<PAGE> 1
The ValueStar Family of Funds provides shareholders with a variety of
features to make investing in the Portfolios easy, convenient and
manageable.
<TABLE>
<S> <C> <C>
--------------------------------------------------------------------------------------
VALUESTAR FUND FEATURES VALUESTAR FUND BENEFITS
PROFESSIONAL INVESTMENT The investment managers at First American National Bank are
MANAGEMENT experienced investment professionals who oversee the
investments in each mutual fund.
LOW MINIMUM INVESTMENT Initial investments in the Portfolios can be as low as
$1,000.
DEDICATED CUSTOMER Account information is available from helpful
SERVICE representatives. Just call 1-800-852-0045.
AUTOMATIC INVESTMENTS Investments can be made once or twice a month with automatic
transfers from your checking account to your Portfolio
account.
DOLLAR COST AVERAGING Dollar Cost Averaging is a means of investing by which you
invest a fixed dollar amount on a consistent basis (for
example every month or every quarter). You invest whether
the financial markets are high or low. As a result, you buy
more shares when prices are low and fewer when prices are
high. In this way, you can achieve a lower average cost per
share.*
AUTOMATIC WITHDRAWALS Automatic withdrawals from your Portfolio account can be
made and credited to any account you designate.
FREE EXCHANGE PRIVILEGES Shares of a Portfolio can be exchanged into shares of other
ValueStar Portfolios at no cost.**
REGULAR, INFORMATIVE You will receive account statements after each transaction,
STATEMENTS AND REPORTS plus regular financial reports highlighting performance and
investment strategies.
DIVIDEND REINVESTMENT Dividend income and capital gains can be reinvested
automatically in additional shares of a Portfolio.
DAILY REDEMPTIONS Shares are redeemable each business day (at the net asset
value per share, which may be worth more or less than your
original cost, next determined after receipt of your
redemption request) by mail, telephone or bank wire.
* Dollar Cost Averaging does not assure a profit and does not protect against loss in
declining markets. You should consider your financial ability to continue your
investment program during periods of extreme share price fluctuations.
** Exchange privileges may be modified or discontinued by the Portfolios at any time.
Upon redemption, shares may be worth more or less than their original cost.
HELPING PEOPLE PLAN FOR A BRIGHTER FUTURE.(SM)
</TABLE>
FUND FACTS
<PAGE> 2
DONALD F. TURK, C.F.A.,
Portfolio Manager
Short-Intermediate
Duration Bond Portfolio
- ----------------------------------------------------
- ----------------------------------------------------
INVESTMENT GOAL
The Portfolio seeks to provide investors with current income without assuming
undue risk. It invests primarily in investment-grade U.S. dollar-denominated
fixed-income securities of domestic and foreign issuers that generally have a
duration of under four years. This Portfolio is suitable for investors seeking
regular monthly income without undue risk to principal.
- ----------------------------------------------------
Q. HOW DID THE PORTFOLIO PERFORM IN 1995, AND HOW WOULD YOU ASSESS THAT
PERFORMANCE?
A. For the 12 months ended December 31, 1995, the Portfolio's total return was
11.20%.+ In comparison, the Portfolio's unmanaged benchmark, the Merrill Lynch
1-5 Year Corporate/Government Index, posted a total return of 12.96%. Our
performance lagged because of our relatively high cash position. However, many
of our competitors were also cautious in 1995, since the bond market performed
so poorly in 1994. Our performance put us in the top 40% of all short-term bond
funds ranked by Lipper Analytical Services for the 12 months ended December 31,
1995.* Investors have concluded that the inflation outlook is very favorable. In
addition, a consensus is emerging that the Consumer Price Index is overstated by
as much as a full percentage point, so that instead of running at 2.5%, it may
actually be only 1.5% or 2.0%. As a result, the Portfolio's performance was
driven by sharply falling interest rates on one- to five-year bonds, which
experienced a two-and-a-half percentage point decline for the full year--a very
substantial shift.
Q. WHAT STRATEGY DID YOU EMPLOY TO TAKE ADVANTAGE OF THIS GOOD ENVIRONMENT?
A. We moved the maturity structure a bit longer than the benchmark. As the year
progressed, we extended even further, but only when fundamental economic signs
were quite clear. Our goal is to provide investors with current income without
assuming unnecessary risk. This means that preserving the value of the principal
is a very important objective for us, and we are not inclined to try to guess
every wiggle in interest rates. We also added more corporate securities to
replace lower-yielding Treasury notes.
Q. WHAT ARE SOME NEW SECURITIES IN THE PORTFOLIO?
A. We bought AA-rated securities issued by Wachovia, which we believe to be one
of the best banking organizations in the country. The bond pays 6.61% and
matures 10-1-2025. The most interesting thing about this bond is that we can
elect to "put" the bond back to the company in 10 years. That is, we can decide
whether this ought to be a 10-year security or a 30-year security. If interest
rates fall, we would not exercise the put option. But if interest rates rise, we
would prefer the shorter maturity. We believe that owning the put feature is a
very attractive insurance policy against adverse moves in interest rates.
Another interesting new issue is the GTE Corp. 10.75% bond maturing 9-15-2017.
We would not typically own a bond of that maturity, but it is our conviction
that the bond will be called by the company on 9-15-97 due to its high coupon.
We also own the bonds of a very strong BBB+-rated company that is yielding 0.7
of a percentage point
<PAGE> 3
more than comparable U.S. Treasury bonds maturing in September 1997.
In addition, falling interest rates have generated some excellent capital gains
in the portfolio. For example, on June 13, 1995, we bought $2 million par
Central Power & Light 6% bonds due 4-1-2000 at $1,969,220. Value on December 31,
1995: $2,015,000. On February 16, 1995, we bought $1.5 million par American Home
Products 7.70% bonds due 2-15-2000 at $1,498,110. Value at year-end: $1,605,000.
On January 24, 1995, we added $150,000 par Houston Industries, Inc. 7.25% bonds
due 12-1-96 for $147,801. On December 31, these were worth $152,063.
Q. WHAT IS YOUR OUTLOOK?
A. As far as 1996 is concerned, we believe that interest rates will probably
move somewhat lower over the near term, especially if the economy continues to
be weak. A recent survey of economists by the Wall Street Journal showed that
they expected the three-month U.S. Treasury bill to be yielding about 4.9% by
June 30, 1996, down from 5.1% at December 31, 1995. These same economists
estimate that 30-year Treasuries will yield 6.0% on June 30, 1996, versus 5.9%
at the end of 1995. Although 1995's third quarter was strong, the Christmas
retail season was very weak. In addition, the National Association of Purchasing
Managers Index has fallen six times in the past year. Nevertheless, we expect
the economy to begin to firm about mid-year and probably earlier. This should
limit the depth and breadth of any further declines in interest rates. What this
means to the bond investor is that the so-called easy money of 1995 will most
likely not be available in 1996. Markets have ways of evening things out over
time. The bear market in 1994 was offset by the bull market in 1995. It is our
opinion that 1996 will see less volatile markets than we did in the past two
years.
- ---------------
+ With the 3.00% sales load, the Portfolio's return was 7.86% for the period.
* For the one-year period ended December 31, 1995, the Portfolio's Investor
Shares ranked 60th out of 147 Short Investment Grade Debt Funds based on total
return by Lipper, which does not factor sales charges into its rankings. The
service providers reimbursed a portion of their fees during this period. Total
return would have been lower if the fees had not been reimbursed. Past
performance is not indicative of future results.
2
<PAGE> 4
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* AS OF
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
SECTOR PROFILE
<TABLE>
<S> <C>
GOVERNMENT/AGENCIES 50
FINANCIAL 11
INDUSTRIALS 18
CASH EQUIVALENTS 3
UTILITIES/PHONES 18
</TABLE>
* The Portfolio's composition is subject to change.
The ValueStar Short-Intermediate Duration Bond Portfolio invests in a varied
portfolio of investment- grade bonds designed to provide current income and
protect principal against sharp price fluctuations. The Portfolio's adviser has
latitude in deciding how assets are invested among corporate and government
obligations. As a result, the Portfolio enjoys flexibility to make the most of
changing market conditions.
MATURITY
PROFILE
Less than 1 year 10
5-10 years 8
Over 15 years 3
1-5 years 72
10-15 years 4
By design, the Portfolio attempts to generate current income without undue risk
to principal. The chart shows that the Portfolio is focused on bonds with
maturities of 1 to 5 years.
QUALITY PROFILE
BBB 8
Cash and Cash Equivalents 3
AAA 50
AA 14
A 25
The ValuStar Portfolio's research team and the Portfolio Manager continuously
monitor debt instruments and issuer quality to identify fixed-income securities
for the Portfolio.
* The Portfolio's composition is subject to change.
3
<PAGE> 5
- --------------------------------------------------------------------------------
VALUESTAR SHORT-INTERMEDIATE BOND PORTFOLIO
PERFORMANCE (AS OF DECEMBER 31, 1995)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merrill
Portfolio Lynch 1-5
(without Year Gov- Por tfolio
Measurement Period sales ernment (with sales
(Fiscal Year Covered) charge) Index charge)
<S> <C> <C> <C>
3/28/94 10000 10000 9700
12/31/94 10067 10052 9765
12/31/95 11195 11355 10859
</TABLE>
Past performance is no guarantee of future results.
- ----------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
-------------------------
WITH SALES WITHOUT SALES
CHARGE* CHARGE
---------- -------------
<S> <C> <C>
1 Year..................... 7.86% 11.20%
Since Inception
(03/28/94)............... 4.64% 6.46%
30-Day SEC Yield........... 5.02%
</TABLE>
- ----------------------------------------------------
* Reflects 3.00% Sales Charge
A hypothetical $10,000 investment made on March 28, 1994, the Portfolio's
inception date, would, on December 31, 1995, have been worth $11,166 without the
sales charge and $10,831 after taking the maximum 3% sales charge into account.
The Short-Intermediate Duration Bond Portfolio is compared to the Merrill Lynch
1-5 Year Corporate/Government Index, which reflects the performance of bonds in
that maturity range with a rating of at least Baa. The index is unmanaged and
does not reflect expenses associated with a mutual fund such as sales charges,
expenses for fund operations, management fees, portfolio transaction costs or
the cash reserves required to provide daily liquidity. The Portfolio's
performance reflects the deduction of fees for these value-added services.
An additional class of shares, Trust Shares, has been authorized but not sold.
Total return figures include changes in share price, reinvestment of dividends
and capital gains distributions, if any. The service contractors are currently
waiving a portion of their fees; without such waivers the 30-day SEC yield would
have been 4.78%. This voluntary waiver may be terminated or modified at any
time, which would reduce the Portfolio's performance. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
4
<PAGE> 6
SHARON BROWN
Portfolio Manager
Tennessee Tax Exempt
Bond Portfolio
- ----------------------------------------------------
INVESTMENT GOAL
The Portfolio seeks to provide investors with current income exempt from federal
and Tennessee income taxes without assuming undue risk. The Portfolio invests
primarily in investment-grade Tennessee municipal obligations and is suitable
for Tennessee residents seeking monthly interest income exempt from both federal
and Tennessee personal income taxes.* The Portfolio affords greater
diversification and liquidity than most investors would achieve by purchasing
municipal securities directly.
- ----------------------------------------------------
Q. HOW DID THE PORTFOLIO PERFORM IN 1995?
A. For the year ended December 31, 1995, the Portfolio generated a total return
of 13.40%+ compared to 17.15% for its benchmark, the Lehman Brothers Municipal
10-Year Index. The Portfolio's performance was due largely to its maturity
structure in a falling interest-rate environment. The Portfolio's underlying
securities maintained a credit quality of AA.
Q. WHY IS IT IMPORTANT TO MAINTAIN SUCH A HIGH CREDIT QUALITY?
A. Given the psychological impact of the Orange County, California, bankruptcy
in late 1994, investors are very conscious of credit quality. As a result, we
invest primarily in general obligation bonds issued by the state and its
counties, or in essential revenue bonds such as those issued by sewer and water
districts. We limited our exposure to hospitals since investors are concerned
about oversupply and the possible negative impact if proposed changes in
Medicare and Medicaid are enacted into law. Overall, the state of Tennessee is
one of the most creditworthy in the United States.
Q. DESCRIBE A FEW SECURITIES IN THE PORTFOLIO.
A. We own general obligation bonds issued by Shelby County paying 5.50%, due
3-1-2009. The bonds are noncallable and rated AA. Another holding is Johnson
City School District 6.60% bonds due 5-1-2010. The bonds, rated AAA, are
callable in 2006 at par. Not only do these bonds have good protection--10
years--but if interest rates move back up, a drop in price could be at least
partially offset by the high coupon. Another issue with good call protection is
the North Anderson County Water Revenue bond paying 5.60%, due 1-1-2015. This
bond, rated AAA, is callable in 2005 at a premium of 102. Call protection is
important because it reduces reinvestment risk at lower yields.
Q. HOW MUCH HAS CONCERN OVER TAX REFORM AFFECTED THE MUNICIPAL MARKET?
A. As of the date of this report, concern has picked up some momentum with the
presidential candidacy of Steve Forbes, who has used the flat tax as his primary
campaign issue. A flat tax would diminish or eliminate the tax advantages of
municipal bonds. Even though its enactment is far from certain, investors have
already penalized the market for the potential impact of a flat tax. Municipal
bonds with maturities beyond 10 years are offering yields in excess of 90% of
U.S. Treasury bonds, well above the normal spread. This creates an opportunity
for investors to buy munis at low prices--and possibly receive
5
<PAGE> 7
capital gains if the flat tax doesn't materialize or has a lower impact than
currently anticipated.
Q. WHAT IS YOUR OUTLOOK FOR THE TENNESSEE MUNICIPAL BOND MARKET?
A. We expect interest rates to remain at current levels or decline slightly. The
Tennessee economy is forecast to grow at an annual rate of 4% in 1996, nearly
double the national average. We believe that tax reform will be an issue in the
presidential election, but will not be considered as policy until 1997. Even
then, we don't believe that the impact on municipal bonds will be as adverse as
the current market penalty would indicate. Therefore, lower interest rates, a
strong Tennessee economy and a less draconian flat tax would bode well for the
Tennessee Tax Exempt Bond Portfolio.
- ---------------
* Depending on a shareholder's tax bracket, some or all of the income may be
subject to the federal alternative minimum tax and to certain state and local
taxes.
+ With the maximum sales charge of 3.00%, the Portfolio's return was 9.99% for
the period.
6
<PAGE> 8
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION* AS OF
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
QUALITY PROFILE
<TABLE>
<S> <C>
CASH EQUIVALENT 1.2
A 3.3
AA 47.7
AAA 47.8
</TABLE>
* The Portfolio's composition is subject to change.
The Portfolio invests primarily in investment-grade Tennessee municipal
obligations. The credit research team at the ValueStar Funds and the Portfolio
Manager continuously monitor debt instruments and issuer quality to identify
fixed-income securities appropriate for the Portfolio. With an emphasis on
quality, the Portfolio seeks to generate current income that is exempt from
federal and Tennessee personal income taxes without undue risk to principal.
MATURITY
PROFILE
Cash Equivalents 1.2
1-5 years 2.4
5-10 years 15.9
10-15 years 34.9
Over 15 years 45.6
By design, the Portfolio focuses on achieving and average maturity of 10 to 15
years. By emphasizing the overall average maturity of the Portfolio, we attempt
to provide a high current tax-free yield while controlling principal value.
SECTOR PROFILE
Cash and Cash 1.2
Equivalents
Health & Medical 2.8
Resource Recovery 37.7
General Obligations 44.8
Utilities 6.4
Other Bonds 7.1
By focusing on more general obligations and school and "essential service"
bonds, the Portfolio Manager and the research team provide an additional
measure of security to the Portfolio's emphasis on quality.
*The Portfolio's composition is subject to change.
7
<PAGE> 9
- --------------------------------------------------------------------------------
VALUESTAR TENNESSEE TAX-EXEMPT BOND PORTFOLIO
PERFORMANCE (AS OF DECEMBER 31, 1995)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Lehman
Portfolio Brothers
(without Municipal Por tfolio
Measurement Period sales 10-Year (with sales
(Fiscal Year Covered) charge) Index charge)
<S> <C> <C> <C>
3/28/94 10000 10000 9700
12/31/94 9951 10057 9653
12/31/95 11041 11782 10710
</TABLE>
Past performance is no guarantee of future results.
- -------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
-------------------------
WITH SALES WITHOUT SALES
CHARGE* CHARGE
---------- -------------
<S> <C> <C>
1-Year..................... 9.99% 13.40%
Since Inception
(03/28/94)............... 3.97% 5.78%
30-Day SEC Yield........... 4.09%
</TABLE>
- -------------------------------------------------------
* Reflects 3.00% Sales Charge
A hypothetical $10,000 investment made on March 28, 1994, the Portfolio's
inception date, would, on December 31, 1995, have been worth $11,041 without the
sales charge and $10,710 after taking the maximum 3% sales charge into account.
The Tennessee Tax Exempt Bond Portfolio is compared to the Lehman Brothers
Municipal 10-Year Index, an unmanaged index that includes municipal bonds issued
within the last five years by municipalities throughout the U.S., with
maturities of at least one year, but no more than 12 years, and a credit quality
of at least Baa. In contrast, the Tennessee Tax Exempt Bond Portfolio targets
higher-quality bonds with a minimum rating of A, and at least 65% of the
Portfolio must be comprised of Tennessee issues. The Lehman Brothers index does
not reflect expenses associated with a mutual fund such as sales charges,
expenses for fund operations, management fees, portfolio transaction costs or
the cash reserves required to provide daily liquidity. The Portfolio's
performance reflects the deduction of fees for these value-added services.
An additional class of shares, Trust Shares, has been authorized but not sold.
Total return figures include changes in share price, reinvestment of dividends
and capital gains distributions, if any. The service contractors are currently
waiving a portion of their fees; without such waivers the 30-day SEC yield would
have been 3.84%. This voluntary waiver may be terminated or modified at any
time, which would reduce the Portfolio's performance.
Some investors may be subject to the federal alternative minimum tax and to
certain state and local taxes. Past performance is not indicative of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
The Portfolio is distributed by Concord Financial Group, Inc.
8
<PAGE> 10
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ----------------------------------- ----- -------- ------ ------------
<S> <C> <C> <C> <C>
LONG-TERM INVESTMENTS -- 95.7%
U.S. GOVERNMENT OBLIGATIONS -- 31.6%
U.S. Treasury Note............................ 5.13% 03/31/96 $2,000 $ 1,999,700
U.S. Treasury Note............................ 5.75 09/30/97 4,000 4,037,160
U.S. Treasury Note............................ 5.38 11/30/97 2,500 2,508,625
U.S. Treasury Note............................ 6.00 11/30/97 2,000 2,029,360
U.S. Treasury Note............................ 6.13 05/15/98 3,000 3,061,560
U.S. Treasury Note............................ 5.88 08/15/98 4,500 4,572,045
U.S. Treasury Note............................ 5.50 02/28/99 5,500 5,539,049
U.S. Treasury Note............................ 5.88 03/31/99 3,000 3,055,020
U.S. Treasury Note............................ 6.38 07/15/99 3,500 3,620,890
U.S. Treasury Note............................ 6.88 07/31/99 2,100 2,206,449
------------
Total U.S. Government Obligations
(cost $31,854,309)............................ 32,629,858
------------
U.S. GOVERNMENT AGENCY NOTES -- 15.9%
Government National Mortgage Assoc.
Pool #339455............................... 8.00 12/15/07 1,113 1,162,802
Government National Mortgage Assoc. Midget
Pool #358725............................... 8.00 08/15/08 1,819 1,900,090
Government National Mortgage Assoc.
Pool #392085............................... 7.50 04/15/09 934 967,319
Government National Mortgage Assoc.
Pool #368641............................... 7.50 04/15/09 829 858,654
Government National Mortgage Assoc.
Pool #345752............................... 7.50 06/15/09 876 907,288
Government National Mortgage Assoc.
Pool #376589............................... 8.50 09/15/09 1,707 1,794,593
Government National Mortgage Assoc. Midget
Pool #380660............................... 8.00 11/15/09 1,759 1,838,037
</TABLE>
Continued
9
<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT VALUE
DESCRIPTION RATE DATE (000) (NOTE 2)
- ----------------------------------- ----- -------- ------ ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY NOTES (CONTINUED)
Government National Mortgage Assoc.
Pool #392814............................... 8.50% 12/15/09 $1,268 $ 1,332,779
Government National Mortgage Assoc.
Pool #392770............................... 8.50 12/15/09 918 964,911
Government National Mortgage Assoc.
Pool #407337............................... 8.00 04/15/10 2,134 2,229,116
Government National Mortgage Assoc.
Pool #405445............................... 8.00 04/15/10 2,345 2,449,583
------------
Total U.S. Government Agency Notes (cost
$15,790,315).................................. 16,405,172
------------
<CAPTION>
MOODY'S/S&P
RATINGS
(UNAUDITED)
----------
<S> <C> <C> <C> <C> <C>
CORPORATE OBLIGATIONS -- 48.2%
CORPORATE BONDS -- 38.0%
American General Finance......... A1/A+ 5.88 07/01/00 2,000 1,997,500
American Home Product............ A2/A- 7.70 02/15/00 1,500 1,605,000
Bell Atlantic Financial Services,
Inc. ......................... A1/A 6.63 11/30/97 2,700 2,754,000
Dayton Hudson Co. ............... A3/BBB+ 7.50 03/01/99 2,000 2,090,000
Dow Capital BV................... A1/A 8.25 02/15/96 1,300 1,303,250
Gannett Co. ..................... Aa3/AA- 5.25 03/01/98 2,700 2,676,375
General Electric Co. ............ Aaa/AAA 7.88 05/01/96 1,000 1,007,500
GTE.............................. Baa1/BBB+ 10.75 09/15/17 2,500 2,809,375
Houston Industries, Inc. ........ Baa2/BBB 7.25 12/01/96 3,500 3,548,125
MCI Communications Corp. ........ A2/A- 7.63 11/07/96 2,250 2,289,375
New England Telephone &
Telegraph..................... Aa2/AA- 6.25 12/15/97 2,000 2,022,500
Norwest Financial, Inc. ......... Aa3/AA- 6.00 08/15/97 2,500 2,525,000
Pennsylvania Power & Light....... A3/A- 6.00 06/01/00 1,500 1,511,250
Southern Pacific Co. ............ Baa1/BBB+ 6.90 01/02/97 2,000 2,022,500
Union Pacific Corp., Equipment
Trust......................... Aa2/AA- 6.44 01/15/98 3,000 3,048,750
Wachovia Corp. .................. A1/AA- 6.61 10/01/25 2,250 2,337,187
</TABLE>
Continued
10
<PAGE> 12
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ----------------------------------- ---------- ----- -------- ------ ------------
<S> <C> <C> <C> <C> <C>
Wal-Mart Stores.................. Aa1/AA 5.50% 03/01/98 $1,700 $ 1,700,000
WMX Technologies................. A1/A+ 7.13 03/22/97 2,000 2,035,000
------------
39,282,687
------------
MEDIUM TERM NOTES -- 10.2%
Associates Corp. of North
America....................... A1/AA- 6.59 01/12/98 2,400 2,451,000
Central Power & Light............ A2/A 6.00 04/01/00 2,000 2,015,000
Cooper Industries................ A2/A- 7.67 10/15/96 1,300 1,322,750
Florida Power & Light Co......... A2/A 6.20 02/02/98 2,000 2,032,500
Kansas City Power & Light........ A1/A- 5.75 03/03/98 2,750 2,760,312
------------
10,581,562
------------
Total Corporate Obligations
(cost $48,538,115)............... 49,864,249
------------
Total Long-Term Investments
(cost $96,182,739)............... 98,899,279
------------
SHORT-TERM INVESTMENT -- 4.4%
U.S. GOVERNMENT AGENCY NOTES -- 1.9%
Federal National Mortgage
Assoc. -- Medium Term Note....... 8.03 01/03/97 2,000 2,003,920
------------
Total U.S. Government Agency Notes
(cost $2,003,125)................ 2,003,920
------------
<CAPTION>
SHARES
(000)
------
<S> <C> <C>
REGULATED INVESTMENT COMPANIES -- 2.5%
AIM Prime Portfolio
(cost $2,580,899).................. 2,581 2,580,898
------------
Total Short-Term Investments
(cost $4,584,024).................. 4,584,818
------------
<CAPTION>
</TABLE>
Continued
11
<PAGE> 13
<TABLE>
<CAPTION>
VALUE
DESCRIPTION (NOTE 2)
- ----------------------------------- ------------
<S> <C>
TOTAL INVESTMENTS IN SECURITIES
(COST $100,766,764)(a) -- 100.1%... $103,484,097
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.1%)................. (102,345)
------------
NET ASSETS -- 100.0%............... $103,381,752
===========
</TABLE>
- ---------------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......... $2,717,333
Unrealized depreciation......... --
----------
Net unrealized appreciation..... $2,717,333
=========
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 14
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value
(cost $100,766,764)................................................. $103,484,097
Interest receivable.................................................... 1,694,158
Receivable for Portfolio shares sold................................... 209,700
Net receivable from Distributor........................................ 682
Deferred organization costs............................................ 37,829
Prepaid expenses....................................................... 6,738
------------
Total assets............................................................. 105,433,204
------------
LIABILITIES
Dividends payable...................................................... 262,014
Payable for Portfolio shares redeemed.................................. 1,678,211
Accrued expenses and other payables:
Advisory fees....................................................... 43,794
Administration fees................................................. 13,345
Other............................................................... 54,088
------------
Total liabilities........................................................ 2,051,452
------------
NET ASSETS............................................................... $103,381,752
============
Shares Outstanding ($0.001 par value, 250 million shares authorized)..... 10,208,607
============
Calculation of Maximum Offering Price
Net asset value per share.............................................. $10.13
Sales charge -- 3.0% of public offering price.......................... 0.31
-----
Maximum Offering Price................................................... $10.44
======
COMPOSITION OF NET ASSETS:
Shares of common stock, at par......................................... $ 10,209
Additional paid-in capital............................................. 100,640,881
Undistributed net investment income.................................... 13,329
Net unrealized appreciation from investments........................... 2,717,333
------------
Net Assets, December 31, 1995............................................ $103,381,752
============
</TABLE>
- ------------------
See Notes to Financial Statements.
13
<PAGE> 15
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest....................................................... $ 6,645,712
Expenses
Advisory fees................................................ $ 491,561
Administration fees.......................................... 147,468
Distribution expenses........................................ 245,780
Custodian fees and expenses.................................. 83,147
Reports to shareholders...................................... 30,307
Registration fees............................................ 25,150
Transfer agent fees and expenses............................. 25,083
Legal fees................................................... 15,628
Amortization of organization expenses........................ 11,662
Directors' fees.............................................. 6,741
Audit fees................................................... 13,892
Insurance expense............................................ 4,525
Other expenses............................................... 3,767
----------
Total expenses before fee waivers.............................. 1,104,711
Less: Fee Waivers.............................................. (245,780)
----------
Total expenses................................................. 858,931
-----------
Net Investment Income.......................................... 5,786,781
-----------
REALIZED AND UNREALIZED GAINS FROM INVESTMENTS
Net realized gains from securities transactions.............. 41,880
Net change in unrealized appreciation from investments....... 4,507,231
-----------
Net Gain from Investments...................................... 4,549,111
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $10,335,892
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
14
<PAGE> 16
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED MARCH 28, 1994*
DECEMBER 31, THROUGH
1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.............................. $ 5,786,781 $ 2,031,812
Net realized gains (losses) from securities
transactions.................................... 41,880 (31,805)
Net change in unrealized appreciation
(depreciation) from investments................. 4,507,231 (1,789,898)
----------------- -----------------
Net increase in net assets resulting from
operations...................................... 10,335,892 210,109
----------------- -----------------
Dividends to shareholders from net investment
income............................................. (5,769,846) (2,031,812)
Distributions to shareholders from net realized gains
on securities transactions......................... (16,935) --
----------------- -----------------
Total dividends and distributions to shareholders.... (5,786,781) (2,031,812)
Portfolio Share Transactions
Net proceeds from shares subscribed................ 19,098,439 105,102,765
Net asset value of shares issued to shareholders in
reinvestment of dividends....................... 2,760,916 1,407,537
Cost of shares redeemed............................ (16,216,024) (11,499,289)
----------------- -----------------
Net increase in net assets from Portfolio share
transactions.................................... 5,643,331 95,011,013
----------------- -----------------
Total Increase....................................... 10,192,442 93,189,310
NET ASSETS
Beginning of period................................ 93,189,310 --
----------------- -----------------
End of period...................................... $ 103,381,752 $ 93,189,310
============= =============
SHARE TRANSACTIONS:
Issued............................................. 1,915,053 10,675,112
Reinvested......................................... 276,943 143,800
Redeemed........................................... (1,627,280) (1,175,021)
----------------- -----------------
Change in shares................................... 564,716 9,643,891
============= =============
</TABLE>
- ---------------
* Commencement of operations.
See Notes to Financial Statements.
15
<PAGE> 17
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------ ----------- ----- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS -- 97.6%
MUNICIPAL BONDS -- 97.6%
ALABAMA -- 1.3%
Dothan General Obligation Bond
(AMBAC Insured)................... Aaa/AAA 5.25% 09/01/10 $ 1,200 $ 1,189,500
-----------
DELAWARE -- 1.3%
Delaware Transit Authority,
Transportation Revenue Bond....... A1/AA 5.40 07/01/07 1,215 1,274,231
-----------
GEORGIA -- 1.2%
Georgia General Obligation Bond,
Series C.......................... Aaa/AA+ 6.50 07/01/07 1,000 1,153,750
-----------
LOUISIANA -- 1.2%
Louisiana General Obligation Bond,
Series A (AMBAC Insured).......... Aaa/AAA 6.50 05/01/11 1,000 1,092,500
-----------
MICHIGAN -- 2.3%
Grand Ledge Public School District,
General Obligation Bond (MBIA
Insured).......................... Aaa/AAA 6.60 05/01/24 1,000 1,155,000
Reeths Puffer Schools, General
Obligation Bond (FGIC Insured).... NR/AAA 5.75 05/01/15 1,000 1,022,500
-----------
2,177,500
-----------
OHIO -- 1.1%
Franklin County, Ohio Facility
Authority Revenue Bond (MBIA
Insured).......................... Aaa/AAA 5.80 12/01/13 1,000 1,041,250
-----------
OKLAHOMA -- 1.2%
McAlester Public Works Authority
Revenue Bond...................... Aaa/AAA 5.50 12/01/12 1,095 1,112,794
-----------
</TABLE>
Continued
16
<PAGE> 18
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------ ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE -- 84.7%
Blount County Hospital, Revenue
Bond, Series B (AMBAC Insured).... Aaa/NR 5.35% 07/01/12 $ 1,100 $ 1,100,000
Bristol Health and Education
Facilities, Bristol Memorial
Hospital (FGIC Insured)........... Aaa/AAA 6.75 09/01/07 2,140 2,487,750
Chattanooga-Hamilton County,
Erlanger Medical Center, Revenue
Bond.............................. Aaa/AAA 5.40 10/01/05 1,000 1,043,750
Chattanooga General Obligation Bond
(AMBAC Insured)................... Aaa/AAA 5.13 05/01/09 1,000 1,000,000
Clarksville Water, Sewer & Gas
Improvement (MBIA Insured)........ Aaa/AAA 6.13 02/01/12 1,250 1,315,625
Hamilton County Industrial
Development Lease Rental Revenue
(FGIC Insured).................... Aaa/AAA 5.50 09/01/02 1,000 1,050,000
Jackson County, Water and Sewer
Revenue Bond (AMBAC Insured)...... Aaa/AAA 5.25 01/01/11 1,260 1,256,850
Jackson County, Hospital Revenue
Bond.............................. A1/A+ 5.30 04/01/07 1,000 1,001,250
Jackson County, Hospital Revenue
Bond (AMBAC Insured).............. Aaa/AAA 5.63 04/01/15 1,000 1,017,500
Jackson County, Hospital Revenue
Bond (AMBAC Insured).............. Aaa/AAA 5.50 04/01/10 2,000 2,050,000
Johnson County School Sales Tax
(AMBAC Insured)................... Aaa/AAA 6.70 05/01/21 1,500 1,663,125
Johnson City Health & Educational
Facilities, Johnson City Medical
Center Revenue Bond (MBIA
Insured).......................... Aaa/AAA 5.00 07/01/13 1,000 960,000
Johnson County School Sales Tax
(AMBAC Insured)................... Aaa/AAA 6.60 05/01/10 1,000 1,107,500
Johnson City Health & Educational
Facilities, Johnson City Medical
Center Revenue Bond (MBIA
Insured).......................... Aaa/AAA 5.25 07/01/16 1,000 972,500
Knox County, Health & Educational
Facilities, Ft. Sanders Alliance
Revenue Bond (MBIA Insured)....... Aaa/AAA 5.00 01/01/07 1,000 1,005,000
Knox County, Health & Educational
Facilities, Ft. Sanders Alliance
Revenue Bond (MBIA insured)....... Aaa/AAA 7.25 01/01/10 1,000 1,217,500
Knox County First Utility District,
Water and Sewer Revenue Bond,
Series A (MBIA Insured)........... Aaa/AAA 6.00 12/01/11 1,000 1,048,750
</TABLE>
Continued
17
<PAGE> 19
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------ ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
Knox County Health and Education
Housing Facility Board, Hospital
Facility Revenue, Fort Sanders
Alliance Obligation
(MBIA Insured).................... Aaa/AAA 7.25% 01/01/09 $ 600 $ 727,500
Knox County Health and Education
Housing Facility Board, Hospital
Facility Revenue, Fort Sanders
Alliance Obligation
(MBIA Insured).................... Aaa/AAA 6.25 01/01/13 1,000 1,111,250
Knoxville Electric Revenue, Series
R................................. Aa/AA 5.70 07/01/12 1,165 1,198,494
Knoxville Gas Revenue, Refunding and
Improvement, Series E............. A1/AA 5.90 03/01/12 1,315 1,352,806
Knox-Chapman Utility District, Knox
County Water & Sewer Revenue (MBIA
Insured).......................... Aaa/AAA 6.00 01/01/14 1,125 1,179,844
Memphis Sanitation and Sewer System
Revenue........................... Aa/AA 5.50 10/01/13 1,300 1,337,375
Memphis Electric System Revenue
Refunding......................... Aa/AA 4.90 01/01/11 1,375 1,321,719
Memphis Electric System Revenue
Refunding......................... Aa/AA 6.00 01/01/05 1,600 1,784,000
Memphis General Obligation Bond..... Aa/AA 4.50 08/01/01 1,500 1,509,375
Memphis General Obligation Bond..... Aa/AA 5.40 08/01/09 1,000 1,021,250
Memphis General Obligation Bond..... Aa/AA 5.75 08/01/13 1,000 1,032,500
Memphis Sanitation and Sewer System
Revenue........................... Aa/AA 5.75 10/01/14 2,110 2,204,950
Metro Nashville & Davidson County,
Health & Education Facilities
Board, Vanderbilt University
Revenue Bond...................... Aa/AA 5.13 07/01/13 1,000 1,000,000
Metro Nashville & Davidson County,
General Obligation Bond........... Aa/AA 4.63 05/15/00 1,000 1,013,750
Metro Nashville & Davidson County,
General Obligation Bond........... Aa/AA 5.00 05/15/04 1,000 1,031,250
Metro Nashville & Davidson County,
General Obligation Bond........... Aa/AA 4.50 05/15/02 1,000 1,008,750
Metro Nashville & Davidson County,
General Obligation Bond........... Aa/AA 5.00 05/15/01 1,000 1,030,000
Metro Nashville & Davidson County
Water & Sewer Revenue (AMBAC
Insured).......................... Aaa/AAA 5.20 01/01/13 1,500 1,518,750
</TABLE>
Continued
18
<PAGE> 20
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------ ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
Metro Nashville Airport, Series C
(FGIC Insured).................... Aaa/AAA 6.60% 07/01/15 $ 1,000 $ 1,088,750
Metro Nashville & Davidson County
Water & Sewer Revenue (AMBAC
Insured).......................... Aaa/AAA 6.00 01/01/08 1,700 1,804,125
Metro Nashville & Davidson County
Water & Sewer Revenue............. A1/A 7.00 01/01/14 1,000 1,030,030
North Anderson County Utility
District Waterworks Revenue Bond
(MBIA Insured).................... Aaa/AAA* 5.60 01/01/15 1,000 1,017,500
Oak Ridge General Obligation Bond... Aa/A+ 5.55 07/01/10 1,000 1,026,250
Putnam County General Obligation
Bond (MBIA Insured)............... Aaa/AAA 5.10 04/01/07 1,300 1,313,000
Rutherford County, General
Obligation Bond, Series A......... Aa/AA- 6.50 05/01/06 1,000 1,140,000
Rutherford County Capital Outlay,
General Obligation Bond, Series
A................................. Aa/AA- 6.25 05/01/03 1,500 1,676,250
Seveir County Public Building
Authority, Solid Waste Facility
Revenue Bond (AMBAC Insured)...... Aaa/AAA* 5.40 09/01/10 1,000 1,015,000
Seveir County Public Building
Authority, Solid Waste Facility
Revenue Bond (AMBAC Insured)...... Aaa/AAA* 5.35 09/01/08 1,000 1,025,000
Shelby County General Obligation
Bond, Series A.................... Aa/AA+ 6.75 04/01/04 1,000 1,140,000
Shelby County General Obligation
Bond, Series A.................... Aa/AA+ 5.60 04/01/10 1,205 1,247,175
Shelby County Health Education &
Housing Facility, Methodist Health
Systems Inc., Revenue Bond (MBIA
Insured).......................... Aaa/AAA 6.25 08/01/08 1,000 1,118,750
Shelby County General Obligation
Bond, Series A.................... Aa/AA+ 6.00 03/01/16 1,530 1,602,675
Shelby County Health Education &
Housing Facility, Methodist Health
Systems Inc., Revenue Bond, Series
A (MBIA Insured).................. Aaa/AAA 7.50 06/01/07 1,000 1,087,500
Shelby County Health Education &
Housing Facility, Methodist Health
Systems Inc., Revenue Bond (MBIA
Insured).......................... Aaa/AAA 5.50 08/01/12 1,500 1,543,125
</TABLE>
Continued
19
<PAGE> 21
<TABLE>
<CAPTION>
MOODY'S/S&P PRINCIPAL
RATINGS MATURITY AMOUNT VALUE
DESCRIPTION (UNAUDITED) RATE DATE (000) (NOTE 2)
- ------------------------------------ ----------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
Shelby County General Obligation
Bond, Series A.................... Aa/AA+ 6.00% 03/01/99 $ 1,195 $ 1,262,219
Shelby County General Obligation
Bond, Series A.................... Aa/AA+ 6.75 04/01/05 1,000 1,145,000
Shelby County General Obligation
Bond, Series A.................... Aa/AA+ 5.50 03/01/09 1,500 1,548,750
Shelby County General Obligation
Bond, Series A.................... Aa/AA+ 5.50 04/01/11 1,000 1,020,000
Shelby County General Obligation
Bond, Series A.................... Aa/AA+ 5.63 04/01/15 1,000 1,031,250
Tennessee General Obligation Bond,
Series A.......................... Aaa/AA+ 5.75 03/01/15 1,050 1,081,500
Tennessee General Obligation Bond,
Series A.......................... A1/AA 6.25 05/01/10 735 780,937
Tennessee General Obligation Bond,
Series A.......................... Aaa/AA+ 5.50 07/01/12 1,600 1,638,000
Tennessee General Obligation Bond,
Series A.......................... Aaa/AA+ 7.00 03/01/03 2,000 2,340,000
Tennessee General Obligation Bond,
Series A.......................... Aaa/AA+ 5.50 03/01/09 1,000 1,046,250
Tennessee General Obligation Bond,
Series A.......................... Aaa/AA+ 5.50 07/01/10 2,000 2,072,500
Tennessee General Obligation Bond,
Series A.......................... A/AA- 5.75 03/01/11 1,220 1,268,800
-----------
79,790,999
-----------
TEXAS -- 3.3%
Brazos River Authority, Special
Revenue Bond (FGIC Insured)....... Aaa/AAA 5.50 08/15/15 1,000 1,008,750
Cedar Hill Independent School
District, General Obligation
Bond.............................. Aaa/AAA 5.50 08/15/12 1,000 1,012,500
Texas A&M University Revenue Bond... Aa/AA 5.90 05/15/09 1,000 1,047,500
-----------
3,068,750
-----------
Total Municipal Bonds -- Long-Term
(cost $89,279,487)................ 91,901,274
-----------
</TABLE>
Continued
20
<PAGE> 22
<TABLE>
<CAPTION>
VALUE
DESCRIPTION (NOTE 2)
- ------------------------------------ -----------
<S> <C>
SHORT-TERM INVESTMENTS -- 1.2%
INVESTMENT COMPANIES -- 1.2%
AIM Tax Free Cash Management
Fund.............................. $ 1,093,514
-----------
Total Short Term Investments
(cost $1,093,514)................. 1,093,514
-----------
TOTAL INVESTMENTS -- 98.8%
(COST $90,373,001)(a)............. 92,994,788
OTHER ASSETS IN EXCESS OF
LIABILITIES -- 1.2%............... 1,148,404
-----------
NET ASSETS -- 100.0%................ $94,143,192
==========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $94,143,192.
* Represents Fitch rating.
NR Not rated.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................. $2,641,588
Unrealized depreciation............................. (19,801)
---------
Net unrealized appreciation......................... $2,621,787
==========
</TABLE>
See Notes to Financial Statements.
21
<PAGE> 23
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (cost $90,373,001).................................. $92,994,788
Cash..................................................................... 999,708
Interest receivable...................................................... 1,701,479
Receivable for Portfolio shares sold..................................... 114,410
Deferred organization costs.............................................. 37,829
Prepaid expenses......................................................... 6,711
-----------
Total assets............................................................... 95,854,925
-----------
LIABILITIES
Payable for investment securities purchased.............................. 1,093,515
Payable for Portfolio shares redeemed.................................... 184,485
Dividends payable........................................................ 323,383
Accrued expenses:
Advisory fees......................................................... 39,976
Administration fees................................................... 12,012
Other................................................................. 58,362
-----------
Total liabilities.......................................................... 1,711,733
-----------
NET ASSETS................................................................. $94,143,192
==========
Shares Outstanding ($0.001 par value, 250 million shares authorized)....... 9,239,258
==========
Calculation of Maximum Offering Price
Net asset value per share................................................ $10.19
Sales charge -- 3.0% of public offering price............................ 0.31
------
Maximum Offering Price..................................................... $10.50
======
COMPOSITION OF NET ASSETS:
Shares of common stock, at par........................................... $ 9,239
Additional paid-in capital............................................... 92,087,614
Undistributed net investment income...................................... 2,471
Net unrealized appreciation from investments............................. 2,621,787
Accumulated net realized losses.......................................... (577,919)
-----------
Net Assets, December 31, 1995.............................................. $94,143,192
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
22
<PAGE> 24
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................ $ 5,000,439
Expenses
Advisory fees................................................. $ 463,502
Administration fees........................................... 139,051
Distribution expenses......................................... 231,751
Custodian fees and expenses................................... 83,507
Reports to shareholders....................................... 31,259
Transfer agent fees and expenses.............................. 24,886
Registration fees............................................. 8,089
Audit fees.................................................... 19,133
Amortization of organization expenses......................... 11,662
Legal fees.................................................... 14,604
Insurance expense............................................. 4,981
Directors' fees............................................... 5,502
Other expenses................................................ 2,932
---------
Total expenses before fee waivers............................. 1,040,859
Less: Fee waivers............................................. (231,751)
---------
Total expenses.................................................. 809,108
-----------
Net Investment Income........................................... 4,191,331
-----------
REALIZED AND UNREALIZED GAINS FROM INVESTMENTS
Net realized gains from securities transactions............... 1,136,490
Net change in unrealized appreciation from investments........ 6,292,185
-----------
Net Gains from Investments...................................... 7,428,675
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $11,620,006
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
23
<PAGE> 25
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 28, 1994*
YEAR ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.............................. $ 4,191,331 $ 3,012,396
Net realized gains (losses) from securities
transactions.................................... 1,136,490 (1,714,409)
Net change in unrealized appreciation
(depreciation) from investments................. 6,292,185 (3,670,398)
----------------- -----------------
Net increase (decrease) in net assets resulting
from operations................................. 11,620,006 (2,372,411)
----------------- -----------------
Dividends to shareholders from net investment
income............................................. (4,190,548) (3,012,396)
Distributions to shareholders in excess of net tax
exempt interest income............................. (783) --
----------------- -----------------
Total dividends and distributions.................... (4,191,331) (3,012,396)
Portfolio Share Transactions
Net proceeds from shares subscribed................ 12,555,177 105,070,686
Net asset value of shares issued to shareholders in
reinvestment of dividends....................... 196,336 29,074
Cost of shares redeemed............................ (12,163,924) (13,588,025)
----------------- -----------------
Net increase in net assets from Portfolio share
transactions.................................... 587,589 91,511,735
----------------- -----------------
Total Increase....................................... 8,016,264 86,126,928
NET ASSETS
Beginning of period................................ 86,126,928 --
----------------- -----------------
End of period...................................... $ 94,143,192 $ 86,126,928
============= =============
SHARE TRANSACTIONS
Issued............................................. 1,291,747 10,586,359
Reinvested......................................... 19,813 3,062
Redeemed........................................... (1,237,647) (1,424,075)
----------------- -----------------
Change in shares................................... 73,913 9,165,346
============= =============
</TABLE>
- ---------------
* Commencement of operations.
See Notes to Financial Statements.
24
<PAGE> 26
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
The Infinity Mutual Funds, Inc. (the "Fund") was organized as a Maryland
corporation on March 6, 1990 and is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Fund operates as a series company currently comprising twelve portfolios.
The accompanying financial statements and notes relate to the ValueStar
Short-Intermediate Duration Bond Portfolio and the ValueStar Tennessee Tax
Exempt Bond Portfolio (the "Portfolios") only. The Short-Intermediate Duration
Bond Portfolio's investment objective is to provide investors with current
income without assuming undue risk. This Portfolio will invest primarily in
investment grade, U.S. dollar denominated fixed-income securities of domestic
and foreign issuers. Under normal market conditions, the Short-Intermediate
Duration Bond Portfolio will invest in a portfolio of securities that has a
duration of under four years. The Tennessee Tax-Exempt Bond Portfolio's
investment objective is to provide investors with current income exempt from
Federal and Tennessee income taxes without assuming undue risk. This Portfolio
will invest primarily in investment-grade Tennessee Municipal Obligations
without regard to maturity.
The Portfolios are authorized to issue two classes of shares as follows:
Investor Shares and Trust Shares. Investor Shares and Trust Shares are
substantially the same, except that Investor Shares bear the fees that are
payable under a plan adopted by the Fund's Board of Directors pursuant to Rule
12b-1 under the Act (the "Distribution Plan") at an annual rate of 0.25% of the
average daily net assets of the outstanding Investor Shares. As of December 31,
1995, the Portfolios had only sold Investor Shares.
At December 31, 1995, there were 1 billion shares of the Portfolios' $0.001
par value common stock authorized, of which each Portfolio's Shares are
classified into Investor Shares (250 million shares authorized per Portfolio)
and Trust Shares (250 million shares authorized per Portfolio).
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios in the preparation of their financial statements. The policies
are in conformity with generally accepted accounting principles.
A) Securities Valuation:
The Portfolios' investments are valued each business day using available
market quotations or at fair value as determined by one or more independent
pricing services (collectively, the "Service") approved by the Board of
Directors. The Service may use available market quotations, employ electronic
data processing techniques and/or matrix system to determine valuations.
Restricted securities and securities for which market quotations are not readily
available, if any, are valued at fair value using methods approved by the Board
of Directors. Debt securities with remaining maturities of 60 days or less are
normally valued at amortized cost, which approximates market value. The
amortized cost method involves valuing a security at its cost on the date of
purchase or, in the case of securities purchased more than 60 days to maturity,
at their market value each day until the 61st day prior to
25
<PAGE> 27
- --------------------------------------------------------------------------------
maturity, and there-after assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and such valuation.
B) Securities Transactions and Investment Income:
Securities transactions are recorded on trade date. Realized gains and
losses from sales of investments are calculated on the identified cost basis.
Interest income, including accretion of discount and amortization of premium on
investments, is accrued daily. Dividend income is recorded on the ex-dividend
date.
C) Repurchase Agreements:
The Portfolios' custodian and other banks acting in a sub-custodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default on the obligation to repurchase, the
Portfolios have the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
D) Expenses:
The Portfolios incurred certain costs in connection with their
organization. These costs were deferred and are being amortized on a
straight-line basis through 1999 (five years from their commencement of
operations). The Fund accounts separately for the assets, liabilities and
operations of each Portfolio. Direct expenses of a Portfolio are charged to that
Portfolio while general Fund expenses are allocated among the Fund's respective
portfolios. At December 31, 1995, deferred
organization costs were $37,829 and $37,829 for the ValueStar Short-Intermediate
Duration Bond Portfolio and Tennessee Tax-Exempt Bond Portfolio, respectively.
E) Federal Income Taxes:
For federal income tax purposes, each Portfolio is treated as a separate
entity for the purpose of determining its qualification as a regulated
investment company under the Internal Revenue Code (the "Code"). It is the
policy of each Portfolio to meet the requirements of the Code applicable to
regulated investment companies, including the requirement that they distribute
substantially all of their income to shareholders. Therefore, no federal income
tax provision is required.
At December 31, 1995, the ValueStar Tennessee Tax-Exempt Bond Portfolio had
a capital loss carryover of $577,919 which is available to offset future net
realized gains on securities transactions to the extent provided for in the
Code. Such capital loss carryover will expire in fiscal year 2002. At December
31, 1995, the cost of portfolio securities held by the Portfolios for federal
income tax purposes was substantially the same as for financial reporting
purposes.
F) Dividends and Distributions to Shareholders:
Dividends are declared daily to shareholders of record at the close of
business on the day of declaration and are paid monthly. Distributions of net
realized gains, if any, will be paid at least annually. Dividends and
distributions are recorded on the ex-dividend date. Distributions from net
investment income and from net realized gains are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. Timing differences relating to shareholder distributions have been
reclassified to paid-in-capital. These differences
26
<PAGE> 28
- --------------------------------------------------------------------------------
are primarily due to deferrals of certain losses and expiring capital loss
carryovers.
Effective January 1, 1995, the Portfolios adopted Statement of Position
93-2: Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distribution by Investment Companies. As a
result of this statement, the Portfolios changed the classification of
distributions to shareholders to better disclose the differences between
financial statement amounts and distributions determined in accordance with
income tax regulations. Accordingly, amounts as of December 31, 1995, for the
ValueStar Short-Intermediate Duration Bond Portfolio, have been restated to
reflect an increase in undistributed net investment income of $3,254 and a
decrease to paid in capital on investments of $3,254. In addition, the Portfolio
reclassified $10,075 from undistributed net investment income to accumulated
realized gains resulting from a redesignation of dividends and a reclass from
losses on paydowns from asset backed securities. The amounts as of December 31,
1995, for the ValueStar Tennessee Tax-Exempt Bond Portfolio, have been restated
to reflect a decrease in paid-in-capital of $2,471 and an increase in
undistributed net investment income of $2,471.
G) Use of Estimates
Estimates and assumptions are required to be made regarding assets,
liabilities, and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ from these amounts.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
First American National Bank ("First American") serves as the Portfolios'
investment adviser. Concord Holding Corporation ("Concord"), a subsidiary of The
BISYS Group, Inc., serves as the Portfolios' administrator and Concord Financial
Group, Inc. (the "Distributor"), a wholly-owned subsidiary of Concord, serves as
the distributor of the Portfolios' shares.
As investment adviser, First American manages the investments of each
Portfolio and is responsible for all purchases and sales of each Portfolio's
investment securities. For its services, First American is entitled to receive
fees at an annual rate of 0.50% of each Portfolio's average daily net assets.
As administrator, Concord assists in supervising the operations of the
Portfolios. For its services, Concord is entitled to receive a fee at the annual
rate of 0.15% of the average daily net assets of each of the Portfolios.
Pursuant to the Distribution Plan, each Portfolio pays the Distributor for
advertising, marketing and distributing Investor Shares at an annual rate of
0.25% of the average daily net assets of the outstanding Investor Shares. For
the year ended December 31, 1995, the Distributor waived $245,780 and $231,751
for the Short-Intermediate Duration Bond Portfolio and the Tennessee Tax-Exempt
Bond Portfolio, respectively.
Certain officers and Directors of the Fund are "affiliated persons" (each
defined in the Act) of Concord or the Distributor. Each Director receives an
annual fee of $5,000 and a meeting fee of $1,250 per meeting for services
relating to all the portfolios constituting the Fund.
27
<PAGE> 29
- --------------------------------------------------------------------------------
NOTE 4 -- SECURITIES TRANSACTIONS
For the year ended December 31, 1995, the cost of purchases and the
proceeds from sales of portfolio securities (excluding short-term investments)
were as follows:
<TABLE>
<CAPTION>
SHORT-
INTERMEDIATE TENNESSEE TAX
DURATION BOND EXEMPT BOND
PORTFOLIO PORTFOLIO
------------- -------------
<S> <C> <C>
Purchases of U.S.
Government
Securities.......... $34,036,134 $ --
Purchases of other
securities.......... $14,104,113 $167,941,094
Sale of U.S.
Government
Securities.......... $13,163,085 $ --
Sale of other
securities.......... $ 8,262,899 $170,200,070
</TABLE>
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Tennessee Tax Exempt Bond Portfolio invests substantially all of its
assets in a non-diversified portfolio of tax-exempt debt obligations primarily
consisting of securities issued by the State of Tennessee, its municipalities,
counties and other taxing districts. The issuers' abilities to meet their
obligations may be affected by Tennessee economic, regional and political
developments.
The Tennessee Tax Exempt Bond Portfolio had the following concentrations by
sector at December 31, 1995 (as a percentage of total investments):
<TABLE>
<S> <C>
General Obligations............... 44.8%
Resource Recovery................. 37.7%
Sewer & Waste Water............... 3.8%
Health & Medical.................. 2.8%
Utilities......................... 2.6%
Revenue Anticipation Notes........ 1.4%
Mutual Funds...................... 1.2%
Industrial........................ 1.1%
Educational Facilities............ 0.8%
Other............................. 3.8%
-----
100.0%
=====
</TABLE>
28
<PAGE> 30
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994*
----------------- ------------------
<S> <C> <C>
Net Asset Value, Beginning of Period.................. $ 9.66 $ 10.00
----------------- ----------
Income from investment operations:
Net investment income............................... 0.59 0.38
Net realized and unrealized gains (losses) on
securities transactions.......................... 0.47 (0.34)
----------------- ----------
Net gains from investment operations................ 1.06 0.04
----------------- ----------
Less dividends and distributions:
Dividends from net investment income................ (0.59) (0.38)
----------------- ----------
Net change in net asset value......................... 0.47 (0.34)
----------------- ----------
Net Asset Value, End of Period........................ $ 10.13 $ 9.66
============= ==============
Total Return (excluding sales charge)................. 11.20% 0.42%(b)
Ratios/Supplemental Data:
Net assets, end of period (000's)................... $ 103,382 $ 93,189
Ratio of expenses to average net assets............. 0.87% 0.83%(a)
Ratio of net investment income to average net
assets........................................... 5.89% 5.27%(a)
Ratio of expenses to average net assets**........... 1.12% 1.28%(a)
Ratio of net investment income to average net
assets**......................................... 5.64% 4.82%(a)
Portfolio Turnover.................................. 28% 6%
</TABLE>
- ---------------
* For the period March 28, 1994 (commencement of operations) through December
31, 1994.
** During the period certain fees were voluntarily waived. If such voluntary
fee waivers had not occurred, the ratios would have been as indicated.
(a) Annualized.
(b) Total return is not annualized as it may not be representative of the total
return for the year.
See Notes to Financial Statements.
29
<PAGE> 31
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994*
----------------- ------------------
<S> <C> <C>
Net Asset Value, Beginning of Period................. $ 9.40 $ 10.00
----------------- ----------
Income from investment operations:
Net investment income.............................. 0.45 0.34
Net realized and unrealized gains (losses) on
securities transactions......................... 0.79 (0.60)
----------------- ----------
Net gains (losses) from investment operations...... 1.24 (0.26)
----------------- ----------
Less dividends and distributions:
Dividends from net investment income............... (0.45) (0.34)
----------------- ----------
Net change in net asset value........................ 0.79 (0.60)
----------------- ----------
Net Asset Value, End of Period....................... $ 10.19 $ 9.40
----------------- ----------
Total Return (excluding sales charge)................ 13.40% (2.63)%(b)
Ratios/Supplemental Data:
Net assets, end of period (000's).................. $94,143 $ 86,127
Ratio of expenses to average net assets............ 0.87% 0.82%(a)
Ratio of net investment income to average net
assets.......................................... 4.52% 4.61%(a)
Ratio of expenses to average net assets**.......... 1.12% 1.18%(a)
Ratio of net investment income to average net
assets**........................................ 4.27% 4.25%(a)
Portfolio Turnover................................. 188% 41%
</TABLE>
- ---------------
* For the period March 28, 1994 (commencement of operations) through December
31, 1994.
** During the period certain fees were voluntarily waived. If such voluntary
fee waivers had not occurred, the ratios would have been as indicated.
(a) Annualized.
(b) Total return is not annualized as it may not be representative of the total
return for the year.
See Notes to Financial Statements.
30
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
The Infinity Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities of
the ValueStar Short-Intermediate Duration Bond Portfolio and the ValueStar
Tennessee Tax Exempt Bond Portfolio (two of the portfolios constituting The
Infinity Mutual Funds, Inc.), including the portfolios of investments as of
December 31, 1995, the related statements of operations for the year then ended,
the related statements of changes in net assets for the year ended December 31,
1995 and the period from March 28, 1994 (commencement of operations) to December
31, 1994, and the financial highlights for the year ended December 31, 1995 and
the period from March 28, 1994 (commencement of operations) to December 31,
1994. These financial statements and financial highlights are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. As to securities
purchased but not received, we performed other appropriate auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
ValueStar Short-Intermediate Duration Bond Portfolio and the ValueStar Tennessee
Tax Exempt Bond Portfolio as of December 31, 1995, the results of their
operations for the year ended, the changes in their net assets for the year
ended December 31, 1995 and the period from March 28, 1994 (commencement of
operations) to December 31, 1994, and the financial highlights for the year
ended December 31, 1995 and the period from March 28, 1994 (commencement of
operations) to December 31, 1994, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 9, 1996
Federal Income Tax Status of Dividends (Unaudited)
- --------------------------------------------------------------------------------
The Infinity Mutual Funds, Inc. -- ValueStar Short-Intermediate Duration Bond
Portfolio has determined that 100% of the dividends paid during the year ended
December 31, 1995, were paid from net investment income and net realized gains
and are subject to federal income tax. Of the dividends paid, 45.49% was derived
from U.S. Government Obligations.
The Infinity Mutual Funds, Inc. -- ValueStar Tennessee Tax Exempt Bond Portfolio
has determined that 100% of the dividends paid during the period ended December
31, 1995, were paid from net investment income and are exempt from federal
income tax.
31
<PAGE> 33
The Infinity Mutual Funds, Inc.
VALUESTAR FAMILY OF MUTUAL FUNDS
3435 Stelzer Road
Columbus, OH 43219
INVESTMENT ADVISER
First American National Bank
315 Deaderick Street
Nashville, TN 37237
ADMINISTRATOR
Concord Holding Corporation
3435 Stelzer Road
Columbus, OH 43219
DISTRIBUTOR
Concord Financial Group, Inc.
3435 Stelzer Road
Columbus, OH 43219
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219
Concord Financial Group, Inc. is the Portfolios'
distributor and is unaffiliated with First American
National Bank, the Portfolios' adviser.
Investments in the Portfolios are neither guaranteed by nor obligations of
First American National Bank
or any other bank and are not insured
by the FDIC or any other government agency.
Investments in mutual funds involve risk,
including the possible loss of principal.
This material must be preceded or accompanied
by a current prospectus.
HELPING PEOPLE PLAN
FOR A BRIGHTER FUTURE.SM
05116-0 Rev. 2/96
VLSTBDD95A
----------------------------------------------------------
V A L U E S T A R
F A M I L Y OF M U T U A L F U N D S
----------------------------------------------------------
VALUESTAR
SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
VALUESTAR TENNESSEE
TAX EXEMPT BOND PORTFOLIO
-------------------------------------------------
Annual Report
December 31, 1995
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