Securities Act File No. 33-34080
Investment Company Act File No. 811-6076
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ___
Post-Effective Amendment No. 29 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 29 /X/
(Check appropriate box or boxes)
THE INFINITY MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (614) 470-8000
George O. Martinez, Esq.
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
copy to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
It is proposed that this filing will become effective (check
appropriate box)
----- immediately upon filing pursuant to paragraph (b)
----- on (date) pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)(i)
----- on (date) pursuant to paragraph (a)(i)
----- 75 days after filing pursuant to paragraph (a)(ii)
----- on (date) pursuant to paragraph (a)(ii) of Rule 485.
<PAGE>
If appropriate, check the following box:
____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number of its shares of Common Stock
under the Securities Act of 1933 pursuant to Section 24(f) of the Investment
Company Act of 1940. Registrant's Rule 24f-2 Notice for its fiscal year ended
December 31, 1995 was filed on February 28, 1996.
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
Correspondent Cash Reserves Money Market Portfolio
Correspondent Cash Reserves Tax Free Money Market Portfolio
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in RETAIL SHARES
Part A of
FORM N-1A CAPTION PAGE
1 Cover Page Cover
2 Synopsis 2
3 Condensed Financial Information 3
4 General Description of Registrant 4, 24
5 Management of the Fund 15
5(a) Management's Discussion of Fund Performance *
6 Capital Stock and Other Securities 24
7 Purchase of Securities Being Offered 18
8 Redemption or Repurchase 20
9 Pending Legal Proceedings *
Retail and
Items in Institutional Shares
Part B of
FORM N-1A CAPTION PAGE
10 Cover Page B-1
11 Table of Contents B-1
12 General Information and History *
13 Investment Objectives and Policies B-2
14 Management of the Fund B-10
15 Control Persons and Principal Holders
of Securities B-12, B-19
16 Investment Advisory and Other Services B-12
17 Brokerage Allocation B-19
Correspondent Cash Reserves Money Market Portfolio
Correspondent Cash Reserves Tax Free Money Market Portfolio
Items in
Part B of
FORM N-1A CAPTION PAGE
18 Capital Stock and Other Securities B-19
19 Purchase, Redemption and Pricing of
Securities Being Offered B-16
20 Tax Status *
21 Underwriters *
22 Calculations of Performance Data B-18
23 Financial Statements B-25
Items in
Part C of
FORM N-1A CAPTION PAGE
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under Common
Control with Registrant C-6
26 Number of Holders of Securities C-6
27 Indemnification C-7
28 Business and Other Connections of
Investment Adviser C-8
29 Principal Underwriters C-11
30 Location of Accounts and Records C-12
31 Management Services C-12
32 Undertakings C-12
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*Omitted since answer is negative or inapplicable.
<PAGE>
PROSPECTUS
________, 1996
LOGO
THE INFINITY MUTUAL FUNDS, INC.
Correspondent Cash Reserves Money Market Portfolio
Correspondent Cash Reserves Tax Free Money Market Portfolio
Retail Shares
The Infinity Mutual Funds, Inc. (the "Fund") is an open-end, management
investment company, known as a series fund. By this Prospectus, the Fund is
offering Retail Shares of two diversified money market portfolios (the
"Portfolios"), each with a different investment objective:
* The Correspondent Cash Reserves Money Market Portfolio (the "Money Market
Portfolio") seeks to provide investors with as high a level of current income as
is consistent with the preservation of capital and the maintenance of liquidity.
The Money Market Portfolio invests in a diversified portfolio of short-term
money market obligations.
* The Correspondent Cash Reserves Tax Free Money Market Portfolio (the "Tax
Free Money Market Portfolio") seeks to provide investors with as high a level of
current income exempt from Federal income tax as is consistent with the
preservation of capital and the maintenance of liquidity. The Tax Free Money
Market Portfolio invests in a diversified portfolio of short-term Municipal
Obligations (as defined herein).
The Retail Shares are offered only to clients of certain securities dealers
that have entered into clearing arrangements with Correspondent Services
Corporation [CSC], a wholly-owned subsidiary of PaineWebber Incorporated
("PaineWebber"). You can invest, reinvest or redeem Retail Shares at any time
without charge or penalty imposed by the Fund.
Another class of the Money Market Portfolio's shares -- the Institutional
Shares -- are offered by a separate prospectus to institutional investors and
are not offered hereby. The Retail Shares and the Institutional Shares of the
Money Market Portfolio are identical, except as to the services offered to each
class and the expenses borne by each class which may affect performance.
Investors desiring to obtain information about the Institutional Shares of the
Money Market Portfolio should ask their sales representative or call
1-800-852-9730.
Mitchell Hutchins Asset Management Inc. (the "Adviser"), a wholly-owned
subsidiary of PaineWebber, is each Portfolio's investment adviser.
Concord Holding Corporation (the "Administrator") serves as each
Portfolio's administrator.
Concord Financial Group, Inc. (the "Distributor"), a wholly-owned
subsidiary of the Administrator, serves as distributor of each Portfolio's
shares.
AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT EACH PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
------------------------
This Prospectus sets forth concisely information about the Fund and the
Portfolios that an investor should know before investing. It should be read and
retained for future reference.
The Statement of Additional Information, dated ________, 1996, which may be
revised from time to time, provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, write to the Fund at 3435 Stelzer Road,
Columbus, Ohio 43219-8020, contact your sales representative or call
1-800-442-3809.
Portfolio shares are not deposits or obligations of, or endorsed or
guaranteed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other governmental
agency. Portfolio shares involve certain investment risks, including the
possible loss of principal.
TABLE OF CONTENTS
Page
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Expense Summary........................................ 2
Financial Highlights..................................... 3
Yield Information........................................ 4
Description of the Portfolios............................ 4
Management of the Portfolios............................. 15
How to Buy Shares........................................ 18
How to Redeem Shares..................................... 20
Dividends, Distributions and Taxes....................... 21
General Information...................................... 24
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Expense Summary
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Tax Free
Money Market Money Market
Portfolio Portfolio
------------ -------------
Retail Retail
Shares Shares
------------ -------------
<S> <C> <C>
Management Fees...................................................... .10% .10%
12b-1 Fees .60% .60%
Other Expenses (net of fee waivers).................................. .23% .20%
Total Operating Expenses (net of fee waivers)...................... .93% .90%
Example: 1 Year $ 9 $ 9
You would pay the following expenses on a $1,000 investment, 3 Years $ 30 $ 29
assuming (1) 5% annual return and (2) redemption at the 5 Years $ 51 $ 50
end of each time period: 10 Years $114 $111
</TABLE>
The amounts listed in the example should not be considered as
representative of past or future expenses and actual expenses may be greater or
less than those indicated. Moreover, while the example assumes a 5% annual
return, each Portfolio's actual performance will vary and may result in an
actual return greater or less than 5%.
The purpose of the foregoing table is to assist you in understanding the
costs and expenses borne by a Portfolio, the payment of which will reduce
investors' annual return. The expenses noted above for the Retail Shares of the
Money Market Portfolio, without fee waivers, would be: Other Expenses -- .33%
and Total Operating Expenses -- 1.03%. With respect to the Tax Free Money Market
Portfolio, Other Expenses are based on estimated amounts for the current fiscal
year. The information in the foregoing table does not reflect any other fee
waivers or expense reimbursement arrangements that were in effect for the Money
Market Portfolio during the last fiscal year or may be in effect for either
Portfolio during the current fiscal year. Certain Securities Firms (as defined
below) may charge their clients direct fees for effecting transactions in
Portfolio shares. See "How to Buy Shares." Long-term investors in Retail Shares
could pay more in 12b-1 fees than the economic equivalent of paying a front-end
sales charge. For a further description of the various costs and expenses
incurred in a Portfolio's operation, see "Management of the Portfolios."
<PAGE>
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Financial Highlights
Contained below is per share operating performance data for a Retail Share
of common stock outstanding, total investment return, ratios to average net
assets and other supplemental data for the Money Market Portfolio for each
period indicated. The information in the table has been audited (EXCEPT WHERE
INDICATED) by KPMG Peat Marwick LLP, the Portfolio's independent auditors, whose
report thereon appears in the Statement of Additional Information. Additional
financial data and related notes are included in the Statement of Additional
Information, which is available upon request. No financial information is
provided for the Tax Free Money Market Portfolio which had not commenced
operations as of JUNE 30, 1996.
<TABLE>
<CAPTION>
Year Ended
------------------- ----------------------------------------------- Period Ended
Six Months December 31, December 31, December 31, December 31, December 31,
Ended June 30, 1996 1995 1994 1993 1992 1991*
(unaudited)
------------------- ------------ ------------ ------------ ------------ ------------
RETAIL SHARES:
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.. $0.9986 $ 0.9975 $ 0.9999 $ 1.0000 $ 1.0000 $ 1.0000
----------- ------------ ------------ ------------ ------------ ------------
Income from investment operations:
Net investment income.............. 0.0232 0.0512 0.0340 0.0245 0.0306 0.0310
Net realized gains/(losses) on
securities 0.0003 0.0011 (0.0024) (0.0001) -- --
----------- ----------- ------------ ------------ ------------ ------------
Total Income from investment operations.0.0235 0.0523 0.0316 0.0244 0.0306 0.0310
Dividends from net investment income.. (0.0232) (0.0512) (0.0340) (0.0245) (0.0306) (0.0310)
---------- ------------ ------------ ------------ ------------
Net change in net asset value...... 0.0003 0.0011 (0.0024) (0.0001) -- --
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period...... $ 0.9989 $ 0.9986 $ 0.9975 $ 0.9999 $ 1.0000 $ 1.0000
----------- ------------ ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------ ------------
Total return...................... 2.34%+ 5.24% 3.45% 2.48% 3.11% 5.07%+
Ratios/supplemental data:
Net assets, end of period (000s)... $922,043 $ 779,011 $ 458,092 $ 331,210 $ 267,895 $ 192,992
Ratio of expenses to average net
assets............................... 0.85%++ 0.85% 0.94% 1.02% 1.12% 0.83%++
Ratio of net interest income to average
net assets................................ 4.66%++ 5.14% 3.47% 2.44% 3.01% 4.99%++
Ratio of expenses to average net assets**0.95%++ 1.03% 1.12% 1.20% 1.35% 1.16%++
Ratio of net interest income to average
net assets**...............................4.56%++ 4.96% 3.29% 2.26% 2.78% 4.66%++
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* For the period May 20, 1991 (commencement of operations) through December 31,
1991.
** During the period, certain fees and expenses were voluntarily waived and/or
reimbursed. If such voluntary reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
+ Total return is not annualized, as it may not be representative of the total
return for the year.
++ Annualized.
</TABLE>
<PAGE>
Yield Information
From time to time, each Portfolio will advertise its yield and effective
yield. Both yield figures are based on historical earnings and are not intended
to indicate future performance. It can be expected that these yields will
fluctuate substantially. The yield of a Portfolio refers to the income generated
by an investment in the Portfolio over a seven-day period (which period will be
stated in the advertisement). This income is then annualized. That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but, when annualized,
the income earned by an investment in the Portfolio is assumed to be reinvested.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. A Portfolio's yield and
effective yield may reflect absorbed expenses pursuant to any undertaking that
may be in effect.
With respect to the Tax Free Money Market Portfolio, tax equivalent yield
is calculated by determining the pre-tax yield which, after being taxed at a
stated rate, would be equivalent to a stated yield or effective yield calculated
as described above.
Yield information is useful in reviewing a Portfolio's performance, but
because yields will fluctuate, under certain conditions such information may not
provide a basis for comparison with domestic bank deposits, other investments
which pay a fixed yield for a stated period of time, or other investment
companies which may use a different method of computing yield.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., Bank Rate Monitor(TM), N. Palm Beach, Fla. 33408,
IBC's Money Fund Report(TM), Morningstar, Inc., other industry publications and
national financial publications, including Money, Forbes, Barron's, The Wall
Street Journal and The New York Times, or local or regional publications.
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Description of the Portfolios
Investment Objective
Each Portfolio seeks to provide investors with as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity and, in the case of the Tax Free Money Market Portfolio, exempt from
Federal income tax. Each Portfolio's investment objective cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")) of such Portfolio's
outstanding voting shares. There can be no assurance that each Portfolio's
investment objective will be achieved. Securities in which each Portfolio
invests may not earn as high a level of current income as long-term or lower
quality securities which generally have less liquidity, greater market risk and
more fluctuation in market value.
Management Policies
Each Portfolio seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, the Fund uses the amortized cost method of
valuing each Portfolio's securities pursuant to Rule 2a-7 under the 1940 Act,
certain requirements of which are summarized below.
In accordance with Rule 2a-7, each Portfolio is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months or less and invest only in
U.S. dollar denominated securities determined in accordance with procedures
established by the Board of Directors to present minimal credit risks and which
are rated in one of the two highest rating categories for debt obligations by at
least two nationally recognized statistical rating organizations ("NRSRO") (or
one NRSRO if the instrument was rated by only one such organization) or, if
unrated, are of comparable quality as determined in accordance with procedures
established by the Board of Directors. The Board of Directors has delegated to
the Adviser the day-to-day operations of each Portfolio; however, the Board of
Directors retains ultimate responsibility for compliance with Rule 2a-7 under
the 1940 Act. The NRSROs currently rating instruments of the type each Portfolio
may purchase are Moody's Investors Service, Inc., Standard & Poor's Ratings
Group, Duff & Phelps Credit Rating Co., Fitch Investors Service, L.P., IBCA
Limited and IBCA Inc., and Thomson BankWatch, Inc. and their rating criteria are
described in the "Appendix" to the Portfolios' Statement of Additional
Information. For further information regarding the amortized cost method of
valuing securities, see "Determination of Net Asset Value" in the Portfolios'
Statement of Additional Information. There can be no assurance that each
Portfolio will be able to maintain a stable net asset value of $1.00 per share.
* The Money Market Portfolio invests in U.S. dollar denominated short-term
money market obligations, including securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign branches of domestic banks, foreign subsidiaries of
domestic banks, and domestic and foreign branches of foreign banks, repurchase
agreements, and high quality domestic and foreign commercial paper and other
high quality short-term corporate obligations, such as floating or variable rate
U.S. dollar denominated demand notes and bonds. The Money Market Portfolio
invests in U.S. dollar denominated obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities, including obligations of supranational entities. The Money
Market Portfolio also may lend securities from its portfolio and enter into
reverse repurchase agreements as described below. During normal market
conditions, at least 25% of the Money Market Portfolio's total assets will be
invested in domestic and/or foreign bank obligations. See "Investment
Considerations and Risk Factors" below.
* The Tax Free Money Market Portfolio invests at least 80% of the value of
its net assets (except when maintaining a temporary defensive position) in
Municipal Obligations. Municipal Obligations are debt obligations issued by
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities, the interest from which is, in the opinion
of bond counsel to the issuer, exempt from Federal income tax. See "Portfolio
Securities" below.
From time to time, the Tax Free Money Market Portfolio may invest more than
25% of the value of its total assets in industrial development bonds which,
although issued by industrial development authorities, may be backed only by the
assets and revenues of the non-governmental users. Interest on Municipal
Obligations (including certain industrial development bonds) which are specified
private activity bonds, as defined in the Internal Revenue Code of 1986, as
amended (the "Code"), issued after August 7, 1986, while exempt from Federal
income tax, is a preference item for the purpose of the alternative minimum tax.
Where a regulated investment company receives such interest, a proportionate
share of any exempt-interest dividend paid by the investment company may be
treated as such a preference item to shareholders. The Tax Free Money Market
Portfolio will invest no more than 20% of the value of its net assets in
Municipal Obligations the interest from which gives rise to a preference item
for the purpose of the alternative minimum tax and, except for temporary
defensive purposes, in other investments subject to Federal income tax.
From time to time, on a temporary basis other than for temporary defensive
purposes (but not to exceed 20% of the value of the Tax Free Money Market
Portfolio's net assets) or for temporary defensive purposes, the Tax Free Money
Market Portfolio may invest in taxable money market instruments of the type in
which the Money Market Portfolio may invest. Dividends paid by the Tax Free
Money Market Portfolio that are attributable to income earned by it from these
securities will be taxable to investors. See "Dividends, Distributions and
Taxes." If the Tax Free Money Market Portfolio purchases taxable money market
instruments the Fund will value them using the amortized cost method and comply
with the provisions of Rule 2a-7 relating to purchases of taxable instruments.
Under normal market conditions, the Fund anticipates that not more than 5% of
the value of the Tax Free Money Market Portfolio's total assets will be invested
in any one category of these securities. See "Portfolio Securities" below.
Portfolio Securities
To the extent set forth above and except as noted below, each Portfolio may
invest in the following securities:
U.S. Government Obligations. Each Portfolio may invest in securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. Such
securities include U.S. Treasury securities, such as bills, notes, bonds and
certificates of indebtedness, which differ in their interest rates, maturities
and times of issuance, and issues of U.S. Government agencies and
instrumentalities established under the authority of an act of Congress. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association
pass-through certificates, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Federal Home Loan Banks, by the
right of the issuer to borrow from the Treasury; others, such as those issued by
the Federal National Mortgage Association, by discretionary authority of the
U.S. Government to purchase certain obligations of the agency or
instrumentality; and others, such as those issued by the Student Loan Marketing
Association, only by the credit of the agency or instrumentality. These
securities bear fixed, floating or variable rates of interest. Interest may
fluctuate based on generally recognized reference rates or the relationship of
rates. While the U.S. Government provides financial support to such U.S.
Government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. The Portfolio
will invest in such securities only when it is satisfied that the credit risk
with respect to the issuer is minimal.
Foreign Government Obligations; Securities of Supranational Entities. The
Money Market Portfolio may invest in obligations issued or guaranteed by one or
more foreign governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Board of Directors to be of
comparable quality to the other obligations in which the Portfolio may invest.
Such securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of the
Portfolio's assets invested in securities issued by foreign governments will
vary depending on the relative yields of such securities, the economic and
financial markets of the countries in which the investments are made and the
interest rate climate of such countries. See "Investment Considerations and Risk
Factors" below.
Certificates of Deposit, Time Deposits and Bankers' Acceptances. The Money
Market Portfolio will, and, to a limited extent, the Tax Free Money Market
Portfolio may, invest in certificates of deposit, time deposits, bankers'
acceptances and other short-term obligations issued by domestic banks, foreign
branches of domestic banks, foreign subsidiaries of domestic banks, and domestic
and foreign branches of foreign banks. See "Investment Considerations and Risk
Factors" below. Certificates of deposit are certificates representing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Time deposits are non-negotiable deposits maintained in a bank for a
specified period of time at a stated interest rate. Time deposits which may be
held by the Portfolio will not benefit from insurance from the Bank Insurance
Fund or the Savings Association Insurance Fund administered by the Federal
Deposit Insurance Corporation. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the face amount of the instrument upon maturity. The other short-term
obligations may include uninsured, direct obligations bearing fixed, floating or
variable rates of interest.
Repurchase Agreements. Each Portfolio may enter into repurchase agreements.
Repurchase agreements involve the acquisition by the Portfolio of an underlying
debt instrument, subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the instrument at a fixed price usually not more than one
week after its purchase. Certain costs may be incurred in connection with the
sale of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the securities by
the Portfolio may be delayed or limited.
Commercial Paper and Corporate Obligations. The Money Market Portfolio and,
to a limited extent, the Tax Free Money Market Portfolio may, invest in
commercial paper and other corporate obligations. Commercial paper consists of
short-term, unsecured promissory notes issued to finance short-term credit
needs. The commercial paper purchased by a Portfolio will consist only of direct
obligations issued by domestic and foreign entities. The other corporate
obligations in which each Portfolio may invest consist of high quality, U.S.
dollar denominated short-term bonds and notes (including variable amount master
demand notes) issued by domestic and foreign corporations.
Municipal Obligations. The Tax Free Money Market Portfolio will invest in
Municipal Obligations. Municipal Obligations generally include debt obligations
issued to obtain funds for various public purposes as well as certain industrial
development bonds issued by or on behalf of public authorities. Municipal
Obligations are classified as general obligation bonds, revenue bonds and notes.
General obligation bonds are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from the revenue derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from the general taxing power. Industrial
development bonds, in most cases, are revenue bonds and generally do not carry
the pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Notes are
short-term instruments which are obligations of the issuing municipalities or
agencies and are sold in anticipation of a bond sale, collection of taxes or
receipt of other revenues. Municipal Obligations include municipal
lease/purchase agreements which are similar to installment purchase contracts
for property or equipment issued by municipalities. Municipal Obligations bear
fixed, floating or variable rates of interest. Certain Municipal Obligations are
subject to redemption at a date earlier than their stated maturity pursuant to
call options, which may be separated from the related municipal obligation and
purchased and sold separately.
Tender Option Bonds. The Tax Free Money Market Portfolio may purchase
tender option bonds. A tender option bond is a Municipal Obligation (generally
held pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax exempt rates, that has been coupled with the agreement of a third party,
such as a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at periodic intervals,
to tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the Municipal
Obligation's fixed coupon rate and the rate, as determined by a remarketing or
similar agent at or near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term tax
exempt rate. The Adviser, on behalf of the Fund, will consider on an ongoing
basis the creditworthiness of the issuer of the underlying Municipal Obligation,
of any custodian and of the third party provider of the tender option. In
certain instances and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or interest on the
underlying Municipal Obligations and for other reasons. The Tax Free Money
Market Portfolio will not invest more than 10% of the value of its net assets in
securities that are illiquid, which would include tender option bonds as to
which it cannot exercise the tender feature on not more than seven days' notice
if there is no secondary market available for these obligations.
Stand-by Commitments. The Tax Free Money Market Portfolio may acquire
"stand-by commitments" with respect to Municipal Obligations held in its
portfolio. Under a stand-by commitment, the Tax Free Money Market Portfolio
obligates a broker, dealer or bank to repurchase, at the Fund's option,
specified securities at a specified price and, in this respect, stand-by
commitments are comparable to put options. The exercise of a stand-by commitment
therefore is subject to the ability of the seller to make payment on demand. The
Tax Free Money Market Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. The Tax Free Money Market Portfolio may pay for
stand-by commitments if such action is deemed necessary, thus increasing to a
degree the cost of the underlying Municipal Obligation and similarly decreasing
such security's yield to investors.
Floating and Variable Rate Obligations. Each Portfolio may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of 13 months, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 13 months, in each case upon not more than 30 days' notice. Variable
rate demand notes include master demand notes which are obligations that permit
the Portfolio to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between the Portfolio, as lender, and
the borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Portfolio's right
to redeem is dependent on the ability of the borrower to pay principal and
interest on demand. These obligations include highly rated certificates of
participation in trusts secured by accounts receivable, including trade
receivables, and other assets. Such obligations frequently are not rated by
credit rating agencies and, if not so rated, the Portfolio may invest in them
only if the Adviser, acting upon delegated authority from, and subject to
ratification by, the Fund's Board of Directors, determines that at the time of
investment the obligations are of comparable quality to the other obligations in
which the Portfolio may invest. The Adviser, on behalf of the Portfolio, will
consider on an ongoing basis the creditworthiness of the issuers of the floating
and variable rate demand obligations held by the Portfolio. The Portfolio will
not invest more than 10% of the value of its net assets in floating or variable
rate demand obligations as to which it cannot exercise the demand feature on not
more than seven days' notice if the Adviser determines, acting upon delegated
authority from, and procedures established by, the Fund's Board of Directors,
that there is no secondary market available for these obligations, and in other
securities that are illiquid. See "Certain Fundamental Policies" below.
Notes. The Money Market Portfolio may purchase unsecured promissory notes
("Notes") which are not readily marketable and have not been registered under
the Securities Act of 1933, provided such investments are consistent with its
investment objective. The Money Market Portfolio will invest no more than 10% of
its net assets in such Notes and in other securities that are illiquid. See
"Certain Fundamental Policies" below.
Participation Interests. The Money Market Portfolio may invest in
short-term corporate obligations that are originated, negotiated and structured
by a syndicate of lenders ("Co-Lenders") consisting of commercial banks, thrift
institutions, insurance companies, finance companies or other financial
institutions one or more of which administers the security on behalf of the
syndicate (the "Agent Bank"). Co-Lenders may sell such securities to third
parties called "Participants." The Money Market Portfolio may invest in such
securities either by participating as a Co-Lender at origination or by acquiring
an interest in the security from a Co-Lender or a Participant (collectively,
"participation interests"). Co-Lenders and Participants interposed between the
Money Market Portfolio and the corporate borrower (the "Borrower"), together
with Agent Banks, are referred to herein as "Intermediate Participants." The
Money Market Portfolio also may purchase a participation interest in a portion
of the rights of an Intermediate Participant. The Money Market Portfolio will
not act as an Agent Bank, guarantor, sole negotiator or sole structuror with
respect to securities that are the subject of a participation interest.
The Tax Free Money Market Portfolio may purchase from financial
institutions participation interests in Municipal Obligations (such as
industrial development bonds and municipal lease/purchase agreements).
A participation interest gives the Portfolio an undivided interest in the
security in the proportion that the Portfolio's participation interest bears to
the total principal amount of the security. These instruments may have fixed,
floating or variable rates of interest with remaining maturities of 13 months or
less. If the participation interest is unrated, or has been given a rating below
that which is permissible for purchase by the Portfolio, the participation
interest will be backed by an irrevocable or unconditional letter of credit or
guarantee of a bank or other entity the debt securities of which are rated high
quality, or the payment obligation otherwise will be collateralized by U.S.
Government securities, or, in the case of an unrated participation interest, the
Adviser, acting upon delegated authority from the Fund's Board of Directors,
must have determined that the instrument is of comparable quality to those
instruments in which the Portfolio may invest. Participation interests with a
rating below high quality that are backed by an irrevocable letter of credit or
guarantee as described above will be purchased only if the Adviser, acting as
described above and subject to ratification by the Fund's Board of Directors,
determines after an analysis of, among other factors, the creditworthiness of
the guarantor that such participation interest is high quality, and if the
rating agency did not include the letter of credit or guarantee in its
determination of the instrument's rating. If the rating of a participation
interest is reduced subsequent to its purchase by the Portfolio, the Adviser
will consider, in accordance with procedures established by the Board of
Directors, all circumstances deemed relevant in determining whether the
Portfolio should continue to hold the participation interest. For certain
participation interests, the Portfolio will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Portfolio's
participation interest in the security, plus accrued interest. As to these
instruments, although subject to unconditional demand for payment, the Portfolio
intends to exercise its right to demand payment only upon a default under the
terms of the security, as needed to provide liquidity to meet redemptions, or to
maintain or improve the quality of its investment portfolio. Not more than 10%
of the value of a Portfolio's net assets will be invested in participation
interests that do not have this demand feature, and in other securities that are
illiquid. See "Certain Fundamental Policies" below.
Investment Practices
Portfolio Lending. From time to time, the Money Market Portfolio may lend
securities from its portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. Such
loans may not exceed 33 1/3% of the Money Market Portfolio's total assets. In
connection with such loans, the Money Market Portfolio will receive collateral
consisting of cash, U.S. Government securities or irrevocable letters of credit
issued by third party financial institutions. Such collateral will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. The Money Market Portfolio can increase its income
through the investment of such collateral. The Money Market Portfolio continues
to be entitled to the interest or other distributions payable on the loaned
security and receives interest on the amount of the loan. Such loans will be
terminable at any time upon specified notice. The Money Market Portfolio might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Money Market
Portfolio.
Reverse Repurchase Agreements. The Money Market Portfolio may enter into
reverse repurchase agreements with banks, brokers or dealers. Reverse repurchase
agreements involve the transfer by the Money Market Portfolio of an underlying
debt instrument in return for cash proceeds based on a percentage of the value
of the security. The Money Market Portfolio retains the right to receive
interest and principal payments on the security. The Money Market Portfolio will
use the proceeds of reverse repurchase agreements only to make investments which
generally either mature or have a demand feature to resell to the issuer at a
date simultaneous with or prior to the expiration of the reverse repurchase
agreement. At an agreed upon future date, the Money Market Portfolio repurchases
the security at principal plus accrued interest. In certain types of agreements,
there is no agreed upon repurchase date and interest payments are calculated
daily, often based on the prevailing overnight repurchase rate. As a result of
these transactions, the Money Market Portfolio may be exposed to greater
potential fluctuations in the value of its assets. Interest costs on the money
borrowed may exceed the return received on the securities purchased. The Fund's
Directors have considered the risks to the Money Market Portfolio and its
shareholders which may result from the entry into reverse repurchase agreements
and have determined that the entry into such agreements is consistent with the
Money Market Portfolio's investment objective and management policies.
When-Issued Securities. Each Portfolio may purchase money market securities
on a when-issued or forward commitment basis, which means that delivery and
payment for such securities ordinarily take place within 45 days after the date
of the commitment to purchase. The payment obligation and the interest rate that
will be received on the securities are fixed at the time the Portfolio enters
into the commitment. A Portfolio will make commitments to purchase such
securities only with the intention of actually acquiring the securities, but the
Portfolio may sell these securities before the settlement date if it is deemed
advisable. A Portfolio will not accrue income in respect of a security purchased
on a forward commitment basis prior to its stated delivery date. No additional
forward commitments will be made if more than 20% of the Portfolio's net assets
would be so committed.
Illiquid Securities. Neither Portfolio will invest more than 10% of the
value of its net assets in illiquid securities. The term "illiquid securities"
for this purpose means securities that cannot be disposed of within seven days
in the ordinary course of business at approximately the amount at which the
Portfolio has valued the securities and includes, among other instruments,
certain restricted securities. As to these securities, the Portfolio is subject
to a risk that should the Portfolio desire to sell them when a ready buyer is
not available at a price the Portfolio deems representative of their value, the
value of the Portfolio's net assets could be adversely affected.
Certain Fundamental Policies
Each Portfolio may (i) borrow money from banks for temporary or emergency
(not leveraging) purposes, in an amount up to 15% of the value of the
Portfolio's total assets (including the amount borrowed) valued at the lesser of
cost or market, less liabilities (not including the amount borrowed) at the time
the borrowing is made (borrowings repaid within 60 days and not renewed or
extended are presumed to be for temporary purposes) (while such borrowings
exceed 5% of the value of the Portfolio's total assets, the Portfolio will not
make any additional investments); (ii) pledge, hypothecate, mortgage or
otherwise encumber its assets to secure borrowings for temporary or emergency
purposes; and (iii) invest up to 10% of its net assets in repurchase agreements
providing for settlement in more than seven days after notice and in securities
that are illiquid. In addition, the Money Market Portfolio (i) may borrow money
in connection with the entry into reverse repurchase agreements (at no time may
total borrowings exceed 33 1/3% of the value of the Money Market Portfolio's
total assets); (ii) may pledge, hypothecate, mortgage or otherwise encumber its
assets in connection with the entry into reverse repurchase agreements in an
amount equal to the aggregate amount of its reverse repurchase obligations, plus
accrued interest in certain cases; (iii) may invest up to 5% of its total assets
in the obligations of any one issuer, except that up to 25% of the value of the
Money Market Portfolio's total assets may be invested (subject to the provisions
of Rule 2a-7), and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities may be purchased, without regard to any such
limitation; and (iv) will invest, except when the Money Market Portfolio has
adopted a temporary defensive position, at least 25% of its total assets in
securities issued by banks, including foreign banks and branches, and may invest
up to 25% of its total assets in the securities of issuers in any other
industry, provided that there is no limitation on investments in obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
In addition, THE TAX FREE MONEY MARKET PORTFOLIO (I) WILL INVEST AT LEAST 80% OF
THE VALUE OF ITS NET ASSETS (EXCEPT WHEN MAINTAINING A TEMPORARY DEFENSIVE
POSITION) IN MUNICIPAL OBLIGATIONS; and (ii) may invest up to 25% of its total
assets in the securities of issuers in any industry, provided that there is no
limitation on investments in tax exempt securities issued by state or municipal
governments or their political subdivisions and, for temporary defensive
purposes, obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. This paragraph describes fundamental policies that cannot
be changed, as to a Portfolio, without approval by the holders of a majority (as
defined in the 1940 Act) of such Portfolio's outstanding voting shares. See
"Investment Objective and Management Policies -- Investment Restrictions" in the
Portfolios' Statement of Additional Information.
Investment Considerations and Risk Factors
General. Each Portfolio will attempt to increase yields by trading to take
advantage of short-term market variations. This policy is expected to result in
high portfolio turnover but should not adversely affect the Portfolios since
usually neither Portfolio will pay brokerage commissions on purchases of
short-term debt obligations. The value of the securities held by each Portfolio
will vary inversely to changes in prevailing interest rates. Thus, if interest
rates have increased from the time a security was purchased, such security, if
sold, might be sold at a price less than its cost. Similarly, if interest rates
have declined from the time a security was purchased, such security, if sold,
might be sold at a price greater than its purchase cost. In either instance, if
the security was purchased at face value and held to maturity, no gain or loss
will be realized.
Bank Securities. (Money Market Portfolio only) To the extent the Money
Market Portfolio's investments are concentrated in the banking industry, it will
have correspondingly greater exposure to the risk factors which are
characteristic of such investments. Sustained increases in interest rates can
adversely affect the availability or liquidity and cost of capital funds for
lending activities, and a deterioration in general economic conditions could
increase the exposure to credit losses. In addition, the value of and the
investment return on the Money Market Portfolio's shares will be affected by
economic or regulatory developments in or related to the banking industry, and
competition within the banking industry as well as with other types of financial
institutions. The Money Market Portfolio, however, will seek to minimize its
exposure to such risks by investing only in debt securities which are determined
to be of high quality.
Foreign Securities. (Money Market Portfolio only) Since the Money Market
Portfolio may invest in securities issued by foreign governments and any of
their political subdivisions, agencies or instrumentalities, and by foreign
branches of domestic banks, foreign subsidiaries of domestic banks, domestic and
foreign branches of foreign banks, and commercial paper issued by foreign
issuers, it may be subject to additional investment risks with respect to those
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of U.S. domestic issuers. Such risks
include future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the securities, the
possible establishment of exchange controls, the possible seizure or
nationalization of foreign deposits, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities.
Investing in Municipal Obligations. (Tax Free Money Market Portfolio only)
The Tax Free Money Market Portfolio may invest more than 25% of the value of its
total assets in Municipal Obligations which are related in such a way that an
economic, business or political development or change affecting one such
security also would affect the other securities; for example, securities the
interest upon which is paid from revenues of similar types of projects, or
securities whose issuers are located in the same state. As a result, the Tax
Free Money Market Portfolio may be subject to greater risk as compared to a fund
that does not follow this practice.
Certain municipal lease/purchase obligations in which the Tax Free Money
Market Portfolio may invest may contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease payments in future
years unless money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease/purchase obligations are secured by the leased
property, disposition of the leased property in the event of foreclosure might
prove difficult. In evaluating the credit quality of a municipal lease/purchase
obligation that is unrated, the Adviser will consider, on an ongoing basis, a
number of factors including the likelihood that the issuing municipality will
discontinue appropriating funding for the leased property.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase the
cost of the Municipal Obligations available for purchase by the Portfolio and
thus reduce available yield. Shareholders should consult their tax advisers
concerning the effect of these provisions on an investment in the Tax Free Money
Market Portfolio. Proposals that may restrict or eliminate the income tax
exemption for interest on Municipal Obligations may be introduced in the future.
If any such proposal were enacted that would reduce the availability of
Municipal Obligations for investment by the Tax Free Money Market Portfolio so
as to adversely affect Portfolio shareholders, the Portfolio would reevaluate
its investment objective and policies and submit possible changes in the
Portfolio's structure to shareholders for their consideration. If legislation
were enacted that would treat a type of Municipal Obligation as taxable, the Tax
Free Money Market Portfolio would treat such security as a permissible taxable
investment within the applicable limits set forth herein.
Simultaneous Investments. Investment decisions for each Portfolio are made
independently from those of the Fund's other portfolios and other investment
companies or accounts managed by the Adviser. However, if such other entities
desire to invest in, or dispose of, the same securities as a Portfolio,
available investments or opportunities for sales will be allocated equitably to
each of them. In some cases, this procedure may adversely affect the size of the
position obtained for or disposed of by a Portfolio or the price paid or
received by the Portfolio.
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Management of the Portfolios
Board of Directors
The business affairs of the Fund are managed under the general supervision
of its Board of Directors. The Portfolios' Statement of Additional Information
contains the name and general business experience of each Director.
Investment Adviser
Mitchell Hutchins Asset Management Inc., located at 1285 Avenue of the
Americas, New York, New York 10019, serves as each Portfolio's investment
adviser. The Adviser is a wholly-owned subsidiary of PaineWebber organized in
May 1977. The Adviser is registered as a broker-dealer under the Securities
Exchange Act of 1934 and as an investment adviser under the Investment Advisers
Act of 1940. As of February 29, 1996, the Adviser served as adviser or
sub-adviser to 32 investment companies with 66 investment portfolios having
aggregate assets in excess of $31 billion.
The Adviser supervises and assists in the overall management of each
Portfolio's affairs under an Investment Advisory Agreement between the Adviser
and the Fund, subject to the overall authority of the Fund's Board of Directors
in accordance with Maryland law.
For the fiscal year ended December 31, 1995, the Money Market Portfolio
paid the Adviser a monthly advisory fee at the annual rate of .10 of 1% of the
value of the Money Market Portfolio's average daily net assets.
In addition, under the terms of a Special Management Services Agreement
among the Fund, the Adviser and the Administrator, each Portfolio has agreed to
pay the Adviser and the Administrator each a monthly fee at the annual rate of
.05 of 1% of the value of the average daily net assets represented by the
Portfolio's Retail Shares for certain services, other than those provided
pursuant to the Portfolios' Distribution Plan, which will be provided to the
holders of the Retail Shares. These services include developing and monitoring
customized investor programs including individual retirement accounts and other
ERISA options, automatic deposit and withdrawal programs and other programs
requested by Securities Firms (as defined below). For the fiscal year ended
December 31, 1995, the Money Market Portfolio did not pay the Adviser or the
Administrator a fee pursuant to the Special Management Services Agreement.
Administrator
Concord Holding Corporation, located at 3435 Stelzer Road, Columbus, Ohio
43219-8001, serves as each Portfolio's administrator. The Administrator
currently provides administrative or sub-administrative services to other
investment companies with over $60 billion in assets. The Administrator is a
wholly-owned subsidiary of The BISYS Group, Inc.
Under its Administration Agreement with the Fund, the Administrator
generally assists in all aspects of the Fund's operations, other than providing
investment advice, subject to the overall authority of the Fund's Board of
Directors in accordance with Maryland law. In connection therewith, the
Administrator provides the Fund with office facilities, personnel, and certain
clerical and bookkeeping services (e.g., preparation of reports to shareholders
and the Securities and Exchange Commission and filing of Federal, state and
local income tax returns) that are not being furnished by The Bank of New York,
the Fund's Custodian.
For the fiscal year ended December 31, 1995, the Money Market Portfolio
paid the Administrator a monthly administration fee at the annual rate of .10 of
1% of the value of the Money Market Portfolio's average daily net assets.
As described above, under the terms of the Special Management Services
Agreement, each Portfolio also has agreed to pay the Administrator a monthly fee
at the annual rate of .05 of 1% of the value of the average daily net assets
represented by the Portfolio's Retail Shares.
Distributor
Concord Financial Group, Inc., located at 125 West 55th Street, New York,
New York 10019, serves as the Fund's principal underwriter and distributor of
each Portfolio's shares. The Distributor, a wholly-owned subsidiary of the
Administrator, was organized to distribute shares of mutual funds to
institutional and retail investors. The Distributor distributes the shares of
other investment companies with over $80 billion in assets. The Distributor is
the Fund's sponsor.
The Distributor makes a continuous offering of each Portfolio's shares and
bears the costs and expenses of printing and distributing to prospective
investors copies of any prospectuses, statements of additional information and
annual and interim reports of the Portfolios (after such items have been
prepared and set in type by the Fund) which are used in connection with the
offering of shares, and the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor in connection with the
offering of the Portfolios' shares for sale to the public.
Distribution Plan
Under a distribution plan adopted by the Fund's Board of Directors pursuant
to Rule 12b-1 under the 1940 Act (the "Distribution Plan"), each Portfolio is
authorized to pay Correspondent Services Corporation [CSC] and correspondent
firms a monthly fee at the annual rate of up to .60 of 1% of the average daily
net assets represented by the Portfolio's Retail Shares held in accounts
serviced by Correspondent Services Corporation [CSC] and such firms. Such fees
are paid pursuant to an agreement between the Fund and Correspondent Services
Corporation [CSC]. Such fees are not paid with respect to the Money Market
Portfolio's Institutional Shares. Such fees will be paid in respect of certain
services provided by such firms, including answering client inquiries regarding
a Portfolio; assisting clients in changing dividend options, account
designations and addresses; performing subaccounting; establishing and
maintaining shareholder accounts and records; processing purchase and redemption
transactions; investing client cash account balances automatically in Portfolio
shares; providing periodic statements showing a client's account balance and
integrating such statements with those of other transactions and balances in the
client's other accounts serviced by such firm; arranging for bank wires; and
such other services as the clients may request.
Custodian and Transfer Agent
The Bank of New York, 90 Washington Street, New York, New York 10286, is
the Fund's Custodian (the "Custodian"). BISYS Fund Services Ohio, Inc., an
affiliate of the Administrator, located at 3435 Stelzer Road, Columbus, Ohio
43219-8001, is the Fund's Transfer and Dividend Disbursing Agent (the "Transfer
Agent").
Expenses
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by others. The expenses borne by the
Fund include: organizational costs, taxes, interest, brokerage fees and
commissions, if any, fees of Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser or Administrator, or any of their affiliates, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory and administration
fees, charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, auditing and legal
expenses, costs of maintaining corporate existence, costs of independent pricing
services, costs attributable to investor services (including, without
limitation, telephone and personnel expenses), costs of calculating the net
asset value of each Portfolio's shares, costs of shareholders' reports and
corporate meetings, costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders, and any extraordinary expenses. Expenses attributable to
a Portfolio are charged against the assets of the Portfolio; other expenses of
the Fund are allocated among the Fund's portfolios on the basis determined by
the Board of Directors, including, but not limited to, proportionately in
relation to the net assets of each portfolio.
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How to Buy Shares
General
Retail Shares may be purchased only by clients of certain securities
dealers that have entered into securities clearing arrangements with
Correspondent Services Corporation [CSC] (the "Securities Firms"). Securities
Firms may receive different compensation for selling Retail Shares than for
selling Institutional Shares. If you desire to purchase Retail Shares of the
Money Market Portfolio for your Keogh Plan, IRA or other retirement plan, you
should consult your Securities Firm. It is not recommended that the Tax Free
Money Market Portfolio be used as a vehicle for Keogh Plans, IRAs or other
qualified retirement plans. Certificates representing shares of a Portfolio will
not be issued. The Fund reserves the right to reject any purchase order.
The Fund requires no minimum initial or subsequent investment amounts for
the Retail Shares. Certain Securities Firms may impose minimum investment
amounts for purchases of Portfolio shares by their clients, including clients
purchasing shares under Keogh Plans, IRAs or other retirement plans. You should
consult your Securities Firm in this regard.
Shares are sold on a continuous basis at the net asset value per share next
determined after an order in proper form and Federal Funds (monies of member
banks within the Federal Reserve System which are held on deposit at a Federal
Reserve Bank) are received by the Transfer Agent. See "Terms of Purchase" below.
Payments Through Securities Firms
All orders must be made through your Securities Firm. The Securities Firm
will transmit your payment to the Fund and will supply the Fund with the
required information. It is your Securities Firm's responsibility to transmit
your order properly on a timely basis.
Wire Orders
If you have opened a Portfolio account, you may make subsequent purchases
by wire. Information on remitting funds in this manner may be obtained from your
Securities Firm.
You should consult your Securities Firm for information on any fees that
may be charged you directly for wires.
Terms of Purchase
If your purchase order is received by the Transfer Agent by 12:00 noon,
Eastern time, on a business day (which, as used herein, shall include each day
that the New York Stock Exchange and the Fund's Custodian are open for
business), and Federal Funds are received by the Transfer Agent by 4:00 p.m.,
Eastern time, on that day, Retail Shares will be purchased as of 12:00 noon,
Eastern time, on such business day. If your purchase order is received after
12:00 noon, Eastern time, on a given day, or Federal Funds are received after
4:00 p.m., Eastern time, on such day, Retail Shares will be purchased as of
12:00 noon, Eastern time, on the next business day.
Each Portfolio's net asset value per share is determined as of 12:00 noon,
Eastern time, on each business day. Net asset value per share is computed by
dividing the value of the Portfolio's net assets (i.e., the value of its assets
less liabilities) by the total number of its shares outstanding. See
"Determination of Net Asset Value" in the Portfolios' Statement of Additional
Information.
Federal regulations require that you provide a certified Taxpayer
Identification Number upon opening or reopening an account. See "Dividends,
Distributions and Taxes" for further information concerning this requirement.
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How to Redeem Shares
General
You may request redemption of your shares at any time through your
Securities Firm. Redemption requests may be made as described below. When a
request is received in proper form, the Fund will redeem the shares at the next
determined net asset value.
The Fund ordinarily will make payment for all shares redeemed within seven
days after receipt by the Transfer Agent of a redemption request in proper form,
except as provided by the rules of the Securities and Exchange Commission.
The Fund understands that, if you cease to be a client of a Securities
Firm, or if your Securities Firm's clearing arrangement with Correspondent
Services Corporation [CSC] is discontinued, the Securities Firm will cancel your
Fund account and request the Transfer Agent to remit the proceeds of your
redeemed shares, together with all accrued and unpaid dividends to which you are
entitled. You should consult your Securities Firm in this regard.
The Fund reserves the right to redeem your account at its option upon not
less than 45 days' written notice if your account's net asset value is $500 or
less, for reasons other than market conditions, and remains so during the notice
period. Certain Securities Firms may impose, with respect to their clients'
investments in a Portfolio, a minimum account balance which is higher than that
specified above.
Procedures
Redemption by Check. If you desire to use check redemption, you should
consult your Securities Firm to determine its availability. At your Securities
Firm's request, the Transfer Agent will provide you with redemption checks if
you have a $1,000 minimum account. These checks may be made payable to the order
of any person in an amount not less than $100. The payee of the check may cash
or deposit the check. When a check is presented to the Transfer Agent for
payment, the Transfer Agent will present the check to the Fund as authority to
redeem a sufficient number of full and fractional shares in your account to
cover the amount of the check. You continue earning daily dividends until the
check is cleared. There currently is no charge for the use of checks; however,
the Transfer Agent may impose a charge for stopping payment of a check upon your
request, or if the check cannot be honored due to insufficient funds or other
valid reason. The Fund or the Transfer Agent may modify or terminate the check
redemption privilege at any time upon notice to shareholders.
Repurchase Through Securities Firms. The Fund will repurchase Retail Shares
through Securities Firms. The Fund ordinarily will accept orders to repurchase
shares by wire or telephone from Securities Firms for their customers at the net
asset value next computed after receipt of the order from the Securities Firm,
provided that such request for repurchase is received from the Securities Firm
prior to 12:00 noon, Eastern time, on any business day. It is your Securities
Firm's responsibility to transmit your repurchase order properly on a timely
basis.
These repurchase arrangements are for the convenience of shareholders and
do not involve a charge by the Fund; however, Securities Firms may impose a
charge on the shareholder for transmitting the notice of repurchase to the Fund.
The Fund reserves the right to reject any order for repurchases through a
Securities Firm, but it may not reject other properly submitted requests for
redemption as described herein. The Fund promptly will notify the Securities
Firm of any rejection of a repurchase with respect to Retail Shares. For
shareholders repurchasing through their Securities Firm, payments will be made
by the Transfer Agent to the Securities Firm.
Automatic Withdrawal Plan. If you desire to participate in the Automatic
Withdrawal Plan, you should consult your Securities Firm to determine its
availability and any conditions which may be imposed on its use. The Automatic
Withdrawal Plan permits you to request withdrawal of a specified dollar amount
(minimum of $50) on either a monthly, quarterly, semi-annual or annual basis if
you have a $1,000 minimum account. The automatic withdrawal will be made on the
first or fifteenth day, at your option, of the period selected. Redemption
proceeds will be on deposit in your designated account at an Automated Clearing
House member bank ordinarily within two days following redemption. To
participate in the Automatic Withdrawal Plan, you must supply your Securities
Firm with the necessary information. Your participation in the Automatic
Withdrawal Plan may be ended at any time by you, your Securities Firm, the Fund
or the Transfer Agent.
Automatic Redemption. Correspondent Services Corporation [CSC] carries
securities accounts and performs clearing services for the Securities Firms and
has instituted an automatic redemption procedure applicable to Portfolio
shareholders. This procedure may be used to satisfy amounts due from you as a
result of purchases of securities or other transactions in your securities
account. Under this procedure, unless you notify your Securities Firm to the
contrary, your securities account will be scanned each business day prior to
12:00 noon, Eastern time, and after application of any cash balances in the
account, a sufficient number of Portfolio shares may be redeemed at the 12:00
noon, Eastern time, pricing that day to satisfy any amounts for which you are
obligated to make payment to your Securities Firm. Redemptions will be effected
on the business day preceding the date you are obligated to make such payment,
and your Securities Firm will receive the redemption proceeds on the day
following the redemption date.
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Dividends, Distributions and Taxes
Each Portfolio declares dividends from net investment income on each day
the Portfolio is open for business. Dividends usually are paid on or about the
fifteenth day of each month, and are automatically reinvested in additional
Retail Shares at net asset value or, at your option, paid in cash. Each
Portfolio's earnings for Saturdays, Sundays and holidays are declared as
dividends on the preceding business day. Shares begin accruing dividends on the
day the purchase order is received in proper form by the Transfer Agent, if
received by 12:00 noon, Eastern time, on such day, and continue to earn
dividends through the day before a redemption order for such shares is processed
by the Transfer Agent. If you redeem all shares in your account at any time
during the month, all dividends to which you are entitled will be paid to you
along with the proceeds of the redemption. Dividends paid by each class of
Portfolio shares will be calculated at the same time and in the same manner and
will be of the same amount, except that the expenses attributable solely to a
class will be borne exclusively by such class.
Distributions from net realized securities gains, if any, are declared and
paid once a year, but a Portfolio may make distributions on a more frequent
basis to comply with the distribution requirements of the Code, in all events in
a manner consistent with the provisions of the 1940 Act. Dividends and
distributions ordinarily are reinvested in additional Retail Shares of the
Portfolio from whick they were paid at net asset value. You may elect to receive
dividends and distributions in cash by contacting your Securities Firm. All
expenses are accrued daily and deducted before declaration of dividends to
investors.
If you elect to receive distributions in cash and your distribution checks
(1) are returned to the Fund marked "undeliverable" or (2) remain uncashed for
six months, your cash election will be changed automatically and your future
dividend and capital gains distributions will be reinvested in Portfolio shares
at the net asset value determined as of the date of payment of the distribution.
In addition, any such undeliverable checks or checks that remain uncashed for
six months will be canceled and will be reinvested in shares of the Portfolio
from which they were paid at the net asset value determined as of the date of
cancellation.
Dividends paid by the Money Market Portfolio derived from interest and
dividends paid by the Tax Free Money Market Portfolio derived from taxable
investments, together with distributions from any net realized short-term
securities gains, generally are taxable to investors as ordinary income, whether
received in cash or reinvested in additional Portfolio shares. Distributions
from net realized long-term securities gains, if any, generally are taxable as
long-term capital gains regardless of how long shareholders have held their
shares and whether such distributions are received in cash or reinvested in
additional Portfolio shares. Dividends and distributions may be subject to
certain state and local taxes. No dividend will qualify for the
dividends-received deduction allowable to certain corporations.
Except for dividends from taxable investments, the Fund anticipates that
substantially all dividends paid by the Tax Free Money Market Portfolio will not
be subject to Federal income tax. Although all or a substantial portion of the
dividends paid by the Tax Free Money Market Portfolio may be excluded by
shareholders of the Portfolio from their gross income for Federal income tax
purposes, the Portfolio may purchase specified private activity bonds, the
interest from which may be (i) a preference item for purposes of the alternative
minimum tax, (ii) a component of the "adjusted current earnings" preference item
for purposes of the corporate alternative minimum tax as well as a component in
computing the corporate environmental tax or (iii) a factor in determining the
extent to which the Social Security benefits of a beneficial holder of the
Portfolio's shares are taxable. If the Tax Free Money Market Portfolio purchases
such securities, the portion of its dividends related thereto will not
necessarily be tax exempt to a beneficial holder of the Portfolio's shares who
is subject to the alternative minimum tax and/or tax on Social Security benefits
and may cause such investor to be subject to such taxes.
Taxable dividends derived from net investment income and distributions from
net realized short-term securities gains paid by a Portfolio to a foreign
investor generally are subject to U.S. nonresident withholding taxes at the rate
of 30%, unless the foreign investor claims the benefit of a lower rate specified
in a tax treaty. Distributions from net realized long-term securities gains paid
by a Portfolio to a foreign investor generally will not be subject to U.S.
nonresident withholding tax. However, such distributions may be subject to
backup withholding, as described below, unless the foreign investor certifies
his non-U.S. residency status.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends and distributions
from net realized securities gains of a Portfolio paid to a shareholder if such
shareholder fails to certify either that the Taxpayer Identification Number
furnished in connection with opening an account is correct, or that such
shareholder has not received notice from the Internal Revenue Service of being
subject to backup withholding as a result of a failure to properly report
taxable dividend or interest income on a Federal income tax return. Furthermore,
the Internal Revenue Service may notify the Fund to institute backup withholding
if the Internal Revenue Service determines a shareholder's Taxpayer
Identification Number is incorrect or if a shareholder has failed to properly
report taxable dividend and interest income on a Federal income tax return.
A Taxpayer Identification Number is either the Social Security number or
employer identification number of the record owner of the account. Any tax
withheld as a result of backup withholding does not constitute an additional tax
imposed on the record owner of the account, and may be claimed as a credit on
the record owner's Federal income tax return.
Notice as to the tax status of your dividends and distributions is mailed
to you annually from your Securities Firm. You also will be sent periodic
summaries of your account which will include information as to dividends and
distributions from securities gains, if any, paid during the year. For the Tax
Free Money Market Portfolio, these statements will set forth the dollar amount
of income exempt from Federal tax and the dollar amount, if any, subject to
Federal tax. These dollar amounts will vary depending on the size and length of
time of the investor's investment in the Tax Free Money Market Portfolio. If the
Tax Free Money Market Portfolio pays dividends derived from taxable income, it
intends to designate as taxable the same percentage of the day's dividend as the
actual taxable income earned on that day bears to total income earned on that
day. Thus, the percentage of the dividend designated as taxable, if any, may
vary from day to day.
Management believes that the Money Market Portfolio has qualified for the
fiscal year ended December 31, 1995 as a "regulated investment company" under
the Code. The Money Market Portfolio intends to continue to so qualify so long
as such qualification is in the best interests of its shareholders. It is
expected that the Tax Free Money Market Portfolio will qualify as a "regulated
investment company" under the Code so long as such qualification is in the best
interest of its shareholders. Qualification relieves the Portfolio of any
liability for Federal income tax to the extent its earnings are distributed in
accordance with applicable provisions of the Code. The Code subjects regulated
investment companies, such as the Portfolios, to a non-deductible 4% excise tax
to the extent that such investment companies do not distribute a very
substantial portion of their taxable investment income and capital gains,
generally determined on a calendar year basis.
You should consult your tax adviser regarding specific questions as to
Federal, state or local taxes.
- --------------------------------------------------------------------------------
General Information
The Fund was incorporated under Maryland law on March 6, 1990, and
commenced operations on August 28, 1990. The Fund is authorized to issue 11
billion 500 million shares of Common Stock (with 2 billion 500 million allocated
to the Money Market Portfolio and 1 billion allocated to the Tax Free Money
Market Portfolio), par value $.001 per share. The Money Market Portfolio's
shares are classified into the Retail Shares (1 billion 500 million shares) and
Institutional Shares (1 billion shares)and all of the Tax Free Money Market
Portfolio's shares are classified as Retail Shares. Institutional Shares, which
are described in a separate prospectus, are sold to institutions and may not be
purchased by individuals directly. Each share has one vote and shareholders will
vote in the aggregate and not by class except as otherwise required by law.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Directors or the
appointment of auditors. However, pursuant to the Fund's By-Laws, the holders of
at least 10% of the shares outstanding and entitled to vote may require the Fund
to hold a special meeting of shareholders for purposes of removing a Director
from office or for any other purpose. Shareholders may remove a Director by the
affirmative vote of a majority of the Fund's outstanding voting shares. In
addition, the Board of Directors will call a meeting of shareholders for the
purpose of electing Directors if, at any time, less than a majority of the
Directors then holding office have been elected by shareholders.
The Fund is a "series fund," which is a mutual fund divided into separate
portfolios, each of which is treated as a separate entity for certain matters
under the 1940 Act and for other purposes. A shareholder of one portfolio is not
deemed to be a shareholder of any other portfolio. For certain matters Fund
shareholders vote together as a group; as to others they vote separately by
portfolio. By this Prospectus, Retail Shares of the Money Market Portfolio and
Tax Free Money Market Portfolio are being offered. From time to time, other
portfolios may be established and sold pursuant to other offering documents.
To date, 12 portfolios of shares have been authorized. The other portfolios
are not being offered by this Prospectus. All consideration received by the Fund
for shares of one of the portfolios and all assets in which such consideration
is invested, belong to that portfolio (subject only to the rights of creditors
of the Fund) and will be subject to the liabilities related thereto. The income
and expenses attributable to one portfolio (and as to classes within a
portfolio) are treated separately from those of the other portfolios (and
classes).
The Transfer Agent maintains a record of your ownership. Your Securities
Firm will send you confirmations and statements of account.
Shareholder inquiries may be made by writing to The Infinity Mutual Funds,
Inc., CCR Funds, P.O. Box 163879, Columbus, Ohio 43272-5099.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made.
CORRESPONDENT CASH CORRESPONDENT CASH
RESERVES RESERVES
- ---------------------------------------
(ART)
The Infinity Mutual Funds, Inc. PROSPECTUS
3435 Stelzer Road
- ------------------
Columbus, Ohio 43219-8020 -----
- ---------------------------------------- 1996
Investment Adviser
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 Avenue Of The Americas
New York, New York 10019
- ---------------------------------------
Administrator
CONCORD HOLDING CORPORATION
3435 Stelzer Road
Columbus, Ohio 43219-8001
- ---------------------------------------
Distributor
CONCORD FINANCIAL GROUP, INC.
125 West 55th Street
New York, New York 10019
- ----------------------------------------
Custodian THE BANK OF NEW YORK 90 Washington Street New York, New York 10286
COICCR96RP (GRAPH)
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
INSTITUTIONAL SHARES AND RETAIL SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
________ , 1996
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus for
the Institutional Shares of Correspondent Cash Reserves Money Market Portfolio
dated ________, 1996, and the combined Prospectus for the Retail Shares of
Correspondent Cash Reserves Money Market Portfolio and Correspondent Cash
Reserves Tax Free Money Market Portfolio dated __________, 1996 (each, a
"Portfolio" and collectively, the "Portfolios"), of The Infinity Mutual Funds,
Inc. (the "Fund"), as each may be revised from time to time. To obtain a copy of
the relevant Prospectus, please write to the Fund at 3435 Stelzer Road,
Columbus, Ohio 43219-8020. This Statement of Additional Information relates only
to the Portfolios and not to any of the Fund's other portfolios.
Mitchell Hutchins Asset Management Inc. (the "Adviser") serves as each
Portfolio's investment adviser.
Concord Holding Corporation (the "Administrator") serves as each
Portfolio's administrator.
Concord Financial Group, Inc. (the "Distributor"), a wholly-owned
subsidiary of the Administrator, serves as the distributor of each Portfolio's
shares.
TABLE OF CONTENTS PAGE
Investment Objective and Management Policies.................... B-2
Management of the Fund..................................... .... B-15
Management Arrangements......................................... B-18
Purchase and Redemption of Shares............................... B-22
Determination of Net Asset Value................................ B-23
Yield Information............................................... B-24
Portfolio Transactions.......................................... B-25
Information About the Portfolios................................ B-26
Custodian, Transfer and Dividend Disbursing
Agent, Counsel and Independent Auditors...................... B-26
Appendix........................................................ B-28
Financial Statements............................................ B-35
<PAGE>
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE RELEVANT PROSPECTUS OF THE PORTFOLIO(S) ENTITLED
"DESCRIPTION OF THE PORTFOLIO(S)."
PORTFOLIO SECURITIES
BANK OBLIGATIONS. (Correspondent Cash Reserves Money Market Portfolio and,
to a limited extent, Correspondent Cash Reserves Tax Free Money Market
Portfolio) Domestic commercial banks organized under Federal law are supervised
and examined by the Comptroller of the Currency and are required to be members
of the Federal Reserve System and to have their deposits insured by the Federal
Deposit Insurance Corporation (the "FDIC"). Domestic banks organized under state
law are supervised and examined by state banking authorities but are members of
the Federal Reserve System only if they elect to join. In addition, state banks
whose certificates of deposit ("CDs") may be purchased by the Portfolio are
insured by the Bank Insurance Fund administered by the FDIC (although such
insurance may not be of material benefit to the Portfolio, depending upon the
principal amount of the CDs of each bank held by the Portfolio) and are subject
to Federal examination and to a substantial body of Federal law and regulation.
As a result of Federal and state laws and regulations, domestic branches of
domestic banks, among other things, are generally required to maintain specified
levels of reserves, and are subject to other supervision and regulation designed
to promote financial soundness.
Obligations of foreign branches of domestic banks, foreign subsidiaries of
domestic banks and domestic and foreign branches of foreign banks, such as CDs
and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation or governmental regulation. Such obligations are subject to different
risks than are those of domestic banks. These risks include foreign economic and
political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign exchange
controls and foreign withholding and other taxes on interest income. Foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank. The Correspondent Cash Reserves Money Market Portfolio's
investment in obligations of foreign subsidiaries of domestic banks are subject,
to the extent required by the Investment Company Act of 1940, as amended (the
"1940 Act"), to the limitations on investing in the securities of other
investment companies.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. In addition, Federal branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may be
required to: (1) pledge to the regulator, by depositing assets with a designated
bank within the state, a certain percentage of their assets as fixed from time
to time by the appropriate regulatory authority; and (2) maintain assets within
the state in an amount equal to a specified percentage of the aggregate amount
of liabilities of the foreign bank payable at or through all of its agencies or
branches within the state. The deposits of Federal and State Branches generally
must be insured by the FDIC if such branches take deposits of less than
$100,000.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Adviser carefully evaluates such investments on a
case-by-case basis pursuant to procedures established by the Board of Directors.
The Correspondent Cash Reserves Money Market Portfolio may invest in
short-term corporate obligations that are originated, negotiated and structured
by a syndicate of lenders ("Co-Lenders") consisting of commercial banks, thrift
institutions, insurance companies, finance companies or other financial
institutions one or more of which administers the security on behalf of the
syndicate (the "Agent Bank"). Co- Lenders may sell such securities to third
parties called "Participants." The Correspondent Cash Reserves Money Market
Portfolio may invest in such securities either by participating as a Co-Lender
at origination or by acquiring an interest in the security from a Co-Lender or a
Participant (collectively, "participation interests"). Co-Lenders and
Participants interposed between the Fund and the corporate borrower (the
"Borrower"), together with Agent Banks, are referred to herein as "Intermediate
Participants." The Correspondent Cash Reserves Money Market Portfolio also may
purchase a participation interest in a portion of the rights of an Intermediate
Participant, which would not establish any direct relationship between the
Correspondent Cash Reserves Money Market Portfolio and the Borrower. In such
cases, the Correspondent Cash Reserves Money Market Portfolio would be required
to rely on the Intermediate Participant that sold the participation interest not
only for the enforcement of the Correspondent Cash Reserves Money Market
Portfolio's rights against the Borrower but also for the receipt and processing
of payments due to the Correspondent Cash Reserves Money Market Portfolio under
the security. Because it may be necessary to assert through an Intermediate
Participant such rights as may exist against the Borrower, in the event the
Borrower fails to pay principal and interest when due, the Correspondent Cash
Reserves Money Market Portfolio may be subject to delays, expenses and risks
that are greater than those that would be involved if the Correspondent Cash
Reserves Money Market Portfolio could enforce its rights directly against the
Borrower. Moreover, under the terms of a participation interest, the
Correspondent Cash Reserves Money Market Portfolio may be regarded as a creditor
of the Intermediate Participant (rather than of the Borrower), so that the Fund
also may be subject to the risk that the Intermediate Participant may become
insolvent. Similar risks may arise with respect to the Agent Bank if, for
example, assets held by the Agent Bank for the benefit of the Correspondent Cash
Reserves Money Market Portfolio were determined by the appropriate regulatory
authority or court to be subject to the claims of the Agent Bank's creditors. In
such cases, the Correspondent Cash Reserves Money Market Portfolio might incur
certain costs and delays in realizing payment in connection with the
participation interest or suffer a loss of principal and/or interest. Further,
in the event of the bankruptcy or insolvency of the Borrower, the obligation of
the Borrower to repay the loan may be subject to certain defenses that can be
asserted by such Borrower as a result of improper conduct by the Agent Bank or
Intermediate Participant. In addition, insurance companies are affected by
economic and financial conditions and are subject to extensive government
regulation, including rate regulation. The property and casualty industry is
cyclical, being subject to dramatic swings in profitability which can be
affected by natural catastrophes and other disasters. Individual companies may
be exposed to material risks, including reserve inadequacy, latent health
exposure and inability to collect from their reinsurance carriers.
Under normal circumstances, and as a matter of fundamental policy, the
Correspondent Cash Reserves Money Market Portfolio will "concentrate" at least
25% of its assets in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies. Such
investments may include CDs, TDs, bankers' acceptances and obligations issued by
bank holding companies, as well as repurchase agreements entered into with banks
(as distinct from non-bank dealers) in accordance with the policies set forth in
"Repurchase Agreements" below. During periods when the Adviser determines that
the Correspondent Cash Reserves Money Market Portfolio should be in a temporary
defensive position, the Correspondent Cash Reserves Money Market Portfolio may
invest less than 25% of its total assets in the banking industry; during such
times the Correspondent Cash Reserves Money Market Portfolio's assets will be
invested in accordance with its other investment policies. The Adviser may
determine that the adoption of a temporary defensive position with respect to
issuers in the banking industry is appropriate on the basis of such factors as
political, economic, market or regulatory developments adversely affecting that
industry as compared to the industries of other issuers of securities available
for investment by the Correspondent Cash Reserves Money Market Portfolio.
REPURCHASE AGREEMENTS. (Both Portfolios) Each Portfolio may enter into
repurchase agreements. The Fund's custodian or sub-custodian employed in
connection with third-party repurchase transactions will have custody of, and
will hold in a segregated account, securities acquired by a Portfolio under a
repurchase agreement. In connection with its third-party repurchase
transactions, a Portfolio will employ only eligible sub-custodians which meet
the requirements set forth in Section 17(f) of the 1940 Act and the rules
thereunder. Repurchase agreements are considered by the staff of the Securities
and Exchange Commission to be loans by the Portfolio. In an attempt to reduce
the risk of incurring a loss on a repurchase agreement, a Portfolio will enter
into repurchase agreements only with domestic banks (including foreign branches
and subsidiaries of domestic banks) with total assets in excess of one billion
dollars or primary government securities dealers reporting to the Federal
Reserve Bank of New York, with respect to securities in which the Portfolio may
invest or government securities regardless of their remaining maturities, and
will require that additional securities be deposited with it if the value of the
securities purchased should decrease below resale price.
REVERSE REPURCHASE AGREEMENTS. (Correspondent Cash Reserves Money Market
Portfolio only) The Portfolio may enter into reverse repurchase agreements. The
Portfolio will maintain in a segregated custodial account cash, cash equivalents
or U.S. Government securities or other high quality liquid debt securities equal
to the aggregate amount of its reverse repurchase obligations, plus accrued
interest, in certain cases, in accordance with releases promulgated by the
Securities and Exchange Commission. The Securities and Exchange Commission views
reverse repurchase agreement transactions as collateralized borrowings, and,
pursuant to the 1940 Act, the Portfolio must maintain continuous asset coverage
(that is, total assets including borrowings, less liabilities exclusive of
borrowings) of 300% of the amount borrowed. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, the Portfolio may
be required to sell some of its portfolio holdings within three days to reduce
the debt and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time.
MUNICIPAL OBLIGATIONS. (Correspondent Cash Reserves Tax Free Money Market
Portfolio only) The term "Municipal Obligations" generally includes debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Municipal Obligations may be
issued include refunding outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities. In addition, certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, industrial, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal; the interest paid on such
obligations may be exempt from Federal income tax, although current tax laws
place substantial limitations on the size of such issues. Such obligations are
considered to be Municipal Obligations if the interest paid thereon qualifies as
exempt from Federal income tax in the opinion of bond counsel to the issuer.
There are, of course, variations in the security of Municipal Obligations, both
within a particular classification and between classifications.
Floating and variable rate demand obligations are tax exempt obligations
ordinarily having stated maturities in excess of 13 months, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 13 months, in each case upon not more than 30 days' notice. The issuer
of such obligations ordinarily has a corresponding right, after a given period,
to prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders
thereof. The interest rate on a floating rate demand obligation is based on a
known lending rate, such as a bank's prime rate, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
obligation is adjusted automatically at specified intervals.
For the purpose of diversification under the 1940 Act, the identification
of the issuer of Municipal Obligations depends on the terms and conditions of
the security. When the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from those of the
government creating the subdivision and the security is backed only by the
assets and revenues of the subdivision, such subdivision would be deemed to be
the sole issuer. Similarly, in the case of an industrial development bond, if
that bond is backed only by the assets and revenues of the non-governmental
user, then such non-governmental user would be deemed to be the sole issuer. If,
however, in either case, the creating government or some other entity guarantees
a security, such a guaranty would be considered a separate security and will be
treated as an issue of such government or other entity.
The yields of Municipal Obligations are dependent on a variety of factors,
including general economic and monetary conditions, money market factors,
conditions in the Municipal Obligations market, size of a particular offering,
maturity of the obligation and rating of the issue. The imposition of the
Portfolio's management fee, as well as other operating expenses, will have the
effect of reducing the yield to investors.
Municipal lease obligations or installment purchase contract obligations
(collectively, "lease obligations") have special risks not ordinarily associated
with Municipal Obligations. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a lease obligation ordinarily is backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non- appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Although "non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. The Portfolio will seek to minimize these risks by
investing only in those lease obligations that (1) are rated in one of the two
highest rating categories for debt obligations by at least two nationally
recognized statistical rating organizations (or one rating organization if the
lease obligation was rated only by one such organization) or (2) if unrated, are
purchased principally from the issuer or domestic banks or other responsible
third parties, in each case only if the seller shall have entered into an
agreement with the Portfolio providing that the seller or other responsible
third party will either remarket or repurchase the lease obligation within a
short period after demand by the Portfolio. The staff of the Securities and
Exchange Commission currently considers certain lease obligations to be
illiquid. Accordingly, not more than 10% of the value of the Portfolio's net
assets will be invested in lease obligations that are illiquid and in other
illiquid securities.
RATINGS OF MUNICIPAL OBLIGATIONS. (Correspondent Cash Reserves Tax Free
Money Market Portfolio only) If, subsequent to its purchase by the Portfolio,
(a) an issue of rated Municipal Obligations ceases to be rated in the highest
rating category by at least two rating organizations (or one rating organization
if the instrument was rated by only one such organization) or the Fund's Board
determines that it is no longer of comparable quality or (b) the Adviser becomes
aware that any portfolio security not so highly rated or any unrated security
has been given a rating by any rating organization below the rating
organization's second highest rating category, the Fund's Board will reassess
promptly whether such security presents minimal credit risk and will cause the
Portfolio to take such action as it determines is in the best interest of the
Portfolio and its shareholders; provided that the reassessment required by
clause (b) is not required if the portfolio security is disposed of or matures
within five business days of the Adviser becoming aware of the new rating and
the Board of Directors is subsequently notified of the Adviser's actions.
To the extent that the ratings given by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service,
L.P. ("Fitch") for Municipal Obligations may change as a result of changes in
such organizations or their rating systems, the Portfolio will attempt to use
comparable ratings as standards for its investments in accordance with its
stated investment policies contained in the Portfolio's Prospectus and this
Statement of Additional Information. The ratings of Moody's, S&P and Fitch
represent their opinions as to the quality of the Municipal Obligations which
they undertake to rate. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality. Although
these ratings may be an initial criterion for selection of portfolio
investments, the Adviser also will evaluate these securities and the
creditworthiness of the issuers of such securities based upon financial and
other available information.
ILLIQUID SECURITIES. (Both Portfolios) Neither Portfolio will invest more
than 10% of the value of its net assets in illiquid securities. The term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Portfolio has valued the securities and includes, among
other things, restricted securities other than those the Adviser has determined
to be liquid pursuant to guidelines established by the Fund's Board and
repurchase agreements maturing in more than seven days. Commercial paper issues
in which the Correspondent Cash Reserves Money Market Portfolio may invest
include securities issued by major corporations without registration under the
Securities Act of 1933, as amended ("1933 Act"), in reliance on the exemption
from such registration afforded by Section 3(a)(3) thereof and commercial paper
issued in reliance on the so-called "private placement" exemption from
registration which is afforded by Section 4(2) of the 1933 Act ("Section 4(2)
paper"). Section 4(2) paper is restricted as to disposition under the Federal
securities laws in that any resale must similarly be made in an exempt
transaction. Section 4(2) paper ordinarily is resold to other institutional
investors through or with the assistance of investment dealers who make a market
in Section 4(2) paper, thus providing liquidity.
In recent years a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including private
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to the
general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
To facilitate the increased size and liquidity of the institutional markets
for unregistered securities, the Securities and Exchange Commission adopted Rule
144A under the 1933 Act. Rule 144A establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Section 4(2) paper that is issued by a company
that files reports under the Securities Exchange Act of 1934, as amended,
generally is eligible to be sold in reliance on the safe harbor of Rule 144A.
Pursuant to Rule 144A, the institutional restricted securities markets may
provide both readily ascertainable values for restricted securities and the
ability to liquidate an investment in order to satisfy share redemption orders
on a timely basis. An insufficient number of qualified institutional buyers
interested in purchasing certain restricted securities held by the Portfolio,
however, could affect adversely the marketability of such portfolio securities
and the Portfolio might be unable to dispose of such securities promptly or at
reasonable prices. It is anticipated that the market for certain restricted
securities will expand further as a result of Rule 144A and the development of
automated systems for the trading, clearance and settlement of unregistered
securities, such as the PORTAL System sponsored by the National Association of
Securities Dealers, Inc.
The Board of Directors has the ultimate responsibility for determining
whether specific securities are liquid or illiquid, OTHER THAN THOSE THE
SECURITIES AND EXCHANGE COMMISSION DEEMS TO BE ILLIQUID. The Board of Directors
has delegated the function of making day-to-day determinations of liquidity to
the Adviser, pursuant to guidelines approved by the Board. The Adviser takes
into account a number of factors in reaching liquidity decisions, including (1)
the frequency of trades for the security, (2) the number of dealers that make
quotes for the security, (3) the number of dealers that have undertaken to make
a market in the security, (4) the number of other potential purchasers and (5)
the nature of the security and how trading is effected (e.g., the time needed to
sell the security, how offers are solicited and the mechanics of transfer). The
Adviser will monitor the liquidity of restricted securities held by the
Portfolio and report periodically on such decisions to the Board of Directors.
MANAGEMENT POLICIES
LENDING PORTFOLIO SECURITIES. (Correspondent Cash Reserves Money Market
Portfolio only) To a limited extent, the Portfolio may lend its portfolio
securities to brokers, dealers and other financial institutions, provided it
receives cash collateral which at all times is maintained in an amount equal to
at least 100% of the current market value of the securities loaned. By lending
its portfolio securities, the Portfolio can increase its income through the
investment of the cash collateral. For the purposes of this policy, the Fund
considers collateral consisting of U.S. Government securities or irrevocable
letters of credit issued by banks whose securities meet the standards for
investment by the Portfolio to be the equivalent of cash. Such loans may not
exceed 33-1/3% of the Portfolio's total assets. From time to time, the Fund may
pay a part of the interest earned from the investment of collateral received for
securities loaned to the borrower or a third party which is unaffiliated with
the Fund, and which is acting as a "placing broker," in an amount determined by
the Board of Directors to be reasonable and based solely on services rendered.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned: (1)
the Portfolio must receive at least 100% cash collateral from the borrower; (2)
the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Portfolio must be
able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as any interest or other distributions
payable on the loaned securities, and any increase in market value; and (5) the
Portfolio may pay only reasonable custodian fees in connection with the loan.
FORWARD COMMITMENTS. (Both Portfolios) Securities purchased on a
forward commitment or when-issued basis are subject to changes in value
(generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a forward
commitment or when-issued basis may expose the Portfolio to risks because they
may experience such fluctuations prior to their actual delivery. Purchasing
securities on a when-issued basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Portfolio is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Portfolio's net assets and its net asset value per share.
INVESTMENT RESTRICTIONS
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO only. The Portfolio has
adopted the following investment restrictions as fundamental policies, which
cannot be changed without approval by the holders of a majority (as defined in
the 1940 Act) of the Portfolio's outstanding voting shares. The Portfolio may
not:
1. Purchase common stocks, preferred stocks, warrants or other equity
securities.
2. Borrow money, except (i) from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Portfolio's
total assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made (while such borrowings exceed 5% of the value of the
Portfolio's total assets, the Portfolio will not make any additional
investments) and (ii) in connection with the entry into reverse repurchase
agreements. At no time may total borrowings exceed 33-1/3% of the value of the
Portfolio's total assets.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
(i) to secure borrowings for temporary or emergency purposes and (ii) in
connection with the purchase of securities on a forward commitment basis and the
entry into reverse repurchase agreements.
4. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), other than in connection with the entry into certain reverse
repurchase agreements.
5. Sell securities short or purchase securities on margin.
6. Write or purchase put or call options or combinations thereof.
7. Act as underwriter of securities of other issuers. The Portfolio may not
enter into repurchase agreements providing for settlement in more than seven
days after notice or purchase securities which are illiquid, if, in the
aggregate, more than 10% of its net assets would be so invested.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests.
9. Make loans to others, except through the purchase of debt obligations
and through repurchase agreements referred to in the Portfolio's Prospectus, and
except that the Portfolio may lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines established by the Securities
and Exchange Commission and the Fund's Board.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
12. Invest more than 5% of its assets in the obligations of any one issuer,
except that up to 25% of the value of the Portfolio's total assets may be
invested without regard to any such limitation (subject to provisions of Rule
2a-7), provided that not more than 10% of its assets may be invested in
securities issued or guaranteed by any single guarantor of obligations held by
the Portfolio. Notwithstanding the foregoing, to the extent required by the
rules of the Securities and Exchange Commission, the Portfolio will not invest
more than 5% of its assets in the obligations of any one bank.
* * *
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO ONLY. The
Portfolio has adopted the following investment restrictions as fundamental
policies, which cannot be changed without approval by the holders of a majority
(as defined in the 1940 Act) of the Portfolio's outstanding voting shares. The
Portfolio may not:
1. Purchase securities other than Municipal Obligations and Taxable
Investments as those terms are defined above and in the Portfolio's Prospectus.
2. Borrow money, except from banks for temporary or emergency (not
leveraging) purposes in an amount up to 15% of the value of the Portfolio's
total assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made (while borrowings exceed 5% of the value of the Portfolio's
total assets, the Portfolio will not make any additional investments).
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure borrowings for temporary or emergency purposes.
4. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act).
5. Sell securities short or purchase securities on margin.
6. Write or purchase put or call options or combinations thereof.
7. The Portfolio may not enter into repurchase agreements providing for
settlement in more than seven days after notice or purchase securities which are
illiquid, if, in the aggregate, more than 10% of its net assets would be so
invested.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests, but this shall not prevent the Portfolio
from investing in Municipal Obligations secured by real estate or interests
therein.
9. Make loans to others, except through the purchase of debt obligations
and the entry into repurchase agreements referred to above and in the
Portfolio's Prospectus.
10. Invest in companies for the purpose of exercising control.
11. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
12. Underwrite the securities of other issuers, except that the Portfolio
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage of
the lower purchase price available.
13. Invest more than 25% of its assets in the securities of issuers in any
single industry, provided that there shall be no limitation on the purchase of
tax exempt securities issued by state or municipal governments or their
political subdivisions and, for temporary defensive purposes, securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
For purposes of Investment Restriction No. 13, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
* * *
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
The Fund may make commitments more restrictive than the restrictions listed
above so as to permit the sale of Portfolio shares in certain states. Should the
Fund determine that a commitment is no longer in the best interests of a
Portfolio and its shareholders, the Fund reserves the right to revoke the
commitment by terminating the sale of Portfolio shares in the state involved.
MANAGEMENT OF THE FUND
Directors and officers of the Fund, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each Director who is an "interested person" of the Fund, as defined in
the 1940 Act, is indicated by an asterisk.
DIRECTORS OF THE FUND
*WILLIAM B. BLUNDIN, PRESIDENT AND CHAIRMAN OF THE BOARD OF
DIRECTORS. An employee of the Administrator. Mr.
Blundin also is an officer of other investment
companies administered by the Administrator or its
affiliates and President and Chief Executive Officer
of Vista Broker/Dealer Services, Inc. and BNY Hamilton
Distributors, Inc., registered broker/dealers. He is
58 years old and his address is 125 West 55th Street,
New York, New York 10019.
NORMA A. COLDWELL, DIRECTOR. International Economist and Consultant;
Executive Vice President of Coldwell Financial Consultants;
Trustee and Treasurer of Meridian House International
(International Education and Cultural Group); Member of the
Board of Advisors of Meridian International Center and
Emerging Capital Markets, S.A. (Montevideo, Uruguay); formerly
Chief International Economist of Riggs National Bank,
Washington, D.C. She is 70 years old and her address is 3330
Southwestern Boulevard, Dallas, Texas 75225.
RICHARD H. FRANCIS, DIRECTOR. Former Executive Vice President
and Chief Financial Officer of Pan American World
Airways, Inc. (currently, debtor-in-possession under
the U.S. Bankruptcy Code), March 1988 to October 1991;
Senior Vice President and Chief Financial Officer of
American Standard Inc., 1960 to March 1988.
Mr. Francis is a director of Allendale Mutual Insurance
and The Indonesia Fund, Inc. He is 63 years old and
his address is 40 Grosvenor Road, Short Hills,
New Jersey 07078.
WILLIAM W. McINNES, DIRECTOR. Private investor. From July 1978
to February 1993, he was Vice President--Finance and
Treasurer of Hospital Corp. of America. He is also a
director of Gulf South Medical Supply and Diversified
Trust Co. He is 47 years old and his address is 116
30th Avenue South, Nashville, Tennessee 37212.
ROBERT A. ROBINSON, DIRECTOR. Private investor. Since
1991, President Emeritus, and from 1968 to 1991,
President of The Church Pension Group, NYC. From 1956
to 1966, Senior Vice President of Colonial Bank &
Trust Co. He is also a director of Mariner Institutional
Funds, Inc., Mariner Tax-Free Institutional Funds,
Inc., UST Master Funds, UST Master Tax Exempt Funds,
H.B. and F.H. Bugher Foundation, Morehouse-Barlow Co.
Publishers, The Canterbury Cathedral Trust in America,
The Living Church Foundation and Hoosac School. He is
70 years old and his address is 2 Hathaway Common, New
Canaan, Connecticut 06840.
OFFICERS OF THE FUND
JEFFREY C. CUSICK, VICE PRESIDENT AND ASSISTANT SECRETARY. An
employee of BISYS Fund Services, Inc., an affiliate of the
Administrator, since July 1995, and an officer of other
investment companies administered by the Administrator or its
affiliates. From September 1993 to July 1995, he was Assistant
Vice President and, from 1989 to September 1993, he was
Manager--Client Services, of Federated Administrative
Services. He is 37 years old and his address is 3435 Stelzer
Road, Columbus, Ohio 43219.
WILLIAM TOMKO, VICE PRESIDENT. An employee of BISYS Fund
Services, Inc. and an officer of other investment
companies administered by the Administrator or its
affiliates. He is 37 years old and his address is
3435 Stelzer Road, Columbus, Ohio 43219.
ANN E. BERGIN, VICE PRESIDENT. An employee of the Administrator
and an officer of other investment companies
administered by the Administrator or its affiliates.
She is 35 years old and her address is 125 West 55th
Street, New York, New York 10019.
GEORGE O. MARTINEZ, SECRETARY. Senior Vice President and Director of Legal
and Compliance Services with BISYS Fund Services, Inc.
since April 1995, and an officer of other investment companies
administered by the Administrator or its affiliates. Prior
thereto, he was Vice President and Associate General Counsel
with Alliance Capital Management, L.P. He is 36 years old
and his address is 3435 Stelzer Road, Columbus, Ohio 43219.
MARTIN R. DEAN, TREASURER. An employee of BISYS Fund Services, Inc.,
since May 1994, and an officer of other investment companies
administered by the Administrator or its affiliates. Prior
thereto, he was a Senior Manager of KPMG Peat Marwick LLP. He
is 32 years old and his address is 3435 Stelzer Road,
Columbus, Ohio 43219.
ROBERT L. TUCH, ASSISTANT SECRETARY. An employee of BISYS Fund
Services, Inc., since June 1991, and an officer of other
investment companies administered by the Administrator or its
affiliates. From July 1990 to June 1991, he was Vice President
and Associate General Counsel with National Securities
Research Corp. Prior thereto, he was an Attorney with the
Securities and Exchange Commission. He is 44 years old and his
address is 3435 Stelzer Road, Columbus, Ohio 43219.
ALAINA METZ, ASSISTANT SECRETARY. An employee of BISYS Fund Services, Inc.
and an officer of other investment
companies administered by the Administrator or its
affiliates. She is 28 years old and her address is
3435 Stelzer Road, Columbus, Ohio 43219.
For so long as the Fund's plan described in the section
captioned "Management Arrangements--Distribution Plan" remains in effect, the
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the 1940 Act, will be selected and nominated by the Directors who are not
"interested persons" of the Fund.
Directors and officers of the Fund, as a group, owned less
than 1% of each Portfolio's shares outstanding on August 1, 1996.
The Fund does not pay any remuneration to its officers and
Directors other than fees and expenses to those Directors who are not directors,
officers or employees of the Adviser or Administrator or any of their
affiliates. The aggregate amount of compensation paid to each such Director by
the Fund for the year ended December 31, 1995 was as follows:
Total Compensation
Aggregate From Fund and Fund
Compensation from Complex Paid to Board
Name of Board Member Fund* Member*
- -------------------- ----------------------- -------------------------
Norma A. Coldwell $11,250 $11,250
Richard H. Francis $10,000 $10,000
William W. McInnis $ 7,500 $ 7,500
Robert A. Robinson $ 2,500 $ 2,500
- ---------------------
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $6,434 for all Directors as a group.
MANAGEMENT ARRANGEMENTS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE RELEVANT PROSPECTUS OF THE PORTFOLIO(S) ENTITLED
"MANAGEMENT OF THE PORTFOLIO(S)."
INVESTMENT ADVISORY AGREEMENT. The Adviser provides investment
advisory services pursuant to the Investment Advisory Agreement (the
"Agreement") dated October 30, 1990, with the Fund. As to each Portfolio, the
Agreement is subject to annual approval by (i) the Fund's Board of Directors or
(ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Portfolio, provided that in either event the continuance also
is approved by a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Adviser, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Board, including
a majority of the Directors who are not "interested persons" of any party to the
Agreement, last approved the Agreement at a meeting held on October 25, 1995.
Shareholders of the Correspondent Cash Reserves Money Market Portfolio approved
the Agreement on December 20, 1991. As to each Portfolio, the Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board or by vote
of the holders of a majority of the Portfolio's shares, or, on not less than 90
days' notice, by the Adviser. The Agreement will terminate automatically, as to
the relevant Portfolio, in the event of its assignment (as defined in the 1940
Act).
The Adviser is a wholly-owned subsidiary of PaineWebber
Incorporated ("PaineWebber"), which in turn is a wholly-owned subsidiary of
Paine Webber Group Inc. ("PW Group"), a publicly owned financial services
holding company.
The Adviser provides investment advisory services in accordance with the
stated policies of the Portfolio, subject to the approval of the Fund's Board of
Directors. The Adviser provides the Portfolio with Investment Officers who are
authorized by the Board of Directors to execute purchases and sales of
securities. The Correspondent Cash Reserves Money Market Portfolio's Chief
Investment Officers are Susan P. Messina and Dennis L. McCauley. The
Correspondent Cash Reserves Tax Free Money Market Portfolio's Chief Investment
Officers are. The Adviser also maintains a research department with a
professional staff of portfolio managers and securities analysts who provide
research services for the Portfolio as well as for other funds advised by the
Adviser. All purchases and sales are reported for the Board's review at the
meeting subsequent to such transactions.
As compensation for its services, the Fund has agreed to pay the Adviser a
monthly fee at the annual rate of .10 of 1% of the value of each Portfolio's
average daily net assets. For the fiscal years ended December 31, 1993, 1994 and
1995, the advisory fees paid to the Adviser by the Correspondent Cash Reserves
Money Market Portfolio amounted to $533,282, $430,353 and $644,228,
respectively. In addition, pursuant to the terms of a Special Management
Services Agreement among the Fund, the Adviser and the Administrator, each
Portfolio has agreed to pay the Adviser and the Administrator each a monthly fee
at the annual rate of .05 of 1% of the value of its average daily net assets
represented by the Retail Shares. With respect to the Retail Shares only, the
fee payable to the Adviser by the Correspondent Cash Reserves Money Market
Portfolio under the agreement for the fiscal years ended December 31, 1993, 1994
and 1995 amounted to $164,405, $189,112 and $306,186, respectively; however,
pursuant to an undertaking, the Adviser waived the fee in its entirety for each
such fiscal year.
ADMINISTRATION AGREEMENT. The Administrator provides certain administrative
services pursuant to the Administration Agreement (the "Administration
Agreement") dated March 29, 1995, with the Fund. As to each Portfolio, the
Administration Agreement will continue until December 31, 1997 and thereafter is
subject to annual approval by (i) the Fund's Board or (ii) vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of the
Portfolio, provided that in either event the continuance also is approved by a
majority of the Directors who are not "interested persons" (as defined in the
1940 Act) of the Fund or the Administrator, by vote cast in person at a meeting
called for the purpose of voting such approval. The Administration Agreement was
last approved by the Fund's Board of Directors, including a majority of the
Directors who are not "interested persons" of any party to the Administration
Agreement, at a meeting held on January 26, 1995. As to each Portfolio, the
Administration Agreement is terminable without penalty, at any time if for
cause, by the Fund's Board or by vote of the holders of a majority of the
Portfolio's outstanding voting securities, or, on not less than 90 days' notice,
by the Administrator. The Administration Agreement will terminate automatically,
as to the relevant Portfolio, in the event of its assignment (as defined in the
1940 Act).
As compensation for its services, each Portfolio has agreed to pay the
Administrator a monthly fee at the annual rate of .10 of 1% of the value of the
Portfolio's average daily net assets. For the fiscal years ended December 31,
1993, 1994 and 1995, the Correspondent Cash Reserves Money Market Portfolio paid
the Administrator $533,282, $430,353 and $644,228, respectively. In addition,
pursuant to the terms of the Special Management Services Agreement described
above, with respect to the Correspondent Cash Reserves Money Market Portfolio's
Retail Shares only, the fee payable to the Administrator under the agreement for
such fiscal years amounted to $164,405, $189,112 and $306,186, respectively;
however, pursuant to an undertaking, the Administrator waived the fee in its
entirety for each such fiscal year.
DISTRIBUTION AGREEMENT. The Distributor acts as the exclusive distributor
of each Portfolio's shares on a best efforts basis pursuant to a Distribution
Agreement (the "Distribution Agreement") dated March 29, 1995, with the Fund.
Shares are sold on a continuous basis by the Distributor as agent, although the
Distributor is not obliged to sell any particular amount of shares. No
compensation is payable by a Portfolio to the Distributor for its distribution
services. The term and termination provisions of the Distribution Agreement are
substantially similar to those of the Administration Agreement with the
Administrator discussed above.
DISTRIBUTION PLAN. (Applicable only with respect to the Retail Shares).
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange Commission under
the 1940 Act provides, among other things, that an investment company may bear
expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. Because some or all of the fees paid to Securities
Firms (as defined in the relevant Prospectus) in connection with services
provided to holders of the Retail Shares could be deemed to be payment of
distribution expenses, the Fund's Board of Directors has adopted such a plan
(the "Plan"). The Fund's Board of Directors believes that there is a reasonable
likelihood that the Plan will benefit the Fund and the holders of the Retail
Shares. In some states, banks or other institutions effecting transactions in
Portfolio shares may be required to register as dealers pursuant to state law.
A quarterly report of the amounts expended under the Plan, and the purposes
for which such expenditures were incurred, must be made to the Board of
Directors for its review. In addition, as to each Portfolio, the Plan provides
that it may not be amended to increase materially the costs which the holders of
the Retail Shares may bear for distribution pursuant to the Plan without
approval of the holders of the Portfolio's Retail Shares and that other material
amendments of the Plan must be approved by the Board of Directors, and by the
Directors who are neither "interested persons" (as defined in the 1940 Act) of
the Fund nor have any direct or indirect financial interest in the operation of
the Plan or in the related Plan Agreement between the Fund and Correspondent
Services Corporation [CSC], by vote cast in person at a meeting called for the
purpose of considering such amendments. The Plan and the Plan Agreement are
subject to annual approval by such vote cast in person at a meeting called for
the purpose of voting on the Plan. The Plan and Plan Agreement were so approved
on October 25, 1995. Holders of the Correspondent Cash Reserves Money Market
Portfolio's Retail Shares approved the Plan on December 20, 1991. As to each
Portfolio, the Plan is terminable at any time by vote of a majority of the
Directors who are not "interested persons" and who have no direct or indirect
financial interest in the operation of the Plan or in the Plan Agreement or by
vote of a majority of the Portfolio's Retail Shares. As to each Portfolio, the
Plan Agreement is terminable without penalty, at any time, by such vote of the
Directors, upon not more than 60 days' written notice to Correspondent Services
Corporation [CSC] or by vote of the holders of a majority of the Portfolio's
Retail Shares. The Plan Agreement will terminate automatically, as to the
relevant Portfolio, in the event of its assignment (as defined in the 1940 Act).
For the fiscal year ended December 31, 1995, with respect to the
Correspondent Cash Reserves Money Market Portfolio's Retail Shares only, the
amount payable pursuant to the Plan to Correspondent Services Corporation [CSC],
an affiliate of the Adviser, amounted to $3,674,240; however, pursuant to an
undertaking, the amount was reduced by $489,900, resulting in a net amount paid
by the Correspondent Cash Reserves Money Market Portfolio on behalf of its
Retail Shares only of $3,184,340 pursuant to the Plan.
EXPENSES. All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by others. The expenses
borne by the Fund include: organizational costs, taxes, interest, brokerage fees
and commissions, if any, fees of Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser or Administrator or any of their affiliates, Securities and Exchange
Commission fees, state Blue Sky qualification fees, advisory fees,
administration fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees, auditing
and legal expenses, costs of maintaining corporate existence, costs of
independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
calculating the net asset value of each Portfolio's shares, costs of
shareholders' reports and corporate meetings, costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders, and any extraordinary expenses.
Expenses attributable to a particular Portfolio are charged against the assets
of that Portfolio; other expenses of the Fund are allocated among the Portfolios
on the basis determined by the Board, including, but not limited to,
proportionately in relation to the net assets of each Portfolio.
As to each Portfolio, the Adviser and Administrator have agreed that if in
any fiscal year the aggregate expenses of the Portfolio, exclusive of taxes,
brokerage, interest on borrowings and (with the prior written consent of the
necessary state securities commissions) extraordinary expenses, but including
the advisory and administration fees, exceed the expense limitation of any state
having jurisdiction over the Portfolio, the Fund may deduct from the payment to
be made to the Administrator under the Administration Agreement, or the Adviser
and/or Administrator will bear, such excess expense to the extent required by
state law. Such deduction or payment, if any, will be estimated daily, and
reconciled and effected or paid, as the case may be, on a monthly basis.
PURCHASE AND REDEMPTION OF SHARES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTIONS IN THE RELEVANT PROSPECTUS OF THE PORTFOLIO(S) ENTITLED "HOW
TO BUY SHARES" AND "HOW TO REDEEM SHARES."
TERMS OF PURCHASE. The Fund reserves the right to reject any
purchase order and to change the amount of the minimum investment and subsequent
purchases in the Portfolio.
SUSPENSION OF REDEMPTIONS. The right of redemption may be
suspended or the date of payment postponed (a) during any period when the New
York Stock Exchange is closed (other than customary weekend and holiday
closing), (b) when trading in the markets a Portfolio ordinarily utilizes is
restricted, or when an emergency exists as determined by the Securities and
Exchange Commission so that disposal of the Portfolio's investments or
determination of its net asset value is not reasonably practicable, or (c) for
such other periods as the Securities and Exchange Commission by order may permit
to protect the Portfolio's shareholders.
DETERMINATION OF NET ASSET VALUE
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE RELEVANT PROSPECTUS OF THE PORTFOLIO(S) ENTITLED "HOW TO
BUY SHARES."
AMORTIZED COST PRICING. The valuation of each Portfolio's investment
securities is based upon their amortized cost, which does not take into account
unrealized capital gains or losses. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Portfolio would receive if it sold the
instrument.
The Board of Directors has established, as a particular responsibility
within the overall duty of care owed to each Portfolio's investors, procedures
reasonably designed to stabilize the Portfolio's price per share as computed for
the purpose of sales and redemptions at $1.00. Such procedures include review of
the Portfolio's investment holdings by the Board of Directors, at such intervals
as it deems appropriate, to determine whether the Portfolio's net asset value
calculated by using available market quotations or market equivalents deviates
from $1.00 per share based on amortized cost. In such review, investments for
which market quotations are readily available will be valued at the most recent
bid price or yield equivalent for such securities or for securities of
comparable maturity, quality and type, as obtained from one or more of the major
market makers for the securities to be valued. Other investments and assets will
be valued at fair value as determined in good faith by the Board of Directors.
The extent of any deviation between a Portfolio's net asset value based
upon available market quotations or market equivalents and $1.00 per share based
on amortized cost will be examined by the Board. If such deviation exceeds 1/2
of 1%, the Board promptly will consider what action, if any, will be initiated.
In the event the Board determines that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
it has agreed to take such corrective action as it regards as necessary and
appropriate, including: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends or paying distributions from capital or capital gains;
redeeming shares in kind; or establishing a net asset value per share by using
available market quotations or market equivalents.
NEW YORK STOCK EXCHANGE AND CUSTODIAN CLOSINGS. The holidays (as observed)
on which the New York Stock Exchange and the Custodian are closed currently are:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving and Christmas.
YIELD INFORMATION
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE RELEVANT PROSPECTUS OF THE PORTFOLIO(S) ENTITLED "YIELD
INFORMATION."
Retail Shares of Correspondent Cash Reserves Tax Free Money Market
Portfolio had not been offered as of June 30, 1996 and, therefore,
no performance data are available for such Portfolio's shares.
For the seven-day period ended June 30, 1996, the yield and effective
yield of the Correspondent Cash Reserves Money Market Portfolio's Institutional
Shares was 5.16% and 5.29%, respectively. For the same period, the yield and
effective yield of the Correspondent Cash Reserves Money Market Portfolio's
Retail Shares, net of absorbed expenses, was 4.53% and 4.62%, respectively. The
yield and effective yield of the Correspondent Cash Reserves Money Market
Portfolio's Retail Shares without the absorption of certain expenses would have
been 4.43% and 4.52%, respectively, for the same period. Yield for the
Institutional Shares and Retail Shares is computed separately in accordance with
a standardized method which involves determining the net change in the value of
a hypothetical pre-existing Portfolio account having a balance of one share at
the beginning of a seven calendar day period for which yield is to be quoted,
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return, and analyzing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of the
account reflects the value of additional shares purchased with dividends
declared on the original share and any such additional shares and fees that may
be charged to shareholder accounts, in proportion to the length of the base
period and the Portfolio's average account size, but does not include realized
gains and losses or unrealized appreciation and depreciation. Effective
annualized yield is computed by adding 1 to the base period return (calculated
as described above), raising that sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
With respect to Correspondent Cash Reserves Tax Free Money Market
Portfolio, tax equivalent yield is computed by dividing that portion of the
yield or effective yield (calculated as described above) which is tax exempt by
1 minus a stated tax rate and adding the quotient to that portion, if any, of
the yield of the Portfolio that is not tax exempt. Each investor should consult
with its tax adviser, and consider its own factual circumstances and applicable
tax laws, in order to ascertain the relevant tax equivalent yield.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held, their maturity and operating expenses. An
investor's principal in a Portfolio is not guaranteed. See "Determination of Net
Asset Value" for a discussion of the manner in which the Portfolio's price per
share is determined.
PORTFOLIO TRANSACTIONS
Portfolio securities ordinarily are purchased directly from the issuer or
an underwriter or a market maker for the securities. Usually no brokerage
commissions are paid for such purchases. Purchases from underwriters of
portfolio securities include a concession paid by the issuer to the underwriter
and the purchase price paid to market makers for the securities may include the
spread between the bid and asked price. No brokerage commissions have been paid
by either Portfolio to date.
Transactions are allocated to various dealers by the Portfolio's investment
personnel in their best judgment. The primary consideration is prompt and
effective execution of orders at the most favorable price. Subject to that
primary consideration, dealers may be selected to act on an agency basis for
research, statistical or other services to enable the Adviser to supplement its
own research and analysis with the views and information of other securities
firms.
Research services furnished by brokers through which each Portfolio effects
securities transactions may be used by the Adviser in advising other funds or
accounts it advises and, conversely, research services furnished to the Adviser
by brokers in connection with other funds or accounts the Adviser advises may be
used by the Adviser in advising each Portfolio. Although it is not possible to
place a dollar value on these services, it is the opinion of the Adviser that
the receipt and study of such services should not reduce the overall expenses of
its research department.
INFORMATION ABOUT THE PORTFOLIOS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE SECTION IN THE RELEVANT PROSPECTUS OF THE PORTFOLIO(S) ENTITLED
"GENERAL INFORMATION."
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Shares have no preemptive, subscription or conversion rights and are freely
transferable.
As of August 2, 1996, the following shareholders beneficially owned,
directly or indirectly, 5% or more of the Correspondent Cash Reserves Money
Market Portfolio's outstanding Institutional Shares:
Percent of Total
Institutional Shares
Name and Address Outstanding
Saxon & Co. 41.12%
F/B/O PNC Taxable Stiff Account
200 Stephans Drive
Lester, PA 19113
Saxon & Co. 58.88%
c/o PNC Bank
P.O. Box 7780-1888
Philadelphia, PA 19182
A shareholder who beneficially owns, directly or indirectly, more than 25%
of a Portfolio's voting securities may be deemed a "control person" (as defined
in the 1940 Act) of the Portfolio.
Each Portfolio will send annual and semi-annual financial statements to all
its shareholders.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 90 Washington Street, New York, New York 10286,
acts as custodian of each Portfolio's investments. BISYS Fund Services Ohio,
Inc., an affiliate of the Administrator, 3435 Stelzer Road, Columbus, Ohio
43219, acts as the Fund's transfer and dividend disbursing agent (the "Transfer
Agent"). Under the transfer agency agreement with the Fund, the Transfer Agent
maintains shareholder account records for each Portfolio, handles certain
communications between shareholders and the Portfolio and pays dividends and
distributions payable by the Portfolio. For these services, the Transfer Agent
receives a monthly fee compiled on the basis of the number of shareholder
accounts it maintains for each Portfolio during the month, and is reimbursed for
certain out-of-pocket expenses. Neither The Bank of New York nor BISYS Fund
Services Ohio, Inc. has any part in determining the investment policies of a
Portfolio or which securities are to be purchased or sold by the Portfolio.
Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York 10004-2696,
as counsel for the Fund, has rendered its opinion as to certain legal matters
regarding the due authorization and valid issuance of the shares being sold
pursuant to the relevant Prospectus.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154,
independent auditors, have been selected as the Fund's auditors for the year
ending December 31, 1996.
APPENDIX
Description of the two highest commercial paper, bond, municipal bond and
other short- and long-term rating categories assigned by S&P, Moody's, Fitch,
Duff & Phelps Credit Rating Co. ("Duff"), IBCA Inc. and IBCA Limited ("IBCA"),
and Thomson BankWatch, Inc. ("BankWatch"):
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and ordinarily will be evidenced by leading
market positions in well established industries, high rates of return of funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issues rated Prime-2 (P-2) have a strong capacity for repayment of short-term
promissory obligations. This ordinarily will be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-1 is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors are small.
The designation A1 by IBCA indicates that the obligation is supported by a
very strong capacity for timely repayment. Those obligations rated A1+ are
supported by the highest capacity for timely repayment. Obligations rated A2 are
supported by a strong capacity for timely repayment, although such capacity may
be susceptible to adverse changes in business, economic or financial conditions.
The rating TBW-1 is the highest short-term rating assigned by BankWatch;
the rating indicates that the degree of safety regarding timely repayment of
principal and interest is very strong. The rating TBW-2 is the second highest
short-term rating assigned by BankWatch; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA are considered by S&P to be the highest grade obligations
and possess an extremely strong capacity to pay principal and interest. Bonds
rated AA by S&P are judged by S&P to have a very strong capacity to pay
principal and interest, and in the majority of instances, differ only in small
degrees from issues rated AAA.
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Bonds rated Aa by Moody's are judged by Moody's to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger. Moody's applies numerical modifiers 1, 2
and 3 in the Aa rating category. The modifier 1 indicates a ranking for the
security in the higher end of this rating category, the modifier 2 indicates a
mid-range ranking, and the modifier 3 indicates a ranking in the lower end of
the rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
Bonds rated AAA by Duff are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than U.S. Treasury
debt. Bonds rated AA are considered to be of high credit quality with strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly. Obligations for which there
is a very low expectation of investment risk are rated AA by IBCA. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic or financial conditions may increase investment risk albeit
not very significantly.
INTERNATIONAL AND U.S. BANK RATINGS
An IBCA bank rating represents IBCA's current assessment of the strength of
the bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, represent IBCA's assessment of a
bank's economic merits and address the question of how the bank would be viewed
if it were entirely independent and could not rely on support from state
authorities or its owners.
Description of certain S&P, Moody's and Fitch ratings of
Municipal Obligations:
S&P
MUNICIPAL BOND RATINGS
An S&P municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable, and will include: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature and provisions of the obligation; and (3) protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. AA
Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree. The AA
rating may be modified by the addition of a plus or a minus sign, which is used
to show relative standing within the category.
MUNICIPAL NOTE RATINGS
SP-1
The issuers of these municipal notes exhibit very strong or strong capacity
to pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are given a plus (+) designation.
SP-2
The issuers of these municipal notes exhibit satisfactory capacity to pay
principal and interest.
Moody's
MUNICIPAL BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities. Bonds in the
Aa category which Moody's believes possess the strongest investment attributes
are designated by the symbol Aa1.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG). Such ratings recognize the
difference between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG or, if the demand feature is
not rated, as NR. Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that the source of payment may be limited to the external liquidity with no
or limited legal recourse to the issuer in the event the demand is not met.
Moody's short-term ratings are designated Moody's Investment Grade as MIG 1
or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's assigns a
MIG or VMIG rating, all categories define an investment grade situation.
MIG 1/VMIG 1
This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Fitch
MUNICIPAL BOND RATINGS
The ratings represent Fitch's assessment of the issuer's ability to meet
the obligations of a specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. Plus (+) and minus (-) signs are used with the rating symbol AA to
indicate the relative position of a credit within the rating category.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating analysis,
the short-term rating places greater emphasis than bond ratings on the existence
of liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory degree
of assurance for timely payments, but the margin of safety is not as great as
the F-1+ and F-1 categories.
<PAGE>
FINANCIAL STATEMENTS
The Correspondent Cash Reserves Money Market Portfolio's Annual Report to
Shareholders for the fiscal year ended December 31, 1995 AND SEMI-ANNUAL REPORT
TO SHAREHOLDERS FOR THE SIX-MONTHS ENDED JUNE 30, 1996 ARE separate
documents supplied with this Statement of Additional Information, and the
financial statements, accompanying notes and report of independent auditors (IN
THE CASE OF THE ANNUAL REPORT) appearing therein are incorporated by reference
in this Statement of Additional Information.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A of the Registration Statement:
Condensed Financial Information for the
Correspondent Cash Reserves Money Market
Portfolio only.
Included in Part B of the Registration Statement:
Statements of Investments.*
Statements of Assets and Liabilities.*
Statements of Operations.*
Statements of Changes in Net Assets.*
Notes to Financial Statements.*
Reports of KPMG Peat Marwick LLP, Independent
Auditors.**
-------------------------
* Incorporated by reference to the Registrant's
Annual Report to Shareholders and Semi-Annual Report to Shareholders for the
Correspondent Cash Reserves Money Market Portfolio only.
** INCORPORATED BY REFERENCE TO THE REGISTRANT'S ANNUAL REPORT TO
SHAREHOLDERS.
(b) Exhibits:
(1) (a) Articles of Incorporation are incorporated
by reference to Exhibit (1) of the
Registration Statement on Form N-1A, filed on March 29,
1990.
(b) Articles of Amendment are incorporated by
reference to Exhibit (1)(b) of Pre-Effective
Amendment No. 3 to the Registration
Statement on Form N-1A, filed on June 22,
1990.
(c) Articles Supplementary dated October 16,
1990 are incorporated by reference to
Exhibit(1)(c) of Post-Effective Amendment
No. 3 to the Registration Statement on Form
N-1A, filed on October 25, 1990.
(d) Articles Supplementary dated January 9, 1992
are incorporated by reference to
Exhibit (1)(d) of Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A,
filed on January 17, 1992.
(e) Articles Supplementary dated February 15,
1994 are incorporated by reference to
Exhibit (1)(e) of Post-Effective Amendment No. 22
to the Registration Statement on Form N-1A,
filed on February 10, 1994.
(f) Articles of Amendment are incorporated by
reference to Exhibit (1)(f) of
Post-Effective Amendment No. 26 to the Registration
Statement on Form N-1A, filed on May 1, 1996.
(2) By-Laws are incorporated by reference to Exhibit
(2) of Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A, filed on
June 22, 1990.
(4) Specimen copies of stock certificates are
incorporated by reference to Exhibit (4) of Post-
Effective Amendment No. 6 to the Registration
Statement on Form N-1A, filed on June 7, 1991.
(5) (a)(i) Amended Investment Advisory Agreement
between the Registrant and BEA
Associates is incorporated by reference
to Exhibit (5)(b)(i) of Post-Effective
Amendment No. 15 to the Registration
Statement on Form N-1A, filed on
August 19, 1992.
(a)(ii) Investment Advisory Agreement between
the Registrant and Mitchell Hutchins
Asset Management Inc. is incorporated
by reference to Exhibit (5)(b)(iii) of
Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A,
filed on June 7, 1991.
(a)(iii) Investment Advisory Agreement
between Registrant and First
American National Bank is
incorporated by reference to
Post-Effective Amendment No. 22 to
the Registration Statement on Form
N-1A, filed on February 10, 1994.
(a)(iv) Investment Advisory Agreement
between the Registrant and BEA
Associates is incorporated by
reference to Post- Effective
Amendment No. 25 to the Registration
Statement on Form N-1A, filed on May
1, 1995.
(b)(i) Sub-Investment Advisory Agreement among
Registrant, First American National
Bank and Barnett Banks and Trust Company,
N.A. is incorporated by reference to
Post-Effective Amendment No. 22 to the
Registration Statement on Form N-14,
filed on February 10, 1994.
(c)(i) Administration Agreement between
Registrant and Concord Holding
Corporation dated March 29, 1995 is
incorporated by reference to Post-
Effective Amendment No. 26 to the
Registration Statement on Form N-1A,
filed on May 1, 1996.
(c)(ii) Administration Agreement between
Registrant and BISYS Fund Services
Limited Partnership dated April 25,
1996 is incorporated by reference to Post-
Effective Amendment No. 26 to the
Registration Statement on Form N-1A,
filed on May 1, 1996.
(6) (a) Distribution Agreement between
Registrant and Concord Financial Group,
Inc. dated March 29, 1995 is
incorporated by reference to Post-
Effective Amendment No. 25 to the
Registration Statement on Form N-1A,
filed on May 1, 1995.
(b)(i) Form of Plan Agreement, with respect to
Registrant's Correspondent Cash
Reserves Money Market Portfolio and
Correspondent Cash Reserves Municipal
Portfolio, is incorporated by reference
to Exhibit (6)(b) of Post-Effective
Amendment No. 6 to the Registration
Statement on Form N-1A, filed on June 7, 1991.
(b)(ii) Form of Distribution Plan Agreement,
with respect to Registrant's BEA Short
Duration Portfolio is incorporated by
reference to Exhibit (6)(b)(iv) of Post-
Effective Amendment No. 15 to the
Registration Statement on Form N-1A,
filed On August 19, 1992.
(b)(iii) Distribution Plan Agreement, with
respect to Registrant's ValueStar
Equity, Equity Income, Short-
Intermediate Duration Bond, Bond and
Tennessee Tax Exempt Bond Portfolios is
incorporated by reference to Post-
Effective Amendment No. 22 to the
Registration Statement on Form N-1A,
filed on February 10, 1994.
(8) (a) Custody and Fund Accounting Agreement
with The Bank of New York is
incorporated by reference to
Exhibit (8)(a) of Pre-Effective Amendment No. 3
to the Registration Statement on Form
N-1A, filed on June 22, 1990.
(b) Form of Foreign Sub-Custodian Agreement is incorporated
by reference to Post- Effective Amendment No. 22 to the
Registration Statement on Form N-1A, filed on
February 10, 1994.
(9) (a) Special Management Services Agreement
among the Registrant, Mitchell Hutchins
Asset Management Inc. and Concord
Holding Corporation is incorporated by
reference to Exhibit (9) of Post-Effective Amendment
No. 6 to the Registration Statement on Form N-1A,
filed on June 7, 1991.
(b) Form of Shareholder Services Agreement
is incorporated by reference to
Exhibit (5)(e) of Pre-Effective Amendment No. 3
to the Registration Statement on Form
N-1A, filed on June 22, 1990.
(c) Shareholder Services Plan with respect
to Registrant's ValueStar Prime Money
Market and U.S. Treasury Money Market
Portfolios is incorporated by reference
to Post-Effective Amendment No. 22 to
the Registration Statement on
Form N-1A, filed on February 10, 1994.
(11) Consent of Independent Auditors.
(15) (a) Plan of Distribution pursuant to Rule
12b-1, with respect to Registrant's
Correspondent Cash Reserves Money
Market Portfolio and Correspondent Cash
Reserves Tax Free Money Market
Portfolio, is incorporated by reference
to Exhibit (15) of Post-Effective
Amendment No. 6 to the Registration
Statement on Form N-1A, filed on June 7, 1991.
(b) Distribution Plan pursuant to Rule
12b-1, with respect to Registrant's BEA
Short Duration Portfolio, is incorporated by reference
to Exhibit (15)(c) of Post-Effective Amendment
No. 15 to the Registration Statement on
Form N-1A filed on August 19, 1992.
(c) Distribution Plan pursuant to Rule
12b-1, with respect to Registrant's
ValueStar Equity, Equity Income, Short-
Intermediate Duration Bond, Bond and
Tennessee Tax Exempt Bond Portfolios is
incorporated by reference to Post-
Effective Amendment No. 22 to the
Registration Statement on Form N-1A,
filed on February 10, 1994.
(16) Computations of Performance Information
are incorporated by reference to Post-
Effective Amendment No. 25 to the
Registration Statement on Form N-1A,
filed on May 1, 1995.
(17) Financial Data Schedules are
incorporated by reference to
Registrant's Annual Report on Form
N-SAR filed on or about February 29, 1996.
(18) (i) Rule 18f-3 Plans for Registrant's BEA,
CCR and ValueStar Prime and U.S.
Treasury Portfolios are incorporated by
reference to Post-Effective Amendment
No. 25 to the Registration Statement on
Form N-1A, filed on May 1, 1995.
(ii) Rule 18f-3 Plan for Registration's
ValueStar Non-Money Market Portfolios
is incorporated by reference to Post-
Effective Amendment No. 26 to the
Registration Statement on Form N-1A,
filed on May 1, 1996.
Other Exhibit: (i) Certificate of Corporate Secretary is
incorporated by reference to Other
Exhibit of Pre-Effective Amendment
No. 3 to the Registration Statement
on Form N-1A, filed on June 22, 1990.
(ii) Powers of Attorney are incorporated by
reference to Pre-Effective Amendment
No. 1 and Post-Effective Amendment No. 8
to the Registration Statement on Form
N-1A, filed on May 23, 1990 and November
15, 1991, respectively.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
Number of Record
Holders as of
TITLE OF CLASS July 31, 1996
Common Stock, par value
$.001 per share
Alpha Government 65
Securities Portfolio
BEA Short Duration Portfolio
--Client Shares 26
--Service Shares 1
--Investor Shares 1
Correspondent Cash Reserves
Money Market Portfolio
--Retail Shares 37,112
--Institutional Shares 2
Correspondent Cash Reserves
Tax Free Money Market Portfolio
--Retail Shares 0
ValueStar Prime Money Market Portfolio
--Trust Shares 2
--Investor Shares 32
ValueStar Capital Growth Portfolio
--Trust Shares --
--Investor Shares 5
ValueStar Investment Grade
Bond Portfolio
--Trust Shares --
--Investor Shares 4
ValueStar Short-Intermediate
Duration Bond Portfolio
--Trust Shares --
--Investor Shares 7
ValueStar Tennessee Tax Exempt
Bond Portfolio
--Trust Shares --
--Investor Shares 7
ValueStar U.S. Treasury Money
Market Portfolio
--Trust Shares 2
--Investor Shares 11
ITEM 27. INDEMNIFICATION
Reference is made to Article SEVENTH of the Registrant's Articles of
Incorporation filed as Exhibit 1 to the Registration Statement, filed on March
29, 1990, and to Section 2-418 of the Maryland General Corporation Law. The
application of these provisions is limited by Article VIII of the Registrant's
By-Laws filed as Exhibit 2 to Pre-Effective Amendment No. 3 to the Registration
Statement, filed on June 22, 1990, and by the following undertaking set forth in
the rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Com- mission
such indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final adjudication
of such issue.
Reference also is made to the Distribution Agreement filed as Exhibit 6(a)
hereto.
ITEM 28(A). BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND/OR
SUB-INVESTMENT ADVISER
(i) Registrant is fulfilling the requirement of this Item 28(a) to provide
a list of the officers and directors of BEA Associates, the investment adviser
of the Registrant's BEA Short Duration Portfolio and Alpha Government Securities
Portfolio, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by BEA Associates or
those of its officers and directors during the past two years, by incorporating
by reference the information contained in the Form ADV filed with the SEC
pursuant to the Investment Advisers Act of 1940 by BEA Associates (SEC File No.
801-37170).
(ii) Registrant is fulfilling the requirement of this Item 28(a) to provide
a list of the officers and directors of Mitchell Hutchins Asset Management Inc.,
the investment adviser of the Registrant's Correspondent Cash Reserves Money
Market Portfolio, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by
Mitchell Hutchins Asset Management Inc. or those of its officers and directors
during the past two years, by incorporating by reference the information
contained in the Form ADV filed with the SEC pursuant to the Investment Advisers
Act of 1940 by the Mitchell Hutchins Asset Management Inc. (SEC File No.
801-13219).
(iii) First American National Bank, the investment adviser of the
Registrant's ValueStar Portfolios, is a wholly-owned subsidiary of First
American Corporation, a registered bank holding company. To the knowledge of the
Registrant, none of the directors or executive officers of First American
National Bank, except those described below, are or have been, at any time
during the past two years, engaged in any other business, profession, vocation
or employment of a substantial nature, except that certain directors and
executive officers of First American National Bank also hold or have held
various positions with bank and non-bank affiliates of First American National
Bank, including First American Corporation.
Principal Occupation or
Other Employment of a
Position with Substantial Nature
Name Adviser
Samuel E. Beale, III Director President and Chief
Executive Officer of
Morrison Restaurants,
Inc.
Dennis C. Bottorff Director and President and Chief
Chief Executive Executive Officer of
Officer First American
Corporation
Earnest W. Deavenport, Jr. Director Group Vice President of
Eastman Kodak Company
Reginald D. Dickson Director President Emeritus of
INROADS, Inc.
T. Scott Fillebrown Director Private Investor
James A. Haslam, II Director President and Chief
Executive Officer of
Pilot Corporation
Martha R. Ingram Director Director of Public
Affairs of Ingram
Industries, Inc.
Walter D. Knestrick Director Chairman of the Board of
Walter Knestrick
Contractor, Inc.
Gene C. Koonce Director President and Chief
Executive Officer of
United Cities Gas Company
James R. Martin Director Chairman and Chief
Executive Officer of
PlastiLine, Inc.
William O. McCoy Director Vice Chairman of the
Board of BellSouth
Corporation
Dale W. Polley Director, Vice Vice Chairman and Chief
Chairman and Administrative Officer
Chief Administrative of First American
Officer Corporation
Toy F. Reid Director Retired Executive Vice
President of Eastman
Kodak Company
Roscoe R. Robinson Director Vice Chancellor for
Health Affairs of
Vanderbilt University
Medical Center
James F. Smith Director Chairman of the Board of
First American
Corporation
Cal Turner, Jr. Director Chairman and Chief
Executive Officer of
Dollar General
Corporation
David K. Wilson Director Chairman of the Board of
Cherokee Equity
Corporation
Toby S. Wilt Director President of TSW
Investment Company
William S. Wire, II Director Chairman of the Board of
Genesco, Inc.
James C. Armiste Executive Vice None
President
John W. Boyle, Jr. President, None
Corporate Bank
R. Booth Chapman Executive Vice None
President
Emery F. Hill Executive Vice None
President
Dennis J. Hooks Executive Vice None
President
Rufus B. King Executive Vice None
President
John W. Logan Executive Vice None
President
Robert A. McCabe, Jr. President, None
General Bank
Robert E. McNeilly, Jr. President and None
Chief Executive
Officer, First
American Trust
Company, N.A.
Martin E. Simmons Executive Vice None
President,
General Counsel
and Corporate
Secretary
Terry S. Spencer Executive Vice None
President
Jonn W. Smithwick Executive Vice None
President
M. Terry Turner Executive Vice None
President
Alexander P. Waddell, IV Senior Vice None
President and
Treasurer
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Other investment companies for which Registrant's
principal underwriter (exclusive distributor) acts as principal
underwriter or exclusive distributor:
Pacific Horizon Funds, Inc.
Prairie Funds
Prairie Institutional Funds
Prairie Intermediate Bond Fund
Prairie Municipal Bond Fund, Inc.
(b) The information required by this Item 29(b)
regarding each director or officer of Concord Financial Group, Inc. is
incorporated by reference to Schedule A of Form BD filed by Concord
Financial Group, Inc. pursuant to the Securities Exchange Act of 1934
(SEC File No. 8- 37601).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
1. BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
2. The Bank of New York
90 Washington Street
New York, New York 10015
3. BEA Associates
One Citicorp Center, 58th Floor
153 East 53rd Street
New York, New York 10022
4. Concord Financial Group, Inc.
125 West 55th Street
11th Floor
New York, New York 10019
5. First American National Bank
315 Deaderick Street
Nashville, Tennessee 37238
6. Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(b) Registrant hereby undertakes
(1) to file a post-effective amendment, using financial
statements which need not be certified, within four to six months from the
effective date of Registrant's 1933 Act Registration Statement.
(2) to call a meeting of shareholders for the purpose of
voting upon the question of removal of a Director or Directors when requested in
writing to do so by the holders of at least 10% of the Registrant's outstanding
Common Stock and in connection with such meeting to comply with the provisions
of Section 16(c) of the Investment Company Act of 1940 relating to shareholders
communications.
(3) to furnish each person to whom a prospectus is
delivered with a copy of its most current annual report to shareholders, upon
request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 26th day of August, 1996.
THE INFINITY MUTUAL FUNDS, INC.
(Registrant)
By: /S/WILLIAM B. BLUNDIN*
William B. Blundin, President and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/S/WILLIAM B. BLUNDIN* President (Principal
WILLIAM B. BLUNDIN Executive Officer) and
Chairman of the Board of Directors
/S/MARTIN R. DEAN* Treasurer (Chief
MARTIN R. DEAN Financial and Accounting Officer)
/S/RICHARD H. FRANCIS* Director
RICHARD H. FRANCIS
/S/NORMA A. COLDWELL* Director
NORMA A. COLDWELL
/S/WILLIAM W. MCINNES* Director
WILLIAM W. McINNES
/S/ROBERT A. ROBINSON* Director
ROBERT A. ROBINSON
*By:/S/ROBERT L. TUCH August 26, 1996
Robert L. Tuch
Attorney-in-fact
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
Post-Effective Amendment No. 29 to
Registration Statement on Form N-1A Under
the Securities Act of 1933 and
the Investment Company Act of 1940
EXHIBITS
INDEX TO EXHIBITS
(11) Consent of Independent Auditors
<PAGE>
EXHIBIT (11)
Independent Auditor's Consent
To the Shareholderss and Board of Directors
The Infinity Mutual Funds, Inc:
We consent to the use of our report dated February 9, 1996, with respect to
the Correspondent Cash Reserves Money Market Portfolio (one of the portfolios
constituting The Infinity Mutual Funds, Inc.), incorporated herein by reference
and to the references to our Firm under the headings "Financial Highlights" in
the Registration Statement on Form N-1A and "Custodian, Transfer and Dividend
Disbursing Agent and Independent Auditors" in the Statement of Additional
Information.
KPMG Peat Marwick LLP
New York, New York
August 26, 1996
