<PAGE> 1
As filed with the Securities and Exchange Commission on June 26, 1998
Registration No. 33-3082
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
POST-EFFECTIVE AMENDMENT NO. 13 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY [x]
ACT OF 1940
AMENDMENT NO. 14 [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 30, 1998 pursuant to
paragraph (b) of Rule 485.
<PAGE> 2
CROSS REFERENCE SHEET
FORM N-1A ITEM
<TABLE>
<CAPTION>
PART A LOCATION
- ------ --------
<S> <C> <C>
Item 1. Cover Page......................... Cover Page
Item 2. Synopsis........................... Fund Expenses
Item 3. Condensed Financial Information..... Certain Financial
Information
Item 4. General Description of Registrant... The 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;
Taxes; Description of
Shares; General
Information
Item 7. Purchase of Securities Being
Offered............................. Valuation of Shares;
How to Purchase and
Redeem Shares
Item 8. Redemption or Repurchase............ How to Purchase and
Redeem Shares
Item 9. Legal Proceedings................... *
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PART B LOCATION
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<S> <C> <C>
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..... Yields
Item 23. Financial Statements................ Financial Statements
</TABLE>
* Omitted since the answer is negative or the Item is inapplicable.
<PAGE> 4
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 5
[NAVIGATOR LOGO]
PROSPECTUS
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Navigator 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. The Board of Directors
of the Funds adopted a series of resolutions at a joint meeting of the Boards in
June 1998 approving the recommendation of the Funds' management that each Fund
will file an application to deregister as an investment company once it no
longer has any shareholders. The Funds expect that their shareholders will
redeem their shares by July 31, 1998.
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 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 30, 1998.
<PAGE> 6
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.)
<TABLE>
<S> <C>
200 Gibraltar Road
Horsham, PA 19044
For current performance,
purchase, redemption, and
other information, call:
1-800-441-3885
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Companies............................................... 3
Fund Expenses............................................... 3
Financial Highlights........................................ 5
Performance Information..................................... 7
Investment Objective and Policies........................... 7
Investment Restrictions..................................... 12
Valuation of Shares......................................... 14
How to Purchase and Redeem Shares........................... 14
Dividends................................................... 16
Taxes....................................................... 16
Management of the Funds..................................... 18
Description of Shares....................................... 20
General Information......................................... 20
</TABLE>
<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. The expenses and fees set
forth in the table are based on average net assets of each Fund for the year
ended February 28, 1998.
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
OBLIGATIONS MONEY MARKET
----------- ------------
<S> <C> <C>
12b-1 Fees.................................................. .00% .00%
Investment Advisory Fees After Fee Waivers (A).............. .05% .05%
Other Expenses (B).......................................... .15% .20%
---- ----
Net Annual Fund Operating Expenses (C)...................... .20% .25%
==== ====
</TABLE>
- ---------------------------
<TABLE>
<S> <C>
(A) 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.
(B) Includes (among others) custodial, transfer agency,
administrative, legal, and auditing fees. Absent voluntary
waivers, Fairfield's administrative fees are calculated at
the annual rate of .10% of each Fund's average net assets.
(C) 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
.20% and .25% are net of fee waivers in effect during the
fiscal year. Absent any fee waivers, such expense ratios
would have been .40% and .55% for Prime Obligations and
Tax-Free Money Market, respectively.
</TABLE>
3
<PAGE> 8
EXAMPLE OF EFFECT OF FUND EXPENSES (A)
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........................................... $2 $6 $11 $26
Tax-Free Money Market....................................... $3 $8 $14 $32
</TABLE>
(A) 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.
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.
This example assumes that all dividends are reinvested and that the
percentage amounts listed under Annual Fund Operating Expenses remain the same
over the time periods shown. The actual expenses will depend upon, among other
things, the level of average net assets, the levels of sales and redemptions of
shares, the extent to which Fairfield waives its fees and the extent to which
each Fund incurs variable expenses, such as transfer agency costs.
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 following financial highlights are derived from the financial
statements of each Fund and have been audited by Ernst & Young LLP, independent
auditors. This data should be read in conjunction with the financial statements,
related notes, and the report of Ernst & Young LLP, all of which are
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.
PRIME OBLIGATIONS
<TABLE>
<CAPTION>
3/01/97 3/01/96 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 TO TO
2/28/98 2/28/97 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> <C> <C>
Net Asset Value, beginning of
period..................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations:................ .0541 .0523 .0413 .0501 0.314 .0323 .0499 .0728 .0853
Net Gain on Securities
(both realized and
unrealized)............ -- -- -- -- -- -- .0001 -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Income from
Investment
Operations.......... .0541 .0523 .0413 .0501 .0314 .0323 .0500 .0728 .0853
------- ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net
Investment Income........ (.0541) (.0523) (.0413) (.0501) (.0314) (.0323) (.0499) (.0728) (.0853)
Dividends from Capital
Gains.................... -- -- -- -- -- -- (.0001) -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions.... (.0541) (.0523) (.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 $1.00 $1.00
======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return................. 5.55% 5.37% 4.21%(b) 5.19% 3.18% 3.28% 5.12% 7.53% 8.87%
Net Assets, end of period
(000)...................... $135,745 $180,218 $167,732 $238,109 $341,136 $417,114 $443,368 $563,265 $508,859
Ratios and Supplemental Data:
Ratio of Expenses to
Average Net Assets....... 0.20% 0.17% 0.25%(c) 0.28% 0.27% 0.26% 0.22% 0.21% 0.22%
Ratio of Expenses, to
Average Net Assets
excluding Fee Waivers.... 0.40% 0.41% 0.55%(c) 0.43% 0.42% 0.41% 0.37% 0.35% 0.37%
Ratio of Net Investment
Income to Average Net
Assets................... 5.41% 5.23% 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% 4.99% 5.21%(c) 4.86% 2.99% 3.08% 4.84% 7.14% 8.38%
<CAPTION>
6/01/88
TO
5/31/89
-------
<S> <C>
Net Asset Value, beginning of
period..................... $1.00
-------
Income from Investment
Operations:................ .0859
Net Gain on Securities
(both realized and
unrealized)............ --
-------
Total Income from
Investment
Operations.......... .0859
-------
Less Distributions:
Dividends from Net
Investment Income........ (.0859)
Dividends from Capital
Gains.................... --
-------
Total Distributions.... (.0859)
-------
Net Asset Value, end of
period..................... $1.00
=======
Total Return................. 8.94%
Net Assets, end of period
(000)...................... $464,483
Ratios and Supplemental Data:
Ratio of Expenses to
Average Net Assets....... 0.22%
Ratio of Expenses, to
Average Net Assets
excluding Fee Waivers.... 0.38%
Ratio of Net Investment
Income to Average Net
Assets................... 8.59%
Ratio of Net Investment
Income to Average Net
Assets excluding Fee
Waivers.................. 8.43%
</TABLE>
- ---------------------------
(a) Fiscal year end was changed to February 29 from May 31.
(b) Not Annualized
(c) Annualized
5
<PAGE> 10
TAX-FREE MONEY MARKET
<TABLE>
<CAPTION>
3/01/97 3/01/96 3/01/95 3/01/94 3/01/93 3/01/92 3/01/91 3/01/90
TO TO TO TO TO TO TO TO
2/28/98 2/28/97 2/29/96 2/28/95 2/28/94 2/28/93 2/29/92 2/28/91
------- ------- ------- ------- ------- ------- ------- -------
<S> <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
------- ------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations:
Net Investment Income...... .0337 .0312 .0353 .0286 .0227 .0273 .0407 .0558
Net Gain/(Loss) on
Securities (both realized
and unrealized).......... -- (.0002) -- (.0003) -- -- .0001 --
------- ------- ------- ------- ------- ------- ------- -------
Total Income from
Investment
Operations............ .0337 .0310 .0353 .0283 .0227 .0273 .0408 .0558
------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income..................... (.0337) (.0312) (.0353) (.0286) (.0227) (.0273) (.0407) (.0558)
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions...... (.0337) (.0312) (.0353) (.0286) (.0227) (.0273) (.0407) (.0558)
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, end of
period....................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= ======= ======= =======
Total Return................... 3.42% 3.17% 3.59% 2.94% 2.29% 2.76% 4.15% 5.73%
Net Assets, end of period
(000)........................ $57,771 $54,061 $94,815 $107,357 $152,273 $202,245 $227,249 $255,298
Ratio and Supplemental Data:
Ratio of Expenses to Average
Net Assets................. 0.25% 0.33% 0.31% 0.29% 0.28% 0.23% 0.23% 0.22%
Ratio of Expenses, to Average
Net Assets excluding Fee
Waivers.................... 0.55% 0.58% 0.51% 0.49% 0.48% 0.43% 0.45% 0.44%
Ratio of Net Investment
Income to Average Net
Assets..................... 3.36% 3.12% 3.53% 2.86% 2.27% 2.73% 4.07% 5.58%
Ratio of Net Investment
Income to Average Net
Assets excluding Fee
Waivers.................... 3.06% 2.87% 3.33% 2.66% 2.07% 2.53% 3.85% 5.36%
<CAPTION>
3/01/89 3/01/88
TO TO
2/28/90 2/28/89
------- -------
<S> <C> <C>
Net Asset Value beginning of
period....................... $1.00 $1.00
------- -------
Income from Investment
Operations:
Net Investment Income...... .0613 .0532
Net Gain/(Loss) on
Securities (both realized
and unrealized).......... -- --
------- -------
Total Income from
Investment
Operations............ .0613 .0532
------- -------
Less Distributions:
Dividends from Net Investment
Income..................... (.0613) (.0532)
------- -------
Total Distributions...... (.0613) (.0532)
------- -------
Net Asset Value, end of
period....................... $1.00 $1.00
======= =======
Total Return................... 6.31% 5.45%
Net Assets, end of period
(000)........................ $300,001 $200,396
Ratio and Supplemental Data:
Ratio of Expenses to Average
Net Assets................. 0.20% 0.18%
Ratio of Expenses, to Average
Net Assets excluding Fee
Waivers.................... 0.43% 0.45%
Ratio of Net Investment
Income to Average Net
Assets..................... 6.13% 5.32%
Ratio of Net Investment
Income to Average Net
Assets excluding Fee
Waivers.................... 5.90% 5.05%
</TABLE>
6
<PAGE> 11
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 28, 1998, Prime Obligations' yield was
5.43% and its compounded effective yield was 5.58%. During this 7-day period,
100% of the Fund's investment advisory fees were voluntarily waived by
Fairfield, and 100% of the Fund's administrative fees were voluntarily waived by
Fairfield.
For the 7-day period ended February 28, 1998, Tax-Free Money Market's yield
was 3.15% and its compounded effective yield was 3.20%. During this 7-day
period, 83% of the Fund's investment advisory fees were voluntarily waived by
Fairfield. During this 7-day period, 100% of the Fund's administrative fees were
voluntarily waived by Fairfield.
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 28, 1998, the Fund's taxable
equivalent yields for the 15%, 28%, 31%, 36%, and 39.6% tax brackets were 3.71%,
4.38%, 4.57%, 4.92%, and 5.22%, respectively.
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
7
<PAGE> 12
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 Fannie Mae, 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
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
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<PAGE> 13
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 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
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<PAGE> 14
to the issuer, is exempt from federal income taxes ("Municipal Securities"),
except in extraordinary circumstances (see "Temporary Investments"). Municipal
Securities will include, but not be limited to, the following:
GENERAL OBLIGATION BONDS AND NOTES
BOND AND/OR GRANT ANTICIPATION NOTES
CONSTRUCTION LOAN NOTES
REVENUE BONDS AND NOTES
TAX AND/OR REVENUE ANTICIPATION NOTES
TAX-EXEMPT COMMERCIAL PAPER
VARIABLE RATE DEMAND OBLIGATIONS
Municipal Securities which are rated at the time of purchase must be rated
in the highest short-term rating category of Moody's Investors Service, Inc.
("Moody's") and/or Standard & Poor's Corporation ("S&P"). Therefore, Municipal
Securities purchased by the Fund must meet or exceed the ratings set forth
below:
<TABLE>
<CAPTION>
MINIMUM RATINGS
MOODY'S S&P
--------- -------
<S> <C> <C>
Notes........................................... "MIG-1" "SP-1"
Tax-Exempt Commercial Paper..................... "Prime-1" "A-1"
Variable Rate Demand Obligations................ "VMIG-1" "A-1"
</TABLE>
Securities that have no short-term ratings at the time of purchase must be
determined to be of comparable quality by Fairfield, pursuant to guidelines
approved by Navigator's Board, or must be issued by an issuer having comparable
short-term securities outstanding that satisfy the above rating criteria. To the
extent that the ratings accorded by Moody's or S&P may change as a result of
changes in their rating systems, the Fund will attempt to use comparable ratings
as standards for its investments, in accordance with the investment policies
contained herein. Where necessary to ensure that an instrument meets, or is of
comparable quality to, the Fund's rating criteria, the Fund will require that
the issuer's obligation to pay the principal of, and the interest on, the
instrument be backed by insurance or by an unconditional bank letter or line of
credit, guarantee, or commitment to lend.
Because the Fund often purchases securities supported by credit
enhancements from banks and other financial institutions, changes in the credit
quality of these institutions may cause losses to the Fund and could affect its
share price.
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.
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<PAGE> 15
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
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.
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<PAGE> 16
Temporary Investments will 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
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. Invest more than 10% of its net 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.
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<PAGE> 17
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
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. Invest more than 10% of its net assets in illiquid securities,
including illiquid variable rate demand obligations, and repurchase
agreements providing for settlement more than seven days after notice.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS
Investments by a money market fund are subject to limitations imposed under
regulations adopted by the SEC. Under these regulations, money market funds may
only acquire obligations that present minimal credit risks and that are
"eligible securities," which means they are (i) rated, at the time of
investment, by at least two nationally recognized statistical rating
organizations (one if it is the only organization rating such obligation) in the
highest short-term rating category or, if unrated, determined to be of
comparable quality (a "first tier security"), or (ii) rated according to the
foregoing criteria in the second highest short-term rating category or, if
unrated, determined to be of comparable quality ("second tier security"). A
security is not considered to be unrated if its issuer has outstanding
obligations of comparable priority and security that have a short-term rating.
Investments in second tier securities (second tier conduit securities for the
Tax-Free Money Market) are subject to the further constraint that (i) no more
that 5% of a Fund's assets may be invested in such securities in the aggregate,
and (ii) any investments in such securities of one issuer is limited to the
greater of 1% of a Fund's total assets or $1 million. A taxable money market
fund may also hold more than 5% of its assets in the first tier securities of a
single issuer for three business days. The manager will determine that an
obligation presents minimal credit risks or that unrated instruments are of
comparable quality in accordance with guidelines established by the Directors.
The securities that money market funds may acquire may be supported by credit
enhancements, such as demand features or guarantees. SEC regulations limit the
percentage of securities that a money market fund may hold for which a single
issuer provides credit enhancements.
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<PAGE> 18
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 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.
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<PAGE> 19
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.
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 FPS Services, Inc. ("Transfer Agent") for the account of
the shareholder. Effective February 23, 1998, First Data Investors Services,
Inc. acquired FPS Services, Inc. and assumed the role as the Funds' Transfer
Agent. 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.
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<PAGE> 20
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
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 distributions," as described in the
Code.
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<PAGE> 21
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
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 shortand
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.
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.
17
<PAGE> 22
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>
NAME, ADDRESS AND AGE POSITION WITH COMPANY PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------- -------------------- --------------------------------------
<S> <C> <C>
Robert J. Walker, Jr* (53) Chairman, President, President, Chief Executive Officer and a
200 Gibraltar Road and Director Director of Fairfield from 1995 to present.
Horsham, PA 19044 Formerly: Senior Vice President, Fidelity
Investments Institutional Services Co.,
1991 to 1995; Senior Vice President, SEI
Corporation, 1987 to 1990.
Richard G. Gilmore (71) Director Independent Consultant; Director of CSS
948 Kennett Way Industries, Inc.; Director, PECO Energy
West Chester, PA 19380 formerly (Philadelphia Electric Co.);
Director/Trustee of nine Legg Mason funds.
Formerly: Senior Vice President and Chief
Financial Officer, Philadelphia Electric
Co. 1986 to 1991.
Jan J. Wieckowski (75) Director Retired; Part-time consultant to financial
504 Meadowbrook Circle institutions; Executive Vice President of
St. Davids, PA 19087 Mellon Bank East, from 1983 to 1986;
Executive Vice President of Girard Bank,
prior to 1983.
Gerard J. Wills (53) Vice President and Vice President, CFO, Treasurer and
200 Gibraltar Road Treasurer Secretary of Fairfield since 1996; Asst.
Horsham, PA 19044 Director, State of Delaware's Division of
Revenue, 1994 to 1996; Senior Accountant,
Han & Associates, 1993 to 1994; Vice
President, Meritor Savings Bank/
Philadelphia Savings Fund Society,
1982-1992.
Robert J. Clark (44) Controller Controller 1997 and Senior Accountant with
200 Gibraltar Road Fairfield 1996 to 1997; Senior Accountant
Horsham, PA 19044 with Robert Half International 1994 to
1996; New Jersey Economic Development
Authority, 1992 to 1994.
James W. Jennings (61) Secretary Partner with the law firm of Morgan, Lewis
2000 One Logan Square & Bockius LLP, since 1970.
Philadelphia, PA 19103
</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.
18
<PAGE> 23
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 Advisor, 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 fiscal year ended February 28,
1998, Fairfield received investment advisory fees totaling $288,248 (prior to
fees waived of $214,369). For the previous year ended February 28, 1997, and for
the period June 1, 1995 to February 29, 1996, Fairfield received investment
advisory fees of $351,362 (prior to fees waived of $299,751) and $387,603 (prior
to fees waived of $346,340), respectively.
With respect to Tax-Free Money Market, for the fiscal years ended February
28, 1998, February 28, 1997 and February 29, 1996, Fairfield received investment
advisory fees of $137,976 (prior to fees waived of $108,333), $173,384 (prior to
fees waived of $131,791) and $251,408 (prior to fees waived of $200,707),
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 twenty-five 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.
Bruce C. Silverman, in his capacity as Fund Manager with Fairfield, is
primarily responsible for managing Tax Free Money Market's Investment Portfolio.
Mr. Silverman holds a MBA from St. Joseph's University and has thirteen years of
banking experience.
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 fiscal year ended February 28,
1998, Fairfield was paid administrative fees totaling $73,877 after voluntary
fee waivers of $70,245. Absent such fee waivers, the administrative fees payable
by the Fund for the period would have been $144,124. With respect to the
Tax-Free Money Market, Fairfield was paid no administrative fees. Absent such
fee waivers, the administrative fees payable by the Fund for the period would
have been $55,191.
As of the date of this prospectus, Fairfield was waiving a portion of its
administrative fees from Prime Obligations and was waiving all of its
administrative fees from Tax-Free Money Market, in order to assist each
19
<PAGE> 24
Fund in maintaining a competitive expense ratio. In the future, Fairfield may
waive all or continue to waive a portion of its administrative fees.
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 fiscal
year ended February 28, 1998, the Fund paid fees totaling $1,720 to 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
omissions 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
20
<PAGE> 25
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.
Like other mutual funds, financial and business organizations and
individuals around the world, each of the Funds could be adversely affected if
the computer systems used by its investment advisor, sub-advisers and other
service providers do not properly process and calculate date-related information
from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Manager is taking steps that it believes are reasonably designed
to address the Year 2000 Problem with respect to the computer systems that it
uses and to obtain satisfactory assurances that comparable steps are being taken
by each of the Funds' other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the funds.
21
<PAGE> 26
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NAVIGATOR MONEY MARKET -- PRIME OBLIGATIONS PORTFOLIO
(Navigator Money Market Fund, Inc.)
NAVIGATOR TAX-FREE MONEY MARKET FUND
(Navigator Tax-Free Money Market Fund, Inc.)
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR THE FUND'S
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.
INVESTMENT ADVISER,
ADMINISTRATOR,
AND DISTRIBUTOR
Fairfield Group, Inc.
Horsham, PA 19044
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
Philadelphia, PA 19103
AUDITORS
Ernst & Young LLP
Philadelphia, PA 19103
PROSPECTUS DATED JUNE 30, 1998.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
[NAVIGATOR LOGO]
200 Gibraltar Road
Horsham, PA 19044
1-800-441-3885
<PAGE> 28
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 30, 1998
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Companies.......................................... B-2
Additional Investment Policies......................... B-2
Additional Investment Restrictions and Limitations..... B-6
Additional Purchase and Redemption Information......... B-7
Net Asset Value........................................ B-7
Dividends.............................................. B-8
Yields................................................. B-8
Additional Information Concerning Taxes................ B-8
Description of Shares.................................. B-10
Directors and Officers................................. B-11
Principal Holders of Securities........................ B-12
Investment Adviser, Administrator, and Distributor..... B-13
Portfolio Transactions................................. B-14
Custodian and Transfer Agent........................... B-14
Expenses............................................... B-15
Financial Statements................................... B-15
Independent Auditors................................... B-15
Legal Counsel.......................................... B-15
Miscellaneous.......................................... B-15
Appendix............................................... B-16
</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 30, 1998
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> 29
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 monies or monies 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 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, subject to Board of
Directors determination, 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
B-2
<PAGE> 30
affected by litigation or other conditions. For purposes of this Statement of
Additional Information and the Fund's Prospectus, the District of Columbia, each
state, each of their political subdivisions, agencies, instrumentalities and
authorities, and each multi-state agency of which a state is a member is
considered to be an "issuer." Further, the non-governmental user of facilities
financed by industrial development bonds is considered to be an "issuer." With
respect to those Municipal Securities that are supported by a bank guarantee or
other credit facility, the bank or other institution (or governmental agency)
providing the guarantee or credit facility may also be considered to be an
"issuer" in connection with the guarantee or facility.
Among other types of Municipal Securities, the Fund may purchase short-term
general obligation notes, tax anticipation notes, bond anticipation notes,
revenue anticipation notes, tax-exempt commercial paper, construction loan
notes, and other forms of short-term loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements, or other revenues. In addition, the Fund may invest in other
types of tax-exempt instruments such as municipal bonds, industrial development
bonds and pollution control bonds, provided they have remaining maturities of
397 days or less at the time of purchase.
SPECIAL CONSIDERATIONS
From time to time, proposals have been introduced in Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Securities, and the Fund cannot predict what legislation
relating to Municipal Securities, if any, may be introduced in Congress in the
future. It may be noted, however, that the Treasury Department has in the past
proposed, as a part of general tax reform, to limit the exemption for state and
local bonds to those issued for governmental purposes. Such proposals, if
enacted, might materially adversely affect the availability of Municipal
Securities for investment by the Fund and hence the value of the Fund's
portfolio. In such an event, the Fund would re-evaluate its investment objective
and policies and consider changes in its structure or possible dissolution.
ADDITIONAL INFORMATION ON INVESTMENT PRACTICES
1. VARIABLE RATE DEMAND OBLIGATIONS
Variable rate demand obligations held by the Fund may have maturities of
more than 397 days, provided (i) the Fund is entitled to the payment of
principal and accrued interest at specified intervals not exceeding 397 days and
upon not more than 30 days' notice, or (ii) the rate of interest on such
obligations is adjusted automatically at periodic intervals, which normally will
not exceed 31 days but may extend up to 397 days.
2. WHEN-ISSUED SECURITIES
As stated in the Prospectus, the Fund may purchase Municipal Securities on
a "when-issued" basis (i.e., for delivery beyond the normal settlement date at a
stated price and yield). When the Fund agrees to purchase when-issued
securities, its Custodian will set aside cash or liquid portfolio securities
equal to the amount of the commitment in a separate account. Normally, the
Custodian will set aside portfolio securities to satisfy a purchase commitment,
and in such a case, the Fund may be required subsequently to place additional
assets in the separate account in order to ensure that the value of the account
remains equal to the amount of the Fund's commitment. It may be expected that
the Fund's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. In addition, because the Fund will set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, the Fund's liquidity
and ability to manage its portfolio might be affected in the event its
commitments to purchase when-issued securities ever exceeded 25% of the value of
its total assets. Fairfield intends, however, to take reasonable precautions in
connection with the Fund's investment practices with respect to when-issued
securities to avoid any adverse effect on the Fund's policy of maintaining its
net asset value per Share at $1.00.
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.
B-3
<PAGE> 31
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.
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 Fannie
Mae, 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-4
<PAGE> 32
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.
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.
B-5
<PAGE> 33
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.
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 nonfundamental 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
B-6
<PAGE> 34
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."
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
B-7
<PAGE> 35
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 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 gain distributions (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%).
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.
B-8
<PAGE> 36
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, U.S. 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 U.S.
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 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 RIC 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
B-9
<PAGE> 37
tax liability with respect to such distributions and they will be taxable to
Fund shareholders as a long-term capital gain, regardless of how long a
shareholder has held Fund Shares. Such distributions will be designated as
"capital gain distributions" 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 RIC 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 RICs, 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 dividends 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.
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
B-10
<PAGE> 38
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 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. 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.
The following table provides certain information relating to the
compensation of the Funds' directors for the fiscal year ended February 28,
1998. Neither Fund has any retirement plan for its directors.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM CORPORATION
AGGREGATE COMPENSATION AND FUND COMPLEX
NAME OF PERSON AND POSITION FROM CORPORATION(A) PAID TO DIRECTORS(B)
- -------------------------------------------------------- ---------------------- --------------------
<S> <C> <C>
Robert J. Walker, Jr. -- Chairman, President and
Director None None
Richard G. Gilmore -- Director $8,000 $8,000
Robert E. Keith -- Director* $8,000 $8,000
Jan J. Wieckowski -- Director $8,000 $8,000
</TABLE>
- ---------------------------
(A) Represents fees paid to each director during the fiscal year ended February
28, 1998.
(B) Represents aggregate compensation paid to each director during the fiscal
year ended February 28, 1998.
* Effective June 16, 1998, Robert E. Keith resigned as director.
B-11
<PAGE> 39
PRINCIPAL HOLDERS OF SECURITIES
Each Fund believes that as of May 5, 1998, 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>
First National Bank & Trust
40 S State St
PO Box 158
Newtown, PA 18940.......................................... 22,269,947 20.65%
Fetter & Co.
Steve Bonewicz
c/o CoreStates Bank N.A.
530 Walnut St
Philadelphia, PA 19105..................................... 19,438,375 18.03%
Legg Mason
Larry McCormick
111 S Calvert St
Baltimore, MD 21202........................................ 16,024,136 14.86%
National City Bank
PO Box 94984
Cleveland, OH 44101........................................ 15,922,363 14.77%
ORT & Co.
ORRSTN B&T Dept/M Gochenawer
P.O. Box 250
Shippensburg, PA 17257..................................... 11,767,420 10.91%
Croghan
c/o Croghan Colonial Bank
323 Croghan St
Fremont, OH 43420.......................................... 6,722,618 6.23%
</TABLE>
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....................................... 12,386,168 22.15%
Legg Mason, Inc.
C.J. Daley
111 S. Calvert Street
Baltimore, MD 21203........................................ 10,450,839 18.69%
Trusty
c/o American Trust &
Savings Bank
PO Box 938
Dubuque, IA 52004.......................................... 9,532,509 17.05%
Ribat & Co.
c/o The Rock Island Bank & Trust
PO Box 4870
Rock Island, IL 61204...................................... 6,239,248 11.16%
Munder Tax Free Bond Fund
480 Pierce Street
Birmingham, MI 48009....................................... 5,126,969 9.17%
</TABLE>
B-12
<PAGE> 40
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF TOTAL
NAME AND ADDRESS BENEFICIAL OWNERSHIP SHARES OUTSTANDING
---------------- -------------------- ------------------
<S> <C> <C>
Munder Tax Free Intermediate
Bond Fund
480 Pierce Street
Birmingham, MI 48009....................................... 4,255,223 7.61%
Fetter & Co.
c/o CoreStates Bank NA
530 Walnut Street
Philadelphia, PA 19105..................................... 3,219,826 5.76%
</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. 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.
B-13
<PAGE> 41
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 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. Effective April 28, 1998, First Union National Bank
acquired CoreStates Bank, N.A. and assumed the role as the Funds' Custodian.
Under each Custodian Agreement, First Union National 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. First Union National 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 First Union National 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
First Data Investors Services, Inc., 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 Fund's net asset value per Share and calculate each Fund's net
income, and (vi) perform other related services. First Data Investors Services,
Inc.'s business address is 3200 Horizon Drive, King of Prussia, Pennsylvania
19406-0903.
B-14
<PAGE> 42
FEES
For the services provided under their respective Agreements, First Union
National Bank (as Custodian) and First Data Investors Services, Inc. (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.
FINANCIAL STATEMENTS
The financial statements for each Fund for the fiscal year ended February
28, 1998 and the report of Ernst & Young LLP, independent auditors, all of which
are included in the Funds' 1998 Annual Report to Shareholders, are hereby
incorporated by reference in this Statement of Additional Information. Copies of
the Funds' 1998 Annual Report to Shareholders may be obtained without charge by
contacting Fairfield.
INDEPENDENT AUDITORS
Ernst & Young LLP, Two Commerce Square, Suite 4000, 2001 Market Street,
Philadelphia, PA 19103, has been selected by the Board of Directors to serve as
the Funds' independent auditors.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, (of which Mr. Jennings, Secretary of the
Funds, is a partner), 2000 One Logan Square, Philadelphia, Pennsylvania 19103,
serves as counsel to the Funds. 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-15
<PAGE> 43
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
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-16
<PAGE> 44
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 1998 Annual Report to
Shareholders filed on April 23, 1998.
- Report of Independent Auditors dated
April 8, 1998.
- Statement of Net Assets - February
28, 1998.
- Statement of Operations for the
fiscal year ended February 28, 1998.
- Statement of Changes in Net Assets for
the fiscal years ended February 28,
1998 and 1997.
- Notes to Financial Statements.
(2) All required financial statements are
incorporated by reference from the
Registrant's 1998 Annual Report to
Shareholders and included in Parts A and B
hereof. All other financial statements
and schedules are inapplicable.
(b) Exhibits:
(1)(a) Articles of Incorporation of Registrant,
dated January 27, 1986, filed as Exhibit
(1)(a) to Post-Effective Amendment No. 12
to Registrant's Registration Statement on
Form N-1A, filed with the Securities and
Exchange Commission (the "SEC") via EDGAR
on June 30, 1997.
(b) Certificate of Correction of Articles of
Incorporation, dated May 31, 1986 filed as
Exhibit (1)(b) to Post-Effective Amendment
No. 12 to Registrant's Registration
Statement on Form N-1A, filed with the SEC
via EDGAR on June 30, 1997.
(c) Articles Supplementary, dated March 9, 1987
filed as Exhibit (1)(c) to Post-Effective
Amendment No. 12 to Registrant's
<PAGE> 45
Registration Statement on Form N-1A, filed
with the SEC via EDGAR on June 30, 1997.
(2) By-Laws, as amended by Registrant's Directors on
March 6, 1990, filed as Exhibit (2) to
Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A, filed with the
SEC via EDGAR on June 30, 1997.
(3) None
(4) None
(5) Management Agreement, dated April 17, 1993 between
Registrant and Fairfield Group, Inc. filed as
Exhibit (5) to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A,
filed with the SEC via EDGAR on June 30, 1997.
(6) Distribution Agreement, dated April
17, 1993, between Registrant and
Fairfield Group, Inc. filed as
Exhibit (6) to Post-Effective
Amendment No. 12 of Registrant's
Registration Statement on Form
N-1A, filed with the SEC via EDGAR
on June 30, 1997.
(7) None
(8)(a) Custody Agreement, dated June 23,
1997, between Registrant and
CoreStates Bank N.A. filed as
Exhibit (8)(a) to Post-Effective
Amendment No. 12 of Registrant's
Registration Statement on Form
N-1A, filed with the SEC via EDGAR
on June 30, 1997.
(b) Transfer Agency Agreement, dated
March 27, 1986, between Registrant
and Fund/Plan Services, Inc. filed
as Exhibit (8)(b) to Post-Effective
Amendment No. 12 of Registrant's
Registration Statement on Form
N-1A, filed with the SEC via EDGAR
on June 30, 1997.
(9) None
(10) Opinion of Morgan, Lewis & Bockius LLP, dated June
1,1998, filed herewith.
(11) Consent of Ernst & Young LLP, filed herewith.
(12) None
(13) None
(14) None
<PAGE> 46
(15) None
(16) Schedules for Computation of Performance Quotations
filed as Exhibit (16) to Post-Effective Amendment No.
12 of Registrant's Registration Statement on Form
N-1A, filed with the SEC via EDGAR on June 30, 1997
(24) Powers of Attorney, dated June 27, 1995, filed as
Exhibit 24 to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A,
filed with the SEC via EDGAR on June 28, 1995.
(27) Financial Data Schedule, filed herewith.
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 May 29, 1998:
<TABLE>
<CAPTION>
(1) (2)
<S> <C>
Title of Class Number of Recordholders
-------------- ------------------------
Shares of Common Stock, 12
$0.001 par value
</TABLE>
Item 27. Indemnification
Article VII of the Articles of Incorporation filed as Exhibit
1 to the Registration Statement is incorporated by reference. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant by
the Registrant pursuant to the Articles of Incorporation or otherwise, the
Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by directors, officers or controlling
persons of the Registrant in connection with the successful defense of any act,
suit or proceeding) is asserted by such directors, officers or controlling
persons in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
<PAGE> 47
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. are 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.
Timothy C. Scheve Secretary and Director None
211 S. Calvert Street
Baltimore, MD 21203
Edward A. Taber Chairman None
211 S. Calvert St.
Baltimore, MD 21203
Gerard J. Wills* Chief Financial Officer, Vice President,
Vice President, Assistant Treasurer and
Secretary, Treasurer and Assistant Secretary.
Director
</TABLE>
- -----------------
*200 Gibraltar Road, Horsham, PA 19044
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:
<PAGE> 48
(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.
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 13
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 13 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Horsham and Commonwealth
of Pennsylvania on the 25th day of June, 1998.
<TABLE>
<S> <C>
NAVIGATOR TAX-FREE MONEY MARKET FUND, INC.
/s/ Robert J. Walker, Jr.
-----------------------------------------------
President
ATTEST:
/s/ James W. Jennings
- --------------------------------------------------
Secretary
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 13 to the Registration Statement of Navigator
Tax-Free Money Market Fund, Inc. has been signed below by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert J. Walker, Jr. Chairman, June 25, 1998
- ----------------------------- President and
Robert J. Walker, Jr. Director
* Director June 25, 1998
- ------------------------------------------
Richard G. Gilmore
* Director June 25, 1998
- ------------------------------------------
Jan J. Wieckowski
/s/ Gerard J. Wills Vice President and June 25, 1998
- --------------------------------- Treasurer (Principal Financial
Gerard J. Wills and Accounting Officer)
*By: /s/ Robert J. Walker, Jr.
--------------------------------------
Robert J. Walker, Jr.
Attorney-In-Fact
</TABLE>
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
Ex-99.B(10) Opinion of Morgan, Lewis & Bockius LLP
Ex-99.B(11) Consent of Ernst & Young LLP
Ex-27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit (10)
<TABLE>
<S> <C>
2000 One Logan Square Morgan, Lewis
Philadelphia, PA 19103-6993 & Bockius LLP
215-963-5000 COUNSELORS AT LAW
Fax: 215-963-5299
</TABLE>
June 1, 1998
Navigator Tax-Free Money Market Fund, Inc.
200 Gibraltar Road
Horsham, Pennsylvania 19044
Ladies and Gentlemen:
We have acted as counsel to you in connection with the organization of
Navigator Tax-Free Money Market Fund, Inc. (the "Fund") and with the proposed
offering of up to 2,000,000,000 shares of common stock, par value $0.001 per
share, (the "Common Stock") of the Fund.
We supervised the action taken by the Fund to effect registration with the
Securities and Exchange Commission as an investment management company by the
filing of a Notification of Registration on Form N-8A under the Investment
Company Act of 1940. We have examined copies of the Registration Statement, as
amended, under said Act and under the Securities Act of 1933 on Form N-1A (File
No. 33-3082) (the "Registration Statement"), in the forms filed or to be filed
with the Securities and Exchange Commission.
Based upon the foregoing, we were of the opinion that, as of the
effective date of the Registration Statement, and remain of the opinion that:
1. The Fund is a Maryland corporation validly organized and in
good standing under the laws of that State, authorized to
issue up to 2,000,000,000 shares of Common Stock (the
"Shares").
2. The Shares, when issued upon receipt of payment therefor as
described in the Fund's prospectus filed as part of the
Registration Statement, will be validly issued, fully paid and
nonassessable by the Fund.
We have not reviewed the securities laws of any state or territory in
connection with the proposed offering of Shares and we express no opinion as to
the legality of any offer or sale of Shares under any such state or territorial
securities laws.
<PAGE> 2
Navigator Tax-Free Money Market Fund, Inc.
June 1, 1998
Page 2
We hereby consent to the inclusion of this opinion as Exhibit (10) to the
Registration Statement to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE> 1
Exhibit(11)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" 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.
33-3082) of Navigator Tax-Free Money Market Fund, Inc. (Navigator Tax-Free Money
Market Fund) of our report dated April 8, 1998, included in the 1998 Annual
Report to shareholders.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
June 23, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000789016
<NAME> NAVIGATOR TAX FREE MONEY MARKET FUND, INC.
<SERIES>
<NUMBER> 1
<NAME> NAVIGATOR TAX FREE MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 57,000
<INVESTMENTS-AT-VALUE> 57,000
<RECEIVABLES> 149
<ASSETS-OTHER> 622
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,771
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 174
<TOTAL-LIABILITIES> 174
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57,812
<SHARES-COMMON-STOCK> 57,812
<SHARES-COMMON-PRIOR> 54,103
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (42)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 57,771
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,996
<OTHER-INCOME> 0
<EXPENSES-NET> 140
<NET-INVESTMENT-INCOME> 1,856
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,856
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,856
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 396,461
<NUMBER-OF-SHARES-REDEEMED> (393,121)
<SHARES-REINVESTED> 369
<NET-CHANGE-IN-ASSETS> 3,709
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (42)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 137
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 304
<AVERAGE-NET-ASSETS> 55,191
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> (.034)
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.034)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
