<PAGE>
[LOGO]
PEGASUS FUNDS
Strength in Investing
ANNUAL REPORT
December 31, 1998
PEGASUS FUNDS
<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 Schedules of Portfolio Investments
21 Notes to Financial Statements
28 Financial Highlights
30 Report of Independent Public
Accountants
SHARES OF THE TRUST ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, BANK ONE CORPORATION OR ITS AFFILIATES, AND
ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND IS
NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
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>
A MESSAGE FROM THE INVESTMENT ADVISER
December 31, 1998
Dear Shareholder:
1998 Money Market in Review
The domestic economy continued to grow at a robust pace in 1998 despite global
economic turmoil. Many believed that the Asian and Russian financial problems
would spill over to the United States and cause an economic slowdown or even a
recession. Anticipating that some of the global financial problems would lead
to slower growth at home, the Federal Reserve made three quarter-point rate
cuts in September, October and November. As a result, the federal funds rate
stood at 4.75% on December 31, 1998, compared to 5.50% a year earlier.
The U.S. economy continued to enjoy some of the lowest inflation in many years.
As measured by the Consumer Price Index (CPI), inflation was up only 1.6% in
1998, which followed a 1.7% increase in 1997. Employment also remained strong,
with December's unemployment rate only 4.3%.
Short-term interest rates generally were lower than they were in 1997, with the
one-year Treasury bill yielding 4.52% at year-end 1998 versus 5.48% at year-end
1997. Likewise, money market fund yields dropped in 1998 and are likely to
continue to do so in 1999, as securities purchased in a higher interest rate
environment mature and the cash is reinvested at lower rates.
Municipal Money Market Review
Because of tremendous asset growth, lack of fixed-rate note supply and the
series of Federal Reserve rate cuts, tax-exempt money yields experienced
downward pressure throughout much of 1998. Investors continued to pour cash
into the market throughout the year, as witnessed by the sector growing to
$187.6 billion, compared to year-end 1997 levels of $159.8 billion, an increase
of 17.3%. In January alone, cash inflows totaled $8.8 billion, which set the
tone for generally lower yields throughout the year. By mid-April, positive
cash flows temporarily, and violently, reversed course, as more than $11
billion of liquidity was lost primarily due to payments of corporate and
individual tax liabilities.
The second half of any calendar year usually provides opportunities for bond
fund managers to extend maturities. However, the anticipated primary note
issuance did not materialize in 1998, as governmental coffers experienced
budget surpluses that mitigated the need to seek financing in the note market.
Additionally, the tremendous growth of "derivitized" municipal paper, whereby
fixed-rate notes are restructured into variable-rate securities, further
weakened an already supply-strained note market. In addition, the third- and
fourth-quarter rate cuts further exacerbated downward pressure on short-term
tax-exempt interest rates during 1998.
<PAGE>
Pending Merger Transaction
On October 2, 1998, First Chicago NBD Corporation, parent company to First
Chicago NBD Investment Management Company, merged with and into BANC ONE
CORPORATION at which time it was renamed BANK ONE CORPORATION. BANK ONE
CORPORATION has now begun the process of reorganizing the Pegasus Funds into
The One Group Family of Mutual Funds. In January, 1999, the Boards of Trustees
of the Pegasus Funds approved a proposed Agreement and Plan of Reorganization,
which is subject to Pegasus shareholder approval. If you were a shareholder as
of the December 18, 1998 record date, you should have now received a combined
proxy/prospectus which outlines in more detail the proposed Agreement and Plan
of Reorganization. Assuming approval by Pegasus shareholders, it is anticipated
the reorganization transaction will occur in March, 1999. We realize that you
have many choices when it comes to mutual fund investing, and we appreciate you
selecting the Pegasus Funds.
Sincerely,
/s/ George F. Abel
George F. Abel
Chief Investment Officer
First Chicago NBD Investment Management Company
The Fund's income may be subject to certain state and local taxes and,
depending on your tax status the federal alternative minimum tax.
<PAGE>
Pegasus Money Market Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<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, at amortized
cost $3,089,572,765 $ 286,562,377 $805,157,754 $174,494,154
Repurchase agreements,
at cost 279,945,000 827,314,000 -- --
- ------------------------------------------------------------------------------------------
Total 3,369,517,765 1,113,876,377 805,157,754 174,494,154
Cash 82,511 648 -- 87,789
Receivable for capital
shares issued 91,587 -- -- --
Receivable for
securities sold -- -- 24,327,357 --
Interest receivable 14,747,635 5,015,642 5,087,544 1,072,090
Prepaids and other 43,563 4,041 5,902 2,074
- ------------------------------------------------------------------------------------------
TOTAL ASSETS 3,384,483,061 1,118,896,708 834,578,557 175,656,107
- ------------------------------------------------------------------------------------------
LIABILITIES:
Cash overdraft -- -- 740,291 --
Payable for capital
shares redeemed 350,358 -- -- --
Payable for securities
purchased -- -- 12,200,000 --
Accrued administration
fees 435,329 143,375 113,609 23,288
Shareholder services
fees payable 948,087 196,190 131,960 37,915
Accrued investment
advisory fees 564,571 284,088 227,218 43,776
Dividends payable 13,343,770 4,087,597 2,051,291 427,220
Other payables and
accrued expenses 609,116 72,187 104,462 8,473
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TOTAL LIABILITIES 16,251,231 4,783,437 15,568,831 540,672
- ------------------------------------------------------------------------------------------
NET ASSETS $3,368,231,830 $1,114,113,271 $819,009,726 $175,115,435
- ------------------------------------------------------------------------------------------
NET ASSET VALUE AND
REDEMPTION PRICE PER
SHARE:
Class A Shares :
Net assets $1,595,923,952 $ 341,643,306 $209,115,583 $ 64,282,619
Capital shares 1,595,927,844 341,660,035 209,157,570 64,283,183
- ------------------------------------------------------------------------------------------
Net asset value and
redemption price per
share $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------
Class B Shares:
Net assets $ 625,070 $ -- $ -- $ --
Capital shares 625,071 -- -- --
- ------------------------------------------------------------------------------------------
Net asset value and
redemption price per
share $ 1.00 $ -- $ -- $ --
- ------------------------------------------------------------------------------------------
Class I Shares:
Net assets $1,771,682,808 $ 772,469,965 $609,894,143 $110,832,816
Capital shares 1,771,676,086 772,469,964 609,859,862 110,833,239
- ------------------------------------------------------------------------------------------
Net asset value and
redemption price per
share $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital shares
(unlimited number of
shares authorized, par
value $.10 per share) $ 336,822,900 $ 111,413,000 $ 81,901,743 $ 17,511,642
Additional paid-in
capital 3,031,396,105 1,002,716,999 737,113,950 157,604,780
Accumulated
undistributed net
investment income (loss) 4,158 -- -- --
Accumulated
undistributed net
realized gains (losses) 8,667 (16,728) (5,967) (987)
- ------------------------------------------------------------------------------------------
TOTAL NET ASSETS $3,368,231,830 $1,114,113,271 $819,009,726 $175,115,435
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</TABLE>
See Notes to Financial Statements.
Pegasus Funds
3
<PAGE>
Pegasus Money Market Funds
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STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<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 $156,701,979 $55,509,104 $28,778,744 $4,209,296
- -----------------------------------------------------------------------------------
EXPENSES:
Investment advisory
fees 7,727,987 3,059,099 2,448,738 364,485
Administration fees 4,186,792 1,534,022 1,224,369 182,243
Transfer agent fees 1,747,125 129,639 102,540 12,903
Shareholder service
fees (Class A shares) 3,125,226 632,166 528,792 110,571
Shareholder service
fees (Class B shares) 1,553 -- -- --
12b-1 fees (Class B
shares) 4,660 -- -- --
Professional fees 100,636 52,945 49,796 29,598
Custodial fees 47,640 11,221 26,195 8,157
Registration, filing
fees and other expenses 927,484 67,435 83,417 46,862
- -----------------------------------------------------------------------------------
TOTAL EXPENSES 17,869,103 5,486,527 4,463,847 754,819
- -----------------------------------------------------------------------------------
Less: Investment
advisor waivers (780,222) -- -- (36,792)
- -----------------------------------------------------------------------------------
NET EXPENSES 17,088,881 5,486,527 4,463,847 718,027
- -----------------------------------------------------------------------------------
NET INVESTMENT INCOME 139,613,098 50,022,577 24,314,897 3,491,269
- -----------------------------------------------------------------------------------
NET REALIZED GAINS ON
INVESTMENTS 8,667 -- 48,044 --
- -----------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS $139,621,765 $50,022,577 $24,362,941 $3,491,269
- -----------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
4
<PAGE>
Pegasus Money Market Funds
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STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Municipal
Money Market Money Market Money Market
Fund Fund Fund
-----------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment
income $ 139,613,098 $ 123,162,205 $ 50,022,577 $ 53,563,614 $ 24,314,897 $ 26,737,246
Net realized
gains (losses)
on investments 8,667 -- -- -- 48,044 (2,098)
- ------------------------------------------------------------------------------------------------------------------------
Net increase in
net assets from
operations 139,621,765 123,162,205 50,022,577 53,563,614 24,362,941 26,735,148
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET INVESTMENT
INCOME
(Note 2):
Class A shares (60,762,369) (40,816,984) (11,789,801) (9,126,231) (5,919,392) (5,495,113)
Class B shares (25,686) (15,474) -- -- -- --
Class I shares (78,825,043) (82,329,747) (38,232,776) (44,437,383) (18,395,505) (21,242,133)
- ------------------------------------------------------------------------------------------------------------------------
Total
distributions to
shareholders (139,613,098) (123,162,205) (50,022,577) (53,563,614) (24,314,897) (26,737,246)
- ------------------------------------------------------------------------------------------------------------------------
FROM CAPITAL
SHARE
TRANSACTIONS:
Proceeds from
shares sold 10,689,905,274 9,687,488,060 4,987,269,353 4,728,247,544 1,913,171,904 2,227,511,937
Proceeds from
shares issued in
connection with
conversion of
common trust
funds 319,416,276 -- -- -- -- --
Net asset value
of shares issued
in reinvestment
of distributions
to shareholders 69,123,870 59,792,177 13,303,548 13,617,762 5,853,603 6,014,147
- ------------------------------------------------------------------------------------------------------------------------
11,078,445,420 9,747,280,237 5,000,572,901 4,741,865,306 1,919,025,507 2,233,526,084
Less: payments
for shares
redeemed (9,902,254,357) (9,999,101,019) (4,866,182,322) (5,032,144,249) (1,829,382,970) (2,318,368,395)
- ------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets from
capital share
transactions 1,176,191,063 (251,820,782) 134,390,579 (290,278,943) 89,642,537 (84,842,311)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS 1,176,199,730 (251,820,782) 134,390,579 (290,278,943) 89,690,581 (84,844,409)
NET ASSETS:
Beginning of
period 2,192,032,100 2,443,852,882 979,722,692 1,270,001,635 729,319,145 814,163,554
- ------------------------------------------------------------------------------------------------------------------------
End of period $ 3,368,231,830 $ 2,192,032,100 $ 1,114,113,271 $ 979,722,692 $ 819,009,726 $ 729,319,145
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Michigan Muncipal
Money Market
Fund
----------------------------
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
----------------------------
<S> <C> <C>
FROM OPERATIONS:
Net investment
income $ 3,491,269 $ 3,911,361
Net realized
gains (losses)
on investments -- --
- -----------------------------------------------
Net increase in
net assets from
operations 3,491,269 3,911,361
- -----------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET INVESTMENT
INCOME
(Note 2):
Class A shares (1,196,551) (1,691,184)
Class B shares -- --
Class I shares (2,294,718) (2,220,177)
- -----------------------------------------------
Total
distributions to
shareholders (3,491,269) (3,911,361)
- -----------------------------------------------
FROM CAPITAL
SHARE
TRANSACTIONS:
Proceeds from
shares sold 453,540,888 385,607,333
Proceeds from
shares issued in
connection with
conversion of
common trust
funds -- --
Net asset value
of shares issued
in reinvestment
of distributions
to shareholders 868,962 1,688,415
- -----------------------------------------------
454,409,850 387,295,748
Less: payments
for shares
redeemed (383,384,027) (404,815,670)
- -----------------------------------------------
Net increase
(decrease) in
net assets from
capital share
transactions 71,025,823 (17,519,922)
- -----------------------------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS 71,025,823 (17,519,922)
NET ASSETS:
Beginning of
period 104,089,612 121,609,534
- -----------------------------------------------
End of period $ 175,115,435 $ 104,089,612
- -----------------------------------------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
5
<PAGE>
Pegasus Money Market Fund
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SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
FUNDING AGREEMENTS -- 9.6%
Insurance -- 9.6%
Allstate Life Insurance Co., 5.25%, 9/1/99*....... $ 10,000,000 $ 10,000,000
General American Life Insurance Co., 5.24%,
1/19/00*......................................... 88,000,000 88,000,000
Monumental Life, 5.22%, 12/13/99*................. 10,000,000 10,000,000
People Benefit Life Insurance Co., 5.71%,
12/13/99*........................................ 40,000,000 40,000,000
Sunamerica Life Insurance Co., 5.36%, 10/2/99*.... 50,000,000 50,000,000
Sunamerica Life Insurance Co., 5.60%, 9/30/99*.... 25,000,000 25,000,000
Transamerica Life Insurance Co., 5.38%, 12/9/02*.. 50,000,000 50,000,000
Travelers Life Insurance & Annuity Co., 5.43%,
11/8/99*......................................... 25,000,000 25,000,000
Western and Southern Insurance Co., 5.55%,
1/29/03*......................................... 25,000,000 25,000,000
--------------
TOTAL FUNDING AGREEMENTS........................... 323,000,000
--------------
MEDIUM TERM NOTES -- 1.5%
Automotive -- 0.3%
General Motors Acceptance Corp., 4.97%, 2/5/99*... 10,000,000 10,000,184
--------------
Finance -- 1.2%
Sigma Finance Inc., 5.55%, 10/4/99*............... 40,000,000 40,000,000
--------------
TOTAL MEDIUM TERM NOTES............................ 50,000,184
--------------
REPURCHASE AGREEMENTS -- 8.3%
HSBC Tri-Party, 5.10%, 01/4/99 (Collateralized by
$47,223,000 various U.S. Government Securities,
0.00%-7.55% 1/4/99-3/27/07, market value
$46,886,000) .................................... 45,966,000 45,966,000
Lehman Brothers Tri-Party, 5.15%, 1/4/99
(Collateralized by $33,979,000 various U.S.
Government Securities, 0.00%-12.50% 12/1/99-
11/1/05, market value $34,659,000) .............. 33,979,000 33,979,000
Nomura Tri-Party, 5.15%, 1/4/99 (Collateralized by
$198,736,000 various U.S.Government Securities,
0.00%-7.50% 10/31/99-12/3/08, market value
$204,000,000) ................................... 200,000,000 200,000,000
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TOTAL REPURCHASE AGREEMENTS........................ 279,945,000
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YANKEE CERTIFICATES OF DEPOSIT -- 6.3%
Banking -- 6.3%
Banque Nationale De Paris, 5.65%, 2/26/99......... 34,000,000 33,997,497
Commerzbank AG, 5.65%, 2/26/99.................... 7,000,000 6,999,484
Commerzbank AG, 5.67%, 3/5/99..................... 15,000,000 14,998,579
Credit Agricole Indosuez, 5.75%, 4/26/99.......... 38,000,000 37,994,271
Deutsche Bank, 5.66%, 4/14/99..................... 15,000,000 14,995,540
Norddeutsche Landesbank Girozenrale, 5.72%,
4/16/99.......................................... 23,000,000 22,994,576
Societe Generale, 5.58%, 1/22/99.................. 10,000,000 9,999,168
Societe Generale, 5.69%, 7/16/99.................. 20,000,000 20,084,412
Swiss Bank Corp., 5.74%, 6/11/99.................. 21,000,000 20,994,678
Westpac Banking Corp., 5.73%, 4/16/99............. 28,000,000 27,997,300
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TOTAL YANKEE CERTIFICATES OF DEPOSIT .............. 211,055,505
--------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
6
<PAGE>
Pegasus Money Market Fund
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SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
COMMERCIAL PAPER -- 45.6%
Automotive -- 1.2%
Ford Credit Europe PLC, 1/7/99.................... $ 22,000,000 $ 21,981,557
TRW Inc., 5.21%, 3/12/99.......................... 20,000,000 19,797,389
--------------
41,778,946
--------------
Banking -- 11.3%
Abbey National North America, 5.20%, 1/11/99...... 35,000,000 34,949,444
Abbey National North America, 5.20%, 2/4/99....... 25,000,000 24,877,222
Banco Rio De La Plata, 5.70%, 2/4/99.............. 14,970,000 14,889,412
Bancomer SA, Institucion De Banca, 5.11%,
4/21/99.......................................... 40,000,000 39,375,444
Bank Of Nova Scotia, 5.19%, 1/6/99................ 40,000,000 39,971,167
Bank Of Nova Scotia, 5.05%, 3/25/99............... 40,000,000 39,534,278
Bayerische Hypo Und Vereinsbank, 5.41%, 1/15/99... 35,000,000 34,926,364
Kredietbank North America Finance Corp., 5.45%,
1/19/99.......................................... 50,000,000 49,863,749
Lloyds Bank PLC, 5.04%, 3/18/99................... 35,000,000 34,627,600
Republic New York Corp., 5.20%, 1/13/99........... 30,000,000 29,948,000
UBS Finance, 5.00%, 3/22/99....................... 37,000,000 36,588,889
--------------
379,551,569
--------------
Brokerage Services -- 1.5%
Morgan (J.P.) & Co Inc., 4.83%, 3/30/99........... 27,150,000 26,829,449
Morgan (J.P.) & Co Inc., 4.81%, 3/30/99........... 25,000,000 24,659,292
--------------
51,488,741
--------------
Commercial Loans -- 3.2%
Moat Funding LLC, 5.38%, 3/16/99.................. 40,000,000 39,557,644
Moat Funding LLC, 5.00%, 6/1/99................... 25,000,000 24,475,694
Rose Inc., 5.57%, 1/21/99......................... 30,000,000 29,907,167
Wood Street Funding Corp., 5.27%, 1/21/99......... 15,335,000 15,290,103
--------------
109,230,608
--------------
Consumer Goods & Services -- 0.9%
Xerox Capital De Mexicana, SA De CV, 5.30%,
2/16/99.......................................... 30,000,000 29,796,833
--------------
Credit Card Receivables -- 0.6%
Charta Corp., 5.40%, 1/27/99...................... 20,000,000 19,922,000
--------------
Electric & Gas Utilities -- 1.0%
National Rural Utilities Co-Op Finance Corp.,
5.00%, 2/8/99.................................... 35,000,000 34,815,278
--------------
Finance -- 20.1%
Amsterdam Funding Corp., 5.40%, 1/15/99........... 35,000,000 34,926,500
Amsterdam Funding Corp., 5.40%, 2/1/99............ 25,521,000 25,403,206
Apreco Inc., 5.50%, 1/26/99....................... 27,000,000 26,896,875
Apreco Inc., 5.21, 2/12/99........................ 25,000,000 24,848,042
Aspen Funding Corp., 4.95%, 5/24/99............... 25,000,000 24,508,438
Barton Capital Corp., 5.43%, 2/3/99............... 25,000,000 24,875,562
Block Financial Corp., 5.17%, 1/7/99.............. 21,124,000 21,105,798
Block Financial Corp., 5.17%, 1/8/99.............. 11,000,000 10,988,942
Block Financial Corp., 5.23%, 1/21/99............. 18,000,000 17,947,700
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
7
<PAGE>
Pegasus Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
BTR Dunlop Finance, Inc., 5.13%, 1/25/99.......... $ 35,000,000 $ 34,875,633
CXC Inc., 1/5/99.................................. 20,000,000 19,987,778
Eureka Securitization Inc., 5.08%, 2/11/99........ 31,000,000 30,820,648
Market Street Funding Corp., 5.40%, 1/29/99....... 30,000,000 29,874,000
Monte Rosa Capital Corp., 5.43%, 2/19/99.......... 20,083,000 19,934,570
Newport Funding Corp., 5.25%, 1/4/99.............. 110,000,000 109,951,874
Quincy Capital Corp., 4.90%, 1/22/99.............. 23,000,000 22,929,563
Sheffield Receivables Corp., 5.25%, 2/5/99........ 13,000,000 12,933,646
Special Purpose Accounts Receivable, 5.70%,
1/12/99.......................................... 25,000,000 24,956,458
Special Purpose Accounts Receivable, 5.23%,
1/28/99.......................................... 37,000,000 36,854,868
Special Purpose Accounts Receivable, 5.25%,
4/15/99.......................................... 25,000,000 24,620,833
WCP Funding Inc., 5.45%, 1/14/99.................. 40,000,000 39,921,277
Westpac Banking Corp., 5.00%, 3/23/99............. 30,000,000 29,662,500
Windmill Funding Corp., 5.30%, 2/19/99............ 25,000,000 24,819,653
--------------
673,644,364
--------------
Insurance -- 0.7%
John Hancock Capital Corp., 5.00%, 3/30/99........ 25,175,000 24,867,306
--------------
Leasing -- 0.7%
Sun-Belt Dixie Inc., 5.30%, 2/16/99............... 24,000,000 23,837,467
--------------
Minerals -- 0.4%
US Borax Inc., 5.20%, 2/2/99...................... 13,900,000 13,835,751
--------------
Oil & Gas Exploration -- 1.2%
Explorer Pipeline Co., 5.32%, 1/22/99............. 10,000,000 9,968,967
Explorer Pipeline Co., 5.32%, 2/24/99............. 31,000,000 30,752,620
--------------
40,721,587
--------------
Petroleum -- 0.9%
Petroleo Brasileiro SA, 4.91%, 3/30/99............ 30,000,000 29,639,933
--------------
Pharmaceuticals -- 1.9%
Akzo Nobel Inc., 5.29%, 2/11/99................... 15,000,000 14,909,629
Akzo Nobel Inc., 5.12%, 3/3/99.................... 25,000,000 24,783,112
Akzo Nobel Inc., 5.00%, 4/27/99................... 25,000,000 24,597,222
--------------
64,289,963
--------------
TOTAL COMMERCIAL PAPER............................. 1,537,420,346
--------------
BANK NOTES -- 3.3%
Banking -- 3.3%
Abbey National Treasury Services, 5.72%, 6/11/99.. 16,000,000 15,994,593
Key Bank, 5.80%, 2/24/99*......................... 44,500,000 44,495,327
National Australia Bank, 6.00%, 3/26/99........... 12,200,000 12,206,928
PNC Bank, 5.56%, 10/12/99*........................ 40,000,000 40,000,000
--------------
TOTAL BANK NOTES................................... 112,696,848
--------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
8
<PAGE>
Pegasus Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
CORPORATE NOTES -- 9.4%
Automotive -- 3.3%
GE Engine Receivables Trust, 5.60%, 2/14/00*....... $ 20,751,811 $ 20,751,811
Paccar Leasing Corp., 5.45%, 1/14/99*.............. 15,000,000 15,000,000
Wheels, Inc., 5.66%, 5/15/99*...................... 75,000,000 75,000,000
--------------
110,751,811
--------------
Brokerage Services -- 5.1%
Merrill Lynch Inc., 6.00%, 1/1/99*................. 125,000,000 125,000,000
Morgan Guaranty Trust Co., 5.57%, 9/27/99*......... 45,000,000 44,987,122
--------------
169,987,122
--------------
Various Receivables -- 1.0%
Strats Trust 1998-C, 144A, 5.57%, 4/13/99*......... 35,000,000 34,999,949
--------------
TOTAL CORPORATE NOTES............................... 315,738,882
--------------
CERTIFICATES OF DEPOSIT -- 1.2%
Banking -- 1.2%
Chase Manhattan Bank, 4.86%, 4/21/99............... 40,000,000 40,000,000
--------------
TOTAL CERTIFICATES OF DEPOSIT....................... 40,000,000
--------------
TIME DEPOSITS -- 14.8%
Banking -- 14.8%
Banco Bilbao Vizcaya, 5.25%, 1/5/99................ 40,000,000 40,000,000
Citibank N.A., 5.25%, 1/4/99....................... 120,000,000 120,000,000
Credit Agricole Indosuez, 4.88%, 1/4/99............ 50,000,000 50,000,000
Dresdner Bank AG, 5.13%, 1/4/99.................... 65,000,000 65,000,000
Huntington National Bank, 4.00%, 1/4/99............ 154,661,000 154,661,000
Suntrust Bank, 5.25%, 1/4/99....................... 70,000,000 70,000,000
--------------
TOTAL TIME DEPOSITS................................. 499,661,000
--------------
TOTAL............................................... $3,369,517,765
==============
</TABLE>
Percentages indicated are based on net assets of $3,368,231,830.
* Variable rate securities. The interest rate, which will change periodically,
is based upon an index of market rates. The rate reflected on the Schedule
of Portfolio Investments is the rate in effect at December 31, 1998. All
securities with maturity dates greater than thirteen months have automatic
reset features resulting in effective maturity dates less than thirteen
months.
(1) Security Exempt from registration under rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. Additional
information regarding these securities follows:
<TABLE>
<CAPTION>
Carrying Percentage
Acquisition Value Original Market of Total
Holding Date* Par Per Unit Cost Value Investments
------- ----------- ----------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Allstate Life Insurance
Co. ................... 4/18/95 $10,000,000 100.00 $10,000,000 $10,000,000 0.30%
Monumental Life......... 4/18/95 10,000,000 100.00 10,000,000 10,000,000 0.30%
Peoples Benefit Life
Insurance Co. ......... 5/13/98 40,000,000 100.00 40,000,000 40,000,000 1.19%
Sunamerica Life
Insurance Co. ......... 7/1/97 50,000,000 100.00 50,000,000 50,000,000 1.48%
Sunamerica Life
Insurance Co. ......... 9/30/98 25,000,000 100.00 25,000,000 25,000,000 0.74%
Transamerica Life
Insurance Co. ......... 12/9/96 50,000,000 100.00 50,000,000 50,000,000 1.48%
Travelers Life Insurance
and Annuity Co. ....... 11/6/97 25,000,000 100.00 25,000,000 25,000,000 0.74%
----------- ----------- -----
210,000,000 210,000,000 6.23%
</TABLE>
* Acquisition date refers to the first acquisition date in the case of
securities purchased in multiple lots.
See Notes to Financial Statements.
Pegasus Funds
9
<PAGE>
Pegasus Treasury Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS -- 25.7%
U.S. Treasury Notes -- 25.7%
8.87%, 2/15/99.................................. $ 40,000,000 $ 40,158,739
6.25%, 3/31/99.................................. 25,000,000 25,093,234
6.50%, 4/30/99.................................. 40,000,000 40,121,532
6.00%, 6/30/99.................................. 50,000,000 50,124,032
6.37%, 7/15/99.................................. 40,000,000 40,358,514
5.87%, 8/31/99.................................. 40,000,000 40,302,500
5.75%, 9/30/99.................................. 50,000,000 50,403,826
--------------
TOTAL U.S. TREASURY OBLIGATIONS.................... 286,562,377
==============
REPURCHASE AGREEMENTS -- 74.3%
Barclays De Zoette Wedd, 4.75%, 1/4/99 (Collater-
alized by $47,291,400 various U.S. Treasury Se-
curities, 5.63%-5.88%, 11/15/99-12/31/99, market
value $47,940,431) ............................. 47,000,000 47,000,000
Bear Stearns, 4.85%, 1/4/99 (Collateralized by
$266,415,100 various U.S. Treasury Securities,
0.00%-9.13%, 2/15/99-8/15/08, market value
$215,452,709)................................... 210,000,000 210,000,000
Donaldson Lufkin, & Jenrette, 5.00%, 1/4/99 (Col-
lateralized by $46,909,672 various U.S. Treasury
Securities, 0.00%-7.50%, 4/22/99-2/5/15, market
value $47,940,410) ............................. 47,000,000 47,000,000
First Union Capital Markets, 4.98%, 1/4/99 (Col-
lateralized by $120,590,079 various U.S. Trea-
sury Securities, 0.00%-13.75%, 1/7/99-5/15/06,
market value $125,571,025) ..................... 123,000,000 123,000,000
Goldman Sachs, 4.70%, 1/4/99 (Collateralized by
$102,458,304 U.S. Treasury Notes, 5.88%,
11/15/05, market value $110,160,553) ........... 108,000,000 108,000,000
Greenwich Capital Markets, Inc., 4.95%, 1/4/99
(Collateralized by $44,936,440 various U.S.
Treasury Strips, 2/15/99-11/15/08, market value
$34,681,093).................................... 34,000,000 34,000,000
Lehman Brothers, 4.95%, 1/4/99 (Collateralized by
$52,295,075 various U.S. Treasury Strips,
2/15/99-11/15/05, market value $46,221,270) .... 45,314,000 45,314,000
Merrill Lynch, 4.80%, 1/4/99 (Collateralized by
$69,370,149 various U.S. Treasury Strips,
2/15/04-11/15/08, market value $51,002,186) .... 50,000,000 50,000,000
Morgan Stanley, 4.65%, 1/4/99 (Collateralized by
$35,007,500 U.S. Treasury Notes, 7.00%, 7/15/06,
market value $41,003,680) ...................... 40,000,000 40,000,000
Prudential, 4.50%, 1/4/99 (Collateralized by
$49,908,955 various U.S. Treasury Securities,
5.13%-5.38%, 6/30/00-8/31/00, market value
$51,000,579) ................................... 50,000,000 50,000,000
Salomon Smith Barney, 4.90%, 1/4/99 (Collateral-
ized by $25,213,421 various U.S. Treasury Secu-
rities, 4.62%-6.37%, 5/15/00-11/30/00, market
value $25,868,363) ............................. 25,000,000 25,000,000
Societe Generale, 4.80%, 1/4/99 (Collateralized
by $45,510,528 various U.S. Treasury Securities,
5.25%-13.13%, 8/15/99-7/15/06, market value
$48,985,182).................................... 48,000,000 48,000,000
--------------
TOTAL REPURCHASE AGREEMENTS...................... 827,314,000
--------------
TOTAL............................................ $1,113,876,377
==============
</TABLE>
Percentages indicated are based on net assets of $1,114,113,271.
See Notes to Financial Statements.
Pegasus Funds
10
<PAGE>
Pegasus Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
DAILY DEMAND NOTES -- 8.9%
Alabama -- 0.6%
Mcintosh Industrial Development Environmental
Improvement Revenue, Series D, 5.05%, 7/1/28* ...... $ 4,700,000 $ 4,700,000
------------
Arizona -- 0.0%
Maricopa County Pollution Control, Revenue, Arizona
Public Services, Series B, 5.10%, 5/1/29, LOC:
Morgan Guaranty Trust* ............................. 250,000 250,000
------------
Indiana -- 0.9%
State Development Financing Authority, Environmental
Revenue, 2.30%,
8/1/28* ............................................ 7,200,000 7,200,000
------------
Michigan -- 0.5%
Delta County Economic Development, Environmental
Improvement, 5.05%, 12/1/23, LOC: Bank of Nova
Scotia* ............................................ 400,000 400,000
Farmington Hills, Hospital Financial Authority,
Botsford General Hospital, Series B, 5.10%, 2/15/16,
MBIA * ............................................. 1,200,000 1,200,000
State Strategic Fund, 5.05%, 9/1/30, LOC: Barclays
Bank*............................................... 2,200,000 2,200,000
------------
3,800,000
------------
Nevada -- 0.8%
Clark County, Nevada Cogeneration Association, AMT,
5.20%, 12/1/22, LOC: ABN AMRO Bank* ................ 6,900,000 6,900,000
------------
North Carolina -- 0.1%
Raleigh Durham Airport Authority, Special Facilities
Revenue, American Airlines, Series A, 5.10%,
11/1/15, LOC: NationsBank* ......................... 700,000 700,000
------------
South Carolina -- 0.7%
Charleston County School, Industrial Revenue, AMT,
5.20%, 8/1/28, LOC: Bank of America* ............... 2,900,000 2,900,000
Florence County Solid Waste Disposal & Wastewater
Treatment, Roche Carolina Inc. Project, AMT, 5.20%,
4/1/28, LOC: Deutsche Bank* ........................ 2,800,000 2,800,000
------------
5,700,000
------------
Texas -- 0.7%
Brazos River, Harbor Navigation District Revenue, Dow
Chemical Co. Project, 5.30%, 5/1/23* ............... 1,300,000 1,300,000
Brazos River, Pollution Control Revenue, 5.30%,
6/1/30, MBIA*....................................... 4,365,000 4,365,000
------------
5,665,000
------------
Virginia -- 3.6%
Dinwiddie County, Chaparral East Project, Series A,
AMT, 2.35%, 9/1/28, LOC: NationsBank* .............. 8,000,000 8,000,000
King George County Industrial Development, Birchwood
Power Partners Project, AMT, 5.20%, 3/1/27, LOC:
Credit Suisse First Boston* ........................ 2,200,000 2,200,000
King George County Industrial Development, Birchwood
Power Partners Project, AMT, 5.20%, 11/1/25, LOC:
Credit Suisse First Boston* ........................ 6,700,000 6,700,000
Peninsula Port Authority, Revenue, AMT, 5.20%,
5/1/22, LOC: Bank of America*....................... 13,450,000 13,450,000
------------
30,350,000
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
11
<PAGE>
Pegasus Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
Wyoming -- 1.0%
Lincoln County Environmental Improvement Revenue,
Pacific Corp. Project, AMT, 5.40%, 11/1/25* ........ $ 8,000,000 $ 8,000,000
------------
TOTAL DAILY DEMAND NOTES............................. 73,265,000
------------
MUNICIPAL BONDS -- 25.4%
Arizona -- 0.5%
Chandler Industrial Development, Revenue, Parsons Mu-
nicipal Services, 3.50%, 12/15/09, LOC: Bank of
America* ........................................... 4,500,000 4,500,000
------------
California -- 0.8%
State Economic Development Authority, Revenue, 5.15%,
4/1/08, LOC: Bank of America* ...................... 6,300,000 6,300,000
------------
Florida -- 4.3%
Miami/Dade School District Transit, 4.00%, 6/30/99... 5,125,000 5,138,100
Putnam County Development Authority, Pollution Con-
trol Revenue, 3.30%, 3/15/14, SPA: National Rural
Utilities Finance* ................................. 20,575,000 20,574,999
Sarasota County Public Hospital, Sarasota Memorial
Hospital, Series A, 3.15%, 2/12/99, SunTrust Bank .. 9,045,000 9,045,000
------------
34,758,099
------------
Illinois -- 2.9%
Chicago, GO, 3.55%, 2/4/99, LOC: Morgan Guaranty..... 20,000,000 20,000,000
Midway Airport, Revenue, Series B, 5.09%, 1/1/29,
MBIA*............................................... 3,800,000 3,800,000
------------
23,800,000
------------
Indiana -- 2.5%
Marion County Industrial Environmental Development,
AMT, 3.65%, 2/1/99, LOC: National Westminster Bank
.................................................... 3,500,000 3,500,000
Mount Vernon Industrial Pollution Control, General
Electric Company Project, AMT, 5.10%, 11/1/18* ..... 5,800,000 5,800,000
State Development Financing Authority, Pollution Con-
trol Revenue, AMT, 3.70%, 3/1/99 ................... 11,100,000 11,100,000
------------
20,400,000
------------
Kentucky -- 1.3%
State Interlocal School Transportation Association,
3.90%, 6/30/99...................................... 10,750,000 10,763,956
------------
Michigan -- 4.2%
Detroit Sewage Disposal Revenue, 3.30%, 7/1/23,
MBIA*............................................... 16,500,000 16,500,000
Meridian Economic Development, Hannah Research &
Technology Center, 3.50%, 11/15/14, LOC: Comerica
Bank* .............................................. 900,000 900,000
State Housing Development Authority, AMT, 3.00%,
12/1/99............................................. 4,300,000 4,300,000
State Municipal Bond Authority, Revenue, 3.50%,
12/1/99............................................. 9,675,000 9,726,841
State Strategic Fund, Saginaw Products Corp., AMT,
4.20%, 9/1/17, LOC: Comerica Bank* ................. 3,000,000 3,000,000
------------
34,426,841
------------
Oregon -- 1.8%
State Housing & Community Department, Revenue, 3.75%,
5/13/99 ............................................ 15,000,000 15,000,000
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
12
<PAGE>
Pegasus Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
Pennsylvania -- 1.7%
Carbon County, Industrial Development Authority,
Panther Creek, AMT, 3.25%, 1/22/99 ................. $14,285,000 $ 14,285,000
------------
South Carolina -- 1.0%
York County, Pollution Control, Project NRU-84N-6,
3.30%, 3/15/99, CFC ................................ 8,300,000 8,300,000
------------
Texas -- 2.5%
Dallas Area Rapid Transit, 2.95%, 2/25/99............ 8,250,000 8,250,000
Panhandle-Plains, Higher Education Authority, Series
A, 3.95%, 6/1/27, LOC: Student Loan Marketing* ..... 12,200,000 12,200,000
------------
20,450,000
------------
Vermont -- 0.5%
Vermont State Student Assistance Corporation, Student
Loan Revenue, 3.40%, 1/1/04, LOC: National
Westminster Bank* .................................. 3,900,000 3,900,000
------------
Virginia -- 0.7%
Education & Health, Middlebury College Project, Se-
ries A, 3.75%, 5/1/99 .............................. 5,500,000 5,500,000
------------
Wyoming -- 0.7%
Gillette Pollution Control, 2.95%, 2/9/99, LOC:
Deutsche Bank*...................................... 5,500,000 5,500,000
------------
TOTAL MUNICIPAL BONDS................................ 207,883,896
------------
WEEKLY DEMAND NOTES -- 35.6%
Alabama -- 0.6%
Decatur Industrial Development, AMT, 4.20%, 1/1/27,
LOC: Chase Manhattan Bank*.......................... 4,800,000 4,800,000
------------
Delaware -- 0.6%
State Economic Development Authority, Series A, AMT,
4.20%, 8/1/29, LOC: Canadian Imperial Bank of
Commerce* .......................................... 4,800,000 4,800,000
------------
Florida -- 1.1%
Orange County Health Facilities, 3.90%, 11/15/26,
LOC: SunTrust Bank* ................................ 2,750,000 2,750,000
Orange County Health Facilities, 3.90%, 12/1/23, LOC:
SunTrust Bank* ..................................... 6,245,000 6,245,000
------------
8,995,000
------------
Georgia -- 2.3%
Gwinett County Hospital Authority, Gwinett Hospital
System, Series B, 4.05%, 9/1/27, MBIA* ............. 5,000,000 5,000,000
Macon-Bibb County Hospital Authority, Medical Center
of Central Georgia, Revenue, 4.00%, 8/1/18, LOC:
SunTrust Bank* ..................................... 5,000,000 5,000,000
Municipal Gas Authority, Revenue, Portfolio II Proj-
ect, Series A, 3.90%, 11/1/06, LOC: Wachovia Bank*
.................................................... 2,245,000 2,245,000
Municipal Gas Authority, Revenue, Portfolio II Proj-
ect, Series B, 3.90%, 9/1/07, LOC: Wachovia Bank* .. 6,500,000 6,500,000
------------
18,745,000
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
13
<PAGE>
Pegasus Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
Illinois -- 4.2%
Carol Stream, Multi Family Revenue, AMT, 4.15%,
3/15/27, FNMA* ...................................... $ 5,000,000 $ 5,000,000
Development Finance Authority, Series A, 4.15%,
11/15/27, MBIA* ..................................... 15,000,000 15,000,000
Development Financing Authority, Environmental Facil-
ity Revenue, AMT, 3.85%, 5/1/32 * ................... 14,325,000 14,325,000
------------
34,325,000
------------
Iowa -- 1.1%
State Finance Authority, Multi Family Housing,
Revenue, 4.05%, 6/1/19, LOC: Bankers Trust* ......... 2,400,000 2,400,000
State Finance Authority, Revenue, Series B, 4.05%,
8/15/24, MBIA* ...................................... 7,000,000 7,000,000
------------
9,400,000
------------
Kentucky -- 1.1%
Henderson County Solid Waste Disposal, Revenue, AMT,
4.15%, 3/1/15, LOC: Rabobank Nederland* ............. 9,000,000 9,000,000
------------
Michigan -- 2.3%
Michigan State University, Revenue, Series A-2, 3.95%,
8/15/22*............................................. 1,900,000 1,900,000
State Higher Education, Student Loan Revenue, Series
XII-D, AMT, 3.95%, 10/1/15, AMBAC* .................. 100,000 100,000
State Hospital Finance Authority, 3.90%, 6/1/01, LOC:
Comerica Bank* ...................................... 700,000 700,000
State Housing Development Authority, Woodland Meadows
Project, AMT, 4.00%, 3/1/13, LOC: Swiss Bank* ....... 200,000 200,000
State Strategic Fund, Autocam Corp., AMT, 4.20%,
12/1/17, LOC: Comerica Bank*......................... 2,870,000 2,870,000
State Strategic Fund, Pyper Project, 4.20%, 10/1/18,
LOC: Comerica Bank*.................................. 400,000 400,000
State Strategic Fund, Quincy Street Inc. Project, AMT,
4.20%, 12/1/22, LOC: Comerica Bank* ................. 2,800,000 2,800,000
Wayne Charter County, Airport Revenue, AMT, Series B,
3.95%, 12/1/16, LOC: Bayerische Landesbank* ......... 500,000 500,000
Wayne Charter County, Airport Revenue, AMT, Series A,
4.15%, 12/1/16, LOC: Bayerische Landesbank* ......... 9,300,000 9,300,000
------------
18,770,000
------------
Minnesota -- 2.3%
Minneapolis Convention Center, Series B, 3.70%,
12/1/17, LOC: Norwest Bank*.......................... 4,500,000 4,500,000
Minneapolis, GO, Series B, 3.85%, 12/1/27, Bayerische
Landesbank* ......................................... 11,350,000 11,350,000
Minneapolis, Series B, 3.85%, 12/1/07, SPA: Bayerische
Landesbank* ......................................... 2,945,000 2,945,000
------------
18,795,000
------------
Nevada -- 1.4%
Clark County, Airport Revenue, Series B, AMT, 4.05%,
7/1/28, MBIA, SPA: Westduetsche Landesbank* ......... 11,500,000 11,500,000
------------
New York -- 0.7%
Municipal Assistance Corp., 3.80%, 7/1/08, LOC:
Westdeutsche Landesbank* ............................ 6,100,000 6,100,000
------------
North Carolina -- 5.3%
Charlotte, Airport Revenue, Series A, 3.95%, 7/1/17,
MBIA*................................................ 19,520,000 19,520,000
Charlotte-Mechlenberg Hospital Authority, Series B,
4.00%, 1/15/26, NationsBank* ........................ 3,085,000 3,085,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
14
<PAGE>
Pegasus Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
State Medical Care Commission, 4.00%, 12/1/25,
MBIA*............................................... $14,650,000 $ 14,650,000
State Medical Care Commission, 3.90%, 8/15/18, LOC:
SunTrust Bank* ..................................... 6,300,000 6,300,000
------------
43,555,000
------------
Ohio -- 0.8%
State Air Quality Development, Revenue, AMT, 4.25%,
4/1/28, LOC: Societe Generale*...................... 6,200,000 6,200,000
------------
Pennsylvania -- 4.8%
Allegheny County Hospital Development Authority,
Margaret Memorial Hospital, 4.10%, 10/1/21, LOC:
Mellon Bank* ....................................... 6,500,000 6,500,000
Allegheny County Hospital Development Authority,
Presbyterian University Hospital/Allegheny County
Hospital, 4.10%, 3/1/20, MBIA* ..................... 500,000 500,000
Allegheny County Industrial Development Authority,
Eye & Ear Properties Corp., 4.10%, 2/1/15, LOC:
Pittsburgh National Bank* .......................... 5,310,000 5,310,000
Allegheny County, Industrial Development Authority,
United Jewish Federation, 4.05%, 10/1/25, LOC: PNC
Bank* .............................................. 1,500,000 1,500,000
Indiana County Industrial Development Authority,
Pollution Control Revenue, AMT, 4.25%, 6/1/27, LOC:
UBS AG Evergreen* .................................. 25,000,000 25,000,000
State Higher Educational Facilities, Council of
Independent Colleges, Revenue, 4.10%, 4/1/17, LOC:
PNC Bank* .......................................... 200,000 200,000
------------
39,010,000
------------
South Carolina -- 2.0%
Piedmont Municipal Power Agency Electric, Revenue,
4.10%, 1/1/19, MBIA* ............................... 4,000,000 4,000,000
Spartanburg County Health Services, Revenue, 3.35%,
4/15/23, MBIA* ..................................... 12,000,000 12,000,000
------------
16,000,000
------------
South Dakota -- 0.3%
State Housing Development Authority, Revenue,
Homeownership Mortgage,
Series E, AMT, 4.30%, 12/14/00* .................... 2,690,000 2,690,000
------------
Tennessee -- 1.2%
Oak Ridge Industrial Development Authority, AMT,
4.10%, 1/1/06, LOC: SunTrust Bank* ................. 10,000,000 10,000,000
------------
Texas -- 2.2%
Brazos River Authority Pollution Control, Texas Util-
ities Electric Company Project, Series D, 4.20%,
7/1/22, MBIA* ...................................... 5,765,000 5,765,000
Panhandle-Plains Higher Education Authority, Student
Loan Revenue, AMT, 3.95%, 6/1/21, LOC: Student Loan
Marketing* ......................................... 6,000,000 6,000,000
South Texas Higher Education Authority, Revenue, AMT,
3.95%, 12/1/27, MBIA*............................... 6,200,000 6,200,000
------------
17,965,000
------------
Virginia -- 0.8%
Roanoke Industrial Development Authority, Roanoke Me-
morial Hospital, Series C, 4.00%, 7/1/19, First
Union National Bank* ............................... 6,515,000 6,515,000
------------
Washington -- 0.5%
Port of Seattle Sub Lien 97, AMT, 4.10%, 9/1/22, LOC:
Canadian Imperial Bank of Commerce* ................ 4,100,000 4,100,000
------------
TOTAL WEEKLY DEMAND NOTES............................ 291,265,000
------------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
15
<PAGE>
Pegasus Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
PUT BONDS -- 3.0%
Alabama -- 2.4%
Port City Medical Clinic, Mobile Infirmary, 2.90%,
4/8/99, AMBAC ........................................ $20,000,000 $20,000,000
-----------
Texas -- 0.6%
Hockley County Industrial Development Corp., Pollution
Control Revenue, Amoco Project, 2.96%, 5/1/99 ........ 4,940,000 4,941,581
-----------
TOTAL PUT BONDS........................................ 24,941,581
-----------
TAX-FREE COMMERCIAL PAPER -- 25.4%
Alaska -- 2.1%
Valdez Marine Terminal, Revenue, Arco Transportation
Project, Series C, 3.20%, 2/12/99 .................... 17,500,000 17,500,000
-----------
Florida -- 2.3%
State Municipal Power Agency, 3.00%, 2/5/99, LOC: First
Union National Bank .................................. 11,500,000 11,500,000
Sunshine State Governmental Finance, 3.00%, 3/10/99,
FGIC.................................................. 7,325,000 7,325,000
-----------
18,825,000
-----------
Indiana -- 3.8%
Mount Vernon Industrial Pollution Control, 3.10%,
1/14/99............................................... 20,770,000 20,770,000
State Development Financial Authority, Solid Waste Pure
Air Project, 3.00%, 3/11/99........................... 10,000,000 10,000,000
-----------
30,770,000
-----------
Michigan -- 1.0%
State Housing Development, 3.40%, 2/4/99............... 4,000,000 4,000,000
Underground Storage, 3.25%, 1/20/99, LOC: Canadian
Imperial Bank of Commerce............................. 4,020,000 4,020,000
-----------
8,020,000
-----------
Mississippi -- 1.6%
Claiborne County Pollution Control Revenue, 3.60%,
1/14/99 .............................................. 13,000,000 13,000,000
-----------
New Mexico -- 3.7%
State TRANS, Series A, 3.75%, 6/30/99 ................. 30,000,000 30,112,277
-----------
New York -- 3.2%
New York City, Municipal Water Authority, 3.10%,
2/5/99................................................ 12,000,000 12,000,000
New York Water, 3.30%, 2/19/99, FGIC................... 14,000,000 14,000,000
-----------
26,000,000
-----------
Pennsylvania -- 1.7%
Venago Industrial Developmental Authority, AMT,
Scrubgrass Project, Series A, 3.00%, 2/26/99, LOC: Na-
tional Westminster* .................................. 14,050,000 14,050,000
-----------
Tennessee -- 1.2%
Johnson City Health Facilities, 3.10%, 2/25/99, MBIA... 10,000,000 10,000,000
-----------
Texas -- 3.2%
Austin Combined Utility System, 3.20%, 2/4/99, LOC:
Morgan Guaranty ...................................... 18,425,000 18,425,000
Brownsville Utility System, Series A, 2.95%, 3/11/99,
LOC: Toronto Dominion Bank............................ 7,900,000 7,900,000
-----------
26,325,000
-----------
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
16
<PAGE>
Pegasus Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
--------- ---------
<S> <C> <C>
Washington -- 0.9%
Seattle Municipal Light & Power, 2.95%, 3/12/99, LOC:
Bankers Trust ...................................... $ 7,200,000 $ 7,200,000
------------
West Virginia -- 0.7%
Public Energy Authority, Revenue, Morgantown Associa-
tion Project, 3.00%, 2/19/99, LOC: UBS ............. 6,000,000 6,000,000
------------
TOTAL TAX-FREE COMMERCIAL PAPER...................... 207,802,277
------------
TOTAL................................................ $805,157,754
============
</TABLE>
Percentages indicated are based on net assets of $819,009,726.
* Variable rate securities having liquidity agreements. The interest rate,
which will change periodically, is based upon an index of market rates. The
rate reflected on the Schedule of Portfolio Investments is the rate in effect
at December 31, 1998. All securities with maturity dates greater than
thirteen months have reset features resulting in effective maturities less
than or equal to thirteen months.
AMBAC -- Insured by AMBAC Indemnity Corp.
AMT -- Alternative Minimum Tax Paper
CFC -- Cooperative Finance Co-op
FGIC -- Insured by Financial Guaranty Insurance Corp.
FNMA -- Insured by Federal National Mortgage Association
GO -- General Obligation
IDB -- Industrial Development Bond
LOC -- Letter of Credit
MBIA -- Insured by Municipal Bond Insurance Association
SPA -- Standby Purchase Agreement
TRANS -- Tax and Revenue Anticipation Notes
See Notes to Financial Statements.
Pegasus Funds
17
<PAGE>
Pegasus Michigan Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
---------- ----------
<S> <C> <C>
DAILY DEMAND NOTES -- 17.4%
Michigan -- 17.4%
Delta County EDC Environmental Improvement, Revenue,
Mead-Escanaba Paper, Series F, 4.90%, 12/1/23, LOC:
Union Bank of Switzerland* ........................ $ 500,000 $ 500,000
Delta County EDC Environmental Improvement, Revenue,
Mead-Escanaba Paper, Series C, 5.05%, 12/1/23, LOC:
Bank of Nova Scotia* .............................. 1,000,000 1,000,000
Delta County EDC Environmental Improvement, Revenue,
Mead-Escanaba Paper, 5.00%, 12/1/13, LOC: Bank of
Nova Scotia* ...................................... 3,200,000 3,200,000
Farmington Hills Hospital Finance Authority,
Hospital Revenue, Botsford General Hospital, Series
B, 5.10%, 2/15/16, Credit Support: MBIA* .......... 1,500,000 1,500,000
Midland County EDC, Revenue, Dow Chemical Project,
Series B, 5.10%, 12/1/15*.......................... 7,500,000 7,500,000
State Strategic Fund, PCR, Consumers Power Project,
5.10%, 4/15/18, LOC:
Union Bank of Switzerland* ........................ 4,800,000 4,800,000
State Strategic Fund, Revenue, Reserve 1, 5.05%,
9/1/30, LOC: Barclays Bank* ....................... 8,300,000 8,300,000
University of Michigan, University Revenue,
Hospital, Series A-2, 5.15%, 12/1/24*...... ....... 3,600,000 3,600,000
----------
TOTAL DAILY DEMAND NOTES............................ 30,400,000
----------
MONTHLY DEMAND NOTES -- 1.1%
Michigan -- 1.1%
Meridian EDC, Hannah Research & Technology Center,
3.50%, 11/15/15, LOC: Comerica Bank* .............. 1,900,000 1,900,000
----------
TOTAL MONTHLY DEMAND NOTES.......................... 1,900,000
----------
MUNICIPAL BONDS -- 19.7%
Michigan -- 19.7%
Detroit GO, 7.20%, 05/1/09, Prerefunded 5/1/99 @
102, AMBAC*........................................ 2,000,000 2,043,190
Detroit Sewage Disposal, Revenue, 7.13%, 7/1/19,
FGIC*.............................................. 4,000,000 4,109,189
Jackson Public Schools, GO, 4.25%, 7/2/99, LOC:
Comerica Bank...................................... 5,000,000 5,014,410
Kalamazoo City School District, Series C, 3.75%,
9/16/99, LOC:
First of America Bank.............................. 5,800,000 5,813,854
Kalamazoo Hospital Finance Authority Hospital
Facilities, Revenue, Bronson Methodist Hospital,
3.85%, 5/15/99, MBIA .............................. 1,395,000 1,395,000
State Building Authority, Revenue, Facilities Pro-
gram, Series 1, 4.00%, 10/15/99 ................... 5,210,000 5,253,441
State HDA, AMT, Series B, 3.00%, 12/1/99............ 4,000,000 4,000,000
State Hospital Finance Authority, Revenue, Metropol-
itan Hospital,
Series B, 8.13%, 7/1/18* .......................... 5,000,000 5,267,922
Wayne County, GO, Transportation Fund, Series A,
4.00%, 10/1/99 .................................... 1,610,000 1,617,148
----------
TOTAL MUNICIPAL BONDS............................... 34,514,154
----------
TAX-FREE COMMERCIAL PAPER -- 15.1%
Michigan -- 11.7%
Cornell Twp., EDC, IDR, Mead-Escanaba Paper, 2.95%,
4/8/99, LOC:
Credit Suisse First Boston ........................ 2,140,000 2,140,000
Delta County EDC Environmental Improvement, Revenue,
Mead-Escanaba Paper, Series B, 2.80%, 2/18/99, LOC:
Union Bank of Switzerland ......................... 3,810,000 3,810,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
18
<PAGE>
Pegasus Michigan Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
---------- -----------
<S> <C> <C>
Michigan Underground Storage, 3.25%, 1/20/99, LOC: Ca-
nadian Imperial Bank of Commerce ..................... $6,000,000 $ 6,000,000
Regents of the University of Michigan, Series A, 3.10%,
2/10/99............................................... 2,500,000 2,500,000
State HDA, 3.40%, 2/4/99............................... 6,000,000 6,000,000
-----------
20,450,000
-----------
Puerto Rico -- 3.4%
Government Development Bank, 2.90%, 1/14/99............ 6,000,000 6,000,000
-----------
TOTAL TAX-FREE COMMERCIAL PAPER........................ 26,450,000
-----------
WEEKLY DEMAND NOTES -- 46.3%
Michigan -- 46.3%
Ann Arbor EDC, Revenue, Webers Inc. Project, 4.05%,
5/1/00, LOC: Comerica Bank*........................... 385,000 385,000
Detroit Sewage Disposal, Revenue, Series B, 4.05%,
7/1/23, MBIA* ........................................ 5,500,000 5,500,000
Higher Education Student Loan, Series XII-D, 3.95%,
10/1/15, AMBAC* ...................................... 4,000,000 4,000,000
Jackson County EDC, Revenue, Industrial Steel Treating
Co. Project, 4.20%, 6/1/17, LOC: Comerica Bank* ...... 4,600,000 4,600,000
Kalamazoo County EDC, Revenue, WBC Properites Ltd Proj-
ect, 4.10%, 9/1/15, LOC: Old Kent Bank & Trust* ...... 1,000,000 1,000,000
Kalamazoo EDC, Revenue, Friendship Village, Series B,
4.10%, 5/15/27, LOC: Lasalle National Bank* .......... 4,000,000 4,000,000
Michigan State University, Revenue, Series A-2, 3.95%,
8/15/22*.............................................. 8,300,000 8,300,000
Oakland County EDC, Revenue, IBC North America Inc.
Project, 4.20%, 7/1/18, LOC: Comerica Bank* .......... 2,575,000 2,575,000
State HDA, Teams Laurel Valley, 4.05%, 12/1/07*........ 3,600,000 3,600,000
State HDA, Rental Housing Revenue, Series B, 4.20%,
4/1/19, LOC: Landerbank Hessen Thur Giro* ............ 6,400,000 6,400,000
State HDA, Revenue, Woodland Meadows Project, 4.00%,
3/1/13, LOC: Swiss Bank*.............................. 4,800,000 4,800,000
State Hospital Authority, Revenue, Hospital Equipment
Loan Program, Series A, 4.10%, 12/1/23, LOC: First of
America Bank* ........................................ 5,200,000 5,200,000
State Hospital Finance Authority, Revenue, Hospital-
Charity Obligations, Series E, 3.90%, 11/1/01* ....... 3,930,000 3,930,000
State Strategic Fund IDR, C-Tec Inc. Project, 4.10%,
10/1/11, LOC: Suntrust Bank*.......................... 1,500,000 1,500,000
State Strategic Fund PCR, Consumers Power Co Project-A,
4.00%, 9/1/00, LOC: Union Bank of Switzerland* ....... 3,000,000 3,000,000
State Strategic Fund Solidwaste Disposal, Revenue,
Grayling Generating Project, 4.15%, 1/1/14, LOC:
Barclays Bank New York* .............................. 4,000,000 4,000,000
State Strategic Fund, Revenue, Petoskey Plastics, Inc.
Project, 4.20%, 8/1/16, LOC: Comerica Bank* .......... 5,000,000 5,000,000
State Strategic Fund, Revenue, Pyper Products Corp.
Project, 4.20%, 10/1/18, LOC: Comerica* .............. 3,300,000 3,300,000
State Strategic Fund, Revenue, Dennenlease L C Project,
4.20%, 4/1/10, LOC: Old Kent Bank & Trust* ........... 1,815,000 1,815,000
State Strategic Fund, Revenue, Ironwood Plastics Inc.
Project, 4.20%, 11/1/11, LOC: First of America Bank*
...................................................... 1,025,000 1,025,000
</TABLE>
See Notes to Financial Statements.
Pegasus Funds
19
<PAGE>
Pegasus Michigan Municipal Money Market Fund
- --------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS -- (Continued)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amortized
Principal Cost
Amount (Note 2)
---------- ------------
<S> <C> <C>
State Strategic Fund, Revenue, Quincy Street Inc.
Project, 4.20%, 12/1/22, LOC: Comerica Bank* ........ $ 200,000 $ 200,000
State Strategic Fund, Revenue, United Waste Systems
Inc. Project, 4.05%, 4/1/10, LOC: Bank of America* .. 4,700,000 4,700,000
Wayne Charter County, Airport Revenue, AMT, Detroit
Metropolitan County, Series A, 4.15%, 12/1/16, LOC:
Bayerische Landesbank* .............................. 2,200,000 2,200,000
Wayne Charter County, Airport Revenue, AMT, Detroit
Metropolitan County Series B, 3.95%, 12/1/16, LOC:
Bayerische Landesbank* .............................. 200,000 200,000
------------
TOTAL WEEKLY DEMAND NOTES............................. 81,230,000
------------
TOTAL................................................. $174,494,154
============
</TABLE>
Percentages indicated are based on net assets of $175,115,435.
AMT -- Alternative Minimum Tax
AMBAC -- AMBAC Indemnity Corp
CP -- Commercial Paper
EDC -- Economic Development Corporation
EDR -- Economic Development Revenue
FGIC -- Financial Guaranty Insurance Company
FNMA -- Insured by Federal National Mortgage Association
FSA -- Financial Securities Assurance Corp
GO -- General Obligation
HDA -- Housing Development Authority
HFA -- Housing Finance Authority
IDA -- Industrial Development & Export Authority
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
MBIA -- Municipal Bond Insurance Association
PCR -- Pollution Control Revenue
PFA -- Public Facilities Authority
* 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, 1998. The interest rate for all securities with maturity dates
greater than thirteen months has an automatic reset feature resulting in an
effective maturity of thirteen month or less.
See Notes to Financial Statements.
Pegasus Funds
20
<PAGE>
Pegasus Money Market Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) Organization
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, 1998,
Pegasus consisted of thirty separate portfolios of which there were four money
market funds (the "Pegasus Money Market Funds" or the "Funds"), as described
below.
<TABLE>
<CAPTION>
Commencement
Date
- ------------------------------------------------
<S> <C>
Money Market Fund 01/04/88
Treasury Money Market Fund 01/01/93
Municipal Money Market Fund 01/04/88
Michigan Municipal Money
Market Fund 01/23/91
</TABLE>
The Pegasus Money Market Funds each offer Class A shares and Class I shares
(except for the Money Market Fund which offers Class A, Class B, and Class I
shares). Class A shares, Class B shares and Class I shares are substantially
the same except that: Class A shares are subject to a shareholder services fee
pursuant to the Shareholder Services Plan and Class B shares 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 shareholder service fees or distribution 12b-1
fees.
Merger:
On October 2, 1998, First Chicago NBD Investment Management Company's
("FCNIMCO") parent company, First Chicago NBD Corporation, merged with and into
BANC ONE CORPORATION at which time the newly combined company was renamed BANK
ONE CORPORATION. BANK ONE CORPORATION has now begun the process of reorganizing
their proprietary mutual funds: the Pegasus Funds and The One Group Family of
Mutual Funds. On January 12, 1999, the Board of Trustees of the Pegasus Funds
approved Reorganization Agreements, which are subject to shareholder approval.
Certain expenses incurred in connection with entering into and carrying out
provisions of the reorganization transactions, whether or not the transactions
contemplated thereby are consummated, will be paid by BANK ONE CORPORATION. The
reorganization is intended to be effected on a tax-free basis, so that none of
the Pegasus Fund's shareholders will recognize taxable gains or losses as a
result of the reorganization. A proxy statement/prospectus describing the
reorganization and the reasons therefore has been sent to Pegasus Funds'
shareholders.
Conversion of Common Trust Funds:
During the year ended December 31, 1998, the net assets of certain common
trust funds managed by FCNIMCO ("the adviser") were exchanged in a tax-free
conversion for shares of the corresponding Pegasus Funds (Class I). The
transactions were accounted for by a method followed for tax purposes in a tax-
free business combination sometimes referred to as the pooling without
restatement method. The following is a summary of shares issued, net assets
converted, and net asset value per share issued.
<TABLE>
<CAPTION>
Net Asset
Value
Shares Net Assets Per Share
September 18, 1998 Issued Converted Issued
- --------------------------------------------------------------
<S> <C> <C> <C>
Money Market
Fund 319,416,276 $319,416,276 $1.00
</TABLE>
(2) Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Pegasus 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.
Pegasus Funds
21
<PAGE>
Pegasus Money Market Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
Investments
Pursuant to Rule 2a-7 of the Act, the Pegasus 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.
Investment security purchases and sales are accounted for on the trade date.
Realized gains or losses from security transactions are recorded on the
specific identified cost basis.
Pegasus invests in securities subject to repurchase agreements. 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 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. If the seller defaults, and the fair value of the collateral
declines, realization of the collateral by the Funds may be delayed or limited.
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 using the effective interest method.
Federal Income Taxes
It is Pegasus' policy to comply with the requirements of Subchapter M of the
Internal Revenue Code, as amended (the "Code"), applicable to regulated
investment companies and to distribute substantially all 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, 1998, the Funds have capital loss carryforwards and
related expiration dates as follows:
<TABLE>
<CAPTION>
Fund 2002 2003 2004 2005 Total
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Treasury Money
Market Fund $15,987 $ -- $743 $ -- $16,730
Municipal Money
Market Fund -- 3,825 44 2,098 5,967
Michigan
Municipal Money
Market Fund -- -- 987 -- 987
</TABLE>
Shareholder Dividends
Dividends from net investment income are declared daily and paid monthly for
the Funds. 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.
Concentration of Risk
The Michigan Municipal Money Market Fund does not have a diversified
portfolio since 97% 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.
Pegasus Funds
22
<PAGE>
Pegasus Money Market Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
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 of each Fund. 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 on the basis of relative net
assets of each class.
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.
Restricted Securities
The Funds are permitted to invest in securities that are subject to legal or
contractual restrictions on resale. These securities generally may be resold in
transactions exempt from registration or to the public if the securities are
registered. The Fund does not have the right to demand that such securities be
registered. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at an acceptable price may be
difficult. Certain of these securities may be offered and sold to "qualified
institutional buyers" under Rule 144A of the Securities Act of 1933.
(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 Pegasus
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.
For the year ended December 31, 1998, FCNIMCO voluntarily agreed to waive its
advisory fee 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 has a Co-Administration Agreement with FCNIMCO and Fund Services
Limited Partnership, d/b/a BISYS Fund Services ("BISYS" or "Distributor")
(collectively, the "Co-Administrators") pursuant to which the Co-Administrators
have agreed to assist in aspects of each Pegasus Money Market Fund's
administration and operations for a fee, at an annual rate of 0.15% of each
Fund's average daily net assets.
BISYS serves as Pegasus' principal underwriter and distributor of the Funds'
shares.
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.
Pegasus Funds
23
<PAGE>
Pegasus Money Market Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
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 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.
BANK ONE CORPORATION, serves as the Funds' custodian. State Street Bank
serves as the Funds' sub-custodian and is compensated directly by the Funds
with respect to these services.
Pegasus maintains an unfunded, nonqualified deferred compensation plan for
its Trustees. 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.
Pegasus Funds
24
<PAGE>
Pegasus Money Market Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
(4)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, 1998 December 31, 1997
Amount Shares Amount Shares
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued $ 6,050,252,308 6,050,252,306 $ 4,662,663,756 4,662,663,756
Dividends reinvested 50,649,123 50,659,647 39,487,594 39,487,594
Shares redeemed (5,478,802,117) (5,478,802,117) (4,456,727,929) (4,456,727,929)
- -------------------------------------------------------------------------------------------
Net increase (decrease) $ 622,099,314 622,109,836 $ 245,423,421 245,423,421
- -------------------------------------------------------------------------------------------
Class B Shares:
Shares issued $ 2,901,458 2,901,458 $ 3,505,576 3,505,576
Dividends reinvested 23,222 23,225 24,606 24,606
Shares redeemed (2,637,875) (2,637,875) (3,334,960) (3,334,960)
- -------------------------------------------------------------------------------------------
Net increase (decrease) $ 286,805 286,808 $ 195,222 195,222
- -------------------------------------------------------------------------------------------
Class I Shares:
Shares issued $ 4,636,751,508 4,636,751,508 $ 5,021,318,728 5,021,318,728
Shares issued in connec-
tion with conversion of
common trust funds 319,416,276 319,416,276 -- --
Dividends reinvested 18,451,525 18,449,632 20,279,977 20,279,977
Shares redeemed (4,420,814,365) (4,420,814,365) (5,539,038,130) (5,539,038,130)
- -------------------------------------------------------------------------------------------
Net increase (decrease) $ 553,804,944 553,803,051 $ (497,439,425) (497,439,425)
- -------------------------------------------------------------------------------------------
Net increase (decrease)
in Fund $ 1,176,191,063 1,176,199,695 $ (251,820,782) (251,820,782)
- -------------------------------------------------------------------------------------------
<CAPTION>
Treasury Money Market Fund
-----------------------------------------------------------------
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
-----------------------------------------------------------------
Amount Shares Amount Shares
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued $ 1,392,192,669 1,392,192,669 $ 1,093,249,460 1,093,249,460
Dividends reinvested 9,639,805 9,639,806 8,689,041 8,689,041
Shares redeemed (1,294,238,975) (1,294,238,976) (1,082,286,729) (1,082,286,729)
- -------------------------------------------------------------------------------------------
Net increase (decrease) $ 107,593,499 107,593,499 $ 19,651,772 19,651,772
- -------------------------------------------------------------------------------------------
Class B Shares:
Shares issued
Dividends reinvested
Shares redeemed
- -------------------------------------------------------------------------------------------
Net increase (decrease)
- -------------------------------------------------------------------------------------------
Class I Shares:
Shares issued $ 3,595,076,684 3,595,076,684 $ 3,634,998,084 3,634,998,084
Shares issued in connec-
tion with conversion of
common trust funds -- -- -- --
Dividends reinvested 3,663,743 3,663,743 4,928,721 4,928,721
Shares redeemed (3,571,943,347) (3,571,943,347) (3,949,857,520) (3,949,857,520)
- -------------------------------------------------------------------------------------------
Net increase (decrease) $ 26,797,080 26,797,080 $ (309,930,715) (309,930,715)
- -------------------------------------------------------------------------------------------
Net increase (decrease)
in Fund $ 134,390,579 134,390,579 $ (290,278,943) (290,278,943)
- -------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
25
<PAGE>
Pegasus Money Market Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- (Continued)
- --------------------------------------------------------------------------------
(4) CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Funds are summarized below:
<TABLE>
<CAPTION>
Municipal Money Market Fund
---------------------------------------------------------
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
Amount Shares Amount Shares
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued $ 632,177,971 632,177,971 $ 489,667,505 489,667,505
Dividends reinvested 5,203,692 5,203,692 5,398,206 5,398,206
Shares redeemed (632,804,850) (632,804,850) (472,764,413) (472,764,413)
- ------------------------------------------------------------------------------------------
Net increase (decrease) $ 4,576,813 4,576,813 $ 22,301,298 22,301,298
- ------------------------------------------------------------------------------------------
Class I Shares:
Shares issued $ 1,280,993,933 1,280,993,933 $ 1,737,844,432 1,737,844,432
Dividends reinvested 649,911 649,911 615,941 615,941
Shares redeemed (1,196,578,120) (1,196,578,120) (1,845,603,982) (1,845,603,982)
- ------------------------------------------------------------------------------------------
Net increase (decrease) $ 85,065,724 85,065,724 $ (107,143,609) (107,143,609)
- ------------------------------------------------------------------------------------------
Net increase (decrease)
in Fund $ 89,642,537 89,642,537 $ (84,842,311) (84,842,311)
- ------------------------------------------------------------------------------------------
<CAPTION>
Michigan Municipal Money Market Fund
---------------------------------------------------------
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
---------------------------------------------------------
Amount Shares Amount Shares
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares:
Shares issued $ 154,185,668 154,185,668 $ 151,616,093 151,616,093
Dividends reinvested 831,790 831,790 1,604,993 1,604,993
Shares redeemed (119,936,665) (119,936,665) (196,108,154) (196,108,154)
- ------------------------------------------------------------------------------------------
Net increase (decrease) $ 35,080,793 35,080,793 $ (42,887,068) (42,887,068)
- ------------------------------------------------------------------------------------------
Class I Shares:
Shares issued $ 299,355,220 299,355,220 $ 233,991,240 233,991,240
Dividends reinvested 37,172 37,172 83,422 83,422
Shares redeemed (263,447,362) (263,447,362) (208,707,516) (208,707,516)
- ------------------------------------------------------------------------------------------
Net increase (decrease) $ 35,945,030 35,945,030 $ 25,367,146 25,367,146
- ------------------------------------------------------------------------------------------
Net increase (decrease)
in Fund $ 71,025,823 71,025,823 $ (17,519,922) (17,519,922)
- ------------------------------------------------------------------------------------------
</TABLE>
Pegasus Funds
26
<PAGE>
[INTENTIONALLY LEFT BLANK]
Pegasus Funds
27
<PAGE>
Pegasus Money Market Funds
- --------------------------------------------------------------------------------
Financial Highlights
<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
For Year Ended December
31, 1998 $1.0000 0.0488 -- 0.0488 (0.0488) (0.0488)
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)
Class B Shares
For Year Ended December
31, 1998 $1.0000 0.0413 -- 0.0413 (0.0413) (0.0413)
December 31, 1997 $1.0000 0.0421 -- 0.0421 (0.0421) (0.0421)
For Period Ended
December 31, 1996/(1)/ $1.0000 0.0117 -- 0.0117 (0.0117) (0.0117)
Class I Shares
For Year Ended December
31, 1998 $1.0000 0.0512 -- 0.0512 (0.0512) (0.0512)
December 31, 1997 $1.0000 0.0516 -- 0.0516 (0.0516) (0.0516)
For Period Ended
December 31, 1996/(2)/ $1.0000 0.0373 -- 0.0373 (0.0373) (0.0373)
- ---------------------------------------------------------------------------------------------------
TREASURY MONEY MARKET FUND
Class A Shares
For Year Ended December
31, 1998 $0.9999 0.0471 -- 0.0471 (0.0471) (0.0471)
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)
Class I Shares
For Year Ended December
31, 1998 $1.0000 0.0496 -- 0.0496 (0.0496) (0.0496)
December 31, 1997 $1.0000 0.0507 -- 0.0507 (0.0507) (0.0507)
For Period Ended
December 31, 1996/(2)/ $1.0000 0.0361 -- 0.0361 (0.0361) (0.0361)
- ---------------------------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET FUND
Class A Shares
For Year Ended December
31, 1998 $0.9997 0.0280 -- 0.0280 (0.0280) (0.0280)
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)
Class I Shares
For Year Ended December
31, 1998 $0.9999 0.0305 -- 0.0305 (0.0305) (0.0305)
December 31, 1997 $1.0000 0.0322 (0.0001) 0.0321 (0.0322) (0.0322)
For Period Ended
December 31, 1996/(2)/ $1.0000 0.0232 -- 0.0232 (0.0232) (0.0232)
- ---------------------------------------------------------------------------------------------------
MICHIGAN MUNICIPAL MONEY MARKET
Class A Shares
For Year Ended December
31, 1998 $1.0000 0.0273 -- 0.0273 (0.0273) (0.0273)
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)
Class I Shares
For Year Ended December
31, 1998 $0.9999 0.0298 -- 0.0298 (0.0298) (0.0298)
December 31, 1997 $1.0000 0.0321 -- 0.0321 (0.0321) (0.0321)
For Period Ended
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, 1996 (initial offering date of Class I Shares)
through December 31, 1996.
(3) During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
+ Annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Pegasus Funds
28
<PAGE>
Pegasus Money Market Funds
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratio of
Ratio of Net Expenses
Ratio of Investment to Average Net
Net Assets Expenses Income to Assets (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)/(3)/
- --------------- ------------ --------------- -------------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
$0.9999 4.99% $1,595,924 0.75% 4.88% 0.78%
$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% --
$0.9999 4.21% $ 625 1.50% 4.13% 1.53%
$1.0000 4.29% $ 338 1.49% 4.15% 1.49%
$1.0000 4.70%+ $ 143 1.48%+ 3.99%+ --
$1.0000 5.26% $1,771,683 0.50% 5.13% 0.53%
$1.0000 5.29% $1,217,873 0.49% 5.15% --
$1.0000 5.06%+ $1,715,313 0.51%+ 4.99%+ --
- ----------------------------------------------------------------------------------------------
$0.9999 4.81% $ 341,643 0.72% 4.71% --
$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 5.07% $ 772,470 0.47% 4.96% --
$1.0000 5.18% $ 745,673 0.45% 5.05% --
$1.0000 4.89%+ $1,055,804 0.53%+ 4.85%+ --
- ----------------------------------------------------------------------------------------------
$0.9997 2.84% $ 209,116 0.73% 2.79% --
$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% --
$0.9999 3.09% $ 609,894 0.48% 3.04% --
$0.9999 3.26% $ 524,793 0.48% 3.21% --
$1.0000 3.13%+ $ 631,938 0.51%+ 3.06%+ --
- ----------------------------------------------------------------------------------------------
$1.0000 2.76% $ 64,283 0.75% 2.72% 0.78%
$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%
$0.9999 3.02% $ 110,833 0.50% 2.97% 0.53%
$0.9999 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
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
the Pegasus Money Market Funds:
We have audited the statements of assets and liabilities, including the
schedules of portfolio 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, 1998, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by 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, 1998, 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 their 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 12, 1999.
Pegasus Funds
30
<PAGE>
[PEGASUS FUNDS LOGO APPEARS HERE]
Strength in Investing/TM/ PEG-0057-02/99
