<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1996
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. 11 /x/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY /x/
ACT OF 1940
AMENDMENT NO. 12 /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 LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
(Name and Address of Agent for Service)
-------------------------------
It is proposed that this filing become effective on June 29, 1996
pursuant to paragraph (a) of Rule 485.
The Registrant has registered an indefinite number of units of
beneficial interest 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 29, 1996 on April 29, 1996.
<PAGE> 2
CROSS REFERENCE SHEET
FORM N-1A ITEM LOCATION
PART A
Item 1. Cover Page.......................................... Cover Page
Item 2. Synopsis............................................ Fund Expenses
Item 3. Condensed Financial Information..................... Financial
Highlights
Item 4. General Description of Registrant................... The Companies;
Investment
Objective
and Policies;
Investment
Restrictions;
General
Information
Item 5. Management of the Fund.............................. Management
of the Funds
Item 5A. Management's Discussion of
Fund Performance ................................... Incorporated by
Reference in
Annual Report
Item 6. Capital Stock and Other Securities.................. Cover Page; The
Companies; 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
<PAGE> 3
Item 9. Legal Proceedings................................. *
PART B LOCATION
Item 10. Cover Page........................................ Cover Page
Item 11. Table of Contents................................. Table of
Contents
Item 12. General Information and History................... The Companies
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
<PAGE> 4
LOCATION
Item 23. Financial Statements............................... Financial
Statements
* 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 MONEY MARKET FUND--PRIME OBLIGATIONS PORTFOLIO
(Navigator Money Market Fund, Inc.)
NAVIGATOR TAX-FREE MONEY MARKET FUND
(Navigator Tax-Free Money Market Fund, Inc.)
- Prospectus -
200 Gibraltar Road For current performance, purchase,
Horsham, PA 19044 redemption, and other information,
call: 1-800-441-3885
Navigator Money Market Fund -- Prime Obligations Portfolio ("Prime
Obligations") is a portfolio offered by Navigator Money Market Fund, Inc.,
("NMM"), and Navigator Tax-Free Money Market Fund ("Tax-Free Money Market") is
a portfolio offered by Navigator Tax-Free Money Market Fund, Inc. ("NTFMM"),
(each separately referred to as a "Fund" and collectively referred to as the
"Funds"). Navigator Money Market Fund, Inc. and Navigator Tax-Free Money
Market Fund, Inc. are no-load, diversified, open-end investment companies.
PRIME OBLIGATIONS' investment objective is to provide its shareholders
with as high a level of current interest income 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 money market instruments of the highest quality, with remaining
maturities of 397 days or less.
TAX-FREE MONEY MARKET'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 FUNDS' SHARES ARE NEITHER INSURED NOR GUARANTEED BY THE FDIC, OR
THE U.S. GOVERNMENT OR ANY OF ITS AGENCIES. EACH FUND ATTEMPTS TO MAINTAIN A
STABLE NET ASSET VALUE PER SHARE OF $1.00, BUT THERE CAN BE NO ASSURANCE THAT
THEY WILL BE ABLE TO DO SO. THE FUNDS' SHARES ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, NOR ARE THEY ENDORSED OR GUARANTEED BY ANY BANK.
Shares of each 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 some fiduciary 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 each Fund's
1
<PAGE> 6
Investment Adviser, Administrator, and Distributor. Shares are sold and
redeemed without any purchase or redemption charge imposed by the Funds,
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 each 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 Funds, contained in the Statement of
Additional Information, has been filed with the Securities and Exchange
Commission and is available upon request without charge by writing to the Funds
at their 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 29, 1996.
2
<PAGE> 7
THE COMPANIES
NMM was originally organized as a Pennsylvania business trust under a
Declaration of Trust dated May 16, 1985, and Prime Obligations commenced
operations on July 22, 1985. NMM was subsequently reorganized as a Maryland
corporation on December 9, 1986, such reorganization having been effected in
order to enable the Fund to take advantage of certain state tax benefits
accruing therefrom.
NTFMM was organized as a Maryland corporation on January 27, 1986, and
Tax-Free Money Market commenced operations on March 27, 1986.
NMM's and NTFMM's Articles of Incorporation each permit their Board of
Directors ("Navigator's Board") to offer additional, separate classes of shares
of Common Stock ("Portfolios") in the future. However, NMM currently offers
only Shares of Prime Obligations, a money market portfolio and NTFMM currently
offers only Shares of Tax-Free Money Market, a tax-free money market portfolio.
FUND EXPENSES
The table below sets forth information concerning shareholder
transaction expenses and annual operating expenses for each Fund.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Prime Tax-Free
Obligations Money Market
----------- ------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)....................... 0% 0%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)....................... 0% 0%
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)..... 0% 0%
Redemption Fee............................................. None None
Exchange Fee............................................... None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
Prime Tax-Free Money
Obligations(A) Market(A)
-------------- --------------
<S> <C> <C>
12b-1 Fees .00% .00%
Investment Advisory Fees
After Fee Waivers(B) .02% .05%
Administrative Fees(C) .06% .10%
Other Expenses(D) .11% .16%
---- ----
Net Annual Fund Operating
Expenses(E) .19% .31%
==== ====
</TABLE>
(A) The annual Fund operating expenses as set forth in this table reflect
expenses incurred by each Fund for the period June 1, 1995 to February
29, 1996 (for Prime Obligations) and for the fiscal year ended
February 29, 1996 (for Tax-Free Money Market), 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 .20%
and .25% of Prime Obligations' and Tax-Free Money Market's average net
assets, respectively.
3
<PAGE> 8
(C) Absent voluntary waivers, Fairfield's administrative fees are
calculated at the annual rate of .10% of each 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 ratios of .19% and .31% are net of
investment advisory fee waivers in effect during the fiscal year.
Absent any fee waivers, such expense ratios would have been .46% and
.51% for Prime Obligations and Tax-Free Money Market, respectively.
EXAMPLE OF EFFECT OF FUND EXPENSES
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.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Obligations(A) $3 $8 $14 $32
Tax-Free Money Market(B) $3 $10 $17 $39
</TABLE>
- ------------------------
(A) 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 $6, $18, $31,
and $69, respectively.
(B) 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, $29,
and $64, respectively.
The purpose of the tables is to assist the investor in understanding
the various costs and expenses that a shareholder in a 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.
4
<PAGE> 9
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information with respect
to the financial highlights for each Fund for the periods indicated. This
information has been derived from the financial statements audited by Ernst &
Young LLP, independent auditors for the Funds, whose report thereon is
incorporated by reference into each respective Fund's Statement of Additional
Information. The annual report for each Fund is available to shareholders at
no charge by calling Fairfield at 1-800-441-3885.
5
<PAGE> 10
PRIME OBLIGATIONS
<TABLE>
<CAPTION>
6/01/95 6/01/94 6/01/93 6/01/92 6/01/91 6/01/90 6/01/89
TO TO TO TO TO TO TO
2/29/96(a) 5/31/95 5/31/94 5/31/93 5/31/92 5/31/91 5/31/90
<S> <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
--------- -------- ------- ------- ------- --------- ---------
Income from
Investment Operations: .0413 .0501 .0314 .0323 .0499 .0728 .0853
Net Gain on Securities
(both realized
and unrealized) . . . . . ___ ___ ___ ___ .0001 ___ ___
--------- -------- ------- ------- -------- -------- ---------
Total Income from
Investment Operations. . .0413 .0501 0.314 .0323 .0500 .0728 .0853
--------- -------- ------- ------- -------- -------- ---------
Less Distributions:
Dividends from
Net Investment Income . (.0413) (.0501) (.0314) (.0323) (.0499) (.0728) (.0853)
Dividends from
Capital Gains . . . . . ___ ___ ___ ___ (.0001) ___ ___
--------- -------- -------- ------- -------- -------- ---------
Total Distributions. . . . (.0413) (.0501) (.0314) (.0323) (.0500) (.0728) (.0853)
--------- -------- -------- ------- -------- -------- -------
Net Asset Value,
end of period . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== =====
Total Return. . . . . . . . 5.62%(b) 5.19% 3.18% 3.28% 5.12% 7.53% 8.87%
Net Assets,
end of period (000) . . . $167,132 $238,109 $341,136 $417,1114 $443,368 $563,265 $508,859
Ratios and Supplemental
Data:
Ratio of Expenses
to Average Net Assets . .25%(c) .28% .27% .26% .22% .21% .22%
Ratio of Expenses,
to Average Net Assets
excluding Fee Waivers. . .55%(c) .43% .42% .41% .37% .35% .37%
Ratio of Net Investment
Income to Average Net
Assets . . . . . . . . . 5.51%(c) 5.01% 3.14% 3.23% 4.99% 7.28% 8.53%
Ratio of Net Investment
Income to Average Net Assets
excluding Fee Waivers. . 5.21%(c) 4.86% 2.99% 3.08% 4.84% 7.14% 8.38%
</TABLE>
<TABLE>
<CAPTION>
6/01/88 6/01/87 6/01/86
TO TO TO
5/31/89 5/31/88 5/31/87
<S> <C> <C> <C>
Net Asset Value,
beginning of period . . . $1.00 $1.00 $1.00
-------- -------- --------
Income from
Investment Operations: .0859 .0686 .0614
Net Gain on Securities
(both realized
and unrealized) . . . . . ___ ___ ___
-------- -------- --------
Total Income from
Investment Operations. . .0859 .0686 .0614
-------- -------- --------
Less Distributions:
Dividends from
Net Investment Income . (.0859) (.0686) (.0614)
Dividends from
Capital Gains . . . . . ___ ___ ___
-------- -------- --------
Total Distributions. . . . (.0859) (.0686) (.0614)
------- ------- -------
Net Asset Value,
end of period . . . . . . $1.00 $1.00 $1.00
===== ===== =====
Total Return. . . . . . . . 8.94% 7.08% 6.32%
Net Assets,
end of period (000) . . . $464,483 $326,406 $234,560
Ratios and Supplemental
Data:
Ratio of Expenses
to Average Net Assets . .22% .23% .17%
Ratio of Expenses,
to Average Net Assets
excluding Fee Waivers. . .38% .39% .43%
Ratio of Net Investment
Income to Average Net
Assets . . . . . . . . . 8.59% 6.86% 6.14%
Ratio of Net Investment
Income to Average Net Assets
excluding Fee Waivers. . 8.43% 6.69% 5.88%
</TABLE>
- --------------------------------------
(a) Fiscal year end was changed to February 29 from May 31.
(b) Not Annualized
(c) Annualized
6
<PAGE> 11
Tax-Free Money Market
<TABLE>
<CAPTION>
03/01/95 3/01/94 3/01/93 3/01/92 3/01/91 3/01/90 3/01/89 3/01/88 3/01/87 3/01/86*
TO TO TO TO TO TO TO TO TO TO
2/29/96 2/28/95 2/28/94 2/28/93 2/29/92 2/28/91 2/28/90 2/28/89 2/28/88 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 $1.00
------- -------- -------- -------- -------- -------- -------- --------- -------- --------
Income from
Investment Operations:
Net Investment Income .0353 .0286 .0227 .0273 .0407 .0558 .0613 .0532 .0458 .0418
Net Gain/Loss on Securities
(both realized ___ (.0003) ___ ___ .0001 ___ ___ ___ ___ ___
and unrealized). . . .
------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Income from
Investment Operations .0353 .0283 .0227 .0273 .0408 .0558 .0613 .0532 .0458 .0418
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from
Net Investment Income (.0353) (.0286) (.0227) (.0273) (.0407) (.0558) (.0613) (.0532) (.0458) (.0418)
Total distribitions . . . (.0353) (.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 $1.00
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total Return 3.59% 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) . . $94,815 $107,357 $152,273 $202,245 $227,249 $255,298 $300,001 $200,396 $194,508 $143,806
Ratio and Supplemental
Data:
Ratio of Expenses .31% .29% .28% .23% .23% .22% .20% .18% .15% .10%(a)
to Average Net Assets
Ratio of Exenses,
to Average Net Assets
excluding Fee Waivers .51% .49% .48% .43% .45% .44% .43% .45% .45% .58%(a)
Ratio of Net Investment
Income to Average
Net Assets 3.53% 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 3.33% 2.66% 2.07% 2.53% 3.85% 5.36% 5.90% 5.05% 4.28% 4.02%(a)
excluding Fee Waivers
</TABLE>
- --------------------------------------
* Commencement Operations
(a) Annualized
7
<PAGE> 12
PERFORMANCE INFORMATION
IN GENERAL
The performance of any investment will generally reflect market
conditions, portfolio quality and maturity, type of investment, and operating
expenses. Each 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 a
Fund's performance, and such fees, if charged, will reduce the actual return
received by Customers on their investments. Conversely, a 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 a 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."
Shareholders will receive unaudited semi-annual reports describing
each Fund's investment operations and annual financial statements audited by
independent auditors.
YIELDS
Each 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 a 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 29, 1996, Prime Obligations' yield
was 5.08% and its compounded effective yield was 5.21%. During this 7-day
period, 100% of the Fund's investment advisory and administrative fees were
voluntarily waived by Fairfield. Absent such fee waivers, the yield for such
period would have been 4.78% and the compounded effective yield would have been
4.90%. During this 7-day period, there was no waiver in effect with respect to
Fairfield's administrative fees.
For the 7-day period ended February 29, 1996, Tax-Free Money Market's
yield was 3.12% and its compounded effective yield was 3.16%. 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 2.92% and the compounded effective yield would have been 2.96%.
During this 7-day period, there was no waiver in effect with respect to
Fairfield's administrative fees.
Tax-Free Money Market 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 29, 1996, the
Fund's taxable equivalent yields for the 15%, 28%, 31%, 36%, and 39.6% tax
brackets were 3.67%, 4.33%, 4.52%, 4.88%, and 5.17%, respectively.
8
<PAGE> 13
INVESTMENT OBJECTIVE AND POLICIES
IN GENERAL
PRIME OBLIGATIONS' investment objective is to provide as high a level
of current interest income as is consistent with liquidity and relative
stability of principal. The Fund intends to achieve its stated objective by
investing in a diversified portfolio of money market instruments of the highest
quality, including a broad range of U.S. dollar-denominated government, bank,
and commercial paper obligations.
TAX-FREE MONEY MARKET'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 each Fund will have remaining maturities of 397
days or less, although variable rate demand obligations (with respect to
Tax-Free Money Market), securities subject to repurchase agreements, and
certain other securities may bear longer maturities. In addition, each
respective Fund's average weighted maturity will not exceed 90 days.
Certain investment vehicles utilized by each Fund are subject to the
limitations discussed herein under "Investment Restrictions." The following
descriptions illustrate the types of instruments in which each Fund may invest:
FOR PRIME OBLIGATIONS:
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 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.
BANK OBLIGATIONS
The Fund may purchase the types of bank obligations listed below,
provided they are issued or guaranteed by domestic branches of U.S. commercial
banks having total assets at the time of purchase in excess of $1 billion. The
Fund may also make interest-bearing savings deposits in domestic commercial and
savings banks in amounts not in excess of 5% of the Fund's total assets.
1. CERTIFICATES OF DEPOSIT
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 invest in
certificates of deposit of banks which are members of the Federal Reserve
System or the deposits of which are insured by the Federal Deposit Insurance
Corporation.
2. BANKERS' ACCEPTANCES
Bankers' 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
9
<PAGE> 14
to pay the face value of the instrument upon maturity.
3. TIME DEPOSITS
Time deposits are non-negotiable deposits in a banking institution
earning a specified interest rate over a given period of time. Such deposits
cannot be withdrawn before the date specified at the time of deposit.
COMMERCIAL PAPER
The Fund may invest in commercial paper (short-term promissory notes
issued by corporations), including variable amount master demand notes
(described below), having been assigned short-term ratings at the time of
purchase of "Prime-1" by Moody's and/or "A-1" or better by S&P.
Pursuant to Securities and Exchange Commission ("SEC") regulations
applicable to money market funds, the Fund will only purchase securities that
have no short-term ratings at the time of purchase if they are determined to be
of comparable quality by Fairfield, pursuant to guidelines approved by
Navigator's Board, or if the issuer of such securities has comparable
short-term securities outstanding which are rated "Prime-1" by Moody's or "A-1"
or better by S&P. Any purchases by the Fund of unrated securities must be
approved or ratified by Navigator's Board. 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.
Variable amount master demand notes in which the Fund may invest are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. The rate of interest on such notes is generally based upon the
interest rates for commercial paper issued by the master demand note issuer.
The rate will be adjusted automatically at periodic intervals which normally
will not exceed thirty-one days, but may extend longer. Because master demand
notes are direct lending arrangements between the Fund and the issuer, they are
not normally traded. Although there is no secondary market for the notes, the
Fund may demand payment of the principal of and accrued interest on the
instrument at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for issuers of commercial paper.
Fairfield will consider the earning power, cash flows, and other liquidity
ratios of the issuers of such notes and will continuously monitor their
financial status to meet payment on demand. In determining the Fund's average
weighted portfolio maturity, a variable amount master demand note will be
deemed to have a maturity equal to the longer of the periods remaining to the
next interest rate adjustment or the demand notice period.
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 by 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
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<PAGE> 15
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.
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.
FOR TAX-FREE MONEY MARKET:
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 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
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<PAGE> 16
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.
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
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<PAGE> 17
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'
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 each Fund may be changed at any time and
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<PAGE> 18
from time to time by Navigator's Board without shareholder approval, provided
such change is deemed to be consistent with each respective Fund's investment
objective and in the best interests of its shareholders. However, each 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 that Fund. See "Description of Shares."
PRIME OBLIGATIONS MAY NOT:
1. 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. There is no limit to the percentage of assets that may be
invested in U.S. Treasury bills and notes, or other obligations issued
or guaranteed by the U.S. Government or its agencies and
instrumentalities.
As a result of the rules described herein under "Portfolio
Valuation" and in the Statement of Additional Information under "Net
Asset Value," the Fund will only exceed the foregoing 5% limitation
(as to securities of a single issuer) under limited circumstances for
periods up to three business days.
2. 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: (a)
there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities, domestic bank certificates of deposit, bankers'
acceptances, and repurchase agreements secured by such obligations;
(b) wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of their parents; and (c) utilities will
be divided according to their services -- for example, gas, gas
transmission, electric, electric and gas, and telephone will each be
considered a separate industry.
3. 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.
4. 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. The Fund will not purchase any securities while
its borrowings (including reverse repurchase agreements) are
outstanding.
5. Knowingly invest more than 10% of its total assets in
illiquid securities, including time deposits with maturities longer
than seven days, and repurchase agreements providing for settlement
more than seven days after notice.
TAX-FREE MONEY MARKET 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
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<PAGE> 19
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
Each 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 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 each 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, each 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 each Fund seeks, through its use of amortized cost valuation, to
maintain its net asset value per
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<PAGE> 20
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 each Fund are sold on a continuous basis by Fairfield, as
each 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 Funds sold to Institutions acting in some fiduciary
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
a Fund, references in this Prospectus to shareholders of a 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 respective
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 a 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 Funds strongly recommend 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 a 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 investment
and other cash management services provided in connection with investments in a
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.
Each 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.
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<PAGE> 21
Every shareholder of record will receive a confirmation of each new
Share transaction with a Fund, which will also show the total number of Shares
being held in safekeeping by Fund/Plan Services, Inc. ("Transfer Agent") for
the account of the shareholder. Shareholders may rely on these statements in
lieu of certificates. Certificates representing Shares of a Fund will not be
issued to the shareholder but, rather, shareholdings will be recorded on the
books of the respective Fund in non-certificate form and shareholders will be
regularly advised of their ownership position.
TELEPHONE TRANSACTIONS
Each 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.
Each 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 Fund nor the 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
respective 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, each
Fund will attempt to honor requests from shareholders for same-day payment, if
such payment would be consistent with that 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. Each Fund intends to pay
cash for all Shares redeemed, but under abnormal conditions which make payment
in cash unwise, a 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.
Because of the relatively high cost of handling small investments,
each 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 a Fund
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<PAGE> 22
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.
Each 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 a 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 each 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 respective Fund, or, if specifically
requested (in writing) by the shareholder to 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 a 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 each 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 EACH FUND:
1. INTERNAL REVENUE CODE
Each Fund intends to continue 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 each Fund distribute to its shareholders at least 90% of its net
investment income (both taxable and tax-exempt with respect to Tax-Free Money
Market). Provided it meets this 90% distribution requirement, as well as other
requirements discussed in detail in the Statement of Additional Information,
each 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.
Each Fund anticipates declaring as dividends 100% of its net
investment income (both taxable and tax-exempt with respect to Tax-Free Money
Market). Each 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.
Tax-Free Money Market also expects to qualify to pay exempt-interest
dividends to its shareholders by satisfying the Code's requirement that at the
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<PAGE> 23
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 a 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 that Fund and received by the shareholders on
December 31 of that year, if paid by the respective Fund during the following
January.
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.
Each Fund intends to make sufficient distributions each calendar year
to avoid liability for the federal excise tax.
3. MUNICIPAL SECURITY TAX ISSUES - FOR TAX-FREE MONEY MARKET
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 FUNDS' DISTRIBUTIONS:
Tax-exempt interest dividends paid by Tax-Free Money Market (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. 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.
Corporate investors should note that dividends from each Fund's net
investment income will generally not qualify for the dividends-received
deduction for corporations.
To the extent, if any, that dividends paid to shareholders are derived
from a 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 a 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 Tax-Free Money Market 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.
19
<PAGE> 24
In the opinion of counsel, each 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.
Shareholders of Prime Obligations will be advised at least annually as
to the federal income tax consequences of distributions made during the year.
See the Statement of Additional Information for further information regarding
taxes.
MANAGEMENT OF THE FUNDS
DIRECTORS AND OFFICERS
The business and affairs of the Funds are managed under the direction
of Navigator's Board. 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>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS COMPANY DURING PAST 5 YEARS
- ---------------- ------------- --------------------
<S> <C> <C>
Robert J. Walker, Jr * Chairman, President, President, Chief
200 Gibraltar Road and Director Executive Officer,
Horsham, PA 19044 Secretary, and a Director
of Fairfield from 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
Pine Run Community Analyst and Trust Officer
1 Dogwood Cluster with Glenmede Trust Co.,
Doylestown, PA 18901 from 1973 to 1979; Manager,
Public Affairs for Sun
Company prior to 1973.
Richard G. Gilmore Director Independent Consultant;
948 Kennett Way Director of CSS Industries,
West Chester, PA Inc.; Director, PECO Energy
formerly (Philadelphia
Electric Co.); Director/
Trustee of Nine Legg Mason
Funds. Formally: Senior
Vice President and Chief
Financial Officer,
Philadelphia Electric Co.
1986 to 1991.
Robert E. Keith Director President, Technology
800 Safeguard Building Leaders Management Inc.
435 Devon Park Drive 1996; Managing Director,
Wayne, PA 19087 Radnor Venture Partners,
1989 to 1996; Director
Wave Technolgies Intl,
Gandalf Technologies, Inc.,
and Cambridge Technology
Partners.
</TABLE>
20
<PAGE> 25
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS COMPANY DURING PAST 5 YEARS
- ---------------- ------------ ---------------------
<S> <C> <C>
Jan J Wieckowski Director Retired; Part-time
504 Meadowbrook Circle consultant to financial
St. Davids, PA 19087 institutions;
Executive Vice President
of Mellon Bank East, from
1983 to 1986; Executive
Vice President of Girard
Bank, prior to 1983.
James R. Lesher Vice President, Vice President of
200 Gibraltar Road Treasurer Fairfield, since 1994
Horsham, PA 19044 and Asst. (Controller from
Secretary 1991 to 1994); Assistant
Vice President of Fidelity
Mutual Life Insurance
Company, from 1974 to 1991.
James W. Jennings Secretary Partner with the law
2000 One Logan Square firm of Morgan, Lewis
Philadelphia, PA 19103 & Bockius LLP, since 1970.
</TABLE>
- -----------------------
* Mr. Walker, as a Director and Executive Officer of the Manager, is an
"interested person" of NMM and NTFMM, 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 each 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.
The management services performed by and the fees payable to Fairfield
are described below.
1. INVESTMENT ADVISORY SERVICES
Investment advisory services are provided to each Fund by Fairfield,
as Manager, pursuant to separate Management Agreements dated April 17, 1993,
between each Fund and Fairfield Group (each a "Management Agreement").
As Investment Adviser, Fairfield manages each Fund's investment
portfolio, makes decisions with respect to and places orders for all purchases
and sales of each Fund's portfolio securities, and maintains each 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
a Fund and the cost of obtaining market quotations for portfolio securities
held by the Funds.
For the investment advisory services provided and expenses assumed
pursuant to the Management Agreement, Fairfield is entitled to receive a fee
from Prime Obligations, computed daily and paid monthly, at the annual rate of
.20% on the first $500 million of the average net assets of the Fund; .15% on
the next $1 billion; and .10% thereafter. Fairfield is entitled to receive a
fee from Tax-Free Money Market, 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 Funds in maintaining a
competitive expense ratio.
With respect to Prime Obligations, for the period June 1, 1995 to
February
21
<PAGE> 26
29, 1996, Fairfield was paid investment advisory fees totaling $41,263, after
voluntary fee waivers of $346,340. Absent such fee waivers, the investment
advisory fees payable by the Fund for such year would have been $387,603.
During the fiscal years ended May 31, 1995 and May 31, 1994, Fairfield was paid
investment advisory fees (after voluntary fee waivers) of $154,833 and
$185,158, respectively. Absent any fee waivers, the investment advisory fees
payable by the Fund for such years would have been $557,258 and $740,336,
respectively.
With respect to Tax-Free Money Market, for the fiscal year ended
February 29, 1996, Fairfield was paid investment advisory fees totaling
$50,701, after voluntary fee waivers of $200,707. Absent such fee waivers, the
investment advisory fees payable by the Fund for such year would have been
$251,408. During the fiscal years ended February 28, 1995 and February 28,
1994, Fairfield was paid investment advisory fees (after voluntary fee waivers)
of $63,238 and $87,692, respectively. Absent any fee waivers, the investment
advisory fees payable by the Fund for such years would have been $316,517 and
$438,083, respectively.
Richard A. Myers, in his capacity as Fund Manager with Fairfield, is
primarily responsible for managing Prime Obligations' investment portfolio.
Mr. Myers is a graduate of Bloomsburg State College and has nineteen years of
experience in banking and money management. Prior to joining Fairfield in
1994, he was responsible for three money market mutual funds with the Provident
Institutional Management Corporation.
John B. DeLaney, CFA, in his capacity as Fund Manager with Fairfield,
is primarily responsible for managing Tax-Free Money Market'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 each Fund's Administrator pursuant to each
Management Agreement.
As Administrator, Fairfield generally assists in each 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 each Management Agreement , Fairfield is entitled to
receive a fee from Prime Obligations, computed daily and paid monthly, at the
annual rate of .10% on the first $1.5 billion of the average net assets of the
Fund and .05% thereafter. Fairfield is entitled to receive a fee from Tax-Free
Money Market, computed daily and paid monthly, at the annual rate of .10% on
the average net assets of the Fund.
With respect to Prime Obligations, for the for the period June 1, 1995 to
February 29, 1996, Fairfield was paid administrative fees totaling $108,454,
after voluntary fee waivers of $85,347. Absent such fee waivers, the
administrative fees payable by the Fund for the period would have been
$193,801. With respect to Tax-Free Money Market, for the fiscal year ended
February 29, 1996, Fairfield was paid administrative fees totaling $100,563.
As of the date of this Prospectus, Fairfield was waiving all of its
administrative fees from Prime Obligations, and it may in the future waive all
or a portion of its' administrative fees in order to assist a Fund in
maintaining a competitive expense ratio.
In connection with transactions relating to repurchase agreement activity,
Prime Obligations may also utilize the services of Fairfield for a fee not to
exceed 1% of the purchase or sale price of the transaction. During the period
June 1, 1995 to February 29, 1996, the Fund paid fees totaling $5,426 to
22
<PAGE> 27
Fairfield with respect to such transactions.
EXPENSES
Each 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, each Fund's service contractors bear all expenses
incurred in connection with the performance of their services on behalf of the
respective Fund. Similarly, each Fund bears the expenses incurred in its
operations.
DESCRIPTION OF SHARES
NMM and NTFMM each have 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. NMM and NTFMM presently
offer only Shares of Class "A" Common Stock, which represent an interest in
Prime Obligations and Tax-Free Money Market, respectively.
Each Fund Share represents an equal proportionate interest in that
Fund with each other Share, and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the respective Fund as are
declared in the discretion of Navigator's Board. Shareholders of each 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 a 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 a Fund means the affirmative vote of the lesser of (a) more than 50%
of the outstanding Shares of a Fund, or (b) at least 67% of the Shares of a
Fund present at a meeting at which the holders of more than 50% of the
outstanding Shares of the respective Fund are represented in person or by
proxy.
GENERAL INFORMATION
In accordance with the Maryland General Corporation Law, each 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 a Fund.
Each Fund acknowledges that it is solely responsible for the
information or any lack of information about it in this joint Prospectus and in
the joint Statement of Additional Information, and no other Fund is responsible
therefor. There is a possibility that one Fund might be deemed liable for
misstatements or omission regarding another Fund in this Prospectus or in the
joint Statement of Additional Information; however, the Funds deem this
possibility slight.
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.
23
<PAGE> 28
NAVIGATOR MONEY MARKET FUND--PRIME OBLIGATIONS PORTFOLIO
(Navigator Money Market Fund, Inc.)
NAVIGATOR TAX-FREE MONEY MARKET FUND
(Navigator Tax-Free Money Market Fund, Inc.)
200 Gibraltar Road
Horsham, PA 19044
1-800-441-3885
INVESTMENT ADVISER,
ADMINISTRATOR,
AND DISTRIBUTOR
Fairfield Group, Inc.
Horsham, PA 19044
-------------------------
LEGAL COUNSEL PROSPECTUS
Morgan, Lewis & Bockius LLP
Philadelphia, PA 19103 -------------------------
AUDITORS
Ernst & Young LLP
Philadelphia, PA 19103
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Companies............................. 3
Fund Expenses............................. 3
Financial Highlights...................... 5
Performance Information................... 7
Investment Objective and Policies......... 9
Investment Restrictions................... 13
Valuation of Shares....................... 15
How to Purchase and Redeem Shares......... 16
Dividends................................. 19
Taxes..................................... 20
Management of the Funds................... 23
Description of Shares..................... 26
General Information....................... 27
</TABLE>
24
<PAGE> 29
NO PERSON HAS BEEN AUTHORIZED --------------------------
TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS NOT CONTAINED JUNE 29, 1996
IN THIS PROSPECTUS, OR THE FUNDS'
STATEMENT OF ADDITIONAL INFORMATION --------------------------
INCORPORATED HEREIN BY REFERENCE,
IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
EITHER FUND OR ITS DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY EITHER FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
25
<PAGE> 30
NAVIGATOR MONEY MARKET FUND, INC.
(Prime Obligations Portfolio)
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
(Tax-Free Money Market Portfolio)
- STATEMENT OF ADDITIONAL INFORMATION -
JUNE 29, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Companies............................................. B-2
Additional Investment Policies............................ B-2
Additional Investment Restrictions and Limitations........ B-7
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-17
Investment Adviser, Administrator, and Distributor........ B-18
Portfolio Transactions.................................... B-19
Custodian and Transfer Agent.............................. B-20
Expenses.................................................. B-21
Independent Auditors...................................... B-22
Legal Counsel............................................. B-22
Miscellaneous............................................. B-22
Appendix.................................................. B-23
</TABLE>
This Statement of Additional Information is meant to be read in
conjunction with the Prospectus for Navigator Money Market Fund -- Prime
Obligations Portfolio ("Prime Obligations") offered by Navigator Money Market
Fund, Inc. ("NMM") and Navigator Tax-Free Money Market Fund (the "Tax-Free
Money Market") offered by Navigator Tax-Free Money Market Fund, Inc.
("NTFMM")(each separately referred to as a "Fund" and collectively referred to
as the "Funds"), dated June 28, 1996 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 either Fund
should be made solely upon the information contained herein. Copies of the
Prospectus for the Funds may be obtained by writing the Funds 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> 31
THE COMPANIES
NMM was originally organized as a Pennsylvania business trust under a
Declaration of Trust dated May 16, 1985, and Prime Obligations commenced
operation on July 22, 1985. NMM was subsequently reorganized as a Maryland
Corporation on December 9, 1986, such reorganization having been effected in
order to enable the Fund to take advantage of certain state tax benefits
accruing therefrom.
NTFMM was organized as a Maryland corporation on January 27, 1986, and
Tax-Free Money Market commenced operations on March 27, 1986.
NMM's and NTFMM's Articles of Incorporation each permit their Board of
Directors ("Navigator's Board") to offer additional, separate classes of shares
of Common Stock ("Portfolios") in the future. However, NMM currently offers
only Shares of Prime Obligations, a money market portfolio and NTFMM currently
offers only shares of Tax-Free Money Market, a tax-free money market portfolio.
Shares of each Fund are sold by Fairfield only to Institutions for
investment of their own funds or funds for which they act in some fiduciary
capacity. As Manager, Fairfield performs investment advisory, administrative,
and distribution services to the Funds.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE FUNDS' PROSPECTUS
RELATE PRIMARILY TO THE FUNDS AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND
POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS RELATING TO THE FUNDS.
ADDITIONAL INVESTMENT POLICIES
IN GENERAL
The following policies supplement each Fund's investment objective and
policies as set forth in the Prospectus.
FOR TAX-FREE MONEY MARKET:
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
B-2
<PAGE> 32
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, 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
B-3
<PAGE> 33
bonds, industrial development bonds and pollution control bonds, provided they
have remaining maturities of 397 days or less at the time of purchase.
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
B-4
<PAGE> 34
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.
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, Tax-Free Money Market 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
which are described below. Tax-Free Money Market 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).
For Each Fund:
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. Each Fund may invest
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.
Each Fund may invest 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.
B-5
<PAGE> 35
COMMERCIAL PAPER
Each Fund may invest 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.
U.S. GOVERNMENT OBLIGATIONS
Each 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.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with respect to
portfolio securities. Under the terms of a repurchase agreement, a Fund
purchases securities ("collateral") from financial institutions such as banks
and broker-dealers ("seller") which are deemed to be creditworthy under
guidelines approved by each 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 a Fund under the Investment Company
Act of 1940, as amended (the "Investment Company Act").
B-6
<PAGE> 36
REVERSE REPURCHASE AGREEMENTS
Each Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements. Pursuant to such agreements, a 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. A 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.
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 Funds' Prospectus lists certain investment restrictions that may
be changed only by a vote of a majority of the outstanding Shares of the
respective 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.
PRIME OBLIGATIONS MAY NOT:
1. Purchase securities on margin, sell securities short, or
participate on a joint or joint and several basis in any securities
trading account.
2. 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).
3. 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 of 1940.
B-7
<PAGE> 37
4. Write or purchase options, including puts, calls,
straddles, spreads, or any combination thereof.
5. Buy common stocks or voting securities, or state,
municipal or industrial revenue bonds.
6. Invest in any issuer for purposes of exercising control or
management.
7. Purchase securities with legal or contractual
restrictions.
8. 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.
9. 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.
10. 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.
TAX-FREE MONEY MARKET 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.
B-8
<PAGE> 38
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).
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 #2 (for Prime Obligations) and #4 (for
Tax-Free Money Market) above, each Fund has a non-
B-9
<PAGE> 39
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.
2. Notwithstanding the language in Restriction #9 (for Prime
Obligations) and #11 (for Tax-Free Money Market) above, each 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 (in addition to qualified
Individual Retirement and Keogh Plan Accounts with respect to Prime
Obligations) 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 respective Fund is marketed. Investors purchasing Fund Shares may include
officers, directors, or employees of a particular Institution.
Each 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, each Fund may also suspend or postpone the
recordation of the transfer of its Shares.
In addition, each Fund may compel the redemption of, reject any order
for, or refuse to give effect on its 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"). Each
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 respective Fund's responsibilities under the Investment Company Act. See
"Net Asset Value."
B-10
<PAGE> 40
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 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 must approve or
ratify the purchase of any unrated obligations or obligations rated by only one
NRSRO.
Navigator's Board has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and each
Fund's investment objective, to stabilize each 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 either Fund's net asset value per Share calculated
by using available market quotations deviates from $1.00 per Share.
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
either Fund's $1.00 amortized cost
B-11
<PAGE> 41
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 each 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 a 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
Each 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. A
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.
TAXABLE EQUIVALENT YIELD (For Tax-Free Money Market)
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%).
B-12
<PAGE> 42
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 EACH FUND
1. INTERNAL REVENUE CODE
Each Fund intends to continue to qualify and elect to be treated for
each taxable year as a "regulated investment company" ("RIC") under Subchapter
M of the Code. Accordingly, a 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 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, a Fund must distribute at least 90% of its net investment income
(which generally includes dividends, taxable
B-13
<PAGE> 43
interest, and net short-term capital gains less operating expenses) and at
least 90% of its tax-exempt interest income to shareholders. If a 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, each Fund intends to declare and pay dividends
and any capital gain distributions so as to avoid imposition of the federal
excise tax.
FOR TAX-FREE MONEY MARKET:
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. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its
partners, and an S Corporation and its shareholders.
TAX STATUS OF EACH FUND'S DISTRIBUTIONS
Although each 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. Each Fund will have
no tax liability with respect to such distributions and they will be taxable to
Fund shareholders as
B-14
<PAGE> 44
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 each Fund's taxable year.
While each 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, each Fund may be
subject to the tax laws of such states or localities.
If for any taxable year either Fund does not qualify for the special
tax treatment afforded to "regulated investment companies," all of that 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 that
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.
For Tax-Free Money Market:
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.
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.
B-15
<PAGE> 45
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
NMM's and NTFMM's Articles of Incorporation each authorize Navigator's
Board to issue up to 2 billion full and fractional shares of Common Stock. NMM
and NTFMM each 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 NMM or NTFMM 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 Funds' Prospectus and this
Statement of Additional Information, each Fund's Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of NMM or NTFMM,
Shares of the respective Fund are entitled to receive the assets available for
distribution belonging to that 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.
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 NMM's or NTFMM's Articles of Incorporation, NMM and NTFMM may take
or authorize such
B-16
<PAGE> 46
action upon the favorable vote of the holders of more than 50% of the
outstanding Common Stock of the respective Fund and any future additional
Portfolios (voting together without regard to class).
DIRECTORS AND OFFICERS
The Funds' 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 29, 1996, NMM paid a total of $12,149.02 on behalf of Prime
Obligations and NTFMM paid a total of $7,850.98 on behalf of Tax-Free Money
Market, to the Navigator Directors. No officer or employee of Fairfield
receives any compensation from NMM and NTFMM 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 NMM and NTFMM receive
no compensation for performing the duties of their offices.
Fairfield, of which Mr. Walker is an officer, receives fees from NMM and NTFMM
for acting as Manager. Morgan, Lewis & Bockius LLP, of which Mr. Jennings is a
partner, receives legal fees as counsel to NMM and NTFMM and as counsel to the
Manager. The Directors and Officers of NMM and NTFMM as a group own less than
1% of the outstanding Shares of either Fund.
PRINCIPAL HOLDERS OF SECURITIES
Each Fund believes that as of April 10, 1996, the following
nominee accounts may have been beneficial owners of 5% or more of
the outstanding Shares of each Fund because they possessed voting or investment
power with respect to such Shares:
Prime Obligations:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF TOTAL
NAME AND ADDRESS BENEFICIAL OWNERSHIP SHARES OUTSTANDING
- ---------------- -------------------- ------------------
<S> <C> <C>
Fetter & Co.
Steve Bonewicz
c/o CoreStates Bank N.A.
530 Walnut St
Philadelphia, PA 19105 . . . . . . . . . . . . . . . . . . . 72,199,147 . . . . . . . . . . . . 43.06%
ACO
Attn Linda Campbell
PO Box 837
Pittsburgh, PA 15278 . . . . . . . . . . . . . . . . . . . 24,750,112 . . . . . . . . . . . . 14.76%
First National Bank & Trust
40 S State St
PO Box 158
Newtown, PA 18940 . . . . . . . . . . . . . . . . . . . 14,800,981 . . . . . . . . . . . . . 8.82%
Legg Mason
Attn Larry McCormick
111 S Calvert St
Baltimore, MD 21202 . . . . . . . . . . . . . . . . . . . 10,158,289 . . . . . . . . . . . . . 6.05%
</TABLE>
B-17
<PAGE> 47
Tax-Free Money Market:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF TOTAL
NAME AND ADDRESS BENEFICIAL OWNERSHIP SHARES OUTSTANDING
- ---------------- -------------------- ------------------
<S> <C> <C>
Donald & Co.
c/o Dauphin Deposit
Bank & Trust
213 Market Street
Harrisburg, PA 17101 . . . . . . . . . . . . . . . . . . . 44,597,300 . . . . . . . . . . . . 45.18%
Calhoun & Co.
c/o Comerica Bank
411 W Lafayette
Detroit MI 48275 . . . . . . . . . . . . . . . . . . . 19,608,741 . . . . . . . . . . . . 19.86%
United Jersey Bank
c/o Securities Operations
PO Box 821
Hackensack NJ 07602 . . . . . . . . . . . . . . . . . . . 7,908,094 . . . . . . . . . . . . . 8.01%
Howard Weil Labouise Friedrichs
Attn Yolanda Wessel
1100 Poydras St
New Orleans, LA 70163 . . . . . . . . . . . . . . . . . . . 6,197,529 . . . . . . . . . . . . . 6.27%
Fetter & Co.
c/o CoreStates Bank N.A.
530 Walnut St
Philadelphia, PA 19105 . . . . . . . . . . . . . . . . . . . 5,362,479 . . . . . . . . . . . . . 5.43%
</TABLE>
INVESTMENT ADVISER, ADMINISTRATOR, AND DISTRIBUTOR
THE MANAGEMENT AGREEMENT
Investment advisory and administrative services are provided by
Fairfield, as Manager, pursuant to separate "Management Agreements" 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 each Funds' Prospectus.
In addition to serving as Investment Adviser under the Management
Agreements, Fairfield also provides administrative services to each Fund. As
Administrator, Fairfield has agreed to (i) monitor the computation by the
Funds' Transfer Agent of the net asset value per Share, (ii) maintain office
facilities for each Fund, (iii) maintain certain financial accounts and
records, (iv) furnish each Fund statistical and research data, data processing,
clerical, accounting and bookkeeping services, and (v) furnish certain other
services required by each 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 each Fund's operations.
B-18
<PAGE> 48
The administrative fees payable to the Manager for the above services are
described in the Funds' Prospectus.
The Management Agreement between each 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 either 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, each 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 each
Fund (as defined in the Prospectus), and by a majority of the Directors who are
not parties to either 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. Each 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 either Fund, or
by Fairfield. Each Management Agreement also terminates automatically in the
event of its assignment, as defined in the Investment Company Act.
THE DISTRIBUTION AGREEMENT
In addition to providing management services, Fairfield also acts as
the Distributor of each Fund's Shares. Shares of each 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 either Fund (excluding preparation and printing expenses necessary for the
continued registration of each Fund's Shares) and of preparing, printing and
distributing all sales literature. No compensation is payable by either Fund
to Fairfield for its distribution services.
Unless sooner terminated, each "Distribution Agreement" between the
Funds 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 each 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.
PORTFOLIO TRANSACTIONS
Pursuant to each Management Agreement, Fairfield (as Investment
Adviser) determines which securities are to be purchased and sold by each Fund
and which brokers are to be eligible to execute the Funds' 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
B-19
<PAGE> 49
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, each 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 each 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 Funds 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 Funds.
Each 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
either Fund's total assets, and will not give preference to any Institutions
investing in either Fund with respect to such transactions, securities, savings
deposits, repurchase agreements, and reverse repurchase agreements.
CUSTODIAN AND TRANSFER AGENT
CUSTODIAN AGREEMENT
Cash and securities owned by each Fund are held by CoreStates Bank,
N.A. ("CoreStates Bank") as NMM's and NTFMM's Custodian pursuant to separate
Custodian Agreements. Under each Custodian Agreement, CoreStates Bank (i)
holds each Fund's portfolio securities and cash items, (ii) makes receipts and
disbursements of money on behalf of each Fund, (iii) collects and receives all
income and other payments and distributions on account of each 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 each Custodian
Agreement. Such appointment will not, however, relieve CoreStates Bank of its
responsibilities or liabilities under each Custodian Agreement. Each 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 NMM's and NTFMM's Transfer
Agent, provides each Fund with transfer agency, dividend disbursing, and
accounting services pursuant to separate Transfer Agency Agreements. Under
each Transfer Agency Agreement, Fund/Plan has agreed to (i) issue and redeem
Shares of each Fund, (ii) forward dividends and distributions to shareholders,
(iii) maintain each Fund's books of original entry, (iv) maintain shareholder
accounts, (v) compute each
B-20
<PAGE> 50
Fund's net asset value per Share and calculate each 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 each Fund. Such fees are based upon relative asset values and
shareholder accounts, and may include certain transaction charges and
out-of-pocket expenses.
EXPENSES
Except as noted herein and in the Funds' Prospectus, each Fund's
service contractors bear all expenses incurred in connection with the
performance of their services. Similarly, each Fund bears the expenses
incurred in its operations. Expenses borne by each 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 each Fund's existence; costs of shareholder
reports and shareholder meetings; and any extraordinary expenses incurred in
each Fund's operations.
The aggregate rate of the investment advisory fees payable to
Fairfield is subject to reduction as each 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 a Fund in any fiscal year
exceed expense limitations imposed by applicable state securities regulations,
Fairfield will reimburse that Fund by the amount of such excess.
Certain of a 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 a Fund. For example, under California law, each
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. Each Fund may also seek to qualify its Shares in other
jurisdictions which impose expense limitations.
To each Fund's knowledge, as of the date hereof, there are no state
expense limitations applicable to the Funds. 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-21
<PAGE> 51
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS
The financial statements of Prime Obligations for the nine months
ended February 29, 1996 and the financial statements of Tax-Free Money Market
for the fiscal year ended February 29, 1996 appearing in the respective Funds'
1996 Annual Report to Shareholders (which is incorporated by reference into
this Statement of Additional Information) have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in auditing and accounting. Copies of the
Funds' 1996 Annual Report to Shareholders may be obtained without charge by
contacting Fairfield.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, (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
LLP has rendered legal services to Fairfield.
MISCELLANEOUS
NMM and NTFMM are each 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 either
Fund.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in NMM's and NTFMM's Registration
Statements 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.
B-22
<PAGE> 52
APPENDIX
- RATED INVESTMENTS -
FOR TAX-FREE MONEY MARKET:
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.
FOR EACH FUND:
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+."
- UNRATED INVESTMENTS -
Prior to the purchase of any unrated security or instrument by a 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
B-23
<PAGE> 53
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 Funds' Prospectus. In the
event that subsequent to the purchase of a rated (or unrated) security or
instrument for a Fund, such security or instrument falls below the minimum
standards required for purchase by the respective Fund, the Manager shall
consider such an event in determining whether that 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-24
<PAGE> 54
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 1996 Annual Report to Shareholders filed on April
26, 1996.
- Report of Independent Auditors dated April 12, 1996.
- Statement of Net Assets - February 29, 1996.
- Statement of Operations for the period ended February 29,
1996.
- Statement of Changes in Net Assets for the fiscal years
ended February 29, 1996 and February 28, 1995.
- Notes to Financial Statements.
(2) All required financial statements are incorporated by reference
from the Registrant's 1996 Annual Report to Shareholders and
included in Parts A and B hereof. All other financial statements
and schedules are inapplicable.
(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> 55
(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 LLP, filed under Rule
24f-2, is part of Registrant's Rule 24f-2 Notice.
(11) Consent of Ernst & Young LLP, filed herewith.
(12) None.
(13) None.
C-2
<PAGE> 56
(14) None.
(15) None.
(16) Schedules for Computation of Performance Quotations provided in
the Post-Effective Amendment, filed herewith.
(24) Powers of Attorney
(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 April 10, 1996:
(1) (2)
Title of Class Number of Recordholders
Shares of Common Stock, 17
$0.001 par value
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> 57
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
April 30, 1996, 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 St.
Baltimore, MD 21203
Edward A. Taber Director None
211 S. Calvert St.
Baltimore, MD 21203
James R. Lesher* Chief Financial Vice President,
Officer, Vice Treasurer and
President, Assistant Assistant
Secretary/Treasurer, Secretary.
Controller.
</TABLE>
- -----------------
*200 Gibraltar Road, Horsham, PA 19044
C-4
<PAGE> 58
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 LLP
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> 59
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. 11 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Horsham and Commonwealth of
Pennsylvania on the 30th day of April, 1995 and hereby certifies that this
Amendment No. 11 meets all the requirements for effectiveness pursuant to
paragraph (a) 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. 11 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.
Signature Title Date
- --------- ----- ----
/s/ Robert J. Walker, Jr. Chairman, April 30, 1996
- ------------------------- President and
Robert J. Walker, Jr. Director
* Director April 30, 1996
- ------------------------
Philip D. Croll
* Director April 30, 1996
- ------------------------
Richard G. Gilmore
* Director April 30, 1996
- ------------------------
Robert E. Keith
* Director April 30, 1996
- ------------------------
Jan J. Wieckowski
/s/ James R. Lesher Vice President, April 30, 1996
- ------------------------ Treasurer and
James R. Lesher Assistant Secretary
(Principal
Financial and
Accounting Officer)
*By: /s/ Robert J. Walker, Jr.
---------------------------
Robert J. Walker, Jr.
Attorney-In-Fact
<PAGE> 60
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
(11) Consent of Independent Accountants.
(16) Schedules for Computation of Performance
Quotations provided in the Post-Effective
Amendment.
(27) Financial Data Schedule.
<PAGE> 1
Exhibit (11)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements and Independent
Auditors" in the Statement of Additional Information and to the incorporation by
reference in this Post-Effective Amendment No. 13 to the Registration Statement
(Form N-1A No. 2-97840) of the Navigator Money Market Fund, Inc. and Amendment
No. 11 to the Registration Statement (Form N-1A No. 33-3082) of the Navigator
Tax-Free Money Market Fund, Inc., of our report dated April 12, 1996, included
in the 1996 Annual Report to Shareholders of the Navigator Money Market Fund,
Inc. and Navigator Tax-Free Money Market Fund, Inc.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
April 26, 1996
<PAGE> 1
Exhibit (16)
Seven Day Average Yield
<TABLE>
<CAPTION>
Date Daily Dividend
---- --------------
<S> <C>
February 23 .000084457
February 24 .000084457
February 25 .000084457
February 26 .000083979
February 27 .000086987
February 28 .000087279
February 29 .000085851
----------
Total .000597467
Divided by 7 .0000853524
Multiplied by 365 .0311536364 (3.12%)
</TABLE>
Compounded Effective Yield:
[(1 + .000729163)365/7] - 1 = .0316343925 (3.16%)
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000789016
<NAME> NAVIGATOR TAX-FREE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 95,782,390
<INVESTMENTS-AT-VALUE> 95,744,882
<RECEIVABLES> 534,556
<ASSETS-OTHER> (1,158,609)
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,120,829
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 305,398
<TOTAL-LIABILITIES> 305,398
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 94,815,431
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,868,400
<OTHER-INCOME> 0
<EXPENSES-NET> 314,500
<NET-INVESTMENT-INCOME> 3,553,900
<REALIZED-GAINS-CURRENT> 2,352
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,556,252
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,553,900)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 341,728,593
<NUMBER-OF-SHARES-REDEEMED> (354,456,269)
<SHARES-REINVESTED> 183,352
<NET-CHANGE-IN-ASSETS> (12,541,972)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 251,408
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 515,207
<AVERAGE-NET-ASSETS> 100,563,182
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
