<PAGE>
Table of Contents
1 Letter to Shareholders
3 Statements of Assets and Liabilities
4 Statements of Operations
5 Statements of Changes in Net Assets
6 Portfolios of Investments
19 Notes to Financial Statements
26 Financial Highlights
28 Report of Independent Public Accountants
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST CHICAGO NBD CORPORATION OR ITS
AFFILIATES, AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY. INVESTMENT
IN THE TRUST INVOLVES RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE
CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A CONSTANT NET
ASSET VALUE OF $1.00 PER SHARE. PEGASUS FUNDS
(800) 688-3350
INVESTMENT ADVISER
First Chicago NBD Investment Management Company (FCNIMCO)
Three First National Plaza, MS 0334
Chicago, IL 60670-0334
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS
PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.
Pegasus Funds I
<PAGE>
Dear Shareholder:
INVESTMENT YEAR IN REVIEW
It appears that the U.S. economy is experiencing an almost ideal combination of
continued growth, tame inflation, and strong employment. U.S. Federal Reserve
(Fed) policy makers left the benchmark Federal Funds (Fed Funds) rate unchanged
for most of 1997. The Fed last raised the Fed Funds rate from 5.25% to 5.50% on
March 25, 1997, as large gains in gross domestic product were reported for the
fourth quarter of 1996 (4.3%) and the first quarter of 1997 (4.9%). The Fed
worried that the strong economy would lead to increasing inflation. The economy
did remain strong for the rest of 1997, but excessive inflation did not appear.
For the year, inflation as measured by the consumer price index (CPI), was only
1.7%. The U.S. economy is enjoying some of the lowest inflation in more than a
decade. Except for 1986, when the collapse of oil prices led to a drop in the
CPI, inflation has not been so low since the 1960s.
Employment also remains strong. December's unemployment rate came in at 4.7%,
which followed November's 4.6%, the lowest in 24 years. The economy of 1997 has
caused many economists to re-think the traditional teaching that tight labor
markets almost certainly result in higher wages which in turn result in higher
prices as the wage increases are passed on to the consumer. However, wages are
rising. There are worker shortages in many industries and companies are
increasing compensation to retain and attract employees. And because of this,
the Fed will most certainly keep a watchful eye on wage pressures.
MUNICIPAL MONEY MARKET REVIEW
For much of the first part of 1997, the short-term tax-exempt market saw
excessive cash inflows with tax-free money funds at a record level of $150
billion in assets by the end of the first quarter. The Fed Funds increase in
March led many longer-term investors toward a more cautionary position by
shifting assets from the capital markets to the cash markets. By mid-April, the
positive cash flows which had been present for much of the early stages of the
year finally reversed as income-tax related redemptions caused tax-free assets
to fall by nearly $7 billion or almost 5%.
The second half of the year was supply driven with 83% ($37.4 billion) of total
1997 new issuances coming to market. This was a welcome source of relief for
fund managers as they deployed some of their excess liquidity into longer-term
notes. The combination of heavy supply and investor interest in the surging
equity market resulted in upward pressure on short-term tax-exempt interest
rates, resulting in a sharply inverted yield curve at year end. We expect the
curve to return to normal in the beginning of the year.
INTEREST RATE OUTLOOK
It appears that the Fed will hold a steady course until the problems in Asia
are resolved in the upcoming months. Some have talked of deflation, but this
seems unlikely as our domestic economy remains robust. U.S. Treasury yields
have been pushed down by a "flight to quality" causing the short-end of the
yield curve to invert. As the Asian problems are sorted out, the short-end of
the curve should become positively sloped again. It looks like 1998 will be
similar to 1997 with short-term interest rates generally holding relatively
steady in both the taxable and tax-exempt markets.
Sincerely,
LOGO
George F. Abel
Chief Investment Officer
First Chicago NBD Investment Management Company
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
2 Pegasus Funds
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY MUNICIPAL MICHIGAN MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
-------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in securi-
ties:
At cost $2,179,962,259 $977,377,992 $726,864,739 $103,727,142
- ---------------------------------------------------------------------------------------
At amortized cost $2,182,925,547 $978,067,127 $726,598,012 $103,416,678
Cash 804,947 2,164 48,062 25,267
Interest receivable 21,265,978 4,967,107 4,664,194 874,320
Prepaids and other 480,685 -- -- 27,936
- ---------------------------------------------------------------------------------------
TOTAL ASSETS 2,205,477,157 983,036,398 731,310,268 104,344,201
- ---------------------------------------------------------------------------------------
LIABILITIES:
Payable for shares re-
deemed 7,975,314 -- 30,000 --
Accrued administration
fees 291,613 120,054 98,130 13,610
Shareholder services
fees payable 203,619 49,917 44,602 6,610
Accrued investment advi-
sory fees 549,721 240,107 196,259 27,220
Accrued transfer agent
fees 85,625 10,325 7,491 81
Accrued custodial fees 2,969 4,028 5,157 239
Dividends payable 4,336,196 2,823,688 1,537,037 206,829
Other payables and ac-
crued expenses -- 65,587 72,447 --
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES 13,445,057 3,313,706 1,991,123 254,589
- ---------------------------------------------------------------------------------------
NET ASSETS $2,192,032,100 $979,722,692 $729,319,145 $104,089,612
- ---------------------------------------------------------------------------------------
NET ASSET VALUE AND RE-
DEMPTION PRICE PER
SHARE:
CLASS A SHARES:
Net assets $ 973,820,802 $234,049,808 $204,526,632 $ 29,201,826
Capital shares 973,818,008 234,066,536 204,580,757 29,202,390
- ---------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
CLASS B SHARES:
Net assets $ 338,263 $ -- $ -- $ --
Capital shares 338,263 -- -- --
- ---------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 1.00 $ -- $ -- $ --
- ---------------------------------------------------------------------------------------
CLASS I SHARES:
Net assets $1,217,873,035 $745,672,884 $524,792,513 $ 74,887,786
Capital shares 1,217,873,035 745,672,884 524,794,138 74,888,209
- ---------------------------------------------------------------------------------------
Net asset value and re-
demption price per share $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital shares (unlim-
ited number of shares
authorized, par value
$.10 per share) $ 219,202,931 $ 97,973,942 $ 72,937,490 $ 10,409,060
Additional paid-in capi-
tal 1,972,826,375 881,765,478 656,437,405 93,681,539
Accumulated undistrib-
uted net realized gains
(losses) 2,794 (16,728) (55,750) (987)
- ---------------------------------------------------------------------------------------
TOTAL NET ASSETS $2,192,032,100 $979,722,692 $729,319,145 $104,089,612
- ---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds 3
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY MUNICIPAL MICHIGAN MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
-----------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME $137,212,807 $58,855,781 $31,246,988 $4,688,142
- ------------------------------------------------------------------------------------
EXPENSES:
Investment advisory
fees 6,818,663 2,939,704 2,544,532 379,957
Administration fees 3,641,198 1,602,847 1,272,266 189,978
Transfer and dividend
disbursement agent fees 1,204,507 77,320 73,570 13,499
Shareholder service
fees (Class A shares) 2,074,770 473,261 463,609 143,515
Shareholder service
fees (Class B shares) 994 -- -- --
12b-1 fees (Class B
shares) 2,984 -- -- --
Professional fees 105,908 63,738 50,471 37,115
Custodial fees 36,857 12,828 38,829 8,024
Registration, filing
fees and other expenses 211,196 122,469 66,465 49,295
Less: Expense reim-
bursement (46,475) -- -- (44,602)
- ------------------------------------------------------------------------------------
NET EXPENSES 14,050,602 5,292,167 4,509,742 776,781
- ------------------------------------------------------------------------------------
NET INVESTMENT INCOME 123,162,205 53,563,614 26,737,246 3,911,361
- ------------------------------------------------------------------------------------
NET REALIZED LOSSES ON
INVESTMENTS -- -- (2,098) --
- ------------------------------------------------------------------------------------
NET INCREASE IN NET AS-
SETS FROM OPERATIONS $123,162,205 $53,563,614 $26,735,148 $3,911,361
- ------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
4 Pegasus Funds
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY
MONEY MARKET MONEY MARKET
FUND FUND
------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income $ 123,162,205 $ 101,190,560 $ 53,563,614 $ 66,048,537
Net realized
gains (losses)
on investments -- 2,794 -- (743)
- -------------------------------------------------------------------------------------------------
Net increase in
net assets from
operations 123,162,205 101,193,354 53,563,614 66,047,794
- -------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET INVESTMENT
INCOME (NOTE 2):
Class A shares (40,816,984) (39,714,946) (9,126,231) (15,961,445)
Class B shares (15,474) (1,519)(/1/) -- --
Class I shares (82,329,747) (61,474,095)(/2/) (44,437,383) (50,087,092)(/2/)
- -------------------------------------------------------------------------------------------------
Total distribu-
tions to share-
holders (123,162,205) (101,190,560) (53,563,614) (66,048,537)
- -------------------------------------------------------------------------------------------------
FROM CAPITAL
SHARE TRANSAC-
TIONS:
Proceeds from
shares sold 9,687,488,060 14,864,047,666 4,728,247,544 14,570,699,743
Proceeds from
shares issued in
connection with
merger -- 401,052,532 -- 441,805,139
Net asset value
of shares issued
in reinvestment
of distributions
to shareholders 59,792,177 34,746,272 13,617,762 10,667,035
- -------------------------------------------------------------------------------------------------
9,747,280,237 15,299,846,470 4,741,865,306 15,023,171,917
Less: payments
for shares re-
deemed (9,999,101,019) (14,495,691,196) (5,032,144,249) (14,680,865,041)
- -------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets from
capital share
transactions (251,820,782) 804,155,274 (290,278,943) 342,306,876
- -------------------------------------------------------------------------------------------------
NET INCREASE (DE-
CREASE) IN NET
ASSETS (251,820,782) 804,158,068 (290,278,943) 342,306,133
NET ASSETS:
Beginning of
year 2,443,852,882 1,639,694,814 1,270,001,635 927,695,502
- -------------------------------------------------------------------------------------------------
End of year $ 2,192,032,100 $ 2,443,852,882 $ 979,722,692 $ 1,270,001,635
- -------------------------------------------------------------------------------------------------
<CAPTION>
MUNICIPAL MICHIGAN MUNICIPAL
MONEY MARKET MONEY MARKET
FUND FUND
-------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income $ 26,737,246 $ 20,832,980 $ 3,911,361 $ 3,849,942
Net realized
gains (losses)
on investments (2,098) -- -- (987)
- -------------------------------------------------------------------------------------------------
Net increase in
net assets from
operations 26,735,148 20,832,980 3,911,361 3,848,955
- -------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET INVESTMENT
INCOME (NOTE 2):
Class A shares (5,495,113) (6,597,625) (1,691,184) (2,516,627)
Class B shares -- -- -- --
Class I shares (21,242,133) (14,235,355)(/2/) (2,220,177) (1,333,315)(/2/)
- -------------------------------------------------------------------------------------------------
Total distribu-
tions to share-
holders (26,737,246) (20,832,980) (3,911,361) (3,849,942)
- -------------------------------------------------------------------------------------------------
FROM CAPITAL
SHARE TRANSAC-
TIONS:
Proceeds from
shares sold 2,227,511,937 3,285,400,405 385,607,333 360,970,978
Proceeds from
shares issued in
connection with
merger -- 281,427,973 -- --
Net asset value
of shares issued
in reinvestment
of distributions
to shareholders 6,014,147 4,167,474 1,688,415 2,226,403
- -------------------------------------------------------------------------------------------------
2,233,526,084 3,570,995,852 387,295,748 363,197,381
Less: payments
for shares re-
deemed (2,318,368,395) (3,321,245,774) (404,815,670) (363,643,802)
- -------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets from
capital share
transactions (84,842,311) 249,750,078 (17,519,922) (446,421)
- -------------------------------------------------------------------------------------------------
NET INCREASE (DE-
CREASE) IN NET
ASSETS (84,844,409) 249,750,078 (17,519,922) (447,408)
NET ASSETS:
Beginning of
year 814,163,554 564,413,476 121,609,534 122,056,942
- -------------------------------------------------------------------------------------------------
End of year $ 729,319,145 $ 814,163,554 $ 104,089,612 $ 121,609,534
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period September 14, 1996 (initial offering date of Class B Shares)
through December 31, 1996.
(2) For the period of March 30, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
See Notes to Financial Statements.
Pegasus Funds 5
<PAGE>
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 4.90%
Paccar Leasing Master Note, 5.93%, 1/2/98........... 15,000,000 15,000,000
Salomon Brothers, Revolving Repurchase Agreement,
6.625%, 1/2/98 (secured by various U.S. Treasury
Notes with maturities ranging from 7/15/98 through
2/28/02 at various interest rates ranging from
5.75% to 8.25%, all held at Chase Bank)............ 15,000,000 15,000,000
Smith Barney, Inc., Revolving Repurchase Agreement,
6.75%, 1/2/98 (secured by various U.S. Treasury &
Agency Obligations with maturities ranging from
7/31/98 through 12/15/07 at various interest rates
ranging from 0.00% to 9.00%, all held at The Bank
of New York)....................................... 77,000,000 77,000,000
-------------
107,000,000
-------------
COMMERCIAL PAPER -- 30.34%
Akzo Funding Corp., 5.72%, 4/6/98................... 10,000,000 9,849,056
Apreco, Inc., 5.85%, 2/17/98........................ 20,000,000 19,847,250
Banca Serfin S.A., 5.65%, 8/31/98................... 30,000,000 28,860,583
Barton Capital Corp., 5.95%, 2/10/98................ 9,700,000 9,635,872
Block Financial Corp., 5.70%, 1/30/98............... 10,000,000 9,954,083
BTR Dunlop Finance, 5.72%, 2/18/98.................. 25,000,000 24,809,333
Calicia Funding Corp., 5.75%, 3/4/98................ 16,000,000 15,841,556
Centre Square Funding Corp.:
5.62%, 1/5/98..................................... 18,000,000 17,988,760
6.00%, 2/20/98.................................... 28,168,000 27,933,267
Centric Capital Corp., 5.71%, 9/2/98................ 13,000,000 12,496,886
Commission Federal De Electricidad, 5.75%, 2/26/98.. 10,000,000 9,910,556
Compass Securitization, Inc., 6.35%, 1/15/98........ 15,000,000 14,962,958
Dairy Investments LTD.:
5.70%, 2/18/98.................................... 25,000,000 24,810,000
5.75%, 3/17/98.................................... 10,000,000 9,880,208
Equipment Intermediation Partnership:
5.80%, 1/7/98..................................... 12,000,000 11,988,400
5.93%, 1/8/98..................................... 16,000,000 15,981,551
Explorer Pipeline Co.:
5.75%, 1/20/98.................................... 13,000,000 12,960,549
5.75%, 3/12/98.................................... 7,000,000 6,921,736
Greenwich Funding Corp., 5.90%, 1/20/98............. 10,000,000 9,966,750
Market Street Funding, 6.20%, 1/9/98................ 20,000,000 19,972,444
Matson Navigation, 6.75%, 1/8/98.................... 12,000,000 11,984,250
Mont Blanc Capital Corp., 5.85%, 1/20/98............ 10,000,000 9,969,125
National Power, 5.75%, 3/5/98....................... 14,000,000 13,859,125
Pacific Dunlop Limited:
5.75%, 3/9/98..................................... 20,000,000 19,785,972
5.75%, 3/10/98.................................... 5,000,000 4,945,694
Pearson, Inc., 5.90%, 1/8/98........................ 14,000,000 13,983,939
PHH Corporation, 6.75%, 1/2/98...................... 75,000,000 74,985,937
Pooled Accounts Receivable Cap., 5.77%, 3/18/98..... 35,000,000 34,573,661
</TABLE>
See Notes to Financial Statements.
6 Pegasus Funds
<PAGE>
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
Prudential Funding, Inc., 5.75%, 4/2/98............. $15,000,000 $ 14,783,117
Rexam Plc., 5.75%, 1/29/98.......................... 15,000,000 14,932,917
Special Purpose Account Receivable Coop Corp.:
6.03%, 1/30/98.................................... 15,000,000 14,927,137
5.75%, 2/12/98.................................... 27,000,000 26,818,875
Sun Belt Dix, Inc.:
5.55%, 1/13/98.................................... 7,651,000 7,636,846
5.78%, 1/15/98.................................... 14,000,000 13,968,531
TI Group, Inc.
5.58%, 1/12/98.................................... 10,000,000 9,982,950
5.55%, 1/23/98.................................... 5,000,000 4,983,042
5.73%, 6/10/98.................................... 17,000,000 16,567,067
Triple A One Funding Corp., 5.93%, 1/6/98........... 24,000,000 23,980,233
Windmill Funding Corp., 5.90%, 1/8/98............... 15,000,000 14,982,792
-------------
662,223,008
-------------
BANKERS ACCEPTANCE NOTES -- 0.92%:
LaSalle National Bank, 5.93%, 3/10/98............... 20,000,000 20,000,000
-------------
CORPORATE NOTES -- 22.72%
Allstate Life Insurance Co., 5.87%, 3/1/98*......... 10,000,000 10,000,000
Beta Finance Corp., Medium Term Note, 5.82%,
1/28/98............................................ 22,000,000 22,000,000
CIT Group Holdings, 6.75%, 4/30/98.................. 10,000,000 10,016,734
Commonwealth Life Insurance Co., 5.86%, 3/1/98*..... 5,000,000 5,000,000
CSA Funding (A/R), Series C, 6.34%, 3/31/98......... 24,000,000 24,000,000
GE Engine Receivables Trust, (A/R), 6.34%, 2/14/00.. 26,811,485 26,811,485
General American Life Funding Agr., 5.85%, 1/30/98.. 35,500,000 35,500,000
Key Auto Finance, 5.835%, 1/5/99.................... 40,000,000 40,000,000
Morgan Guaranty Trust Co.:
5.965%, 6/22/98................................... 17,000,000 16,997,279
5.93%, 8/31/98.................................... 20,000,000 20,007,729
Peoples Security Life Insurance Co., 5.86%, 3/1/98*. 10,000,000 10,000,000
Sigma Finance, Medium Term Note:
5.84%, 8/4/98..................................... 20,000,000 20,000,000
5.95%, 10/20/98................................... 15,000,000 15,000,000
SunAmerica Life Insurance Co., 5.83%, 1/7/98*....... 14,000,000 14,000,000
SunAmerica Life Insurance Co., 5.79%, 3/1/98*....... 25,000,000 25,000,000
Transamerica Life Insurance & Annuity Co., Funding
Agreement, (A/R),
5.85%, 12/9/02*................................... 50,000,000 50,000,000
Travelers Life Ins Co., Funding Agreement
5.91%, 11/6/98*................................... 25,000,000 25,000,000
Wachovia Bank, Medium Term Note, 5.895%, 10/2/98.... 10,000,000 9,994,570
Wheels Inc., Master Note, (A/R), 6.05%, 8/15/98..... 75,000,000 75,000,000
Wilmington Trust Co.:
Amtrak 93-A, (A/R), 1/1/11........................ 8,592,429 8,592,429
Amtrak 93-I, (A/R), 1/1/11........................ 10,101,919 10,101,919
Amtrak 93-B, (A/R), 1/1/13........................ 22,977,508 22,977,508
-------------
495,999,653
-------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds 7
<PAGE>
PEGASUS MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
CERTIFICATES OF DEPOSIT -- 20.63%
Amro Bank, 5.98%, 3/19/98......................... $ 15,000,000 $ 14,999,395
Banque Nationale De Paris:
5.75%, 2/26/98.................................. 23,000,000 22,998,310
5.815%, 10/5/98................................. 15,500,000 15,485,292
Bayerische Wechsel Bank, 5.94%, 10/22/98.......... 20,000,000 19,990,762
Canadian Imperial Bank of Commerce:
5.685%, 3/2/98.................................. 15,000,000 14,996,814
5.95%, 6/29/98.................................. 16,500,000 16,494,589
5.94%, 10/21/98................................. 18,000,000 17,991,714
Commerzbank AG:
5.89%, 7/9/98................................... 27,000,000 27,000,437
5.94%, 10/23/98................................. 14,000,000 13,993,511
Deutsche Bank:
6.26%, 4/15/98.................................. 20,000,000 19,997,828
5.80%, 8/5/98................................... 22,000,000 21,993,770
Generale Bank, 6.015%, 12/16/98................... 38,500,000 38,505,278
Landesbank Hessen Thuringen, 5.94%, 6/19/98....... 13,000,000 12,996,548
Norddeutsche Landesbank Girozentrale, 5.9175%
10/21/98......................................... 26,000,000 25,989,525
Rabobank Nederland NV, 6.05%, 3/27/98............. 15,000,000 14,997,332
Royal Bank of Canada, 5.955%, 8/13/98............. 14,000,000 13,996,305
Societe Generale:
5.80%, 1/13/98.................................. 15,000,000 14,999,700
6.21%, 5/6/98................................... 20,000,000 19,998,040
5.945%, 8/28/98................................. 19,000,000 18,993,460
5.92%, 10/21/98................................. 20,000,000 19,990,792
Swiss Bank Corp., 5.88%, 11/19/98................. 32,000,000 31,994,599
Toronto Dominion Bank, 5.74%, 1/7/98.............. 27,000,000 27,000,000
Westpac Banking Corp., 5.97%, 3/24/98............. 5,000,000 4,998,885
--------------
450,402,886
--------------
TIME DEPOSITS -- 20.49%
Bank Austria AG, 9.00% 01/2/98.................... 50,000,000 50,000,000
Bank Brussel Lambert, 6.625%, 1/2/98.............. 100,000,000 100,000,000
Citibank N.A., 4.50%, 1/2/98...................... 9,550,000 9,550,000
Istituto Bancario San Paolo, 6.875%, 1/2/98....... 50,000,000 50,000,000
Key Bank N.A., 6.75%, 1/2/98...................... 25,000,000 25,000,000
PNC Bank, 6.50%, 1/2/98........................... 23,000,000 23,000,000
Suntrust Bank, 6.75%, 1/2/98...................... 47,000,000 47,000,000
Union Bank of Switzerland, 8.50%, 1/2/98.......... 80,000,000 80,000,000
Wachovia Bank of North Carolina, 4.50%, 1/2/98.... 62,750,000 62,750,000
--------------
447,300,000
--------------
TOTAL INVESTMENTS.................................. $2,182,925,547
==============
</TABLE>
A/R -- Adjustable Rate
* -- Restricted Security (See Note 7)
See Notes to Financial Statements.
8 Pegasus Funds
<PAGE>
PEGASUS TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
TEMPORARY CASH INVESTMENTS -- 86.72%
Aubrey Lanston Revolving Repurchase Agreement,
6.50%, 1/2/98 (secured by various U.S. Treasury
Obligations with maturities ranging from 1/2/98
through 2/15/07 at various interest rates ranging
from 0.00% to 11.875%, all held at Chase Bank).... $ 43,000,000 $ 43,000,000
Barclays Inc., Revolving Repurchase Agreement,
6.60%, 1/2/98 (secured by various U.S. Treasury
Notes with maturities ranging from 8/31/99 through
11/15/00 at various interest rates ranging from
5.875% to 8.50%, all held at The Bank of New
York)............................................. 43,000,000 43,000,000
Bear Stearns & Co., Inc., Revolving Repurchase
Agreement, 6.50%, 1/2/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
8/15/98 through 11/15/07 at various interest rates
ranging from 0.00% to 8.00%, all held at Custodial
Trust Company).................................... 176,000,000 176,000,000
Donaldson Lufkin, Inc., Revolving Repurchase
Agreement, 6.53%, 1/2/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
4/2/98 through 2/15/07 at various interest rates
ranging from 0.00% to 11.625%, all held at The
Bank of New York)................................. 43,000,000 43,000,000
Credit Suisse First Boston, Revolving Repurchase
Agreement, 6.25%, 1/2/98 (secured by U.S. Treasury
Notes maturing 1/31/99 at an interest rate of
5.00%, all held at Chase Bank).................... 11,000,000 11,000,000
First Union Capital Markets , Revolving Repurchase
Agreement, 6.625%, 1/2/98 (secured by various U.S.
Treasury Obligations with maturities ranging from
1/2/98 through 3/31/99 at various interest rates
ranging from 0.00% to 6.25%, all held at Bankers
Trust Company).................................... 151,000,000 151,000,000
Goldman Sachs Agency, Revolving Repurchase
Agreement, 6.50%, 1/2/98 (secured by U.S. Treasury
Notes maturing 11/15/00 at an interest rate of
5.75%, all held at The Bank of New York).......... 43,000,000 43,000,000
Greenwich Capital Markets, Inc., Revolving
Repurchase Agreement, 6.60%, 1/2/98 (secured by
various U.S. Treasury Obligations with maturities
ranging from 5/15/98 through 2/15/05 all at an
interest rate of 0.00% , all held at Chase Bank).. 43,000,000 43,000,000
H.S.B.C. Treasury, Revolving Repurchase Agreement,
6.625%, 1/2/98 (secured by U.S. Treasury Notes
maturing 8/31/00 at an interest rate of 6.25%, all
held at Chase Bank)............................... 43,000,000 43,000,000
London Global, Revolving Repurchase Agreement,
6.60%, 1/2/98 (secured by various U.S. Treasury
Obligations with maturities ranging from 2/28/98
through 5/15/99 at various interest rates ranging
from 0.00% to 6.375%, all held at Bankers Trust
Company).......................................... 25,170,000 25,170,000
Morgan Stanley Government Collateralized, Revolving
Repurchase Agreement, 6.13%, 1/2/98 (secured by
various U.S. Treasury Notes with maturities
ranging from 8/15/99 through 12/31/99 at various
interest rates ranging from 7.75% to 8.00%, all
held at The Bank of New York)..................... 10,000,000 10,000,000
Nomura Securities Intl., Revolving Repurchase
Agreement, 6.625%, 1/2/98 (secured by various U.S.
Treasury Notes with maturities ranging from
11/15/98 through 5/15/04 at various interest rates
ranging from 5.50% to 7.25%, all held at The Bank
of New York)...................................... 43,000,000 43,000,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds 9
<PAGE>
PEGASUS TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
COST
DESCRIPTION FACE AMOUNT (NOTE 2)
----------- ----------- ---------
<S> <C> <C>
NationsBank Capital Markets, Inc., Revolving
Repurchase Agreement, 6.625%, 1/2/98 (secured by
various U.S. Treasury Obligations with maturities
ranging from 2/15/02 through 8/15/07 at various
interest rates ranging from 3.375% to 9.375%, all
held at Chase Bank)................................ $131,000,000 $131,000,000
Salomon Brothers, Inc., Revolving Repurchase
Agreement, 6.625%,, 1/2/98 (secured by various U.S.
Treasury Notes with maturities ranging from 7/15/98
through 2/28/02 at various interest rates ranging
from 5.75% to 8.25%, all held at Chase Bank)....... 43,000,000 43,000,000
------------
848,170,000
------------
U.S. GOVERNMENT OBLIGATIONS -- 13.28%
U.S. Treasury Securities:
U.S. Treasury Bills:
5.285%, 01/8/98................................... 20,000,000 19,979,496
U.S. Treasury Notes:
7.875%, 04/15/98.................................. 20,000,000 20,101,364
6.125%, 05/15/98.................................. 20,000,000 20,025,775
6.250%, 07/31/98.................................. 20,000,000 20,064,558
4.750%, 09/30/98.................................. 10,000,000 9,928,024
5.125%, 11/30/98.................................. 40,000,000 39,797,910
------------
129,897,127
------------
TOTAL INVESTMENTS.................................... $978,067,127
============
</TABLE>
See Notes to Financial Statements.
10 Pegasus Funds
<PAGE>
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ALABAMA -- 1.82%
Chatom Air Pollution Control, IDR,
2/13/98............................. Aa 3 3.75% $ 8,400,000 $ 8,400,000
Decatur Industrial Development
Revenue, AMT, 1/1/27................ VMIG 1 3.80% 4,800,000 4,800,000
------------
13,200,000
------------
ARIZONA -- 0.62%
Chandler IDR-Parsons Municipal
Services, 12/15/09.................. A 1+ 4.05% 4,500,000 4,500,000
------------
DELAWARE -- 3.19%
Delaware State Economic Development,
AMT, 8/1/29......................... A 1+ 3.75% 23,200,000 23,200,000
------------
DISTRICT OF COLUMBIA -- 4.67%........
District of Columbia General
Obligation, 9/30/98................. VMIG 1 3.85% 8,800,000 8,800,000
District of Columbia, TRAN, Series B,
9/30/98............................. MIG 1 4.50% 12,000,000 12,054,161
District of Columbia, TRAN, Series C,
9/30/98............................. MIG 1 5.00% 9,500,000 9,578,731
District of Columbia American
University, 10/1/15................. VMIG 1 3.85% 3,500,000 3,500,000
------------
33,932,892
------------
FLORIDA -- 3.31%
Sarasota Co. Public Hospital, CP,
1/23/98............................. VMIG 1 3.65% 9,060,000 9,060,000
St. Lucie Co. Pollution Control
Revenue, CP, 4/8/98................. VMIG 1 3.75% 15,000,000 15,000,000
------------
24,060,000
------------
GEORGIA -- 4.54%
Burke County Pollution Control, CP,
5/28/98............................. Aaa 3.80% 17,000,000 17,000,000
Fayette County IDR, Shinsei Corp.
Project, 8/15/07.................... VMIG 1 4.15% 7,000,000 7,000,000
Georgia Municipal Gas, AMT, 1/1/08... A 1+ 3.65% 4,000,000 4,000,000
Macon-Bibb County Hospital Revenue,
8/1/18.............................. Aa 3 4.20% 5,000,000 5,000,000
------------
33,000,000
------------
IDAHO -- 1.73%
Idaho State Revenue, TAN, 6/30/98.... MIG 1 4.625% 12,500,000 12,544,130
------------
ILLINOIS -- 5.10%
Carol Stream Multifamily Revenue,
AMT, 3/15/27........................ A 1+ 4.10% 5,000,000 5,000,000
Cook County General Obligation,
12/1/01............................. VMIG 1 3.65% 2,700,000 2,700,000
Illinois Development Authority
Environment, 5/1/32................. A 1+ 3.85% 14,325,000 14,325,000
Illinois Development Authority
Revenue, MBIA, 11/15/27............. VMIG 1 4.00% 15,000,000 15,000,000
------------
37,025,000
------------
INDIANA -- 3.30%
Burns Harbor, IDR, AMT, 3/1/16....... ** N/R 4.25% 9,000,000 9,000,000
Indiana DFA Solid Waste, CP, 2/20/98. P 1 3.80% 15,000,000 15,000,000
------------
24,000,000
------------
IOWA -- 2.99%
Iowa Finance Authority Revenue,
6/1/19.............................. A 1 4.30% 15,760,000 15,760,000
Iowa Finance Authority, Solid Waste
Disposal, AMT, 2/1/32............... A 1+ 5.10% 6,000,000 6,000,000
------------
21,760,000
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds 11
<PAGE>
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
KANSAS -- 0.76%
Butler County Solid Waste Disposal,
AMT, 8/1/24......................... A 1 5.15% $ 5,500,000 $ 5,500,000
------------
KENTUCKY -- 6.61%
Clark County Pollution Control
Revenue, 4/15/98.................... VMIG 1 3.70% 2,000,000 2,000,000
Henderson Co. Solid Waste Disposal
Rev, AMT, 3/1/15.................... VMIG 1 3.75% 9,000,000 9,000,000
Kentucky Asset/Liability, TRAN,
Series A, 6/25/98................... MIG 1 4.50% 17,000,000 17,051,000
Kentucky Economic Development
Authority Hospital Facilities,
8/15/31............................. A 1+ 3.65% 20,000,000 20,000,000
------------
48,051,000
------------
LOUISIANA -- 2.70%
Lake Charles Harbor Revenue, AMT,
9/1/12.............................. P 1 5.10% 2,700,000 2,700,000
Plaquemines Parish, Environmental
Rev, AMT, 10/1/24................... P 1 5.10% 6,900,000 6,900,000
Plaquemines Parish, Environmental
Rev, AMT, 5/1/25.................... P 1 5.10% 2,100,000 2,100,000
South Lousiana Port Revenue, AMT,
1/1/27.............................. VMIG 1 3.95% 6,900,000 6,900,000
St. Charles, Pollution Control
Revenue, AMT, 11/1/21............... VMIG 1 5.10% 1,000,000 1,000,000
------------
19,600,000
------------
MICHIGAN -- 7.43%
Dearborn Economic Development Corp.
Revenue, 3/1/25..................... A 1 3.70% 1,000,000 1,000,000
Grand Rapids Water Supply Revenue,
1/1/20.............................. VMIG 1 3.55% 5,450,000 5,450,000
Ingham County Economic Development,
CP, Limited Obligation Revenue
4/1/22.............................. A 1+ 4.00% 2,470,000 2,470,000
Jackson Co. Economic Development
Corp., Limited Obligation Revenue,
6/1/17.............................. **N/R 4.30% 5,000,000 5,000,000
Kalamazoo EDC, Limited Obligation,
5/15/27............................. A 1+ 3.95% 1,000,000 1,000,000
Kent Hospital Finance Authority
Revenue, Series A, 01/15/20......... VMIG 1 3.65% 1,100,000 1,100,000
Meridian Limited Obligation, EDC,
11/15/14............................ A 1+ 4.05% 600,000 600,000
Michigan State Hospital Finance
Authority, 6/1/01................... VMIG 1 3.65% 1,700,000 1,700,000
Michigan State Hospital Finance
Authority, 11/1/11.................. VMIG 1 3.65% 12,400,000 12,400,000
Michigan State Hospital Finance
Authority, 8/15/15.................. VMIG 1 3.70% 1,000,000 1,000,000
Michigan State Hospital Finance
Authority Revenue, Series A,
12/1/23............................. VMIG 1 3.80% 3,600,000 3,600,000
Michigan State Housing Development
Authority Revenue, Series B,
12/1/07............................. VMIG 1 3.65% 2,900,000 2,900,000
Michigan State Housing Development
Authority Rental Revenue, Series B,
4/1/19.............................. VMIG 1 3.70% 2,300,000 2,300,000
Michigan State Strategic Fund,
Saginaw Products Corporation, AMT,
9/1/17.............................. **N/R 4.30% 200,000 200,000
Michigan State Strategic Fund Limited
Obligation Revenue, AMT, 12/1/22.... **N/R 4.30% 1,050,000 1,050,000
Michigan State Strategic Fund Limited
Obligation, Petoskey Plastics, Inc.,
AMT, 8/1/16......................... **N/R 4.30% 5,000,000 5,000,000
Royal Oak Hospital Finance Authority
Revenue, 1/1/03..................... VMIG 1 4.85% 2,200,000 2,200,000
Wayne Charter Co. Airport Revenue,
AMT, 12/1/16........................ VMIG 1 3.75% 5,000,000 5,000,000
------------
53,970,000
------------
</TABLE>
See Notes to Financial Statements.
12 Pegasus Funds
<PAGE>
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
MINNESOTA -- 2.38%
Hennepin County, Series C, 12/1/02.. VMIG 1 4.05% $ 2,600,000 $ 2,600,000
Minneapolis Convention Center Sales
Revenue, 12/1/17................... A 1+ 4.15% 2,300,000 2,300,000
Minneapolis Revenue, Series B,
12/1/07............................ VMIG 1 4.05% 4,900,000 4,900,000
Minnesota State Higher Education
Facilities Authority Revenue,
Series 3-L2, VRDB, 11/1/12......... VMIG 1 4.05% 6,100,000 6,100,000
Rochester General Obligation, Series
A, 11/1/99......................... **N/R 4.10% 1,400,000 1,400,000
------------
17,300,000
------------
MISSOURI -- 1.79%
Missouri State Development Finance
Board, 12/1/98..................... Aa 3 3.80% 8,000,000 8,000,000
Missouri State Health & Educational
Facilities Authority, Series B,
VRDB, 6/1/22....................... Aaa 3.70% 5,000,000 5,000,000
------------
13,000,000
------------
NEBRASKA -- 2.13%
Nebraska Investment Finance
Authority Revenue, Series C, AMT,
7/1/98............................. A 1+ 3.95% 15,500,000 15,500,000
------------
NEVADA -- 1.35%
Clark County, IDR, Series A, AMT,
10/1/30............................ A 1+ 3.95% 4,800,000 4,800,000
Washoe County Water Facilities
Revenue, AMT, 12/1/20.............. P 1 5.10% 5,000,000 5,000,000
------------
9,800,000
------------
NEW HAMPSHIRE -- 1.38%
New Hampshire State Business Finance
Revenue, AMT, 5/1/21............... VMIG 1 3.80% 10,000,000 10,000,000
------------
NEW MEXICO -- 5.80%
New Mexico State, TRAN, 6/30/98..... MIG 1 4.50% 42,000,000 42,129,631
------------
NEW YORK -- 1.62%
New York City General Obligation,
Series F-3, 2/15/13................ VMIG 1 3.65% 800,000 800,000
New York State Energy Development
Revenue, 12/1/98................... Aaa 3.80% 11,000,000 11,000,000
------------
11,800,000
------------
NORTH CAROLINA -- 0.68%
Raleigh Durham Airport Authority
Revenue, 11/1/15................... A 1+ 5.00% 4,950,000 4,950,000
------------
OHIO -- 1.10%
Ohio State Water Development
Authority, AMT, 5/1/98............. P 1 4.10% 8,000,000 8,000,000
------------
PENNSYLVANIA -- 4.53%
Allegheny Co. IDR, VRDB, United
Jewish Federation, 10/1/25......... VMIG 1 4.25% 1,900,000 1,900,000
Carbon County Individual Development
Authority, CP, AMT, 4/3/98......... P 1 3.80% 6,000,000 6,000,000
Indiana County Individual
Development Authority, PCR, AMT,
6/1/27............................. VMIG 1 3.75% 25,000,000 25,000,000
------------
32,900,000
------------
PUERTO RICO -- 3.46%
Puerto Rico Commonwealth, TRAN,
Series A, 7/30/98.................. MIG 1 4.50% 25,000,000 25,105,659
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds 13
<PAGE>
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ------ ---------
<S> <C> <C> <C> <C>
SOUTH CAROLINA -- 1.02%
Berkley County Industrial Development
Revenue, AMT, 4/1/27................. VMIG 1 5.10% 2,900,000 $ 2,900,000
Charleston County Industrial Revenue,
AMT, 8/1/28.......................... A 1+ 5.10% 3,000,000 3,000,000
Florence County Solid Waste Disposal,
AMT, 4/1/27.......................... A 1+ 5.10% 1,500,000 1,500,000
------------
7,400,000
------------
SOUTH DAKOTA -- 2.00%
South Dakota Housing Development
Authority Revenue, Series C, AMT,
3/26/98.............................. VMIG 1 3.90% 5,000,000 5,000,000
South Dakota Housing Development
Authority Revenue, Series E, AMT,
12/14/00............................. VMIG 1 4.35% 9,500,000 9,500,000
------------
14,500,000
------------
TENNESSEE -- 1.38%
Oak Ridge IDR, AMT, 1/1/06............ Aa 3 4.30% 10,000,000 10,000,000
------------
TEXAS -- 10.75%
Austin Utilities, C/P, Series A,
3/6/98............................... P 1 3.65% 3,670,000 3,670,000
Brazos River Authority, PCR, AMT:
3/1/26............................... VMIG 1 5.10% 10,960,000 10,960,000
6/1/30............................... VMIG 1 5.10% 9,200,000 9,200,000
2/1/32............................... VMIG 1 5.10% 1,600,000 1,600,000
Gulf Coast Waste Disposal Authority
Revenue, AMT:
5/1/25............................... VMIG 1 5.15% 7,700,000 7,700,000
1/1/26............................... VMIG 1 5.10% 4,500,000 4,500,000
Harris County IDR, AMT, 2/1/23........ VMIG 1 5.20% 2,400,000 2,400,000
Matagorda County Revenue, AMT,
11/1/28.............................. VMIG 1 4.95% 2,600,000 2,600,000
North Central Health Facility
Development, 6/1/21.................. VMIG 1 4.00% 5,600,000 5,600,000
North Central Health Facility, CP,
2/19/98.............................. VMIG 1 3.70% 8,700,000 8,700,000
Panhandle Plan Higher Education
Authority Revenue, Series A, AMT,
6/1/21............................... VMIG 1 3.75% 6,000,000 6,000,000
Port of Corpus Christi Authority
Revenue, 9/1/14...................... A 1+ 3.80% 2,800,000 2,800,000
Port of Corpus Christi, IDR, 4/1/18... A 1+ 3.70% 3,500,000 3,500,000
Texas Hospital Equipment Finance
Council Revenue, 4/7/05.............. VMIG 1 3.90% 7,695,000 7,695,000
West Side Calhoun, Series C, AMT,
4/1/31............................... Aa 2 5.10% 1,200,000 1,200,000
------------
78,125,000
------------
UTAH -- 2.93%
Intermountain Power Agency, CP:
3/9/98............................... VMIG 1 3.65% 9,300,000 9,300,000
Series E, 3/16/98.................... VMIG 1 3.75% 12,000,000 12,000,000
------------
21,300,000
------------
VERMONT -- 1.40%
Vermont Educational Health Building
Agency Revenue, 11/1/98.............. Aa 3.85% 6,000,000 6,000,000
Vermont Student Assistance Corp.
Revenue 1/1/04....................... VMIG 1 3.80% 4,200,000 4,200,000
------------
10,200,000
------------
</TABLE>
See Notes to Financial Statements.
14 Pegasus Funds
<PAGE>
PEGASUS MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ------ ---------
<S> <C> <C> <C> <C>
VIRGINIA -- 4.49%
King George County, IDR, AMT, 3/1/27.. A 1+ 5.10% 4,100,000 $ 4,100,000
Peninsula Ports Authority Revenue,
AMT, 5/1/22.......................... A 1+ 5.10% 18,500,000 18,500,000
Virginia State Public School
Authority, 4/1/98.................... Aa 2 3.60% 10,045,000 10,044,700
------------
32,644,700
------------
WASHINGTON -- 0.15%
Port Seattle Revenue, AMT, 9/1/22..... VMIG 1 3.85% 1,100,000 1,100,000
------------
WYOMING -- 0.89%
Sweetwater County Environmental Rev.,
AMT, 11/1/25......................... VMIG 1 5.25% 6,500,000 6,500,000
------------
TOTAL INVESTMENTS..................... $726,598,012
============
</TABLE>
INVESTMENT ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corp.
AMT -- Alternate Minimum Tax
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
DFA -- Development Finance Authority
EDC -- Economic Development Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCF -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Individual Development & Export Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Rating (not covered by the report of independent public accountants) --
Moody's when available, otherwise Standard & Poor's.
** N/R -- investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1997. The interest rate for all securities with maturity
greater than thirteen months has an automatic reset featute resulting in an
effective maturity of thirteen months or less.
See Notes to Financial Statements.
Pegasus Funds 15
<PAGE>
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST FACE COST
DESCRIPTION RATING* RATE*** AMOUNT (NOTE 2)
----------- ------- -------- ------ ---------
<S> <C> <C> <C> <C>
MICHIGAN -- 100%
Ann Arbor ECD, Ltd. Obligation,
5/1/00.............................. **N/R 3.90% $ 575,000 $ 575,000
Ann Arbor School District, GO,
5/1/98.............................. Aa 2 4.75% 5,475,000 5,489,826
Cornell Twp EDC, IDR, 2/6/98......... A 1+ 3.70% 3,600,000 3,600,000
Detroit Sewer Disposal, MBIA, 7/1/98. Aaa 5.00% 6,000,000 6,032,490
Grand Rapids Water Supply, RFD,
Series 1988, 1/1/98................. Aaa 7.875% 5,775,000 5,890,500
Grosse Pointe Public School, TAN, GO,
4/1/98.............................. MIG 1 4.00% 5,000,000 5,004,357
Holland EDC, VRDB-Thrifty Holland,
Inc., 3/1/13........................ A 1 3.80% 2,500,000 2,500,000
Kalamazoo Co. EDC, VRDB-Industrial &
Economic Development WBC Properties
Ltd., 9/1/15........................ **N/R 4.71% 1,000,000 1,000,000
Kalamazoo EDC, Ltd. Obligation,
5/15/27............................. A 1+ 3.95% 3,000,000 3,000,000
Kent Hospital, VRDB-Butterworth
Hospital, 1/15/20................... VMIG 1 3.65% 3,200,000 3,200,000
Meridian EDC Ltd. Obligation VRDB-
Hannah
Technologies, 11/15/14.............. A 1+ 4.05% 2,400,000 2,400,000
Michigan Comprehensive Transportation
Revenue Bond, RFD, State of
Refunding Series 1988-I, 9/1/98..... AA- 7.625% 3,000,000 3,121,549
Michigan Higher Education Student
Loan, AMT,
AMBAC, Series XII-D, 10/1/15........ VMIG 1 3.75% 3,100,000 3,100,000
Michigan Municipal Bond Authority,
RFD, School
Group 14, 5/1/98.................... AAA 7.80% 1,890,000 1,951,317
Michigan Municipal Bond Authority
Revenue, 9/18/98.................... SP 1+ 4.50% 1,400,000 1,405,754
Michigan State Building Authority,
10/15/98............................ AA- 4.50% 5,000,000 5,025,885
Michigan State Hospital, VRDB-
Hospital Equipment Loan Program,
Series A, 12/1/23................... VMIG 1 3.80% 2,900,000 2,900,000
Michigan State HDA, CP, AMT, 2/12/98. VMIG 1 3.75% 5,000,000 5,000,000
Michigan State HDA, Ltd. Obligation
VRDB:
Laurel Valley, 12/1/07.............. VMIG 1 3.65% 700,000 700,000
Woodland Meadows, 3/1/13............ VMIG 1 3.85% 2,000,000 2,000,000
Michigan State HDA, Series B, 4/1/19. VMIG 1 3.70% 1,100,000 1,100,000
Michigan State Strategic, CP, 3/2/98. P 1 3.75% 3,500,000 3,500,000
Michigan State Strategic Fund Ltd.
Obligation, 10/1/01................. Aa 2 4.26% 2,000,000 2,000,000
Michigan State Strategic Fund Ltd.
Obligation, AMT:
VRDB-United Waste System, Inc.,
4/1/10............................. VMIG 1 3.80% 4,700,000 4,700,000
VRDB-Dennenlease LC Project, 4/1/10. **N/R 4.35% 2,015,000 2,015,000
VRDB-Ironwood Plastics, Inc.,
11/1/11............................ **N/R 4.35% 1,155,000 1,155,000
VRDB-Saginaw Products Corp., 9/1/17. **N/R 4.30% 2,800,000 2,800,000
VRDB-Autocam Corp., 12/1/17......... **N/R 4.10% 3,000,000 3,000,000
VRDB-Quincy Str. Inc., 12/1/22...... **N/R 4.30% 1,950,000 1,950,000
Michigan State Strategic Fund, IDR,
VRDB-Trust Co., Series C, 10/1/11... Aa 3 4.30% 1,500,000 1,500,000
Michigan State Strategic Fund, PCR,
VRDN-Consumers Power Co., 9/1/00.... A 1+ 3.85% 3,000,000 3,000,000
Michigan Underground, CP, 2/5/98..... P 1 3.75% 4,500,000 4,500,000
</TABLE>
See Notes to Financial Statements.
16 Pegasus Funds
<PAGE>
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS -- (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED
INTEREST COST
DESCRIPTION RATING* RATE*** FACE AMOUNT (NOTE 2)
----------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Regents of the University of
Michigan, CP,
1/13/98............................. A 1+ 3.75% $ 2,000,000 $ 2,000,000
1/14/98............................. A 1+ 3.75% 2,500,000 2,500,000
Wayne Charter Co. Airport, AMT, VRDB,
Series A, 12/1/16................... VMIG 1 3.75% 3,800,000 3,800,000
------------
TOTAL INVESTMENTS.................... $103,416,678
============
</TABLE>
INVESTMENT ABBREVIATIONS
AMT -- Alternative Minimum Tax
AMBAC -- AMBAC Indemnity Corp.
BIGI -- Bond Investors Guaranty Insurance Co.
CP -- Commercial Paper
EDC -- Economic Development Corporation
EDR -- Economic Development Revenue
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Securities Assurance Corp.
GO -- General Obligation
HCFA -- Health Care Facilities
HR -- Housing Revenue
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Industrial Development & Export Authority
IDR -- Industrial Development Revenue
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
RFD -- Pre-Refunded Bond
TAN -- Tax Anticipation Note
TRAN -- Tax Revenue Anticipation Note
UPDATE -- Unit Priced Daily Adjustable Tax-Exempt Securities
VRDB -- Variable Rate Demand Bond
VRDN -- Variable Rate Demand Note
* Rating (not covered by the report of independent public accountants.) --
Moody's when available, otherwise Standard & Poor's.
** N/R -- investment is not rated, yet deemed by the Investment Advisor as an
acceptable credit and having characteristics equivalent to obligations
rated AA or MIG 1 by Moody's, AA or A-1+ by Standard & Poor's.
*** Interest rates on variable rate securities are adjusted periodically based
on appropriate indexes. The interest rates shown are the rates in effect at
December 31, 1997. The interest rate for all securities with maturity
greater than thirteen months has an automatic reset feature resulting in an
effective maturity of thirteen months or less.
See Notes to Financial Statements.
Pegasus Funds 17
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
18 Pegasus Funds
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) GENERAL
The Pegasus Funds (Pegasus) was organized as a Massachusetts business trust on
April 21, 1987 and registered under the Investment Company Act of 1940 (the
Act), as amended, as an open-end investment company. As of December 31, 1997,
Pegasus consisted of twenty-nine separate portfolios of which there were four
money market funds (the Money Market Funds or the Funds), as described below.
PEGASUS MONEY MARKET FUND
PEGASUS TREASURY MONEY MARKET FUND
PEGASUS MUNICIPAL MONEY MARKET FUND
PEGASUS MICHIGAN MUNICIPAL MONEY MARKET FUND
The Money Market Funds commenced operations on January 4, 1988, except for the
Michigan Municipal Money Market Fund and the Treasury Money Market Fund, which
commenced operations on January 23, 1991 and January 1, 1993, respectively.
On September 14, 1996, the Pegasus Money Market Funds (formerly The Woodward
Money Market Funds) acquired all the net assets of the Prairie Money Market
Funds pursuant to an Agreement and Plan of Reorganization (the "Plan").
Shareholders of each reorganizing portfolio approved the Plan which called for
the transfer of the assets, subject to the liabilities, of each Prairie Fund to
the corresponding Pegasus Fund. The Plan also called for the issuance of shares
by the Pegasus Fund to the shareholders of the corresponding Prairie Fund, such
shares being equal in value to the net assets so transferred.
In accordance with generally accepted accounting principles, the historical
cost of investment securities was carried forward to the surviving fund (the
Pegasus Fund which is the accounting survivor for performance measurement
purposes as noted in the table that follows) and the results of operations for
precombination periods for the surviving fund were not restated. The financial
statements do not reflect the expenses of the reorganization. The combination
of the funds was treated as a tax free business combination and accordingly was
accounted for by a method of accounting for tax free mergers of investment
companies (sometimes referred to as the pooling without restatement method).
The following table sets forth the name of the surviving fund (for the number
of shares issued in connection with the various mergers and the net assets
transferred, see Note 5):
<TABLE>
<CAPTION>
FORMER WOODWARD FUND(S) FORMER PRAIRIE FUND CURRENT PEGASUS FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
*Money Market Money Market Money Market
*Treasury Money Market and
Government Money Market U.S. Government Money Market Treasury Money Market
*Tax Exempt Money Market Municipal Money Market Municipal Money Market
*Michigan Tax Exempt Money Market Michigan Municipal Money Market
</TABLE>
*Surviving fund for accounting and performance measurement purposes
On the date of reorganization, capital loss carryforwards were transferred
from the non-surviving funds in the amounts of $15,985 and $53,652 for the
Treasury Money Market and Municipal Money Market Funds, respectively.
The Pegasus Money Market Funds (except for the Money Market Fund which offers
Class A, Class B, and Class I shares) each offer Class A shares and Class I
shares. Class A shares, Class B shares and Class I shares are substantially the
same except that Class A shares are not subject to any sales charge and are
subject to a shareholder services fee pursuant to the Shareholder Services
Plan. Class B shares are subject to a contingent deferred sales charge imposed
at the time of redemption and are subject to fees charged pursuant to a
distribution plan adopted pursuant to Rule 12b-1 under the Act and fees charged
pursuant to the Shareholder Services Plan. Class I shares are not subject to
any sales charge, shareholder services fees or distribution 12b-1 fees.
Pegasus Funds 19
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Money Market Funds in preparation of the financial statements. The policies are
in conformity with generally accepted accounting principles for investment
companies. Following generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Investments
Pursuant to Rule 2a-7 of the Act, the Money Market Funds utilize the
amortized cost method to determine the carrying value of investment securities.
Under this method, investment securities are valued for both financial
reporting and federal tax purposes at amortized cost and any discount or
premium is amortized from the date of acquisition to maturity. The use of this
method results in a carrying value which approximates market value. Market
value is determined based upon quoted market prices or dealer quotes.
Investment security purchases and sales are accounted for on the trade date.
Realized gains or losses from security transactions are recorded on the
identified cost basis.
Pegasus invests in securities subject to repurchase agreements. First Chicago
NBD Investment Management Company (FCNIMCO), acting under the supervision of
the Board of Trustees, has established the following additional policies and
procedures relating to Pegasus' investments in securities subject to repurchase
agreements: 1) the value of the underlying collateral is required to equal or
exceed 102% of the funds advanced under the repurchase agreement including
accrued interest; 2) collateral is marked to market daily by FCNIMCO to assure
its value remains at least equal to 102% of the repurchase agreement amount;
and 3) funds are not disbursed by Pegasus or its agent unless collateral is
presented or acknowledged by the collateral custodian.
The Municipal and Michigan Municipal Money Market Funds invest in a majority
of instruments whose stated maturity is greater than one year, but whose rate
of interest is readjusted no less frequently than annually, or which possess
demand features and may therefore be deemed to have a maturity equal to the
period remaining until the next interest adjustment date or the demand date,
whichever is longer.
Investment Income
Interest income is recorded daily on the accrual basis adjusted for
amortization of premium and accretion of discount. Premiums and discounts are
amortized/accreted as required by the Internal Revenue Code, as amended (the
Code), and generally accepted accounting principles.
Federal Income Taxes
It is Pegasus' policy to comply with the requirements of Subchapter M of the
Code applicable to regulated investment companies and to distribute net
investment income and realized gains to its shareholders. Therefore, no federal
income tax provision is required in the accompanying Financial Statements.
As of December 31, 1997 the Funds have capital loss carryforwards and related
expiration dates as follows:
<TABLE>
<CAPTION>
FUND 1999 2001 2002 2003 2004 2005 TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Treasury Money Market
Fund $ -- $ -- $16,000 $ -- $ 1,000 $ -- $17,000
Municipal Money Market
Fund 1,000 2,000 1,000 36,000 14,000 2,000 56,000
Michigan Municipal Money
Market -- -- -- -- 1,000 -- 1,000
</TABLE>
20 Pegasus Funds
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
Shareholder Dividends
On each business day except those holidays the New York Stock Exchange
(Exchange), FCNIMCO or its bank affiliates observe, net investment income is
declared as a dividend, at the close of the Exchange, to shareholders of record
at such close. Such dividends are paid monthly.
Distributions from net realized capital gains, if any, are normally declared
annually and paid annually, but each Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Code. To the
extent that net realized capital gains can be offset by capital loss
carryforwards, it is the policy of each Fund not to distribute such gains.
Deferred Organization Costs
Organization costs are being amortized on a straight-line basis over the
five-year period beginning with the commencement of operations of each
portfolio.
Expenses
Expenses directly attributable to a Fund are charged to that Fund's
operations; expenses which are applicable to all Funds are allocated among them
on the basis of relative net assets. Fund expenses directly attributable to a
class of shares are charged to that class; expenses which are applicable to all
classes are allocated among them. Pegasus monitors the rate at which expenses
are charged to ensure that a proper amount of expense is charged to income each
year. This percentage is subject to revision if there is a change in the
estimate of the future net assets of the funds or a change in expectations as
to the level of actual expenses.
Multiple Classes of Capital Shares of Beneficial Interest
Each class of shares has equal rights as to earnings, assets and voting
privileges except that each class bears different distribution and shareholder
service expenses. Each class of shares has exclusive voting rights with respect
to matters that affect just that class. Dividends are declared separately for
each class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
Class B shares of the Pegasus Money Market Fund are available only to the
holders of Class B shares in the Pegasus non-money market funds who wish to
exchange their shares in such funds for shares in the Pegasus Money Market
Fund. Class B shares of the Pegasus Money Market Fund will automatically
convert to Class A shares at the time the exchanged shares would have
converted.
(3) INVESTMENT ADVISORY FEES, ADMINISTRATION FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Pegasus has an Investment Advisory Agreement with FCNIMCO pursuant to which
FCNIMCO has agreed to provide the day-to-day management of each of the Money
Market Fund's investments for a monthly fee computed daily and payable monthly,
expressed as a percentage of each Money Market Fund's average daily net assets,
of 0.30% of the first $1.0 billion, 0.275% of the next $1.0 billion and 0.25%
of each such Money Market Fund's average daily net assets in excess of $2.0
billion.
Pegasus has a Co-Administration Agreement with FCNIMCO and BISYS Fund Services
(BISYS or Distributor) (collectively the Co-Administrators) pursuant to which
the Co-Administrators have agreed to assist in all aspects of each Money Market
Fund's operations for an administration fee, at an annual rate of 0.15% of each
Money Market Fund's average daily net assets.
BISYS serves as Pegasus' principal underwriter and distributor of the Funds'
shares. NBD Bank (an affiliate of FCNIMCO) is also compensated for its services
as Pegasus' custodian and is reimbursed for certain out-of-pocket expenses
incurred on behalf of Pegasus. See Note 4 for a summary of fee rates and
expenses pursuant to these agreements.
Pegasus Funds 21
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(4) EXPENSES
For the year ended December 31, 1997, FCNIMCO voluntarily agreed to reimburse
a portion of the operating expenses of the Funds to the extent that the Funds'
expenses exceeded the following amounts (as a percentage of each Fund's average
daily net assets):
<TABLE>
<CAPTION>
MICHIGAN
TREASURY MUNICIPAL MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
FUND FUND FUND FUND
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES 0.75% 0.75% 0.75% 0.75%
CLASS B SHARES 1.50% N/A N/A N/A
CLASS I SHARES 0.50% 0.50% 0.50% 0.50%
</TABLE>
Pegasus maintains an unfunded, nonqualified deferred compensation plan. This
plan allows an individual Trustee to elect to defer receipt of all or a
percentage of fees which otherwise would be payable for services performed.
The Funds' Class A shares and Class B shares have a Shareholder Services Plan
(the "Plan") pursuant to which the Funds pay the Distributor a fee, at an
annual rate of 0.25% of the average daily net assets of the outstanding Class A
shares and Class B shares. Pursuant to the terms of the Plan, the Distributor
has agreed to provide certain shareholder services to the holders of these
shares. Additionally, under the terms of the Plan, the Distributor may make
payments to other shareholder service agents which may include FCNIMCO and
their affiliates. For the year ended December 31, 1997, the Money Market Funds
paid the following amounts under the Plan:
<TABLE>
<CAPTION>
AMOUNTS PAID
- ------------------------------------------------
<S> <C>
Money Market Fund $2,075,764
Treasury Money Market Fund 473,261
Municipal Money Market Fund 463,609
Michigan Municipal Money
Market Fund 143,515
</TABLE>
The Money Market Fund's Class B shares have a distribution plan adopted
pursuant to Rule 12b-1 under the Act (the "12b-1 Plan") pursuant to which the
Money Market Fund has agreed to pay the Distributor for advertising, marketing
and distributing Class B shares of the Money Market Fund at an annual rate of
0.75% of the average daily net assets of the Money Market Fund's outstanding
Class B shares. Under the terms of the 12b-1 Plan, the Distributor may make
payments to FCNIMCO and their affiliates with respect to these services. For
the year ended December 31, 1997, the Money Market Fund paid $2,984 under the
12b-1 Plan which was retained by the Distributor.
22 Pegasus Funds
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(5) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds are summarized below:
<TABLE>
<CAPTION>
MONEY MARKET FUND
---------------------------------------------------------------------------
For the year ended For the year ended
December 31, 1997 December 31, 1996
---------------------------------------------------------------------------
Amount Shares Amount Shares
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 4,662,663,756 4,662,663,756 $ 6,364,896,910 6,364,896,910
Shares Reclassified -- -- (648,644,214) (648,644,214)
Shares Issued in Connection
with Merger -- -- 400,921,734 400,921,734
Dividends Reinvested 39,487,594 39,487,594 24,864,635 24,864,635
Shares Redeemed (4,456,727,929) (4,456,727,929) (7,053,339,291) (7,053,339,291)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 245,423,421 245,423,421 $ (911,300,226) (911,300,226)
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares Issued $ 3,505,576 3,505,576 $ 220,732(/1/) 220,732(/1/)
Shares Issued in Connection
with Merger -- -- 130,798 130,798
Dividends Reinvested 24,606 24,606 2,577 2,577
Shares Redeemed (3,334,960) (3,334,960) (211,066) (211,066)
- ------------------------------------------------------------------------------------------------------------
Net increase $ 195,222 195,222 $ 143,041 143,041
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 5,021,318,728 5,021,318,728 $ 8,498,930,024(/2/) 8,498,930,024(/2/)
Shares Reclassified -- -- 648,644,214 648,644,214
Shares Issued in Connection
with Merger -- -- -- --
Dividends Reinvested 20,279,977 20,279,977 9,879,060 9,879,060
Shares Redeemed (5,539,038,130) (5,539,038,130) (7,442,140,839) (7,442,140,839)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ (497,439,425) (497,439,425) $ 1,715,312,459 1,715,312,459
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ (251,820,782) (251,820,782) $ 804,155,274 804,155,274
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
TREASURY MONEY MARKET FUND
---------------------------------------------------------------------------
For the year ended For the year ended
December 31, 1997 December 31, 1996
---------------------------------------------------------------------------
Amount Shares Amount Shares
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 1,093,249,460 1,093,249,460 $ 3,820,123,799 3,820,139,784
Shares Reclassified -- -- (1,072,297,258) (1,072,297,258)
Shares Issued in Connection
with Merger -- -- 159,726,471 159,726,471
Dividends Reinvested 8,689,041 8,689,041 5,610,939 5,610,939
Shares Redeemed (1,082,286,729) (1,082,286,729) (3,626,460,674) (3,626,460,674)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 19,651,772 19,651,772 $ (713,296,723) (713,280,738)
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES:
Shares Issued -- -- -- --
Shares Issued in Connection
with Merger -- -- -- --
Dividends Reinvested -- -- -- --
Shares Redeemed -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Net increase -- -- -- --
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 3,634,998,084 3,634,998,084 $ 10,750,575,944(/2/) 10,750,575,944(/2/)
Shares Reclassified -- -- 1,072,297,258 1,072,297,258
Shares Issued in Connection
with Merger -- -- 282,078,668 282,078,668
Dividends Reinvested 4,928,721 4,928,721 5,056,096 5,056,096
Shares Redeemed (3,949,857,520) (3,949,857,520) (11,054,404,367) (11,054,404,367)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) $ (309,930,715) (309,930,715) $ 1,055,603,599 1,055,603,599
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ (290,278,943) (290,278,943) $ 342,306,876 342,322,861
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period September 14, 1996 (initial offering date of Class B Shares)
through December 31, 1996.
(2) For the period March 30, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
Pegasus Funds 23
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(5)CAPITAL SHARE TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND
------------------------------------------------------------------------
For the year ended For the year ended
December 31, 1997 December 31, 1996
------------------------------------------------------------------------
Amount Shares Amount Shares
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 489,667,505 489,667,505 $ 1,174,088,220 1,174,141,872
Shares Reclassified -- -- (452,842,722) (452,842,722)
Shares Issued in Connection
with Merger -- -- 281,427,973 281,427,973
Dividends Reinvested 5,398,206 5,398,206 3,498,925 3,498,925
Shares Redeemed (472,764,413) (472,764,413) (1,388,360,065) (1,388,360,065)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 22,301,298 22,301,298 $ (382,187,669) (382,134,017)
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 1,737,844,432 1,737,844,432 $ 2,111,312,185(/1/) 2,111,312,185(/1/)
Shares Reclassified -- -- 452,842,722 452,842,722
Dividends Reinvested 615,941 615,941 668,549 668,549
Shares Redeemed (1,845,603,982) (1,845,603,982) (1,932,885,709) (1,932,885,709)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) $ (107,143,609) (107,143,609) $ 631,937,747 631,937,747
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ (84,842,311) (84,842,311) $ 249,750,078 249,803,730
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
MICHIGAN MUNICIPAL MONEY MARKET FUND
-----------------------------------------------------------------
For the year ended For the year ended
December 31, 1997 December 31, 1996
-----------------------------------------------------------------
Amount Shares Amount Shares
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares Issued $ 151,616,093 151,616,093 $ 226,255,283 226,255,283
Shares Reclassified -- -- (27,136,751) (27,136,751)
Shares Issued in Connection
with Merger -- -- -- --
Dividends Reinvested 1,604,993 1,604,993 2,098,227 2,098,227
Shares Redeemed (196,108,154) (196,108,154) (251,184,243) (251,184,243)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) $ (42,887,068) (42,887,068) $ (49,967,484) (49,967,484)
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES:
Shares Issued $ 233,991,240 233,991,240 $ 134,715,695(/1/) 134,715,695(/1/)
Shares Reclassified -- -- 27,136,751 27,136,751
Dividends Reinvested 83,422 83,422 128,176 128,176
Shares Redeemed (208,707,516) (208,707,516) (112,459,559) (112,459,559)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) $ 25,367,146 25,367,146 $ 49,521,063 49,521,063
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in Fund $ (17,519,922) (17,519,922) $ (446,421) (446,421)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period March 30, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
24 Pegasus Funds
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- --------------------------------------------------------------------------------
(6) PORTFOLIO COMPOSITION
Although the Municipal Money Market Fund has a diversified investment
portfolio, the Fund has investments in excess of 10% of its total investments
in the State of Texas. The Michigan Municipal Money Market Fund does not have a
diversified portfolio since 100% of its investments are within the State of
Michigan. Such concentrations within a particular state may subject the fund
more significantly to economic changes occurring within that state.
(7) ILLIQUID SECURITIES
The Pegasus Money Market Funds may invest not more than 10% of the value of
their net assets in securities that are illiquid. Illiquid investments may
include securities having legal or contractual restrictions on resale or no
readily available market. At December 31, 1997, the Pegasus Money Market Fund
owned the following restricted securities (constituting 6.5% of net assets)
which may not be publicly sold without registration under the Securities Act of
1933 (the 1933 Act). The Fund does not have the right to demand that such
securities be registered. The value of these securities is determined by
valuations supplied by a pricing service or brokers or, if not available, in
good faith by or at the discretion of the Trustees. Certain of these securities
may be offered and sold to "qualified institutional buyers" under Rule 144A of
the 1933 Act.
<TABLE>
<CAPTION>
DECEMBER 31,
ACQUISITION PAR VALUE 1997 PERCENTAGE
SECURITY DATE VALUE PER UNIT VALUE OF NET ASSETS COST
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allstate Life Insurance Company 4/18/95 $10,000,000 $1.00 $ 10,000,000 0.5% $ 10,000,000
Commonwealth Life Insurance Company 4/18/95 5,000,000 1.00 5,000,000 0.2 5,000,000
Travelers Life Insurance Company 11/06/97 25,000,000 1.00 25,000,000 1.2 25,000,000
Peoples Security Life Insurance
Company 04/18/95 10,000,000 1.00 10,000,000 0.5 10,000,000
SunAmerica Life Insurance Company 07/01/97 14,000,000 1.00 14,000,000 0.6 14,000,000
SunAmerica Life Insurance Company 4/18/95 25,000,000 1.00 25,000,000 1.2 25,000,000
Transamerica Life Insurance and
Annuity Company 12/09/96 50,000,000 1.00 50,000,000 2.3 50,000,000
- -------------------------------------------------------------------------------------------------------------
$139,000,000 6.5% $139,000,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds 25
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The Financial Highlights present a per share analysis of net investment income
and distributions from net investment income for the Money Market Funds.
Additional quantitative measures expressed in ratio form analyze important
relationships between certain items presented in the financial statements.
These financial highlights have been derived from the financial statements of
the Money Market Funds and other information for the periods presented.
<TABLE>
<CAPTION>
NET ASSET NET REALIZED DISTRIBUTIONS
VALUE NET AND UNREALIZED TOTAL FROM FROM NET
BEGINNING INVESTMENT LOSSES ON INVESTMENT INVESTMENT TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME DISTRIBUTIONS
--------- ---------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND
CLASS A
SHARES
December
31, 1997 1.0000 0.0491 -- 0.0491 (0.0491) (0.0491)
December
31, 1996 1.0000 0.0488 -- 0.0488 (0.0488) (0.0488)
December
31, 1995 1.0000 0.0549 -- 0.0549 (0.0549) (0.0549)
December
31, 1994 1.0000 0.0378 -- 0.0378 (0.0378) (0.0378)
December
31, 1993 1.0000 0.0281 -- 0.0281 (0.0281) (0.0281)
CLASS B
SHARES
December
31, 1997 1.0000 0.0421 -- 0.0421 (0.0421) (0.0421)
December
31,
1996(/1/) 1.0000 0.0117 -- 0.0117 (0.0117) (0.0117)
CLASS I
SHARES
December
31, 1997 1.0000 0.0516 -- 0.0516 (0.0516) (0.0516)
December
31,
1996(/2/) 1.0000 0.0373 -- 0.0373 (0.0373) (0.0373)
- -------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
CLASS A
SHARES
December
31, 1997 0.9999 0.0481 -- 0.0481 (0.0481) (0.0481)
December
31, 1996 1.0000 0.0474 (0.0001) 0.0473 (0.0474) (0.0474)
December
31, 1995 1.0000 0.0539 -- 0.0539 (0.0539) (0.0539)
December
31, 1994 1.0000 0.0370 -- 0.0370 (0.0370) (0.0370)
December
31, 1993 1.0000 0.0273 -- 0.0273 (0.0273) (0.0273)
CLASS I
SHARES
December
31, 1997 1.0000 0.0507 -- 0.0507 (0.0507) (0.0507)
December
31,
1996(/2/) 1.0000 0.0361 -- 0.0361 (0.0361) (0.0361)
- -------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
CLASS A
SHARES
December
31, 1997 0.9997 0.0296 -- 0.0296 (0.0296) (0.0296)
December
31, 1996 1.0000 0.0295 (0.0003) 0.0292 (0.0295) (0.0295)
December
31, 1995 1.0000 0.0335 -- 0.0335 (0.0335) (0.0335)
December
31, 1994 1.0000 0.0242 -- 0.0242 (0.0242) (0.0242)
December
31, 1993 1.0000 0.0196 -- 0.0196 (0.0196) (0.0196)
CLASS I
SHARES
December
31, 1997 1.0000 0.0322 (0.0001) 0.0321 (0.0322) (0.0322)
December
31,
1996(/2/) 1.0000 0.0232 -- 0.0232 (0.0232) (0.0232)
- -------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET FUND
CLASS A
SHARES
December
31, 1997 1.0000 0.0296 -- 0.0296 (0.0296) (0.0296)
December
31, 1996 1.0000 0.0289 -- 0.0289 (0.0289) (0.0289)
December
31, 1995 1.0000 0.0329 -- 0.0329 (0.0329) (0.0329)
December
31, 1994 1.0000 0.0235 -- 0.0235 (0.0235) (0.0235)
December
31, 1993 1.0000 0.0181 -- 0.0181 (0.0181) (0.0181)
CLASS I
SHARES
December
31, 1997 1.0000 0.0321 -- 0.0321 (0.0321) (0.0321)
December
31,
1996(/2/) 1.0000 0.0225 -- 0.0225 (0.0225) (0.0225)
- -------------------------------------------------------------------------------------
</TABLE>
(/1/) For the period September 14, 1996 (initial offering of Class B Shares)
through December 31, 1996.
(/2/) For the period March 30, 1966 (initial offering date of Class I Shares)
through December 31, 1996.
+ Annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
26 Pegasus Funds
<PAGE>
PEGASUS MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIO OF
EXPENSES
RATIO OF NET TO AVERAGE NET
RATIO OF INVESTMENT ASSETS
NET ASSETS EXPENSES INCOME TO (EXCLUDING
NET ASSET VALUE END OF PERIOD TO AVERAGE NET AVERAGE NET FEE WAIVERS AND
END OF PERIOD TOTAL RETURN (000'S OMITTED) ASSETS ASSETS REIMBURSEMENTS)
- --------------- ------------ --------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
1.0000 5.04% 973,821 0.74% 4.90% 0.74%
1.0000 4.99% 728,397 0.63% 4.87% --
1.0000 5.63% 1,639,695 0.51% 5.49% --
1.0000 3.86% 1,320,040 0.47% 3.78% --
1.0000 2.85% 1,326,693 0.49% 2.81% --
1.0000 4.29% 338 1.49% 4.15% 1.49%
1.0000 4.70%+ 143 1.48%+ 3.99%+ --
1.0000 5.29% 1,217,873 0.49% 5.15% 0.49%
1.0000 5.06%+ 1,715,313 0.51%+ 4.99%+ --
- -----------------------------------------------------------------------------------------
0.9999 4.92% 234,050 0.70% 4.80% --
0.9999 4.83% 214,398 0.56% 4.82% --
1.0000 5.53% 927,696 0.53% 5.39% --
1.0000 3.77% 785,694 0.50% 3.70% --
1.0000 2.77% 854,873 0.50% 2.73% --
1.0000 5.18% 745,673 0.45% 5.05% --
1.0000 4.89%+ 1,055,804 0.53%+ 4.85%+ --
- -----------------------------------------------------------------------------------------
0.9997 3.01% 204,527 0.73% 2.96% --
0.9997 2.96% 182,226 0.60% 2.97% --
1.0000 3.41% 564,413 0.53% 3.35% --
1.0000 2.45% 550,736 0.51% 2.42% --
1.0000 1.98% 498,706 0.51% 1.96% --
0.9999 3.26% 524,793 0.48% 3.21% --
1.0000 3.13%+ 631,938 0.51%+ 3.06%+ --
- -----------------------------------------------------------------------------------------
1.0000 3.00% 29,202 0.75% 2.95% 0.79%
1.0000 2.93% 72,089 0.74% 2.87% 0.77%
1.0000 3.32% 122,057 0.69% 3.30% 0.76%
1.0000 2.38% 78,640 0.67% 2.35% 0.75%
1.0000 1.83% 52,557 0.65% 1.81% --
1.0000 3.26% 74,888 0.50% 3.20% 0.54%
1.0000 3.03%+ 49,521 0.59%+ 3.02%+ 0.62%+
</TABLE>
- --------------------------------------------------------------------------------
Pegasus Funds 27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
the Pegasus Money Market Funds:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments of the Money Market Funds of the
PEGASUS FUNDS (comprising, as indicated in Note 1, the Money Market, Treasury
Money Market, Municipal Money Market and Michigan Municipal Money Market) as of
December 31, 1997, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
periods then ended and the financial highlights for each of the five years in
the periods then ended. These financial statements and financial highlights are
the responsibility of the Funds' management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included physical counts and confirmation of
securities owned as of December 31, 1997, by inspection and correspondence with
custodians, banks and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Money Market Funds of the Pegasus
Funds as of December 31, 1997, and the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
periods then ended and the financial highlights for each of the five years in
the period then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 17, 1998.
28 Pegasus Funds
