HSBC Americas earned co-administration and shareholder servicing fees
of 0.03% and 0.04% of the Fund's average net assets, respectively,
totaling approximately $9,200. Of that total, HSBC Americas waived
approximately $700 of these fees for the month of January 1995.
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 Mariner
Funds Services for expenses incurred in connection with distribution
services provided to the Fund not to exceed an annual rate of 0.35% of
the average daily value of the Fund's net assets during the preceding
month.
One state in which the shares of the Fund are qualified for sale
imposes limitations on the expenses of the Fund. The Advisory Contract
and the Administrative Services Contract with HSBC Americas provide
that if, in any fiscal year, the total expenses of the Fund (excluding
taxes, interest, distribution expenses, brokerage commissions and other
portfolio transaction expenses, other expenditures which are
capitalized in accordance with generally accepted accounting principles
and extraordinary expenses, but including the advisory and
administrative services fees) exceed the expense limitation applicable
to the Fund imposed by the securities regulations of such state, HSBC
Americas will pay or reimburse the Fund in amounts equal to the excess.
Although there is no certainty that this limitation will be in effect
in the future, the effective limitation on an annual basis with respect
to the Fund is currently 2.5% per annum of the first $30 million of
average net assets, 2.0% of the next $70 million of average net assets
and 1.5% of average net assets in excess of $100 million. For the year
ended December 31, 1995, there were no payments or reimbursements
required as a result of this expense limitation.
A partner of Baker & McKenzie, legal counsel to the Trust, serves as
Secretary of the Trust. For the year ended December 31, 1995, the Fund
incurred legal fees of approximately $16,200 to Fund counsel.
10
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
FOR THE PERIOD
JULY 27, 1993
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.07 $ 10.05 $ 10.00
------- ------- -------
Income From Investment Operations
Net investment income 0.55 0.56 0.25
Net realized and unrealized gain (loss) on investments 0.97 (0.98) 0.05
------- ------- -------
Total from investment operations 1.52 (0.42) 0.30
------- ------- -------
Less Distributions from:
Net investment income (0.55) (0.56) (0.25)
------- ------- -------
Net asset value, end of period $ 10.04 $ 9.07 $ 10.05
======= ======= =======
Total Return (a) 17.19% (4.22)% 2.59%(b)
Ratios/Supplemental Data
Net assets (000), end of period $13,891 $12,143 $12,235
Ratio of expenses (without fee waivers)
to average net assets 1.48% 1.28% 1.41%(c)
Ratio of expenses (with fee waivers)
to average net assets 0.70% 0.55% 0.53%(c)
Ratio of net investment income
(without fee waivers) to average net assets 4.96% 5.21% 4.73%(c)
Ratio of net investment income (with fee
waivers) to average net assets 5.74% 5.94% 5.61%(c)
Portfolio turnover rate 57.96% 38.73% 16.04%(b)
<FN>
- -------------------
(a) Excludes sales charge.
(b) Not annualized.
(c) Annualized.
</FN>
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
Mariner Mutual Funds Trust
We have audited the accompanying statement of net assets of the Mariner
U.S. Government Securities Fund (one of the portfolios comprising Mariner
Mutual Funds Trust) as of December 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial
highlights for each of the periods 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. Our procedures included confirmation of
securities owned as of December 31, 1995, by correspondence with the
custodian. 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 Mariner U.S. Government Securities Fund at December 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the indicated periods, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 5, 1996
12
<PAGE>
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MARINER SM MUTUAL FUNDS TRUST
3435 Stelzer Road
Columbus,Ohio 43219
GENERAL INFORMATION:
(800) 753-4462
INVESTMENT ADVISER AND CO-ADMINISTRATOR
HSBC Asset Management Americas Inc.
250 Park Avenue
New York, New York 10177
SPONSOR AND DISTRIBUTOR (EFFECTIVE JANUARY 1, 1996)
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
ADMINISTRATOR, TRANSFER
AND DIVIDEND DISBURSING AGENT
PFPC, Inc.
400 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
Bank of New York
90 Washington Street
New York, New York 10286
LEGAL COUNSEL
Baker & McKenzie
805 Third Avenue
New York, New York 10022
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
This report is for the information of the shareholders of Mariner 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.
