<PAGE> 1
REPORT FROM THE INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Dear Shareholder:
The Correspondent Cash Reserves Money Market and Tax Free portfolios are
open-ended, diversified money market funds 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 Money Market Portfolio, which
recently reached $1 billion in assets under management, invests in a diversified
selection of very high quality, short-term money-market obligations, such as
U.S. Treasury bills, short-term bank obligations and commercial paper. The Tax
Free Portfolio, launched on October 7, 1996, invests in a wide variety of
short-term tax-exempt securities issued by state, county and municipal
authorities.
While the portfolios may invest in instruments rated in either of the top two
ratings categories established by nationally recognized ratings services, it has
been our practice to invest only in instruments rated in the highest category. A
schedule of the portfolios' investments is included in the financial report that
follows. These investments are actively monitored in order to ensure that they
maintain their quality status and suitability.
PERFORMANCE
For the 12 months ended December 31, 1996, the Correspondent Cash Reserves Money
Market portfolio produced a total return of 4.72%. In comparison, the average
fund as tracked by Lipper Analytical Services Inc. produced a return of 4.80%
for the 288 money market instrument funds listed for the same period. From
October 7, 1996 (commencement of operations) to December 31, 1996, the Tax Free
portfolio produced a return of 0.66%.
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. Tax-free instruments have traded at approximately 62% to 65% of
taxable Treasury bills. 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.
INVESTMENT STRATEGY
The Money Market Portfolio has maintained an average maturity between 60 and 70
days, slightly longer than our peers as measured by IBC Donoghue. The "spread"
from one-month to
<PAGE> 2
REPORT FROM THE INVESTMENT ADVISER -- (continued)
- --------------------------------------------------------------------------------
one-year securities has risen from about 0.35% to about 0.50%. As of December
31, 1996, the Money Market Portfolio was comprised of 12% U.S. Government and
Agency obligations, 35% bank obligations, 40% commercial paper, 12% short term
corporate obligations and the rest in cash. We intend to keep the maturity in
the 60-to-70-day range as long as economic growth, consumer spending and
inflation stay the same. The Tax Free Portfolio currently maintains a maturity
of about 50 days and is managed to provide safety, convenience and federal
tax-free income to shareholders.*
- ---------------
* The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
An investment in the Portfolios is neither insured nor guaranteed by the U.S.
Government. Yields will fluctuate, and there can be no assurance that the
Portfolios will be able to maintain a stable net asset value of $1.00 per share.
<PAGE> 3
REPORT FROM THE INVESTMENT ADVISER -- (continued)
- --------------------------------------------------------------------------------
Portfolio Composition*
Money Market Portfolio
[GRAPH]
<TABLE>
<S> <C>
U.S. Government Obliga-
tions/Agencies (12%) 12
Insurance (2%) 2
Telecommunications (1%) 1
Bank Obligations (46%) 46
Other (6%) 6
Finance (10%) 10
Printing/Publishing (1%) 1
Asset Backed (6%) 6
Broker-Dealer (12%) 12
Auto-Truck (4%) 4
Tax Free Portfolio
[GRAPH]
Commercial Paper (41%) 41
Tax Exempt Note (17%) 17
Note (39%) 39
Tax Exempt Puts (3%) 3
<FN>
* The composition of the Portfolios is subject to change.
</TABLE>
PERFORMANCE
As of December 31, 1996, the 7-day and 30-day yields for the Portfolios were as
follows:
<TABLE>
<CAPTION>
7-DAY 30-DAY
YIELD YIELD
----- ------
<S> <C> <C>
Money Market Portfolio*............................ 4.64% 4.62%
Tax Free Portfolio................................. 3.08% 2.85%
<FN>
The Portfolio terminated its offering of the Institutional Shares on December
26, 1996.
* For the current 7-day yield as of December 31, 1996, the service contractors
voluntarily waived 0.12% of their fees for the Money Market Portfolio. If the
service contractors had not waived a portion of their fees, the 7-day yield
shown would have been 4.52% for the Money Market Portfolio. This voluntary
waivers may be modified or terminated at any time, which would reduce the
performance. Yields will vary with market conditions, and past performance is
not a guarantee of future results.
Investments in the Portfolio are neither insured nor guaranteed by the U.S.
Government, and there can be no assurance that the Portfolio will be able to
maintain a stable net asset value of $1.00 per share.
</TABLE>
<PAGE> 4
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------------- ------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 11.9%
U.S. Treasury Bill............................... Aaa/AAA** 5.19% 1/8/98 $10,000 $ 9,475,233
U.S. Treasury Note............................... Aaa/AAA** 6.87 2/28/97 4,000 4,011,139
Federal Farm Credit Bank......................... Aaa/AAA** 5.35* 1/2/97 7,000 6,999,294
Federal Home Loan Bank........................... Aaa/AAA** 5.62 12/26/97 8,000 8,000,000
Federal Home Loan Bank........................... Aaa/AAA** 6.00 8/1/97 5,000 5,000,000
Federal Home Loan Bank........................... Aaa/AAA** 6.05 8/14/97 8,000 8,000,000
Federal Home Loan Bank........................... Aaa/AAA** 5.90 10/16/97 6,000 6,000,000
Federal Home Loan Bank........................... Aaa/AAA** 5.58* 3/20/97 6,000 6,000,000
Federal Home Loan Bank........................... Aaa/AAA** 5.80 11/4/97 6,500 6,500,000
Federal Home Loan Bank........................... Aaa/AAA** 5.81 11/4/97 10,000 10,000,000
Federal National Mortgage Assoc.................. Aaa/AAA** 4.78 2/14/97 5,000 4,999,189
Student Loan Marketing Assoc..................... Aaa/AAA** 6.07 7/3/97 5,000 5,000,000
Student Loan Marketing Assoc..................... Aaa/AAA** 6.00 10/17/97 7,000 7,000,000
Student Loan Marketing Assoc..................... Aaa/AAA** 5.65 11/28/97 9,050 9,050,000
Student Loan Marketing Assoc..................... Aaa/AAA** 5.63 12/24/97 10,000 10,000,000
Student Loan Marketing Assoc..................... Aaa/AAA** 5.75 1/8/98 4,000 4,000,000
Student Loan Marketing Assoc..................... Aaa/AAA** 5.31* 1/7/97 10,000 10,000,000
------------
Total U.S. Government and Agency Obligations
(Amortized Cost -- $120,034,855)................. 120,034,855
------------
BANKERS ACCEPTANCES -- 0.5%
YANKEE -- 0.5%
Bank of Tokyo -- Mitsubishi Ltd.................. A-1/P-1 5.44 1/31/97 5,000 4,977,333
------------
Total Bankers Acceptances
(Amortized Cost -- $4,977,333)................... 4,977,333
------------
BANK NOTES -- 11.7%
DOMESTIC -- 11.7%
Bank of America NT & SA.......................... A-1+/P-1 5.50 5/7/97 7,000 7,000,000
Bank of America NT & SA.......................... A-1+/P-1 5.52 11/21/97 6,900 6,898,761
Bank of America NT & SA.......................... A-1+/P-1 5.66 12/30/97 8,000 7,996,950
Bank of Hawaii................................... A-1/P-1 5.50 1/3/97 10,000 10,000,000
Comerica Bank -- Detroit......................... A-1/P-1 6.87 4/18/97 5,000 5,020,080
</TABLE>
Continued
4
<PAGE> 5
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Comerica Bank -- Detroit......................... A-1/P-1 6.15% 7/11/97 $ 5,000 $ 5,000,000
FCC National Bank................................ A-1+/P-1 5.36* 1/2/97 7,000 7,000,000
FCC National Bank................................ A-1+/P-1 5.50 5/12/97 7,800 7,801,333
FCC National Bank................................ A-1+/P-1 5.64 4/17/97 6,000 5,998,989
FCC National Bank................................ A-1+/P-1 6.00 7/18/97 5,000 4,999,559
First National Bank of Chicago................... A-1+/P-1 5.70 5/6/97 4,100 4,099,131
Key Bank, NA..................................... A-1/P-1 5.60 11/4/97 5,000 5,000,282
Morgan Guaranty Trust Co......................... A-1+/P-1 5.25 1/15/97 5,000 5,000,171
PNC Bank N.A..................................... A-1/P-1 5.50* 1/2/97 7,000 6,998,232
PNC Bank N.A..................................... A-1/P-1 5.24* 1/7/97 4,000 3,999,822
PNC Bank N.A..................................... A-1/P-1 5.24* 1/7/97 5,000 4,999,722
Society National Bank............................ A-1/P-1 5.52* 2/14/97 10,000 9,999,166
Wachovia Bank of N.C............................. A-1+/P-1 5.43* 1/3/97 10,000 9,999,939
------------
Total Bank Notes
(Amortized cost -- $117,812,137)................. 117,812,137
------------
CERTIFICATES OF DEPOSIT -- 22.5%
DOMESTIC -- 1.5%
Bankers Trust NY Corp............................ A-1/P-1 5.47* 1/7/97 15,000 14,992,863
------------
YANKEE -- 21.0%
ABN Amro Bank N.V................................ A-1+/P-1 5.50 12/4/97 7,000 6,987,791
ABN Amro Bank N.V................................ A-1+/P-1 5.52 2/18/97 5,000 4,999,447
Bank of Tokyo -- Mitsubishi Ltd.................. A-1/P-1 5.60 1/6/97 15,000 15,000,076
Bank of Tokyo -- Mitsubishi Ltd.................. A-1/P-1 5.59 1/8/97 4,000 4,000,068
Bank of Tokyo -- Mitsubishi Ltd.................. A-1/P-1 5.50 1/17/97 5,000 5,000,022
Bank of Tokyo -- Mitsubishi Ltd.................. A-1/P-1 5.44 2/10/97 5,000 5,000,055
Bank of Tokyo -- Mitsubishi Ltd.................. A-1/P-1 5.45 2/18/97 5,000 5,000,066
Bank of Tokyo -- Mitsubishi Ltd.................. A-1/P-1 5.45 2/20/97 5,000 5,000,069
Commerzbank AG................................... A-1+/P-1 5.52 1/21/97 10,000 10,000,099
Deutsche Bank AG................................. A-1+/P-1 5.57 3/31/97 5,000 5,000,087
Dresdner Bank AG................................. A-1+/P-1 5.05 2/26/97 10,000 9,999,261
Fuji Bank Ltd.................................... P-1/A-1+(c) 5.65 1/6/97 7,000 7,000,010
Fuji Bank Ltd.................................... P-1/A-1+(c) 5.65 1/14/97 7,000 7,000,000
Fuji Bank Ltd.................................... P-1/A-1+(c) 5.80 1/21/97 5,000 5,000,000
</TABLE>
Continued
5
<PAGE> 6
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Fuji Bank Ltd.................................... P-1/A-1+(c) 5.91% 1/21/97 $ 5,000 $ 5,000,028
Fuji Bank Ltd.................................... P-1/A-1+(c) 5.90 1/22/97 5,000 5,000,029
Sanwa Bank Ltd................................... A-1/P-1 5.50 1/13/97 7,000 7,000,046
Sanwa Bank Ltd................................... A-1/P-1 5.47 1/14/97 6,000 6,000,021
Sanwa Bank Ltd................................... A-1/P-1 5.47 1/21/97 6,000 6,000,033
Sanwa Bank Ltd................................... A-1/P-1 5.47 1/31/97 7,000 7,000,057
Sanwa Bank Ltd................................... A-1/P-1 5.49 1/15/97 5,000 5,000,019
Sanwa Bank Ltd................................... A-1/P-1 5.65 3/17/97 5,000 4,999,991
Societe Generale................................. A-1+/P-1 5.58 3/31/97 5,000 5,000,077
Societe Generale................................. A-1+/P-1 5.85 5/8/97 4,000 4,000,133
Societe Generale................................. A-1+/P-1 5.90 5/12/97 5,000 5,001,605
Societe Generale................................. A-1+/P-1 5.75 5/22/97 5,000 4,999,075
Societe Generale................................. A-1+/P-1 6.09 6/13/97 4,000 3,998,977
Societe Generale................................. A-1+/P-1 5.72 10/21/97 7,000 7,000,000
Societe Generale................................. A-1+/P-1 5.60 11/12/97 7,000 7,001,320
Sumitomo Bank Ltd................................ A-1/P-1 5.71 1/2/97 7,000 7,000,012
Sumitomo Bank Ltd................................ A-1/P-1 5.63 1/6/97 7,000 7,000,010
Sumitomo Bank Ltd................................ A-1/P-1 5.69 1/10/97 5,000 5,000,012
Sumitomo Bank Ltd................................ A-1/P-1 5.85 1/24/97 10,000 10,000,913
Westpac Banking Corp............................. A-1+/P-1 5.61 3/19/97 5,000 4,999,839
------------
211,989,248
------------
Total Certificates of Deposit
(Amortized Cost--$226,982,111)................... 226,982,111
------------
COMMERCIAL PAPER -- 38.7%
ASSET BACKED -- 6.5%
Delaware Funding Corp............................ A-1+/P-1 5.63 1/24/97 10,058 10,021,822
Eiger Capital Corp............................... A-1+/P-1 5.42 1/10/97 3,828 3,822,813
New Center Asset Trust........................... A-1+/P-1 5.42 1/29/97 4,000 3,983,138
Preferred Receivables Funding Corp............... A-1/P-1 5.45 1/7/97 5,300 5,295,186
Preferred Receivables Funding Corp............... A-1/P-1 5.45 1/16/97 3,175 3,167,790
Triple A One Funding............................. A-1/P-1 5.48 1/6/97 16,814 16,801,203
Triple A One Funding............................. A-1/P-1 5.40 1/10/97 5,000 4,993,250
</TABLE>
Continued
6
<PAGE> 7
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Triple A One Funding............................. A-1/P-1 5.49% 1/10/97 $10,000 $ 9,986,275
Triple A One Funding............................. A-1/P-1 5.72 1/21/97 7,000 6,977,756
------------
65,049,233
------------
AUTO-TRUCK -- 4.0%
General Motors Acceptance Corp................... P-1/D-1(c) 7.35 1/2/97 40,000 39,991,833
------------
BANKING -- 10.1%
ABN Amro North America Finance Inc............... A-1+/P-1 5.40 3/10/97 15,000 14,847,000
BCI Funding Corp................................. A-1/P-1 5.32 2/12/97 5,000 4,968,967
Bex America Finance Inc.......................... A-1/P-1 5.33 1/16/97 10,000 9,977,792
Bex America Finance Inc.......................... A-1/P-1 5.55 2/19/97 6,339 6,291,114
Credit Italiano Delaware Inc..................... A-1/P-1 5.41 1/6/97 10,000 9,992,486
Cregem North America Inc......................... A-1+/P-1 5.40 1/2/97 7,000 6,998,950
Den Danske Corp.................................. A-1/P-1 5.42 1/9/97 15,000 14,981,933
San Paolo U.S. Financial Co...................... A-1/P-1 5.40 1/8/97 8,000 7,991,600
San Paolo U.S. Financial Co...................... A-1/P-1 5.35 2/10/97 5,000 4,970,278
Unifunding....................................... A-1/P-1 5.41 1/6/97 15,000 14,988,729
Unifunding....................................... A-1/P-1 5.40 2/11/97 6,000 5,963,100
------------
101,971,949
------------
BROKER-DEALER -- 5.7%
Lehman Brothers Holdings Inc..................... P-2/D-1(c) 7.20 1/2/97 15,000 14,997,000
Merrill Lynch & Co., Inc......................... A-1+/P-1 5.50 1/15/97 5,000 4,989,306
Merrill Lynch & Co., Inc......................... A-1+/P-1 5.32 1/24/97 5,000 4,983,005
Morgan Stanley Group Inc......................... A-1+/P-1 5.34 1/15/97 5,000 4,989,617
Morgan Stanley Group Inc......................... A-1+/P-1 5.32 1/17/97 5,000 4,988,178
Morgan Stanley Group Inc......................... A-1+/P-1 5.33 1/17/97 9,800 9,776,785
Morgan Stanley Group Inc......................... A-1+/P-1 5.32 2/6/97 10,000 9,946,800
Morgan Stanley Group Inc......................... A-1+/P-1 5.40 5/2/97 3,000 2,945,550
------------
57,616,241
------------
DRUGS & HEALTHCARE -- 0.8%
Lilly (Eli) & Co................................. A-1+/P-1 5.35 7/3/97 8,000 7,782,433
------------
FINANCE-DIVERSIFIED -- 2.5%
Associates Corp. of North America................ A-1+/P-1 5.38 1/17/97 25,000 24,940,222
------------
</TABLE>
Continued
7
<PAGE> 8
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
FINANCE-SUBSIDIARY -- 4.9%
Creditanstalt Finance Inc........................ A-1/P-1 5.42% 1/8/97 $20,000 $ 19,978,922
Dresdner U.S. Finance............................ A-1+/P-1 5.40 1/14/97 20,000 19,961,000
National Australia Funding Delaware Inc.......... A-1+/P-1 5.41 1/3/97 10,000 9,996,994
------------
49,936,916
------------
INSURANCE -- 2.0%
Prudential Funding Corp.......................... A-1+/P-1 5.39 1/13/97 20,000 19,964,067
------------
MACHINES & MACHINE TOOLS -- 0.5%
Caterpillar Financial Services Corp.............. A-1/P-1 5.35 1/21/97 5,500 5,483,653
------------
PRINTING & PUBLISHING -- 1.0%
Gannett Co....................................... A-1/P-1 5.38 1/14/97 10,000 9,980,572
------------
TELECOMMUNICATIONS -- 0.7%
BellSouth Capital Funding Corp................... A-1+/P-1 5.30 1/27/97 7,000 6,973,206
------------
Total Commercial Paper
(Amortized Cost -- $389,690,325)................. 389,690,325
------------
SHORT-TERM CORPORATE OBLIGATIONS -- 12.9%
BROKER-DEALER -- 6.9%
Bear Stearns Companies, Inc...................... A-1/P-1 5.61* 1/2/97 5,000 5,000,000
Bear Stearns Companies, Inc...................... A-1/P-1 5.16 1/24/97 5,000 5,000,000
Bear Stearns Companies, Inc...................... A-1/P-1 5.24 3/10/97 4,000 4,000,000
Bear Stearns Companies, Inc...................... A-1/P-1 5.33 1/9/97 7,000 7,000,000
Bear Stearns Companies, Inc...................... A-1/P-1 5.75 4/28/97 7,000 7,000,000
Bear Stearns Companies, Inc...................... A-1/P-1 5.97 7/3/97 5,000 5,000,000
Bear Stearns Companies, Inc...................... A-1/P-1 5.98 6/5/97 5,000 5,000,000
Bear Stearns Companies, Inc...................... A-1/P-1 6.01 4/21/97 3,900 3,903,313
Merrill Lynch & Co., Inc......................... A-1+/P-1 5.47* 1/7/97 5,000 5,000,000
Merrill Lynch & Co., Inc......................... A-1+/P-1 5.52* 1/7/97 10,000 10,000,000
Merrill Lynch & Co., Inc......................... A-1+/P-1 5.43* 1/2/97 8,000 7,998,696
Merrill Lynch & Co., Inc......................... A-1+/P-1 5.56 3/17/97 4,850 4,850,000
------------
69,752,009
------------
BUSINESS SERVICES -- 1.0%
PHH Corp......................................... A-1/P-1 5.33* 1/2/97 10,000 9,999,885
------------
</TABLE>
Continued
8
<PAGE> 9
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
FINANCE-CONSUMER -- 0.3%
Household Finance Corp........................... A-1/P-1 6.25% 10/15/97 $ 3,255 $ 3,269,073
------------
FINANCE-DIVERSIFIED -- 3.4%
Associates Corp. of North America................ A-1+/P-1 7.05 5/15/97 2,705 2,720,224
Bankers Trust NY Corp............................ A-1/P-1 5.74* 1/2/97 14,000 14,000,000
CIT Group Holdings Inc........................... A-1/P-1 5.35* 1/2/97 10,000 9,997,028
CIT Group Holdings Inc........................... A-1/P-1 5.33* 1/2/97 7,000 6,994,991
--------------
33,712,243
--------------
FOOD, BEVERAGE & TOBACCO -- 0.3%
Heinz (H.J.) Co.................................. A-1/P-1 5.50 9/15/97 2,950 2,948,377
--------------
MISCELLANEOUS -- 1.0%
Beta Finance (b)***.............................. A-1+/P-1 5.50* 10/20/97 10,000 10,000,000
--------------
Total Short-Term Corporate Obligations
(Amortized Cost -- $129,681,587)................. 129,681,587
--------------
Total Investments in Securities
(Amortized Cost -- $989,178,348)................. 989,178,348
--------------
REPURCHASE AGREEMENTS -- 2.5%
Daiwa Securities America, Inc., dated 12/31/96,
(Collateralized by 24,714,000 U.S. Treasury
Notes, 6.875%, due 8/31/99,
value -- $25,789,059).......................... 6.75 1/2/97 25,259 25,259,000
--------------
Total Repurchase Agreements
(Amortized Cost $25,259,000)..................... 25,259,000
--------------
Total Investments
(Amortized cost $1,014,437,348)(a) -- 100.7%..... $1,014,437,348
Liabilities in excess of other assets -- (0.7%).... (7,172,592)
--------------
NET ASSETS -- 100.0%............................... $1,007,264,756
==============
<FN>
- ---------------
Percentages indicated are based on net assets of $1,007,264,756.
(a) Cost for federal income tax and financial reporting purposes are the same.
(b) Represents a restricted security, purchased under Rule 144A, which is exempt
from registration under the Securities Act of 1933, as amended.
(c) Rating from Duff & Phelps, Fitch, or IBCA.
* Floating or variable rate securities. Maturity date reflects the date in
which the interest rate resets. The rate resets daily, weekly, monthly or
quarterly. The rate reflected is the rate as of December 31, 1996.
** Implied long-term rating.
*** Illiquid Security.
</TABLE>
See notes to financial statements.
9
<PAGE> 10
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at amortized cost.............................................. $ 989,178,348
Repurchase agreements, at amortized cost.................................................. 25,259,000
Cash...................................................................................... 421
Interest receivable....................................................................... 8,494,924
Receivable from capital shares issued..................................................... 65,749,197
Prepaid expenses and other assets......................................................... 282,980
-------------
Total assets................................................................................ 1,088,964,870
-------------
LIABILITIES
Dividends payable......................................................................... 1,678,578
Payable for securities purchased.......................................................... 13,475,233
Payable for capital shares redeemed....................................................... 65,712,143
Accrued expenses and other payables:
Advisory fees........................................................................... 87,022
Administration fees..................................................................... 87,022
Distribution fees (Retail Shares)....................................................... 522,346
Other................................................................................... 137,770
-------------
Total liabilities........................................................................... 81,700,114
-------------
NET ASSETS.................................................................................. $1,007,264,756
=============
Shares Outstanding ($0.001 par value, 2 billion shares authorized) (Retail Shares):......... 1,008,203,578
=============
Net Asset Value, Offering Price and Redemption Price per Share (Retail Shares).............. $1.00
====
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................................................ $ 1,008,204
Additional paid-in capital................................................................ 1,007,228,344
Undistributed net investment income....................................................... 4,084
Accumulated net realized losses........................................................... (975,876)
-------------
Net Assets, December 31, 1996............................................................... $1,007,264,756
==============
</TABLE>
- ---------------
See Notes to Financial Statements.
10
<PAGE> 11
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................................... $52,329,045
Expenses
Advisory fees.................................................................... $ 950,074
Administration fees.............................................................. 950,074
Special management services fees (Retail Shares)................................. 923,111
Distribution fees (Retail Shares)................................................ 5,568,964
Custodian fees and expenses...................................................... 123,124
Registration fees................................................................ 277,086
Legal fees....................................................................... 70,922
Insurance expense................................................................ 21,520
Reports to shareholders.......................................................... 42,358
Transfer agent fees and expenses................................................. 412,553
Amortization of organization expenses............................................ 12,795
Audit fees....................................................................... 27,641
Directors' fees.................................................................. 31,378
Other expenses................................................................... 6,634
----------
Total expenses before fee waivers and expense reimbursements................... 9,418,234
Less: Fee waivers and expense reimbursements................................... (1,153,032)
Less: Expenses paid by third parties........................................... (8,083)
----------
Total Expenses..................................................................... 8,257,119
-----------
Net Investment Income.............................................................. 44,071,926
REALIZED GAINS FROM SECURITIES TRANSACTIONS
Net realized gains from securities transactions.................................. 136,504
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $44,208,430
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
11
<PAGE> 12
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET 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................................................... $ 44,071,926 $ 33,179,248
Net realized gains from securities transactions......................... 136,504 130,404
--------------- ---------------
Net increase in net assets resulting from operations.................. 44,208,430 33,309,652
--------------- ---------------
Dividends to shareholders from net investment income
Retail Shares........................................................... (43,484,087) (31,381,356)
Institutional Shares (b)................................................ (587,839)(a) (1,797,892)
--------------- ---------------
Total dividends to shareholders from net investment income............ (44,071,926) (33,179,248)
--------------- ---------------
Portfolio Share Transactions (at $1.00 per share)
Net proceeds from shares subscribed..................................... 5,526,532,249 3,863,586,535
Net asset value of shares issued to shareholders in reinvestment of
dividends............................................................. 44,022,773 29,259,566
Cost of shares redeemed................................................. (5,381,923,610) (3,563,662,794)
--------------- ---------------
Net increase in net assets from Portfolio share transactions.......... 188,631,412 329,183,307
--------------- ---------------
Total Increase............................................................ 188,767,916 329,313,711
NET ASSETS
Beginning of period..................................................... 818,496,840 489,183,129
--------------- ---------------
End of period........................................................... $ 1,007,264,756 $ 818,496,840
=============== ===============
SHARE TRANSACTIONS:
Issued.................................................................. 5,526,532,249 3,863,586,535
Reinvested.............................................................. 44,022,773 29,259,566
Redeemed................................................................ (5,381,923,610) (3,563,662,794)
--------------- ---------------
Change in shares........................................................ 188,631,412 329,183,307
=============== ===============
<FN>
- ---------------
(a) For the period from January 1, 1996 through December 25, 1996.
(b) On December 26, 1996, the Portfolio terminated and redeemed its offering of
Institutional Shares.
</TABLE>
See Notes to Financial Statements.
12
<PAGE> 13
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL SECURITIES -- 99.7%
ALABAMA -- 3.0%
McIntosh Industrial Development Board, Alabama
Pollution Control Revenue Bond, (Ciba-Geigy
Corp. Project)................................ A1-+/NR 5.10%* 1/2/97 $ 2,400 $ 2,400,000
------------
CALIFORNIA -- 7.1%
Contra Costa County, California Tax & Revenue
Anticipation Notes............................ Sp1+/MIG1 4.50 7/3/97 1,500 1,505,470
Los Angeles County, California Tax & Revenue
Anticipation Notes, Series A, Tax-Exempt CP... Sp1+/MIG1 4.50 6/30/97 1,500 1,505,522
Los Angeles, California Metropolitan
Transportation Authority...................... A-1+/P-1 3.45 3/20/97 1,500 1,500,000
State of California General Obligation,
Tax-Exempt CP................................. A-1+/P-1 3.45 3/19/97 1,200 1,200,000
------------
5,710,992
------------
FLORIDA -- 3.2%
Dade County, Florida Health Facilities
Authority, Hospital Revenue (Miami Children's
Hospital Project)............................. A-1+/NR 4.00* 1/8/97 2,600 2,600,000
------------
IDAHO -- 1.9%
Idaho State Tax Anticipation Notes.............. Sp1+/MIG1 4.50 6/30/97 1,500 1,505,268
------------
ILLINOIS -- 12.7%
Chicago, Illinois O'Hare International Airport
(American Airlines Project)................... NR/P-1 5.00* 1/2/97 800 800,000
Du Page Water Commission, Water Revenue Bonds... AAA/NR 6.88 5/1/97 1,000 1,030,522
Illinois Development Financial Authority
(Illinois Power).............................. A-1/P-1 3.50 2/7/97 1,500 1,500,000
Illinois Educational Facilities Authority
Revenue (Cultural Pool Project)............... NR/VMIG1 3.85* 1/8/97 1,000 1,000,000
Illinois Health Facilities Authority Revenue
(Elmhurst Memorial Hospital Project), Series
93B........................................... NR/VMIG1 5.30* 1/8/97 600 600,000
</TABLE>
Continued
13
<PAGE> 14
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
ILLINOIS -- (CONTINUED)
Illinois Health Facilities Authority Revenue
(Franciscan Sisters Health Project)........... NR/VMIG1 5.30%* 1/8/97 $ 2,200 $ 2,200,000
Illinois Health Facilities Authority Revenue,
(Evangelical Hospitals Corp. Project), Series
A............................................. NR/VMIG1 4.10* 1/8/97 2,060 2,060,000
Illinois Health Facilities Authority (Rush
Presbyterian Hospital Project), Tax-Exempt
CP............................................ A-1/P-1 3.45 2/17/97 1,000 1,000,000
------------
10,190,522
------------
INDIANA -- 0.6%
Indianapolis, Indiana Pollution Control Revenue,
(Citizens Gas Light & Coke Project),
Tax-Exempt CP A-1+/VMIG1 3.40 3/10/97 500 500,000
------------
KENTUCKY -- 1.2%
Pendleton, Kentucky Area Association of Leasing,
Tax-Exempt CP................................. A-1/P-1 3.55 2/7/97 1,000 1,000,000
------------
LOUISIANA -- 1.9%
Lake Charles, Louisiana Harbor & Terminal
District Revenue (Reynolds Metals Co.
Project)...................................... AA-/Aa1 3.75* 1/2/97 500 500,230
Plaquemines, Louisiana Port Authority, Pollution
Control Revenue (Tampa Electric), Tax-Exempt
CP............................................ A-1/P-1 3.55 3/13/97 1,000 1,000,000
------------
1,500,230
------------
MASSACHUSETTS -- 0.8%
Massachusetts Health & Education, Boston
University CP................................. A-1/VMIG1 3.70 2/13/97 600 600,000
------------
MICHIGAN -- 4.4%
Michigan State Building Authority, Tax-Exempt
CP............................................ A-1/P-1 3.50 5/1/97 1,500 1,500,000
Michigan State Hospital Finance Authority
Revenue, (St. Mary Hospital of Livonia
Project), Series A............................ A-1/VMIG1 3.45* 1/8/97 2,000 2,000,000
------------
3,500,000
------------
MINNESOTA -- 2.5%
Rochester, Minnesota Health Facilities (Mayo
Clinic Project) Tax-Exempt CP................. A-1/P-1 3.55 2/19/97 2,000 2,000,000
------------
</TABLE>
Continued
14
<PAGE> 15
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
NEW JERSEY -- 0.6%
New Jersey Tax & Revenue Anticipation Note,
Tax-Exempt CP................................. A-1+/P-1 3.50% 2/25/97 $ 500 $ 500,000
------------
NEW MEXICO -- 3.1%
University of New Mexico, University Revenue
(AMBAC)....................................... A-1+/VMIG1 4.00* 1/8/97 2,500 2,500,000
------------
NEW YORK -- 12.8%
New York City Housing Development Corp., Special
Obligation Revenue, (East 96th St. Project),
Series A...................................... NR/VMIG1 4.00* 1/8/97 2,400 2,400,000
Nassau County, New York General Improvement
Bonds, Series U............................... AAA/Aaa 5.13 11/1/97 1,000 1,011,782
New York State Power Tax-Exempt CP.............. A-1/P-1 3.55 2/21/97 1,000 1,000,000
New York State Power Tax-Exempt CP.............. A-1/P-1 3.55 2/3/97 2,000 2,000,000
New York State Energy Research & Development
Authority, Pollution Control Revenue,
Orange/Rockland Utilities, Series A........... A-1+/VMIG1 3.80* 1/8/97 1,400 1,400,000
New York State Local Government Assistance
Corp., Series A............................... A-1+/VMIG1 3.20* 1/8/97 1,500 1,500,000
Oyster Bay, New York Bond Anticipation Notes.... NR/NR 4.25 10/3/97 1,000 1,003,533
------------
10,315,315
------------
OKLAHOMA -- 1.2%
Tulsa, Oklahoma Parking Authority Revenue, First
Mortgage (Williams Center Project), Series
A............................................. NR/VMIG1 3.70* 1/2/97 1,000 1,000,000
------------
PENNSYLVANIA -- 5.1%
North Umberland, Pennsylvania Industrial
Development Authority (Merck Project)......... A-1+/NR 4.25* 1/2/97 2,900 2,900,000
Philadelphia, Pennsylvania Gas Works, Tax-Exempt
CP............................................ A-1+/P-1 3.50 5/19/97 1,200 1,200,000
------------
4,100,000
------------
</TABLE>
Continued
15
<PAGE> 16
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
PUERTO RICO -- 3.7%
Puerto Rico Commonwealth Tax & Revenue
Anticipation Notes, Series A.................. Sp1+/MIG1 4.00% 7/30/97 $ 1,000 $ 1,003,220
Puerto Rico Government Development Bank,
Tax-Exempt CP................................. A-1/P-1 3.50 2/12/97 2,000 2,000,000
------------
3,003,220
------------
RHODE ISLAND -- 1.9%
Rhode Island Providence & Plantation, Tax-Exempt
CP............................................ A-1/P-1 3.50 1/30/97 1,500 1,500,000
------------
SOUTH CAROLINA -- 1.2%
South Carolina Public Service, Tax-Exempt CP.... A-1/P-1 3.45 3/14/97 1,000 1,000,000
------------
TEXAS -- 18.7%
Dallas, Texas Area Rapid Transit................ A-1/P-1 3.45 4/9/97 1,000 1,000,000
Harris County, Texas Tax & Anticipation Notes... Sp1+/MIG1 4.50 2/28/97 1,500 1,501,891
Harris County, Texas Health Facilities (YMCA
Project), Tax-Exempt CP....................... A-1/P-1 3.55 3/24/97 900 900,000
Houston, Texas Water Systems Revenue Bonds...... AAA/Aaa 7.40 12/1/97 1,000 1,052,690
Texas Gulf Coast Pollution Control Revenue,
Tax-Exempt CP................................. A-1/P-1 3.55 2/20/97 1,000 1,000,000
Texas Gulf Coast Pollution Control Revenue,
Tax-Exempt CP................................. A-1/P-1 3.45 2/26/97 1,400 1,400,000
Texas Tax & Revenue Anticipation Notes.......... Sp1+/MIG1 4.75 8/29/97 2,050 2,063,197
Tom Green County, Texas Health Facilities
Development Authority (Universal Health
Services)..................................... A-1+/NR 4.15* 1/8/97 2,600 2,600,000
University of Texas Board of Regents, Tax-Exempt
CP............................................ A-1+/P-1 3.50 1/31/97 1,500 1,500,000
University of Texas Board of Regents, Tax-Exempt
CP............................................ A-1+/P-1 3.65 1/10/97 2,000 2,000,000
------------
15,017,778
------------
UTAH -- 3.7%
Provo City, Utah Housing Authority,
Multi-Family, (Branbury Project) Series A..... NR/VMIG1 4.35* 1/8/97 3,000 3,000,000
------------
WASHINGTON -- 2.9%
Washington State General Obligation, Series
96B........................................... A-1+/VMIG1 4.00* 1/8/97 2,300 2,300,000
------------
</TABLE>
Continued
16
<PAGE> 17
<TABLE>
<CAPTION>
RATINGS PRINCIPAL AMORTIZED
S&P/MOODY'S MATURITY AMOUNT COST
(UNAUDITED) RATE DATE (000) (NOTE 2)
---------------- ------ -------- --------- ------------
<S> <C> <C> <C> <C> <C>
WISCONSIN -- 0.6%
Southeast Wisconsin Professional Baseball Park
District Sales Tax Revenue.................... NR/MIG1 4.10% 3/1/97 $ 500 $ 500,000
------------
WYOMING -- 4.9%
Carbon County, Wyoming Pollution Control
Revenue, (Amoco Project)...................... A-1+/NR 3.60 1/1/97 800 800,000
Converse County, Wyoming Pollution Control
Revenue for PacificCorp....................... A-1+/P-1 3.50 2/6/97 3,100 3,100,000
------------
3,900,000
------------
Total Municipal Securities
(Amortized cost -- $80,143,325)................. 80,143,325
------------
Total Investments
(Amortized cost -- $80,143,325)(a) -- 99.7%..... 80,143,325
Other assets in excess of liabilities -- 0.3%..... 265,947
------------
Net Assets -- 100.0%.............................. $ 80,409,272
============
<FN>
- ---------------
Percentages indicated are based on net assets of $80,409,272.
(a) Cost for federal income tax and financial reporting purposes are the same.
* Floating or variable rate securities. Maturity date reflects the date in which
the interest rate resets. The rate resets daily, weekly, monthly, or
quarterly. The rate reflected is the rate as of December 31, 1996.
AMBAC = Insured by AMBAC Indemnity Corporation
NR = No Rating.
</TABLE>
See Notes to Financial Statements.
17
<PAGE> 18
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at amortized cost.............................................. $ 80,143,325
Interest receivable....................................................................... 431,185
Other assets.............................................................................. 41,115
-----------
Total assets................................................................................ 80,615,625
-----------
LIABILITIES
Dividends payable......................................................................... 90,377
Cash overdraft............................................................................ 35,968
Accrued expenses and other payables:
Advisory fees........................................................................... 3,642
Distribution fees (Retail Shares)....................................................... 25,497
Other................................................................................... 50,869
-----------
Total liabilities........................................................................... 206,353
-----------
NET ASSETS.................................................................................. $ 80,409,272
===========
Shares Outstanding ($0.001 par value, 2 billion shares authorized):......................... 80,409,272
===========
Net Asset Value, Offering Price and
Redemption Price per Share (Retail Shares)................................................ $1.00
====
COMPOSITION OF NET ASSETS:
Shares of common stock, at par............................................................ $ 80,409
Additional paid-in capital................................................................ 80,328,863
-----------
Net Assets, December 31, 1996............................................................... $ 80,409,272
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
18
<PAGE> 19
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1996*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................................... $ 704,983
Expenses
Advisory fees.................................................................... $ 19,900
Administration fees.............................................................. 19,900
Special Management Services fees................................................. 9,950
Distribution fees................................................................ 119,401
Custodian fees and expenses...................................................... 20,924
Registration fees................................................................ 20,145
Legal fees....................................................................... 2,947
Insurance expense................................................................ 1,259
Reports to shareholders.......................................................... 4,335
Transfer agent fees and expenses................................................. 6,204
Amortization of organization expenses............................................ 1,190
Audit fees....................................................................... 11,621
Directors' fees.................................................................. 1,020
Other expenses................................................................... 85
-------
Total expenses before fee waivers and expense reimbursements................... 238,881
Less: Fee waivers and expense reimbursements................................... (89,550)
Less: Expenses paid by third parties........................................... (2,479)
-------
Total Expenses..................................................................... 146,852
--------
Net Investment Income.............................................................. 558,131
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... $ 558,131
========
<FN>
- ---------------
* For the period from October 7, 1996 (commencement of operations) through
December 31, 1996.
</TABLE>
- ---------------
See Notes to Financial Statements.
19
<PAGE> 20
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
period from
October 7,
1996 through
December 31,
1996*
------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.................................................. $ 558,131
------------
Net increase in net assets resulting from operations................ 558,131
------------
Dividends to shareholders from net investment income..................... (558,131)
------------
Portfolio Share Transactions (at $1.00 per share)
Net proceeds from shares subscribed.................................... 166,978,246
Net asset value of shares issued to shareholders in reinvestment of
dividends........................................................... 460,012
Cost of shares redeemed................................................ (87,028,986)
------------
Net increase in net assets from Portfolio share transactions........ 80,409,272
------------
Total Increase........................................................... 80,409,272
NET ASSETS
Beginning of period.................................................... --
------------
End of period.......................................................... $ 80,409,272
============
SHARE TRANSACTIONS:
Issued................................................................. 166,978,246
Reinvested............................................................. 460,012
Redeemed............................................................... (87,028,986)
------------
Change in shares....................................................... 80,409,272
============
<FN>
- ---------------
* Period from commencement of operations.
</TABLE>
- ---------------
See Notes to Financial Statements.
20
<PAGE> 21
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET 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 Correspondent
Cash Reserves Money Market Portfolio (the "Money Market Portfolio") and the
Correspondent Cash Reserves Tax Free Money Market Portfolio (the "Tax Free Money
Market Portfolio"), which commenced operations on October 7, 1996 (together the
"Portfolios"). The Money Market Portfolio's investment objective 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 by making investments
in short-term money market obligations. The Tax Free Money Market Portfolio
seeks to provide investors with as high a level of current income exempt from
Federal income tax as is consistent with the preservation of capital and the
maintenance of liquidity by investing in short-term municipal obligations.
The Money Market Portfolio issues two classes of shares (Retail Shares and
Institutional Shares). Retail Shares and Institutional Shares are substantially
the same, except the Retail Shares bear the fees that are payable under a
Distribution Plan adopted by the Board of Directors (the "Distribution Plan").
Additionally, the Retail Shares bear the fees that are payable to Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins") and Concord Holding
Corporation ("Concord") under the Special Management Services Agreement (the
"Services Agreement"). In addition to the fees paid pursuant to the Distribution
Plan and the Services Agreement, each class also bears the expenses associated
with the printing of their shareholder reports, transfer agent fees and
registration fees. On December 26, 1996, the Portfolio terminated and redeemed
its offering of Institutional Shares. The Tax Free Money Market Portfolio has
only one class of shares, the Retail Shares.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios in preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of 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 Portfolios
may not a) purchase any instrument with a remaining maturity greater than 397
days unless such investment is subject to a demand
21
<PAGE> 22
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 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 each Portfolio is
allocated to the separate classes of shares based upon their relative net asset
value.
C) Repurchase Agreements
The Money Market Portfolio's custodian and other banks acting in a
sub-custodian capacity take possession of the collateral pledged for investments
in repurchase agreements. The underlying collateral is valued daily on a
mark-to-market basis to determine that the value, including accrued interest,
exceeds the repurchase price. In the event of the seller's default of the
obligation to repurchase, the Money Market 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
Portfolios on a straight-line basis over five years. Direct expenses of the
Portfolios are borne solely by each Portfolio and general Fund expenses are
allocated among the Fund's respective investment portfolios. The Money Market
Portfolio's expenses (other than transfer agent fees and expenses, reports to
shareholders expenses, registration and filing fees, expenses incurred under the
Distribution Plan and expenses incurred under the Services Agreement) are
allocated to their separate classes of shares based upon their relative net
asset value.
E) Federal Income Taxes
It is the policy of the Portfolios to meet the requirements of the Internal
Revenue Code (the "Code") applicable to regulated investment companies and to
distribute substantially all of their income to shareholders. Therefore, no
Federal income tax provision is required.
At December 31, 1996, the Money Market Portfolio had capital loss
carryovers of approximately $975,876 which are available to offset future net
realized gains on securities transactions to the extent provided for in the
Code. Such capital loss carryover will expire in fiscal year 2002. The Tax Free
Money Market Portfolio did not have any capital loss carryover available.
F) 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. At December 31, 1996, reclassifications are made to the Portfolios'
capital accounts to reflect permanent book/tax differences and income and
22
<PAGE> 23
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
Each Portfolio maintains a cash balance with its custodian and receives a
reduction of their custody fees for the amounts of interest earned on such
uninvested cash balances. For financial reporting purposes custodian fees were
decreased, for the year ended December 31, 1996, by $8,083 for the Money Market
Portfolio and, for the period from October 7, 1996 through December 31, 1996, by
$2,479 for the Tax Free Money Market Portfolio. There was no effect on net
investment income. The Portfolios 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
Mitchell Hutchins, a wholly-owned subsidiary of Paine Webber Incorporated
("Paine Webber"), serves as the Portfolios' investment adviser. Concord serves
as the Portfolios' administrator and Concord Financial Group, Inc.
("Distributor") serves as the distributor of the Portfolios' shares. Concord and
the Distributor are each a wholly owned subsidiary of The BISYS Group, Inc.
As investment adviser, Mitchell Hutchins supervises and assists in the
overall operations of the Portfolios. Pursuant to the terms of the Investment
Advisory Agreement, Mitchell Hutchins is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.10% of the average daily net assets of
each Portfolio. For the year ended December 31, 1996, there were no waivers with
respect to the Money Market Portfolio. For the period from October 7, 1996
through December 31, 1996 Mitchell Hutchins waived fees of $9,950 with respect
to the Tax Free Money Market Portfolio.
As administrator, Concord assists in supervising the operations of the
Portfolios. For its services, Concord is entitled to a fee, accrued daily and
payable monthly, at an annual rate of 0.10% of the average daily net assets of
each Portfolio. For the year ended December 31, 1996, there were no waivers with
respect to the Money Market Portfolio. For the period from October 7, 1996,
through December 31, 1996, the administrator waived fees of $19,900 with respect
to the Tax Free Money Market Portfolio.
Under the terms of the Special Management Services Agreement, the
Portfolios have agreed to pay Mitchell Hutchins and Concord each a monthly fee
at the annual rate of 0.05% of the average daily net assets of each Portfolio's
outstanding Retail Shares for certain services, other than those provided
pursuant to the Portfolios' Distribution Plan. These services include developing
and monitoring customized investor programs including individual retirement
accounts and other ERISA options, automatic deposit and withdrawal programs and
other programs requested by certain securities dealers that have entered into
securities clearing arrangements with Paine Webber. Mitchell Hutchins and
Concord each waived fees of $923,111 from the Money Market Portfolio for the
year ended December 31, 1996 and $9,950 from the Tax Free Money Market Portfolio
for the period from October 7, 1996 through December 31, 1996, under the Special
Management Services Agreement which represented 100% of the fee charged.
23
<PAGE> 24
The Portfolios have adopted a Distribution Plan pursuant to Rule 12b-1
under the Act. Pursuant to the Distribution Plan, the Portfolios are authorized
to pay Correspondent Services Corporation (CSC), an affiliate of Paine Webber,
and certain securities dealers that have entered into clearing arrangements with
CSC, a monthly fee at an annual rate of up to 0.60% of the average daily net
assets of each Portfolio's outstanding Retail Shares held in accounts serviced
by such firms. Such fees will be paid in respect of certain services provided by
such firms, including answering client inquiries regarding the Portfolios;
assisting clients in changing dividend options, account designations and
addresses; performing sub-accounting; establishing and maintaining shareholder
accounts and records; processing purchase and redemption transactions; investing
client cash account balances automatically in Portfolios shares; providing
periodic statements showing a client's account balance and integrating such
statements with those of other transactions and balances in the client's other
accounts serviced by such firm; arranging for bank wires; and such other
services as the clients may request. For the year ended December 31, 1996, the
Money Market Portfolio incurred expenses of $5,568,964 and for the period from
October 7, 1996 through December 31, 1996, the Tax Free Money Market Portfolio
incurred expenses of $119,401 pursuant to the Distribution Plan. For the year
ended December 31, 1996, the Distributor waived fees of $229,921 from the Money
Market Portfolio and for the period from October 7, 1996 through December 31,
1996 the Distributor waived fees of $49,750 from the Tax Free Money Market
Portfolio.
Certain Directors and officers 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 that Fund.
NOTE 4 -- CONCENTRATION OF CREDIT RISK
The Money Market Portfolio invests substantially all of its assets in a
diversified portfolio of high quality U.S. dollar denominated money market
instruments as disclosed in the portfolio of investments by security type. The
Tax Free Money Market Porfolio invests substantially all of its assets in a
diversified portfolio of high quality municipal obligations.
The Money Market Portfolio had the following concentration by security type
at December 31, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
Commercial Paper.................. 38.4%
Certificates of Deposit........... 22.4%
Short Term Corporate
Obligations..................... 12.8%
U.S. Government Obligations and
Agency Obligations.............. 11.8%
Bank Notes........................ 11.6%
Other............................. 3.0%
------
100.0%
======
</TABLE>
The issuers' abilities to meet their obligations may be affected by
domestic and foreign economic, regional and political developments.
24
<PAGE> 25
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Money Market Portfolio (at $1.00 per share)
are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
RETAIL SHARES:
Shares sold.......................... 5,070,342,105 3,571,545,151
Shares issued in reinvestment of
dividends and distributions........ 44,022,773 29,259,565
Shares redeemed...................... (4,886,194,453) (3,279,990,042)
-------------- --------------
Net increase in Retail Shares........ 228,170,425 320,814,674
-------------- --------------
INSTITUTIONAL SHARES: (B):
Shares sold.......................... 456,190,144(a) 292,041,384
Shares issued in reinvestment of
dividends and distributions........ -- 1
Shares redeemed...................... (495,729,157)(a) (283,672,752)
-------------- --------------
Net increase (decrease) in
Institutional Shares............... (39,539,013)(a) 8,368,633
-------------- --------------
Net increase in Money Market
Portfolio Shares................... 188,631,412 329,183,307
============== ==============
<FN>
- ---------------
(a) For the period from January 1, 1996 through December 25, 1996.
(b) On December 26, 1996, the Portfolio terminated and redeemed its offering of
Institutional Shares.
</TABLE>
NOTE 6 -- EXEMPT-INTEREST INCOME DESIGNATION (UNAUDITED)
The Fund designates the following exempt-interest paid by the Tax Free
Money Market Portfolio for the period from October 7, 1996 through December 31,
1996:
<TABLE>
<S> <C>
Exempt-Interest Distributions............. $558,131
Exempt-Interest Distributions Per Share... 0.0100
</TABLE>
The percentage break-down by state of exempt-interest for the Tax Free
Money Market Portfolio's taxable year ended December 31, 1996 was as follows:
<TABLE>
<S> <C>
ALABAMA.................................... 4.88%
ALASKA..................................... 1.27%
ARIZONA.................................... 2.93%
CALIFORNIA................................. 5.03%
DISTRICT OF COLUMBIA....................... 0.50%
FLORIDA.................................... 3.99%
IDAHO...................................... 2.53%
ILLINOIS................................... 17.18%
LOUISIANA.................................. 0.38%
MASSACHUSETTS.............................. 0.16%
MICHIGAN................................... 3.24%
NEW JERSEY................................. 0.39%
NEW MEXICO................................. 3.85%
NEW YORK................................... 15.78%
NORTH DAKOTA............................... 0.46%
OKLAHOMA................................... 0.90%
PENNSYLVANIA............................... 12.62%
PUERTO RICO................................ 0.26%
TEXAS...................................... 13.24%
UTAH....................................... 5.57%
WASHINGTON................................. 3.55%
WEST VIRGINIA.............................. 0.08%
WISCONSIN.................................. 0.29%
WYOMING.................................... 0.92%
-------
100.00%
=======
</TABLE>
25
<PAGE> 26
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RETAIL SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 0.9986 $ 0.9975 $ 0.9999 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Income from investment operations
Net investment income..................... 0.0462 0.0512 0.0340 0.0245 0.0306
Net realized gains (losses) from
securities transactions................. 0.0005 0.0011 (0.0024) (0.0001) --
-------- -------- -------- -------- --------
Net income from investment operations..... 0.0467 0.0523 0.0316 0.0244 0.0306
-------- -------- -------- -------- --------
Dividends from net investment income........ (0.0462) (0.0512) (0.0340) (0.0245) (0.0306)
-------- -------- -------- -------- --------
Net change in net asset value............. 0.0005 0.0011 (0.0024) (0.0001) --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $ 0.9991 $ 0.9986 $ 0.9975 $ 0.9999 $ 1.0000
======== ======== ======== ======== ========
Total return................................ 4.72% 5.24% 3.45% 2.48% 3.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)......... $1,007,265 $ 779,011 $ 458,092 $ 331,210 $ 267,895
Ratio of expenses to average net assets... 0.88% 0.85% 0.94% 1.02% 1.12%
Ratio of net investment income to average
net assets.............................. 4.65% 5.14% 3.47% 2.44% 3.01%
Ratio of expenses to average net assets
*....................................... 1.01%** 1.03% 1.12% 1.20% 1.35%
Ratio of net investment income to average
net assets *............................ 4.53% 4.96% 3.29% 2.26% 2.78%
<FN>
- ---------------
* During the period, certain fees and expenses were voluntarily waived and/or
reimbursed. If such voluntary reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
** 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.
26
<PAGE> 27
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 (A) 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES:
NET ASSET VALUE, BEGINNING OF PERIOD........ $ 0.9986 $ 0.9975 $ 0.9999 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Income from investment activities
Net investment income..................... 0.0513 0.0563 0.0402 0.0320 0.0391
Net realized gains (losses) from
securities transactions................. 0.0005 0.0011 (0.0024) (0.0001) --
-------- -------- -------- -------- --------
Net income from investment operations..... 0.0518 0.0574 0.0378 0.0319 0.0391
-------- -------- -------- -------- --------
Distributions
Dividends from net investment income...... (0.0513) (0.0563) (0.0402) (0.0320) (0.0391)
-------- -------- -------- -------- --------
Net change in net asset value............... 0.0005 0.0011 (0.0024) (0.0001) 0.0000
-------- -------- -------- -------- --------
NET ASSET VALUE, AT DECEMBER 25, 1996....... $ 0.9991 NA NA NA NA
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $ 0.0000 $ 0.9986 $ 0.9975 $ 0.9999 $ 1.0000
-------- -------- -------- -------- --------
Total return................................ 5.25% 5.78% 4.09% 3.25% 3.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)......... -- $ 39,485 $ 31,091 $ 67,230 $ 64,306
Ratio of expenses to average net assets... 0.63% 0.34% 0.31% 0.25% 0.27%
Ratio of net investment income to average
net assets.............................. 4.96% 5.66% 3.87% 3.20% 3.73%
Ratio of expenses to average net
assets*................................. 0.68%** 0.34% 0.31% 0.25% 0.32%
Ratio of net investment income to average
net assets*............................. 4.94% 5.66% 3.87% 3.20% 3.68%
<FN>
- ---------------
* During the period, certain fees and expenses were voluntarily waived and/or
reimbursed. If such voluntary reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
** During the period 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.
(a) For the period from January 1, 1996 to December 25, 1996 when the Portfolio
terminated and redeemed its offering of Institutional Shares.
</TABLE>
See Notes to Financial Statements.
27
<PAGE> 28
THE INFINITY MUTUAL FUNDS, INC.
CORRESPONDENT CASH RESERVES TAX FREE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM OCTOBER 7,
1996 THROUGH
DECEMBER 31,
1996*
---------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................................... $ 1.000
-------
Income from investment operations
Net investment income.................................................................. 0.0100
-------
Net income from investment operations.................................................. 0.0100
-------
Dividends from net investment income..................................................... (0.0100)
-------
Net change in net asset value............................................................ 0.0000
-------
NET ASSET VALUE, END OF PERIOD........................................................... $ 1.0000
=======
Total return............................................................................. 0.66%(a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)...................................................... $ 80,409
Ratio of expenses to average net assets................................................ 0.74%(b)
Ratio of net investment income to average net assets................................... 2.80%(b)
Ratio of expenses to average net assets**.............................................. 1.20%(b)(c)
Ratio of net investment income to average net assets**................................. 2.34%(b)
<FN>
- ---------------
* Period from commencement of operations.
** During the period, certain fees and expenses were voluntarily waived and/or
reimbursed. If such voluntary reductions and/or reimbursements had not
occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
(c) During the period 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.
28
<PAGE> 29
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
Correspondent Cash Reserves Money Market Portfolio and the Correspondent Cash
Reserves Tax Free Money Market Portfolio (two of the portfolios constituting The
Infinity Mutual Funds, Inc.), including the portfolios of investments as of
December 31, 1996, the related statement of operations for the year then ended
and the period October 7, 1996 (Commencement of operations) to December 31,
1996, the related statements of changes in net assets for each of the years in
the two-year period then ended and the period October 7, 1996 (Commencement of
operations) to December 31, 1996 and the financial highlights for each of the
years in the five-year period then ended and the period October 7, 1996
(Commencement of operations) to December 31, 1996. These financial statements
and financial highlights are the responsibility of the Funds' 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 aspects, the financial position of the
Correspondent Cash Reserves Money Market Portfolio and the Correspondent Cash
Reserve Tax Free Money Market Portfolio as of December 31, 1996, the results of
their operations for the year then ended and the period October 7, 1996
(Commencement of operations) to December 31, 1996, the changes in their net
assets for each of the years in the two-year period then ended and the period
October 7, 1996 (Commencement of operations) to December 31, 1996 and financial
highlights for each of the years in the five-year period then ended and the
period October 7, 1996 (Commencement of operations) to December 31, 1996, 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. -- Correspondent Cash Reserves Money Market
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, 2.99% was derived from U.S. Government
Obligations.
29
<PAGE> 30
CORRESPONDENT CASH
RESERVES
- ---------------------------------------------------
THE INFINITY MUTUAL FUNDS, INC.
3435 Stelzer Road
Columbus, OH 43219
- ---------------------------------------------------
INVESTMENT ADVISER
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 Avenue of the Americas
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.
LOGO
Printed on recycled paper
COICCRD96A
CORRESPONDENT CASH
RESERVES
LOGO
ANNUAL REPORT
------------------
DECEMBER 31, 1996
