INFINITY MUTUAL FUNDS INC, N-30D, 1996-09-09

INFINITY MUTUAL FUNDS INC
N-30D, 1996-09-09

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<PAGE> 1
FUND FACTS

The ValueStar Family of Funds provides shareholders with a variety of
features to make investing in the Portfolios easy, convenient and
manageable.

<TABLE>
<S> <C> <C>
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VALUESTAR FUND FEATURES VALUESTAR FUND BENEFITS
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PROFESSIONAL INVESTMENT The investment managers at First American National Bank are
MANAGEMENT experienced investment professionals who oversee the
investments in each mutual fund.
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LOW MINIMUM INVESTMENT Initial investments in the Portfolios can be as low as
$1,000.
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DEDICATED CUSTOMER Account information is available from helpful
SERVICE representatives. Just call 1-800-852-0045.
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AUTOMATIC INVESTMENTS Investments can be made once or twice a month with automatic
transfers from your checking account to your Portfolio
account.
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DOLLAR COST AVERAGING Dollar Cost Averaging is a means of investing by which you
invest a fixed dollar amount on a consistent basis. You
invest whether the financial markets are high or low. As a
result, you buy more shares when prices are low and fewer
when prices are high. In this way, you can achieve a lower
average cost per share.*
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AUTOMATIC WITHDRAWALS Automatic withdrawals from your Portfolio account can be
made and credited to any account you designate.
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FREE EXCHANGE PRIVILEGES Shares of a Portfolio can be exchanged into shares of other
ValueStar Portfolios at no cost.**
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REGULAR, INFORMATIVE You will receive account statements after each transaction,
STATEMENTS AND REPORTS plus regular financial reports highlighting performance and
investment strategies.
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DIVIDEND REINVESTMENT Dividend income and capital gains can be reinvested
automatically in additional shares of a Portfolio.
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DAILY REDEMPTIONS Shares are redeemable each business day (at the net asset
value per share, which may be worth more or less than your
original cost, next determined after receipt of your
redemption request) by mail, telephone or bank wire.
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* Dollar Cost Averaging does not assure a profit and does not protect against loss in
declining markets. You should consider your financial ability to continue your
investment program during periods of extreme share price fluctuations.
** Exchange privileges may be modified or discontinued by the Portfolios at any time.
Upon redemption, shares may be worth more or less than their original cost.
</TABLE>
HELPING PEOPLE PLAN FOR A BRIGHTER FUTURE.(SM)

<PAGE> 2

<TABLE>
<S> <C>
[PHOTO] CHARLES WINGER
Portfolio Manager
Capital Growth
Portfolio
</TABLE>

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INVESTMENT GOAL

The Portfolio seeks to provide investors with the potential to achieve long-term
capital growth by investing primarily in the equity securities of domestic
issuers whose earnings are growing faster than the economy as a whole. It
invests primarily in large U.S. companies with market capitalizations of at
least $500 million. This Portfolio is suitable for investors who are investing
for the long term and are comfortable assuming the additional risk of investing
in stocks in exchange for potentially higher total returns.
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Q. HOW DID THE FUND PERFORM IN ITS FIRST QUARTER, AND WHAT FACTORS AFFECTED ITS
PERFORMANCE?

A. During the quarter ended June 30, 1996, the Fund produced a total return of
4.40%,+ matching the 4.40% return of the Standard & Poor's 500 Stock Index, a
broad measure of stock market performance. We were overweighted in health care
and technology stocks, both of which did well during the quarter. In the last
six weeks, we added positions in the energy sector, which also did well.
Overall, the stock market's second quarter performance was characterized by
record cash inflows into mutual funds, high volatility, sector rotation and the
superior performance of small-capitalization stocks versus their blue-chip
brethren.

Q. HOW WOULD YOU DESCRIBE YOUR INVESTMENT STYLE?

A. We like companies whose earnings are growing much faster than the economy as
a whole. Specifically, we look for companies with projected annual earnings
growth of at least 12% over the next three to five years. We also want to own
companies with strong management teams that dominate their niche in the
marketplace.

Q. WHAT ARE SOME SPECIFIC STOCKS IN THE PORTFOLIO?

A. In health care, we own Columbia/HCA, the nation's leader in hospital
management. We expect the company's earnings to increase by 14% to 15% per year
for the next five years -- far in excess of their competition. In the
pharmaceutical area, we own Eli Lilly and Pfizer, two companies that have the
best product flow in their pipelines and strong earnings momentum. The drug
stocks are defensive in that their stable earnings are reliable in an
environment in which overall corporate profits are slowing.

In technology, we have stayed with dominant companies -- Hewlett-Packard,
Microsoft, Motorola and Cisco Systems. Motorola, which is the world's leading
maker of cellular telephones, recently reported a disappointing quarter, but
we think it's a temporary phenomenon. Cisco is the number-one company in
networking technology.

In energy, the natural gas area has been a particularly good place to be. We
think gas prices are going to be firm to modestly higher for the foreseeable
future, so we've taken several new positions in that area -- Anadarko Petroleum,
Nuevo Energy and a few oil service companies, such as Schlumberger. We think
that worldwide demand for energy will increase, particularly in emerging markets
in Asia, Latin America and Eastern Europe. Natural gas is the cleanest fuel and
is easier to produce than oil. Closer to home, Autozone is a Memphis-based
company in auto

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parts and distribution, whose earnings have grown at a 20% annual rate over the
past 5 years as it benefited from the consolidation of mom-and-pop stores.*

Q. WHAT IS YOUR OUTLOOK FOR THE REST OF THE YEAR?

A. The economy is clearly strengthening, which is not welcome news to the
Federal Reserve Board or to the stock market. For example, the National
Association of Purchasing Management recently announced that its index of
factory activity rose to a 16-month high. Confirming this trend, the Commerce
Department reported that orders from U.S. factories jumped 1.9% in May, the
largest increase in nine months. Perhaps of greatest significance, the Labor
Department reported that the jobless rate fell to 5.3% in June, down from 5.6%
in May. This was the fourth consecutive employment report that exceeded
consensus expectations. We expect the economy to have grown at a 4% annual rate
in the second quarter, up from 2.2% in the first quarter.

Although inflation remains tame, we are concerned with the reported nine-cent
jump in average hourly earnings. Fortunately, corporations have not been able to
pass along higher wages or raw material costs to consumers. Therefore, we expect
the consumer price index to average about 3.5% in the second half of the year,
somewhat higher than the current level. Because consumer debt levels are
disturbingly high and not likely to increase much further, we expect real
economic growth of 3% in the third quarter, followed by a decline to a
1%-to-1.5% pace in the fourth quarter. We believe that the Fed will raise the
federal funds rate before year-end, which will also cause the economy to slow.
Higher interest rates generally translate into lower stock prices, which could
be compounded by the fact that the market has not had a 10% correction in six
years. As a result, we are taking a more defensive posture for the remainder of
the year.
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<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
--------------------------
WITH SALES WITHOUT SALES
CHARGE** CHARGE
---------- -------------
<S> <C> <C>
1 Year..................... 24.58% 28.44%
5 Year..................... 12.55% 13.22%
10 Year.................... 10.01% 10.36%
Since 12/31/80(1).......... 10.83% 11.03%

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<FN>
** Reflects 3.00% Sales Charge

- ---------------
+ With the maximum sales charge of 3.00%, the Portfolio's return was 1.26% from
its commencement of operations on April 1, 1996, through June 30, 1996.

* The Portfolio's composition is subject to change.

An additional class of shares, Trust Shares, has been authorized but not sold.
Total return figures include changes in share price and reinvestment of
dividends and capital gains distributions, if any. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.

(1) The quoted performance in the table above includes performance of the
Portfolio's predecessor common trust fund ("Commingled") accounts advised by
First American National Bank for periods dating back to 12/31/80 and prior
to the commencement of operations on 4/1/96, as adjusted to reflect the
estimated maximum operating expenses. The Commingled accounts were not
registered under the Investment Company Act of 1940, as amended (the "Act"),
and were not subject to the various limitations, diversification
requirements and other provisions of the Act and the Internal Revenue Code
of 1986, as amended. If the Commingled accounts had been registered under
the Act, this performance might have been adversely affected.
</TABLE>

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PORTFOLIO COMPOSITION AS OF
JUNE 30, 1996*
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SECTOR PROFILE
--------------

The ValueStar Capital Growth Portfolio invests in a portfolio designed to
provide capital growth by investing primarily in stocks of large,
well-capitalized U.S. companies. The Portfolio's adviser has latitude in
deciding which companies and industries provide the greatest growth potential at
any given time. The Portfolio currently invests in 10 major industry groups,
including health care, energy and consumer staples.

<TABLE>
<S> <C>
FINANCIAL SERVICES 10.4%
HEALTH CARE 14.0%
CASH 4.7%
UTILITIES 4.1%
ENERGY 13.9%
CAPITAL GOODS - IND 9.8%
CAPITAL GOODS - TECH 16.5%
CONSUMER CYCLICALS 11.4%
CONSUMER STAPLES 9.1%
CONSUMER SERVICES 6.1%
</TABLE>

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TOP 10 HOLDINGS*

<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
-----------
<S> <C>
WorldCom Inc. ............................................... 4.06%
Anadarko Petroleum Corp. .................................... 3.63%
First Data Corp. ............................................ 3.60%
PepsiCo Inc. ................................................ 3.38%
Gillette Co. ................................................ 3.28%
Schlumberger Ltd. ........................................... 3.18%
Eli Lilly & Co. ............................................. 3.14%
Enron Corp. ................................................. 2.99%
Mattel Inc. ................................................. 2.90%
Cisco Systems Inc. .......................................... 2.88%
------
TOTAL........................................................ 33.04%
======

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<FN>
* The Portfolio's composition is subject to change.
</TABLE>

<PAGE> 5

<TABLE>
<S> <C>
[PHOTO] SHARON BROWN
Portfolio Manager
Tennessee Tax Exempt
Bond Portfolio
</TABLE>

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INVESTMENT GOAL

The Portfolio seeks to provide investors with current income exempt from federal
and Tennessee income taxes without assuming undue risk. The Portfolio invests
primarily in investment-grade Tennessee municipal obligations and is suitable
for Tennessee residents seeking monthly interest income exempt from both federal
and Tennessee personal income taxes.* The Portfolio affords greater
diversification and liquidity than most investors would achieve by purchasing
municipal securities directly.
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Q. HOW DID THE PORTFOLIO PERFORM DURING THE FIRST HALF OF 1996?

A. The environment for bonds during the six months ended June 30, 1996, was
poor, which was reflected in the Portfolio's total return of -2.05%.+ In
comparison, the Portfolio's unmanaged benchmark, the Lehman Brothers Municipal
10-Year Index, produced a total return of 0.30%. The index is a broad
performance measure of municipal bonds with 10-year maturities. As of June 30,
1996, the Portfolio's 30-day SEC yield was 4.39%. For investors in the 36%
federal income tax bracket, that is equivalent to a taxable yield of 6.86%.*

Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE?

A. We began the year on a positive note, as a lot of bonds were being called or
maturing and supply was low. There was some speculation that this lack of supply
would be very positive for the municipal market. In retrospect, it appears that
demand weakened also, as much of this money went into equities. Municipals were
spared some of the damage of rising interest rates due to this lack of supply,
but what supply was available became caught in a tug of war between buyers and
sellers. The bid/ask spread widened considerably, and business slowed for a few
weeks because buyers and sellers couldn't agree on pricing. As we moved further
into the second quarter, equity returns began to weaken and muni yields rose to
the magic 6% level, bringing retail investors back into the market.

Q. WHAT WAS THE IMPACT OF PROPOSED TAX LEGISLATION?

A. Early in the year, the presidential candidates were debating the flat tax.
But by the time we got to the end of the first quarter, most investors believed
that tax reform would be postponed until after the election. That is another
reason that municipal bond prices strengthened in relation to U.S. Treasuries.
At the beginning of the year, munis were trading at about 92% of Treasuries, but
by June 30, 1996, that ratio was down to about 82%, indicating that demand had
weakened.

Q. WHAT WAS YOUR INVESTMENT STRATEGY DURING THE PERIOD?

A. We moved to a defensive stance by shortening our duration by about 1.5 years
and concentrating more heavily on higher premium bonds in the 7-to-10-year
range. We were protecting values, as these higher-coupon bonds generate good
income and don't tend to lose as much value in a

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<PAGE> 6

down market. If the market did turn around and yields moved back down, these
bonds would still produce relatively high income. By the end of the quarter, we
began to buy some longer discounts in anticipation of a slowing of the economy
and lower interest rates later in the year. The credit quality of our holdings
remained high.

Q. HOW STRONG IS THE TENNESSEE ECONOMY?

A. It continues to be strong relative to the rest of the country. According to
The Wall Street Journal, the Tennessee economy is the best in the Southeast
except for Georgia, which will benefit from the Olympics. For instance, the
Saturn automobile plant in Columbia usually takes two weeks off in early July.
This year, they took only one week off because they saw the need for increased
production of their new models. Another measure of economic strength: Commercial
buildings in the state continue to have a very low vacancy rate.

Q. WHAT AREAS OF THE MUNICIPAL MARKET ARE MOST ATTRACTIVE NOW?

A. Given the defensive nature of the portfolio and our expectation that some of
the higher yield levels could still be tested before they decline, we believe
that general obligation (GO) bonds and revenue bonds for essential services,
such as electricity and water/sewer, are better sectors right now. They're more
defensive because they are more conservative with better credit quality.
Recently, we bought Rutherford County GOs 6.25% due 2003. We purchased the bond
for its high coupon and the fact that Rutherford County is a growing area of
Tennessee. Another new bond is Metro Nashville and Davidson County Tennessee
Water & Sewer Revenues, 5% due 2016, which we bought to help position the
portfolio for a downturn in interest rates.

Q. WHAT IS YOUR OUTLOOK?

A. In our opinion, the economy appears to be relatively strong right now, but
the consumer is getting overburdened and the Federal Reserve Board will probably
raise interest rates to slow the economy. As evidenced by strong sales of autos
and other durable goods, the consumer is a good bit of what's driving the
economy. But at some point, the consumer will have to pull back. We expect that
to happen by year-end, which should cause rates to move back down.
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<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
--------------------------
WITH SALES WITHOUT SALES
CHARGE** CHARGE
---------- -------------
<S> <C> <C> <C>
1-Year..................... 0.51% 3.57%
Since Inception
(03/28/94)............... 2.14% 3.52%
30-Day SEC Yield........... 4.39%

- --------------------------------------------------------------------------------
<FN>
** Reflects 3.00% Sales Charge

- ---------------
+ With the maximum sales charge of 3.00%, the Portfolio's return was -5.03% for
the period.

* Depending on a shareholder's tax bracket, some or all of the income may be
subject to the federal alternative minimum tax and to certain state and local
taxes.
</TABLE>

Past performance is not indicative of future results. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed, may
be worth more or less than their original cost.

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<PAGE> 7

The Portfolio invests primarily in investment-grade Tennessee municipal
obligations. The credit research team at the ValueStar Funds and the Portfolio
Manager continuously monitor debt instruments and issuer quality to identify
fixed-income securities appropriate for the Portfolio. With an emphasis on
quality, the Portfolio seeks to generate current income that is exempt from
federal and Tennessee personal income taxes without undue risk to principal.

<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS 7.7%
GENERAL OBLIGATIONS 44.5%
HOSPITAL 16.4%
UTILITY REVENUE 20.5%
EDUCATIONAL 3.5%
OTHER 7.4%
</TABLE>

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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------
MATURITY PROFILE
----------------
<S> <C>
Less than 1 year 7.7%
1-5 years 5.2%
5-10 years 27.7%
10-15 years 36.5%
over 15 years 22.9%
</TABLE>

By design, the Portfolio focuses on achieving an average maturity of 10 to 15
years. By emphasizing the overall average maturity of the Portfolio, we attempt
to provide a high current tax-free yield while controlling principal value.
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<TABLE>
<CAPTION>
---------------
QUALITY PROFILE
---------------
<S> <C>
A 2.5%
AA 31.9%
AAA 57.9%
Cash Equivalent 7.7%
</TABLE>

By focusing on more general obligations and school and "essential service"
bonds, the Portfolio Manager and the research team provide an additional
measure of security to the Portfolio.
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- --------------------------------------------------------------------------------
* The Portfolio's composition is subject to change.

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<PAGE> 8

<TABLE>
<S> <C>
[PHOTO] DONALD F. TURK, C.F.A.
Portfolio Manager
Short-Intermediate
Duration Bond Portfolio
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT GOAL

The Portfolio seeks to provide investors with current income without assuming
undue risk. It invests primarily in investment-grade, U.S. dollar-denominated
fixed-income securities of domestic and foreign issuers that generally have a
duration of under four years. This Portfolio is suitable for investors seeking
regular monthly income without undue risk to principal.
- --------------------------------------------------------------------------------

Q. HOW DID THE PORTFOLIO PERFORM DURING THE FIRST HALF OF 1996?

A. Although the environment for bonds in general was poor during the six months
ended June 30, 1996, the Portfolio's total return of 0.87%+ edged out its
unmanaged benchmark, the Merrill Lynch 1-5 Year Corporate/Government Index,
which produced a total return of 0.74%. The index is a broad performance measure
of bonds with maturities in the one-to-five-year range.

When evaluating performance, it is important to distinguish total return from
yield. As of June 30, 1996, the Portfolio's 30-day SEC yield had risen to 5.67%,
compared to the Portfolio's 30-day SEC yield of 5.02% as of December 31, 1995.
Total return is the sum of the yield and the change in the Portfolio's net asset
value (NAV). A bond fund's NAV typically falls in a period of rising interest
rates and typically rises in a period of falling interest rates.

Q. WHY DID YOU OUTPERFORM YOUR BENCHMARK?

A. Our performance was slightly ahead because we kept the duration and maturity
of the portfolio shorter than the benchmark. In a period of rising interest
rates, such a strategy produces less price volatility. During the first half of
1996, yields on five-year U.S. Treasury bonds rose 1.09%, leading to a price
decline of 2.50% on those bonds. Bonds with longer maturities did even worse.
For example, the price decline on 30-year U.S. Treasuries was 11.4%. Indeed, the
price of virtually all securities with maturities greater than six months
suffered a loss. We shortened maturities when we started seeing data indicating
that the economy was stronger than expected. We also tried to make sure we were
invested in solid, quality names. In the late stages of an economic cycle in
which interest rates are increasing, noninvestment-grade quality paper can get
hurt more than better-quality paper.

Q. WHAT ARE SOME NEW NAMES IN THE PORTFOLIO?

A. During the period, we purchased a bond issued by Smith-Enron, a cooperative
venture involving Enron Corp., the Houston-based natural gas company. This bond
has a federal government guarantee as well as an extra 0.58% in yield over U.S.
Treasuries. Smith-Enron operates the refinery in the Dominican Republic. The
guarantee means that even if there's a major hurricane and the refinery is
destroyed, the bonds are still paid by the U.S. Government at par. Another
recent purchase was a bond issued by Imperial Oil paying 8.75% due 2019. We
purchased these bonds knowing that they would likely be called at a significant
premium. Imperial Oil is a subsidiary of Exxon, which means the bonds are rated
AA+.

Since we believe that the economy is going to slow, we've invested 46% of the
Portfolio in U.S. Treasuries and government agencies, 3% in cash

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<PAGE> 9

and the balance in investment-grade corporates. While some investors like
noninvestment-grade bonds currently paying as much as 3% more in income, these
lower-quality credits may deteriorate when the economy turns down. We avoid
these issues. The Portfolio's duration was 2.54 years as of June 30, 1996, down
slightly from December 31, 1995, when it was about 3 years. (Duration is a
measure of a portfolio's sensitivity to changes in interest rates. The shorter
the duration, the less likely the portfolio is to lose value when rates decline,
and vice-versa.)

Q. WHAT IS YOUR OUTLOOK FOR THE FIXED-INCOME MARKET?

A. We are moving toward the end of this economic cycle. That doesn't mean that
we're on the verge of a recession. But within six months, we expect to see a
slowing in the economy with somewhat higher interest rates, which is why the
duration of our fund is below the market's duration. At the end of the quarter,
we were at about 90% of the market's duration, which indicates that we see the
economy continuing to expand for a while. We will extend our maturities when we
see interest rates rising later this year. Meanwhile, we're keeping our
maturities relatively short. If the economy continues to expand as strongly as
we've been seeing, then that pushes the peak in interest rates out a little bit
farther.

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<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
--------------------------
WITH SALES WITHOUT SALES
CHARGE** CHARGE
---------- -------------
<S> <C> <C> <C>
1 Year..................... 1.84% 4.99%
Since Inception (03/28/94). 3.99% 5.40%
30-Day SEC Yield........... 5.67%

- ----------------------------------------------------
<FN>
** Reflects 3.00% Sales Charge

- ---------------
+ With the maximum sales charge of 3.00% the Portfolio's return was -2.12% for
the period.
</TABLE>

An additional class of shares, Trust Shares, has been authorized but not sold.
Total return figures include changes in share price, reinvestment of dividends
and capital gains distributions, if any. The service contractors are currently
waiving a portion of their fees; without such waivers the 30-day SEC yield would
have been 5.43%. This voluntary waiver may be terminated or modified at any
time, which would reduce the Portfolio's performance. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.

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<PAGE> 10

The ValueStar Short-Intermediate Duration Bond Portfolio invests primarily in
investment-grade, U.S. dollar-denominated fixed-income securities of domestic
and foreign issuers. The Portfolio is designed to provide investors with current
income without assuming undue risk. The Portfolio's adviser has latitude in
deciding how assets are invested among corporate and government obligations. As
a result, the Portfolio enjoys flexibility to make the most of changing market
conditions.

<TABLE>
<S> <C>
TREASURY/AGENCY 47%
FINANCIAL 9%
INDUSTRIALS 26%
CASH EQUIVALENTS 1%
UTILITIES/PHONES 17%
</TABLE>

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<TABLE>
<CAPTION>
----------------
MATURITY PROFILE
----------------
<S> <C>
Less than 1 year 13%
1-3 years 57%
3-7 years 28%
7-10 years 2%
</TABLE>

By design, the Portfolio attempts to generate current income without undue risk
to principal. The chart shows that the Portfolio is focused on bonds with
maturities of 1 to 3 years.
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<TABLE>
<CAPTION>
---------------
QUALITY PROFILE
---------------
<S> <C>
A 24%
AA 18%
AAA 1%
BBB 9%
Cash and Cash Equivalents 1%
Treasury/Agency 47%
</TABLE>

The ValueStar Portfolio's research team and the Portfolio Manager continuously
monitor debt instruments and issuer quality to identify fixed-income securities
for the Portfolio.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* The Portfolio's composition is subject to change.

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<PAGE> 11

<TABLE>
<S> <C>
[PHOTO] DONALD F. TURK, C.F.A.,
Portfolio Manager
Investment Grade Bond
Portfolio
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT GOAL

The Portfolio seeks to provide investors with current income without assuming
undue risk. It invests primarily in investment-grade, U.S. dollar-denominated
fixed-income securities of domestic and foreign issuers with maturities of any
length. This Portfolio is suitable for investors seeking regular monthly income
without undue risk to principal.
- --------------------------------------------------------------------------------

Q. HOW WOULD YOU DISTINGUISH THIS FUND FROM THE SHORT-INTERMEDIATE DURATION BOND
PORTFOLIO?

A. Unlike the Short-Intermediate Duration Bond Portfolio, which typically
invests in bonds maturing within two to five years, our new Investment Grade
Bond Portfolio, launched on April 1, 1996, can invest in any length maturity.
Our benchmark is the Merrill Lynch Corporate/Government Bond Index, an unmanaged
index that measures bond performance and which currently has a duration of about
five years. Our standard policy is to be within 20 percent of that index.
However, the new Portfolio also includes some 30-year U.S. Treasuries. (Duration
is a measure of a portfolio's sensitivity to changes in interest rates. The
shorter the duration, the less likely the portfolio is to lose value when rates
decline, and vice-versa.)

Q. HOW DID THE PORTFOLIO PERFORM DURING THE SECOND QUARTER OF 1996?

A. For the three months ended June 30, 1996, a difficult period for bonds in
general, the Portfolio's total return was 0.18%.+ In comparison, the Portfolio's
unmanaged benchmark produced a total return of 0.42%. It is important to
distinguish total return from yield. As of June 30, 1996, the Portfolio's 30-day
SEC yield was 5.20%. Total return is the sum of the yield and the change in the
Portfolio's net asset value (NAV). A bond fund's NAV typically falls in a period
of rising interest rates and typically rises in a period of falling interest
rates.

Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE?

A. In the second quarter of 1996, yields on 10-year U.S. Treasury securities
rose from 6.32% to 6.71%, resulting in a price decline of 2.24%. Yields on
30-year Treasuries rose from 6.67% to 6.89%, resulting in a price decline of
2.60%. Rising interest rates during the second quarter had a negative impact on
virtually all bond portfolios. Fortunately, the bond market in the second
quarter, though negative, was still quite a bit better than the first quarter,
when interest rates rose even more sharply in response to very strong employment
data. Initially, we thought those job figures were an anomaly, but the
government's employment report on July 5 confirmed that the economy was indeed
strong.

Q. DESCRIBE SOME CORPORATE BONDS IN THE PORTFOLIO.*

A. There are some very high-quality corporate bonds with long maturities, such
as GE Capital 7.5% due 2035, Air Products 7.8% due 2026, GTE 10.7% due 2017, but
callable at 105 1/8 in September 1997. At the shorter end of the maturity
spectrum, we own Travelers/Aetna Insurance

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<PAGE> 12

6.75% due 2001. All of these bonds are priced to yield anywhere from 0.45
percentage points to 0.67 percentage points above Treasuries of comparable
maturities. Corporate spreads are relatively narrow, which happens late in a
market cycle. But this is the only practical way to pick up extra yield.

Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY?

A. We believe that the economy will slow by year-end, and sometime between now
and then we'll extend maturities. But we'll need to see some strong evidence
before we alter the Portfolio. One thing that we feel better about is the CRB
raw industrial index, which we use as a benchmark for commodity price inflation.
The Commodity Research Bureau measures burlap, tallow and other raw materials
used in industrial production. That index has been trending down in the past few
weeks, and that's positive as far as inflation is concerned. But we're also
concerned with the marginal cost of labor. Currently, we're at full employment.
The average work week is increasing, overtime is increasing and average hourly
earnings have increased. That says that we're operating at full capacity now. If
economic growth continues at a 3% growth rate, then the marginal cost of
labor--including wages and benefits--will also go up. The cost of labor
permeates the entire economy, whereas commodity prices represent only about 10%
of the consumer price index. We've got hamburger flippers in Nashville making $8
an hour, significantly higher than the minimum wage.

Q. WHAT IS YOUR STRATEGY GIVEN YOUR ECONOMIC OUTLOOK?

A. We don't believe that we've seen the peak in interest rates. We don't think
it's far away, but we haven't seen it. This is due not only to employment costs
but also demand. In addition, the market has been supported by Japanese
financial institutions, which have been buying our bonds. But that may not
continue, now that the Japanese economy has improved. The way we manage the fund
is to stay at a duration or risk level that's lower than our benchmarks. As we
approach the end of the year, we'll be looking for evidence that the economy is
slowing. When that happens, we'll be more inclined to extend maturities, but
that's probably months down the road.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
--------------------------
WITH SALES WITHOUT SALES
CHARGE** CHARGE
---------- -------------
<S> <C> <C> <C>
1 Year..................... 0.08% 3.22%
5 Year..................... 6.68% 7.33%
10 Year.................... 6.43% 6.76%
Since 12/31/80(1).......... 9.59% 9.80%
30-Day SEC Yield........... 5.20%

- --------------------------------------------------------------------------------
<FN>
** Reflects 3.00% Sales Charge

- ---------------
+ With the maximum sales charge of 3.00% the Portfolio's return was -2.83% from
its commencement of operations on April 1, 1996, through June 30, 1996.

* The Portfolio's composition is subject to change.

An additional class of shares, Trust Shares, has been authorized but not sold.
Total return figures include changes in share price and reinvestment of
dividends and capital gains distributions, if any. The service contractors are
currently waiving a portion of their fees; without such waivers the 30-day SEC
yield would have been 4.96%. This voluntary waiver may be terminated or modified
at any time, which would reduce the Portfolio's performance. Past performance is
not indicative of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.

11
<PAGE> 13

The ValueStar Investment Grade Bond Portfolio invests primarily in
investment-grade, U.S. dollar-denominated fixed-income securities of domestic
and foreign issuers. The Portfolio is designed to provide current income without
assuming undue risk. The Portfolio's adviser has latitude in deciding how assets
are invested among corporate and government obligations. As a result, the
Portfolio enjoys flexibility to make the most of changing market conditions.

<TABLE>
<S> <C>
TREASURY/AGENCY 43%
FINANCIAL 18%
INDUSTRIALS 23%
UTILITIES/PHONES 10%
CASH EQUIVALENTS 6%
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
----------------
MATURITY PROFILE
----------------
<S> <C>
Less than 1 year 26%
1-3 years 20%
3-7 years 23%
7-10 years 4%
Over 10 years 27%
</TABLE>

By design, the Portfolio attempts to generate current income without undue risk
to principal. The chart shows that the Portfolio is focused on bonds with
maturities of 1 to 7 years and those with maturities greater than 10 years.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------
QUALITY PROFILE
---------------
<S> <C>
A 30%
AA 4%
AAA 9%
BBB 8%
Cash and Cash Equivalents 6%
Treasury/Agency 43%
</TABLE>

* The Portfolio's composition is subject to change.

12
<PAGE> 14

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHARES OR
SECURITY PRINCIPAL MARKET
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------- ---------- -----------
<S> <C> <C>
COMMON STOCKS -- 95.4%
BANKING -- 1.6%
Norwest Corp................................................ 19,140 $ 667,508
-----------
COMPUTERS & OFFICE EQUIPMENT -- 18.5%
Alco Standard Corp.......................................... 23,550 1,065,637
Cisco Systems, Inc. (b)..................................... 21,550 1,220,269
First Data Corp............................................. 19,130 1,523,226
Hewlett-Packard Co.......................................... 10,350 1,031,119
Intel Corp.................................................. 9,000 660,938
Microsoft Corp. (b)......................................... 9,000 1,081,125
Oracle Corp. (b)............................................ 30,128 1,188,153
-----------
7,770,467
-----------
CONGLOMERATES -- 2.7%
Service Corp. International................................. 20,000 1,150,000
-----------
ELECTRONICS -- 5.8%
Applied Materials, Inc. (b)................................. 9,000 274,500
Input/Output, Inc. (b)...................................... 32,000 1,036,000
Motorola, Inc............................................... 18,450 1,160,044
-----------
2,470,544
-----------
ENGINEERING & MACHINERY -- 2.5%
Fluor Corp.................................................. 16,500 1,078,687
-----------
FINANCIAL SERVICES -- 2.6%
Federal National Mortgage Assoc............................. 32,500 1,088,750
-----------
FOOD, BEVERAGES & TOBACCO -- 3.4%
PepsiCo, Inc................................................ 40,460 1,431,272
-----------
</TABLE>

Continued

13
<PAGE> 15

<TABLE>
<CAPTION>
SHARES OR
SECURITY PRINCIPAL MARKET
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------- ---------- -----------
<S> <C> <C>
HEALTH & PERSONAL CARE -- 13.7%
Columbia HCA Healthcare Corp................................ 16,550 $ 883,356
Gillette Co................................................. 22,260 1,388,467
Health Care & Retirement Corp. (b).......................... 33,890 804,888
Healthcare COMPARE Corp. (b)................................ 16,450 801,938
Healthsouth Rehabilitation Corp. (b)........................ 25,000 900,000
Sybron International Corp. (b).............................. 41,280 1,032,000
-----------
5,810,649
-----------
HOTELS -- 2.7%
Promus Hotel Corp. (b)...................................... 37,935 1,123,824
-----------
INSURANCE -- 2.7%
American International Group................................ 11,500 1,134,187
-----------
LEISURE TIME -- 3.2%
Regal Cinemas, Inc. (b)..................................... 10,850 496,388
Walt Disney Co.............................................. 13,790 867,046
-----------
1,363,434
-----------
MANUFACTURING -- 4.7%
Boeing Co................................................... 10,000 871,250
Tyco International Ltd...................................... 27,905 1,137,129
-----------
2,008,379
-----------
OIL & GAS -- 11.4%
Anadarko Petroleum Corp..................................... 26,500 1,537,000
Enron Corp.................................................. 30,970 1,265,899
Nuevo Energy Co. (b)........................................ 21,500 693,375
Schlumberger Ltd............................................ 16,000 1,348,000
-----------
4,844,274
-----------
PHARMACEUTICALS -- 6.0%
Eli Lilly & Co.............................................. 20,500 1,332,500
Pfizer, Inc................................................. 17,000 1,213,375
-----------
2,545,875
-----------
RESTAURANTS -- 0.7%
Outback Steakhouse, Inc. (b)................................ 9,035 $ 311,566
-----------
</TABLE>

Continued

14
<PAGE> 16

<TABLE>
<CAPTION>
SHARES OR
SECURITY PRINCIPAL MARKET
DESCRIPTION AMOUNT VALUE
- -------------------------------------------------------------- ---------- -----------
<S> <C> <C>
RETAIL -- 5.3%
Autozone, Inc. (b).......................................... 32,460 $ 1,127,985
Consolidated Stores Corp. (b)............................... 29,905 1,099,009
-----------
2,226,994
-----------
TELECOMMUNICATIONS -- 5.0%
Loral Space & Communications (b)............................ 30,510 415,699
WorldCom, Inc. (b).......................................... 31,070 1,720,501
-----------
2,136,200
-----------
TOYS -- 2.9%
Mattel, Inc................................................. 42,890 1,227,726
-----------
Total Common Stocks (Cost -- $38,076,901)..................... 40,390,336
-----------
U.S. TREASURY BILLS -- 2.4%
8/08/96..................................................... $1,000,000 994,510
-----------
Total U.S. Treasury Bills (Cost -- $994,743).................. 994,510
-----------
REGULATED INVESTMENT COMPANIES -- 2.3%
Aim Prime Portfolio......................................... 951,018 951,018
Dreyfus Prime Fund.......................................... 17,174 17,174
-----------
Total Regulated Investment Companies (Cost -- $968,192)....... 968,192
-----------
TOTAL INVESTMENTS (COST -- $40,039,836)(A) -- 100.1%.......... 42,353,038
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.1%)............... (35,756)
-----------
NET ASSETS -- 100.0%.......................................... $42,317,282
==========

<FN>
- ---------------
Percentages indicated are based on net assets of $42,317,282.

(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $2,000. Cost for federal income tax purposes differs from
value of net unrealized appreciation of securities as follows:
</TABLE>

<TABLE>
<S> <C>
Unrealized appreciation......................................................... $2,785,556
Unrealized depreciation......................................................... (474,354)
----------
Net unrealized appreciation..................................................... $2,311,202
=========
<FN>
(b) Non income producing security.
</TABLE>

See Notes to Financial Statements.

15
<PAGE> 17

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments in securities, at value
(cost $40,039,836)................................................... $42,353,038
Interest and dividends receivable....................................... 24,260
Deferred organization costs............................................. 6,699
Prepaid expenses and cash............................................... 3,085
-----------
Total assets.............................................................. 42,387,082
-----------
LIABILITIES
Payable for investment securities purchased............................. 4,582
Payable for Portfolio shares redeemed................................... 368
Accrued expenses and other payables:
Advisory fees........................................................ 22,473
Administration fees.................................................. 5,186
Audit fees........................................................... 4,279
Custodian fees....................................................... 19,185
Registration fees.................................................... 3,126
Reports to shareholders.............................................. 4,734
Transfer agent fees.................................................. 4,119
Other................................................................ 1,748
-----------
Total liabilities......................................................... 69,800
-----------
NET ASSETS................................................................ $42,317,282
==========
Shares Outstanding ($0.001 par value, 250 million shares authorized)...... 4,052,417
==========
Calculation of Maximum Offering Price
Net asset value per share............................................... $10.44
Sales charge -- 3.0% of public offering price........................... 0.32
------
Maximum Offering Price.................................................... $10.76
==========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par.......................................... $ 4,052
Additional paid-in capital.............................................. 40,538,415
Undistributed net investment loss....................................... (22,186)
Net unrealized appreciation from investments............................ 2,313,202
Accumulated net realized losses on investment transactions.............. (516,201)
-----------
Net Assets, June 30, 1996................................................. $42,317,282
==========
</TABLE>

- ---------------
See Notes to Financial Statements.

16
<PAGE> 18

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 1, 1996(a) TO JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.......................................................... $ 47,367
Dividends......................................................... 64,600
----------
111,967
Expenses
Advisory fees................................................... $ 66,790
Administration fees............................................. 15,413
Distribution expenses........................................... 25,688
Custodian fees and expenses..................................... 23,326
Reports to shareholders......................................... 4,734
Transfer agent fees and expenses................................ 7,799
Registration fees............................................... 4,552
Audit fees...................................................... 4,279
Amortization of organization expenses........................... 2,548
Legal fees...................................................... 3,367
Insurance expense............................................... 546
Directors' fees................................................. 849
Other expenses.................................................. 91
--------
Total expenses before fee waivers............................... 159,982
Less: Fee waivers............................................... (25,688)
Expenses paid by third parties............................. (141)
--------
Net expenses...................................................... 134,153
----------
Net Investment Loss............................................... (22,186)
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
Net realized losses from securities transactions................ (516,201)
Net change in unrealized appreciation from investments.......... 2,313,202
----------
Net Realized and Unrealized Gains from Investments................ 1,797,001
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $1,774,815
=========
<FN>
- ---------------
(a) Commencement of operations.
</TABLE>

See Notes to Financial Statements.

17
<PAGE> 19

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 1, 1996(a)
TO JUNE 30, 1996
-------------------
(UNAUDITED)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss.................................................. $ (22,186)
Net realized losses from securities transactions..................... (516,201)
Net change in unrealized appreciation from investments............... 2,313,202
-------------------
Net increase in net assets resulting from operations................. 1,774,815
-------------------
Portfolio Share Transactions
Net proceeds from shares subscribed.................................. 42,275,768
Cost of shares redeemed.............................................. (1,733,301)
-------------------
Net increase in net assets from Portfolio share transactions......... 40,542,467
-------------------
Total Increase......................................................... 42,317,282
NET ASSETS
Beginning of period.................................................. --
-------------------
End of period........................................................ $42,317,282
==============
SHARE TRANSACTIONS
Issued............................................................... 4,219,927
Redeemed............................................................. (167,510)
-------------------
Change in shares..................................................... 4,052,417
==============
<FN>
- ---------------
(a) Commencement of operations.
</TABLE>

See Notes to Financial Statements.

18
<PAGE> 20

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
S&P/MOODY'S MATURITY AMOUNT MARKET
RATINGS RATE DATE (000) VALUE
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS -- 92.9%
ARIZONA -- 1.5%
Pima County School District, GO....... AAA/Aaa 7.50% 7/01/10 $ 1,200 $ 1,431,000
-----------
GEORGIA -- 4.0%
GO, Series A, Public Improvements..... AA+/Aaa 7.70 2/01/00 1,300 1,436,500
GO, Miscellaneous Taxes............... AA+/Aaa 6.25 3/01/06 2,000 2,185,000
-----------
3,621,500
-----------
KENTUCKY -- 1.5%
Kentucky State Turnpike Authority,
Economic Development,
Revitalization Projects............. AAA/Aaa 6.50 7/01/07 1,250 1,381,250
-----------
MARYLAND -- 1.2%
Prince George County, GO, Public
Improvement......................... AAA/Aaa 6.00 3/15/05 1,000 1,068,750
-----------
MINNESOTA -- 1.2%
GO Public Improvements................ AA+/Aaa 6.00 5/01/06 1,000 1,070,000
-----------
NEVADA -- 1.3%
Clark County School District, GO...... AAA/Aaa 7.25 6/15/02 1,055 1,181,600
-----------
NEW JERSEY -- 1.2%
GO, Series E, Sales Tax Revenue....... AA+/Aa1 6.00 7/15/07 1,000 1,065,000
-----------
</TABLE>

Continued

19
<PAGE> 21

<TABLE>
<CAPTION>
PRINCIPAL
S&P/MOODY'S MATURITY AMOUNT MARKET
RATINGS RATE DATE (000) VALUE
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE -- 75.5%
Bristol Health & Educational
Facilities Board Revenue............ AAA/Aaa 6.75% 9/01/07 $ 2,140 $ 2,386,100
Chattanooga-Hamilton County Hospital
Authority Revenue................... AAA/Aaa 5.50 10/01/13 1,000 972,500
Chattanooga-Hamilton County Hospital
Authority, Erlamger Medical Center,
Revenue............................. AAA/Aaa 5.40 10/01/05 1,000 1,011,250
Chattanooga Sewer & Sewage
Facilities, GO...................... AAA/Aaa 5.13 5/01/09 1,000 963,750
Clarksville Water, Sewer & Gas
Revenue............................. AAA/Aaa 6.13 2/01/12 1,250 1,281,250
GO, Miscellaneous Taxes............... AA+/Aaa 7.00 3/01/03 2,000 2,242,500
GO, Fuel Sales Tax Revenue, Franchise
Tax and Business License Fees....... AA+/Aaa 5.00 5/01/03 1,250 1,264,062
GO, Series B, Fuel Sales Tax Revenue,
Franchise Tax and Business License
Fees................................ AA+/Aaa 5.50 5/01/04 2,230 2,316,412
Hamilton County Industrial Development
Revenue............................. AAA/Aaa 5.50 9/01/02 1,000 1,020,000
Hamilton County, GO, Series A......... NR/Aa 5.10 9/01/06 1,000 991,250
Jackson Hospital Revenue.............. AAA/Aaa 5.50 4/01/10 1,000 985,000
Jackson Water & Sewer Revenue......... AAA/Aaa 5.25 1/01/11 1,000 942,500
Johnson City Health & Education
Medical Center Revenue.............. AAA/Aaa 5.00 7/01/13 1,000 908,750
Johnson City School Sales Tax, GO..... AAA/Aaa 6.60 5/01/10 1,000 1,072,500
Johnson City School Sales Tax, GO..... AAA/Aaa 6.70 5/01/21 1,250 1,340,625
Knox County 1st Utility District,
Water & Sewer Service Revenue....... AAA/Aaa 6.00 12/01/11 1,000 1,013,750
Knox County Health Education & Housing
Facilities, GO...................... AA/Aa 6.10 4/01/04 1,140 1,212,675
Knox County Health Education & Housing
Facilities Revenue.................. AAA/Aaa 7.25 1/01/10 1,000 1,153,750
Knox County Health Education & Housing
Facilities Revenue.................. AAA/Aaa 5.75 1/01/11 1,200 1,207,500
Knox County Health Education & Housing
Facilities Revenue.................. AAA/Aaa 6.25 1/01/13 1,000 1,065,000
Knoxville Electric.................... AA/Aa 5.70 7/01/12 1,165 1,162,087
</TABLE>

Continued

20
<PAGE> 22

<TABLE>
<CAPTION>
PRINCIPAL
S&P/MOODY'S MATURITY AMOUNT MARKET
RATINGS RATE DATE (000) VALUE
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
Lawrenceburg Electric Revenue......... AAA/Aaa 6.63% 7/01/18 $ 1,250 $ 1,390,625
Maury County Industrial Development,
Saturn Corp. Project, Revenue....... A-/NR 6.50 9/01/24 1,250 1,287,500
Maury County, GO...................... NR/A1 5.13 4/01/08 1,000 972,500
Memphis Electric Systems Revenue...... AA/Aa 5.00 1/01/05 1,600 1,698,000
Memphis Electric Systems Revenue...... AA/Aa 4.90 1/01/11 1,375 1,258,125
Memphis Government, GO................ AA/Aa 5.40 8/01/09 1,000 981,250
Memphis Government, GO................ AA/Aa 5.75 8/01/13 1,000 1,001,250
Memphis Sewer Systems Revenue......... AA/Aa 4.85 3/01/10 800 734,000
Memphis Sewer Systems Revenue......... AA/Aa 5.00 3/01/16 1,185 1,065,019
Metropolitan Nashville & Davidson
County, Revenue, Series A........... AA/Aa 5.63 5/15/14 1,000 985,000
Metropolitan Nashville Airports
Revenue............................. AAA/Aaa 6.60 7/01/15 1,000 1,063,750
Metropolitan Nashville Revenue, Series
B................................... AAA/Aaa 6.50 7/01/11 1,000 1,092,500
Metropolitan Nashville & Davidson..... AAA/Aaa 6.00 1/01/07 1,000 1,060,000
Metropolitan Nashville & Davidson
County Revenue...................... AA/Aa 5.20 5/15/00 1,000 1,020,000
Metropolitan Nashville & Davidson
County Revenue...................... AA/Aa 5.00 5/15/03 2,000 1,946,250
Metropolitan Nashville & Davidson
County, Water & Sewer Revenue....... AAA/Aaa 6.40 4/01/98 1,000 1,038,750
Metropolitan Nashville & Davidson
County, Water & Sewer Revenue....... AAA/Aaa 6.00 1/01/08 1,700 1,757,375
Metropolitan Nashville & Davidson
County, Water & Sewer Revenue....... AAA/Aaa 5.20 1/01/13 1,500 1,443,750
Metropolitan Nashville & Davidson
County, Vanderbilt University
Revenue............................. AA/Aa 5.75 1/01/08 1,085 1,116,194
Oak Ridge, GO......................... A+/Aa 5.55 7/01/10 1,000 992,500
School Board Authority, Higher
Educational Facilities, University
and College Improvements, Series A.. AA/A1 6.25 5/01/10 735 758,888
Rutherford County Capital Outlay,
GO.................................. AA-/Aa 6.25 5/01/03 1,500 1,625,625
Rutherford County Capital Outlay,
GO.................................. AA-/Aa 6.50 5/01/06 1,250 1,384,375
Rutherford County, GO................. AA-/Aa 6.50 4/01/06 1,645 1,822,864
Sevier County Public Building
Authority Revenue................... NR/Aaa 5.25 9/01/08 1,000 985,000
</TABLE>

Continued

21
<PAGE> 23

<TABLE>
<CAPTION>
PRINCIPAL
S&P/MOODY'S MATURITY AMOUNT MARKET
RATINGS RATE DATE (000) VALUE
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
Shelby County Health Educational &
Housing Facilities.................. AAA/Aaa 6.25% 8/01/07 $ 2,000 $ 2,167,500
Shelby County Health & Educational
Facilities Revenue.................. AAA/Aaa 5.50 8/01/12 1,200 1,170,000
Shelby County Health & Educational
Facilities Revenue.................. AAA/Aaa 5.25 8/01/15 1,000 937,500
Shelby County Revenue................. AAA/Aaa 6.25 8/01/08 1,000 1,078,750
Shelby County, GO..................... AA+/Aa 6.00 3/01/99 1,195 1,244,294
Shelby County, GO..................... AA+/Aa 6.75 4/01/04 1,000 1,115,000
Shelby County, GO..................... AA+/Aa 6.75 4/01/05 1,000 1,118,750
Shelby County, GO..................... AA+/Aa 5.50 4/01/11 1,000 995,000
Shelby County, GO..................... AA+/Aa 5.13 3/01/18 1,015 923,650
Williamson County, GO................. AAA/Aa 4.75 4/01/09 1,200 1,105,500
-----------
68,850,245
-----------
TEXAS -- 1.5%
Midland Independent School
District, GO........................ AAA/NR 6.50 8/15/10 1,270 1,363,663
-----------
WASHINGTON -- 2.4%
GO, Series B & AT-7................... AA/Aa 6.00 6/01/05 1,000 1,062,500
Pierce County School District, GO,
Series A............................ AAA/Aaa 6.65 12/01/07 1,000 1,097,500
-----------
2,160,000
-----------
WISCONSIN -- 1.6%
Madison Metropolitan School, GO....... NR/Aaa 6.50 4/01/11 1,300 1,444,625
-----------
Total Municipal Bonds
(Cost -- $85,065,035)............... 84,637,633
-----------
</TABLE>

Continued

22
<PAGE> 24

<TABLE>
<CAPTION>
SHARES MARKET
(000) VALUE
--------- -----------
<S> <C> <C>
REGULATED INVESTMENT
COMPANIES -- 7.8%
Dreyfus Tax Exempt Fund.............................................. $ 2,707 $ 2,707,404
Aim Tax Free Portfolio............................................... 4,400 4,400,000
-----------
Total Regulated Investment Companies (Cost -- $7,107,404)............ 7,107,404
-----------
TOTAL INVESTMENTS (COST--$92,172,439)(a)--100.7%..................... 91,745,037
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.7%)...................... (606,807)
-----------
NET ASSETS -- 100.0%................................................. $91,138,230
===========
</TABLE>

- ---------------
Percentages indicated are based on net assets of $91,138,230.

(a) Represents cost for federal income tax purposes and differs value by net
unrealized depreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation.................................................. $ 509,366
Unrealized depreciation.................................................. (936,768)
---------
Net unrealized depreciation.............................................. $(427,402)
=========
</TABLE>

GO -- General Obligation Bonds

See Notes to Financial Statements.

23
<PAGE> 25

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments at value (cost $92,172,439).................................. $91,745,037
Interest receivable...................................................... 1,699,149
Receivable for investment securities sold................................ 6,294,204
Receivable for Portfolio shares sold..................................... 100
Deferred organization costs.............................................. 32,011
Prepaid expenses......................................................... 10,331
-----------
Total assets............................................................... 99,780,832
-----------
LIABILITIES
Dividends payable........................................................ 319,629
Payable for investment securities purchased.............................. 8,117,467
Payable for Portfolio shares redeemed.................................... 78,446
Accrued expenses and other payables:
Advisory fees......................................................... 37,133
Administration fees................................................... 11,159
Other................................................................. 78,768
-----------
Total liabilities.......................................................... 8,642,602
-----------
NET ASSETS................................................................. $91,138,230
==========
Shares Outstanding ($0.001 par value, 250 million shares authorized)....... 9,329,775
==========
Calculation of Maximum Offering Price
Net asset value per share................................................ $9.77
Sales charge -- 3.0% of public offering price............................ 0.30
-----
Maximum Offering Price..................................................... $10.07
------
------
COMPOSITION OF NET ASSETS:
Shares of common stock, at par........................................... $ 9,330
Additional paid-in capital............................................... 92,986,481
Undistributed net investment income...................................... 3,642
Net unrealized depreciation from investments............................. (427,402)
Accumulated net realized losses from investment transactions............. (1,433,821)
-----------
Net Assets, June 30, 1996.................................................. $91,138,230
==========
</TABLE>

- ---------------
See Notes to Financial Statements.

24
<PAGE> 26

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................ $ 2,326,788
Dividends....................................................... 32,987
-----------
2,359,775
Expenses
Advisory fees................................................. $ 228,436
Administration fees........................................... 68,531
Distribution expenses......................................... 114,219
Custodian fees and expenses................................... 45,215
Reports to shareholders....................................... 6,534
Transfer agent fees and expenses.............................. 11,350
Registration fees............................................. 170
Audit fees.................................................... 8,593
Amortization of organization expenses......................... 5,818
Legal fees.................................................... 8,856
Insurance expense............................................. 2,523
Directors' fees............................................... 2,854
Other expenses................................................ 1,452
---------
Total expenses before fee waivers............................. 504,551
Less: Fee waivers............................................. (114,219)
---------
Net expenses.................................................... 390,332
-----------
Net Investment Income........................................... 1,969,443
-----------
REALIZED AND UNREALIZED LOSSES FROM INVESTMENTS
Net realized losses from securities transactions.............. (855,902)
Net change in unrealized depreciation from investments........ (3,049,189)
-----------
Net Realized and Unrealized Losses from Investments............. (3,905,091)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(1,935,648)
==========
</TABLE>

- ---------------
See Notes to Financial Statements.

25
<PAGE> 27

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.................................. $ 1,969,443 $ 4,191,331
Net realized gains (losses) from securities
transactions........................................ (855,902) 1,136,490
Net change in unrealized appreciation (depreciation)
from investments.................................... (3,049,189) 6,292,185
---------------- -----------------
Net increase (decrease) in net assets resulting from
operations.......................................... (1,935,648) 11,620,006
---------------- -----------------
Dividends to shareholders from net investment income..... (1,968,272) (4,190,548)
Distributions to shareholders in excess of net tax exempt
interest income........................................ -- (783)
---------------- -----------------
Total dividends and distributions........................ (1,968,272) (4,191,331)
---------------- -----------------
Portfolio Share Transactions
Net proceeds from shares subscribed.................... 5,450,069 12,555,177
Net asset value of shares issued to shareholders in
reinvestment of dividends........................... 80,720 196,336
Cost of shares redeemed................................ (4,631,831) (12,163,924)
---------------- -----------------
Net increase in net assets from Portfolio share
transactions........................................ 898,958 587,589
---------------- -----------------
Total Increase (Decrease)................................ (3,004,962) 8,016,264
NET ASSETS
Beginning of period.................................... 94,143,192 86,126,928
---------------- -----------------
End of period.......................................... $ 91,138,230 $ 94,143,192
============= =============
SHARE TRANSACTIONS:
Issued................................................. 550,834 1,291,747
Reinvested............................................. 8,125 19,813
Redeemed............................................... (468,442) (1,237,647)
---------------- -----------------
Change in shares....................................... 90,517 73,913
============= =============
</TABLE>

- ---------------
See Notes to Financial Statements.

26
<PAGE> 28

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
S&P/MOODY'S MATURITY AMOUNT MARKET
RATINGS RATE DATE (000) VALUE
----------- ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- 1.9%
Merrill Lynch...................... A+/A1 5.36% 7/30/96 $ 2,000 $ 1,991,067
------------
Total Commercial Paper
(Cost -- $1,991,364)............. 1,991,067
------------
CORPORATE BONDS -- 50.6%
BANKING, INSURANCE &
FINANCE -- 11.6%
American General Finance........... A+/A1 5.88 7/01/00 2,000 1,935,000
Associates Corp.................... AA-/A3 6.59 1/12/98 2,400 2,412,000
Bell Atlantic Financial............ A+/A1 6.63 11/30/97 2,700 2,715,012
General Motors Acceptance Corp..... A-/A3 7.75 1/15/99 2,500 2,568,750
Norwest Financial.................. AA-/Aa3 6.00 8/15/97 2,500 2,499,500
------------
12,130,262
------------
INDUSTRIAL -- 28.6%
Dayton Hudson Co................... BBB+/A3 7.50 3/01/99 2,000 2,035,000
Gannett Co......................... A+/A2 5.25 3/01/98 2,700 2,659,500
GTE Corp........................... BBB+/Baa1 10.75 9/15/17 2,500 2,731,250
Houston Industries, Inc............ A-/Baa2 7.25 12/01/96 3,500 3,521,875
Imperial Oil....................... AA+/Aa2 8.75 10/15/19 3,000 3,165,000
Lockheed Martin.................... BBB+/A3 6.55 5/15/99 3,000 2,996,250
Mobil Corp......................... AA/Aa2 6.50 12/17/96 1,000 1,002,500
Smith Enron........................ NR/NR 5.97 12/15/06 1,750 1,658,125
Southern Pacific Rail.............. BBB+/Baa1 6.90 1/02/97 1,970 1,974,925
Union Pacific...................... AA-/Aa2 6.44 1/15/98 3,000 3,000,000
WMX Technologies................... A+/A1 7.13 3/22/97 2,000 2,015,000
Wal-Mart Stores.................... AA/Aa2 5.50 3/01/98 1,700 1,676,625
Walt Disney Co..................... A/A2 6.38 3/30/01 1,500 1,475,625
------------
29,911,675
------------
</TABLE>

Continued

27
<PAGE> 29

<TABLE>
<CAPTION>
PRINCIPAL
S&P/MOODY'S MATURITY AMOUNT MARKET
RATINGS RATE DATE (000) VALUE
----------- ----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
UTILITIES -- 10.4%
Central Power & Light.............. A/A2 6.00% 4/01/00 $ 2,000 $ 1,952,500
Florida Power & Light.............. AA-/A1 6.20 2/02/98 2,000 1,995,000
Kansas City Power & Light.......... A/A1 5.75 3/03/98 2,750 2,719,063
MCI Communications Corp............ A-/A2 7.63 11/07/96 2,250 2,261,250
New England Telephone.............. AA-/Aa2 6.25 12/15/97 2,000 1,995,000
------------
10,922,813
------------
Total Corporate Bonds
(Cost -- $52,687,859)............ 52,964,750
------------
U.S. GOVERNMENT AGENCIES -- 14.3%
Government National Mortgage Assoc.:
Government National Mortgage Assoc. Pool
#339455.................................... 8.00 12/15/07 970 993,587
Government National Mortgage Assoc. Midget,
Pool #358725............................... 8.00 8/15/08 1,746 1,788,513
Government National Mortgage Assoc. Pool
#368641.................................... 7.50 4/15/09 798 804,620
Government National Mortgage Assoc. Pool
#392085.................................... 7.50 4/15/09 913 920,422
Government National Mortgage Assoc. Pool
#345752.................................... 7.50 6/15/09 797 803,540
Government National Mortgage Assoc. Pool
#376589.................................... 8.50 9/15/09 1,516 1,574,568
Government National Mortgage Assoc. Midget,
Pool #380660............................... 8.00 11/15/09 1,693 1,734,525
Government National Mortgage Assoc. Pool
#392770.................................... 8.50 12/15/09 816 847,825
</TABLE>

Continued

28
<PAGE> 30

<TABLE>
<CAPTION>
PRINCIPAL
MATURITY AMOUNT MARKET
RATE DATE (000) VALUE
----- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Government National Mortgage Assoc. Pool
#392814.................................... 8.50% 12/15/09 $ 1,240 $ 1,288,304
Government National Mortgage Assoc. Pool
#405445.................................... 8.00 4/15/10 2,043 2,092,933
Government National Mortgage Assoc. Pool
#407337.................................... 8.00 4/15/10 2,005 2,053,880
------------
Total U.S. Government Agencies
(Cost -- $14,615,273)......................... 14,902,717
------------
U.S. TREASURY BONDS -- 6.7%
U.S. Treasury Bond.............................. 5.38 11/30/97 2,500 2,480,925
U.S. Treasury Bond.............................. 5.88 8/15/98 4,500 4,477,095
------------
Total U.S. Treasury Bonds
(Cost -- $7,002,075).......................... 6,958,020
------------
U.S. TREASURY NOTES -- 24.5%
U.S. Treasury Note.............................. 6.00% 8/31/97 6,000 6,006,720
U.S. Treasury Note.............................. 5.75 9/30/97 4,000 3,992,920
U.S. Treasury Note.............................. 6.00 11/30/97 2,000 2,001,720
U.S. Treasury Note.............................. 6.13 5/15/98 3,000 3,002,580
U.S. Treasury Note.............................. 5.50 2/28/99 4,500 4,419,090
U.S. Treasury Note.............................. 6.38 7/15/99 2,500 2,507,050
U.S. Treasury Note.............................. 6.88 7/31/99 2,100 2,132,592
U.S. Treasury Note.............................. 7.75 1/31/00 1,500 1,564,755
------------
Total U.S. Treasury Notes
(Cost -- $25,537,721)......................... 25,627,427
------------
</TABLE>

Continued

29
<PAGE> 31

<TABLE>
<CAPTION>
SHARES MARKET
(000) VALUE
--------- ------------
<S> <C> <C>
REGULATED INVESTMENT COMPANIES -- 1.0%
Aim Prime Portfolio............................................... 1,069 1,068,949
------------
Total Regulated Investment Companies (Cost -- $1,068,949)......... 1,068,949
------------
TOTAL INVESTMENTS (COST -- $102,903,241)(a) -- 99.0%.............. 103,512,930
ASSETS IN EXCESS OF OTHER LIABILITIES -- 1.0%..................... 1,079,652
------------
NET ASSETS -- 100.0%.............................................. $104,592,582
============
<FN>
- ---------------
Percentages indicated are based on net assets of $104,592,582.

(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
</TABLE>

<TABLE>
<S> <C>
Unrealized appreciation.................................................. $ 874,111
Unrealized depreciation.................................................. (264,422)
---------
Net unrealized appreciation.............................................. $ 609,689
=========
</TABLE>

See Notes to Financial Statements.

30
<PAGE> 32

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $102,903,241)................. $103,512,930
Interest receivable..................................................... 1,702,383
Receivable for Portfolio shares sold.................................... 16,339
Receivable for investment securities sold............................... 3,324,044
Deferred organization costs............................................. 32,011
Prepaid expenses........................................................ 10,483
------------
Total assets.............................................................. 108,598,190
------------
LIABILITIES
Dividends payable....................................................... 508,641
Payable for investment securities purchased............................. 2,555,100
Payable for Portfolio shares redeemed................................... 724,171
Accrued expenses and other payables:
Advisory fees........................................................ 42,823
Administration fees.................................................. 13,054
Other................................................................ 161,819
------------
Total liabilities......................................................... 4,005,608
------------
NET ASSETS................................................................ $104,592,582
===========
Shares Outstanding ($0.001 par value, 250 million shares authorized)...... 10,537,466
===========
Calculation of Maximum Offering Price
Net asset value per share............................................... $9.93
Sales charge -- 3.0% of public offering price........................... 0.31
-----
Maximum Offering Price.................................................... $10.24
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par.......................................... $ 10,537
Additional paid-in capital.............................................. 104,007,368
Undistributed net investment income..................................... 13,446
Net unrealized appreciation from investments............................ 609,689
Accumulated net realized losses from investment transactions............ (48,458)
------------
Net Assets, June 30, 1996................................................. $104,592,582
===========
</TABLE>

- ---------------
See Notes to Financial Statements.

31
<PAGE> 33

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................ $ 3,435,061
Dividends....................................................... 68,781
-----------
3,503,842
Expenses
Advisory fees................................................. $ 265,155
Administration fees........................................... 79,546
Distribution fees............................................. 132,636
Custodian fees and expenses................................... 49,516
Reports to shareholders....................................... 6,836
Registration fees............................................. 5,219
Transfer agent fees and expenses.............................. 13,439
Legal fees.................................................... 9,406
Amortization of organization expenses......................... 5,818
Directors' fees............................................... 3,281
Audit fees.................................................... 8,180
Insurance fees................................................ 2,721
Other expenses................................................ 1,573
---------
Total expenses before fee waivers............................. 583,326
Less: Fee Waivers............................................. (132,636)
Expenses paid by third parties........................... (2,226)
---------
Net expenses.................................................... 448,464
-----------
Net Investment Income........................................... 3,055,378
-----------
REALIZED AND UNREALIZED LOSSES FROM INVESTMENTS
Net realized losses from securities transactions.............. (48,458)
Net change in unrealized depreciation from investments........ (2,107,644)
-----------
Net Realized and Unrealized Losses from Investments............. (2,156,102)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 899,276
==========
</TABLE>

- ---------------
See Notes to Financial Statements.

32
<PAGE> 34

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.................................. $ 3,055,378 $ 5,786,781
Net realized gains (losses) from securities
transactions........................................ (48,458) 41,880
Net change in unrealized appreciation (depreciation)
from investments.................................... (2,107,644) 4,507,231
---------------- -----------------
Net increase in net assets resulting from operations... 899,276 10,335,892
---------------- -----------------
Dividends to shareholders from net investment income..... (3,055,261) (5,769,846)
Distributions to shareholders from net realized gains on
securities transactions................................ -- (16,935)
---------------- -----------------
Total dividends and distributions to shareholders........ (3,055,261) (5,786,781)
---------------- -----------------
Portfolio Share Transactions
Net proceeds from shares subscribed.................... 14,953,632 19,098,439
Net asset value of shares issued to shareholders in
reinvestment of dividends........................... 1,254,049 2,760,916
Cost of shares redeemed................................ (12,840,866) (16,216,024)
---------------- -----------------
Net increase in net assets from Portfolio share
transactions........................................ 3,366,815 5,643,331
---------------- -----------------
Total Increase........................................... 1,210,830 10,192,442
NET ASSETS
Beginning of period.................................... 103,381,752 93,189,310
---------------- -----------------
End of period.......................................... $104,592,582 $ 103,381,752
============= =============
SHARE TRANSACTIONS:
Issued................................................. 1,490,909 1,915,053
Reinvested............................................. 125,307 276,943
Redeemed............................................... (1,287,357) (1,627,280)
---------------- -----------------
Change in shares....................................... 328,859 564,716
============= =============
</TABLE>

- ---------------
See Notes to Financial Statements.

33
<PAGE> 35

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
S&P/MOODY'S MATURITY AMOUNT MARKET
RATINGS RATE DATE (000) VALUE
----------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
COMMERCIAL PAPER -- 9.8%
AT&T Capital........................ A1/P1 5.41% 7/11/96 $ 1,000 $ 998,346
Merrill Lynch....................... A+/A1 5.36 7/30/96 1,000 995,533
National Rural Utility Corp......... AA-/A1 5.28 7/11/96 1,500 1,497,533
-----------
Total Commercial Paper
(Cost -- $3,492,018).............. 3,491,412
-----------
CORPORATE BONDS -- 43.8%
BANKING, INSURANCE & FINANCE -- 9.7%
Associates Corp..................... AA-/Aa3 7.32 1/13/03 750 764,063
First Union National, N.C........... A/A1 6.18 2/15/36 500 463,750
General Electric Capital Services... AAA/Aaa 7.50 8/21/35 575 577,875
NationsBank Corp.................... A-/A3 7.75 8/15/15 250 252,813
Norwest Financial, Inc.............. A-/A3 5.13 4/15/00 950 900,124
Travelers/Aetna Property &
Casualty.......................... A/A2 6.75 4/15/01 500 496,250
-----------
3,454,875
-----------
INDUSTRIAL -- 28.6%
Air Products & Chemicals............ A/A2 7.80 6/15/26 1,500 1,530,000
Columbia/HCA Healthcare............. A-/A3 7.25 5/20/08 1,000 993,750
E.I. du Pont de Nemours & Co........ AA-/Aa3 8.45 7/23/96 1,025 1,026,448
Eli Lilly & Co...................... AA/Aa3 6.57 1/01/16 475 434,625
GTE Corp............................ BBB+/Baa1 10.75 9/15/17 1,000 1,092,500
John Deere Capital Corp............. A/A2 5.76 1/08/01 425 407,469
Lockheed Martin..................... BBB+/A3 6.55 5/15/99 1,250 1,248,438
Motorola, Inc....................... AA/Aa3 6.50 3/01/08 525 501,375
Smith Enron......................... NR/NR 5.97 12/15/06 1,000 947,500
Southern Pacific Rail............... BBB+/Baa1 6.90 1/02/97 487 488,218
Wachovia Corp....................... AA-/A1 6.61 10/01/25 600 579,000
Waste Management.................... A+/A1 7.88 8/15/96 925 926,744
-----------
10,176,067
-----------
</TABLE>

Continued

34
<PAGE> 36

<TABLE>
<CAPTION>
PRINCIPAL
S&P/MOODY'S MATURITY AMOUNT MARKET
RATINGS RATE DATE (000) VALUE
----------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
UTILITIES -- 5.5%
BellSouth Telecommunications........ AAA/Aaa 8.25% 7/01/32 $ 425 $ 428,188
Florida Power Corp.................. A+/A1 8.40 8/01/96 1,025 1,027,016
Houston Lighting & Power............ A/A2 6.10 3/01/00 500 490,000
-----------
1,945,204
-----------
Total Corporate Bonds
(Cost -- $15,706,863)............. 15,576,146
-----------
MUNICIPAL BONDS -- 1.9%
Atlanta Georgia Downtown Development
Authority Lease Revenue........... AAA/NR 6.87 2/01/21 700 671,125
-----------
Total Municipal Bonds
(Cost -- $661,972)................ 671,125
-----------
U.S. TREASURY BONDS -- 34.8%
U.S. Treasury Bonds.............................. 5.88 8/15/98 3,700 3,681,167
U.S. Treasury Bonds.............................. 6.25 5/31/00 1,050 1,044,183
U.S. Treasury Bonds.............................. 5.88 6/30/00 3,000 2,943,090
U.S. Treasury Bonds.............................. 7.25 5/15/16 4,000 4,101,600
U.S. Treasury Bonds.............................. 8.13 8/15/21 5,500 619,779
-----------
Total U.S. Treasury Bonds
(Cost -- $12,541,879).......................... 12,389,819
-----------
U.S. TREASURY NOTES -- 2.8%
U.S. Treasury Note............................... 6.00% 8/31/97 1,000 1,001,120
-----------
Total U.S. Treasury Notes (Cost -- $1,000,000)... 1,001,120
-----------
</TABLE>

Continued

35
<PAGE> 37

<TABLE>
<CAPTION>
SHARES MARKET
(000) VALUE
--------- -----------
<S> <C> <C> <C> <C> <C>
REGULATED INVESTMENT COMPANIES -- 5.8%
Aim Prime Portfolio.................................................. 1,591 1,589,620
Dreyfus Prime Fund................................................... 455 454,650
-----------
Total Regulated Investment Companies (Cost -- $2,044,270)............ 2,044,270
-----------
TOTAL INVESTMENTS (COST--$35,447,002)(A)--98.9%...................... 35,173,892
ASSETS IN EXCESS OF OTHER LIABILITIES -- 1.1%........................ 393,316
-----------
NET ASSETS -- 100.0%................................................. $35,567,208
==========
</TABLE>

- ---------------
Percentage indicated are based on net assets of $35,567,208.

(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting purposes in excess of federal income tax reporting of
approximately $22,000. Cost for federal income tax purposes differs from
value of net unrealized appreciation of securities as follows:

<TABLE>
<S> <C>
Unrealized appreciation.................................................. $ 43,078
Unrealized depreciation.................................................. (338,188)
---------
Net unrealized depreciation.............................................. $(295,110)
=========
</TABLE>

NR -- Not Rated

See Notes to Financial Statements.

36
<PAGE> 38

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $35,447,002)................... $35,173,892
Interest receivable...................................................... 582,112
Receivable for investment securities sold................................ 228,317
Deferred organization costs.............................................. 6,699
Prepaid expenses and cash................................................ 3,238
-----------
Total assets............................................................... 35,994,258
-----------
LIABILITIES
Dividends payable........................................................ 154,739
Payable for Portfolio shares redeemed.................................... 220,010
Accrued expenses and other payables:
Advisory fees.................................................... 14,522
Administration fees.............................................. 4,357
Custodian fees................................................... 19,185
Other............................................................ 14,237
-----------
Total liabilities.......................................................... 427,050
-----------
NET ASSETS................................................................. $35,567,208
==========
Shares Outstanding ($0.001 par value, 250 million shares authorized)....... 3,600,348
==========
Calculation of Maximum Offering Price
Net asset value per share................................................ $9.88
Sales charge -- 3.0% of public offering price............................ 0.31
-----
Maximum Offering Price..................................................... $10.19
==========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par........................................... $ 3,600
Additional paid-in capital............................................... 35,971,108
Net unrealized depreciation from investments............................. (273,110)
Accumulated net realized losses on investment transactions............... (134,390)
-----------
Net Assets, June 30, 1996.................................................. $35,567,208
===========
</TABLE>

- ---------------
See Notes to Financial Statements.

37
<PAGE> 39

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 1, 1996(a) TO JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................... $ 581,409
Expenses
Advisory fees.................................................... $ 42,882
Administration fees.............................................. 12,865
Distribution expenses............................................ 21,441
Custodian fees and expenses...................................... 23,523
Reports to shareholders.......................................... 1,303
Registration fees................................................ 4,188
Transfer agent fees and expenses................................. 7,799
Legal fees....................................................... 3,062
Amortization of organization expenses............................ 2,548
Directors' fees.................................................. 788
Audit fees....................................................... 4,279
Insurance expense................................................ 485
Other expenses................................................... 91
--------
Total expenses before fee waivers................................ 125,254
Less: Fee waivers................................................ (21,441)
Expenses paid by third parties............................. (338)
--------
Net expenses....................................................... 103,475
---------
Net Investment Income.............................................. 477,934
---------
REALIZED AND UNREALIZED LOSSES FROM INVESTMENTS
Net realized losses from securities transactions................. (134,390)
Net change in unrealized depreciation from investments........... (273,110)
---------
Net Realized and Unrealized Losses from Investments................ (407,500)
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $ 70,434
=========
<FN>
- ---------------
(a) Commencement of operations
</TABLE>

See Notes to Financial Statements.

38
<PAGE> 40

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 1, 1996(a)
TO JUNE 30, 1996
-------------------
(UNAUDITED)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income................................................ $ 477,934
Net realized losses from securities transactions..................... (134,390)
Net change in unrealized depreciation from investments............... (273,110)
-------------------
Net increase in net assets resulting from operations................. 70,434
-------------------
Dividends to shareholders from net investment income................... (477,934)
-------------------
Portfolio Share Transactions
Net proceeds from shares subscribed.................................. 36,307,131
Net asset value of shares issued to shareholders in reinvestment of
dividends......................................................... 191,606
Cost of shares redeemed.............................................. (524,029)
-------------------
Net increase in net assets from Portfolio share transactions......... 35,974,708
-------------------
Total Increase......................................................... 35,567,208
NET ASSETS
Beginning of period.................................................. --
-------------------
End of period........................................................ $35,567,208
==============
SHARE TRANSACTIONS:
Issued............................................................... 3,634,007
Reinvested........................................................... 19,472
Redeemed............................................................. (53,131)
-------------------
Change in shares..................................................... 3,600,348
==============
<FN>
- ---------------
(a) Commencement of operations.
</TABLE>

See Notes to Financial Statements.

39
<PAGE> 41

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR FUNDS
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

The Infinity Mutual Funds, Inc. (the "Fund") was organized as a Maryland
corporation on March 6, 1990 and is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Fund operates as a series company currently comprising twelve portfolios.
The accompanying financial statements and notes relate to the ValueStar Capital
Growth Portfolio, the ValueStar Tennessee Tax-Exempt Bond Portfolio, the
ValueStar Short-Intermediate Duration Bond Portfolio and the ValueStar
Investment Grade Bond Portfolio (the "Portfolios") only.

The Capital Growth Portfolio seeks to provide investors with capital growth
by investing primarily in the equity securities of domestic issuers. The
Tennessee Tax-Exempt Bond Portfolio's investment objective is to provide
investors with current income exempt from federal and Tennessee income taxes
without assuming undue risk. This Portfolio will invest primarily in
investment-grade Tennessee Municipal Obligations without regard to maturity. The
Short-Intermediate Duration Bond Portfolio's investment objective is to provide
investors with current income without assuming undue risk. This Portfolio will
invest primarily in investment grade, U.S. dollar denominated fixed-income
securities of domestic and foreign issuers. Under normal market conditions, the
Short-Intermediate Duration Bond Portfolio will invest in a portfolio of
securities that has a duration of under four years. The Investment Grade Bond
Portfolio seeks to provide investors with current income without assuming undue
risk. This portfolio will invest primarily in investment grade, U.S. dollar
denominated fixed-income securities of domestic and foreign issuers. Under
normal market conditions, the Investment Grade Bond Portfolio will invest in a
portfolio of securities, except when maintaining a temporary defensive position,
that has a duration of 50% to 150% of that of the Merrill Lynch Corporate
Government Master Index.

The Portfolios are authorized to issue two classes of shares as follows:
Investor Shares and Trust Shares. Investor Shares and Trust Shares are
substantially the same, except that Investor Shares bear the fees that are
payable under a plan adopted by the Fund's Board of Directors pursuant to Rule
12b-1 under the Act (the "Distribution Plan") at an annual rate of 0.25% of the
average daily net assets of the outstanding Investor Shares. As of June 30,
1996, the Portfolios had only sold Investor Shares.

At June 30, 1996, there were 2 billion shares of the Portfolios' $0.001 par
value common stock authorized, of which each Portfolio's Shares are classified
into Investor Shares (250 million shares authorized per Portfolio) and Trust
Shares (250 million shares authorized per Portfolio).

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by
the Portfolios in preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of

40
<PAGE> 42

- --------------------------------------------------------------------------------

income and expenses for the period. Actual results could differ from those
estimates.

A) Securities Valuation:

The Portfolios' investments are valued each business day using available
market quotations or at fair value as determined by one or more independent
pricing services (collectively, the "Service") approved by the Board of
Directors. The Service may use available market quotations, employ electronic
data processing techniques and/ or matrix system to determine valuations.
Restricted securities and securities for which market quotations are not readily
available, if any, are valued at fair value using methods approved by the Board
of Directors. Debt securities with remaining maturities of 60 days or less are
normally valued at amortized cost, which approximates market value. The
amortized cost method involves valuing a security at its cost on the date of
purchase or, in the case of securities purchased more than 60 days to maturity,
at their market value each day until the 61st day prior to maturity, and
there-after assuming a constant amortization to maturity of the difference
between the principal amount due at maturity and such valuation.

B) Securities Transactions and Investment Income:

Securities transactions are recorded on trade date. Realized gains and
losses from sales of investments are calculated on the identified cost basis.
Interest income, including accretion of discount and amortization of premium on
investments, is accrued daily. Dividend income is recorded on the ex-dividend
date.

C) Repurchase Agreements:

The Portfolios' custodian and other banks acting in a sub-custodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default on the obligation to repurchase, the
Portfolios have the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.

D) Expenses:

The Portfolios incurred certain costs in connection with their
organization. These costs were deferred and are being amortized on a
straight-line basis through 1999 (five years from their commencement of
operations). The Fund accounts separately for the assets, liabilities and
operations of each Portfolio. Direct expenses of a Portfolio are charged to that
Portfolio while general Fund expenses are allocated among the Fund's respective
portfolios. At June 30, 1996, deferred organization costs were $6,699, $32,011,
$32,011 and $6,699 for the Capital Growth Portfolio, Tennessee Tax-Exempt Bond
Portfolio, Short-Intermediate Duration Bond Portfolio and Investment Grade Bond
Portfolio, respectively.

E) Federal Income Taxes:

For federal income tax purposes, each Portfolio is treated as a separate
entity for the purpose of determining its qualification as a regulated
investment company under the Internal Revenue Code (the "Code"). It is the
policy of each Portfolio to

41
<PAGE> 43

- --------------------------------------------------------------------------------

meet the requirements of the Code applicable to regulated investment companies,
including the requirement that they distribute substantially all of their income
to shareholders. Therefore, no federal income tax provision is required.

At December 31, 1995, the ValueStar Tennessee Tax-Exempt Bond Portfolio had
a capital loss carryover of $577,919 which is available to offset future net
realized gains on securities transactions to the extent provided for in the
Code. Such capital loss carryover will expire in fiscal year 2002.

F) Dividends and Distributions to Shareholders:

Dividends are declared daily to shareholders of record at the close of
business on the day of declaration and are paid monthly. Distributions of net
realized gains, if any, will be paid at least annually. Dividends and
distributions are recorded on the ex-dividend date. Distributions from net
investment income and from net realized gains are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. Timing differences relating to shareholder distributions have been
reclassified to paid-in-capital. These differences are primarily due to
deferrals of certain losses and expiring capital loss carryovers.

G) Other:

Each Portfolio maintains a cash balance with its custodian and receives a
reduction of its custody fees and expenses for the amounts of interest earned on
such uninvested cash balances. For financial reporting purposes for the six
months ended June 30, 1996, custodian fees and expenses and expenses paid by
third parties were increased by $141, $0, $2,226 and $338 for the Capital Growth
Portfolio, Tennessee Tax Exempt Bond Portfolio, Short-Intermediate Duration Bond
Portfolio and the Investment Grade Bond Portfolio, respectively. There was no
effect on net investment income. The Portfolio could have invested such cash
amounts in an income producing asset if it had not agreed to a reduction of fees
or expenses under the expense offset arrangement with its custodian.

NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES

First American National Bank ("First American") serves as the Portfolios'
investment adviser. Effective April 4, 1996, BISYS Fund Services Limited
Partnership ("BISYS"), a subsidiary of the BISYS Group, Inc., became the
Portfolios' administrator. Concord Financial Group, Inc. (the "Distributor"), a
wholly-owned subsidiary of Concord Holding Corporation, serves as the
distributor of the Portfolios' shares.

As investment adviser, First American manages the investments of each
Portfolio and is responsible for all purchases and sales of each Portfolio's
investment securities. For its services, First American is entitled to receive
fees at an annual rate of 0.50% of each Portfolio's average daily net assets.

As administrator, BISYS assists in supervising the operations of the
Portfolios. For its services, BISYS is entitled to receive a fee at the annual
rate of 0.15% of the average daily net assets of each of the Portfolios.

Pursuant to the Distribution Plan, each Portfolio pays the Distributor for
advertising, marketing and distributing Investor Shares at an annual rate of
0.25% of the average daily net assets of the outstanding Investor Shares. For
the six months ended June 30, 1996, the Distributor waived $132,636 and $114,219
for the Short-Intermediate

42
<PAGE> 44

- --------------------------------------------------------------------------------

Duration Bond Portfolio and the Tennessee Tax-Exempt Bond Portfolio,
respectively. For the period from April 1, 1996 (commencement of operations) to
June 30, 1996 the Distributor waived $25,688 and $21,441 for the Capital Growth
Portfolio, and Investment Grade Bond Portfolio, respectively.

Certain officers and Directors of the Fund are "affiliated persons" (each
defined in the Act) of BISYS or the Distributor. Each Director receives an
annual fee of $12,000 and a meeting fee of $1,500 per meeting for services
relating to all the portfolios constituting the Fund.

NOTE 4 -- SECURITIES TRANSACTIONS

For the six months ended June 30, 1996, the cost of purchases and the
proceeds from sales of portfolio securities (excluding short-term investments)
were as follows:

<TABLE>
<CAPTION>
SHORT-
INTERMEDIATE TENNESSEE TAX
DURATION BOND EXEMPT BOND
PORTFOLIO PORTFOLIO
------------- -------------
<S> <C> <C>
Purchases of U.S.
Government
Securities.......... $ 8,554,844 $ --
Purchases of other
securities.......... $15,964,747 $78,664,005
Sales of U.S.
Government
Securities.......... $ 6,031,953 $ --
Sales of other
securities.......... $15,852,289 $81,869,857
</TABLE>

For the period commencing April 1, 1996 and ending June 30, 1996, the cost
of purchases and the proceeds from sales of portfolio securities (excluding
short-term investments) were as follows:

<TABLE>
<CAPTION>
INVESTMENT CAPITAL
GRADE BOND GROWTH
PORTFOLIO PORTFOLIO
----------- -----------
<S> <C> <C>
Purchases of U.S.
Government
Securities............ $12,670,156 $ --
Purchases of other
securities............ $ 5,988,154 $16,298,654
Sales of U.S. Government
Securities............ $ 4,737,070 $ --
Sales of other
securities............ $ 1,586,271 $11,014,361
</TABLE>

NOTE 5 -- CONCENTRATION OF CREDIT RISK

The Tennessee Tax Exempt Bond Portfolio invests substantially all of its
assets in a non-diversified portfolio of tax-exempt debt obligations primarily
consisting of securities issued by the State of Tennessee, its municipalities,
counties and other taxing districts. The issuers' abilities to meet their
obligations may be affected by Tennessee economic, regional and political
developments.

The Tennessee Tax Exempt Bond Portfolio had the following concentrations by
sector at June 30, 1996 (as a percentage of total investments):

<TABLE>
<S> <C>
General Obligations............... 44.5%
Utilities......................... 20.5%
Health & Medical.................. 16.4%
Cash and Cash Equivalents......... 7.7%
Other............................. 7.4%
Educational....................... 3.5%
-----
100.0%
=====
</TABLE>

43
<PAGE> 45

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 1, 1996 TO
JUNE 30, 1996(a)
-------------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $ 10.00
----------
Income from investment operations:
Net investment loss.................................................. (0.01)
Net realized and unrealized gains on securities transactions......... 0.45
----------
Net income from investment operations................................ 0.44
----------
Net change in net asset value.......................................... 0.44
----------
NET ASSET VALUE, END OF PERIOD......................................... $ 10.44
==============
Total Return (excluding sales charge).................................. 12.76% (c)

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).................................... $42,317
Ratio of expenses to average net assets.............................. 1.30% (b)
Ratio of net investment loss to average net assets................... (0.22%)(b)
Ratio of expenses to average net assets*............................. 1.55% (b)
Ratio of net investment loss to average net assets*.................. (0.47%)(b)
Portfolio Turnover................................................... 29.68%
Average Commission rate paid(d)...................................... $0.0820

<FN>
- ---------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations

(b) Annualized

(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold for which
commissions were charged.
</TABLE>

See Notes to Financial Statements.

44
<PAGE> 46

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994*
---------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $ 10.19 $ 9.40 $ 10.00
---------------- ----------------- ----------
Income from investment operations:
Net investment income............... 0.21 0.45 0.34
Net realized and unrealized gains
(losses) on securities
transactions..................... (0.42) 0.79 (0.60)
---------------- ----------------- ----------
Net income (loss) from investment
operations....................... (0.21) 1.24 (0.26)
---------------- ----------------- ----------
Less dividends and distributions:
Dividends from net investment
income........................... (0.21) (0.45) (0.34)
---------------- ----------------- ----------
Net change in net asset value......... (0.42) 0.79 (0.60)
---------------- ----------------- ----------
NET ASSET VALUE, END OF PERIOD........ $ 9.77 $ 10.19 $ 9.40
============= ============= ==============
Total Return (excluding sales
charge)............................. (2.05)%(b) 13.40% (2.63)%(b)

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)... $ 91,138 $94,143 $ 86,127
Ratio of expenses to average net
assets........................... 0.85%(a) 0.87% 0.82%(a)
Ratio of net investment income to
average net assets............... 4.31%(a) 4.52% 4.61%(a)
Ratio of expenses to average net
assets**......................... 1.10%(a) 1.12% 1.18%(a)
Ratio of net investment income to
average net assets**............. 4.06%(a) 4.27% 4.25%(a)
Portfolio Turnover.................. 86.83% 188% 41%

<FN>
- ---------------
* For the period March 28, 1994 (commencement of operations) through December
31, 1994.

** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Annualized

(b) Not annualized
</TABLE>

See Notes to Financial Statements.

45
<PAGE> 47

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR SHORT-INTERMEDIATE DURATION BOND PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994*
---------------- ----------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD... $ 10.13 $ 9.66 $ 10.00
---------------- ----------------- ----------
Income from investment operations:
Net investment income................ 0.29 0.59 0.38
Net realized and unrealized gains
(losses) on securities
transactions...................... (0.20) 0.47 (0.34)
---------------- ----------------- ----------
Net income from investment
operations........................ 0.09 1.06 0.04
---------------- ----------------- ----------
Less dividends and distributions:
Dividends from net investment
income............................ (0.29) (0.59) (0.38)
---------------- ----------------- ----------
Net change in net asset value.......... (0.20) 0.47 (0.34)
---------------- ----------------- ----------
NET ASSET VALUE, END OF PERIOD......... $ 9.93 $ 10.13 $ 9.66
============= ============= ==============
Total Return (excluding sales
charge).............................. 0.87%(b) 11.20% 0.42%(b)

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's).... $104,593 $ 103,382 $ 93,189
Ratio of expenses to average net
assets............................ 0.85%(a) 0.87% 0.83%(a)
Ratio of net investment income to
average net assets................ 5.76%(a) 5.89% 5.27%(a)
Ratio of expenses to average net
assets**.......................... 1.10%(a) 1.12% 1.28%(a)
Ratio of net investment income to
average net assets**.............. 5.51%(a) 5.64% 4.82%(a)
Portfolio Turnover................... 22.99% 28% 6%

<FN>
- ---------------
* For the period March 28, 1994 (commencement of operations) through December
31, 1994.

** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Annualized

(b) Not annualized
</TABLE>

See Notes to Financial Statements.

46
<PAGE> 48

THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR INVESTMENT GRADE BOND PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 1, 1996 TO
JUNE 30, 1996(a)
-------------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 10.00
----------
Income from investment operations:
Net investment income............................................... 0.14
Net realized and unrealized losses on securities transactions....... (0.12)
----------
Net income from investment operations............................... 0.02
----------
Less dividends and distributions:
Dividends from net investment income................................ (0.14)
----------
Net change in net asset value......................................... (0.12)
----------
NET ASSET VALUE, END OF PERIOD........................................ $ 9.88
==============
Total Return (excluding sales charge)................................. (2.07)%(c)

RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)................................... $35,567
Ratio of expenses to average net assets............................. 1.21%(b)
Ratio of net investment income to average net assets................ 5.57%(b)
Ratio of expenses to average net assets*............................ 1.46%(b)
Ratio of net investment income to average net assets*............... 5.32%(b)
Portfolio Turnover.................................................. 28.44%

<FN>
- ---------------
* During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.

(a) Period from commencement of operations

(b) Annualized

See Notes to Financial Statements.

47
<PAGE> 49

The Infinity Mutual Funds, Inc.

VALUESTAR FAMILY OF MUTUAL FUNDS
3435 Stelzer Road
Columbus, OH 43219

INVESTMENT ADVISER
First American National Bank
315 Deaderick Street
Nashville, TN 37237-0401

ADMINISTRATOR
BISYS Fund Services LP
3435 Stelzer Road
Columbus, OH 43219

DISTRIBUTOR
Concord Financial Group, Inc.
3435 Stelzer Road
Columbus, OH 43219

CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286

TRANSFER AGENT &
DIVIDEND DISBURSING AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219

Concord Financial Group, Inc. is the Portfolios'
distributor and is unaffiliated with First American
National Bank, the Portfolios' adviser.

Investments in the Portfolios are neither guaranteed by
nor obligations of First American National Bank
or any other bank and are not insured
by the FDIC or any other government agency.
Investments in mutual funds involve risk,
including the possible loss of principal.

This material must be preceded or accompanied
by a current prospectus.

HELPING PEOPLE PLAN
FOR A BRIGHTER FUTURE.(SM)

----------------------------------------------------------
V A L U E S T A R
Family Of Mutual Funds
----------------------------------------------------------

----------------------------------------------------------

VALUESTAR CAPITAL
GROWTH PORTFOLIO

VALUESTAR TENNESSEE
TAX EXEMPT BOND PORTFOLIO

VALUESTAR
SHORT-INTERMEDIATE DURATION BOND
PORTFOLIO

VALUESTAR INVESTMENT
GRADE BOND PORTFOLIO

-------------------------------------------------
Semi-Annual Report
June 30, 1996

[VALUESTAR LOGO(SM)]

05116-0 Rev. 8/96
VLSTBDD96SA