<PAGE> 1
REPORT FROM THE INVESTMENT ADVISER
- --------------------------------------------------------------------------------
MARK SILVERSTEIN, PORTFOLIO MANAGER OF THE BEA SHORT DURATION PORTFOLIO, ANSWERS
QUESTIONS ABOUT THE PORTFOLIO.
Q. HOW WOULD YOU ASSESS THE PORTFOLIO'S PERFORMANCE DURING 1996?
A. For the year ended December 31, 1996, the Portfolio's total return was 5.73%
(Client shares). In comparison, the Portfolio's unmanaged benchmark, the Merrill
Lynch 1-3 Year Government/Treasury Bond Index, produced a total return of 4.98%.
The benchmark is a widely accepted measure of the performance of U.S. Government
and Treasury Bonds in this maturity range.
Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE?
A. The reason that we outperformed the 1-3 year index is that the duration of
our Portfolio was only about one year, so we were about a year shorter than the
benchmark. In a period of generally rising interest rates, portfolios with
shorter durations perform better than those with longer durations. During 1996,
two-year interest rates were up about 0.70%, while short-term rates rose much
less. At times the duration was even a bit shorter at 85% to 90% of a year
because we felt that the economy was picking up steam and that the Federal
Reserve was shifting its policy toward a possible tightening.
Q. WHAT WAS YOUR STRATEGY IN THIS ENVIRONMENT?
A. The portfolio is investment-grade only, so we took advantage of the sectors
that we could--
corporate bonds, asset-backs and mortgages. We brought down the asset-backed
weighting and increased the mortgage weighting during the year, and we did that
because asset-backs performed particularly well and mortgages lagged a little
bit, so we thought we might be able to get some extra yield in the mortgage
sector. The corporate sector remained very small, because corporates are by far
the richest sector compared to the other two. There's very little supply in
shorter maturity corporates, and the insurance companies and mutual funds are
natural buyers for those. In contrast, the asset-backed market is growing in
issuance, up 30% to $150 billion in 1996 compared to 1995. There are also a
growing number of investors who are allowed to buy them.
In the asset-backed sector, we focused our attention on several types of
collateral--credit-card securities, automobile loans and mobile-home loans.
These are the largest sectors of the asset-backed market and among the most
stable in terms of cash flows. There are often some opportunities in lower rated
BBB asset-backs, and we are paid very well to be involved in those securities.
The yield on asset-backs is usually 0.20% to 0.50% above Treasuries. The main
reason that we have owned asset-backs is that they are more stable in nature and
the Portfolio is very conservative. There were many institutional investors who
were searching wherever they could for yield, and therefore all non-Treasury
sectors of the market did well in 1996.
Q. WHAT IS YOUR OUTLOOK AND YOUR CURRENT STRATEGY FOR 1997?
A. Our current strategy is unchanged. We think that 1997 is going to be a lot
like 1996. Given that there are still a lot of investors who need yield to beat
their benchmarks, these non-Treasury sectors are going to do well. The risk is
that we either have a recession or negative credit surprises. We think both of
those events are unlikely. Most of the press argues whether economic growth will
be 2% or 2.5%, not whether it will be -3%. Interest rates have backed up
recently, and there seems to be more fear of a Federal Reserve Board action to
raise interest rates rather than lower them. Therefore, we will keep the
Portfolio's duration at its target of one year.
1
<PAGE> 2
================================================================================
INVESTMENT GOAL
The BEA Short Duration Portfolio is an open-end mutual fund that seeks to
provide investors with as high a level of current income as is consistent with
the preservation of capital. The Portfolio is normally managed to maintain an
average duration of one year, with a maximum of 1.5 years. A one-year duration
implies that if interest rates move one percentage point down or up, then the
value of the Portfolio should rise or fall by one percentage point. The
Portfolio must maintain an average dollar-weighted credit rating of at least
single A-, and only investment-grade securities may be included in the
Portfolio.
================================================================================
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
CLIENT
SHARES
----------
<S> <C>
Inception Date 12/10/92*
1 Year 5.73%
Since Inception 5.54%
<FN>
- ---------------
* The Portfolio operated as a money market fund from August 28, 1990, through
December 9, 1992. This performance is not reflected.
</TABLE>
The Portfolio terminated its offering of Service Shares on December 23, 1996 and
the Investor Shares on December 29, 1996.
Past performance is no guarantee of future results. Investment return and
principal values will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
A LOOK AT PERFORMANCE
The following graph represents a hypothetical $10,000 investment made at
the inception of the Portfolio compared to a hypothetical $10,000 investment in
the Merrill Lynch 1-3 Year Government/ Treasury Bond Index, an unmanaged index
of U.S. Government/Treasury securities with maturities of 1 to 3 years. The
index does not include investment expenses, which an investor would normally
incur when making any type of investment. Past performance is not indicative of
future results. The investment return and net asset value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2
<PAGE> 3
<TABLE>
<CAPTION>
Measurement Period Client Shares -- Inception:
(Fiscal Year Covered) 12/10/92
<S> <C>
12/10/92 10000
12/31/92 10033
12/31/93 10583
12/31/94 10874
12/31/95 11776
12/31/96 12451
<CAPTION>
Measurement Period Merrill Lynch 1-3 Year Govern-
(Fiscal Year Covered) ment/Treasury Bond Index
<S> <C>
12/10/92 10000
12/31/92 10056
12/31/93 10600
12/31/94 10660
12/31/95 11832
12/31/96 12421
</TABLE>
3
<PAGE> 4
THE INFINITY MUTUAL FUNDS, INC.
BEA SHORT DURATION PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/S&P INTEREST/ PRINCIPAL
RATINGS DISCOUNT MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
------------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS -- 77.5%
CORPORATE OBLIGATIONS -- 50.2%
ASSET BACKED SECURITIES -- 38.8%
AFC Home Equity Loan, Tr Series 1994-1, Class
1A............................................ Aaa/AAA 6.40% 3/25/24 $ 1,348 $ 1,335,119
Chase Credit Card Master Trust, Series 1996-4,
Class A....................................... Aaa/AAA 5.74* 7/15/06 2,000 2,002,540
Choice Credit Card Master Trust, Series 1992-2,
Class A....................................... Aaa/AAA 5.80* 1/15/98 2,000 2,001,440
DanMall Financial, Inc., Class A-1, 144A (b).... NR/NR 6.19* 10/22/01 2,130 2,130,000
Discover Card Trust, Series 1991-D, Class A..... Aaa/AAA 8.00 10/16/00 2,250 2,319,322
Fleetwood Credit Corp. Grantor Trust, Series
1992-A, Class A............................... Aaa/AAA 7.10 2/15/07 512 515,071
Fleetwood Credit Corp., Series 1994-B........... Aaa/AAA 6.75 3/15/10 1,187 1,193,466
Ford Credit Auto Loan, Series 1994-1............ Aaa/AAA 5.73* 7/15/01 1,355 1,351,057
Green Tree Financial Corp., Series 1992-1, Class
A5............................................ Aa3/AAA 6.50 10/15/17 905 905,704
Green Tree Financial Corp., Series 1994-A, Class
A............................................. BBB+/Baa3 6.90 2/15/04 1,748 1,745,314
Green Tree Financial Corp., Series 1995-6, Class
A3............................................ Aaa/AAA 6.65 9/15/26 2,265 2,287,809
IBM Credit Corp., 1993-1, Class A............... Aaa/AAA 4.55 11/15/00 641 636,888
Kidder Peabody Acceptance Corp., Series 1993-M1,
Class A1...................................... AA/Aa2 7.15 4/25/25 1,187 1,190,082
NationsCredit Grantor Trust, Series 1996-1,
Class A....................................... Aaa/AAA 5.85 9/15/11 841 827,483
SEC: Pacific Home Equity Loan, Series 1991-2,
Class A....................................... Aaa/AAA 8.10 6/15/20 34 34,289
Saab Trust, Series 1994-A, 144A (b) (c)......... Aaa/AAA 6.15 4/11/00 193 192,642
Security Pacific Acceptance Corp., 1995-1, Class
A2............................................ Aaa/AAA 6.70 4/10/20 1,350 1,359,328
Volvo Auto Receivables Grantor Trust, Series
1992-A, Class A............................... Aaa/AAA 4.65 6/15/98 78 78,320
Vornado Finance Corp., Series 93 M-01, 144A (b)
(c)........................................... NR/AAA 6.06* 12/1/00 2,300 2,297,930
-----------
Total Asset Backed Securities
(Cost -- $24,382,081)........................... 24,403,804
-----------
</TABLE>
Continued
4
<PAGE> 5
<TABLE>
<CAPTION>
MOODY'S/S&P INTEREST/ PRINCIPAL
RATINGS DISCOUNT MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
------------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS -- 11.4%
BANKING, INSURANCE & FINANCE -- 11.4%
Hong Kong Shanghai Bank, Series 3............... A2/NR 6.71%* 7/30/49 $ 1,000 $ 856,900
Nacional Financiera Trust Division (c).......... NR/NR 8.11* 3/31/99 276 263,825
National Westminster Bank....................... Aa3/A+ 5.88* 8/29/49 890 794,370
Nomura Asset Securities Corp., Series 1994...... AAA/AAA 6.64* 7/7/03 822 837,201
Okobank, 144 A (b).............................. A3/NR 7.01* 10/29/49 1,000 1,024,000
Time Warner..................................... Ba1/BBB- 6.46* 8/15/00 2,000 2,000,364
Trans Financial Bank............................ Baa3/BBB- 6.32 10/17/97 1,400 1,398,463
-----------
Total Corporate Bonds (Cost -- $7,027,451)........ 7,175,123
-----------
Total Corporate Obligations
(Cost -- $31,409,532)........................... 31,578,927
-----------
U.S. GOVERNMENT AGENCIES -- 27.3%
Federal Home Loan Bank.......................... Aaa/AAA 4.00 1/2/97 3,500 3,498,833
Federal Home Loan Mortgage Corp., Pool #1184.... Aaa/AAA 8.00 12/15/18 1,860 1,887,151
Federal National Mortgage Assoc................. Aaa/AAA 5.34 2/12/97 3,000 2,981,308
Federal National Mortgage Assoc., Pool
#190856....................................... Aaa/AAA 7.50 2/1/00 5,374 5,451,425
Federal National Mortgage Assoc., Pool
#90-108E...................................... Aaa/AAA 8.50 6/25/19 1,024 1,041,407
Government National Mortgage Assoc., Pool
#8765......................................... Aaa/AAA 5.50 12/20/25 2,289 2,271,192
-----------
Total U.S. Government Agencies
(Cost -- $17,080,665)........................... 17,131,316
-----------
Total Long-Term Investments
(Cost -- $48,490,197)........................... 48,710,243
-----------
REPURCHASE AGREEMENTS -- 22.3%:
Goldman Sachs, dated 12/31/96, (Collateralized
by $3,570,000 U.S. Treasury Notes, 6.00%,
12/31/97, value -- $3,577,140)................ 6.25 1/2/97 3,500 3,500,000
Morgan Stanley, dated 12/31/96, (Collateralized
by $2,345,000 U.S. Treasury Bonds, 11.25%,
2/15/15, value -- $3,584,079)................. 6.25 1/2/97 3,500 3,500,000
</TABLE>
Continued
5
<PAGE> 6
<TABLE>
<CAPTION>
MOODY'S/S&P INTEREST/ PRINCIPAL
RATINGS DISCOUNT MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
------------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Nomura Securities, dated 12/31/96,
(Collateralized by $3,405,000 U.S. Treasury
Notes, 7.75%, 12/31/99,
value -- $3,570,994).......................... 6.00% 1/2/97 $ 3,500 $ 3,500,000
Union Bank of Switzerland, dated 12/31/96,
(Collateralized by $2,738,000 U.S. Treasury
Bonds, 8.88%, 2/15/19, value -- $3,593,756)... 5.88 1/2/97 3,500 3,500,000
-----------
Total Repurchase Agreements
(Cost -- $14,000,000)........................... 14,000,000
-----------
TOTAL INVESTMENTS
(COST -- $62,490,197)(A) -- 99.8%............... 62,710,243
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.2%..... 103,789
-----------
NET ASSETS -- 100.0%.............................. $62,814,032
===========
<FN>
- ---------------
Percentages indicated are based on net assets of $62,814,032.
(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 $ 349,782
Unrealized depreciation) (129,736)
---------
Net unrealized appreciation $ 220,046
=========
<FN>
(b) Represents a restricted security, purchased under Rule 144A, which is exempt
from registration under the Securities Act of 1933, as amended.
(c) Illiquid Securities.
* Floating or variable rate securities. Maturity date reflects the final
maturity date. The rate resets daily, weekly, monthly or quarterly. The rate
reflected is the rate as of December 31, 1996.
NR = Not Rated.
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 7
THE INFINITY MUTUAL FUNDS, INC.
BEA SHORT DURATION PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $48,490,197)....................................... $48,710,243
Repurchase Agreements (cost $14,000,000)..................................................... 14,000,000
Cash......................................................................................... 63,446
Interest receivable.......................................................................... 324,762
Deferred organization costs.................................................................. 19,102
Prepaid expenses............................................................................. 118,520
-----------
Total assets................................................................................... 63,236,073
-----------
LIABILITIES
Dividends payable............................................................................ 301,679
Payable for Portfolio shares redeemed........................................................ 1,801
Accrued expenses and other payables:
Advisory fees.............................................................................. 25,348
Administration fees........................................................................ 14,406
Other...................................................................................... 78,807
-----------
Total liabilities.............................................................................. 422,041
-----------
NET ASSETS..................................................................................... $62,814,032
===========
Net Asset Value and Redemption Price Per Share:
BEA Client Shares:
($62,814,032/12,623,531 shares of common stock issued and outstanding)....................... $4.98
===========
COMPOSITION OF NET ASSETS:
Shares of common stock, at par ($0.001 per share)............................................ $ 12,624
Additional paid-in capital................................................................... 63,302,768
Undistributed (distributions in excess of) net investment income............................. (22,469)
Net unrealized appreciation from investments................................................. 220,046
Accumulated net realized losses.............................................................. (698,937)
-----------
Net Assets, December 31, 1996.................................................................. $62,814,032
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
7
<PAGE> 8
THE INFINITY MUTUAL FUNDS, INC.
BEA SHORT DURATION PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest............................................................................. $5,032,846
Expenses
Advisory fees...................................................................... $119,269
Administration fees................................................................ 95,415
Special investors services fees (BEA Investor Shares).............................. 48,640
Custodian fees and expenses........................................................ 106,331
Audit fees......................................................................... 19,244
Legal fees......................................................................... 22,779
Insurance expense.................................................................. 8,904
Directors' fees.................................................................... 5,629
Registration fees.................................................................. 28,201
Amortization of organization expenses.............................................. 18,977
Transfer agent fees and expenses................................................... 79,768
Reports to shareholders............................................................ 14,519
Other expenses..................................................................... 1,666
--------
Total expenses before waivers/reimbursements..................................... 569,342
Less:Waivers/reimbursements...................................................... (132,710)
Less: Expenses paid by third parties............................................. (6,103)
--------
Total expenses....................................................................... 430,529
----------
Net Investment Income................................................................ 4,602,317
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM SECURITIES TRANSACTIONS
Net realized gains from securities transactions.................................... 576,218
Net change in unrealized depreciation from investments............................. (918,133)
----------
Net Realized and Unrealized Losses from Investments.................................. (341,915)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................. $4,260,402
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
8
<PAGE> 9
THE INFINITY MUTUAL FUNDS, INC.
BEA SHORT DURATION PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.................................................................. $ 4,602,317 $ 7,020,860
Net realized gains from securities transactions........................................ 576,218 77,225
Net change in unrealized appreciation (depreciation) from investments.................. (918,133) 2,319,671
----------- -----------
Net increase in net assets resulting from operation.................................. 4,260,402 9,417,756
----------- -----------
Dividends to shareholders from net investment income:
BEA Client Shares...................................................................... (4,216,095) (4,611,592)
BEA Service Shares(b).................................................................. (53)(a) (124,208)
BEA Investor Shares (b)................................................................ (386,164)(a) (1,754,109)
----------- -----------
Total dividends to shareholders from net investment income.............................. (4,602,312) (6,489,909)
----------- -----------
Dividends to shareholders in excess of net investment income:
BEA Client Shares...................................................................... -- (75,299)
BEA Service Shares..................................................................... -- (2,028)
BEA Investor Shares.................................................................... -- (28,642)
----------- -----------
Total dividends to shareholders in excess of net investment income...................... -- (105,969)
----------- -----------
Return of capital distributions:
BEA Client Shares...................................................................... -- (301,983)
BEA Service Shares..................................................................... -- (8,134)
BEA Investor Shares.................................................................... -- (114,865)
----------- -----------
Total return of capital distributions................................................... -- (424,982)
----------- -----------
Total dividends and distributions to shareholders....................................... (4,602,312) (7,020,860)
----------- -----------
Portfolio Share Transactions
Net proceeds from shares subscribed.................................................... 1,434,270 5,826,109
Net asset value of shares issued to shareholders in reinvestment of dividends and
distributions........................................................................ 4,780,436 6,920,991
Cost of shares redeemed................................................................ (52,892,499) (48,396,100)
----------- -----------
Net decrease in net assets from Portfolio share transactions......................... (46,677,793) (35,649,000)
----------- -----------
Total Decrease.......................................................................... (47,019,703) (33,252,104)
NET ASSETS
Beginning of year...................................................................... 109,833,735 143,085,839
----------- -----------
End of year............................................................................ $ 62,814,032 $109,833,735
=========== ===========
SHARE TRANSACTIONS:
Issued................................................................................. 279,801 1,174,247
Reinvested............................................................................. 818,310 1,398,285
Redeemed............................................................................... (10,492,337) (9,814,580)
----------- -----------
Change in shares....................................................................... (9,394,226) (7,242,048)
=========== ===========
<FN>
- ---------------
(a) For the period from January 1, 1996 through December 23, 1996 for the
Service Shares and through December 29, 1996 for the Investor Shares.
(b) On December 23, 1996, the Portfolio terminated and redeemed its offering of
Service Shares and on December 29, 1996, the Portfolio terminated and
redeemed its offering of Investor Shares.
</TABLE>
See Notes to Financial Statements.
9
<PAGE> 10
THE INFINITY MUTUAL FUNDS, INC.
BEA SHORT DURATION PORTFOLIO
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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 only to the BEA Short
Duration Portfolio (the "Portfolio"). The Portfolio seeks to provide investors
with as high a level of current income as is consistent with the preservation of
capital.
The Portfolio issues three classes of shares as follows: BEA Client Shares,
BEA Service Shares and BEA Investor Shares. BEA Client Shares, BEA Service
Shares, and BEA Investor Shares are substantially the same, except as follows:
(a) BEA Service Shares bear fees payable to the Distributor under a plan adopted
by the Fund's Board of Directors pursuant to Rule 12b-1 under the Act (the
"Distribution Plan") and (b) BEA Service Shares and BEA Investor Shares bear
fees payable to certain service organizations under the Special Investors
Services Plan (the "Services Plan"). In addition to the fees paid pursuant to
the Distribution Plan and the Services Plan by the relevant class, each class
also bears the expenses associated with the printing of their shareholder
reports, transfer agent fees and expenses and registration fees. The Portfolio
terminated and redeemed its offering of the BEA Service Shares as of December
23, 1996 and the BEA Investor Shares as of December 29, 1996. The Portfolio
plans on terminating the offering of the BEA Client Shares and redeeming them in
1997.
At December 31, 1996, there were one billion shares of the Portfolio's
$0.001 par value capital stock authorized, of which 500 million shares were
classified as BEA Client Shares, 250 million shares were classified as BEA
Service Shares and 250 million shares were classified as BEA Investor Shares.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolio in preparation of its 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 income and expenses for the
period. Actual results could differ from those estimates.
A) Security Valuation
Securities are valued through the use of an independent pricing service
(the "Service") approved by the Board of Directors. The Service values
securities at the mean between the most recent bid and asked prices based upon
its evaluation of the market for such securities. Securities which cannot be
valued as set forth above are valued by independent broker-dealer quotes.
Securities denominated in foreign currencies are valued in U.S. dollars using
market quotes as provided by the Service. 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 with
more than 60 days to maturity, at their market value each day until the
10
<PAGE> 11
61st day prior to maturity, and thereafter assuming a constant amortization to
maturity of the difference between the principal amount due at maturity and such
valuation.
B) Security Transactions and Investment Income
Security transactions are recorded on the trade date. Realized gains and
losses on the sale of investments are calculated on the identified cost basis.
Interest income, including accretion of discount and amortization of premium on
investments, is accrued daily. The investment income of the Portfolio is
allocated to the separate classes of shares based upon the relative net asset
value of each class.
C) Expenses
Organization costs were deferred and are being amortized by the Portfolio
on a straight-line basis over five years. Direct expenses of the Portfolio are
borne solely by the Portfolio and general Fund expenses are allocated among the
Fund's respective investment portfolios.
All other expenses (other than transfer agent fees and expenses, reports to
shareholders expenses, registration and filing fees, and Securities and Exchange
Commission filing fees) are allocated to their separate classes of shares based
upon the relative net asset value of each class.
D) Federal Income Taxes
It is the policy of the Portfolio to meet the requirements of the Internal
Revenue Code (the "Code") applicable to regulated investment companies and to
distribute substantially all of its income to shareholders. Therefore, no
federal income tax provision is required.
At December 31, 1996, the Portfolio had a capital loss carryover of
approximately $698,937 which is available to offset future net realized gains on
securities transactions to the extent provided for in the Code. Such capital
loss carryovers will expire December 31, 2002.
E) Dividends and Distributions
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. Reclassifications are made to the portfolio's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets are not affected by this change.
G) Other
The Portfolio maintains a cash balance with its custodian and receives a
reduction of its custody fees on such uninvested cash balance. For the year
ended December 31, 1996, custodian fees were decreased by $6,103. 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
BEA Associates ("BEA") serves as the Portfolio's investment adviser.
Concord Holding Corporation ("Concord") serves as the Portfolio's
11
<PAGE> 12
administrator and Concord Financial Group, Inc. (the "Distributor") serves as
the distributor of the Portfolio's shares. Concord and the Distributor are each
a subsidiary of The BISYS Group, Inc.
As Investment Adviser, BEA supervises and assists in the overall operations
of the Portfolio. Pursuant to the terms of the Investment Advisory Agreement,
BEA is entitled to a fee from the Portfolio at an annual rate of 0.15% of the
Portfolio's average daily net assets.
BEA has voluntarily agreed to limit the aggregate expenses of the Portfolio
(generally including fees payable to Concord and BEA but excluding brokerage
commissions, extraordinary expenses and fees payable under the Distribution Plan
and the Services Plan) to 0.55%, 0.95% and 0.70% of the Portfolio's average
daily net assets of the BEA Client Class, BEA Service Class and BEA Investor
Class, respectively. If such expenses exceed this limitation, BEA will reimburse
the Portfolio for any such excess expenses. For the year ended December 31,
1996, BEA voluntarily reduced expenses in the amount of $31,370, $31,193 and
$21,507 for BEA Client Shares, BEA Service Shares and BEA Investor Shares,
respectively, in order to comply with this voluntary limitation.
As Administrator, Concord assists in supervising the operations of the
Portfolio. Pursuant to the terms of the Administration Agreement, Concord is
entitled to a fee from the Portfolio at an annual rate of 0.12% of the
Portfolio's average daily net assets.
Pursuant to the Distribution Plan, the Portfolio pays the Distributor for
advertising, marketing and distributing BEA Service Shares at an annual rate of
0.25% of the average daily net assets of BEA Service Shares. For the year ended
December 31, 1996, BEA Service Shares incurred no fees pursuant to the Plan.
Pursuant to the Special Investors Services Plan, the Portfolio has agreed
to pay one or more service organizations, including BEA Associates, a fee at an
annual rate of up to 0.15% of the average daily net assets of the outstanding
BEA Service Shares and BEA Investor Shares for shareholder services provided to
holders of the BEA Service Shares and BEA Investor Shares. For the year ended
December 31, 1996, BEA Service Shares and BEA Investor Shares incurred $0 and
$48,640, respectively, pursuant to the Special Investors Services Plan. For the
year ended December 31, 1996, fees in the amount of $48,640 were waived with
respect to the BEA Investor Shares.
Certain officers and Directors of the Fund are "affiliated" persons (as
defined in the Act) of Concord. Each "non-affiliated" Director receives an
annual fee of $12,000 and a meeting fee of $1,500 per meeting for services
relating to all of the portfolios constituting the Fund. The Portfolio has been
allocated a portion of these fees.
NOTE 4 -- CONCENTRATION OF CREDIT RISK
The Portfolio invests its assets in a diversified portfolio of U.S. dollar
denominated fixed income securities as disclosed in the portfolio of investments
by security type. The issuer's abilities to meet their obligations may be
affected by domestic economic, regional and political developments.
12
<PAGE> 13
The Portfolio had the following concentrations of securities at December
31, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
Asset Backed Securities........... 38.9%
U.S. Government Agencies.......... 27.3%
Repurchase Agreements............. 22.3%
Corporate Bonds................... 11.5%
-----
100.0%
=====
</TABLE>
NOTE 5 -- SECURITIES TRANSACTIONS
For the year ended December 31, 1996, the cost of purchases and the
proceeds from sales of the Portfolio's securities (excluding short-term
investments) amounted to $20,349,632 and $69,391,613, respectively.
NOTE 6 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of Common Stock of the Portfolio are summarized
below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------
1996 1995
--------------------------- ---------------------------
AMOUNT SHARES AMOUNT SHARES
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
BEA CLIENT SHARES:
Sold................................................. $ 1,415,775 246,605 $ 3,493,576 703,605
Issued in reinvestment of dividends and
distributions...................................... 4,284,449 785,730 4,894,741 988,897
Redeemed............................................. (18,694,247) (3,712,147) (40,399,814) (8,196,200)
------------ ---------- ------------ ----------
Net decrease in BEA Client Shares...................... $(12,994,023) (2,679,812) $(32,011,497) (6,503,698)
------------ ---------- ------------ ----------
BEA SERVICE SHARES:
Sold................................................. -- -- $ 952,319 192,373
Issued in reinvestment of dividends and
distributions...................................... $ 57 10 128,432 26,033
Redeemed............................................. (1,063) (212) (6,696,276) (1,357,212)
------------ ---------- ------------ ----------
Net decrease in BEA Service Shares..................... $ (1,006) (202) $ (5,615,525) (1,138,806)
------------ ---------- ------------ ----------
BEA INVESTOR SHARES:
Sold................................................. $ 18,495 33,196 $ 1,380,214 278,269
Issued in reinvestment of dividends and
distributions...................................... 495,930 32,570 1,897,818 383,355
Redeemed............................................. (34,197,189) (6,779,978) (1,300,010) (261,168)
------------ ---------- ------------ ----------
Net increase (decrease) in BEA Investor Shares......... $(33,682,764) (6,714,212) $ 1,978,022 400,456
------------ ---------- ------------ ----------
Net decrease in Portfolio Shares....................... $(48,677,793) (9,394,226) $(35,649,000) (7,242,048)
============ ========== ============ ==========
</TABLE>
13
<PAGE> 14
THE INFINITY MUTUAL FUNDS, INC.
BEA SHORT DURATION PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------
1996 1995 1994 1993 1992*
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BEA CLIENT SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 4.99 $ 4.89 $ 5.01 $ 5.00 $ 5.00
------- ------- -------- -------- --------
Income from investment operations:
Net investment income......................... 0.29 0.30 0.25 0.22 0.20
Net realized and unrealized gains (losses)
from securities transactions................ (0.01) 0.10 (0.12) 0.05 0.01
------- ------- -------- -------- --------
Total from investment operations.............. 0.28 0.40 0.13 0.27 0.21
------- ------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income.......... (0.29) (0.28) (0.25) (0.22) (0.20)
Return of capital distributions............... -- (0.02) -- -- --
Distributions from net realized gains on
securities transactions..................... -- -- -- (0.04) (0.01)
------- ------- -------- -------- --------
Total dividends and distributions............... (0.29) (0.30) (0.25) (0.26) (0.21)
------- ------- -------- -------- --------
Net change in net asset value................... (0.01) 0.10 (0.12) 0.01 --
------- ------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.................. $ 4.98 $ 4.99 $ 4.89 $ 5.01 $ 5.00
======= ======= ======== ======== ========
Total return.................................... 5.73% 8.30% 2.75% 5.06% 4.28%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $62,814 $76,354 $106,659 $119,854 $126,619
Ratio of expenses to average net assets....... 0.57% 0.54% 0.48% 0.50% 0.16%
Ratio of net investment income to average net
assets...................................... 5.80% 5.98% 5.12% 4.44% 4.09%
Ratio of expenses to average net assets**..... 0.62%(a) 0.54% 0.48% 0.51% 0.27%
Ratio of net investment income to average net
assets**.................................... 5.76% 5.98% 5.12% 4.43% 3.98%
Portfolio turnover............................ 33% 69% 263% 407% 70%
<FN>
- ---------------
* Immediately after the close of business on December 9, 1992, the Portfolio
underwent a reverse 5 for 1 stock split. Subsequently, the Portfolio changed
its investment objective from that of a money market with a stable net asset
value of $1.00 per share to a non-money market fund with a fluctuating net
asset value.
** During the period, certain fees were voluntarily reduced and/or certain
expenses were reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been as indicated.
(a) During the year ended December 31, 1996, the Portfolio received credits from
its custodian for interest earned on uninvested cash balances which were
used to offset custodian fees. If such credits had not occurred, the expense
ratio would have been as indicated. The ratio of net investment income was
not affected.
</TABLE>
See Notes to Financial Statements.
14
<PAGE> 15
THE INFINITY MUTUAL FUNDS, INC.
BEA SHORT DURATION PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 PERIOD ENDED
--------------------------------------------------- DECEMBER 31,
1996*** 1995 1994 1993 1992*
--------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
BEA SERVICE SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 4.99 $ 4.89 $ 5.01 $ 5.00 $ 5.01
------- ------ ------ ------- ------
Income from investment operations:
Dividends from net investment income.... 0.25 0.27 0.23 0.20 --
Net realized and unrealized gains
(losses) from securities
transactions.......................... (0.02) 0.10 (0.12) 0.05 --
------- ------ ------ ------- ------
Total from investment operations........ 0.23 0.37 0.11 0.25 --
------- ------ ------ ------- ------
Less dividends and distributions:
Dividends from net investment income.... (0.25) (0.25) (0.23) (0.20) --
Return of capital distributions......... -- (0.02) -- -- --
Distributions from net realized gains on
securities transactions............... -- -- -- (0.04) (0.01)
------- ------ ------ ------- ------
Total distributions....................... (0.25) (0.27) (0.23) (0.24) (0.01)
------- ------ ------ ------- ------
Net change in net asset value............. (0.02) 0.10 (0.12) 0.01 (0.01)
------- ------ ------ ------- ------
NET ASSET VALUE, AT DECEMBER 23, 1996..... $ 4.97 NA NA NA NA
------- ------ ------ ------- ------
NET ASSET VALUE, END OF PERIOD............ $ 0.00 $ 4.99 $ 4.89 $ 5.01 $ 5.00
======= ====== ====== ======= ======
Total return.............................. 5.04% 7.67% 2.25% 4.62% 0.33%(a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 0 $ 1 $ 5,566 $ 36,821 $1,085
Ratio of expenses to average net
assets................................ 0.50% 0.95% 0.95% 0.93% 0.79%(b)
Ratio of net investment income to
average net assets.................... 5.27% 5.58% 4.46% 4.01% 4.77%(b)
Ratio of expenses to average net
assets**.............................. 3711.54%(c) 2.06% 1.29% 0.98% 0.79%(b)
Ratio of net investment income to
average net assets**.................. -3098.51% 4.48% 4.12% 3.96% 4.77%(b)
Portfolio turnover...................... 33% 69% 263% 407% 70%
<FN>
- ---------------
* For the period from December 29, 1992 (initial offering of Service Shares)
through December 31, 1992.
** During the period, certain fees were voluntarily reduced and/or certain
expenses were reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been as indicated.
*** For the period from January 1, 1996, through December 23, 1996 when the
Portfolio terminated and redeemed its offering of Service Shares.
(a) Total return is not annualized as it may not be representative of the total
return for the year.
(b) Annualized.
(c) During the year ended December 31, 1996, the Portfolio received credits from
its custodian for interest earned on uninvested cash balances which were
used to offset custodian fees. If such credits had not occurred, the expense
ratio would have been as indicated. The ratio of net investment income was
not affected.
NA = Not Applicable.
</TABLE>
See Notes to Financial Statements.
15
<PAGE> 16
THE INFINITY MUTUAL FUNDS, INC.
BEA SHORT DURATION PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
YEARS ENDED DECEMBER 31 DECEMBER 31,
------------------------------------- ------------
1996*** 1995 1994 1993*
--------- -------- -------- ------------
<S> <C> <C> <C> <C>
BEA INVESTOR SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 4.99 $ 4.89 $ 5.00 $ 5.04
----- ------- ------- -------
Income from investment operations:
Dividends from net investment income................ 0.28 0.29 0.25 0.03
Net realized and unrealized gains (losses) from
securities transactions........................... (0.01) 0.10 (0.11) --
----- ------- ------- -------
Total from investment operations.................... 0.27 0.39 0.14 0.03
----- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income................ (0.28) (0.27) (0.25) (0.03)
Return of capital distributions..................... -- (0.02) -- --
Distributions from net realized gains on securities
transactions...................................... -- -- -- (0.04)
----- ------- ------- -------
Total Distributions................................... (0.28) (0.29) (0.25) (0.07)
----- ------- ------- -------
Net change in net asset value......................... (0.01) 0.10 (0.11) (0.04)
----- ------- ------- -------
NET ASSET VALUE, AT DECEMBER 29, 1996................. $ 4.98 NA NA NA
----- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........................ $ 0.00 $ 4.99 $ 4.89 $ 5.00
===== ======= ======= =======
Total Return.......................................... 5.56% 8.21% 2.88% 0.59%(a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $ 0 $ 33,479 $ 30,861 $ 24,847
Ratio of expenses to average net assets............. 0.29% 0.63% 0.55% 0.55%(b)
Ratio of net investment income to average net
assets............................................ 5.85% 5.90% 5.03% 4.48%(b)
Ratio of expenses to average net assets**........... 1.44%(c) 0.76% 0.71% 0.70%(b)
Ratio of net investment income to average net
assets**.......................................... 4.79% 5.77% 4.87% 4.33%(b)
Portfolio Turnover.................................. 33% 69% 263% 407%
<FN>
- ---------------
* Period from November 4, 1993 (initial offering of Investor Shares) through
December 31, 1993.
** During the period, certain fees were voluntarily reduced and/or certain
expenses were reimbursed. If such voluntary fee reductions and/or
reimbursements had not occurred, the ratios would have been as indicated.
*** For the period from January 1, 1996, through December 29, 1996 when the
Portfolio terminated and redeemed its offering of Investor Shares.
(a) Total return is not annualized as it may not be representative of the total
return for the year.
(b) Annualized.
(c) During the year ended December 31, 1996, the Portfolio received credits
from its custodian for interest earned on uninvested cash balances which
were used to offset custodian fees. If such credits had not occurred, the
expense ratio would have been as indicated. The ratio of net investment
income was not affected.
NA = Not Applicable.
</TABLE>
See Notes to Financial Statements
16
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders and
Board of Directors
The Infinity Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of the
BEA Short Duration Portfolio (formerly Pegasus Prime Portfolio) (one of the
portfolios constituting The Infinity Mutual Funds, Inc.), including the
portfolio of investments as of December 31, 1996, and the related statement of
operations for the year then ended, statements of changes in net assets for each
of the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and other appropriate
audit procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
BEA Short Duration Portfolio as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 14, 1997
- --------------------------------------------------------------------------------
Federal Income Tax Status of Dividends (Unaudited)
- --------------------------------------------------------------------------------
The Infinity Mutual Funds, Inc. -- BEA Short Duration Portfolio has determined
that 100% of the dividends paid during the year ended December 31, 1996 were
paid from net investment income and are subject to federal income tax. Of these
dividends, 11.58% was derived from U.S. Government Obligations.
- --------------------------------------------------------------------------------
17
<PAGE> 18
[INFINITY MUTUAL FUNDS LOGO]
------------------------------------------------
THE INFINITY MUTUAL FUNDS, INC.
3435 Stelzer Road
Columbus, OH 43219
1-800-852-9730
------------------------------------------------
INVESTMENT ADVISER
BEA ASSOCIATES
One Citicorp Center
153 East 53rd Street
New York, NY 10019
------------------------------------------------
ADMINISTRATOR
CONCORD HOLDING CORPORATION
3435 Stelzer Road
Columbus, OH 43219
------------------------------------------------
DISTRIBUTOR
CONCORD FINANCIAL GROUP, INC.
3435 Stelzer Road
Columbus, OH 43219
------------------------------------------------
CUSTODIAN
THE BANK OF NEW YORK
90 Washington Street
New York, NY 10286
------------------------------------------------
TRANSFER AGENT
& DIVIDEND DISBURSING AGENT
BISYS FUND SERVICES OHIO, INC.
3435 Stelzer Road
Columbus, OH 43219
This report is not authorized for distribution
to prospective investors unless preceded or accompanied
by a current prospectus.
THE INFINITY MUTUAL FUNDS, INC.
BEA
SHORT DURATION
PORTFOLIO
ANNUAL REPORT
December 31, 1996
B E A
COIBEAD96A
