<PAGE> 1
REPORT FROM THE INVESTMENT ADVISER
- -----------------------------------------------------------------------------
Dear Shareholder:
The Alpha Government Securities Portfolio is an open-end diversified money
market fund that seeks to provide investors with as high a level of current
income as is consistent with the preservation of capital and the maintenance of
liquidity. The Portfolio invests primarily in short-term securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements in respect thereof. All investments are restricted to
maturities of 13 months or less.
PERFORMANCE
For the 12 months ended December 31, 1996, the Alpha Government Securities
Portfolio produced a total return of 4.54%. In comparison, the average U.S.
Treasury money market fund as tracked by Lipper Analytical Services Inc.
produced a return of 4.73%. The Portfolio's 7-day yield was 4.70%.*
ECONOMIC OVERVIEW
Economic growth accelerated in the fourth quarter after a more modest 2.1% rate
of growth in the third quarter. For the entire year, Gross Domestic Product
expanded at a rate of roughly 2.5%. Although the economy produced many mixed
signals during the year, the Federal Reserve Board took no action after January
31, 1996, when it lowered short-term interest rates by 0.25% to 5.25%.
Inflation, the unemployment rate and the budget deficit are each at their lowest
levels in more than twenty years.
INTEREST-RATE ENVIRONMENT
Although the federal funds rate -- the interest rate banks charge each other for
overnight loans -- has remained the same for about a year, the yields on
three-month and six-month Treasury bills have risen because investors are
concerned that the Fed will raise the federal funds rate to stave off inflation.
The Federal Reserve Board is clearly very concerned about a recurrence of
inflation. If there are such signs, then the Fed would be likely to raise
short-term interest rates. Labor markets are getting tighter, and oil prices
have risen sharply in recent months. In addition, the booming stock market has
increased wealth, creating an environment for spending.
PORTFOLIO STRATEGY
The Alpha Government Securities Portfolio continues to be conservatively
managed, investing primarily in U.S. Treasury bills and U.S. Government agency
securities maturing within one month. In contrast, the average maturity for
these types of funds is typically two to three months. By keeping the maturity
very short, the Portfolio is not losing yield because interest rates on 30-day
paper are virtually identical to rates on 60-90 day securities. In addition, we
will be positioned to reinvest at higher rates if there were to be a change in
Federal Reserve Board policy.
OUTLOOK
Although there is conflicting economic data, there is a concern that the Federal
Reserve Board may have to raise short-term interest rates sometime during 1997.
Rapid growth of the domestic economy for two or more consecutive quarters would
rekindle inflation fears -- particularly with labor markets tight and rising
energy prices -- and push interest rates higher.
Sincerely,
Mark Silverstein
Portfolio Manager
- ------------------
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. YIELDS WILL FLUCTUATE, AND THERE CAN BE NO ASSURANCE THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NAV OF $1.00 PER SHARE.
*CERTAIN FEES WERE BEING WAIVED. HAD THESE WAIVERS NOT BEEN IN EFFECT, THE 7-DAY
YIELD WOULD HAVE BEEN 4.17%.
<PAGE> 2
THE INFINITY MUTUAL FUNDS, INC.
ALPHA GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST/ PRINCIPAL AMORTIZED
DISCOUNT MATURITY AMOUNT COST
RATE DATE (000) (NOTE 2)
-------- -------- --------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES -- 61.3%:
Federal Home Loan Bank........................................ 6.40%* 1/22/97 $ 4,500 $ 4,486,271
Federal Home Loan Mortgage Corp. ............................. 6.98* 2/06/97 6,000 5,968,440
Federal National Mortgage Assoc. ............................. 6.79* 2/12/97 4,000 3,975,080
-----------
Total U.S. Government Agencies
(amortized cost -- $14,429,791)............................... 14,429,791
-----------
Total Investments, at value
(amortized cost -- $14,429,791)............................... 14,429,791
-----------
REPURCHASE AGREEMENTS -- 39.0%:
Goldman Sachs, dated 12/31/96 (Collateralized by $2,025,000
U.S. Treasury Bonds, 7.88%, due 2/15/21,
value -- $2,347,988)........................................ 5.25 1/02/97 2,300 2,300,000
Morgan Stanley, dated 12/31/96 (Collateralized by $1,845,000
U.S. Treasury Bonds, 8.75%, due 8/15/20,
value -- $2,346,615)........................................ 6.25 1/02/97 2,300 2,300,000
Nomura Securities International, dated 12/31/96
(Collateralized by $2,240,000 U.S. Treasury Notes, 7.75%,
due 12/31/99, value -- $2,349,200).......................... 6.00 1/02/97 2,300 2,300,000
Union Bank of Switzerland, dated 12/31/96 (Collateralized by
$1,835,000 U.S. Treasury Bonds, 8.88%, due 2/15/19,
value -- $2,346,506)........................................ 5.88 1/02/97 2,300 2,300,000
-----------
TOTAL REPURCHASE AGREEMENTS
(AMORTIZED COST -- $9,200,000)................................ 9,200,000
-----------
TOTAL INVESTMENTS (AMORTIZED
COST -- $23,629,791)(a) -- 100.3%............................. 23,629,791
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.3%)................. (69,175)
-----------
NET ASSETS -- 100.0%............................................ $23,560,616
===========
<FN>
- ----------
Percentages indicated are based on net assets of $23,560,616.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Discount notes. Yield at issue date.
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 3
THE INFINITY MUTUAL FUNDS, INC.
ALPHA GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (amortized cost $14,429,791)............................. $14,429,791
Repurchase agreements (amortized cost $9,200,000)............................................ 9,200,000
Cash......................................................................................... 79,656
Interest receivable.......................................................................... 1,493
Other assets................................................................................. 31
-----------
Total assets................................................................................... 23,710,971
-----------
LIABILITIES
Dividends payable............................................................................ 94,007
Accrued expenses and other payables:
Advisory fees.............................................................................. 2,118
Administration fees........................................................................ 1,696
Shareholder service fees................................................................... 3,175
Other...................................................................................... 49,359
-----------
Total liabilities.............................................................................. 150,355
-----------
NET ASSETS..................................................................................... $23,560,616
===========
Shares Outstanding ($0.001 par value, 1 billion shares authorized)............................. 23,585,209
===========
Net Asset Value, Offering Price and Redemption Price per Share................................. $1.00
====
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................................................... $ 23,585
Additional paid-in capital................................................................... 23,693,039
Undistributed net investment income.......................................................... 3,585
Accumulated net realized losses on investment transactions................................... (159,593)
-----------
Net Assets, December 31, 1996.................................................................. $23,560,616
===========
</TABLE>
- ----------
See Notes to Financial Statements.
4
<PAGE> 4
THE INFINITY MUTUAL FUNDS, INC.
ALPHA GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.............................................................................. $1,783,771
----------
EXPENSES
Advisory fees....................................................................... $ 33,718
Administration fees................................................................. 43,664
Shareholder service fees............................................................ 151,145
Custodian fees and expenses......................................................... 92,012
Transfer agent fees and expenses.................................................... 24,708
Audit fees.......................................................................... 20,720
Legal fees.......................................................................... 16,462
Reports to shareholders............................................................. 8,598
Directors' fees..................................................................... 5,059
Registration fees................................................................... 7,305
Other expenses...................................................................... 9,181
---------
Total expenses before waivers....................................................... 412,572
Less: Fee waivers................................................................... (117,689)
Less: Expenses paid by third parties................................................ (6,103)
---------
Total expenses...................................................................... 288,780
----------
Net Investment Income................................................................. 1,494,991
----------
REALIZED GAINS FROM SECURITIES TRANSACTIONS
Net realized gains from securities transactions..................................... 330
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................. $1,495,321
=========
</TABLE>
- ----------
See Notes to Financial Statements.
5
<PAGE> 5
THE INFINITY MUTUAL FUNDS, INC.
ALPHA GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income........................................................ $ 1,494,991 $ 2,377,992
Net realized gains (losses) from securities transactions..................... 330 (650)
------------- -------------
Net increase in net assets resulting from operations......................... 1,495,321 2,377,342
------------- -------------
Dividends to shareholders from net investment income........................... (1,494,991) (2,377,992)
------------- -------------
Portfolio Share Transactions (at $1.00 per share)
Net proceeds from shares subscribed.......................................... 457,515,761 667,359,185
Net asset value of shares issued for reinvestment of dividends............... 1,401,155 2,346,709
Cost of shares redeemed...................................................... (490,237,477) (657,928,571)
------------- -------------
Net increase (decrease) in net assets from Portfolio share transactions...... (31,320,561) 11,777,323
------------- -------------
Total Increase (Decrease)...................................................... (31,320,231) 11,776,673
NET ASSETS
Beginning of year............................................................ 54,880,847 43,104,174
------------- -------------
End of year (including undistributed net investment income of $3,585 at
December 31, 1996 and 1995)................................................ $ 23,560,616 $ 54,880,847
============ ============
SHARE TRANSACTIONS:
Issued....................................................................... 457,515,761 667,359,185
Reinvested................................................................... 1,401,155 2,346,709
Redeemed..................................................................... (490,237,477) (657,928,571)
------------- -------------
Change in shares............................................................. (31,320,561) 11,777,323
============ ============
</TABLE>
- ----------
See Notes to Financial Statements.
6
<PAGE> 6
THE INFINITY MUTUAL FUNDS, INC.
ALPHA GOVERNMENT SECURITIES 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 Alpha
Government Securities Portfolio (the "Portfolio"). The investment objective of
the Portfolio is 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 Portfolio plans on terminating the offering of its shares and redeeming them
in 1997.
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) Securities Valuation and Restrictions:
Securities are valued at amortized cost, which approximates market value.
The amortized cost method involves valuing a security at its cost on the date of
purchase and thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and cost. The Portfolio
may not a) purchase any instrument with a remaining maturity greater than
thirteen months unless such investment is subject to a demand feature, or b)
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
B) Security Transactions and Investment Income:
Security transactions are recorded on trade date. Realized gains and losses
from sales of investments are calculated on the identified cost basis. Interest
income, including accretion of discount and amortization of premium, is accrued
daily.
C) Repurchase Agreements:
The Portfolio's custodian and other banks acting in a subcustodian capacity
take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default on the obligation to repurchase, the
Portfolio has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
D) Expenses:
Organization costs have been deferred and are being amortized by the
Portfolio on a straight-line basis over five years. Direct expenses of the
Portfolio are charged to the Portfolio and general Fund
7
<PAGE> 7
expenses are allocated among the Fund's respective portfolios.
E) 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 capital loss carryovers of
approximately $159,593 which are available to offset future net realized gains
on securities transactions to the extent provided for in the Code. Such capital
loss carryovers will expire in 2001 ($936), 2002 ($156,833) and 2003 ($1,824).
At December 31, 1996, the cost of portfolio securities held by the Portfolio for
federal income tax purposes was substantially the same as for financial
reporting purposes.
F) Dividends and Distributions to Shareholders:
Dividends are declared daily to shareholders of record at the close of
business on the day of declaration and are paid monthly. Distributions of net
realized gains, if any, will be paid at least annually. Dividends and
distributions are recorded on the ex-dividend date. Distributions from net
investment income and from net realized gains are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. At December 31, 1996, reclassifications were 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 for the amount of interest earned 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
they had not agreed to a reduction of fees under the expense offset arrangement
with their 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 administrator
and Concord Financial Group, Inc. ("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 receive a fee from the Portfolio at an annual rate of 0.10%
of the average daily net assets of the Portfolio. Such fees are accrued daily
and paid monthly.
As administrator, Concord assists in supervising the operations of the
Portfolio. For its services,
8
<PAGE> 8
Concord is entitled to receive a fee based on the following schedule:
<TABLE>
<CAPTION>
ANNUAL PORTFOLIO'S AVERAGE
RATE DAILY NET ASSETS
------ -----------------------------------
<C> <S>
0.13% Less than $200 million
$200 million to less than $300
0.12% million
$300 million to less than $350
0.11% million
0.10% $350 million and over
</TABLE>
For the year ended December 31, 1996, Concord voluntarily agreed to waive a
portion of its fee, totaling $16,795.
The Portfolio has a Shareholder Servicing Agreement (the "Servicing
Agreement"), pursuant to which financial institutions agree to provide certain
services to the Portfolio's shareholders in return for payment by the Portfolio
of 0.45% (annualized) of the average daily net assets of the Portfolio. Services
provided by the financial institutions may include developing and monitoring
investor programs that are offered from time to time, providing dedicated
walk-in and telephone facilities to handle shareholder inquiries and investor
needs, developing and maintaining specialized systems for the automatic
investment of such institution's client account balances, paying for the
operation of arrangements that facilitate same-day share purchases by such
institution's clients and providing a facility to receive purchase and
redemption orders. For the year ended December 31, 1996, expenses of $100,894
were waived relating to the Servicing Agreement.
On December 16, 1994, the Board of Directors approved an agreement between
BEA, Concord and the financial institutions who provide services to the
Portfolio under the Servicing Agreement, to make a capital contribution payable
from their fees to the Portfolio in the aggregate amount of $135,000. This
contribution commenced on January 1, 1995 and ended November 11, 1995. The
parties contributing their fees received no shares of the Portfolio or other
consideration in exchange for such contribution.
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.
9
<PAGE> 9
THE INFINITY MUTUAL FUNDS, INC.
ALPHA GOVERNMENT SECURITIES PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............ $ 0.999 $ 0.999 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income....................... 0.044 0.048 0.036 0.027 0.033
Net realized gains (losses) from securities
transactions.............................. -- -- (0.004) -- --
-------- -------- -------- -------- --------
Net income from investment operations....... 0.044 0.048 0.032 0.027 0.033
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income........ (0.044) (0.048) (0.036) (0.027) (0.033)
-------- -------- -------- -------- --------
Total dividends and distributions........... (0.044) (0.048) (0.036) (0.027) (0.033)
-------- -------- -------- -------- --------
Increase due to voluntary capital contribution
from affiliates (Note 3).................... -- -- 0.003 -- --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR.................. $ 0.999 $ 0.999 $ 0.999 $ 1.000 $ 1.000
======== ======== ======== ======== ========
Total Return.................................. 4.54% 4.95% 3.65% 2.73% 3.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............. $ 23,561 $ 54,881 $ 43,104 $ 39,069 $ 43,124
Ratio of expenses to average net assets..... 0.86% 0.76% 0.60% 0.56% 0.60%
Ratio of net investment income to average
net assets................................ 4.45% 4.83% 3.61% 2.70% 3.40%
Ratio of expenses to average net assets*.... 1.23%** 1.11% 1.06% 1.06% 1.10%
Ratio of net investment income to average
net assets*............................... 4.10% 4.48% 3.15% 2.20% 2.90%
<FN>
- ----------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** During the year ended December 31, 1996, the Portfolio received credits from
its custodian for interest earned on uninvested 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.
10
<PAGE> 10
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
Alpha Government Securities 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
Alpha Government Securities 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 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. -- Alpha Government Securities 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, 62.71% was derived from U.S. Government Obligations.
11
<PAGE> 11
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, 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.
COIALPD96A
ANNUAL REPORT
DECEMBER 31, 1996
ALPHA
GOVERNMENT
SECURITIES
PORTFOLIO
INFINITY MUTUAL FUNDS LOGO
