<PAGE> 1
As filed with the Securities and Exchange Commission on June 28, 1995
Registration No. 33-3082
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
POST-EFFECTIVE AMENDMENT NO. 10 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY /x/
ACT OF 1940
AMENDMENT NO. 11 /x/
------------------------------
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
(Exact Name of Registrant as Specified in Charter)
200 Gibraltar Road
Horsham, Pennsylvania 19044
(Address of Principal Executive Offices)
Registrant's Telephone Number : (215) 443-7850
JAMES W. JENNINGS, ESQUIRE
MORGAN, LEWIS & BOCKIUS
2000 One Logan Square
Philadelphia, Pennsylvania 19103
(Name and Address of Agent for Service)
It is proposed that this filing become effective on June 28, 1995
pursuant to paragraph (b) of Rule 485.
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- ---------------------------------------------------------------------------------------------------------------------------
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Unit Aggregate Offering Price (1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Share of Common Stock 45,180,984 shares $1.00 per share -- (1) $100
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</TABLE>
(1) Registrant has calculated the maximum aggregate offering price pursuant to
Rule 24e-2 under the Investment Company Act of 1940 (the "1940 Act") for
fiscal year ended February 28, 1995. Registrant had actual aggregate
redemptions of 337,285,543 shares for the fiscal year ended February 28,
1995; has used 292,394,559 of available redemptions for reductions
pursuant to Rule 24f-2(c) under the 1940 Act and has previously used no
available redemptions for reductions pursuant to Rule 24e-2(a) of the 1940
Act during the current year. Registrant elects to use redemptions in the
aggregate amount of 44,890,984 shares for reductions in its current
amendment.
The Registrant has registered an indefinite number of shares
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
The Registrant has filed a Rule 24f-2 notice covering the fiscal year ended
February 28, 1995 on April 27, 1995.
<PAGE> 2
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
- -------------- --------
PART A
- ------
<S> <C> <C>
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fund Expenses
Item 3. Condensed Financial Information...... Certain
Financial
Information
Item 4. General Description of Registrant...... The Fund;
Investment
Objective
and Policies;
Investment
Restrictions;
General
Information
Item 5. Management of the Fund............... Management
of the Fund
Item 6. Capital Stock and Other Securities... Cover Page, The
Fund; How To
Purchase and
Redeem Shares;
Dividends and
Taxes; Descrip-
tion of Shares;
General
Information
Item 7. Purchase of Securities Being
Offered............................. Valuation of
Shares; How to
Purchase and
Redeem Shares
Item 8. Redemption or Repurchase............ How to
Purchase and
Redeem Shares
Item 9. Legal Proceedings................... *
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PART B LOCATION
- ------ --------
<S> <C> <C>
Item 10. Cover Page.......................... Cover Page
Item 11. Table of Contents................... Table of
Contents
Item 12. General Information and History..... The Fund
Item 13. Investment Objectives and Policies.. Investment
Objective and
Policies
Item 14. Management of the Registrant........ Directors and
Officers;
Investment
Adviser,
Administrator
and Distributor
Item 15. Control Persons and Principal
Holders of Securities............... Principal
Holders of
Securities
Item 16. Investment Advisory and Other
Services............................ Investment
Adviser,
Administrator
and Distributor
Item 17. Brokerage Allocation and Other
Practices........................... Portfolio
Transactions
Item 18. Capital Stock and Other Securities... Description of
Shares
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered......... Included in
Part A
Item 20. Tax Status.......................... Included in
Part A
Item 21. Underwriters........................ *
Item 22. Calculation of Performance Data..... Yield
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
LOCATION
--------
<S> <C> <C>
Item 23. Financial Statements................ Financial
Statements
</TABLE>
* Omitted since the answer is negative or the Item is inapplicable.
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 5
[NAVIGATOR LOGO] PROSPECTUS
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Navigator Tax-Free Money Market Fund (the "Fund") is a portfolio offered by
Navigator Tax-Free Money Market Fund, Inc. (the "Company"), a no-load,
diversified, open-end investment company.
The Fund's investment objective is to provide its shareholders with as high
a level of current interest income that is exempt from federal income taxes as
is consistent with liquidity and relative stability of principal. The Fund
intends to achieve this objective by investing substantially all of its assets
in a diversified portfolio of tax-exempt obligations of the highest quality,
with remaining maturities of 397 days or less. While the Fund may also invest in
short-term taxable obligations, under normal market conditions, at least 80% of
the Fund's net assets will be invested in obligations exempt from federal income
taxes.
THE FUND'S SHARES ARE NEITHER INSURED NOR GUARANTEED BY THE FDIC, OR THE
U.S. GOVERNMENT OR ANY OF ITS AGENCIES. THE FUND ATTEMPTS TO MAINTAIN A STABLE
NET ASSET VALUE PER SHARE OF $1.00, BUT THERE CAN BE NO ASSURANCE THAT IT WILL
BE ABLE TO DO SO. THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF ANY BANK,
NOR ARE THEY ENDORSED OR GUARANTEED BY ANY BANK.
Shares of the Fund ("Shares") are sold by Fairfield Group, Inc.
("Fairfield") to institutional investors ("Institutions") for investment of
their own funds or funds for which they act in a fiduciary, agency or custodial
capacity ("Customer Accounts"). Fund Shares may not be purchased by individuals
directly, but institutional investors may purchase Shares for Customer Accounts
maintained for individuals. Fairfield (the "Manager") acts as the Fund's
Investment Adviser, Administrator, and Distributor. Shares are sold and redeemed
without any purchase or redemption charge imposed by the Fund, although
Institutions may charge their Customer Accounts for services provided in
connection with the purchase or redemption of Shares. See "How to Purchase and
Redeem Shares."
This Prospectus sets forth certain information about the Fund that a
prospective investor ought to know before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about the Fund, contained in a Statement of
Additional Information, has been filed with the Securities and Exchange
Commission and is available upon request without charge by writing to the Fund
at its address. The Statement of Additional Information bears the same date as
this Prospectus and is incorporated by reference in its entirety into this
Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS JUNE 28, 1995.
<PAGE> 6
Navigator Tax-Free Money Market Fund
(Navigator Tax-Free Money Market Fund, Inc.)
<TABLE>
<S> <C>
200 Gibraltar Road For current
Horsham, PA 19044 performance,
purchase, redemption,
and
other information,
call:
1-800-441-3885
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company............................................ 3
Fund Expenses.......................................... 3
Condensed Financial Information........................ 4
Performance Information................................ 5
Investment Objective and Policies...................... 5
Investment Restrictions................................ 8
Valuation of Shares.................................... 8
How to Purchase and Redeem Shares...................... 9
Dividends.............................................. 11
Taxes.................................................. 11
Management of the Fund................................. 13
Description of Shares.................................. 15
General Information.................................... 15
</TABLE>
<PAGE> 7
THE COMPANY
The Company was organized as a Maryland corporation on January 27, 1986,
and the Fund commenced operations on March 27, 1986. The Company's Articles of
Incorporation permit the Company's Board of Directors ("Navigator's Board") to
offer additional, separate classes of shares of Common Stock ("Portfolios") in
the future. However, the Company currently offers only Shares of the Fund, a
tax-free money market portfolio.
FUND EXPENSES
The table below sets forth information concerning shareholder transaction
expenses and annual Fund operating expenses.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........ 0%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price)........................................................................... 0%
Deferred Sales Load
(as a percentage of original purchase price or redemption proceeds, as
applicable)...................................................................... 0%
Redemption Fee..................................................................... None
Exchange Fee....................................................................... None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (A)
<TABLE>
<S> <C>
12b-1 Fees......................................................................... 0%
Investment Advisory Fees After Fee Waivers (B)..................................... .05%
Administrative Fees (C)............................................................ .10%
Other Expenses (D)................................................................. .14%
-----
Net Annual Fund Operating Expenses (E)............................................. .29%
=====
</TABLE>
- ------------------------------------------
<TABLE>
<S> <C>
(A) The annual Fund operating expenses as set forth in this table reflect expenses incurred
by the Fund for the fiscal year ended February 28, 1995, shown as a percentage of
average net assets for such year.
(B) Absent voluntary waivers, Fairfield's investment advisory fees, which are graduated,
would have been calculated at the annual rate of .25% of the Fund's average net assets.
(C) Absent voluntary waivers, Fairfield's administrative fees are calculated at the annual
rate of .10% of the Fund's average net assets.
(D) Includes (among others) custodial, transfer agency, legal, and auditing fees.
(E) Fairfield may, from time to time and at its discretion, voluntarily waive all or a
portion of its investment advisory and/or administrative fees. The expense ratio of .29%
is net of investment advisory fee waivers in effect during the fiscal year. Absent any
fee waivers, such expense ratio would have been .49%.
</TABLE>
EXAMPLE:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period......... $3 $ 9 $16 $ 37
</TABLE>
- ------------------------------------------
* Absent the voluntary waiver of fees by Fairfield, the expense amounts in the
above Example for 1 year, 3 years, 5 years, and 10 years would be $5, $16,
$27, and $62, respectively.
The purpose of the tables is to assist the investor in understanding the
various costs and expenses that a shareholder in the Fund will bear directly or
indirectly. Financial institutions that are the record owner of Shares on behalf
of their Customer Accounts may impose separate fees for the account services
they provide to their Customers. For additional information regarding fees and
other expenses, see "The Manager" and "Expenses."
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE FUND EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN
THOSE SHOWN.
3
<PAGE> 8
CONDENSED FINANCIAL INFORMATION
The table below sets forth certain financial information with respect to
the per-share data and ratios for the Fund for the periods indicated. This
information has been derived from the financial statements audited by Ernst &
Young LLP, independent auditors for the Fund, whose report thereon is
incorporated by reference into the Fund's Statement of Additional Information,
which can be obtained at no charge by calling Fairfield at 1-800-441-3885.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
3/01/94 3/01/93 3/01/92 3/01/91 3/01/90 3/01/89 3/01/88 3/01/87 3/27/86*
TO TO TO TO TO TO TO TO TO
2/28/95 2/28/94 2/28/93 2/29/92 2/28/91 2/28/90 2/28/89 2/29/88 2/28/87
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
beginning of period........ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
Investment Operations:
Net Investment Income.... .0286 .0227 .0273 .0407 .0558 .0613 .0532 .0458 .0418
Net Gain/Loss on
Securities (both
realized
and unrealized)........ (.0003) -- -- .0001 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Income
from Investment
Operations.......... .0283 .0227 .0273 .0408 .0558 .0613 .0532 .0458 .0418
------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from
Net Investment Income.... (.0286) (.0227) (.0273) (.0407) (.0558) (.0613) (.0532) (.0458) (.0418)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions.... (.0286) (.0227) (.0273) (.0407) (.0558) (.0613) (.0532) (.0458) (.0418)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value,
end of period.............. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Return................. 2.94% 2.29% 2.76% 4.15% 5.73% 6.31% 5.45% 4.68% 4.71%(A)
Net Assets,
end of period (000)........ $107,357 $152,273 $202,245 $227,249 $255,298 $300,001 $200,396 $194,508 $143,806
Ratios and Supplemental Data:
Ratio of Expenses
to Average Net Assets.... .29% .28% .23% .23% .22% .20% .18% .15% .10%(A)
Ratio of Expenses
to Average Net Assets,
excluding Fee Waivers.... .49% .48% .43% .45% .44% .43% .45% .45% .58%(A)
Ratio of Net Investment
Income
to Average Net Assets.... 2.86% 2.27% 2.73% 4.07% 5.58% 6.13% 5.32% 4.58% 4.50%(A)
Ratio of Net Investment
Income
to Average Net Assets,
excluding Fee Waivers.... 2.66% 2.07% 2.53% 3.85% 5.36% 5.90% 5.05% 4.28% 4.02%(A)
</TABLE>
* Commencement of Operations
(A) Annualized
4
<PAGE> 9
PERFORMANCE INFORMATION
IN GENERAL
The performance of any investment will generally reflect market conditions,
portfolio quality and maturity, type of investment, and operating expenses. The
Fund's performance will fluctuate and is not necessarily representative of
future results. Any fees charged by Institutions to their Customers in
connection with investments in Fund Shares are not reflected in the Fund's
performance, and such fees, if charged, will reduce the actual return received
by Customers on their investments. Conversely, the Fund's performance would be
favorably affected by any management fee waivers on the part of Fairfield.
From time to time, in advertisements or reports to shareholders, the
performance of the Fund may be quoted and compared to that of other mutual funds
with similar investment objectives and to relevant indices such as
"IBC/Donoghue's Money Fund Averages(R)."
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent auditors.
YIELDS
The Fund may advertise its "yield" and "effective yield." Both yield
figures are based on historical earnings and are not intended to indicate future
performance. The "yield" of the Fund refers to the income generated by an
investment in the Fund over a 7-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment. See "Yields" in the Statement of Additional
Information.
For the 7-day period ended February 28, 1995, the Fund's yield was 3.80%
and its compounded effective yield was 3.87%. During this 7-day period, 80% of
the Fund's investment advisory fees were voluntarily waived by Fairfield. Absent
such fee waivers, the yield for such period would have been 3.60% and the
compounded effective yield would have been 3.67%. During this 7-day period,
there was no waiver in effect with respect to Fairfield's administrative fees.
The Fund may also advertise its "taxable equivalent yield," which is
calculated by taking into account the investor's current tax bracket. This is
the yield an investor would need to earn from a taxable investment in order to
realize an "after-tax" benefit equal to the tax-free yield provided by the Fund.
For the 7-day period ended February 28, 1995, the Fund's taxable equivalent
yields for the 15%, 28%, 31%, 36%, and 39.6% tax brackets were 4.47%, 5.28%,
5.51%, 5.94%, and 6.29%, respectively.
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
The Fund's investment objective is to provide as high a level of current
interest income that is exempt from federal income taxes as is consistent with
liquidity and relative stability of principal. Although there can be no
assurance that the Fund will meet its stated objective, the Fund intends, under
normal market conditions, to have at least 80% of its net assets invested in the
tax-free securities discussed herein.
The securities held by the Fund will have remaining maturities of 397 days
or less, although variable rate demand obligations, securities subject to
repurchase agreements, and certain other securities may bear longer maturities.
In addition, the portfolio's average weighted maturity will not exceed 90 days.
MUNICIPAL SECURITIES
The Fund invests substantially all of its assets in a diversified portfolio
consisting of short-term obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel
5
<PAGE> 10
to the issuer, is exempt from federal income taxes ("Municipal Securities"),
except in extraordinary circumstances (see "Temporary Investments"). Municipal
Securities will include, but not be limited to, the following:
GENERAL OBLIGATION BONDS AND NOTES
BOND AND/OR GRANT ANTICIPATION NOTES
CONSTRUCTION LOAN NOTES
REVENUE BONDS AND NOTES
TAX AND/OR REVENUE ANTICIPATION NOTES
TAX-EXEMPT COMMERCIAL PAPER
VARIABLE RATE DEMAND OBLIGATIONS
Municipal Securities which are rated at the time of purchase must be rated
in the highest short-term rating category of Moody's Investors Service, Inc.
("Moody's") and/or Standard & Poor's Corporation ("S&P"). Therefore, Municipal
Securities purchased by the Fund must meet or exceed the ratings set forth
below:
<TABLE>
<CAPTION>
MINIMUM RATINGS
MOODY'S S&P
---------- --------
<S> <C> <C>
Notes........................................... "MIG-1" "SP-1"
Tax-Exempt Commercial Paper..................... "Prime-1" "A-1"
Variable Rate Demand Obligations................ "VMIG-1" "A-1"
</TABLE>
Securities that have no short-term ratings at the time of purchase must be
determined to be of comparable quality by Fairfield, pursuant to guidelines
approved by Navigator's Board, or must be issued by an issuer having comparable
short-term securities outstanding that satisfy the above rating criteria. To the
extent that the ratings accorded by Moody's or S&P may change as a result of
changes in their rating systems, the Fund will attempt to use comparable ratings
as standards for its investments, in accordance with the investment policies
contained herein. Where necessary to ensure that an instrument meets, or is of
comparable quality to, the Fund's rating criteria, the Fund will require that
the issuer's obligation to pay the principal of, and the interest on, the
instrument be backed by insurance or by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
All obligations, including any underlying guarantees, must be deemed by
Fairfield to present minimal credit risks, pursuant to guidelines approved by
Navigator's Board. See the "Appendix" to the Statement of Additional Information
for a description of applicable ratings.
Opinions relating to the validity of Municipal Securities and to the
exemption of interest thereon from federal income taxes are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
Fairfield will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
From time to time, proposals have been introduced in Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities. There can be no assurance that the current
federal income tax treatment accorded an investment in the Fund will not be
adversely affected by changes to statutes, regulations, rulings or judicial
precedents upon which such federal tax treatment is based. In the event of the
enactment of such legislation, which might materially affect the availability of
Municipal Securities for investment by the Fund and hence the value of the
Fund's portfolio, the Fund would re-evaluate its investment objective and
policies and consider changes in its structure or possible dissolution.
In managing the Fund's portfolio, Fairfield does not intend on a regular
basis to invest more than 25% of the Fund's total assets in (i) Municipal
Securities whose issuers are in the same state, (ii) Municipal Securities, the
interest on which is paid solely from revenues of similar projects, and (iii)
industrial development bonds, although it may do so from time to time. To the
extent the Fund's assets are so concentrated, the Fund would be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states, projects, and bonds to a greater extent than it would be if its assets
were not so concentrated.
TYPES OF MUNICIPAL SECURITIES
The two principal classifications of Municipal Securities which may be held
by the Fund are "general obligation" securities and "revenue" securities. These
are discussed below, along with other Municipal Securities in which the Fund may
invest.
6
<PAGE> 11
1. GENERAL OBLIGATION SECURITIES
"General obligation" securities are secured by the issuer's pledge of its
full faith, credit, and taxing power for the payment of principal and interest.
2. REVENUE SECURITIES
"Revenue" securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or another specific revenue source such as the user of
the facility being financed. Industrial development and pollution control bonds
held by the Fund are in most cases revenue securities and are not payable from
the unrestricted revenues of the issuer. Consequently, the credit quality of
such revenue bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
3. MORAL OBLIGATION BONDS
The Fund's portfolio may also include "moral obligation" bonds, which are
normally issued by special-purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
4. VARIABLE RATE DEMAND OBLIGATIONS
Municipal Securities purchased by the Fund may include "variable rate
demand obligations," which are tax-exempt obligations upon which interest is
payable at a floating or variable rate. While there may be no active secondary
market with respect to a particular variable rate demand obligation purchased by
the Fund, the Fund normally may demand payment of the principal of and accrued
interest on the obligation upon not more than seven days' notice and may resell
the obligation at any time to a third party. The absence of an active secondary
market, however, could make it difficult for the Fund to dispose of a variable
rate demand obligation if the issuer defaulted on its payment obligation, and
the Fund could, for this or other reasons, suffer a loss to the extent of the
default.
5. WHEN-ISSUED SECURITIES
The Fund may also purchase Municipal Securities on a "when-issued" basis.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield. The Fund will generally not pay for
such securities or start earning interest on them until they are received.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in value based upon changes in the general level of interest
rates. The Fund expects that commitments to purchase when-issued securities will
not exceed 25% of the value of its total assets, absent unusual market
conditions. The Fund does not intend to purchase when-issued securities for
speculative purposes, but only in furtherance of its investment objective.
Because the Fund will set aside cash or liquid assets to satisfy its purchase
commitments in the manner described, the Fund's liquidity and ability to manage
its portfolio might be affected in the event its commitments to purchase
when-issued securities should ever exceed 25% of the value of its total assets.
TEMPORARY INVESTMENTS
The Fund may hold uninvested cash reserves which do not earn income
(pending investment) during temporary defensive periods or if, in the opinion of
Fairfield, suitable tax-exempt obligations are unavailable. There is no
percentage limitation on the amount of assets which may be held uninvested. In
addition, the Fund may invest from time to time, to the extent consistent with
its investment objective, a portion of its assets on a temporary basis or for
temporary defensive purposes in short-term money market instruments ("Temporary
Investments"), the income from which is subject to federal income taxes.
Temporary Investments will generally not exceed 20% of the total assets of
the Fund except when made for temporary defensive purposes, and may include
obligations of the United States Government or its agencies or
instrumentalities; debt securities (including taxable commercial paper) of
issuers having been assigned, at the time of purchase, the highest short-term
rating of either Moody's or S&P; certificates of deposit or bankers'
7
<PAGE> 12
acceptances of domestic branches of U.S. banks with total assets at the time of
purchase of $1 billion or more; repurchase agreements with respect to such
obligations; or reverse repurchase agreements.
Under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), repurchase agreements are considered to be loans by the Fund and
conversely, reverse repurchase agreements are considered to be borrowings by the
Fund. See the Statement of Additional Information for further discussion
regarding Temporary Investments.
INVESTMENT RESTRICTIONS
Certain investment policies of the Fund may be changed at any time and from
time to time by Navigator's Board without shareholder approval, provided such
change is deemed to be consistent with the Fund's objective and in the best
interests of its shareholders. However, the Fund's investment objective, along
with the investment restrictions and certain limitations described herein and in
the Statement of Additional Information, are fundamental and may be changed only
by the affirmative vote of a majority of the outstanding Shares of the Fund. See
"Description of Shares."
THE FUND MAY NOT:
1. Invest less than 80% of its net assets in securities, the interest
on which is exempt from federal income taxes, except during temporary
defensive periods.
2. Purchase securities of any one issuer (other than obligations of
the U.S. Government, its agencies or instrumentalities) if, as a result
thereof, more than 5% of the value of the Fund's total assets would be
invested in such issuer, except that up to 25% of the value of its total
assets may be invested without regard to such 5% limitation.
3. Purchase any securities which would cause 25% or more of the value
of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation with
respect to: (a) obligations issued by any state, territory or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions; (b) obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; (c) domestic bank certificates of deposit and bankers'
acceptances; or (d) repurchase agreements secured by any of the foregoing
obligations.
4. Make loans, except that the Fund may purchase or hold certain debt
instruments and enter into repurchase agreements, in accordance with its
policies and limitations.
5. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts not to exceed 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge, or hypothecate
any assets, except in connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed or 10% of the value
of its total assets at the time of such borrowing. This borrowing provision
is not intended for investment leverage, but solely to facilitate
management of the Fund's portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient, and hence the Fund will not purchase any
securities while its borrowings (including reverse repurchase agreements)
are outstanding.
6. Knowingly invest more than 10% of its total assets in illiquid
securities, including illiquid variable rate demand obligations, and
repurchase agreements providing for settlement more than seven days after
notice.
VALUATION OF SHARES
NET ASSET VALUE
The Fund's net asset value per Share for purposes of pricing purchase and
redemption orders is normally determined as of 4:00 P.M. (Eastern time) (the
"valuation time") on each business day of the Fund. A "business day" is a day on
which the New York Stock Exchange is open for trading, and any other day (other
than a day on
8
<PAGE> 13
which no Shares of the Fund are tendered for redemption and no order to purchase
any Shares is received) during which there is a sufficient degree of trading in
securities or instruments held by the Fund such that the Fund's net asset value
per Share might be materially affected. Net asset value per Share is calculated
by dividing the value of all of the Fund's portfolio securities and other
assets, less liabilities, by the number of outstanding Shares of the Fund at the
time of the valuation. The result (adjusted to the nearest cent) is the net
asset value per Share.
PORTFOLIO VALUATION
The assets in the Fund are valued based upon the amortized cost method,
pursuant to rules promulgated under the Investment Company Act. Under this
method of valuation, the portfolio value of the assets normally will not change
in response to fluctuating interest rates. In connection with its use of this
valuation method, however, the Fund monitors the deviation between the amortized
cost value of its assets and their market value (which can be expected to vary
inversely with changes in prevailing interest rates). Although the Fund seeks,
through its use of amortized cost valuation, to maintain its net asset value per
Share at $1.00, there can be no assurance that the net asset value will not
vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Fund are sold on a continuous basis by Fairfield, as the
Fund's Distributor. The principal offices of Fairfield are located at 200
Gibraltar Road, Horsham, Pennsylvania 19044.
PURCHASE OF SHARES
In addition to Institutions purchasing Shares directly from Fairfield,
Shares may be purchased through procedures established by Fairfield in
connection with the requirements of Customer Accounts of various Institutions.
Shares of the Fund sold to Institutions acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of persons maintaining Customer
Accounts at the Institutions will normally be held of record by the
Institutions. Since it will be primarily discretionary Customer Accounts at
Institutions that are invested in the Fund, references in this Prospectus to
shareholders of the Fund mean the Institutions rather than their Customers.
Institutions purchasing or holding Fund Shares on behalf of their Customers are
responsible for the transmission of purchase and redemption orders (and the
delivery of funds) to the Fund on a timely basis. Confirmations of such Share
purchases and redemptions will be sent to the Institutions. Beneficial ownership
of Fund Shares will be recorded by the Institutions and reflected in the regular
account statements provided by them to their Customers.
Shares of the Fund may be purchased on any business day of the Fund at the
net asset value per Share (see "Valuation of Shares") next determined after
receipt by the Distributor of an order to purchase Shares. An order to purchase
Shares will be deemed to have been received only when federal funds with respect
thereto are available to the Fund's Custodian for investment. Federal funds are
monies transferred from one bank to another through the Federal Reserve System.
Payment for an order to purchase Shares which is transmitted by federal funds
wire will be available that same day for investment by the Custodian, if
received prior to the valuation time on such day and in accordance with
Fairfield's established procedures. Payments transmitted by other means (such as
by check drawn on a member of the Federal Reserve System) will normally be
converted into federal funds within two banking days after receipt. An order
received before the valuation time on any business day will be executed on the
date of receipt at the net asset value determined on such date. An order
received after the valuation time on any business day will be executed on the
next business day of the Fund at the net asset value determined on such date.
The Fund strongly recommends that investors of substantial amounts use federal
funds to purchase Shares.
The minimum investment is $25,000 for the initial purchase of Fund Shares
by an Institution and $1.00 for each subsequent investment. However,
Institutions may set different minimums for their Customers' investments in
Accounts which hold Fund Shares.
No sales charge is imposed by the Fund in connection with the purchase of
its Shares. Depending upon the terms of a particular Customer Account, however,
Institutions may charge their Customers fees for automatic
9
<PAGE> 14
investment and other cash management services provided in connection with
investments in the Fund. Information concerning these services and any
applicable charges will be provided by the Institutions. This Prospectus should
be read by Customers in connection with any such information received from the
Institutions. Any such fees, charges or other requirements imposed by an
Institution upon its Customers will be in addition to the fees and requirements
described in this Prospectus.
The Fund reserves the right to reject any order for the purchase of its
Shares in whole or in part, or to waive any minimum investment requirements.
Every shareholder of record will receive a confirmation of each new Share
transaction with the Fund, which will also show the total number of Shares being
held in safekeeping by Fund/Plan Services, Inc. (the Fund's "Transfer Agent")
for the account of the shareholder. Shareholders may rely on these statements in
lieu of certificates. Certificates representing Shares of the Fund will not be
issued to the shareholder but, rather, shareholdings will be recorded on the
books of the Fund in non-certificate form and shareholders will be regularly
advised of their ownership position.
TELEPHONE TRANSACTIONS
The Fund and its Transfer Agent have established reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures require Institutions to provide certain identification information at
the time an account is opened, such as the names of Institution personnel
authorized to effect daily trades with the Fund, as well as specific
instructions as to the wiring of federal funds for redemptions.
The Fund or its Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone instructions if the Fund or its Transfer
Agent do not employ such procedures. However, neither the Fund nor its Transfer
Agent will be responsible for any loss, liability, cost or expense for following
instructions received by telephone that it reasonably believes to be genuine.
REDEMPTION OF SHARES
Shares are ordinarily redeemed by a shareholder via telephone, in
accordance with Fairfield's established procedures. Redemption payments to
shareholders closing their accounts will include any unpaid dividends and
distributions credited to the account as of the date of redemption.
However, with respect to Fund Shares held by Institutions on behalf of
their Customer Accounts, all or part of the Fund Shares beneficially owned by a
Customer must be redeemed in accordance with instructions and limitations
pertaining to his Account at the institution.
Shareholders may have their telephone redemption requests paid by a direct
wire to a domestic commercial bank account previously designated by the
shareholder on the Account Application Form, or by a check mailed to the name
and address in which the shareholder's account is registered with the Fund. Such
payments will normally be transmitted on the next business day following receipt
of a valid request for redemption. Telephone redemption requests may be made by
calling Fairfield at 1-800-441-3885.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. Except as stated in the following paragraph, payment to shareholders for
redeemed Shares will be made not later than seven business days after receipt by
the Fund's Distributor of the request for redemption, absent extraordinary
circumstances. However, to the largest extent possible, the Fund will attempt to
honor requests from shareholders for same-day payment, if such payment would be
consistent with the Fund's need for liquidity and stability.
Shareholders should note that payment for the redemption of Shares which
were purchased by check may not be made until the Fund can verify that the
payment for such purchase has been, or will be, collected, which may take up to
eight business days after the date of purchase. The Fund intends to pay cash for
all Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Fund may make payment wholly or partly in portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
10
<PAGE> 15
Because of the relatively high cost of handling small investments, the Fund
reserves the right to redeem, at net asset value, the Shares held by any
Institution whose account has a value of less than $25,000. Before the Fund
redeems such Shares and sends the proceeds to the shareholder, the shareholder
will be given notice that the value of the Shares in the account is less than
the minimum amount and will be allowed sixty days to make an additional
investment in an amount which will increase the value of the account to at least
$25,000. As stated previously, Institutions may establish different minimum
shareholding requirements for their Customers.
The Fund may redeem Shares involuntarily if it appears appropriate to do so
in light of the Fund's responsibilities under the Investment Company Act. See
the Statement of Additional Information ("Net Asset Value" and "Additional
Purchase and Redemption Information") for examples of when the Fund may
involuntarily redeem Shares, or suspend the right of redemption and refuse to
record the transfer of its Shares.
DIVIDENDS
The net investment income of the Fund is declared daily as a dividend to
its shareholders. Capital gain distributions, if any, will be made at least
annually. Shares begin earning dividends on the day on which the purchase order
for the Shares is executed and continue to earn dividends through, and
including, the day before the redemption order for the Shares is executed.
Dividends are distributable monthly on the first business day of each month in
the form of additional Shares of the Fund, or, if specifically requested (in
writing) by the shareholder from the Fund's Distributor prior to the
distribution date, in cash. Dividends are automatically paid in cash (along with
any redemption proceeds) not later than seven business days after a shareholder
closes an account with the Fund.
TAXES
IN GENERAL
The following summary of federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial,
or administrative action.
No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of the Fund or its shareholders.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to their own federal, state, and local income tax
situations.
TAX STATUS OF THE FUND
1. INTERNAL REVENUE CODE
The Fund intends to qualify for the favorable tax treatment afforded a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). This generally requires, among other things, that the Fund
distribute to its shareholders at least 90% of its net investment income (both
taxable and tax-exempt). Provided it meets this 90% distribution requirement,
the Fund will be relieved of federal income tax on that part of its net
investment income and on any net capital gain (the excess of net long-term
capital gain over net short-term capital loss) distributed to shareholders.
The Fund anticipates declaring as dividends 100% of its net investment
income (both taxable and tax-exempt). The Fund does not expect to realize any
net long-term capital gain and, therefore, does not foresee paying any "capital
gain dividends," as described in the Code.
The Fund also expects to qualify to pay exempt-interest dividends to its
shareholders by satisfying the Code's requirement that at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which is exempt from regular federal
income taxes.
Dividends declared by the Fund in October, November, or December of any
year and payable to shareholders of record on a date in that month will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year, if paid by the Fund during the following January.
11
<PAGE> 16
2. FEDERAL EXCISE TAX
A non-deductible, 4% federal excise tax will be imposed on any "regulated
investment company" to the extent that it does not distribute to investors in
each calendar year an amount equal to (i) 98% of its calendar year ordinary
income, (ii) 98% of its capital gain net income (the excess of short- and
long-term capital gains over short- and long-term capital losses) for the
one-year period ending October 31, and (iii) 100% of any undistributed ordinary
income or capital gain net income from the prior year.
The Fund intends to make sufficient distributions each calendar year to
avoid liability for the federal excise tax.
3. MUNICIPAL SECURITY TAX ISSUES
Federal tax law may limit the types and volume of bonds qualifying for the
federal income tax exemption of interest, which may have an effect on the
ability of the Fund to purchase sufficient amounts of tax-exempt securities to
satisfy the Code's requirements for the payment of exempt-interest dividends.
In addition, entities or persons who are "substantial users" (or are
related to "substantial users") of facilities financed by "private activity
bonds" or "industrial development bonds" should consult their tax advisers
before purchasing Shares.
TAX STATUS OF THE FUND'S DISTRIBUTIONS
Tax-exempt interest dividends paid by the Fund (as discussed above) may
generally be treated by the Fund's shareholders as items of income excludable
from their gross income under the Code unless, under the circumstances
applicable to a particular shareholder, exclusion would be disallowed.
Corporate investors should note that dividends from the Fund's net
investment income will generally not qualify for the dividends-received
deduction for corporations. Exempt-interest dividends may also have certain
collateral federal income tax consequences, including Alternative Minimum Tax
consequences. Also, interest on indebtedness incurred or continued by a
shareholder in order to purchase or carry Shares is generally not deductible for
federal income tax purposes.
To the extent, if any, that dividends paid to shareholders are derived from
the Fund's taxable income (for example, from interest earned on Temporary
Investments in non-tax-exempt securities), or from long-term or short-term
capital gains, such dividends (whether paid in cash or in the form of
additional, reinvested Shares) will not be exempt from federal income taxes.
Therefore, any dividends from the Fund's investment company taxable income
would be taxable to shareholders as ordinary income to the extent of a
shareholder's ratable share of the Fund's earnings and profits as determined for
tax purposes. Likewise, any capital gain distributions would also be taxable and
would be treated as a long-term capital gain regardless of how long a
shareholder has held Fund Shares.
Except as noted otherwise herein, tax-exempt interest dividends and other
distributions paid by the Fund may be taxable to investors as dividend income
under state or local law even though a substantial portion of such distributions
may be derived from interest on tax-exempt obligations which, if realized
directly, would be exempt from such income taxes. However, in the opinion of
counsel, the Fund's Shares are exempt from current Pennsylvania Personal
Property Taxes.
In addition, the sale or redemption of shares of a mutual fund is a taxable
event to the selling or redeeming shareholder. Gains or losses (if any) may be
realized from an ordinary redemption of Shares, as described herein.
12
<PAGE> 17
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The business and affairs of the Fund are managed under the direction of
Navigator's Board of Directors. The current Directors and Executive Officers of
the Navigator Group of Funds, their addresses, principal occupations during the
past five years, and other affiliations are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------- -------------------- --------------------------------------
<S> <C> <C>
Robert J. Walker, Jr * Chairman, President, President, Chief Executive Officer,
200 Gibraltar Road and Director Secretary, and a Director of Fairfield from
Horsham, PA 19044 1995 to present; Senior Vice President,
Fidelity Investments Institutional Services
Co., 1991 to 1995; Senior Vice President,
SEI Corporation, 1987 to 1990.
Philip D. Croll Director Retired; Senior Staff Analyst and Trust
Westwyk Officer with Glenmede Trust Co., from 1973
139 Westbury Court to 1979; Manager, Public Affairs for Sun
Doylestown, PA 18901 Company, prior to 1973.
Richard G. Gilmore Director Independent Consultant; Director of CSS
5534 Schanteclaire Industries, Inc.; Director, Philadelphia
Sarasota, FL 34235-0946 Electric Company; Director, Legg Mason
Tax-Exempt Trust, Inc., Legg Mason Value
Trust, Inc., Legg Mason Special Investment
Trust, Inc., Legg Mason Global Trust, Inc.,
Legg Mason Investors Trust, Inc. and Legg
Mason Income Trust, Inc.; Trustee, Legg
Mason Tax-Free Income Fund; Senior Vice
President and Chief Financial Officer,
Philadelphia Electric Company, 1986 to
1991.
Robert E. Keith Director Chief Operating Officer, Technology
800 Safeguard Building Leaders, 1989 to present; Managing
435 Devon Park Drive Director, Radnor Venture Partners, 1989 to
Wayne, PA 19087 present; Director, Wave Technologies
International Inc.; Director, Technology
Partners; Director, Gandolf Technologies
Inc.
Jan J. Wieckowski Director Retired; Part-time consultant to financial
504 Meadowbrook Circle institutions; Executive Vice President of
St. Davids, PA 19087 Mellon Bank East, from 1983 to 1986;
Executive Vice President of Girard Bank,
prior to 1983.
James R. Lesher Vice President, Vice President of Fairfield, since 1994
200 Gibraltar Road Treasurer and (Controller from 1991 to 1994); Assistant
Horsham, PA 19044 Asst. Secretary Vice President of Fidelity Mutual Life
Insurance Company, from 1974 to 1991.
James W. Jennings Secretary Partner with the law firm of Morgan, Lewis
2000 One Logan Square & Bockius, since 1970.
Philadelphia, PA 19103
</TABLE>
- -------------------------
* Mr. Walker, as a Director and Executive Officer of the Manager, is an
"interested person" of the Company, within the meaning of Section 2(a)(19) of
the Investment Company Act.
THE MANAGER
As Manager, Fairfield, a wholly-owned subsidiary of Legg Mason, Inc. serves
as the Fund's Investment Adviser, Administrator, and Distributor. Fairfield is a
broker-dealer registered with the Securities and Exchange Commission, and is a
member of the National Association of Securities Dealers, Inc. Fairfield also
provides investment and related financial services to institutional clients.
Fairfield's business address is 200 Gibraltar Road, Horsham, Pennsylvania 19044.
13
<PAGE> 18
The management services performed by and the fees payable to Fairfield are
described below.
1. INVESTMENT ADVISORY SERVICES
Investment advisory services are provided to the Fund by Fairfield, as
Manager, pursuant to a Management Agreement dated April 17, 1993, between the
Fund and Fairfield Group (the "Management Agreement").
As Investment Adviser, Fairfield manages the Fund's investment portfolio,
makes decisions with respect to and places orders for all purchases and sales of
the Fund's portfolio securities, and maintains the Fund's records relating to
such purchases and sales. Fairfield pays all expenses incurred by it in
connection with its investment advisory activities, other than the cost of
securities (including any brokerage commissions) purchased for the Fund and the
cost of obtaining market quotations for portfolio securities held by the Fund.
Fairfield also currently provides investment advisory and administrative
services to Navigator Money Market Fund, Inc.
For the investment advisory services provided and expenses assumed pursuant
to the Management Agreement, Fairfield is entitled to receive a fee from the
Fund, computed daily and paid monthly, at the annual rate of .25% on the first
$1 billion of the average net assets of the Fund; .20% on the next $1 billion;
and .15% thereafter. Fairfield may, from time to time and at its discretion,
voluntarily waive all or a portion of its investment advisory fees in order to
assist the Fund in maintaining a competitive expense ratio.
For the fiscal year ended February 28, 1995, Fairfield was paid investment
advisory fees totalling $63,238, after voluntary fee waivers of $253,279. Absent
such fee waivers, the investment advisory fees payable by the Fund for such year
would have been $316,517.
During the fiscal years ended February 29, 1993 and February 28, 1994,
Fairfield was paid investment advisory fees (after voluntary fee waivers) of
$104,835 and $87,692, respectively. Absent any fee waivers, the investment
advisory fees payable by the Fund for such years would have been $525,217 and
$438,083, respectively.
John B. DeLaney, CFA, in his capacity as Fund Manager with Fairfield, is
primarily responsible for managing the Fund's investment portfolio. Mr. DeLaney
is a graduate of Bucknell University and has eight years of experience in
portfolio management. Prior to joining Fairfield Group in 1992, he managed
taxable and tax-free portfolios for Penn Mutual Life Insurance Company.
2. ADMINISTRATIVE SERVICES
Fairfield also acts as the Fund's Administrator pursuant to the Management
Agreement.
As Administrator, Fairfield generally assists in the Fund's administration
and operations. See "Investment Adviser, Administrator, and Distributor" in the
Statement of Additional Information for a list of Fairfield's specific
administrative services. For the administrative services it performs pursuant to
the Management Agreement, Fairfield is entitled to receive a fee from the Fund,
computed daily and paid monthly, at the annual rate of .10% on the average net
assets of the Fund.
For the fiscal year ended February 28, 1995, Fairfield was paid
administrative fees totalling $126,473.
As of the date of this Prospectus, Fairfield was not waiving any of its
administrative fees from the Fund, but may in the future waive all or a portion
of its administrative fees in order to assist the Fund in maintaining a
competitive expense ratio.
EXPENSES
The Fund's expenses are accrued daily and are deducted from total income
before dividends are paid. Except as noted herein and in the Statement of
Additional Information, the Fund's service contractors bear all expenses
incurred in connection with the performance of their services on behalf of the
Fund. Similarly, the Fund bears the expenses incurred in its operations.
14
<PAGE> 19
DESCRIPTION OF SHARES
The Company has currently authorized 2 billion shares of Common Stock at
$.001 par value per share and may in the future reclassify any authorized but
unissued shares into one or more additional "Portfolios," or into one or more
series of shares within a Portfolio. The Company presently offers only Shares of
Class "A" Common Stock, which represent interest in the Fund.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING NAVIGATOR MONEY MARKET
FUND, INC. MAY OBTAIN A SEPARATE PROSPECTUS DESCRIBING THAT FUND BY CONTACTING
FAIRFIELD AT 1-800-441-3885.
Each Fund Share represents an equal proportionate interest in the Fund with
each other Share, and is entitled to such dividends and distributions out of the
income earned on the assets belonging to the Fund as are declared in the
discretion of Navigator's Board. Shareholders of the Fund are entitled to one
vote for each full Share held, and fractional votes for fractional Shares held.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
of the aggregate number of Shares of the Fund may elect all of the Directors if
they choose to do so and, in such event, the holders of the remaining Shares
would not be able to elect any person or persons to Navigator's Board. Customers
of Institutions should refer to their agreements with their institution for
information regarding procedures for voting their Shares.
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of the Fund means the affirmative vote of the lesser of (a) more than
50% of the outstanding Shares of the Fund, or (b) at least 67% of the Shares of
the Fund present at a meeting at which the holders of more than 50% of the
outstanding Shares of the Fund are represented in person or by proxy.
GENERAL INFORMATION
In accordance with the Maryland General Corporation Law, the Fund is not
required to hold annual meetings of shareholders unless the Investment Company
Act requires the shareholders to elect members of the Board of Directors.
However, a meeting of shareholders may be called for any purpose upon the
written request of the holders of at least 10% of the outstanding Shares of the
Fund.
As used in this Prospectus, "assets belonging to the Fund" means the
consideration received by the Company upon the issuance or sale of Shares in the
Fund, together with all income, earnings, profits and proceeds derived from the
investment thereof, including any proceeds from the sale, exchange or
liquidation of such investments, and any funds or payments derived from any
reinvestment of such proceeds, and a portion of any general assets of the
Company not belonging to the Fund or any future additional Portfolios of the
Company. Assets belonging to the Fund are charged with the direct liabilities in
respect of the Fund and with a share of the general liabilities of the Company
allocated in proportion to the relative asset value of the Fund (and any future
additional Portfolios) at the time the expense or liability is incurred. The
management of the Company makes determinations with respect to the Fund as to
liabilities when they are incurred and as to assets when they are acquired. Such
determinations are reviewed and approved annually by Navigator's Board and are
conclusive.
15
<PAGE> 20
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NAVIGATOR TAX-FREE MONEY MARKET FUND
<S> <C> <C>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INVESTMENT ADVISER,
INFORMATION OR TO MAKE ANY REPRESENTATIONS ADMINISTRATOR,
NOT CONTAINED IN THIS PROSPECTUS, OR THE AND DISTRIBUTOR
FUND'S STATEMENT OF ADDITIONAL INFORMATION Fairfield Group, Inc.
INCORPORATED HEREIN BY REFERENCE, IN Horsham, PA 19044
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH LEGAL COUNSEL
INFORMATION OR REPRESENTATIONS MUST NOT BE PROSPECTUS
RELIED UPON AS HAVING BEEN AUTHORIZED BY Morgan, Lewis & Bockius
THE FUND OR ITS DISTRIBUTOR. THIS Philadelphia, PA 19103
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
BY THE FUND OR BY THE DISTRIBUTOR IN ANY AUDITORS
JURISDICTION IN WHICH SUCH OFFERING MAY Ernst & Young LLP
NOT LAWFULLY BE MADE. Philadelphia, PA 19103
PROSPECTUS DATED JUNE 28, 1995.
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
[NAVIGATOR TAX-FREE MONEY MARKET FUND LOGO]
200 Gibraltar Road
Horsham, PA 19044
1-800-441-3885
<PAGE> 22
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
- STATEMENT OF ADDITIONAL INFORMATION -
JUNE 28, 1995
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C>
The Company............................................... B-2
Additional Investment Policies............................ B-2
Additional Investment Restrictions and Limitations........ B-8
Additional Purchase and Redemption Information............ B-10
Net Asset Value........................................... B-11
Dividends................................................. B-12
Yields.................................................... B-12
Additional Information Concerning Taxes................... B-13
Description of Shares..................................... B-16
Directors and Officers.................................... B-17
Principal Holders of Securities........................... B-18
Investment Adviser, Administrator, and Distributor........ B-19
Portfolio Transactions.................................... B-21
Custodian and Transfer Agent.............................. B-22
Expenses.................................................. B-23
Independent Auditors...................................... B-24
Legal Counsel............................................. B-24
Miscellaneous............................................. B-24
Financial Statements...................................... B-24
Appendix.................................................. B-35
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus for Navigator Tax-Free Money Market Fund (the
"Fund") offered by Navigator Tax-Free Money Market Fund, Inc. (the "Company"),
dated June 28, 1995 and is incorporated by reference in its entirety into that
Prospectus. Because this Statement of Additional Information is not itself a
prospectus, no investment in Shares of the Fund should be made solely upon the
information contained herein. Copies of the Prospectus for the Fund may be
obtained by writing the Fund at 200 Gibraltar Road, Horsham, Pennsylvania 19044,
or by telephoning 1- 800-441-3885. Capitalized terms used but not defined herein
have the same meanings as in the Prospectus.
B-1
<PAGE> 23
THE COMPANY
The Company was organized as a Maryland corporation on January 27,
1986, and the Fund commenced operations on March 27, 1986. The Company's
Articles of Incorporation permit
the Company's Board of Directors ("Navigator's Board") to offer
additional, separate classes of shares of Common Stock ("Portfolios") in the
future. However, the Company currently offers only Shares of the Fund, a
tax-free money market portfolio.
Shares of the Fund are sold by Fairfield only to Institutions for
investment of their own funds or funds for which they act in a fiduciary, agency
or custodial capacity. As Manager, Fairfield performs investment advisory,
administrative, and distribution services to the Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUND'S PROSPECTUS
RELATE PRIMARILY TO THE FUND AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS RELATING TO THE FUND.
INVESTORS WISHING TO OBTAIN SIMILAR INFORMATION REGARDING NAVIGATOR MONEY MARKET
FUND, INC. MAY OBTAIN A SEPARATE PROSPECTUS DESCRIBING THAT FUND BY CONTACTING
FAIRFIELD AT 1-800-441-3885.
ADDITIONAL INVESTMENT POLICIES
In General
The following policies supplement the Fund's investment objective and
policies as set forth in the Prospectus.
Additional Information on Municipal Securities
Municipal Securities include: debt obligations issued by or on behalf
of governmental entities or public authorities to obtain funds for various
purposes, including the construction of a wide range of public and
privately-operated facilities; the refunding of outstanding obligations; the
payment of general operating expenses; and the extension of loans to public
institutions and facilities.
There are, of course, variations in the quality of Municipal Securities
both within a particular classification and between classifications, and the
yields on Municipal Securities depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. The ratings of Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P")
described in the Prospectus and the "Appendix" to this Statement of Additional
Information represent their opinions as to the quality of Municipal Securities.
It should be emphasized,
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<PAGE> 24
however, that ratings are general and are not absolute standards of quality, and
Municipal Securities with the same maturity, interest rate and rating may have
different yields, while Municipal Securities of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by the Fund, an issue of Municipal Securities may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Fund. As Investment Adviser, Fairfield will consider such an event in
determining whether the Fund should continue to hold the obligation.
The payment of principal and interest on most Municipal Securities
purchased by the Fund will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its Municipal Securities are subject
to the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by Federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions. For purposes of
this Statement of Additional Information and the Fund's Prospectus, the District
of Columbia, each state, each of their political subdivisions, agencies,
instrumentalities and authorities, and each multi-state agency of which a state
is a member is considered to be an "issuer." Further, the non-governmental user
of facilities financed by industrial development bonds is considered to be an
"issuer." With respect to those Municipal Securities that are supported by a
bank guarantee or other credit facility, the bank or other institution (or
governmental agency) providing the guarantee or credit facility may also be
considered to be an "issuer" in connection with the guarantee or facility.
Among other types of Municipal Securities, the Fund may purchase
short-term general obligation notes, tax anticipation notes, bond anticipation
notes, revenue anticipation notes, tax-exempt commercial paper, construction
loan notes, and other forms of short-term loans. Such instruments are issued
with a short-term maturity in anticipation of the receipt of tax funds, the
proceeds of bond placements, or other revenues. In addition, the Fund may invest
in other types of tax-exempt instruments such as municipal bonds, industrial
development bonds and pollution control bonds, provided they have remaining
maturities of 397 days or less at the time of purchase.
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Special Considerations
From time to time, proposals have been introduced in Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities, and the Fund cannot predict what legislation
relating to Municipal Securities, if any, may be introduced in Congress in the
future. It may be noted, however, that the Treasury Department has in the past
proposed, as a part of general tax reform, to limit the exemption for state and
local bonds to those issued for governmental purposes. Such proposals, if
enacted, might materially adversely affect the availability of Municipal
Securities for investment by the Fund and hence the value of the Fund's
portfolio. In such an event, the Fund would re-evaluate its investment objective
and policies and consider changes in its structure or possible dissolution.
Additional Information on Investment Practices
1. Variable Rate Demand Obligations
Variable rate demand obligations held by the Fund may have maturities
of more than 397 days, provided (i) the Fund is entitled to the payment of
principal and accrued interest at specified intervals not exceeding 397 days and
upon not more than 30 days' notice, or (ii) the rate of interest on such
obligations is adjusted automatically at periodic intervals, which normally will
not exceed 31 days but may extend up to 397 days.
2. When-Issued Securities
As stated in the Prospectus, the Fund may purchase Municipal Securities
on a "when-issued" basis (i.e., for delivery beyond the normal settlement date
at a stated price and yield). When the Fund agrees to purchase when-issued
securities, its Custodian will set aside cash or liquid portfolio securities
equal to the amount of the commitment in a separate account. Normally, the
Custodian will set aside portfolio securities to satisfy a purchase commitment,
and in such a case, the Fund may be required subsequently to place additional
assets in the separate account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. It may be expected that
the Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. In addition, because the Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, the Fund's liquidity
and ability to manage its portfolio might be affected in the event its
commitments to purchase when-issued securities ever exceeded 25% of the value of
its total assets. Fairfield intends, however, to take reasonable precautions in
connection with the Fund's investment practices with respect to when-issued
securities to avoid any adverse effect on the Fund's policy of maintaining its
net asset value per Share at $1.00.
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<PAGE> 26
For example, when acquiring when-issued securities, Fairfield will
assess such factors as the stability or instability of prevailing interest
rates, the amount and period of the Fund's commitment with respect to the
when-issued securities being acquired, the interest rate to be paid on those
securities, and the length of the Fund's average weighted portfolio maturity at
the time.
When the Fund engages in when-issued transactions, it relies upon the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund's incurring a loss or missing an opportunity to obtain a price considered
to be advantageous.
Additional Information on Temporary Investments
As stated in the Prospectus, the Fund may invest a portion of its
assets on a temporary basis or for temporary defensive purposes in short-term
taxable money market instruments ("Temporary Investments"). Temporary
Investments in which the Fund may invest include instruments within the classes
listed below. The Fund has retained the flexibility of investing up to 20% of
its total assets in Temporary Investments on a temporary basis during
non-defensive periods (and greater amounts during defensive periods).
1. Certificates of Deposit and Bankers' Acceptances
Certificates of deposit are negotiable certificates representing a
commercial bank's obligation to repay funds deposited with it, earning specified
rates of interest over given periods. The Fund may make Temporary Investments in
certificates of deposit of domestic branches of U.S. commercial banks which are
members of the Federal Reserve System or the deposits of which are insured by
the Federal Deposit Insurance Corporation, and which have total assets at the
time of purchase in excess of $1 billion.
Banker's acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank; meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument upon maturity. The Fund may make
Temporary Investments in bankers' acceptances guaranteed by domestic branches of
U.S. commercial banks having total assets at the time of purchase in excess of
$1 billion.
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<PAGE> 27
2. Commercial Paper
The Fund may make Temporary Investments in taxable commercial paper
(short-term promissory notes issued by corporations), provided it is rated at
the time of purchase "Prime-1" by Moody's and/or "A-1" or better by S&P or, if
not rated, determined by Fairfield to be of comparable quality, pursuant to
guidelines approved by Navigator's Board. See the "Appendix" to this Statement
of Additional Information for a description of applicable ratings.
3. U.S. Government Obligations
The Fund may invest in obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities. U.S. Treasury bills and notes
and obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the United States; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Treasury to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the agency or instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
4. Repurchase Agreements
The Fund may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Fund purchases
securities ("collateral") from financial institutions such as banks and
broker-dealers ("seller") which are deemed to be creditworthy under guidelines
approved by the Fund's management, subject to the seller's agreement to
repurchase them at a mutually agreed-upon date and price. The repurchase price
generally equals the price paid the Fund (plus interest) negotiated on the basis
of current short-term rates (which may be more or less than the rate on the
underlying portfolio securities). The seller under a repurchase agreement is
required to maintain the value of the collateral held pursuant to the agreement
at not less than 100% of the repurchase price, and securities subject to
repurchase agreements are held by the Fund's Custodian in the Federal Reserve's
book-entry system. Default by the seller would, however, expose the Fund to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying securities. Repurchase agreements are considered
to be loans by the Fund under the Investment Company Act of 1940, as amended
(the "Investment Company Act").
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<PAGE> 28
5. Reverse Repurchase Agreements
The Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, the Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed upon date and price. The Fund
enters into reverse repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions. At the time
the Fund enters into a reverse repurchase agreement, it places in a segregated
custodial account liquid assets such as U.S. Government securities or liquid
debt securities rated in the highest rating category and having a value equal to
the repurchase price (including accrued interest), and will subsequently monitor
the account to ensure that such equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the price at which it is obligated to
repurchase the securities. Reverse repurchase agreements are considered to be
borrowings by the Fund under the Investment Company Act.
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<PAGE> 29
ADDITIONAL INVESTMENT RESTRICTIONS AND LIMITATIONS
In General
The following policies supplement the Fund's investment objective and
policies as set forth in the Prospectus.
Fundamental Investment Restrictions
The Fund's Prospectus lists certain investment restrictions
that may be changed only by a vote of a majority of the outstanding
Shares of the Fund, as defined in the Prospectus. The additional investment
restrictions listed below supplement those contained in the Prospectus and may
be changed only by such a shareholder vote.
The Fund may not:
1. Invest less than 80% of its net assets in securities, the
interest on which is exempt from federal income taxes, except during
temporary defensive periods.
2. Purchase the securities of any issuer if, as a result
thereof, more than 5% of the value of the Fund's total assets would be
invested in the securities of such issuer, except that this 5%
limitation does not apply to securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and except that up
to 25% of the value of the Fund's total assets may be invested without
regard to this 5% limitation.
For purposes of this limitation, a security is considered to be
issued by the governmental entity (or entities) whose assets and
revenues back the security, or, with respect to an industrial
development bond that is backed only by the assets and revenues of a
non-governmental user, such non-governmental user. The guarantor of a
guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security
shall not be deemed to be a security issued by the guarantor when the
value of all securities issued or guaranteed by the guarantor, and
owned by the Fund, does not exceed 10% of the value of the Fund's total
assets.
3. Purchase securities on margin, sell securities short, or
participate on a joint or joint and several basis in any securities
trading account.
4. Purchase or sell commodities, commodity contracts (including
futures contracts), oil, gas or mineral exploration or development
programs, or real estate (although investments in marketable securities
of companies engaged in such activities are not hereby precluded).
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<PAGE> 30
5. Purchase securities of other investment companies, except as
they may be acquired as part of a merger, consolidation,
reorganization, acquisition of assets, or where otherwise permitted by
the Investment Company Act.
6. Write or purchase options, including puts, calls, straddles,
spreads, or any combination thereof.
7. Buy common stocks or voting securities.
8. Invest in any issuer for purposes of exercising control or
management.
9. Purchase securities with legal or contractual restrictions.
10. Purchase or retain securities of any issuer, if the
Officers or Directors of the Company or its Manager owning beneficially
more than one-half of 1% of the securities of such issuer together own
beneficially more than 5% of such securities.
11. Invest more than 10% of its total assets in the securities
of issuers which together with any predecessors have a record of less
than three years continuous operation.
12. Underwrite the securities of other issuers, except to the
extent that the purchase of debt obligations directly from an issuer
thereof, in accordance with the Fund's investment objective, policies
and restrictions, may be deemed to be an underwriting.
The foregoing percentages will apply at the time of the purchase of a
security and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of a purchase of such
security.
Non-Fundamental Investment Limitations
The following are non-fundamental investment limitations that may be
changed by a majority of Navigator's Board.
1. With regard to Restriction #4 above, the Fund has a
non-fundamental investment limitation which precludes investments in
oil, gas, or other mineral leases; as well as investments in real
estate limited partnerships, except for readily marketable interests in
real estate investment trusts.
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<PAGE> 31
2. Notwithstanding the language in Restriction #11 above, the
Fund currently has no intention of investing more than 5% of its total
assets in the securities of issuers which together with any
predecessors have a record of less than three years continuous
operation.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The various types of Customer Accounts maintained by Institutions which
may be used to purchase Fund Shares include: trust accounts; managed agency
accounts; custodial accounts; and various other depository accounts. Information
on the types of Customer Accounts which may be used should be obtained from the
Institutions to which the Fund is marketed. Investors purchasing Fund Shares may
include officers, directors, or employees of a particular Institution.
The Fund may suspend the right of redemption or postpone the date of
payment for Shares during any period when: (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission; (b) the Exchange is closed for other
than customary weekend and holiday closings; (c) the Securities and Exchange
Commission has by order permitted such suspension; or (d) an emergency exists as
determined by the Securities and Exchange Commission. Upon the occurrence of any
of the foregoing conditions, the Fund may also suspend or postpone the
recordation of the transfer of its Shares.
In addition, the Fund may compel the redemption of, reject any order
for, or refuse to give effect on the Fund's books to the transfer of, its Shares
in an effort to prevent personal holding company status within the meaning of
the Internal Revenue Code of 1986, as amended (the "Code"). The Fund may also
redeem Shares involuntarily or make payment for redemption in portfolio
securities if it otherwise appears appropriate to do so in light of the Fund's
responsibilities under the Investment Company Act. See "Net Asset Value."
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<PAGE> 32
NET ASSET VALUE
RULE 2A-7
The Fund has elected to use the amortized cost method of valuation
pursuant to Rule 2a-7, as amended, under the Investment Company Act ("Rule
2a-7"). This involves valuing an instrument at its cost initially and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. This method may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. The value of securities held by the Fund can
be expected to vary inversely with changes in prevailing interest rates.
Pursuant to Rule 2a-7, as amended, the Fund will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per Share, provided that the Fund will
neither purchase any security with a remaining maturity of more than 397 days
(securities subject to repurchase agreements and certain other securities may
bear longer maturities) nor maintain a dollar-weighted average portfolio
maturity which exceeds 90 days.
In addition, the Fund may acquire only U.S. dollar-denominated
obligations that present minimal credit risks and that are "First Tier
Securities" at the time of investment. First Tier Securities are those that are
rated in the highest rating category by at least two nationally recognized
security rating organizations ("NRSROs") or by one if it is the only NRSRO
rating such obligation or, if unrated, determined to be of comparable quality. A
security is deemed to be rated if the issuer has any security outstanding of
comparable priority and security which has received a short-term rating by an
NRSRO. Fairfield will determine that an obligation presents minimal credit risks
or that unrated investments are of comparable quality, in accordance with
guidelines established by Navigator's Board.
Navigator's Board has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
Fund's investment objective, to stabilize the Fund's net asset value per Share
for purposes of sales and redemptions at $1.00. These procedures include review
by such Board, at such intervals as it deems appropriate, to determine the
extent, if any, to which the Fund's net asset value per Share calculated by
using available market quotations deviates from $1.00 per Share.
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<PAGE> 33
In the event such deviation exceeds one-half of one percent, the Rule requires
that Navigator's Board promptly consider what action, if any, should be
initiated. If the Board believes that the extent of any deviation from the
Fund's $1.00 amortized cost price per Share may result in material dilution or
other unfair results to new or existing investors, it will take such steps as it
considers appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include:
selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; or redeeming Shares in
kind.
DIVIDENDS
The policy of the Fund is to generally declare its net investment
income on a daily basis and to make distributions to shareholders in the form of
monthly dividends.
Net income for dividend purposes includes (i) interest and dividends
accrued (whether taxable or tax-exempt) and discount earned on the Fund's assets
(including both original issue and market discount), less (ii) amortization of
any premium on such assets, and accrued expenses. Capital gains dividends (if
any) would be calculated separately and distributed to shareholders on an annual
basis.
YIELDS
Seven-day Yield
The Fund's standardized 7-day yield is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account in the Fund having a balance of one Share at the beginning
of the period, dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by 365/7. The net change in the value of
an account in the Fund includes the value of additional Shares purchased with
dividends from the original Share and any such additional Shares, and all fees,
other than non-recurring account or sales charges, that are charged to all
shareholder accounts in proportion to the length of the base period and the
Fund's average account size. The capital changes to be excluded from the
calculation of the net change in account value are realized gains and losses
from the sale of securities and unrealized appreciation and depreciation. The
Fund's effective annualized yield is computed by compounding the unannualized
base period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result.
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<PAGE> 34
Taxable Equivalent Yield
The Fund's taxable equivalent yield is determined by dividing its
current tax-free yield (net of any fees charged by Institutions) by the sum of
one minus the investor's current tax bracket (e.g., 15%, 28%, 31%, 36%, and
39.6%).
The resulting yield is what an investor would need to earn from a
taxable investment in order to realize an "after-tax" benefit equal to the
tax-free yield provided by the Fund.
ADDITIONAL INFORMATION CONCERNING TAXES
In General
The following discussion of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Tax Status of the Fund
1. Internal Revenue Code
The Fund intends to qualify and elect to be treated for each taxable
year as a "regulated investment company" ("RIC") under Subchapter M of the Code.
Accordingly, the Fund must, among other things: (a) derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and certain other related income, generally
including gains from options, futures and forward contracts; (b) derive less
than 30% of its gross income each taxable year from the sale or other
disposition of the following items if held less than three months -- (A) stock
or securities, (B) options, futures or forward contracts (other than options,
futures or forward contracts on foreign currencies), and (C) foreign currencies
(or options, futures or forward contracts on foreign currencies), that are not
directly related to the Fund's principal business of investing in stocks or
securities (or options or forward contracts with respect to stock or
securities); and (c) diversify its holdings so that at the end of each fiscal
quarter of the Fund's taxable year, (i) at least 50% of the market value of the
Fund's total assets is represented by cash and cash items, United States
Government securities, securities of other RICs, and other securities, with such
other securities limited in respect to any one issuer, to an amount not greater
than 5% of the value of the Fund's total assets
B-13
<PAGE> 35
and not greater than 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its total assets is invested in the
securities (other than United States Government securities or securities of
other RICs) of any one issuer or two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or businesses.
In addition to the requirements described above, in order to qualify as
a RIC, the Fund must distribute at least 90% of its net investment income (which
generally includes dividends, taxable interest, and net short-term capital gains
less operating expenses) and at least 90% of its tax-exempt interest income to
shareholders. If the Fund meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
2. Federal Excise Tax
A non-deductible, 4% federal excise tax will be imposed on any
"regulated investment company" to the extent that it does not distribute to
investors in each calendar year an amount equal to (i) 98% of its calendar year
ordinary income, (ii) 98% of its capital gain net income (the excess of short-
and long-term capital gains over short- and long-term capital losses) for the
one-year period ending October 31, and (iii) 100% of any undistributed ordinary
income or capital gain net income from the prior year.
As discussed herein, the Fund intends to declare and pay dividends and
any capital gain distributions so as to avoid imposition of the federal excise
tax.
3. Municipal Security Tax Issues
As the Fund is designed to provide investors with current tax-exempt
interest income, it is not intended to constitute a balanced investment program.
Shares of the Fund would not be suitable for tax-exempt shareholders and plans,
since such shareholders and plans would not gain any additional benefit from
certain of the Fund's dividends being tax-exempt.
In addition, the Fund may not be an appropriate investment for entities
which are "substantial users" (or "related persons" thereof) of facilities
financed by "industrial development bonds" or "private activity bonds."
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business and (a) whose gross revenues derived with respect to such facilities
are more than 5% of the total revenues derived by all users of such facilities;
(b) who occupies more than 5% of the usable area of such facilities; or (c) for
whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired.
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<PAGE> 36
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners, and an S Corporation and its
shareholders.
Tax Status of the Fund's Distributions
Although the Fund does not expect to realize any net capital gain (the
excess of net long-term capital gain over net short-term capital loss), such
gain, if any, will be distributed at least annually. The Fund will have no tax
liability with respect to such distributions and they will be taxable to Fund
shareholders as a long-term capital gain, regardless of how long a shareholder
has held Fund Shares. Such distributions will be designated as "capital gain
dividends" in a written notice mailed by the Fund to shareholders not later than
sixty days after the close of the Fund's taxable year.
While the Fund expects to qualify as a "regulated investment company"
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of its activities in states and localities in which its offices
are maintained, in which its agents or independent contractors are located, or
in which it is otherwise deemed to be conducting business, the Fund may be
subject to the tax laws of such states or localities.
If for any taxable year the Fund does not qualify for the special tax
treatment afforded to "regulated investment companies," all of the Fund's
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to Fund shareholders), and all of the
Fund's distributions will be taxable to shareholders as ordinary income. Such
dividend distributions would then be eligible for the dividends-received
deduction for corporate shareholders.
Similarly, while the Fund will seek to invest substantially all of its
assets in tax-exempt obligations (except on a temporary basis or for temporary
defensive periods), any investment company taxable income earned by the Fund
will be distributed. In general, the Fund's investment company taxable income
would include interest income received from Temporary Investments (as defined
herein), plus any net short-term capital gain realized by the Fund.
The percentage of total dividends paid by the Fund with respect to any
taxable year which qualifies as federal exempt-interest dividends will be the
same for all shareholders receiving dividends during such year. If a shareholder
receives exempt-interest dividends with respect to any Share and such Share is
held for six months or less, any loss on the sale or exchange of such Share will
be disallowed to the extent of the amount of such dividends. Also, if a
shareholder receives a capital gain distribution with respect to Shares that are
subsequently sold after being held for six months or less, such loss will be
treated as a long-term capital loss to the extent of the capital gain
distribution.
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AMT Obligations
While the Fund is permitted to purchase "private activity bonds" that
are subject to the Alternative Minimum Tax imposed by Section 55 of the Code
(the "AMT"), the Fund does not currently hold or anticipate purchasing such
bonds. However, if it did so, a portion of the dividends received would be
subject to the AMT. The purchase of such bonds by the Fund could have a material
effect on the AMT liability of all investors, and hence the Fund does not intend
to invest any portion of its assets in such bonds.
Corporate shareholders in particular should note that all
exempt-interest dividends are includable in the computation of "adjusted current
earnings" for AMT purposes, regardless of when the bonds from which they are
derived were issued or whether they are derived from "private activity bonds."
Accordingly, corporate shareholders should consult their tax advisers regarding
the impact that holding such Shares would have on their own AMT liability.
DESCRIPTION OF SHARES
In General
The Company's Articles of Incorporation authorize Navigator's Board to
issue up to 2 billion full and fractional shares of Common Stock. The Company
presently offers one class of Common Stock, as defined in the Prospectus.
Navigator's Board may classify or reclassify any authorized but
unissued shares of the Company into one or more additional Portfolios, or series
of shares within a Portfolio.
Shares have no subscription or pre-emptive rights and only such
conversion or exchange rights as Navigator's Board may grant in its discretion.
When issued for payment as described in the Fund's Prospectus and this Statement
of Additional Information, the Fund's Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Company,
Shares of the Fund are entitled to receive the assets available for distribution
belonging to the Fund, and a proportionate distribution, based upon the relative
asset values of the Fund and any future additional Portfolios, of any general
assets not belonging to any particular Portfolio which are available for
distribution.
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Rule 18f-2
Rule 18f-2 under the Investment Company Act provides that any matter
required to be submitted to the holders of the outstanding voting securities of
an investment company such as the Company shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each Portfolio affected by the matter. A Portfolio is
affected by a matter unless it is clear that the interests of each Portfolio in
the matter are identical or that the matter does not affect any interest of the
Portfolio. Under Rule 18f-2, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a Portfolio only if approved by a majority of the outstanding
shares of such Portfolio. However, Rule 18f-2 also provides that the
ratification of independent auditors, the approval of principal underwriting
contracts, and the election of Directors may be effectively acted upon by
shareholders of the Company voting together without regard to class.
Notwithstanding any provision of Maryland law requiring a greater vote
of the Company's shares (or of any class voting as a class) in connection with
any corporate action, unless otherwise provided by law (for example, by Rule
18f-2) or by the Company's Articles of Incorporation, the Company may take or
authorize such action upon the favorable vote of the holders of more than 50% of
the outstanding Common Stock of the Fund and any future additional Portfolios
(voting together without regard to class).
DIRECTORS AND OFFICERS
The Fund's Prospectus contains the names and general background
information concerning the Directors and Executive Officers of Navigator's
Board. The "non-interested" Directors receive fees and expenses for each meeting
of Navigator's Board, and an annual retainer. During the fiscal year ended
February 28, 1995, the Company paid a total of $9,633 on behalf of the Fund to
the Navigator Directors. No officer or employee of Fairfield receives any
compensation from the Company for acting as a Director of the Company (although
they are reimbursed for expenses incurred in connection with their attendance at
Board meetings), and the Officers of the Company receive no compensation from
the Company for performing the duties of their offices. Fairfield, of which Mr.
Walker is an officer, receives fees from the Company for acting as Manager.
Morgan, Lewis & Bockius, of which Mr. Jennings is a partner, receives legal fees
as counsel to the Company and as counsel to the Manager. The Directors and
Officers of the Company as a group own less than 1% of the outstanding Shares of
the Fund. All of the Company's Directors and Officers hold like positions with
Navigator Money Market Fund, Inc.
B-17
<PAGE> 39
PRINCIPAL HOLDERS OF SECURITIES
The Fund believes that as of May 22, 1995, the following nominee
accounts may have been beneficial owners of 5% or more of the outstanding Shares
of the Fund because they possessed voting or investment power with respect to
such Shares:
<TABLE>
<CAPTION>
Amount of Percent of Total
Name and Address Beneficial Ownership Shares Outstanding
- ---------------- -------------------- ------------------
<S> <C> <C>
Donald & Co. (M/L)
c/o Dauphin Deposit
Bank & Trust
213 Market Street
Harrisburg, PA 17101........... 40,850,141 ........... 42.40%
United Jersey Bank
210 Main Street
7th Floor
Hackensack, NJ 07602............ 14,086,267 ........... 14.62%
Calhoun & Co.
c/o Comerica Bank
411 W Lafayette
Detroit, MI 48275............. 9,511,476 ........... 9.87%
Mertru
c/o First Fidelity
2 1/2 Witherspoon
Philadelphia, PA 19109......... 7,645,050 ........... 7.94%
</TABLE>
B-18
<PAGE> 40
INVESTMENT ADVISER, ADMINISTRATOR, AND DISTRIBUTOR
The Management Agreement
Investment advisory and administrative services are provided by
Fairfield, as Manager, pursuant to the " Management Agreement" discussed in the
Prospectus. Fairfield, a wholly-owned subsidiary of Legg Mason, is a
broker-dealer registered with the Securities and Exchange Commission, and is a
member of the National Association of Securities Dealers, Inc. Fairfield also
provides investment and related financial services to institutional clients.
The investment advisory services performed by and the investment
advisory fees payable to Fairfield are described in the Fund's Prospectus.
In addition to serving as Investment Adviser under the Management
Agreement, Fairfield also provides administrative services to the Fund. As
Administrator, Fairfield has agreed to (i) monitor the computation by the Fund's
Transfer Agent of the net asset value per Share, (ii) maintain office facilities
for the Fund, (iii) maintain certain financial accounts and records, (iv)
furnish the Fund statistical and research data, data processing, clerical,
accounting and bookkeeping services, and (v) furnish certain other services
required by the Fund. Fairfield prepares annual and other reports to the
Securities and Exchange Commission, compiles data for and arranges for the
preparation of federal and state tax returns and filings with state securities
commissions, and generally assists in the Fund's operations. The administrative
fees payable to the Manager for the above services are described in the Fund's
Prospectus.
The Management Agreement between the Fund and Fairfield provides that
Fairfield shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund in connection with its performance under the
Management Agreement, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Fairfield in
the performance of its duties, or from reckless disregard by it of its duties
and obligations thereunder.
Unless sooner terminated, the Management Agreement will continue in
effect from year to year if such continuance is approved at least annually by
Navigator's Board, or by vote of a majority of the outstanding Shares of the
Fund (as defined in the Prospectus), and by a majority of the Directors who are
not parties to the Management Agreement or interested persons (as defined in the
Investment Company Act) of any party to the Management Agreement, by vote cast
in person at a meeting called for such purpose. The Management Agreement is
terminable at any time on sixty days' written notice without penalty by the
Directors, by vote of a majority of the outstanding Shares of the Fund, or by
Fairfield. The Management Agreement also terminates automatically in the event
of its assignment, as defined in the Investment Company Act.
B-19
<PAGE> 41
The Distribution Agreement
In addition to providing management services, Fairfield also acts as
the Distributor of the Fund's Shares. Shares of the Fund are sold on a
continuous basis by Fairfield as agent, although Fairfield is not obliged to
sell any particular amount of Shares. As Distributor, Fairfield pays the costs
of printing and distributing prospectuses to persons who are not shareholders of
the Fund (excluding preparation and printing expenses necessary for the
continued registration of the Fund's Shares) and of preparing, printing and
distributing all sales literature. No compensation is payable by the Fund to
Fairfield for its distribution services.
Unless sooner terminated, the "Distribution Agreement" between the
Fund and Fairfield, dated April 17, 1993, will remain in effect from year to
year if such continuance is approved at least annually by Navigator's Board, or
by vote of a majority of the outstanding Shares of the Fund, and by a majority
of the Directors who are not parties to the Distribution Agreement or interested
persons of any such party, by vote cast in person at a meeting called for the
purpose of voting on such approval.
B-20
<PAGE> 42
PORTFOLIO TRANSACTIONS
Pursuant to the Management Agreement, Fairfield (as Investment Adviser)
determines which securities are to be purchased and sold by the Fund and which
brokers are to be eligible to execute the Fund's portfolio transactions.
Portfolio securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter,and purchases from dealers serving as market makers may include
the spread between the bid and asked price. While Fairfield generally seeks
competitive spreads or commissions, the Fund may not necessarily pay the lowest
spread or commission available on each transaction for reasons discussed below.
Allocation of security transactions, including their frequency, to
various dealers is determined by Fairfield in its best judgment and in a manner
deemed fair and reasonable to shareholders. The primary consideration is the
prompt execution of orders in an effective manner at the most favorable price.
Subject to this consideration, dealers who provide supplemental investment
research to Fairfield may receive orders for transactions by the Fund.
Information so received is in addition to and not in lieu of services required
to be performed by Fairfield, nor would the receipt of such information reduce
Fairfield's investment advisory fees. Such information may be useful to
Fairfield in serving both the Fund and their other clients, and conversely,
supplemental information obtained by the placement of business of other clients
may be useful to Fairfield in carrying out its obligations to the Fund.
The Fund will not acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with
Fairfield or its affiliates, or any Institution owning more than 5% of the
Fund's total assets, and will not give preference to any Institutions investing
in the Fund with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
B-21
<PAGE> 43
CUSTODIAN AND TRANSFER AGENT
Custodian Agreement
Cash and securities owned by the Fund are held by CoreStates Bank, N.A.
("CoreStates Bank") as the Company's Custodian pursuant to a Custodian
Agreement. Under the Custodian Agreement, CoreStates Bank (i) holds the Fund's
portfolio securities and cash items, (ii) makes receipts and disbursements of
money on behalf of the Fund, (iii) collects and receives all income and other
payments and distributions on account of the Fund's portfolio securities, and
(iv) performs other related services. CoreStates Bank may, in its discretion and
at its own expense, appoint another qualified bank or trust company to act as
its agent in carrying out the provisions of the Custodian Agreement. Such
appointment will not, however, relieve CoreStates Bank of its responsibilities
or liabilities under the Custodian Agreement. The Fund has also, from time to
time, appointed other custodians to hold its cash and securities in connection
with the investment in repurchase agreements.
Transfer Agency Agreement
Fund/Plan Services, Inc. ("Fund/Plan"), as the Company's Transfer
Agent, provides the Fund with transfer agency, dividend disbursing, and
accounting services pursuant to a Transfer Agency Agreement. Under the Transfer
Agency Agreement, Fund/Plan has agreed to (i) issue and redeem Shares of the
Fund, (ii) forward dividends and distributions to shareholders, (iii) maintain
the Fund's books of original entry, (iv) maintain shareholder accounts, (v)
compute the Fund's net asset value per Share and calculate the Fund's net
income, and (vi) perform other related services. Fund/Plan's business address is
#2 Elm Street, Conshohocken, Pennsylvania 19428.
Fees
For the services provided under their respective Agreements, CoreStates
Bank (as Custodian) and Fund/Plan (as Transfer Agent) may receive fees from the
Fund. Such fees are based upon relative asset values and shareholder accounts,
and may include certain transaction charges and out-of-pocket expenses.
B-22
<PAGE> 44
EXPENSES
Except as noted herein and in the Fund's Prospectus, the Fund's service
contractors bear all expenses incurred in connection with the performance of
their services. Similarly, the Fund bears the expenses incurred in its
operations. Expenses borne by the Fund include: taxes (including preparation of
returns); interest; brokerage fees and commissions, if any; fees of the
"non-interested" Navigator Directors; Securities and Exchange Commission fees;
state securities qualification fees (including preparation of filings); costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to current Fund shareholders; charges of the Custodian and the Transfer Agent;
auditing and legal expenses; management fees (investment advisory and
administrative); certain insurance premiums; costs of maintenance of the Fund's
existence; costs of shareholder reports and shareholder meetings; and any
extraordinary expenses incurred in the Fund's operations.
The aggregate rate of the investment advisory fees payable to Fairfield
is subject to reduction as the Fund's net assets increase. The aggregate rate of
Fairfield's administrative fees is not subject to such reduction. However, if
total expenses borne by the Fund in any fiscal year exceed expense limitations
imposed by applicable state securities regulations, Fairfield will reimburse the
Fund by the amount of such excess.
Certain of the Fund's expenses may be reduced because the regulations
in various states where Fund Shares may be qualified for sale impose limitations
on the annual expense ratio of the Fund. For example, under California law, the
Fund's aggregate annual expenses (excluding brokerage commissions, interest,
taxes, and extraordinary expenses such as legal claims, liabilities, litigation
costs and indemnification related thereto) may not exceed 2.5% of the first $30
million of its average daily net assets; 2.0% of the next $70 million of average
daily net assets; and 1.5% of average daily net assets in excess of $100
million. The Fund may also seek to qualify its Shares in other jurisdictions
which impose expense limitations.
To the Fund's knowledge, as of the date hereof, there are no state
expense limitations applicable to the Fund. Any future expense reimbursements
required by a state to be paid by Fairfield would be estimated daily and
reconciled and paid on a monthly basis.
B-23
<PAGE> 45
INDEPENDENT AUDITORS
The financial statements of the Fund for the fiscal year ended February
28, 1995 in this Statement of Additional Information and the Condensed
Financial Information included in the Prospectus have been audited by Ernst &
Young LLP, independent auditors, where report thereon appears elsewhere herein
and have been included herein in reliance upon such report given upon the
authority of such firm as experts in auditing and accounting. Copies of the
Fund's 1995 Annual Report to Shareholders may be obtained without charge by
contacting Fairfield.
LEGAL COUNSEL
Morgan, Lewis & Bockius (of which Mr. Jennings, Secretary of the
Company, is a partner), 2000 One Logan Square, Philadelphia, Pennsylvania 19103,
is counsel to the Company. From time to time, Morgan, Lewis & Bockius has
rendered legal services to Fairfield.
MISCELLANEOUS
The Company is registered with the Securities and Exchange Commission
as a management investment company. Such registration does not involve
supervision by the Commission of the management or policies of the Fund.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Company's Registration Statement
filed with the Securities and Exchange Commission. Copies of such information
may be obtained from the Commission upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information do not
constitute an offering of the securities herein described in any state in which
such offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representations other than those
contained in the Prospectus and this Statement of Additional Information.
FINANCIAL STATEMENTS
Following are the audited financial statements of the Fund for the
fiscal year ended February 28, 1995, including the financial highlights,
appearing in the Fund's 1995 Annual Report to Shareholders and the report
thereon of Ernst & Young LLP, independent accountants.
B-24
<PAGE> 46
FINANCIAL STATEMENTS
Schedule of Investments
February 28, 1995
<TABLE>
<CAPTION>
PAR SECURITIES VALUE
---------- ------------------------------- ------------
<S> <C>
MUNICIPAL SECURITIES -- 94.92%
CALIFORNIA -- 2.79%
$ 3,000,000 California Higher Education
Loan Auth., Student Loan Rev.
Rfdg. Bonds,
3.90% Put due 07/01/95....... $ 3,000,000
-----------
TOTAL CALIFORNIA............... 3,000,000
---------------------------------------------------------
COLORADO -- 2.14%
2,300,000 Moffat County, PCR Rfdg. Bonds
(Colorado UTE Electric Assn.
Project),
4.15% VRDO due 03/01/95...... 2,300,000
-----------
TOTAL COLORADO................. 2,300,000
---------------------------------------------------------
FLORIDA -- 6.15%
3,000,000 Broward County HFA,
MFHR Bonds
(Landings of Inverrary),
4.00% VRDO due 03/02/95...... 3,000,000
1,500,000 Florida HFA, MFHR Bonds
(Country Club Apts.),
3.95% VRDO due 03/01/95...... 1,500,000
2,100,000 Florida HFA, MFHR Bonds
(Hampton Lakes Project),
4.15% VRDO due 03/01/95...... 2,100,000
-----------
TOTAL FLORIDA.................. 6,600,000
---------------------------------------------------------
ILLINOIS -- 1.21%
1,300,000 Illinois HFA, IDR Bonds
(Midwest Cambridge),
4.05% VRDO due 03/01/95...... 1,300,000
-----------
TOTAL ILLINOIS................. 1,300,000
---------------------------------------------------------
INDIANA -- 3.82%
4,100,000 Gary, Environmental Improvement
Rev.
Rfdg. Bonds
(USX),
4.15% VRDO due 03/15/95...... 4,100,000
-----------
TOTAL INDIANA.................. 4,100,000
---------------------------------------------------------
IOWA -- 0.93%
1,000,000 Waterloo, IA IDR Bonds
(Waterloo Civic Center
Hotel),
4.10% VRDO due 03/01/95...... 1,000,000
-----------
TOTAL IOWA..................... 1,000,000
---------------------------------------------------------
KANSAS -- 2.81%
2,020,000 Burlington, KS PCR Bonds
(Kansas Electric
Power/Natural Rural
Utilities),
4.10% CP due 05/11/95........ 2,020,000
<CAPTION>
PAR SECURITIES VALUE
---------- ------------------------------- ------------
<S> <C>
KANSAS -- (CONTINUED)
$ 1,000,000 Burlington, KS PCR Bonds
(Kansas Electric
Power/Natural Rural
Utilities),
4.10% CP due 05/11/95........ $ 1,000,000
-----------
TOTAL KANSAS................... 3,020,000
---------------------------------------------------------
LOUISIANA -- 1.12%
1,200,000 Louisiana Recovery District
Sales Tax Bonds,
3.75% VRDO due 03/01/95...... 1,200,000
-----------
TOTAL LOUISIANA................ 1,200,000
---------------------------------------------------------
MARYLAND -- 2.79%
3,000,000 Montgomery County, MD Housing
Opportunity Commission MFHR
Bonds (Falklands Apts.),
4.15% VRDO due 03/01/95...... 3,000,000
-----------
TOTAL MARYLAND................. 3,000,000
---------------------------------------------------------
MASSACHUSETTS -- 3.07%
1,300,000 Massachusetts Dedicated Income
Tax Bonds, Fiscal Recovery
Loan,
3.65% VRDO due 03/01/95...... 1,300,000
2,000,000 Massachusetts Industrial Fin.
Agency, PCR Rfdg. Bonds (New
England Power), 4.20% CP due
04/24/95..................... 2,000,000
-----------
TOTAL MASSACHUSETTS............ 3,300,000
---------------------------------------------------------
MISSOURI -- 6.52%
1,000,000 Missouri Environmental
Improvement & Energy
Resources Auth., PCR Bonds
(Union Electric),
3.75% Put due 06/01/95....... 1,000,000
4,500,000 Missouri Environmental
Improvement & Energy
Resources Auth., PCR Bonds
(Union Electric),
3.75% Put due 06/01/95....... 4,500,000
1,500,000 Missouri Environmental
Improvement & Energy
Resources Auth., PCR Bonds
(Monsanto),
4.05% VRDO due 03/01/95...... 1,500,000
-----------
TOTAL MISSOURI................. 7,000,000
---------------------------------------------------------
NEVADA -- 4.66%
5,000,000 Clark County, IDR Bonds
(Nevada Power),
4.70% VRDO due 03/01/95...... 5,000,000
-----------
TOTAL NEVADA................... 5,000,000
---------------------------------------------------------
</TABLE>
B-25
<PAGE> 47
<TABLE>
<CAPTION>
PAR SECURITIES VALUE
---------- ------------------------------- ------------
<S> <C>
NEW JERSEY -- 3.73%
$ 4,000,000 New Jersey State TRANs, 5.00%
due 06/15/95................. $ 4,006,156
-----------
TOTAL NEW JERSEY............... 4,006,156
---------------------------------------------------------
NEW YORK -- 3.03%
3,250,000 Nassau County, BANs,
4.50% due 08/15/95........... 3,256,459
-----------
TOTAL NEW YORK................. 3,256,459
---------------------------------------------------------
PENNSYLVANIA -- 22.89%
55,000 Auth. for Improvements in
Municipalities, Allegheny
County, Hospital
Equip. Rev. Bonds,
4.00% VRDO due 03/01/95...... 55,000
2,000,000 Beaver County IDA, PCR
Rfdg. Bonds
(Duquesne Light),
4.05% VRDO due 03/01/95...... 2,000,000
2,100,000 Delaware County IDA, Solid
Waste Rev. Bonds
(Scott Paper),
4.10% VRDO due 03/01/95...... 2,100,000
1,800,000 Delaware County IDA, Solid
Waste Rev. Bonds
(Scott Paper),
4.05% VRDO due 03/01/95...... 1,800,000
2,000,000 Lackawanna County IDA, IDR
Bonds (National Book),
4.50% VRDO due 03/01/95...... 2,000,000
4,000,000 Montgomery County IDA, PCR
Rfdg. Bonds (PECO),
4.25% CP due 05/18/95........ 4,000,000
4,000,000 Pennsylvania State Tax
Anticipation Notes,
4.75% due 06/30/95........... 4,009,137
3,600,000 Pennsylvania Higher Education
Fac. Auth., Pooled Fin.
Rev. Bonds,
4.10% VRDO due 03/01/95...... 3,600,000
3,000,000 Philadelphia, TRANs,
4.75% due 06/15/95........... 3,007,565
2,000,000 Pennsylvania Higher Educational
University Funding Obligation
(Temple University),
4.50% due 05/24/95........... 2,003,102
-----------
TOTAL PENNSYLVANIA............. 24,574,804
---------------------------------------------------------
<CAPTION>
PAR SECURITIES VALUE
---------- ------------------------------- ------------
<S> <C>
SOUTH DAKOTA -- 4.01%
$ 4,300,000 Lawrence County, PCR Bonds
(Homestake Mining),
4.40% VRDO due 03/01/95...... $ 4,300,000
-----------
TOTAL SOUTH DAKOTA............. 4,300,000
---------------------------------------------------------
TEXAS -- 13.74%
2,200,000 Brazos River Auth. PCR
Rfdg. Bonds
(Monsanto),
4.05% VRDO due 03/01/95...... 2,200,000
2,450,000 Brazos River Harbor, Navigation
District, PCR Rfdg. Bonds
(Dow Chemical),
3.90% CP due 04/11/95........ 2,450,000
3,000,000 Brazos River Harbor, Navigation
District, Adj Tender PCR
Rfdg. Bonds
(Dow Chemical),
4.00% CP due 04/06/95........ 3,000,000
3,500,000 Harris County HFDC,
Rev. Bonds
(St. Lukes Episcopal
Hospital),
3.75% VRDO due 03/01/95...... 3,500,000
1,000,000 North Central HFDC, Hospital
Rev. Bonds
(Presbyterian Medical
Center),
3.80% VRDO due 03/01/95...... 1,000,000
1,100,000 North Central HFDC, Hospital
Rev. Bonds
(Presbyterian Medical
Center),
3.80% VRDO due 03/01/95...... 1,100,000
1,500,000 Port of Corpus Christi, Auth.
of Nueces County Marine Term
Rev. Bonds,
4.35% VRDO due 03/01/95...... 1,500,000
-----------
TOTAL TEXAS.................... 14,750,000
---------------------------------------------------------
VERMONT -- 1.17%
1,250,000 Vermont Education & Health
Building Fin. Agency, Adj.
Rate Rev. Bonds
(Middlebury College),
3.55% Put due 05/01/95....... 1,250,000
-----------
TOTAL VERMONT.................. 1,250,000
---------------------------------------------------------
</TABLE>
B-26
<PAGE> 48
Schedule of Investments (Cont.)
<TABLE>
<CAPTION>
PAR SECURITIES VALUE
---------- ------------------------------- ------------
<S> <C>
WASHINGTON -- 5.08%
$ 3,000,000 Port of Seattle, Industrial
Dev. Corp. Rev. Bonds,
(Sysco Food Service Project),
4.10% VRDO due 03/01/95...... $ 3,000,000
2,450,000 Washington HFC, MFMR
Rfdg. Bonds,
4.35% VRDO due 03/01/95...... 2,450,000
-----------
TOTAL WASHINGTON............... 5,450,000
---------------------------------------------------------
WEST VIRGINIA -- 3.26%
3,500,000 Pleasants County, PCR Bonds
(American Cyanamid),
4.20% VRDO due 03/01/95...... 3,500,000
-----------
TOTAL WEST VIRGINIA............ 3,500,000
---------------------------------------------------------
TOTAL MUNICIPAL SECURITIES..... 101,907,419
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
-------------
<S> <C>
TOTAL INVESTMENTS -- 94.92% OF NET ASSETS
(cost $101,951,908).......................
$ 101,907,419
-------------
-------------
</TABLE>
------------------------
BAN = Bond Anticipation Notes
CP = Commercial Paper
HFA = Housing Finance Agency/Authority
HFC = Housing Finance Commission/Corporation
HFDC = Health Facility Development Corporation
IDA = Industrial Development Authority
IDR = Industrial Development Revenue
MFHR = Multi-Family Housing Revenue
MFMR = Multi-Family Mortgage Revenue
PCR = Pollution Control Revenue
TRAN = Tax and Revenue Anticipation Notes
VRDO = Variable Rate Demand Obligations -- The rate shown for
each of these obligations is the rate as of February 28,
1995 and the maturity shown is the date of the next
interest rate adjustment.
See accompanying notes.
B-27
<PAGE> 49
Statement of Assets and Liabilities
As of February 28, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at Market Value, (Cost $101,951,908)............... $101,907,419
Cash........................................................... 1,125,707
Interest Receivable............................................ 716,935
Receivable for Securities Sold................................. 4,000,000
------------
Total Assets................................................ 107,750,061
------------
LIABILITIES:
Accrued Expenses............................................... 72,594
Distributions Payable.......................................... 320,065
------------
Total Liabilities........................................... 392,659
------------
NET ASSET........................................................ $107,357,402
------------
NET ASSET VALUE & REDEMPTION PRICE PER SHARE..................... $1.00
------
------
</TABLE>
See accompanying notes.
B-28
<PAGE> 50
Statement of Operations
For the Year Ended February 28, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest....................................................... $3,982,401
----------
EXPENSES:
Investment Advisory Fees....................................... 316,517
Less Investment Advisory Fees Waived by Management............. (253,279)
Administrative Fees............................................ 126,473
Custodian and Transfer Agent Fees.............................. 76,235
Insurance...................................................... 9,980
Professional Fees.............................................. 36,175
Registration and Filing Fees................................... 11,920
Taxes -- other than Income..................................... 20,054
Miscellaneous.................................................. 26,280
----------
Total Expenses.............................................. 370,355
----------
NET INVESTMENT INCOME............................................ 3,612,046
Net Realized Gain (Loss) on Securities Sold.................... (32,421)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $3,579,625
----------
----------
</TABLE>
See accompanying notes.
B-29
<PAGE> 51
Statements of Changes in Net Assets
For the Years Ended February 28, 1994 and February 28, 1995
<TABLE>
<CAPTION>
3/01/94 3/01/93
TO 2/28/95 TO 2/28/94
------------ ------------
<S> <C> <C>
OPERATIONS:
Net Investment Income........................... $ 3,612,046 $ 3,972,140
Net Realized Gain (Loss) Securities Sold........ (32,421) 2,860
------------ ------------
Net Increase in Net Assets
Resulting from Operations.................... 3,579,625 3,975,000
------------ ------------
DIVIDENDS DISTRIBUTED FROM:
Net Investment Income........................... (3,612,046) (3,972,140)
Net Realized Gain............................... -- --
------------ ------------
Total Dividends Distributed..................... (3,612,046) (3,972,140)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from Shares Sold....................... 292,394,559 326,481,601
Net Asset Value of Shares Issued
upon Reinvestment of Dividends............... 7,912 47,121
Cost of Shares Repurchased...................... (337,285,543) (376,503,490)
------------ ------------
Net Decrease in Net Assets
Derived from Capital Share Transactions...... (44,883,072) (49,974,768)
------------ ------------
NET DECREASE IN NET ASSETS................... (44,915,493) (49,971,908)
NET ASSETS:
Beginning of Period............................. 152,272,895 202,244,803
------------ ------------
End of Period................................... $107,357,402 $152,272,895
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
B-30
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS
February 28, 1995
NOTE 1 -- ORGANIZATION
Navigator Tax-Free Money Market Fund (the "Fund") is a portfolio
offered by Navigator Tax-Free Money Market Fund, Inc. (the "Company"),
a no-load, diversified, open-end investment company registered under
the Investment Company Act of 1940, as amended.
Shares of the Fund are sold by Fairfield Group, Inc. ("Fairfield"), the
Manager, only to banks and other institutional investors for the
investment of their own funds, or funds for which they act in a
fiduciary, agency, or custodial capacity.
As Manager of the Company, Fairfield serves as the Fund's Investment
Adviser, Administrator, and Distributor. Fairfield became a
wholly-owned subsidiary of Legg Mason, Inc. on April 20, 1993.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Interest income and expenses are recorded on an accrual basis. Interest
income includes the pro rata amortization of premiums and discounts.
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). On February 28, 1995, the Fund had a
receivable for investment securities sold totalling $4,000,000.
Investment securities are valued at amortized cost, which approximates
market value. Realized gains and losses are determined by using the
specific identification method. The net realized capital loss of
$32,421 for the year ended February 28, 1995 resulted from sales of
securities with proceeds and costs of $396,020,466 and $396,052,887,
respectively.
The fair value of securities for which prices cannot be determined
using established procedures will be valued in good faith by the Board
of Directors. No investments were so valued at February 28, 1995.
Net investment income, determined as gross income less expenses, is
declared as a dividend each day. Declared dividends are distributable
to shareholders monthly on the first business day of the next month.
Dividends payable at February 28, 1995 amounted to $320,065.
No provision for federal income taxes is made since it is the intention
of the Fund to qualify as a regulated investment company under the
provisions of the Internal Revenue Code and to make requisite
distributions to shareholders which will relieve it from Federal income
and excise taxes.
For federal income tax purposes, net realized capital losses generated
in the Fund may be carried forward and applied against future capital
gains.
NOTE 3 -- INVESTMENT ADVISORY AND ADMINISTRATIVE FEES
As Manager, Fairfield provides investment advisory and administrative
services to the Fund pursuant to a Management Agreement dated April 17,
1993. Under the terms of such Agreement, the Manager is entitled to
receive an annual fee for investment advisory services of .25% on the
first $1 billion of the average net assets of the Fund; .20% on the
next $1 billion; and .15% on average net assets in excess of $2
billion. Such fee is computed daily and paid monthly.
The Manager is also entitled to receive an administrative fee at the
annual rate of .10% on the Fund's average net assets. Such fee is
computed daily and paid monthly.
During the year ended February 28, 1995, the management fees
(investment advisory and administrative) earned by Fairfield totalled
$442,990. Of the investment advisory fees earned, $253,279 was
voluntarily waived by the Manager in order to assist the Fund in
maintaining a competitive expense ratio. At February 28, 1995,
Fairfield was owed $4,373 (after partial fee waiver) for investment
advisory services and $8,746 in administrative fees.
B-31
<PAGE> 53
NOTE 4 -- CUSTODIAN AND TRANSFER AGENT FEES
Custodial services are provided to the Fund by CoreStates Bank, N.A.
Fund/Plan Services, Inc. is the Fund's Transfer Agent and, as such,
provides transfer agency, dividend disbursing, and bookkeeping
services.
NOTE 5 -- OTHER TRANSACTIONS WITH AFFILIATES
Fairfield also serves as the Company's exclusive Distributor; however,
it receives no fees for providing distribution services.
Certain officers and directors of the Company are also officers and
directors of Fairfield. Such officers and directors are paid no fees by
the Fund for serving as officers and directors.
The Fund has paid legal fees to a law firm with which the Secretary of
the Company is associated.
NOTE 6 -- CAPITAL SHARES
At February 28, 1995, there were 2 billion shares of $.001 par value
common stock authorized with respect to the Fund. Transactions in
capital shares of the Fund during the periods indicated were as
follows:
<TABLE>
<CAPTION>
3/01/94 3/01/93
TO 2/28/95 TO 2/28/94
------------ ------------
<S> <C> <C>
Shares sold......................................... 292,394,559 326,481,601
Shares issued upon reinvestment of dividends........ 7,912 47,121
Shares repurchased.................................. (337,285,543) (376,503,490)
------------ ------------
Net decrease........................................ (44,883,072) (49,974,768)
Outstanding at beginning of period.................. 152,270,056 202,244,824
------------ ------------
Outstanding at end of period........................ 107,386,984 152,270,056
------------ ------------
------------ ------------
</TABLE>
NOTE 7 -- INVESTMENT COMPOSITION
The Fund invests in securities which may include revenue, general, and
escrowed obligations. At February 28, 1995, the revenue sources by
purpose were as follows:
<TABLE>
<CAPTION>
% OF PORTFOLIO
INVESTMENTS
--------------
<S> <C>
Revenue Bonds:
Industrial Development........................................... 24%
Pollution Control................................................ 25
Housing Facilities............................................... 12
Educational Facilities........................................... 10
Health Care Facilities........................................... 5
Chemicals........................................................ 4
Other Revenue.................................................... 4
Local Government................................................. 3
General Obligations................................................ 12
Moral Obligations.................................................. 1
-----------
100%
-----------
-----------
</TABLE>
In addition, certain investments (3.2%) are covered by insurance issued
by several private insurers who guarantee the payment of interest and
principal at final maturity in the event of default. Such insurance,
however, does not guarantee the market value of the securities or the
value of the Fund's shares. None of these insurers individually insure
more than 3.2% of the insured investments in the portfolio.
B-32
<PAGE> 54
NOTE 8 -- FINANCIAL HIGHLIGHTS
Financial highlights for a share of the Fund outstanding
throughout the periods indicated were as follows:
<TABLE>
<CAPTION>
3/01/94 3/01/93 3/01/92 3/01/91 3/01/90 3/01/89
TO TO TO TO TO TO
2/28/95 2/28/94 2/28/93 2/29/92 2/28/91 2/28/90
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period.............. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
Income from
Investment Operations:
Net Investment Income.......... .0286 .0227 .0273 .0407 .0558 .0613
Net Gain/Loss on Securities
(both realized
and unrealized).............. (.0003) -- -- .0001 -- --
------ ------ ------ ------ ------ ------
Total Income
from Investment
Operations................ .0283 .0227 .0273 .0408 .0558 .0613
------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from
Net Investment Income........ (.0286) (.0227) (.0273) (.0407) (.0558) (.0613)
------ ------ ------ ------ ------ ------
Total Distributions........ (.0286) (.0227) (.0273) (.0407) (.0558) (.0613)
------ ------ ------ ------ ------ ------
Net Asset Value,
end of period.................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total Return...................... 2.94% 2.29% 2.76% 4.15% 5.73% 6.31%
Net Assets,
end of period (000).............. $107,357 $152,273 $202,245 $227,249 $255,298 $300,001
Ratios and Supplemental Data:
Ratio of Expenses
to Average Net Assets.......... .29% .28% .23% .23% .22% .20%
Ratio of Expenses
to Average Net Assets,
excluding Fee Waivers.......... .49% .48% .43% .45% .44% .43%
Ratio of Net Investment Income
to Average Net Assets.......... 2.86% 2.27% 2.73% 4.07% 5.58% 6.13%
Ratio of Net Investment Income
to Average Net Assets,
excluding Fee Waivers.......... 2.66% 2.07% 2.53% 3.85% 5.36% 5.90%
------------------------------
*Commencement of Operations
(A)Annualized
<CAPTION>
3/01/88 3/01/87 3/27/86*
TO TO TO
2/28/89 2/29/88 2/28/87
------- ------- -------
<S> <C> <C> <C>
Net Asset Value,
beginning of period.............. $1.00 $1.00 $1.00
------ ------ ------
Income from
Investment Operations:
Net Investment Income.......... .0532 .0458 .0418
Net Gain/Loss on Securities
(both realized
and unrealized).............. -- -- --
------ ------ ------
Total Income
from Investment
Operations................ .0532 .0458 .0418
------ ------ ------
Less Distributions:
Dividends from
Net Investment Income........ (.0532) (.0458) (.0418)
------ ------ ------
Total Distributions........ (.0532) (.0458) (.0418)
------ ------ ------
Net Asset Value,
end of period.................... $1.00 $1.00 $1.00
------ ------ ------
------ ------ ------
Total Return...................... 5.45% 4.68% 4.71%(A)
Net Assets,
end of period (000).............. $200,396 $194,508 $143,806
Ratios and Supplemental Data:
Ratio of Expenses
to Average Net Assets.......... .18% .15% .10%(A)
Ratio of Expenses
to Average Net Assets,
excluding Fee Waivers.......... .45% .45% .58%(A)
Ratio of Net Investment Income
to Average Net Assets.......... 5.32% 4.58% 4.50%(A)
Ratio of Net Investment Income
to Average Net Assets,
excluding Fee Waivers.......... 5.05% 4.28% 4.02%(A)
------------------------------
*Commencement of Operations
(A)Annualized
</TABLE>
B-33
<PAGE> 55
Report of Independent Auditors
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
NAVIGATOR TAX-FREE MONEY MARKET FUND
We have audited the accompanying schedule of investments and statement
of assets and liabilities of the Navigator Tax-Free Money Market Fund
(the "Fund") as of February 28, 1995, and the related statement 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 eight years in the period then
ended and for the period March 27, 1986 (commencement of operations) to
February 28, 1987. These financial statements and financial highlights
are the responsibility of the Fund'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 investments owned as of February 28, 1995, 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 Navigator Tax-Free Money Market Fund at
February 28, 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 eight
years in the period then ended and for the period March 27, 1986
(commencement of operations) to February 28, 1987, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 12, 1995
B-34
<PAGE> 56
APPENDIX
- Rated Investments -
Notes and VRDOS
The following summarizes the highest ratings assigned by MOODY'S to
municipal notes and variable rate demand obligations:
"MIG-1"/"VMIG-1": Obligations bearing these designations are of the
best quality, enjoying strong protection by established cash flows,
superior liquidity support, or demonstrated broad-based access to the
market for refinancing.
The following summarizes the highest rating assigned by S&P to
municipal notes:
"SP-1": This is the highest rating assigned by S&P to municipal notes
and indicates very strong or strong capacity to pay interest and repay
principal. Those issues determined to possess overwhelming safety
characteristics are given a PLUS (+) designation.
Commercial Paper
Commercial paper ratings of MOODY'S are current assessments of the
ability of issuers to repay punctually senior debt obligations which have an
original maturity of no more than one year.
"PRIME-1": The rating "Prime-1," or "P-1," is the highest commercial
paper rating assigned by Moody's. These issues (or related supporting
institutions) are considered to have a superior capacity for repayment
of short-term debt obligations.
Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
"A-1": This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted "A-1+."
B-35
<PAGE> 57
- Unrated Investments -
Prior to the purchase of any unrated security or instrument by the
Fund, the Manager shall evaluate the creditworthiness of the issuer of the
security or instrument, considering all factors deemed relevant, which may
include: a review of the issuer's financial statements; a comparison of the
issuer's financial position with those of other companies in the same industry
and a review of the general outlook of the issuer's industry; a review of the
profitability, capital adequacy, quality of assets, liquidity, interest
sensitivity, and financial reports of the institution involved; and the paper
rating of such institution's holding company, if any. Based upon the foregoing
evaluation, the Manager shall determine whether the unrated security or
instrument is of "comparable investment quality" to securities or instruments
having been assigned at least the minimum ratings described herein and in the
Fund's Prospectus. In the event that subsequent to the purchase of a rated (or
unrated) security or instrument for the Fund, such security or instrument falls
below the minimum standards required for purchase by the Fund, the Manager shall
consider such an event in determining whether the Fund should continue to hold
the security or instrument in question, and shall report to the Directors of
Navigator's Board any securities or instruments which are held subsequent to
such an event.
B-36
<PAGE> 58
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) The following financial statements are incorporated
by reference into Parts A and B of the Registration
Statement from the Registrant's 1995 Annual Report to
Shareholders filed on April 28, 1995.
- Report of Independent Auditors dated April 12,
1995.
- Statement of Net Assets - February 28, 1995.
- Statement of Operations for the year ended
February 28, 1995.
- Statement of Changes in Net Assets for the fiscal
years ended February 28, 1995 and February 28,
1994.
- Notes to Financial Statements.
(2) All required financial statements are included in
Part B hereof.
(b) Exhibits:
(1) Articles of Incorporation of Registrant, dated
January 27, 1986, are incorporated herein by
reference to Exhibit (1) of Registrant's Initial
Registration Statement on Form N-1A, filed on
February 3, 1986.
(2) By-Laws, as amended by Registrant's Directors on
March 6, 1990, are incorporated herein by reference
to Exhibit (2) of Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A,
filed on June 15, 1990.
<PAGE> 59
(3) None.
(4) None.
(5)(a) Management Agreement, dated March 17, 1986 and
amended March 10, 1987, between Registrant and
Fairfield Group, Inc. is incorporated by reference
to Exhibit (5) of Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-1A,
filed on June 26, 1987.
(b) Management Agreement, dated April 17, 1993, between
Registrant and Fairfield Group, Inc.
(6)(a) Distribution Agreement, dated March 17, 1986 and
amended March 10, 1987, between Registrant and
Fairfield Group, Inc. incorporated herein by
reference to Exhibit (6) of Post-Effective Amendment
No. 3 to Registrant's Registration Statement on Form
N-1A, filed on June 26, 1987.
(b) Distribution Agreement, dated April 17, 1993, between
Registrant and Fairfield Group, Inc.
(7) None.
(8) Custodian Agreement between Registrant and CoreStates
Bank, N.A. is incorporated herein by reference to
Exhibit (8) of Registrant's Initial Registration
Statement on Form N-1A, filed on February 3, 1986.
(9) None.
(10) Opinion of Morgan, Lewis & Bockius, filed under Rule
24f-2 as part of Registrant's Rule 24f-2 Notice.
(11) Consent of Ernst & Young LLP, filed herewith.
(12) None.
(13) None.
C-2
<PAGE> 60
(14) None.
(15) None.
(16) Schedules for Computation of Performance Quotations
provided in the Post-Effective Amendment, filed
herewith.
(24) Powers of Attorney of Registrant's directors and
officers whose names are signed to this Registration
Statement pursuant to powers of attorney , filed
herewith.
(27) Financial Data Schedule.
Item 25. Persons Controlled by or under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
The following information is as of June 27, 1995:
<TABLE>
<CAPTION>
(1) (2)
Title of Class Number of Recordholders
-------------- ------------------------
<S> <C>
Shares of Common Stock, 22
$0.001 par value
</TABLE>
Item 27. Indemnification
Article VII of the Articles of Incorporation filed as Exhibit 1 to
the Registration Statement is incorporated by reference. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant by
the Registrant pursuant to the Articles of Incorporation or otherwise, the
Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by directors, officers or controlling
persons of the Registrant in connection with the successful defense of any act,
suit or proceeding) is asserted by such directors, officers or controlling
persons in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
C-3
<PAGE> 61
Item 28. Business and Other Connections of Investment Advisor
Fairfield Group, Inc. (the "Manager"), Registrant's manager and
distributor, was organized on September 21, 1983. The Manager is a
wholly-owned subsidiary of Legg Mason, Inc. Legg Mason, Inc., headquartered in
Baltimore, is a holding company which provides securities brokerage, investment
advisory, investment banking and mortgage banking services through its
wholly-owned subsidiaries. Information about the Manager and its officers and
directors is contained in the response to Item 29 hereof.
Item 29. Principal Underwriter
(a) Fairfield Group, Inc. also acts as investment advisor,
distributor, administrator for Navigator Money Market Fund, Inc., a management
investment company registered under the Investment Company Act of 1940.
(b) Directors and executive officers of Fairfield Group, Inc., as
of June 28, 1995, were as follows:
<TABLE>
<CAPTION>
Positions Positions and
Name and Principal and Offices Offices
Business Addresses with Fairfield with Registrant
- ------------------ -------------- ---------------
<S> <C> <C>
Robert J. Walker, Jr.* President, Chief Chairman,
Executive Officer President and
and Director. Director.
John F. Curley, Jr. Director. None.
211 S. Calvert Street
Baltimore, MD 21203
Edward A. Taber Director. None.
211 S. Calvert Street
Baltimore, MD 21203
James R. Lesher* Chief Financial Officer, Vice President,
Vice President, Treasurer and
Assistant Secretary/ Assistant
Treasurer, Controller. Secretary.
</TABLE>
- -----------------
*200 Gibraltar Road, Horsham, PA 19044
C-4
<PAGE> 62
Item 30. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a)
of the Investment Company Act of 1940, and the rules promulgated thereunder,
are maintained as follows:
(a) With respect to Rules 31a-1(a); 31(b)(1); (2)(a) and
(b); (3); (6); (8); (12); and 31a-1(d), the required
books and records are maintained at the offices of
Registrant's Custodian:
CoreStates Bank, N.A.
1500 Market Street
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(C)
and (D); (4); (5); (6); (8); (9); (10); (11); and 31a-
1(f), the required books and records are maintained
at the offices of Registrant's Manager:
Fairfield Group, Inc.
200 Gibraltar Road
Horsham, PA 19044
(c) With respect to Rules 31a-1(b)(4), and certain other
documents, the required books and records are
maintained at the Registrant's principal office:
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
(d) With respect to Rules 31a-1(b)(5), (6), (9) and (10)
and 31a-1(f), the required books and records are
maintained at the principal offices of the
Registrant's Administrator:
Fairfield Group, Inc.
200 Gibraltar Road
Horsham, PA 19044
Item 31. Management Services
None.
Item 32. Undertakings
Not applicable.
C-5
<PAGE> 63
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 10 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Horsham and Commonwealth of
Pennsylvania on the 27th day of June, 1995 and hereby certifies that this
Amendment No. 10 meets all the requirements for effectiveness pursuant to
paragraph (b) of Rule 485.
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
/s/ Robert J. Walker, Jr.
------------------------------------------
President
ATTEST:
/s/ James W. Jennings
- -----------------------
Secretary
Pursuant to the requirements of the Securities Act of 1933,
Post-Effective Amendment No. 10 to the Registration Statement of Navigator
Tax-Free Money Market Fund, Inc. has been signed below by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert J. Walker, Jr. Chairman, June 27, 1995
- -------------------------- President and
Robert J. Walker, Jr. Director
* Director June 27, 1995
- ------------------------
Philip D. Croll
* Director June 27, 1995
- -----------------------
Richard G. Gilmore
* Director June 27, 1995
- ------------------------
Robert E. Keith
* Director June 27, 1995
- ------------------------
Jan J. Wieckowski
/s/ James R. Lesher Vice President, June 27, 1995
- ------------------- Treasurer and
James R. Lesher Assistant Secretary
(Principal
Financial and
Accounting Officer)
</TABLE>
*By:/s/ Robert J. Walker, Jr.
----------------------------
Robert J. Walker, Jr.
Attorney-In-Fact
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
<S> <C>
Ex-99.B11 Consent of Independent Accountants.
Ex-99.B16 Schedules for Computation of Performance Quotations
provided in the Post-Effective Amendment.
Ex-99.B24 Powers of Attorney of Registrant's directors and
officers whose names are signed to this Registration
Statement pursuant to powers of attorney.
Ex-27 Financial Data Schedule.
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Condensed Financial
Information" in the Prospectus and "Financial Statements" and "Independent
Auditors" in the Statement of Additional Information and to the use of our
report dated April 12, 1995 in Post-Effective Amendment No. 10 to the
Registration Statement (Form N-1A No. 33-3082) of the Navigator Tax-Free Money
Market Fund, Inc.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
June 27, 1995
<PAGE> 1
Seven Day Average Yield
<TABLE>
<CAPTION>
Date Daily Dividend
---- --------------
<S> <C>
February 22 .000102431
February 23 .000102806
February 24 .000105437
February 25 .000105437
February 26 .000105437
February 27 .000104829
February 28 .000102786
----------
Total .000729163
Divided by 7 .0001041661
Multiplied by 365 .0380206421 (3.80%)
</TABLE>
Compounded Effective Yield:
365/7
[(1 + .000729163) ] - 1 = .038738283 (3.87%)
<PAGE> 1
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
POWER OF ATTORNEY
Philip D. Croll, whose signature appears below, does hereby
constitute and appoint Robert J. Walker, Jr., his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Navigator
Tax-Free Money Market Fund, Inc. (the "Fund") to comply with the Securities Act
of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all amendments thereto, including foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a President and a director of the Fund such Registration Statement and any and
all such amendments filed with the Securities and Exchange Commission under the
1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney and agent shall do or cause to be done by virtue hereof.
/s/ Philip D. Croll
---------------------
Philip D. Croll
Date: June 27, 1995
<PAGE> 2
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
POWER OF ATTORNEY
Richard G. Gilmore, whose signature appears below, does hereby
constitute and appoint Robert J. Walker, Jr., his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Navigator
Tax-Free Money Market Fund, Inc. (the "Fund") to comply with the Securities Act
of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all amendments thereto, including foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a President and a director of the Fund such Registration Statement and any and
all such amendments filed with the Securities and Exchange Commission under the
1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney and agent shall do or cause to be done by virtue hereof.
/s/ Richard G. Gilmore
-----------------------
Richard G. Gilmore
Date: June 27, 1995
<PAGE> 3
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
POWER OF ATTORNEY
Robert E. Keith, whose signature appears below, does hereby
constitute and appoint Robert J. Walker, Jr., his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Navigator
Tax-Free Money Market Fund, Inc. (the "Fund") to comply with the Securities Act
of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all amendments thereto, including foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a President and a director of the Fund such Registration Statement and any and
all such amendments filed with the Securities and Exchange Commission under the
1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney and agent shall do or cause to be done by virtue hereof.
/s/ Robert E. Keith
-----------------------
Robert E. Keith
Date: June 27, 1995
<PAGE> 4
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
POWER OF ATTORNEY
Jan J. Wieckowski, whose signature appears below, does hereby
constitute and appoint Robert J. Walker, Jr., his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable Navigator
Tax-Free Money Market Fund, Inc. (the "Fund") to comply with the Securities Act
of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all amendments thereto, including foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a President and a director of the Fund such Registration Statement and any and
all such amendments filed with the Securities and Exchange Commission under the
1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney and agent shall do or cause to be done by virtue hereof.
/s/ Jan J. Wieckowski
-----------------------
Jan J. Wieckowski
Date: June 27, 1995
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