PROSPECTUS JULY 1, 1996
THE INFINITY MUTUAL FUNDS, INC.
VALUESTAR FUNDS
PRIME MONEY MARKET PORTFOLIO
U.S. TREASURY MONEY MARKET PORTFOLIO
TRUST SHARES
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The Infinity Mutual Funds, Inc. (the "Fund") is an open-end, management
investment company, known as a series fund. By this Prospectus, the Fund is
offering Trust Shares of two diversified money market portfolios (the
"Portfolios"), that seek to provide investors with as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity.
. The PRIME MONEY MARKET PORTFOLIO will invest in short-term money market
instruments consisting of securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, bank obligations, repurchase
agreements, commercial paper and other corporate obligations.
. The U.S. TREASURY MONEY MARKET PORTFOLIO will invest only in U.S. Treasury
securities and in other securities guaranteed as to principal and interest by
the U.S. Government, and repurchase agreements in respect thereof.
An investment in a Portfolio is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that each Portfolio will be able to
maintain a stable net asset value of $1.00 per share.
Each Portfolio's investment adviser is First American National Bank (the
"Adviser").
BISYS Fund Services Limited Partnership (the "Administrator") serves as each
Portfolio's administrator.
Concord Financial Group, Inc. (the "Distributor"), an affiliate of the
Administrator, serves as distributor of each Portfolio's shares.
Trust Shares are offered without a sales charge and are sold only to clients
of the Adviser for their qualified trust, custody and/or agency accounts and to
clients of the Adviser's affiliated and correspondent banks and certain other
affiliated and non-affiliated institutions for their similar accounts maintained
at such affiliates or institutions. These accounts are referred to herein as
"Fiduciary Accounts."
Another class of shares--the Investor Shares--are offered by a separate
prospectus to individuals and are not offered hereby. The Trust Shares and
Investor Shares are identical, except as to the services offered to each class
and the expenses borne by each class which may affect performance. Investors
desiring to obtain information about Investor Shares should ask their sales
representative or call 1-800-852-0045.
PORTFOLIO SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, THE ADVISER OR ANY OTHER BANK, AND ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENTAL AGENCY. PORTFOLIO SHARES INVOLVE CERTAIN RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
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This Prospectus sets forth concisely information about the Fund and the
Portfolios that an investor should know before investing. It should be read and
retained for future reference.
The Statement of Additional Information, dated July 1, 1996, which may be
revised from time to time, provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, write to the Fund at 3435 Stelzer Road,
Columbus, Ohio 43219-3035, or call 1-800-852-0045.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
PAGE
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Annual Operating Expenses.............................. 3
Description of the Portfolios.......................... 4
Management of the Portfolios........................... 7
How to Buy Shares...................................... 10
How to Redeem Shares................................... 11
Exchange Privilege..................................... 12
Dividends, Distributions and Taxes..................... 12
Yield Information...................................... 15
General Information.................................... 15
Appendix............................................... A-1
DISTRIBUTED BY: INVESTMENT ADVISER:
Concord Financial Group, Inc. First American National Bank
125 West 55th Street 315 Deaderick Street
New York, New York 10019 Nashville, Tennessee 37237
For information about opening an account and other Fund services call:
(800) 824-3741
To execute purchases, redemptions and exchanges and for information about
the status of your acount call: (800) 852-0045
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ANNUAL OPERATING EXPENSES*
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE><CAPTION>
PRIME U.S. TREASURY
PORTFOLIO PORTFOLIO
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TRUST TRUST
SHARES SHARES
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<S> <C> <C>
Management Fees............................................. .25% .25%
Other Expenses.............................................. .40% .25%
Total Portfolio Operating Expenses*......................... .65% .50%
EXAMPLE:
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:
1 Year.............................................. $ 7 $ 5
3 Years............................................. $ 21 $ 16
</TABLE>
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THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE
OF FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH
PORTFOLIO'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN
GREATER OR LESS THAN 5%.
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The purpose of the foregoing table is to assist investors in understanding
the costs and expenses borne by a Portfolio, the payment of which will reduce
investors' annual return. Other Expenses are based on estimated amounts for the
current fiscal year. For a further description of the various costs and expenses
incurred in a Portfolio's operation, as well as expense reimbursement or waiver
arrangements, see "Management of the Portfolios."
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* The Adviser, its affiliates and certain other institutions may charge their
clients customary account and account transaction fees, which are not Fund
related, with respect to accounts through which or for which Portfolio shares
are purchased or redeemed; such fees are not reflected in the foregoing table.
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DESCRIPTION OF THE PORTFOLIOS
INVESTMENT OBJECTIVES
Each Portfolio seeks to provide investors with as high a level of current income
as is consistent with the preservation of capital and the maintenance of
liquidity. Each Portfolio's investment objective cannot be changed without
approval by the holders of a majority (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act")) of such Portfolio's outstanding voting
shares. There can be no assurance that each Portfolio's investment objective
will be achieved. Securities in which each Portfolio will invest may not earn as
high a level of current income as long-term or lower quality securities which
generally have less liquidity, greater market risk and more fluctuation in
market value.
MANAGEMENT POLICIES
Each Portfolio seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, each Portfolio uses the amortized cost
method of valuing its securities pursuant to Rule 2a-7 under the 1940 Act,
certain requirements of which are summarized below.
In accordance with Rule 2a-7, each Portfolio will maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 13 months or less and invest only in U.S. dollar
denominated securities determined in accordance with procedures established by
the Fund's Board of Directors to present minimal credit risks and, with respect
to the Prime Portfolio, which are rated in one of the two highest rating
categories for debt obligations by at least two nationally recognized
statistical rating organizations ("NRSRO") (or one NRSRO if the instrument was
rated by only one such organization) or, if unrated, are of comparable quality
as determined in accordance with procedures established by the Fund's Board of
Directors. The NRSROs currently rating instruments of the type the Prime
Portfolio may purchase are Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's Ratings Group ("S&P"), Duff & Phelps Credit Rating Co. ("Duff"), Fitch
Investors Service, L.P. ("Fitch"), IBCA Limited and IBCA Inc. and Thomson
BankWatch, Inc. and their rating criteria are described in the "Appendix" to the
Statement of Additional Information. For further information regarding the
amortized cost method of valuing securities, see "Determination of Net Asset
Value" in the Statement of Additional Information. There can be no assurance
that the Portfolios will be able to maintain a stable net asset value of $1.00
per share.
PRIME PORTFOLIO--The Prime Portfolio will invest in U.S. dollar denominated
short-term money market obligations, including securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, certificates of
deposit, time deposits and bankers' acceptances issued by domestic banks,
foreign branches of domestic banks, foreign subsidiaries of domestic banks, and
domestic and foreign branches of foreign banks, loan participation agreements,
guaranteed investment contracts, municipal obligations, repurchase agreements,
and high quality domestic and foreign commercial paper and other high quality
short-term corporate obligations, such as floating or variable rate U.S. dollar
denominated demand notes and bonds. The Prime Portfolio will invest in U.S.
dollar denominated obligations issued or guaranteed by one or more foreign
governments or any of their political
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subdivisions, agencies or instrumentalities, including obligations of
supranational entities. The Prime Portfolio will not invest more than 35% of the
value of its total assets in foreign securities. See "Appendix--Portfolio
Securities." The Prime Portfolio also may lend securities from its portfolio,
enter into reverse repurchase agreements and purchase restricted securities
pursuant to Rule 144A under the Securities Act of 1933, as amended. See
"Appendix--Investment Practices." During normal market conditions, at least 25%
of the Prime Portfolio's total assets will be invested in domestic and/or
foreign bank obligations. See "Risk Factors Related to the Prime Portfolio"
below.
U.S. TREASURY PORTFOLIO--The U.S. Treasury Portfolio will invest, as a
fundamental policy, at least 65% of the value of its total assets in U.S.
Treasury securities and repurchase agreements in respect thereof. The remainder
of its assets may be invested in other securities guaranteed as to principal and
interest by the U.S. Government and repurchase agreements in respect thereof.
See "Appendix--Portfolio Securities." The U.S. Treasury Portfolio also may lend
its portfolio securities, enter into reverse repurchase agreements and purchase
restricted securities pursuant to Rule 144A under the Securities Act of 1933, as
amended. See "Appendix--Investment Practices."
Instruments which are issued or guaranteed as to principal and interest by the
U.S. Government constitute direct obligations of the United States of America.
The U.S. Treasury Portfolio will not invest in securities issued or guaranteed
by U.S. Government agencies, instrumentalities or government-sponsored
enterprises that are not backed by the full faith and credit of the United
States. Dividends and distributions paid by the U.S. Treasury Portfolio that are
attributable to interest from direct obligations of the United States currently
are not subject to personal income tax in most states. However, dividends and
distributions attributable to interest from repurchase agreements may be subject
to state tax.
CERTAIN FUNDAMENTAL POLICIES--Each Portfolio may (i) borrow money in an amount
up to 33 1/3% of the value of its total assets and (ii) invest up to 25% of the
value of its total assets in the securities of issuers in a single industry,
provided there is no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. In
addition, the Prime Portfolio (i) may invest up to 5% of its total assets in the
obligations of any one issuer, except that up to 25% of the value of the Prime
Portfolio's total assets may be invested (subject to the provisions of Rule
2a-7), and obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities may be purchased, without regard to any such limitation and
(ii) will invest, except when the Prime Portfolio has adopted a temporary
defensive position, at least 25% of its total assets in securities issued by
banks, including foreign banks and branches. This paragraph describes
fundamental policies that cannot be changed as to a Portfolio without approval
by the holders of a majority (as defined in the 1940 Act) of such Portfolio's
outstanding voting shares. See "Investment Objectives and Management
Policies--Investment Restrictions" in the Statement of Additional Information.
RISK FACTORS RELATING TO THE PRIME PORTFOLIO--To the extent the Prime
Portfolio's investments are concentrated in the banking industry, it will have
correspondingly greater exposure to the risk factors which are characteristic of
such investments. Sustained increases in interest rates can adversely affect the
availability or liquidity and cost of
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capital funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. In addition,
the value of and the investment return on the Prime Portfolio's shares will be
affected by economic or regulatory developments in or related to the banking
industry, and competition within the banking industry as well as with other
types of financial institutions. The Prime Portfolio, however, will seek to
minimize its exposure to such risks by investing only in debt securities which
are determined to be of high quality.
Since the Prime Portfolio may invest in securities issued by foreign governments
and any of their political subdivisions, agencies or instrumentalities, and by
foreign branches and foreign subsidiaries of domestic banks, domestic and
foreign branches of foreign banks, and commercial paper issued by foreign
issuers, it may be subject to additional investment risks with respect to those
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of U.S. domestic issuers. Such risks
include future political and economic developments, the possible imposition of
foreign withholding taxes on interest income payable on the securities, the
possible establishment of exchange controls, the possible seizure or
nationalization of foreign deposits, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on these securities.
OTHER INVESTMENT CONSIDERATIONS--Each Portfolio will attempt to increase yields
by trading to take advantage of short-term market variations. This policy is
expected to result in high portfolio turnover but should not adversely affect
the Portfolios since each Portfolio usually will not pay brokerage commissions
on purchases of short-term debt obligations. The value of the securities held by
a Portfolio will vary inversely to changes in prevailing interest rates. Thus,
if interest rates have increased from the time a security was purchased, such
security, if sold, might be sold at a price less than its cost. Similarly, if
interest rates have declined from the time a security was purchased, such
security, if sold, might be sold at a price greater than its purchase cost. In
either instance, if the security is held to maturity, no gain or loss will be
realized. The value of U.S. Treasury securities also will be affected by the
supply and demand, as well as the perceived supply and demand, for such
securities.
Federal income tax law requires the holder of a zero coupon security or of
certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. To maintain its qualification as a
regulated investment company and avoid liability for Federal income taxes, each
Portfolio that invests in such securities may be required to distribute such
income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
Investment decisions for each Portfolio are made independently from those of the
Fund's other portfolios and other investment companies or accounts managed by
the Adviser or Sub-Adviser. However, if such other entities are prepared to
invest in, or desire to dispose of, securities of the type in which a Portfolio
may invest at the same time as such Portfolio, available investments or
opportunities for sales will be allocated equitably to each of them. In some
cases, this procedure may adversely affect the size of the position obtained for
or disposed of by the Portfolio or the price paid or received by the Portfolio.
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MANAGEMENT OF THE PORTFOLIOS
BOARD OF DIRECTORS
The business affairs of the Fund are managed under the general supervision of
its Board of Directors. The Statement of Additional Information contains the
name and general business experience of each Director.
INVESTMENT ADVISER
First American National Bank, located at First American Center, 315 Deaderick
Street, Nashville, Tennessee 37237, serves as each Portfolio's investment
adviser. The Adviser is a wholly-owned subsidiary of First American Corporation,
a registered bank holding company having assets as of December 31, 1995 of $9.7
billion. First American National Bank provides personal trust, estate, employee
benefit trust, corporate trust and custody services to over 3,000 individual and
business clients and investment advisory services. The Adviser and its
affiliates, as of December 31, 1995, had approximately $4.4 billion under trust
and approximately $2.5 billion under management.
The Adviser and its affiliates deal, trade and invest for their own accounts and
for the accounts of clients which they manage in the types of securities in
which the Portfolios may invest and may have deposit, loan and commercial
banking relationships with issuers of securities purchased by the Prime
Portfolio. The Adviser has informed the Fund that in making its investment
decisions it does not obtain or use material inside information in its or its
affiliates' possession.
The Adviser supervises and assists in the management of each Portfolio's affairs
under an Investment Advisory Agreement between the Adviser and the Fund, subject
to the overall authority of the Fund's Board of Directors in accordance with
Maryland law. All activities of the Adviser are conducted by persons who are
also officers of one or more of the Adviser's affiliates.
The Adviser has engaged Barnett Banks Trust Company, N.A. (the "Sub-Adviser"),
located at 9000 Southside Boulevard, Building 100, Jacksonville, Florida 32256,
to provide the day-to-day management of the Prime Portfolio's investments.
Under the terms of the Investment Advisory Agreement, the Fund has agreed to pay
the Adviser a monthly fee at the annual rate of .25 of 1% of the value of each
Portfolio's average daily net assets less, in the case of the Prime Portfolio,
any amount payable by the Fund to the Sub-Adviser. Pursuant to the
Sub-Investment Advisory Agreement among the Fund, the Adviser and the
Sub-Adviser, the Fund has agreed to pay the Sub-Adviser, a monthly fee at the
annual rate of .15 of 1% of the value of the Prime Portfolio's average daily net
assets. For the fiscal year ended December 31, 1995, the Fund paid the Adviser a
monthly fee at the annual rate of .10 of 1% of the value of the Prime
Portfolio's and .25 of 1% of the value of the U.S. Treasury Portfolio's average
daily net assets. For such year, the Fund paid the Sub-Adviser at the annual
rate of .15 of 1% of the value of the Prime Portfolio's average daily net
assets.
From time to time, the Adviser and/or the Sub-Adviser may waive receipt of their
respective fees and/or voluntarily assume certain expenses of a Portfolio, which
would have the effect of lowering the overall expense ratio of that Portfolio
and increasing yield to its investors. The Portfolio will not
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pay the Adviser and/or the Sub-Adviser at a later time for any amounts that may
be waived, nor will the Portfolio reimburse the Adviser and/or the Sub-Adviser
for any amounts that may be assumed.
ADMINISTRATOR
BISYS Fund Services Limited Partnership, located at 3435 Stelzer Road, Columbus,
Ohio 43219-3035, serves as each Portfolio's administrator. The Administrator
currently provides administrative services or sub-administrative services to
other investment companies with over $60 billion in assets. The Administrator is
a wholly-owned subsidiary of The BISYS Group, Inc.
Under its Administration Agreement with the Fund, the Administrator generally
assists in all aspects of the Fund's operations, other than providing investment
advice, subject to the overall authority of the Fund's Board of Directors in
accordance with Maryland law. In connection therewith, the Administrator
provides the Fund with office facilities, personnel, and certain clerical and
bookkeeping services (e.g., preparation of reports to shareholders and the
Securities and Exchange Commission and filing of Federal, state and local income
tax returns) that are not being furnished by The Bank of New York, the Fund's
Custodian.
For the fiscal year ended December 31, 1995, the Fund paid Concord Holding
Corporation, an affiliate of the Administrator and the Portfolios' predecessor
administrator, a monthly administration fee at the annual rate of .10 of 1% of
the value of each Portfolio's average daily net assets.
DISTRIBUTOR
Concord Financial Group, Inc., located at 125 West 55th Street, New York, New
York 10019, serves as the Fund's principal underwriter and distributor of the
Portfolio's shares. The Distributor, an affiliate of the Administrator, was
organized to distribute shares of mutual funds to institutional and retail
investors. The Distributor distributes the shares of other investment companies
with over $80 billion in assets. The Distributor is the Fund's sponsor.
The Distributor makes a continuous offering of each Portfolio's shares and bears
the costs and expenses of printing and distributing to prospective investors
copies of any prospectuses, statements of additional information and annual and
interim reports of each Portfolio (after such items have been prepared and set
in type by the Fund) which are used in connection with the offering of shares,
and the costs and expenses of preparing, printing and distributing any other
literature used by the Distributor in connection with the offering of such
Portfolio's shares for sale to the public. Under a shareholder services plan
adopted by the Fund's Board of Directors, the Fund pays the Distributor for the
provision of certain services to the holders of Investor Shares at an annual
rate of .25 of 1% of the value of each Portfolio's average daily net assets
represented by Investor Shares. The services provided may include personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding a Portfolio and providing reports and other information, and
services related to the maintenance of such shareholder accounts.
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CUSTODIAN AND TRANSFER AGENT
The Bank of New York, 90 Washington Street, New York, New York 10286, is the
Fund's Custodian. BISYS Fund Services Ohio, Inc., an affiliate of the
Administrator, located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, is the
Fund's Transfer and Dividend Disbursing Agent (the "Transfer Agent").
EXPENSES
All expenses incurred in the operation of the Fund are borne by the Fund, except
to the extent specifically assumed by others. The expenses borne by the Fund
include: organizational costs, taxes, interest, brokerage fees and commissions,
if any, fees of Directors who are not officers, directors, employees or holders
of 5% or more of the outstanding voting securities of the Adviser, Sub-Adviser
or Administrator, or any of their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory and administration fees,
charges of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, auditing and legal expenses,
costs of maintaining corporate existence, costs of independent pricing services,
costs of calculating the net asset value of each Portfolio's shares, costs of
shareholders' reports and corporate meetings, costs of preparing and printing
certain prospectuses and statements of additional information, and any
extraordinary expenses. Expenses attributable to a particular Portfolio are
charged against the assets of that Portfolio; other expenses of the Fund are
allocated among the Portfolios on the basis determined by the Board of
Directors, including, but not limited to, proportionately in relation to the net
assets of each Portfolio.
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HOW TO BUY SHARES
GENERAL
Orders for purchases of Trust Shares may be placed only for clients of the
Adviser, its affiliated and correspondent banks and other affiliated and
non-affiliated institutions (collectively, "Institutions") for their Fiduciary
Accounts maintained at such Institutions. When purchasing Portfolio shares, the
investor must specify the Portfolio being purchased and that the purchase is for
Trust Shares. Institutions may receive different levels of compensation for
selling different classes of Portfolio shares. Stock certificates will not be
issued. The Fund reserves the right to reject any purchase order.
The minimum initial investment for each Portfolio is $100,000, with no
subsequent minimum investment. The Institution through which Trust Shares are
purchased may impose initial or subsequent investment minimums which are higher
or lower than those specified above and may impose different minimums for
different types of accounts or purchase arrangements.
Investors may purchase Portfolio shares through procedures established by their
Institution and an investor should contact such entity directly for appropriate
instructions, as well as for information about conditions pertaining to the
account and any related fees. The investor's Institution will transmit an
investor's payment to the Fund and will supply the Fund with the required
information. It is the Institution's responsibility to transmit the order
properly on a timely basis.
Shares are sold on a continuous basis at the net asset value per share next
determined after an order in proper form and Federal Funds (monies of member
banks within the Federal Reserve System which are held on deposit at a Federal
Reserve Bank) are received by the Transfer Agent. See "Terms of Purchase" below.
Prior to receipt of Federal Funds, the investor's money will not be invested.
TERMS OF PURCHASE
If an order for Trust Shares is received by the Transfer Agent by 2:00 p.m.,
Eastern time, on a business day (which, as used herein, shall include each day
the New York Stock Exchange and the Fund's Custodian are open for business),
shares will be purchased as of 2:00 p.m., Eastern time, on such business day if
payment is received in, or converted into, Federal Funds by 4:00 p.m., Eastern
time, by the Transfer Agent on that day. If a purchase order for Trust Shares is
received after 2:00 p.m., Eastern time, or if payment in Federal Funds is not
received by 4:00 p.m., Eastern time, shares will be purchased as of 2:00 p.m.,
Eastern time, on the business day on which Federal Funds are available. The New
York Stock Exchange or the Fund's Custodian currently is closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving and Christmas. It is the Institution's responsibility to transmit
orders so that they will be received by the Transfer Agent in time to receive
the next determined net asset value as described above.
Each Portfolio's net asset value per share is determined as of 2:00 p.m.,
Eastern time, on each business day. Net asset value per Trust Share is computed
by dividing the value of the Portfolio's net assets attributable to Trust Shares
(i.e., the value of its assets less liabilities) by the total number of Trust
Shares of such Portfolio outstanding. See "Determination of Net Asset Value" in
the Statement of Additional Information.
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Federal regulations require that an investor provide a certified Taxpayer
Identification Number ("TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes" for further information concerning this
requirement. Failure to furnish a certified TIN to the Fund could subject the
investor to a $50 penalty imposed by the Internal Revenue Service ("IRS").
HOW TO REDEEM SHARES
An investor may redeem Trust Shares by following the instructions pertaining to
the investor's Fiduciary Account provided by the Institution at which such
account is maintained. It is the responsibility of the investor's Institution to
transmit the redemption request to the Transfer Agent and credit the investor's
Fiduciary Account with the redemption proceeds on a timely basis.
When a request is received in proper form, the Fund will redeem the shares at
the next determined net asset value. If a request for redemption is received in
proper form by the Transfer Agent prior to 2:00 p.m., Eastern time, on a
business day the proceeds of the redemption, if transfer by wire is requested,
ordinarily will be made in Federal Funds wired to the investor's account at his
Institution on the same day. To allow the Adviser to most effectively manage
each Portfolio, investors are urged to initiate redemptions of shares as early
in the day as possible and to notify the Transfer Agent at least one day in
advance of redemptions in excess of $1 million. The Fund reserves the right to
wire redemption proceeds up to seven days after receiving the redemption order
if an earlier payment could adversely affect the Fund. In making redemption
requests the names of the registered shareholders and their account numbers must
be supplied.
The Fund imposes no charges when shares are redeemed. An investor's Institution
may charge their clients a nominal fee for effecting redemptions of Portfolio
shares. The value of Portfolio shares redeemed may be more or less than their
original cost, depending upon the Portfolio's then-current net asset value.
The Fund reserves the right to redeem an investor's account at its option upon
not less than 45 days' written notice if the net asset value of the investor's
account is $500 or less, for reasons other than market conditions, and remains
so during the notice period.
The Transfer Agent is authorized to act on telephone instructions from any
person representing himself or herself to be a representative of the investor's
Institution and reasonably believed by the Transfer Agent to be genuine. The
Fund will require the Transfer Agent to employ reasonable procedures, such as
requiring a form of identification, to confirm that instructions are genuine
and, if it does not follow such procedures, the Fund or the Transfer Agent may
be liable for any losses due to unauthorized or fraudulent instructions. Neither
the Fund nor the Transfer Agent will be liable for following telephone
instructions reasonably believed to be genuine.
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EXCHANGE PRIVILEGE
The Exchange Privilege enables an investor to purchase, in exchange for shares
of a Portfolio, shares of the other Portfolio offered by this Prospectus, or
shares of ValueStar Capital Growth Portfolio, ValueStar Short-Intermediate
Duration Bond Portfolio, ValueStar Investment Grade Bond Portfolio or ValueStar
Tennessee Tax Exempt Bond Portfolio, to the extent such shares are offered for
sale in the investor's state of residence. The Exchange Privilege may not be
available to clients of certain Institutions and some Institutions may impose
certain conditions on their clients which are different from those described in
this Prospectus. If an investor desires to use this Privilege, the investor
should consult the Institution at which the investor maintains his or her
Fiduciary Account to determine if it is available and whether any conditions are
imposed on its use.
To use this Privilege, an investor must give exchange instructions in accordance
with the instructions pertaining to the investor's Fiduciary Account maintained
at the investor's Institution. Before any exchange into a Portfolio offered by
another prospectus, an investor must obtain and should review a copy of the
current prospectus of the Portfolio into which the exchange is being made.
Prospectuses may be obtained from the investor's Institution or the Distributor.
The shares being exchanged must have a current value of at least $500;
furthermore, when establishing a new account by exchange, the shares being
exchanged must have a value of at least the minimum initial investment required
for the Portfolio into which the exchange is being made.
Shares will be exchanged at the next determined net asset value. No fees
currently are charged shareholders directly in connection with exchanges
although the Fund reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal fee in accordance with rules
promulgated by the Securities and Exchange Commission. The Fund reserves the
right to reject any exchange request in whole or in part. The Exchange Privilege
may be modified or terminated at any time upon notice to shareholders.
The exchange of shares of one Portfolio for shares of another is treated for
Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio declares dividends from net investment income on each day that
the Portfolio is open for business. Dividends usually are paid on the last
calendar day of each month, and are automatically reinvested in additional
Portfolio shares at net asset value or, at the investor's option, paid in cash.
Each Portfolio's earnings for Saturdays, Sundays and holidays are declared as
dividends on the preceding business day. Shares begin accruing dividends on the
day the purchase order is received in proper form by the Transfer Agent, and
continue to earn dividends through the day before a redemption order for such
shares is processed by the Transfer Agent. Dividends paid by each
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class of shares of a Portfolio will be calculated at the same time and in the
same manner and will be of the same amount, except that the expenses
attributable solely to a class will be borne exclusively by such class. If an
investor redeems all shares in his account at any time during the month, all
dividends to which such investor is entitled will be paid to the investor along
with the proceeds of the redemption.
If a shareholder elects to receive distributions in cash and the shareholder's
distribution checks (1) are returned to the Fund marked "undeliverable" or (2)
remain uncashed for six months, the shareholder's cash election will be changed
automatically and future dividend and capital gains distributions will be
reinvested in Portfolio shares at the net asset value determined as of the date
of payment of the distribution. In addition, any such undeliverable checks or
checks that remain uncashed for six months will be canceled and will be
reinvested in Portfolio shares at the net asset value determined as of the date
of cancellation.
Distributions from net realized securities gains, if any, are declared and paid
once a year, but each Portfolio may make distributions on a more frequent basis
to comply with the distribution requirements of the Internal Revenue Code of
1986, as amended (the "Code"), in all events in a manner consistent with the
provisions of the 1940 Act. Each investor may choose whether to receive
distributions in cash or to reinvest in additional Portfolio shares at net asset
value. All expenses are accrued daily and deducted before declaration of
dividends to investors.
Dividends derived from interest and distributions from any net realized
short-term securities gains are generally taxable to investors as ordinary
income, whether received in cash or reinvested in additional Portfolio shares.
Distributions from net realized long-term securities gains, if any, generally
are taxable as long-term capital gains regardless of how long shareholders have
held their shares and whether such distributions are received in cash or
reinvested in additional Portfolio shares. Dividends and distributions may be
subject to certain state and local taxes. No dividend will qualify for the
dividends-received deduction allowable to certain corporations.
Dividends paid by a Portfolio derived from net investment income and
distributions from net realized short-term securities gains paid by such
Portfolio to a foreign investor generally are subject to U.S. nonresident
withholding taxes at the rate of 30%, unless the investor claims the benefit of
a lower rate specified in a tax treaty. Distributions from net realized
long-term securities gains paid by a Portfolio to a foreign investor generally
will not be subject to U.S. nonresident withholding tax. However, such
distributions may be subject to backup withholding, as described below, unless
the foreign investor certifies his non-U.S. residency status.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends and distributions
from net realized securities gains paid to a shareholder if such shareholder
fails to certify either that the TIN furnished in connection with opening an
account is correct, or that such shareholder has not received notice from the
IRS of being subject to backup withholding as a result of a failure to properly
report taxable dividend or interest income on a Federal income tax return.
Furthermore, the IRS may notify the Fund to institute backup
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withholding if the IRS determines a shareholder's TIN is incorrect or if a
shareholder has failed to properly report taxable dividend and interest income
on a Federal income tax return.
A TIN is either the Social Security number or employer identification number of
the record owner of the account. Any tax withheld as a result of backup
withholding does not constitute an additional tax imposed on the record owner of
the account, and may be claimed as a credit on the record owner's Federal income
tax return.
Notice as to the tax status of dividends and distributions is mailed annually.
Investors also will receive periodic summaries of their account which will
include information as to income dividends and distributions from securities
gains, if any, paid during the year.
Dividends and distributions attributable to interest from direct obligations of
the United States and paid by a Portfolio to individuals currently are not
subject to tax in most states. Dividends and distributions attributable to
interest from other securities in which the Portfolios may invest may be subject
to state tax. The Fund will provide shareholders with a statement which sets
forth the percentage of dividends and distributions paid by the U.S. Treasury
Portfolio that is attributable to interest income from direct obligations of the
United States.
Management of the Fund believes that each Portfolio qualified for the fiscal
year ended December 31, 1995 as a "regulated investment company" under the Code.
Each Portfolio intends to continue to so qualify if such qualification is in the
best interests of its shareholders. Such qualification relieves the Portfolio of
any liability for Federal income tax to the extent its earnings are distributed
in accordance with applicable provisions of the Code. Each Portfolio is subject
to a non-deductible 4% excise tax, measured with respect to certain
undistributed amounts of taxable investment income and capital gains.
Each investor should consult its tax adviser regarding specific questions as to
Federal, state or local taxes. In addition, investors should consult their
financial and tax advisers before buying Portfolio shares to determine, among
other matters, the tax consequences to them of their purchase, including the
effect of selling any assets to fund such purchase.
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YIELD INFORMATION
From time to time, each Portfolio will advertise its yield and effective yield.
Both yield figures are based on historical earnings and are not intended to
indicate future performance. It can be expected that these yields will fluctuate
substantially. The yield of the Portfolio refers to the income generated by an
investment in such Portfolio over a seven-day period (which period will be
stated in the advertisement). This income is then annualized. That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but, when annualized,
the income earned by an investment in the Portfolio is assumed to be reinvested.
The effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. Each Portfolio's yield and
effective yield may reflect absorbed expenses pursuant to any undertaking that
may be in effect.
Yield information is useful in reviewing the Portfolio's performance, but
because yields will fluctuate, under certain conditions such information may not
provide a basis for comparison with domestic bank deposits, other investments
which pay a fixed yield for a stated period of time, or other investment
companies which may use a different method of computing yield.
Comparative performance information may be used from time to time in advertising
or marketing each Portfolio's shares, including data from Lipper Analytical
Services, Inc., Morningstar, Inc., Bank Rate MonitorTM, N. Palm Beach, Fla.
33408, IBC's Money Fund ReportTM and other industry publications.
Yield information for each class will be calculated separately.
GENERAL INFORMATION
The Fund was incorporated under Maryland law on March 6, 1990, and commenced
operations on August 28, 1990.
The Fund is authorized to issue eleven billion five hundred million shares of
Common Stock (with 750 million shares allocated to each Portfolio), par value
$.001 per share. Each Portfolio's shares are classified into Trust Shares (375
million) and Investor Shares (375 million). Investor Shares, which are described
in a separate prospectus, are sold through a number of institutions, including
the Adviser and its affiliates, the Distributor and certain Service
Organizations. Each share has one vote and shareholders will vote in the
aggregate and not by class except as otherwise required by law. Only holders of
the Investor Shares, however, will be entitled to vote on matters submitted to
shareholders pertaining to the Fund's Shareholder Services Plan.
Unless otherwise required by the 1940 Act, ordinarily it will not be necessary
for the Fund to hold annual meetings of shareholders. As a result, shareholders
may not consider each year the election of Directors or the appointment of
auditors. However, pursuant to the Fund's By-Laws, the holders of at least 10%
of the shares outstanding and entitled to vote may require the Fund to hold a
special meeting of shareholders for purposes of removing a Director from office
or
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for any other purpose. Shareholders may remove a Director by the affirmative
vote of a majority of the Fund's outstanding voting shares. In addition, the
Board of Directors will call a meeting of shareholders for the purpose of
electing Directors if, at any time, less than a majority of the Directors then
holding office have been elected by shareholders.
The Fund is a "series fund," which is a mutual fund divided into separate
portfolios, each of which is treated as a separate entity for certain matters
under the 1940 Act, and for other purposes. A shareholder of one portfolio is
not deemed to be a shareholder of any other portfolio. For certain matters Fund
shareholders vote together as a group; as to others they vote separately by
portfolio. By this Prospectus, Trust Shares of two of the Fund's ValueStar
Portfolios are being offered--Prime Money Market Portfolio and U.S. Treasury
Money Market Portfolio, each of which is a diversified money market fund. From
time to time, other portfolios may be established and sold pursuant to other
offering documents.
To date, 12 portfolios have been authorized. The other portfolios are not being
offered by this Prospectus. All consideration received by the Fund for shares of
one of the portfolios, and all assets in which such consideration is invested,
belong to that portfolio (subject only to the rights of creditors of the Fund)
and will be subject to the liabilities related thereto. The income and expenses
attributable to one portfolio are treated separately from those of the other
portfolios.
The Transfer Agent maintains a record of each investor's ownership and sends
confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN THE FUND'S
OFFICIAL SALES LITERATURE IN CONNECTION WITH THE OFFER OF THE FUND'S SHARES,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
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APPENDIX
PORTFOLIO SECURITIES
To the extent set forth in this Prospectus, each Portfolio may invest in the
securities described below.
U.S. TREASURY SECURITIES--Each Portfolio may invest in U.S. Treasury securities
which include Treasury Bills, Treasury Notes and Treasury Bonds that differ in
their interest rates, maturities and times of issuance. Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
greater than ten years.
U.S. GOVERNMENT SECURITIES--In addition to U.S. Treasury securities, the Prime
Portfolio and, to a limited extent, the U.S. Treasury Portfolio may invest in
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. Interest
may fluctuate based on generally recognized reference rates or the relationship
of rates. While the U.S. Government provides financial support to such U.S.
Government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. Each Portfolio
will invest in such securities only when it is satisfied that the credit risk
with respect to the issuer is minimal.
ZERO COUPON AND STRIPPED SECURITIES--Each Portfolio may invest in zero coupon
U.S. Treasury securities, which are Treasury Notes and Bonds that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest to its holder
during its life and is sold at a discount to its face value at maturity. The
amount of the discount fluctuates with the market price of the security. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities that pay interest periodically and are likely to
respond to a greater degree to changes in interest rates than non-zero coupon
securities having similar maturities and credit qualities.
REPURCHASE AGREEMENTS--Each Portfolio may enter into repurchase agreements,
which involve the acquisition by a Portfolio of an underlying debt instrument,
subject to an obligation of the seller to repurchase, and such Portfolio to
resell, the instrument at a fixed price usually not more than one week after its
purchase. Certain costs may be incurred by a Portfolio in connection with the
sale of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the securities by
the Portfolio may be delayed or limited.
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FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES--The Prime
Portfolio may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Sub-Adviser to be of comparable
quality to the other obligations in which the Prime Portfolio may invest. Such
securities also include debt obligations of supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of the
Prime Portfolio's assets invested in securities issued by foreign governments
will vary depending on the relative yields of such securities, the economic and
financial markets of the countries in which the investments are made and the
interest rate climate of such countries. See "Description of the
Portfolios--Risk Factors Relating to the Prime Portfolio."
BANK OBLIGATIONS--The Prime Portfolio will invest in bank obligations (other
than those issued by the Adviser or its affiliates), including certificates of
deposit, time deposits, bankers' acceptances and other short-term obligations of
domestic banks, foreign subsidiaries of domestic banks, foreign branches of
domestic banks, and domestic and foreign branches of foreign banks, domestic
savings and loan associations and other banking institutions. See "Description
of the Portfolios--Risk Factors Relating to the Prime Portfolio." Certificates
of deposit are negotiable certificates evidencing the obligation of a bank to
repay funds deposited with it for a specified period of time. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Time deposits which may be held by the
Prime Portfolio will not benefit from insurance from the Bank Insurance Fund or
the Savings Association Insurance Fund administered by the Federal Deposit
Insurance Corporation. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay the
face amount of the instrument upon maturity. The other short-term obligations
may include uninsured, direct obligations, bearing fixed, floating or variable
interest rates.
COMMERCIAL PAPER AND OTHER SHORT-TERM CORPORATE OBLIGATIONS--The Prime Portfolio
may invest in commercial paper, which consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial paper
purchased by the Prime Portfolio will consist only of direct obligations issued
by domestic and foreign entities. The other corporate obligations in which the
Prime Portfolio may invest consist of high quality, U.S. dollar denominated
short-term bonds and notes (including variable amount master demand notes)
issued by domestic and foreign corporations.
FLOATING AND VARIABLE RATE OBLIGATIONS-- The Prime Portfolio also may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of 13 months, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 13 months, in each case upon not more than 30 days' notice. Variable
rate demand notes include master demand notes which are obligations that permit
the Prime Portfolio to invest fluctuating amounts, which may change daily
without
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penalty, pursuant to direct arrangements between the Prime Portfolio, as lender,
and the borrower. The interest rates on these notes fluctuate from time to time.
The issuer of such obligations normally has a corresponding right, after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments generally will be traded, and there generally
is no established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, the Prime Portfolio's
right to redeem is dependent on the ability of the borrower to pay principal and
interest on demand. Such obligations frequently are not rated by credit rating
agencies and, if not so rated, the Prime Portfolio may invest in them only if
the Sub-Adviser, acting upon delegated authority from the Fund's Board of
Directors, determines that at the time of investment the obligations are of
comparable quality to the other obligations in which the Prime Portfolio may
invest. The Sub-Adviser, on behalf of the Prime Portfolio, will consider on an
ongoing basis the creditworthiness of the issuers of the floating and variable
rate demand obligations held by the Portfolio. The Prime Portfolio will not
invest more than 10% of the value of its net assets in floating or variable rate
demand obligations as to which it cannot exercise the demand feature on not more
than seven days' notice if the Sub-Adviser determines, acting upon delegated
authority from, and procedures established by, the Fund's Board of Directors,
that there is no secondary market available for these obligations, and in other
securities that are illiquid.
NOTES--The Prime Portfolio also may purchase unsecured promissory notes
("Notes") which are not readily marketable and have not been registered under
the Securities Act of 1933, provided such investments are consistent with its
investment objective. The Notes purchased by the Prime Portfolio will have
remaining maturities of 13 months or less and will be deemed by the Board of
Directors to present minimal credit risks and will meet the quality criteria set
forth under "Description of the Portfolios-- Management Policies." The Portfolio
will invest no more than 10% of its net assets in such Notes and in other
securities that are illiquid.
PARTICIPATION INTERESTS AND TRUST RECEIPTS-- The Prime Portfolio may purchase
from financial institutions and trusts created by such institutions
participation interests and trust receipts in securities in which it may invest
and may enter into loan participation agreements. See "Investment Objectives and
Management Policies--Portfolio Securities" in the Statement of Additional
Information. A participation interest or receipt gives the Prime Portfolio an
undivided interest in the security in the proportion that the Prime Portfolio's
participation interest or receipt bears to the total principal amount of the
security. These instruments may have fixed, floating or variable rates of
interest with remaining maturities of 13 months or less. If the instrument is
unrated, or has been given a rating below that which is permissible for
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purchase by the Prime Portfolio, the instrument will be backed by an irrevocable
letter of credit or guarantee of a bank or other entity the debt securities of
which are rated high quality, or the payment obligation otherwise will be
collateralized by U.S. Government securities, or, in the case of unrated
instrument, the Sub-Adviser, acting upon delegated authority from the Fund's
Board of Directors, must have determined that the instrument is of comparable
quality to those instruments in which the Prime Portfolio may invest.
Participation interests or trust receipts with a rating below high quality that
are backed by an irrevocable letter of credit or guarantee as described above
will be purchased only if the Sub-Adviser, acting as described above, determines
after an analysis of, among other factors, the creditworthiness of the guarantor
that such instrument is high quality, and if the rating agency did not include
the letter of credit or guarantee in its determination of the instrument's
rating. If the rating of a participation interest or trust receipt is reduced
subsequent to its purchase by the Prime Portfolio, the Sub-Adviser will
consider, in accordance with procedures established by the Board of Directors,
all circumstances deemed relevant in determining whether the Prime Portfolio
should continue to hold the instrument. The guarantor of a participation
interest or trust receipt will be treated as a separate issuer. For certain
participation interests and trust receipts, the Prime Portfolio will have the
unconditional right to demand payment, on not more than seven days' notice, for
all or any part of the Prime Portfolio's interest in the security, plus accrued
interest. As to these instruments, the Prime Portfolio intends to exercise its
right to demand payment only upon a default under the terms of the security, as
needed to provide liquidity to meet redemptions, or to maintain or improve the
quality of its investment portfolio. Not more than 10% of the value of the Prime
Portfolio's net assets will be invested in participation interests and trust
receipts that do not have this demand feature, and in other securities that are
illiquid.
GUARANTEED INVESTMENT CONTRACTS--The Prime Portfolio may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Pursuant to such a contract, the Prime Portfolio would
make cash contributions to a deposit fund of the insurance company's general
account. The insurance company would then credit to the Prime Portfolio on a
monthly basis interest which is based on an index (in most cases the Salomon
Brothers CD Index), but is guaranteed not to be less than a certain minimum
rate. The Portfolio will invest no more than 10% of its net assets in GICs that
are illiquid and in other illiquid securities. The Prime Portfolio currently
does not expect to invest more than 5% of its net assets in GICs.
MUNICIPAL OBLIGATIONS--The Prime Portfolio may make limited investments (up to
5% of its net assets) in municipal obligations when their yield on a pre-tax
basis is comparable to that of taxable money market instruments. Municipal
obligations are debt obligations issued by states, territories and possessions
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or multistate agencies or
authorities. While in general, municipal obligations are tax exempt securities
having relatively low yields as compared to taxable, non-municipal obligations
of similar quality, certain issues of municipal obligations, both taxable and
non-taxable, offer yields comparable and in some cases greater than the yields
available on other permissible investments. Municipal obligations generally
include debt obligations issued to obtain funds for various public purposes as
well as certain industrial development bonds issued
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by or on behalf of public authorities. Municipal obligations are classified as
general obligation bonds, revenue bonds and notes. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable from the revenue
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source, but not
from the general taxing power. Industrial development bonds, in most cases, are
revenue bonds and generally do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on whose
behalf they are issued. Notes are short-term instruments which are obligations
of the issuing municipalities or agencies and are sold in anticipation of a bond
sale, collection of taxes or receipt of other revenues. Municipal obligations
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities. Municipal
obligations bear fixed, floating or variable rates of interest. Municipal
obligations may be in the form of custodial receipts that give the Prime
Portfolio the right to receive specific future interest or principal payments on
securities held in trust or a special custody account. Certain municipal
obligations are subject to redemption at a date earlier than their stated
maturity pursuant to call options, which may be separated from the related
municipal obligation and purchased and sold separately. Dividends received by
shareholders of the Prime Portfolio which are attributable to interest income
received by it from municipal obligations generally will be subject to Federal
income tax. The Prime Portfolio currently intends to invest no more than 5% of
its net assets in municipal obligations. However, this percentage may be varied
from time to time without shareholder approval.
INVESTMENT PRACTICES
LENDING PORTFOLIO SECURITIES--From time to time, each Portfolio may lend
securities from its investment portfolio to brokers, dealers and other financial
institutions needing to borrow securities to complete certain transactions. Such
loans may not exceed 33 1/3% of the value of the relevant Portfolio's total
assets. In connection with such loans, each Portfolio will receive collateral
consisting of cash or U.S. Government securities which will be maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities. Each Portfolio can increase its income through the investment
of such collateral. Each Portfolio continues to be entitled to payments in
amounts equal to the interest and other distributions payable on the loaned
security and receives interest on the amount of the loan. Such loans will be
terminable at any time upon specified notice. A Portfolio might experience risk
of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with such Portfolio.
REVERSE REPURCHASE AGREEMENTS--Each Portfolio may enter into reverse repurchase
agreements with banks, brokers or dealers. Reverse repurchase agreements involve
the transfer by the Portfolio of an underlying debt instrument in return for
cash proceeds based on a percentage of the value of the security. Each Portfolio
retains the right to receive interest and principal payments on the security.
The Portfolio will use the proceeds of reverse repurchase agreements only to
make investments which generally either mature or have a demand feature to
resell to the issuer at a date simultaneous with or prior to the expiration of
the reverse repurchase agreement. At an agreed upon future date, the Portfolio
repurchases the security at principal plus accrued interest. In certain types of
agreements, there is no agreed upon repurchase date and interest payments are
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calculated daily, often based on the prevailing overnight repurchase rate. As a
result of these transactions, each Portfolio may be exposed to greater potential
fluctuations in the value of its assets and its net asset value per share.
Interest costs on the money borrowed may exceed the return received on the
securities purchased. The Fund's Directors have considered the risks to each
Portfolio and its shareholders which may result from the entry into reverse
repurchase agreements and have determined that the entry into such agreements is
consistent with each Portfolio's investment objective and management policies.
WHEN-ISSUED SECURITIES--Each Portfolio may purchase money market securities on a
when-issued or forward commitment basis, which means that delivery and payment
for such securities ordinarily take place within 45 days after the date of the
commitment to purchase. The payment obligation and the interest rate that will
be received on the securities are fixed at the time the buyer enters into the
commitment. A Portfolio will make commitments to purchase such securities only
with the intention of actually acquiring the securities, but such Portfolio may
sell these securities before the settlement date if it is deemed advisable. A
Portfolio will not accrue income in respect of a security purchased on a forward
commitment basis prior to its stated delivery date.
ILLIQUID SECURITIES--Each Portfolio may invest up to 10% of the value of its net
assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with its investment objective. Such
securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, participation interests that are not subject to the demand feature
described above, floating and variable rate demand obligations as to which the
Portfolio cannot exercise the related demand feature described above on not more
than seven days' notice and as to which there is no secondary market and
repurchase agreements providing for settlement in more than seven days after
notice. As to these securities, the Portfolio is subject to a risk that should
the Portfolio desire to sell them when a ready buyer is not available at a price
the Portfolio deems representative of their value, the value of the Portfolio's
net assets could be adversely effected.
BORROWING MONEY--As a fundamental policy, each Portfolio is permitted to borrow
money in an amount up to 33 1/3% of the value of its total assets. However, each
Portfolio currently intends to borrow money only (a) for temporary or emergency
(not leveraging) purposes or (b) in connection with the entry into reverse
repurchase agreements, in an amount up to 33 1/3% of the value of its total
assets (including the amount borrowed) valued at the lesser of cost or market,
less liabilities (not including the amount borrowed) at the time the borrowing
is made. While borrowings exceed 5% of a Portfolio's total assets, such
Portfolio will not make any investments.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS [VALUESTAR
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS FAMILY OF MUTUAL FUNDS]
AND IN THE FUND'S OFFICIAL SALES LITERATURE
IN CONNECTION WITH THE OFFER OF THE FUND'S
SHARES, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE VALUESTAR PRIME
RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND. THIS PROSPECTUS DOES NOT MONEY MARKET PORTFOLIO
CONSTITUTE AN OFFER IN ANY STATE IN WHICH, VALUESTAR U.S. TREASURY
OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY
NOT LAWFULLY BE MADE. MONEY MARKET PORTFOLIO
-------------------------
P r o s p e c t u s
J u l y 1, 1 9 9 6
MUTUAL FUND SHARES ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR ENDORSED OR GUARANTEED BY,
ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE [LOGO]
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY. MONEY MARKET MUTUAL FUND SHARES INVOLVE
CERTAIN RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
05162-0 7/96
