Securities Act File No. 33-34080
Investment Company Act File No. 811-6076
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. ____ / /
Post-Effective Amendment No. 31 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 31 /X/
(Check appropriate box or boxes)
THE INFINITY MUTUAL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (614) 470-8000
George O. Martinez, Esq.
3435 Stelzer Road
Columbus, Ohio 43219
(Name and Address of Agent for Service)
copy to:
Stuart H. Coleman, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
It is proposed that this filing will become effective (check appropriate
box)
___ immediately upon filing pursuant to paragraph (b) on
(date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(i)
___ on (date) pursuant to paragraph (a)(i)
X 75 days after filing pursuant to paragraph (a)(ii)
___ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has registered an indefinite number of its shares of Common Stock
under the Securities Act of 1933 pursuant to Section 24(f) of the Investment
Company Act of 1940, Registrant's Rule 24f-2 Notice for its fiscal year ended
December 31, 1996 is expected to be filed on or about February 28, 1997.
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
AmeriStar Portfolios
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part A of
Form N-1A Caption
Capital Growth, Dividend
Growth, Limited Duration
Income, Limited Duration U.S.
Government, Limited Duration
Tennessee Tax Free
Investor
Shares
1 Cover Page 1
2 Synopsis 3
3 Condensed Financial Information 5
4 General Description of Registrant 7
5 Management of the Fund 14
5(a) Management Discussion of Fund's *
Performance
6 Capital Stock and Other Securities 29
7 Purchase of Securities Being Offered 17
8 Redemption or Repurchase
9 Pending Legal Proceedings *
Items in
Part B of
Form N-1A
20 Cover Page B-1
11 Table of Contents B-1
12 General Information and History *
13 Investment Objectives and Policies B-2
14 Management of the Fund B-18
15 Control Persons and Principal Holders B-21, B-35
of Securities
16 Investment Advisory and Other Services B-21
17 Brokerage Allocation B-33
18 Capital Stock and Other Securities B-34
19 Purchase, Redemption and Pricing B-25
of Securities Being Offered
20 Tax Status B-31
21 Underwriters *
22 Calculations of Performance Data B-29
23 Financial Statements B-43
Items in
Part C of
Form N-1A
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under C-5
Common Control with Registrant
26 Number of Holders of Securities C-5
27 Indemnification C-5
28 Business and Other Connections C-6
of Investment Adviser
29 Principal Underwriters C-10
30 Location of Accounts and Records C-10
31 Management Services C-11
32 Undertakings C-11
<PAGE>
PROSPECTUS FEBRUARY 28, 1997
THE INFINITY MUTUAL FUNDS, INC.
AmeriStar Funds
CAPITAL GROWTH PORTFOLIO
DIVIDEND GROWTH PORTFOLIO
LIMITED DURATION U.S. GOVERNMENT PORTFOLIO
LIMITED DURATION INCOME PORTFOLIO
LIMITED DURATION TENNESSEE TAX FREE PORTFOLIO
CORE INCOME PORTFOLIO
TENNESSEE TAX EXEMPT BOND PORTFOLIO
Investor Shares
The Infinity Mutual Funds, Inc. (the "Fund") is an open-end, management
investment company, known as a series fund. By this Prospectus, the Fund is
offering Investor Shares of seven of its AmeriStar Funds (the "Portfolios"),
each with a different investment objective:
The CAPITAL GROWTH PORTFOLIO seeks to provide investors with capital growth.
This Portfolio will invest primarily in the equity securities of domestic
issuers.
The DIVIDEND GROWTH PORTFOLIO seeks to provide investors with current
income and capital appreciation. This Portfolio will invest primarily in
divident-paying equity securities of domestic issuers which are expected to
provide reasonable income and may have capital appreciation potential.
The LIMITED DURATION U.S. GOVERNMENT PORTFOLIO seeks to provide investors
with high current income without assuming undue risk. This Portfolio will
invest primarily in a portfolio of U.S. Government securities that, under
normal market conditions, has a duration that approximates that of the
Merrill Lynch Government 1 to 5 Year Bond Index.
The LIMITED DURATION INCOME PORTFOLIO seeks to provide investors
with current income without assuming undue risk. This Portfolio will invest
primarily in investment grade, U.S. dollar denominated fixed-income
securities of domestic and foreign issuers. Under normal market conditions,
the Limited Duration Income Portfolio will invest in a portfolio of
securities that has a duration of under four years.
The LIMITED DURATION TENNESSEE TAX FREE PORTFOLIO seeks to provide investors
with current income exempt from Federal and Tennessee income taxes without
assuming undue risk. This Portfolio will invest primarily in a portfolio of
investment grade Tennessee Municipal Obligations that, under normal market
conditions, has a duration of under five years and an effective average
portfolio maturity ranging between three and five years.
The CORE INCOME PORTFOLIO seeks to provide investors with current
income without assuming undue risk. This Portfolio will invest primarily in
investment grade, U.S. dollar denominated fixed-income securities of
domestic and foreign issuers. Under normal market conditions, the Core Income
Portfolio will invest in a portfolio of securities, except when
maintaining a temporary defensive position, that has a duration of 50% to
150% of that of the Merrill Lynch Corporate Government Master Index.
The TENNESSEE TAX EXEMPT BOND PORTFOLIO seeks to provide investors with
current income exempt from Federal and Tennessee income taxes without
assuming undue risk. This Portfolio will invest primarily in investment
grade Tennessee Municipal Obligations without regard to maturity.
Each Portfolio's investment adviser is First American National Bank (the
"Adviser").
BISYS Fund Services Limited Partnership ("BISYS") serves as each
Portfolio's administrator and distributor.
Portfolio shares are not deposits or obligations of, or endorsed or
guaranteed by, the Adviser or any other bank, and are not federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board or any
other governmental agency. Portfolio shares involve certain risks, including
the possible loss of principal. Each Portfolio's share price and investment
return fluctuate and are not guaranteed.
This Prospectus sets forth concisely information about the Fund and the
Portfolios that an investor should know before investing. It should be read and
retained for future reference.
The Statement of Additional Information, dated February 28, 1997, which may
be revised from time to time, provides a further discussion of certain areas in
this Prospectus and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund and
Portfolios. For a free copy of the Statement of Additional Information, write to
the Fund at 3435 Stelzer Road, Columbus, Ohio 43219-3035, or call
1-800-852-0045.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
-----------
Fee Table.............................................
Financial Highlights..................................
Description of the Portfolios.........................
Management of the Portfolios..........................
How to Buy Shares.....................................
How to Redeem Shares..................................
Shareholder Privileges................................
Dividends, Distributions and Taxes....................
Performance Information...............................
General Information...................................
Appendix.............................................. A-1
Distributed by: Investment Adviser:
BISYS Fund Services Limited First American National Bank
Partnership 315 Deaderick Street
3435 Stelzer Road Nashville, Tennessee 37237
Columbus, Ohio 43219-3035
For information about opening an account and other Fund services call:
(800) 824-3741 For voice recorded price and yield information call: (800)
852-0045 To execute purchases, redemptions and exchanges and for information
about the status of your account call: (800) 852-0045
<PAGE>
FEE TABLE*
<TABLE>
<CAPTION>
Capital Dividend Limited
Growth Growth Duration Income Core Income
Portfolio Portfolio Portfolio Portfolio
---------------------- ------------------ ------------------- -------------------
Trust Investor Trust Investor Trust Investor Trust Investor
Shares Shares Shares Shares Shares Shares Shares Shares
----------- ---------- -------- -------- ----------- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........ None 3.0% None 3.0% None 3.0% None 3.0%
Annual Operating Expenses (as a percentage
of average daily net assets)
Management Fees............................. .65% .65% .65% .65% .50% .50% .50% .50%
12b-1 Fees (after expense reimbursement).... None .00% None .00% None .00% None .00%
Other Expenses ............................. .55% .55% .41% .41% .33% .33% .63% .63%
Total Portfolio Operating Expenses (after
expense reimbursement)**.................... 1.20% 1.20% 1.06% 1.06% .83% .83% 1.13% 1.13%
Example:
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and (2)
redemption at the end of each time
period:
1 Year................................. $ 12 $ 42 $ 11 $ 40 $ 8 $ 38 $ 12 $ 41
3 Years................................ $ 38 $ 67 $ 34 $ 63 $ 26 $ 56 $ 36 $ 65
5 Years................................ $ 66 $ 94 $ 58 $ 87 $ 46 $ 75 $ 62 $ 90
10 Years............................... $145 $171 $129 $156 $103 $129 $137 $163
</TABLE>
<TABLE>
<CAPTION>
Tennessee Limited Duration Limited Duration
Tax Exempt Tennessee Tax Free U.S. Government
Bond Portfolio Portfolio Portfolio
------------------------ ---------------------- -------------------------
Trust Investor Trust Investor Trust Investor
Shares Shares Shares Shares Shares Shares
----------- ----------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)....... None 3.0% None 3.0% None 3.0%
Annual Operating Expenses (as a percentage
of average daily net assets)
Management Fees............................. .50% .50% .50% .50% .50% .50%
12b-1 Fees (after expense reimbursement).... None .00% None .00% None .00%
Other Expenses.............................. .36% .36% .41% .41% .41% .41%
Total Portfolio Operating Expenses (after
expense reimbursement)**.................... .86% .86% .91% .91% .91% .91%
Example:
An investor would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and (2)
redemption at the end of each time
period:
1 Year................................. $ 9 $ 39 $ 9 $ 39 $ 9 $ 39
3 Years................................ $ 27 $ 57 $ 29 $ 58 $ 29 $ 58
5 Years................................ $ 48 $ 76 $ 50 $ 79 $ 50 $ 79
10 Years............................... $106 $133 $112 $139 $112 $139
</TABLE>
- ---------------
* Only Investor Shares are offered by this Prospectus. Trust Shares are
offered pursuant to a separate prospectus; if an investor is eligible and
desires to purchase Trust Shares, the investor must obtain and should review
a copy of the current prospectus for Trust Shares. As of the date of this
Prospectus, Trust Shares have not been offered.
** Certain Service Organizations (as defined below) and other institutions also
may charge their clients direct fees for effecting transactions in Portfolio
shares and the Adviser, its affiliates and certain other institutions may
charge customary account and account transaction fees, which are not Fund
related, with respect to accounts through which or for which Portfolio
shares are purchased or redeemed; such fees are not reflected in the
foregoing table.
The amounts listed in the example should not be considered as
representative of past or future expenses and actual expenses may be greater or
less than those indicated. Moreover, while the example assumes a 5% annual
return, each Portfolio's actual performance will vary and may result in an
actual return greater or less than 5%.
The purpose of the foregoing table is to assist investors in understanding
the costs and expenses borne by the Portfolios and investors, the payment of
which will reduce investors' annual return. Other Expenses for the Capital
Growth Portfolio, Dividend Growth Portfolio, Core Income Portfolio, Limited
Duration Tennessee Tax Free Portfolio and Limited Duration U.S. Government
Portfolio are based on estimated amounts for the current fiscal year. The
expenses noted above, without reimbursements, would have been: 12b-1 Fees, .25%
for each Portfolio and Total Portfolio Operating Expenses, 1.45% for the Capital
Growth Portfolio, 1.31% for the Dividend Growth Portfolio, 1.08% for the Limited
Duration Income Portfolio, 1.38% for the Core Income Portfolio, 1.11% for the
Tennessee Tax Exempt Bond Portfolio, and 1.16% for the Limited Duration
Tennessee Tax Free Portfolio and Limited Duration U.S. Government Portfolio.
Long-term investors in Investor Shares could pay more in 12b-1 fees than the
economic equivalent of paying a front-end sales charge. The expenses noted above
do not reflect any other fee waiver or expense reimbursement arrangement that
may be in effect. For a further description of the various costs and expenses
incurred in a Portfolio's operation, as well as expense reimbursement or waiver
arrangements, see "Management of the Portfolios."
FINANCIAL HIGHLIGHTS
Contained below for the Capital Growth Portfolio, Limited Duration Income
Portfolio, Core Income Portfolio and Tennessee Tax Exempt Bond Portfolio is per
share operating performance data for an Investor Share of common stock
outstanding, total investment return, ratios to average net assets and other
supplemental data for each period indicated. The information in the tables has
been audited by KPMG Peat Marwick LLP, the Portfolios' independent auditors,
whose report thereon appears in the Statement of Additional Information. Further
financial data and related notes are included in the Statement of Additional
Information, available upon request. No financial information is available for
the Dividend Growth Portfolio, Limited Duration Tennessee Tax Free Portfolio or
Limited Duration U.S. Government Portfolio, which had not commenced operations
as of December 31, 1996.
<PAGE>
<TABLE>
<CAPTION>
AMERISTAR CAPITAL GROWTH PORTFOLIO
For the Period from
April 1, 1996
through December
31, 1996*
--------------------
<S> <C>
Net Asset Value, Beginning of Period.................. $ 10.00
-------
Income from investment operations:
Net realized and unrealized gains on
securities transactions........................... 1.32
----
Net income from investment operations............... 1.32
----
Net change in net asset value......................... 1.32
----
Net Asset Value, End of Period........................ $ 11.32
=======
Total Return (excluding sales charge)................. 22.26%(a)
Ratios/Supplemental Data:
Net assets, end of period (000's)................... $49,008
Ratio of expenses to average net assets............. 1.20%(b)
Ratio of net investment (loss) to average
net assets....................................... -0.02%(b)
Ratio of expenses to average net assets**........... 1.39%(b)(c)
Ratio of net investment (loss) to average
net assets**..................................... -0.21%(b)
Portfolio Turnover.................................. 69%
Average commission rate paid(d)..................... $0.0838
- -----------------------
* Period from commencement of operations.
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized. The quoted return includes the performance of the
Portfolio's predecessor common trust fund from January 1, 1996 to April 1,
1996, as adjusted to reflect the expenses associated with the Portfolio.
See "Performance Information".
(b) Annualized.
(c) During the year ended December 31, 1996, the Portfolio received credits
from its custodian for interest earned on uninvested cash balances which
were used to offset custodian fees and expenses. If such credits had not
occurred, the expense ratio would have been as indicated. The ratio of
net investment income was not affected.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold for which
commissions were charged.
</TABLE>
<TABLE>
<CAPTION>
AMERISTAR LIMITED DURATION INCOME PORTFOLIO
Year Ended Year Ended Period Ended
December December 31, December 31,
31, 1996 1995 1994*
------------- ------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....................................... $ 10.13 $ 9.66 $ 10.00
------------- ------------- -------------
Income from investment operations:
Net investment income.................................................... 0.58 0.59 0.38
Net realized and unrealized gains (losses) on securities transactions.... (0.16) 0.47 (0.34)
-------------- ------------- -------------
Net income from investment operations.................................... 0.42 1.06 0.04
-------------- ------------- -------------
Less dividends and distributions:
Dividends from net investment income....................................... (0.58) (0.59) (0.38)
Distributions in excess of net realized gains on securites transactions.... (0.01) - -
-------------- ------------- -------------
Net change in net asset value.............................................. (0.17) 0.47 (0.34)
-------------- ------------- -------------
Net Asset Value, End of Period............................................. $ 9.96 $ 10.13 $ 9.66
-------------- ------------- -------------
-------------- ------------- -------------
Total Return (excluding sales charge)...................................... 4.28% 11.20% 0.42%(a)
Ratios/Supplemental Data:
Net assets, end of period (000's)......................................... $ 98,197 $ 103,382 $ 93,189
Ratio of expenses to average net assets.................................. 0.83% 0.87% 0.83%(b)
Ratio of net investment income to average net assets..................... 5.84% 5.89% 5.27%(b)
Ratio of expenses to average net assets**................................ 1.08%(c) 1.12% 1.28%(b)
Ratio of net investment income to average net assets**................... 5.59% 5.64% 4.82%(b)
Portfolio Turnover....................................................... 51% 28% 6%
- ---------------
* For the period March 28, 1994 (commencement of operations) through December
31, 1994.
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
(c) During the year ended December 31, 1996, the Portfolio received credits
from its custodian for interest earned on uninvested cash balances which
were used to offset custodian fees and expenses. If such credits had not
occurred, the expense ratio would have been as indicated. The ratio of
net investment income was not affected.
</TABLE>
<TABLE>
<CAPTION>
AMERISTAR CORE INCOME PORTFOLIO
For the Period from
April 1, 1996
through December
31, 1996*
-------------------
<S> <C>
Net Asset Value, Beginning of Period.................. $ 10.00
-------
Income from investment operations:
Net investment income............................... 0.40
--------
Net income from investment operations............... 0.40
--------
Less dividends and distributions:
Dividends from net investment income................ (0.40)
--------
Net change in net asset value......................... 0.00
--------
Net Asset Value, End of Period........................ $ 10.00
========
Total Return (excluding sales charge)................. 1.12%(a)
Ratios/Supplemental Data:
Net assets, end of period (000's)................... $38,815
Ratio of expenses to average net assets............. 1.13%(b)
Ratio of net investment income to average
net assets....................................... 5.37%(b)
Ratio of expenses to average net assets**............ 1.32%(b)(c)
Ratio of net investment income to average
net assets**...................................... 5.18%(b)
Portfolio Turnover.................................. 65%
- -----------------------
* Period from commencement of operations.
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized. The quoted returns includes the performance of the
Portfolio's predecessor common trust fund from January 1, 1996 to April 1,
1996, as adjusted to reflect the expenses associated with the Portfolio.
See "Performance Information."
(b) Annualized.
(c) During the year ended December 31, 1996, the Portfolio received credits
from its custodian for interest earned on uninvested cash balances which
were used to offset custodian fees and expenses. If such credits had not
occurred, the expense ratio would have been as indicated. The ratio of
net investment income was not affected.
</TABLE>
AMERISTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
Year
Ended Year Ended Period Ended
December December 31, December 31,
31, 1996 1995 1994*
------------- ------------ -------------
<S> <C> <C>
Net Asset Value, Beginning of Period.................................... $ 10.19 $ 9.40 $ 10.00
---------- ------------- -------------
Income from investment operations:
Net investment income................................................. 0.42 0.45 0.34
Net realized and unrealized gains (losses) on securities
transactions............................................................ (0.29) 0.79 (0.60)
---------- ------------- -------------
Net income (loss) from investment operations.......................... 0.13 1.24 (0.26)
---------- ------------- -------------
Less dividends and distributions:
Dividends from net investment operations................................ (0.42) (0.45) (0.34)
----------- ------------- -------------
Net change in net asset value........................................... (0.29) 0.79 (0.60)
----------- ------------- -------------
Net Asset Value, End of Period.......................................... $ 9.90 $ 10.19 $ 9.40
------------ ------------- -------------
------------ ------------- -------------
Total Return (excluding sales charge)................................... 1.39% 13.40% (2.63)%(a)
Ratios/Supplemental Data:
Net assets, end of period (000's)...................................... $ 88,044 $ 94,143 $ 86,127
Ratio of expenses to average net assets............................... 0.86% 0.87% 0.82%(b)
Ratio of net investment income to average net assets.................. 4.29% 4.52% 4.61%(b)
Ratio of expenses to average net assets**............................. 1.11%(c) 1.12% 1.18%(b)
Ratio of net investment income to average net assets**................ 4.04% 4.27% 4.25%(b)
Portfolio turnover.................................................... 219% 188% 41%
- ---------------
* For the period March 28, 1994 (commencement of operations) through December
31, 1994.
** During the period certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Not annualized.
(b) Annualized.
(c) During the year ended December 31, 1996, the Portfolio received credits
from its custodian for interest earned on uninvested cash balances
which were used to offset custodian fees and expenses. If such credits had
not occurred, the expense ratio would have been as indicated. The ratio of
net investment income was not affected.
</TABLE>
Further information about performance is contained in the Portfolios'
annual report, which may be obtained without charge by writing to the address
or calling the number set forth on the cover page of this Prospectus.
DESCRIPTION OF THE PORTFOLIOS
Investment Objectives
Each Portfolio's investment objective is set forth on the cover page of
this Prospectus. The differences in objectives and policies among the Portfolios
determine the types of securities in which each Portfolio invests and can be
expected to affect the degree of risk to which each Portfolio is subject and
each Portfolio's yield or return. Each Portfolio's investment objective cannot
be changed without approval by the holders of a majority (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of such Portfolio's
outstanding voting shares. There can be no assurance that each Portfolio's
investment objective will be achieved.
Management Policies
Capital Growth Portfolio--The Capital Growth Portfolio will invest
primarily in the equity securities of domestic issuers. The Capital Growth
Portfolio, under normal circumstances, will invest primarily in securities of
companies with relatively large capitalizations (generally greater than $500
million) that the Adviser believes offer opportunities for capital appreciation
and growth of earnings. The equity securities in which the Portfolio may invest
consist of common stocks, preferred stocks and convertible securities, including
those in the form of American Depositary Receipts and Standard & Poor's
Depositary Receipts, as well as warrants to purchase such securities. The
Portfolio also may invest in debt securities of domestic and foreign issuers
when the Adviser believes that such securities offer opportunities on capital
growth. The Portfolio may invest up to 10% of the value of its total assets in
foreign securities which are not publicly traded in the United States. See
"Appendix--Portfolio Securities."
At least 65% of the value of the Capital Growth Portfolio's total assets
invested in debt securities must consist of debt securities which are rated no
lower than Baa by Moody's Investors Service, Inc. ("Moody's") or BBB by Standard
& Poor's Ratings Group ("S&P"), Fitch Investors Service, L.P. ("Fitch") or Duff
& Phelps Credit Rating Co. ("Duff") or, if unrated, deemed to be of comparable
quality by the Adviser. The remainder of such assets may be invested in debt
securities which are rated no lower than Ba by Moody's and BB by S&P, Fitch and
Duff or, if unrated, deemed to be of comparable quality by the Adviser. Debt
securities rated Ba by Moody's and BB by S&P, Fitch and Duff are considered
speculative grade debt and the payment of principal and interest may be affected
at any time by adverse economic changes. See "Investment Considerations and
Risk Factors--Lower Rated Securities" below, and "Appendix" in the Statement of
Additional Information.
The Capital Growth Portfolio may invest, in anticipation of otherwise
investing cash positions, in money market instruments of the type described
under "Appendix--Portfolio Securities--Money Market Instruments." Under normal
market conditions, the Portfolio does not expect to have a substantial portion
of its assets invested in money market instruments. However, when the Adviser
determines that adverse market conditions exist, the Portfolio may adopt a
temporary defensive posture and invest entirely in money market instruments.
The Capital Growth Portfolio also may engage in various investment
techniques such as options and futures transactions and lending portfolio
securities, each of which involves risk. For a discussion of these investment
techniques and their related risks, see "Investment Considerations and Risk
Factors" below, and "Appendix--Investment Techniques." The Portfolio also may
invest, to a limited extent, in securities issued by other investment companies
which principally invest in securities of the type in which the Capital Growth
Portfolio invests.
Dividend Growth Portfolio--The Dividend Growth Portfolio will invest
primarily in the equity securities of domestic issuers which are expected to
provide reasonable income and which may have capital appreciation potential. The
Dividend Growth Portfolio will invest at least 65% of the value of its total
assets (except when maintaining a temporary defensive position) in
dividend-paying equity securities of issuers that the Adviser believes have the
capacity to increase dividend payments in the future. Equity securities include
common stocks, preferred stocks and securities that are convertible into common
stocks. The Portfolio will invest in the equity securities of issuers believed
by the Adviser to be financially sound and which pay above-average dividends.
The Adviser intends to take into account factors, including price-earnings
ratios, cash flow and relationship of asset value to market price of the
securities. Investments may be made in securities of companies of any size
depending on the relative attractiveness of the company and the economic sector
in which it operates. The Adviser anticipates investing approximately 25% of the
Dividend Growth Portfolio's total assets in convertible securities and preferred
stock. In all other respects, the Dividend Growth Portfolio's management
policies are identical to those of the Capital Growth Portfolio.
Limited Duration Income Portfolio--The Limited Duration Income
Portfolio invests at least 65% of the value of its total assets (except when
maintaining a temporary defensive position) in bonds, debentures and other debt
instruments. The Portfolio invests in a broad range of investment grade, U.S.
dollar denominated fixed-income securities of domestic and foreign issuers.
These debt securities include bonds, debentures, notes, money market instruments
(including foreign bank obligations, such as time deposits, certificates of
deposit and bankers' acceptances, commercial paper and other short-term
corporate debt obligations, and repurchase agreements), mortgage-related
securities (including interest-only and principal-only stripped mortgage-backed
securities), asset-backed securities, municipal obligations and convertible debt
obligations. The issuers may include foreign corporations, partnerships, trusts
or similar entities, and governments or their political subdivisions, agencies
or instrumentalities. Under normal market conditions, the Limited Duration
Income Portfolio will invest in a portfolio of securities that has a duration of
under four years.
The maturity of any single instrument held by the Limited Duration
Income Portfolio is not limited. The duration of the Portfolio, however, under
normal circumstances, will not exceed four years. The Adviser will seek to
maintain a duration ranging between one year and four years depending upon
market conditions. Under normal circumstances, the dollar-weighted average life
of the Portfolio's investment securities will be longer than one year and less
than five years. As a measure of a fixed-income security's cash flow, duration
is an alternative to the concept of "term to maturity" in assessing the price
volatility associated with changes in interest rates. Generally, the longer the
duration, the more volatility an investor should expect. For example, the market
price of a bond with a duration of two years would be expected to decline 2% if
interest rates rose 1%. Conversely, the market price of the same bond would be
expected to increase 2% if interest rates fell 1%. The market price of a bond
with a duration of four years would be expected to increase or decline twice as
much as the market price of a bond with a two-year duration. Duration is a way
of measuring a security's maturity in terms of the average time required to
receive the present value of all interest and principal payments as opposed to
its term to maturity. The maturity of a security measures only the time until
final payment is due; it does not take account of the pattern of a security's
cash flows over time, which would include how cash flow is affected by
prepayments and by changes in interest rates. Incorporating a security's yield,
coupon interest payments, final maturity and option features into one measure,
duration is computed by determining the weighted average maturity of a bond's
cash flows, where the present values of the cash flows serve as weights. In
computing the duration of the Limited Duration Income Portfolio, the Adviser
will estimate the duration of obligations that are subject to prepayment or
redemption by the issuer, taking into account the influence of interest rates on
prepayments and coupon flows. This method of computing duration is known as
option-adjusted duration.
The securities in which the Limited Duration Income Portfolio will
invest will consist only of those which, at the time of purchase, are rated no
lower than Baa by Moody's or BBB by S&P, Fitch or Duff, or, if unrated, deemed
to be of comparable quality by the Adviser. Obligations rated BBB by S&P and
Fitch and Baa by Moody's are considered investment grade obligations; those
rated BBB by S&P and Fitch are regarded as having an adequate capacity to pay
principal and interest, while those rated Baa by Moody's are considered medium
grade obligations which lack outstanding investment characteristics and have
speculative characteristics. See "Investment Considerations and Risk
Factors--Fixed-Income Securities" below, and "Appendix" in the Statement of
Additional Information.
When management believes it advisable for temporary defensive
purposes, the Portfolio may invest in the U.S. dollar denominated money market
instruments of the type described under "Appendix--Portfolio Securities--Money
Market Instruments."
The Limited Duration Income Portfolio also may lend securities from
its portfolio as described under "Appendix--Investment Techniques--Lending
Portfolio Securities." The Limited Duration Income Portfolio also may invest, to
a limited extent, in securities issued by other investment companies which
principally invest in securities of the type in which the Portfolio invests.
Core Income Portfolio--The Core Income Portfolio's management policies are
identical to those of the Limited Duration Income Portfolio, except that, under
normal market conditions, the Core Income Portfolio will invest in a portfolio
of securities that has a duration of 50% to 150% of that of the Merrill Lynch
Corporate Government Master Index. For a discussion of duration, see "Limited
Duration Income Portfolio" above.
The Merrill Lynch Corporate Government Master Index is comprised of
government and investment grade corporate fixed-rate couponbearing securities
with an outstanding par value of $25 million or more, with maturities equal to
or greater than one year. As of December 31, 1996, the securities comprising the
Merrill Lynch Corporate Government Master Index had a duration of approximately
5.449 years.
Tennessee Tax Exempt Bond Portfolio--The Tennessee Tax Exempt Bond
Portfolio will invest, as a fundamental policy, at least 80% of the value of its
net assets (except when maintaining a temporary defensive position) in Municipal
Obligations. Under normal circumstances, at least 65% of the value of the
Portfolio's total assets will be invested in bonds, debentures, and other debt
securities of the State of Tennessee, its political subdivisions, authorities
and corporations, the interest from which is, in the opinion of bond counsel to
the issuer, exempt from Federal and Tennessee personal income taxes
(collectively, "Tennessee Municipal Obligations"). The remainder of the
Portfolio's assets may be invested in securities that are not Tennessee
Municipal Obligations and therefore may be subject to Tennessee income tax. See
"Investment Considerations and Risk Factors-- Investing in Tennessee Municipal
Obligations" below, and "Dividends, Distributions and Taxes." The Portfolio
intends to invest in such securities when their return to investors, taking into
account applicable Tennessee income taxes, would be greater than comparably
rated Tennessee Municipal Obligations. In addition, to the extent acceptable
Tennessee Municipal Obligations are at any time unavailable for investment by
the Portfolio, the Portfolio will invest temporarily in other debt securities
the interest from which is, in the opinion of bond counsel to the issuer, exempt
from Federal income tax ("Municipal Obligations"). See "Investment
Considerations and Risk Factors--Investing in Municipal Obligations" below, and
"Appendix--Portfolio Securities--Municipal Obligations."
The average dollar-weighted credit rating of the Municipal Obligations held
by the Tennessee Tax Exempt Bond Portfolio will be at least A- by Moody's, S&P
or Fitch. To further limit risk, each Municipal Obligation in which the
Portfolio may invest must be rated, in the case of bonds, at least Baa by
Moody's or at least BBB by S&P or Fitch. The Portfolio may invest in short-term
Municipal Obligations which are rated in the two highest rating categories by
Moody's, S&P or Fitch. Municipal Obligations rated Baa by Moody's or BBB by
S&P or Fitch are considered investment grade obligations which lack outstanding
investment characteristics and may have speculative characteristics as well. The
average dollar-weighted portfolio credit rating will be measured on the basis of
the dollar value of the Municipal Obligations purchased and their credit rating
without reference to rating subcategories. The Tennessee Tax Exempt Bond
Portfolio will not invest in Municipal Obligations that are unrated and no more
than 5% of its total assets will consist of Municipal Obligations which, after
purchase by the Portfolio, have become unrated. See "Investment Considerations
and Risk Factors--Fixed- Income Securities" below, and "Appendix" in the
Statement of Additional Information.
The Portfolio may invest no more than 10% of the value of its total assets
in industrial development bonds which, although issued by industrial development
authorities, may be backed only by the assets and revenues of the
non-governmental users. Interest on Municipal Obligations (including certain
industrial development bonds) which are specified private activity bonds, as
defined in the Internal Revenue Code of 1986, as amended (the "Code"), issued
after August 7, 1986, while exempt from Federal income tax, is a preference item
for the purpose of the alternative minimum tax. Where a regulated investment
company receives such interest, a proportionate share of any exempt-interest
dividend paid by the investment company may be treated as such a preference item
to shareholders. The Tennessee Tax Exempt Bond Portfolio will invest no more
than 10% of the value of its net assets in Municipal Obligations the interest
from which gives rise to a preference item for the purpose of the alternative
minimum tax. The Tennessee Tax Exempt Bond Portfolio will invest in the
aggregate, except for temporary defensive purposes, no more than 20% of the
value of its net assets in securities subject to Federal income tax.
The Tennessee Tax Exempt Bond Portfolio may purchase tender option bonds
and similar securities. A tender option bond is a Municipal Obligation
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate, that has been coupled with the
agreement of a third party which grants the security holder the option, at
periodic intervals, to tender the Municipal Obligation to the third party and
receive the face value thereof. See "Appendix--Portfolio Securities--Tender
Option Bonds."
From time to time, on a temporary basis other than for temporary defensive
purposes (but not to exceed 20% of the value of the Portfolio's net assets) or
for temporary defensive purposes, the Portfolio may invest in taxable money
market instruments having, at the time of purchase, a quality rating in the two
highest grades of Moody's, S&P or Fitch or, if unrated, deemed to be of
comparable quality by the Adviser. Dividends paid by the Portfolio that are
attributable to income earned by it from these securities will be taxable to
investors. See "Dividends, Distributions and Taxes." Except for temporary
defensive purposes, at no time will more than 20% of the value of the
Portfolio's net assets be invested in taxable money market instruments and
Municipal Obligations the interest from which gives rise to a preference for the
purpose of the alternative minimum tax. When the Portfolio has adopted a
temporary defensive position, including when acceptable Tennessee Municipal
Obligations are unavailable for investment by the Portfolio, in excess of 35% of
the Portfolio's total assets may be invested in securities that are not exempt
from Tennessee State income tax. Under normal market conditions, the Fund
anticipates that not more than 5% of the value of the Portfolio's total assets
will be invested in any one category of these securities. Money market
instruments are more fully described under the "Appendix--Portfolio
Securities--Money Market Instruments."
The Tennessee Tax Exempt Bond Portfolio also may engage in various
investment techniques such as options and futures transactions and lending
portfolio securities, each of which involves risk and may give rise to taxable
income. For a discussion of these investment techniques and their related risks,
see "Investment Considerations and Risk Factors" below, and
"Appendix--Investment Techniques." The Tennessee Tax Exempt Bond Portfolio also
may invest, to a limited extent, in securities issued by other investment
companies which principally invest in securities of the type in which the
Tennessee Tax Exempt Bond Portfolio invests.
Limited Duration Tennessee Tax Free Portfolio--The Limited Duration
Tennessee Tax Free Portfolio's management policies are identical to those of the
Tennessee Tax Exempt Bond Portfolio, except that, under normal market
conditions, the Limited Duration Tennessee Tax Free Portfolio will invest
primarily in a portfolio of investment grade Tennessee Municipal Obligations
that has a duration of under five years and an effective average portfolio
maturity ranging between three and five years. For a discussion of duration, see
"Limited Duration Income Portfolio" above.
For purposes of calculating average effective portfolio maturity, a
security that is subject to redemption at the option of the issuer on a
particular date (the "call date") which is prior to the security's stated
maturity may be deemed to mature on the call date rather than on its stated
maturity date. The call date of a security will be used to calculate average
effective portfolio maturity when the Adviser reasonably anticipates, based
upon information available to it, that the issuer will exercise its right to
redeem the security. The Adviser may base its conclusion on such factors as
the interest rate paid on the security compared to prevailing market rates,
the amount of cash available to the issuer of the security, events affecting
the issuer of the security, and other factors that may compel or make it
advantageous for the issuer to redeem a security prior to its stated maturity.
Limited Duration U.S. Government Portfolio--The Limited Duration U.S.
Government Portfolio will invest in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase agreements in
respect of such securities. See "Appendix--Portfolio Securities." Under normal
market conditions, the Limited Duration U.S. Government Portfolio will invest
primarily in a portfolio of U.S. Government securities that has a duration that
approximates that of the Merrill Lynch Government 1 to 5 Year Bond Index. The
Adviser will seek to maintain a duration ranging between one year and four years
depending on market conditions. Under normal circumstances, the dollar-weighted
average life of the Portfolio's investment securities will be longer than one
year and less than five years. For a discussion of duration, see "Limited
Duration Income Portfolio" above.
The Merrill Lynch Government 1 to 5 Year Bond Index is comprised of U.S.
Government securities with maturities equal to or greater than one year. As of
December 31, 1996, the securities comprising the Merrill Lynch Government 1 to 5
Year Bond Index had a duration of approximately 2.351 years.
The Limited Duration U.S. Government Portfolio also may lend
securities from its portfolio as described under "Appendix--Investment
Techniques--Lending Portfolio Securities."
Investment Considerations and Risk Factors
General--Since each Portfolio will pursue different types of investments,
the risks of investing will vary depending on the Portfolio selected for
investment. Before selecting a Portfolio in which to invest, the investor should
assess the risks associated with the types of investments made by the Portfolio.
The net asset value per share of each Portfolio is not fixed and should be
expected to fluctuate. Investors should consider each Portfolio as a supplement
to an overall investment program and should invest only if they are willing to
undertake the risks involved.
Investment Techniques--Each Portfolio may engage in various investment
techniques the use of which involves risk. Investors in the Tennessee Tax Exempt
Bond Portfolio and Limited Duration Tennessee Tax Free Portfolio should be aware
that the use of these techniques may give rise to taxable income. See
"Appendix--Investment Techniques." Using these techniques may produce higher
than normal portfolio turnover for a Portfolio and may affect the degree to
which its net asset value fluctuates.
Portfolio turnover may vary from year to year, as well as within a year.
Under normal market conditions, the portfolio turnover rate of each Portfolio
generally will not exceed 100%. Higher portfolio turnover rates are likely to
result in comparatively greater brokerage commissions or transaction costs.
A Portfolio's ability to engage in certain short-term transactions may be
limited by the requirement that, to qualify as a regulated investment company,
it must earn less than 30% of its gross income from the disposition of
securities held for less than three months. This 30% test limits the extent to
which a Portfolio may sell securities held for less than three months, effect
short sales of securities held for less than three months, write options
expiring in less than three months and invest in certain futures contracts,
among other strategies. However, portfolio turnover will not otherwise be a
limiting factor in making investment decisions.
Equity Securities--(Capital Growth Portfolio and Dividend Growth
Portfolio) Equity securities fluctuate in value, often based on factors
unrelated to the value of the issuer of the securities, and that fluctuations
can be pronounced. Changes in the value of the investment securities of the
Capital Growth Portfolio or Dividend Growth Portfolio will result in changes in
the value of such Portfolio's shares and thus its total return to investors.
Fixed-Income Securities--(All Portfolios) Even though interest-bearing
securities are investments which promise a stable stream of income, the prices
of such securities are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations.
The values of fixed-income securities also may be affected by changes in
the credit rating or financial condition of the issuing entities. Once the
rating of a security purchased by a Portfolio has been adversely changed, such
Portfolio will consider all circumstances deemed relevant in determining whether
to continue to hold the security. With respect to the Limited Duration Income
Portfolio and Core Income Portfolio, not more than 10% of the value of either
Portfolio's total assets may consist of securities which have been downgraded
below investment grade by Moody's, S&P and Fitch. Certain securities purchased
by a Portfolio, such as those rated Baa by Moody's and BBB by S&P, Fitch and
Duff, may be subject to such risk with respect to the issuing entity and to
greater market fluctuations than certain lower yielding, higher rated
fixed-income securities. See "Appendix--Portfolio Securities--Ratings" below,
and "Appendix" in the Statement of Additional Information.
No assurance can be given as to the liquidity of the market for
certain mortgage-backed securities, such as collateralized mortgage obligations
and stripped mortgage-backed securities, which may be purchased by the Capital
Growth Portfolio, Dividend Growth Portfolio, Limited Duration Income Portfolio
and Core Income Portfolio. Determination as to the liquidity of
interest-only and principal-only fixed mortgage-backed securities issued by the
U.S. Government or its agencies and instrumentalities will be made in accordance
with guidelines established by the Fund's Board of Directors. In accordance with
such guidelines, the Adviser will monitor investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. The Fund intends to treat other
stripped mortgage-backed securities as illiquid securities. See
"Appendix--Portfolio Securities--Illiquid Securities."
Federal income tax law requires the holder of a zero coupon security or of
certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. A Portfolio investing in such securities
may be required to distribute such income accrued with respect to these
securities and may have to dispose of portfolio securities under disadvantageous
circumstances in order to generate cash to satisfy these distribution
requirements.
Investing in Municipal Obligations--(Tennessee Tax Exempt Bond
Portfolio and Limited Duration Tennessee Tax Free Portfolio). Each of these
Portfolios may invest more than 25% of the value of its total assets in
Municipal Obligations which are related in such a way that an economic, business
or political development or change affecting one such security also would affect
the other securities; for example, securities the interest upon which is paid
from revenues of similar types of projects. As a result, each of these
Portfolios may be subject to greater risk as compared to a fund that does not
follow this practice.
Certain provisions in the Code relating to the issuance of Municipal
Obligations may reduce the volume of Municipal Obligations qualifying for
Federal tax exemption. One effect of these provisions could be to increase the
cost of the Municipal Obligations available for purchase by the Tennessee Tax
Exempt Bond Portfolio and Limited Duration Tennessee Tax Free Portfolio and thus
reduce their available yield. Investors should consult their tax advisers
concerning the effect of these provisions on an investment in the Tennessee Tax
Exempt Bond Portfolio and Limited Duration Tennessee Tax Free Portfolio.
Proposals that may restrict or eliminate the income tax exemption for interest
on Municipal Obligations may be introduced in the future. If any such proposal
were enacted that would reduce the availability of Municipal Obligations for
investment by the Tennessee Tax Exempt Bond Portfolio and Limited Duration
Tennessee Tax Free Portfolio so as to adversely affect their shareholders, the
Fund would reevaluate such Portfolios' investment objective and policies and
submit possible changes in the Portfolios' structure to shareholders for their
consideration. If legislation were enacted that would treat a type of Municipal
Obligation as taxable, the Tennessee Tax Exempt Bond Portfolio and Limited
Duration Tennessee Tax Free Portfolio would treat such security as a permissible
taxable investment within the applicable limits set forth herein.
Investing in Tennessee Municipal Obligations-- (Tennessee Tax Exempt
Bond Portfolio and Limited Duration Tennessee Tax Free Portfolio) Investors in
the Tennessee Tax Exempt Bond Portfolio and Limited Duration Tennessee Tax Free
Portfolio should consider carefully the special risks inherent in the
Portfolios' investment in Tennessee Municipal Obligations. These risks result
from the financial condition of the State of Tennessee. Tennessee has
historically had a sound financial position. The State, however, encountered
budgetary problems during the 1995 fiscal year requiring supplemental
appropriations and the use of one-time reserves to close an estimated $250
million deficit caused by cost overruns in several major programs. Due
principally to inaccurate funding assumptions with respect to the TennCare
program, the State's program to replace Medicaid, the State completed its fiscal
year ended June 30, 1995 with an estimated budget deficit of $125 million.
Investors in the Tennessee Tax Exempt Bond Portfolio or Limited Duration
Tennessee Tax Free Portfolio should obtain and review a copy of the Portfolios'
Statement of Additional Information which sets forth other considerations.
Investing in Foreign Securities--(Capital Growth Portfolio, Dividend
Growth Portfolio, Limited Duration Income Portfolio and Core Income Portfolio)
Foreign securities markets generally are not as developed or efficient as those
in the United States. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. Similarly, volume and
liquidity in most foreign securities markets are less than in the United States
and, at times, volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held outside
the United States, a Portfolio's investment in foreign securities will be
subject to additional risks which include possible adverse political and
economic developments, seizure or nationalization of foreign deposits and
adoption of governmental restrictions that might adversely affect or restrict
the payment of principal, interest and dividends on the foreign securities to
investors located outside the country of the issuers, whether from currency
blockage or otherwise.
Since foreign securities may be purchased by the Capital Growth
Portfolio and Dividend Growth Portfolio with and be payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. Some currency exchange costs may be incurred when the
Portfolio changes investments from one country to another.
Use of Derivatives--Each Portfolio may invest in derivatives
("Derivatives"). These are financial instruments which derive their performance,
at least in part, from the performance of an underlying asset, index or interest
rate. The Derivatives a Portfolio may use include, with respect to the Capital
Growth Portfolio, Dividend Growth Portfolio, Tennessee Tax Exempt Bond Portfolio
and Limited Duration Tennessee Tax Free Portfolio, options and futures, and,
with respect to the Capital Growth Portfolio, Dividend Growth Portfolio, Limited
Duration Income Portfolio and Core Income Portfolio, mortgage-related securities
and asset-backed securities. While Derivatives can be used effectively in
furtherance of the Portfolio's investment objective, under certain market
conditions, they can increase the volatility of the Portfolio's net asset value,
can decrease the liquidity of the Portfolio's investments and make more
difficult the accurate pricing of the Portfolio's investments.
Lower Rated Securities--(Capital Growth Portfolio and Dividend Growth
Portfolio) The Capital Growth Portfolio and Dividend Growth Portfolio may
invest, to a limited extent, in higher yielding (and, therefore, higher risk)
debt securities rated Ba by Moody's or BB by S&P, Fitch or Duff (commonly known
as junk bonds). They may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than certain lower yielding, higher
rated fixed-income securities. The retail secondary market for these securities
may be less liquid than that of higher rated securities; adverse conditions
could make it difficult at times for the Portfolio to sell certain securities or
could result in lower prices than those used in calculating the Portfolio's net
asset value. See "Appendix--Portfolio Securities--Ratings."
Non-Diversified Status--The classification of each Portfolio as a
"non-diversified" investment company means that the proportion of a Portfolio's
assets that may be invested in the securities of a single issuer is not limited
by the 1940 Act. A "diversified" investment company is required by the 1940 Act
generally, with respect to 75% of its total assets, to invest not more than 5%
of such assets in the securities of a single issuer. Since a relatively high
percentage of each Portfolio's assets may be invested in the securities of a
limited number of issuers, some of which may be within the same industry, the
Portfolio's investments may be more sensitive to changes in the market value of
a single issuer or industry. However, to meet Federal tax requirements, at the
close of each quarter no Portfolio may have more than 25% of its total assets
invested in any one issuer and, with respect to 50% of total assets, more than
5% of its total assets invested in any one issuer. These limitations do not
apply to U.S. Government securities or the securities of other regulated
investment companies.
Simultaneous Investments--Investment decisions for each Portfolio are made
independently from those of the other investment companies, investment advisory
accounts, custodial accounts, individual trust accounts and commingled funds
that may be advised by the Adviser. However, if such other investment companies
or managed accounts desire to invest in, or dispose of, the same securities as
the Portfolio, available investments or opportunities for sales will be
allocated equitably to each of them. In some cases, this procedure may adversely
affect the size of the position obtained for or disposed of by a Portfolio or
the price paid or received by a Portfolio.
MANAGEMENT OF THE PORTFOLIOS
Board of Directors
The business affairs of the Fund are managed under the general supervision
of its Board of Directors. The Statement of Additional Information contains the
name and general business experience of each Director.
Investment Adviser
First American National Bank, located at First American Center, 315
Deaderick Street, Nashville, Tennessee 37237, serves as each Portfolio's
investment adviser. The Adviser is a wholly-owned subsidiary of First American
Corporation, a registered bank holding company having assets as of September 30,
1996 of approximately $10.3 billion. First American National Bank provides
personal trust, estate, employee benefit trust, corporate trust and custody
services to over 3,000 individual and business clients and investment advisory
services. The Adviser, and its affiliates, as of September 30, 1996, had
approximately $5.2 billion under trust and approximately $3 billion under
management.
The Adviser and its affiliates deal, trade and invest for their own
accounts and for the accounts of clients which they manage in the types of
securities in which the Portfolios may invest and may have deposit, loan and
commercial banking relationships with the issuers of securities purchased by a
Portfolio. The Adviser has informed the Fund that in making its investment
decisions it does not obtain or use material inside information in its or its
affiliates' possession.
The Adviser supervises and assists in the overall management of each
Portfolio's affairs under an Investment Advisory Agreement between the Adviser
and the Fund, subject to the authority of the Fund's Board of Directors in
accordance with Maryland law. The primary portfolio manager for each Portfolio
is as follows: for the Capital Growth Portfolio, Charles E. Winger, Jr., who has
been a Trust Officer of the Adviser since 1988; for the Dividend Growth
Portfolio, Jay D. Baumgardner, who has been a portfolio manager with the Adviser
since April 1995, and Robert A. Rinner, who has been a portfolio manager with
the Adviser since April 1996. Prior thereto, Mr. Baumgardner was a financial
consultant with Smith Barney, Inc. and Mr. Rinner was a portfolio manager with
Royal Insurance Co.; for the Limited Duration U.S. Government Portfolio, Limited
Duration Income Portfolio and Core Income Portfolio, Donald F. Turk, who has
been a Trust Officer of the Adviser since 1980; and for the Tennessee Tax Exempt
Bond Portfolio and Limited Duration Tennessee Tax Free Portfolio, Sharon S.
Brown, who has been a Trust Officer of the Adviser since 1988. The Adviser also
provides research services for the Portfolios through a professional staff of
portfolio managers and securities analysts. All activities of the Adviser are
conducted by persons who are also officers of one or more of the Adviser's
affiliates.
Under the terms of the Investment Advisory Agreement, the Fund has agreed
to pay the Adviser a monthly fee at the annual rate set forth below as a
percentage of the relevant Portfolio's average daily net assets. For the fiscal
year ended December 31, 1996, each operational Portfolio paid the Adviser the
advisory fee set forth below.
Name of Portfolio Annual Rate of Investment
Advisory Fee Payable
Capital Growth .65%
Dividend Growth .65%
Limited Duration U.S.
Government .50%
Limited Duration Income .50%
Limited Duration Tennessee
Tax Free .50%
Core Income .50%
Tennessee Tax Exempt Bond .50%
From time to time, the Adviser may waive receipt of its fees and/or
voluntarily assume certain expenses of a Portfolio, which would have the effect
of lowering the overall expense ratio of that Portfolio and increasing yield to
its investors. The Portfolio will not pay the Adviser at a later time for any
amounts it may waive, nor will the Portfolio reimburse the Adviser for any
amounts it may assume.
Administrator and Distributor
BISYS Fund Services Limited Partnership, located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as each Portfolio's administrator and
distributor. BISYS currently provides administrative services or
sub-administrative services to, and distributes the shares of, other investment
companies with over $80 billion in assets. BISYS is a wholly-owned subsidiary of
The BISYS Group, Inc.
Under its Administration Agreement with the Fund, BISYS generally assists
in all aspects of the Fund's operations, other than providing investment advice,
subject to the overall authority of the Fund's Board of Directors in accordance
with Maryland law. In connection therewith, BISYS provides the Fund with office
facilities, personnel, and certain clerical and bookkeeping services (e.g.,
preparation of reports to shareholders and the Securities and Exchange
Commission and filing of Federal, state and local income tax returns) that are
not being furnished by The Bank of New York, the Fund's Custodian.
Under the terms of the Administration Agreement, the Fund has agreed to pay
BISYS a monthly fee at the annual rate of .15 of 1% of the value of each
Portfolio's average daily net assets. For the fiscal year ended December 31,
1996, each operational Portfolio paid BISYS an administration fee at said annual
rate.
BISYS, as distributor, makes a continuous offering of each Portfolio's
shares and bears the costs and expenses of printing and distributing to
prospective investors copies of any prospectuses, statements of additional
information and annual and interim reports of each Portfolio (after such items
have been prepared and set in type by the Fund) which are used in connection
with the offering of shares, and the costs and expenses of preparing, printing
and distributing any other literature used by BISYS in connection with the
offering of such Portfolio's shares for sale to the public.
Distribution Plan
Under a plan adopted by the Fund's Board of Directors pursuant to Rule
12b-1 under the 1940 Act (the "Distribution Plan"), each Portfolio pays BISYS
for advertising, marketing and distributing Investor Shares at an annual rate of
.25 of 1% of the value of the average daily net assets of such class of shares.
Under the Distribution Plan, BISYS may make payments to certain financial
institutions, securities dealers and other industry professionals that have
entered into agreements with BISYS ("Service Organizations") in respect of these
services. BISYS determines the amounts to be paid to Service Organizations.
Service Organizations receive such fees in respect of the average daily value of
Investor Shares owned by their clients. From time to time, BISYS may defer or
waive receipt of fees under the Distribution Plan while retaining the ability to
be paid by the Fund under the Distribution Plan thereafter. The fees payable to
BISYS under the Distribution Plan for advertising, marketing and distributing
Investor Shares are payable without regard to actual expenses incurred.
The Fund understands that Service Organizations may charge fees to their
clients who are the beneficial owners of Investor Shares in connection with
their client accounts. These fees would be in addition to any amounts which may
be received by a Service Organization under its agreement with BISYS. Clients of
Service Organizations should consult their service organization in this regard.
Custodian and Transfer Agent
The Bank of New York, 90 Washington Street, New York, New York 10286, is
the Fund's Custodian. BISYS Fund Services Ohio, Inc., an affiliate of BISYS,
located at 3435 Stelzer Road, Columbus, Ohio 43219-3035, is the Fund's Transfer
and Dividend Disbursing Agent (the "Transfer Agent").
Expenses
All expenses incurred in the operation of the Fund are borne by the Fund,
except to the extent specifically assumed by others. The expenses borne by the
Fund include: organizational costs, taxes, interest, brokerage fees and
commissions, if any, fees of Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser or BISYS, or any of their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory and administration fees,
charges of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, auditing and legal expenses,
costs of maintaining corporate existence, costs of independent pricing services,
costs of calculating the net asset value of each Portfolio's shares, costs of
shareholders' reports and corporate meetings, costs of preparing and printing
certain prospectuses and statements of additional information, and any
extraordinary expenses. Expenses attributable to a particular Portfolio are
charged against the assets of that Portfolio; other expenses of the Fund are
allocated among the Portfolios on the basis determined by the Board of
Directors, including, but not limited to, proportionately in relation to the net
assets of each Portfolio.
HOW TO BUY SHARES
General
Investor Shares may be purchased through a number of institutions,
including the Adviser and its affiliates such as AmeriStar Capital Markets Inc.,
Service Organizations, and directly from BISYS. When purchasing Portfolio
shares, you must specify the Portfolio being purchased and that the purchase is
for Investor Shares. The Adviser, its affiliates and Service Organizations may
receive different levels of compensation for selling different classes of
Portfolio shares. Stock certificates will not be issued. It is not recommended
that the Tennessee Tax Exempt Bond Portfolio or Limited Duration Tennessee Tax
Free Portfolio be used as a vehicle for Keogh, IRA and other qualified plans,
because such plans are otherwise entitled to tax deferred benefits. The Fund
reserves the right to reject any purchase order.
The minimum initial investment for each Portfolio is $1,000, and subsequent
investments must be at least $100. For full-time or part-time employees of the
Adviser or any of its affiliates, the minimum initial investment for each
Portfolio is $500, and subsequent investments must be at least $50. The Adviser,
its affiliates and Service Organizations may impose initial or subsequent
investment minimums which are higher or lower than those specified above and may
impose different minimums for different types of accounts or purchase
arrangements. In addition, purchases made in connection with certain shareholder
privileges may have different minimum investment requirements. See "Shareholder
Privileges."
You may purchase Portfolio shares by check or wire, or through TeleTrade as
described below. Investors purchasing shares through the Adviser, its affiliates
or Service Organizations should contact such entity directly for appropriate
instructions, as well as for information about conditions pertaining to the
account and any related fees.
For written orders, you may send your initial or subsequent purchase
order, together with the Fund's Account Application for initial orders and your
check or money order payable to: The AmeriStar Funds (Portfolio Name), to The
AmeriStar Funds, c/o BISYS Fund Services, Inc., Department L-1686, Columbus,
Ohio 43260-1686. For subsequent investments, your Fund account number should
appear on the check or money order. All payments should be made in U.S. dollars
and, to avoid fees and delays, should be drawn only on U.S. banks. A charge will
be imposed if a check used for investment in your account does not clear.
For wire orders, you must call the Transfer Agent at 1-800-852-0045. If a
subsequent payment is being made, your Fund account number should be included.
Information on remitting funds in this manner, including any related fees, may
be obtained from your bank.
Subsequent investments also may be made by electronic transfer of funds
from an account maintained in a bank or other domestic financial institution
that is an Automated Clearing House member. For information on purchasing shares
through the Automated Clearing House, you must call the Transfer Agent at
1-800-852-0045.
Portfolio shares are sold on a continuous basis. Net asset value per
share is determined as of the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m., Eastern time), on each business day (which,
as used herein, shall include each day the New York Stock Exchange is open for
business, except Martin Luther King, Jr. Day, Columbus Day and Veterans' Day),
except on days where there are not sufficient changes in the value of a
Portfolio's investment securities to materially affect the Portfolio's net asset
value and no purchase orders or redemption requests have been received. The New
York Stock Exchange currently is closed on the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per Investor Share is
computed by dividing the value of the Portfolio's net assets attributable to
such shares (i.e., the value of its assets less liabilities) by the total number
of Investor Shares of such Portfolio outstanding. The Portfolio's investments
are valued each business day generally by using available market quotations or
at fair value which may be determined by one or more pricing services approved
by the Board of Directors. Each pricing service's procedures are reviewed under
the general supervision of the Board of Directors. For further information
regarding the methods employed in valuing the Portfolios' investments, see
"Determination of Net Asset Value" in the Statement of Additional Information.
If an order is received by the Transfer Agent by the close of trading on
the floor of the New York Stock Exchange on a business day, Portfolio shares
will be purchased at the public offering price determined as of such time on
that day. Otherwise, Portfolio shares will be purchased at the public offering
price determined as of the close of trading on the floor of the New York Stock
Exchange on the next business day, except where Investor Shares are purchased
through a dealer as provided below.
Orders for the purchase of Investor Shares received by dealers by the close
of trading on the floor of the New York Stock Exchange on any business day and
transmitted to the Transfer Agent by the close of its business day (normally
5:15 p.m., Eastern time) will be based on the public offering price per share
determined as of the close of trading on the floor of the New York Stock
Exchange on that day. Otherwise, the orders will be based on the next determined
public offering price. It is the dealer's responsibility to transmit orders so
that they will be received by the Transfer Agent before the close of its
business day.
Federal regulations require that an investor provide a certified Tax
Identification Number ("TIN") upon opening or reopening an account. See
"Dividends, Distributions and Taxes" and the Fund's Account Application for
further information concerning this requirement. Failure to furnish a certified
TIN to the Fund could subject the investor to a $50 penalty imposed by the
Internal Revenue Service ("IRS").
TeleTrade--You may purchase Portfolio shares (minimum purchase $500,
maximum $50,000 per transaction) by telephone for an existing Fund account if
you have checked the appropriate box and supplied the necessary information on
the Fund's Account Application. The proceeds will be transferred between the
bank account designated on the Account Application and your Fund account. Only a
bank account maintained in a domestic financial institution which is an
Automated Clearing House member may be so designated. TeleTrade purchases are
effected at the net asset value (plus the applicable sales load) next determined
after receipt of an order in proper form by the Transfer Agent. See "General"
above. TeleTrade may not be available to certain clients of the Adviser, its
affiliates and certain Service Organizations. The Fund may modify or terminate
TeleTrade at any time or charge a service fee upon notice to shareholders. No
such fee currently is contemplated. If you have selected TeleTrade, you may
request such a purchase of Portfolio shares by telephoning the Transfer Agent at
1-800-852-0045.
Purchase Price
The public offering price of Investor Shares is the net asset value per
share of that class, plus a sales load as shown below:
Total Sales Load
-----------------------------------------------
Dealers'
Amount of Offering Net Asset Reallowance as a %
Transaction Price Value of Offering Price
- ------------------ ----------- ----------- ---------------------
Less than
$100,000........... 3.00% 3.09% 2.50%
$100,000 to less
than $250,000..... 2.50% 2.56% 2.20%
$250,000 to less
than $500,000...... 2.00% 2.04% 1.75%
$500,000 to less
than $750,000...... 1.50% 1.52% 1.30%
$750,000 to less
than $1,000,000.... 1.00% 1.01% 0.90%
$1,000,000 and
above.............. 0.25% 0.25% 0.25%
The dealer reallowance may be changed from time to time but will remain the
same for all dealers. From time to time, BISYS may make or allow additional
payments or promotional incentives in the form of cash or other compensation to
dealers that sell Portfolio shares. In some instances, these incentives may be
offered only to certain dealers who have sold or may sell significant amounts of
Portfolio shares.
Management understands that the Adviser, its affiliates and some Service
Organizations may impose certain conditions on their clients which are different
from those described in this Prospectus, and, to the extent permitted by
applicable regulatory authority, may charge their clients a direct fee for
effecting transactions in Portfolio shares. You should consult the Adviser, its
affiliates or your Service Organization in this regard.
No Sales Load--Portfolio shares will be offered at net asset value without
a sales load to registered representatives of NASD member firms which have
entered into an agreement with BISYS pertaining to the sale of Portfolio shares,
full-time employees of the Adviser or BISYS, their spouses and minor children,
and accounts opened by a bank, trust company or thrift institution which is
acting as a fiduciary and has entered into an agreement with BISYS pertaining to
the sale of Portfolio shares, provided that they have furnished BISYS
appropriate notification of such status at the time of the investment and with
such information as it may request from time to time in order to verify
eligibility for this privilege. This privilege also applies to the Fund's
Directors, fee-based financial planners and registered investment advisers not
affiliated with or clearing purchases through full service broker/dealers,
investment advisers regulated by Federal or state governmental authority when
such investment advisers purchase shares for their own accounts or for accounts
for which they are authorized to make investment decisions (i.e., discretionary
accounts), asset allocation programs offered by the Adviser for its clients, and
corporate/business retirement plans (such as 401(k), 403(b)(7), 457 and Keogh
plans) sponsored by the Adviser, BISYS or their affiliates or subsidiaries or
pursuant to a payroll deduction system which makes direct investments in a
Portfolio by means of electronic data transmission in a form acceptable to the
Fund. The sales load is not charged on shares acquired through the reinvestment
of dividends or distributions or pursuant to the Directed Distribution Plan or
Reinstatement Privilege, described below.
Right of Accumulation--Reduced sales loads apply to any purchase of shares
by you and any related "purchaser" as defined in the Statement of Additional
Information, where the aggregate investment in Investor Shares among any of the
Portfolios offered with a sales load, including such purchase, is $100,000 or
more. If, for example, you previously purchased and still hold Investor Shares
of the Limited Duration Income Portfolio, with an aggregate current
market value of $90,000 and subsequently purchase Investor Shares of the
Limited Duration Income Portfolio having a current value of $20,000,
the sales load applicable to the subsequent purchase would be reduced to 2.50%
of the offering price (2.56% of the net asset value). All present holdings of
Investor Shares may be combined to determine the current offering price of the
aggregate investment in ascertaining the sales load applicable to each
subsequent purchase. To qualify for reduced sales loads, at the time of a
purchase an investor or his Service Organization must notify the Transfer Agent.
The reduced sales load is subject to confirmation of an investor's holdings
through a check of appropriate records.
HOW TO REDEEM SHARES
General
An investor who has purchased shares through an account with the Adviser,
its affiliates or a Service Organization must redeem shares by following
instructions pertaining to such account. If such investor also is the
shareholder of record of the account on the books of the Transfer Agent, the
investor may redeem shares as described below under "Procedures." Such investors
wishing to use the other redemption methods described below must arrange with
the Adviser, its affiliates or the Service Organization for delivery of the
required application(s) to the Transfer Agent. It is the responsibility of the
Adviser, its affiliates or the Service Organization, as the case may be, to
transmit the redemption order to the Transfer Agent and credit the investor's
account with the redemption proceeds on a timely basis. Other investors may
redeem all or part of their shares in accordance with the procedures described
below.
When a request is received in proper form, the Fund will redeem the shares
at the next determined net asset value. The Fund ordinarily will make payment
for all shares redeemed within seven days after receipt by the Transfer Agent of
a redemption request in proper form, except as provided by the rules of the
Securities and Exchange Commission. However, if you have purchased Portfolio
shares by check or by TeleTrade and subsequently submit a redemption request by
mail, the redemption proceeds will not be transmitted to you until bank
clearance of the check or TeleTrade payment used for investment which may take
up to seven business days. The Fund will not transmit redemption proceeds
pursuant to a request to redeem shares by wire for a period of up to seven
business days after receipt by the Transfer Agent of the purchase check or
TeleTrade order against which such redemption is requested. This procedure does
not apply to shares purchased by wire payment.
The Fund imposes no charges when shares are redeemed. The Adviser, its
affiliates and Service Organizations may charge their clients a nominal fee for
effecting redemptions of Portfolio shares. The value of Portfolio shares
redeemed may be more or less than their original cost, depending upon the
Portfolio's then-current net asset value.
The Fund reserves the right to redeem your account at its option upon not
less than 45 days' written notice if your account's net asset value is $500 or
less, for reasons other than market conditions, and remains so during the notice
period.
Procedures
Written Orders--Written requests for redemption, indicating the name of the
Portfolio and that Investor Shares are being redeemed, with signature
appropriately guaranteed, if required, and otherwise in accordance with the
requirements listed below, should be mailed to The AmeriStar Funds, c/o BISYS
Fund Services, Inc., Department L-1686, Columbus, Ohio 43260-1686.
Wire Redemption Privilege--After appropriate prior authorization, you may
request by telephone or in writing that redemption proceeds be transmitted by
the Transfer Agent via Federal Funds wire transfer to your bank account.
Redemption requests must be in an amount of at least $1,000. The Fund reserves
the right to refuse any request for a wire transfer and may limit the amount
involved or the number of telephone redemption requests. This Privilege may be
modified or terminated at any time by the Transfer Agent or the Fund.
TeleTrade--You may redeem Portfolio shares (minimum $500, maximum $50,000
per transaction) without charge by telephone if you have checked the appropriate
box and supplied the necessary information on the Fund's Account Application.
The proceeds will be transferred between your Fund account and the bank account
designated on the Account Application. Only a bank account maintained in a
domestic financial institution which is an Automated Clearing House member may
be so designated. Redemption proceeds will be on deposit in your account at an
Automated Clearing House member bank ordinarily two days after receipt of the
redemption request. The Fund may modify or terminate TeleTrade at any time or
charge a service fee upon notice to shareholders. No such fee currently is
contemplated. If you have selected TeleTrade, you may request such a redemption
of Portfolio shares by telephoning the Transfer Agent at 1-800-852-0045.
Redemption Requirements
Written redemption instructions, indicating the name of the Portfolio and
that Investor Shares are being redeemed, must be received by the Transfer Agent
in proper form and signed exactly as the shares are registered. Except as noted
below, all signatures must be guaranteed. The Transfer Agent has adopted
standards and procedures pursuant to which signature-guarantees in proper form
generally will be accepted from domestic banks, brokers, dealers, credit unions,
national securities exchanges, registered securities associations, clearing
agencies and savings associations, as well as from participants in the New York
Stock Exchange Medallion Signature Program, the Securities Transfer Agents
Medallion Program ("STAMP") and the Stock Exchanges Medallion Program.
Signature-guarantees may not be provided by notaries public. The signature
guarantee requirement will be waived if the following conditions apply: (1) the
redemption check is payable to the shareholder(s) of record; and (2) the
redemption check is mailed to the shareholder(s) at the address of record or the
proceeds are either mailed or wired to a financial institution account
previously designated. Redemption requests by corporate and fiduciary
shareholders must be accompanied by appropriate documentation establishing the
authority of the person seeking to act on behalf of the account. You may obtain
from the Fund or the Transfer Agent forms of resolutions and other documentation
which have been prepared in advance to assist compliance with the Fund's
procedures.
You may redeem or exchange Portfolio shares by telephone if you have
checked the appropriate box on the Fund's Account Application. By selecting a
telephone redemption or exchange privilege, an investor authorizes the Transfer
Agent to act on telephone instructions from any person representing himself or
herself to be the investor, or a representative of the investor's Service
Organization, and reasonably believed by the Transfer Agent to be genuine. The
Fund will require the Transfer Agent to employ reasonable procedures, such as
requiring a form of personal identification, to confirm that instructions are
genuine and, if it does not follow such procedures, the Fund or the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent
instructions. Neither the Fund nor the Transfer Agent will be liable for
following telephone instructions reasonably believed to be genuine.
During times of drastic economic or market conditions, investors may
experience difficulty in contacting the Transfer Agent by telephone to request a
redemption or exchange of Portfolio shares. In such cases, investors should
consider using the other redemption procedures described herein. Use of these
other redemption procedures may result in the investor's redemption request
being processed at a later time than it would have been if telephone redemption
had been used. During the delay, the Portfolio's net asset value may fluctuate.
SHAREHOLDER PRIVILEGES
The services and privileges described under this heading may not be
available to certain clients of the Adviser, its affiliates and certain Service
Organizations and the Adviser, its affiliates and some Service Organizations may
impose certain conditions on their clients which are different from those
described in this Prospectus. Such investors should consult the Adviser, its
affiliates or their Service Organization in this regard.
Exchange Privilege
The Exchange Privilege enables you to purchase, in exchange for shares of a
Portfolio, shares of one of the other Portfolios offered by this Prospectus, or
shares of another AmeriStar Portfolio, to the extent such shares are offered for
sale in your state of residence. If you desire to use this Privilege, you should
consult the Adviser, its affiliate where you maintain your account, your Service
Organization or BISYS to determine if it is available and whether any conditions
are imposed on its use.
To use the Exchange Privilege, you or your Service Organization acting on
your behalf must give exchange instructions to the Transfer Agent in writing or
by telephone, or in accordance with the instructions pertaining to your account
at the Adviser or its affiliates. If you previously established the Telephone
Exchange Privilege, you may telephone exchange instructions by calling
1-800-852-0045. See "How to Redeem Shares--Redemption Requirements." Before any
exchange into a Portfolio offered by another prospectus, you must obtain and
should review a copy of the current prospectus of the Portfolio into which the
exchange is being made. Prospectuses may be obtained from the Adviser, its
affiliates, certain Service Organizations or BISYS. The shares being exchanged
must have a current value of at least $500; furthermore, when establishing a new
account by exchange, the shares being exchanged must have a value of at least
the minimum initial investment required for the Portfolio into which the
exchange is being made.
Shares will be exchanged at the next determined net asset value; however, a
sales load may be charged with respect to exchanges into a Portfolio sold with a
sales load. If you are exchanging into a Portfolio that charges a sales load,
you may qualify for share prices which do not include the sales load or which
reflect a reduced sales load, if the shares you are exchanging were: (a)
purchased with a sales load, (b) acquired by a previous exchange from shares
purchased with a sales load, or (c) acquired through reinvestment of dividends
or distributions paid with respect to the foregoing categories of shares. No
fees currently are charged shareholders directly in connection with exchanges
although the Fund reserves the right, upon not less than 60 days' written
notice, to charge shareholders a nominal administrative fee in accordance with
rules promulgated by the Securities and Exchange Commission. The Fund reserves
the right to reject any exchange request in whole or in part. The Exchange
Privilege may be modified or terminated at any time upon notice to shareholders.
The exchange of shares of one Portfolio for shares of another is treated
for Federal income tax purposes as a sale of the shares given in exchange by the
shareholder and, therefore, an exchanging shareholder may realize a taxable gain
or loss.
Automatic Investment Plan
The Automatic Investment Plan permits you to purchase Portfolio shares
(minimum initial investment of $1,000 and minimum subsequent investments of $100
per transaction) at regular intervals selected by you. Provided your bank or
other financial institution allows automatic withdrawals, Portfolio shares may
be purchased by transferring funds from the bank account designated by you. At
your option, the account designated will be debited in the specified amount, and
Portfolio shares will be purchased, once a month, on either the first or
fifteenth day, or twice a month, on both days. Only an account maintained at a
domestic financial institution which is an Automated Clearing House member may
be so designated. This service enables you to make regularly scheduled
investments and may provide you with a convenient way to invest for long-term
financial goals. You should be aware, however, that periodic investment plans do
not guarantee a profit and will not protect an investor against loss in a
declining market. To establish an Automatic Investment Plan account, you must
check the appropriate box and supply the necessary information on the Account
Application. You may obtain the necessary applications from BISYS. You may
cancel your participation in the Automatic Investment Plan or change the amount
of purchase at any time by mailing written notification to The AmeriStar Funds,
c/o BISYS Fund Services, Inc., Department L-1686, Columbus, Ohio 43260-1686, and
such notification will be effective three business days following receipt. The
Fund may modify or terminate the Automatic Investment Plan at any time or charge
a service fee. No such fee currently is contemplated.
Directed Distribution Plan
The Directed Distribution Plan enables you to invest automatically
dividends and capital gain distributions, if any, paid by a Portfolio in
Investor Shares of another Portfolio of which you are a shareholder. Shares of
the other Portfolio will be purchased at the then-current net asset value;
however, a sales load may be charged with respect to investments in shares of a
Portfolio sold with a sales load. You may qualify for share prices which do not
include the sales load or which reflect a reduced sales load. Minimum subsequent
investments do not apply. Investors desiring to participate in the Directed
Distribution Plan should check the appropriate box and supply the necessary
information on the Account Application. The Plan is available only for existing
accounts and may not be used to open new accounts. The Fund may modify or
terminate the Directed Distribution Plan at any time or charge a service fee. No
such fee currently is contemplated.
Automatic Withdrawal Plan
The Automatic Withdrawal Plan permits you to request withdrawal of a
specified dollar amount (minimum of $50) on either a monthly, quarterly,
semi-annual or annual basis if you have a $5,000 minimum account. The automatic
withdrawal will be made on the first or fifteenth day, at your option, of the
period selected. To participate in the Automatic Withdrawal Plan, you must check
the appropriate box and supply the necessary information on the Account
Application. The Automatic Withdrawal Plan may be ended at any time by the
investor, the Fund or the Transfer Agent.
Purchases of additional Investor Shares concurrent with withdrawals
generally are undesirable because a sales load may be imposed whenever purchases
of Investor Shares are made.
Reinstatement Privilege
The Reinstatement Privilege enables investors who have redeemed Investor
Shares to repurchase, within 90 days of such redemption, Investor Shares of a
Portfolio in an amount not to exceed the redemption proceeds received at a
purchase price equal to the then-current net asset value determined after a
reinstatement request and payment are received by the Transfer Agent. This
privilege also enables such investors to reinstate their account for the purpose
of exercising the Exchange Privilege. To use the Reinstatement Privilege, you
must submit a written reinstatement request to the Transfer Agent. The
reinstatement request and payment must be received within 90 days of the trade
date of the redemption. There currently are no restrictions on the number of
times an investor may use this privilege.
Letter of Intent
By signing a Letter of Intent form, available from BISYS or certain Service
Organizations, you become eligible for the reduced sales load applicable to the
total number of Investor Shares purchased in a 13-month period (beginning up to
90 days prior to the date of execution of the Letter of Intent) pursuant to the
terms and conditions set forth in the Letter of Intent. A minimum initial
purchase of $5,000 is required. To compute the applicable sales load, the
offering price of shares you hold (on the date of submission of the Letter of
Intent) in any Portfolio that may be used toward "Right of Accumulation"
benefits described above may be used as a credit toward completion of the Letter
of Intent.
The Transfer Agent will hold in escrow 5% of the amount indicated in the
Letter of Intent for payment of a higher sales load if the investor does not
purchase the full amount indicated in the Letter of Intent. The escrow will be
released when the investor fulfills the terms of the Letter of Intent by
purchasing the specified amount. Assuming completion of the total minimum
investment specified under a Letter of Intent, an adjustment will be made to
reflect any reduced sales load applicable to shares purchased during the 90-day
period prior to the submission of the Letter of Intent. In addition, if the
investor's purchases qualify for a further sales load reduction, the sales load
will be adjusted to reflect the investor's total purchase at the end of 13
months.
If total purchases are less than the amount specified, the investor will be
requested to remit an amount equal to the difference between the sales load
actually paid and the sales load applicable to the aggregate purchases actually
made. If such remittance is not received within 20 days, the Transfer Agent, as
attorney-in-fact pursuant to the terms of the Letter of Intent, will redeem an
appropriate number of Investor Shares held in escrow to realize the difference.
Signing a Letter of Intent does not bind the investor to purchase, or the Fund
to sell, the full amount indicated at the sales load in effect at the time of
signing, but the investor must complete the intended purchase to obtain the
reduced sales load. At the time you purchase Investor Shares, you must indicate
your intention to do so under a Letter of Intent.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Capital Growth Portfolio--Declares and pays dividends from net investment
income quarterly and distributes any net capital gain annually.
Dividend Growth Portfolio--Declares and pays dividends from net investment
income monthly and distributes any net capital gain annually.
Limited Duration Income, Core Income, Tennessee Tax Exempt Bond,
Limited Duration Tennessee Tax Free and Limited Duration U.S. Government
Portfolios--Declare dividends from net investment income on each business day.
Dividends usually are paid on the last calendar day of each month. The earnings
for Saturdays, Sundays and holidays are declared as dividends on the preceding
business day. Shares begin accruing income dividends on the day the purchase
order is effective.
Applicable to All Portfolios (except where indicated)--Each Portfolio will
make distributions from net realized securities gains, if any, once a year, but
may make distributions on a more frequent basis to comply with the distribution
requirements of the Code, in all events in a manner consistent with the
provisions of the 1940 Act. No Portfolio will make distributions from net
realized securities gains unless capital loss carryovers, if any, have been
utilized or have expired. Dividends are automatically reinvested in additional
Portfolio shares of the same class from which they were paid at net asset value,
unless payment in cash is requested. If all shares in an account are redeemed at
any time, all dividends to which the shareholder is entitled will be paid along
with the proceeds of the redemption. Dividends paid by each class of shares of a
Portfolio will be calculated at the same time and in the same manner and will be
of the same amount, except that the expenses attributable solely to a class will
be borne exclusively by such class.
If you elect to receive distributions in cash and your distribution checks
(1) are returned to the Fund marked "undeliverable" or (2) remain uncashed for
six months, your cash election will be changed automatically and your future
dividend and capital gains distributions will be reinvested in Portfolio shares
at the net asset value determined as of the date of payment of the distribution.
In addition, any such undeliverable checks or checks that remain uncashed for
six months will be canceled and will be reinvested in Portfolio shares at the
net asset value determined as of the date of cancellation.
The Fund anticipates that individual shareholders will not be subject
to Tennessee personal income tax on dividends paid by the Tennessee Tax Exempt
Bond Portfolio and Limited Duration Tennessee Tax Free Portfolio to the extent
such dividends are attributable to interest from securities of the U.S.
Government or any of its agencies or instrumentalities or from bonds of the
State of Tennessee or any county, municipality or political subdivision thereof,
including any agency, board, authority or commission. To the extent that an
investor is obligated to pay state or local taxes outside of the State of
Tennessee, dividends earned by an investment in these Portfolios may represent
taxable income. Dividends and distributions of the Tennessee Tax Exempt Bond
Portfolio and Limited Duration Tennessee Tax Free Portfolio derived from taxable
investments and from income or gain derived from securities transactions and
from the use of the investment techniques described under "Appendix--Investment
Techniques" will be subject to Federal and Tennessee income tax. Dividends paid
by the Capital Growth Portfolio, Dividend Growth Portfolio, Limited Duration
Income Portfolio, Limited Duration U.S. Government Portfolio and Core Income
Portfolio derived from interest, together with distributions from any net
realized short-term securities gains and all or a portion of any gains realized
from the sale or other disposition of certain market discount bonds, generally
are taxable to U.S. investors as ordinary income for Federal income tax
purposes,, whether or not reinvested in additional Portfolio shares.
Distributions from net realized long-term securities gains, if any, generally
are taxable to U.S. investors as long-term capital gains for Federal income tax
purposes, regardless of how long shareholders have held their shares and whether
such distributions are received in cash or reinvested in additional Portfolio
shares. The Code provides that the net capital gains of an individual generally
will not be subject to Federal income tax at a rate in excess of 28%. Dividends
and distributions may be subject to state and local taxes.
Dividends and distributions attributable to interest from direct
obligations of the United States and paid by a Portfolio to individuals
currently are not subject to tax in most states. Dividends and distributions
attributable to interest from other securities in which the Portfolios may
invest may be subject to state tax.
Although all or a substantial portion of the dividends paid by the
Tennessee Tax Exempt Bond Portfolio and Limited Duration Tennessee Tax Free
Portfolio may be excluded by shareholders of such Portfolios from their gross
income for Federal income tax purposes, each of these Portfolios may purchase
specified private activity bonds, the interest from which may be (i) a
preference item for purposes of the alternative minimum tax, or (ii) a factor in
determining the extent to which a shareholder's Social Security benefits are
taxable. If the Tennessee Tax Exempt Bond Portfolio or Limited Duration
Tennessee Tax Free Portfolio purchases such securities, the portion of dividends
related thereto will not necessarily be tax exempt to an investor who is subject
to the alternative minimum tax and/or tax on Social Security benefits and may
cause an investor to be subject to such taxes.
Dividends derived from net investment income, together with distributions
from net realized short-term securities gains and all or a portion of any gains
realized from the sale or other disposition of certain market discount bonds,
paid by a Portfolio to a foreign investor generally are subject to U.S.
nonresident withholding taxes at the rate of 30%, unless the foreign investor
claims the benefits of a lower rate specified in a tax treaty. Distributions
from net realized long-term securities gains paid by a Portfolio to a foreign
investor, as well as the proceeds of any redemptions from a foreign investor's
account, regardless of the extent to which gain or loss may be realized, will
not be subject to U.S. nonresident withholding tax. However, such distributions
may be subject to backup withholding, as described below, unless the foreign
investor certifies his non-U.S. residency status.
The Code provides for the "carryover" of some or all of the sales load
imposed on Investor Shares if an investor exchanges his Investor Shares for
shares of another Portfolio within 91 days of purchase and such other Portfolio
reduces or eliminates its otherwise applicable sales load charge for the purpose
of the exchange. In this case, the amount of the sales load charged the investor
for Investor Shares, up to the amount of the reduction of the sales load charged
on the exchange, is not included in the basis of the investor's Investor Shares
for purposes of computing gain or loss on the exchange, and instead is added to
the basis of the shares received on the exchange.
Notice as to the tax status of your dividends and distributions will be
mailed to you annually. You also will receive periodic summaries of your account
which will include information as to dividends and distributions from securities
gains, if any, paid during the year.
Federal regulations generally require the Fund to withhold ("backup
withholding") and remit to the U.S. Treasury 31% of dividends, distributions
from net realized securities gains and the proceeds of any redemption,
regardless of the extent to which gain or loss may be realized, paid to a
shareholder if such shareholder fails to certify either that the TIN furnished
in connection with opening an account is correct or that such shareholder has
not received notice from the IRS of being subject to backup withholding as a
result of a failure to properly report taxable dividend or interest income on a
Federal income tax return. Furthermore, the IRS may notify the Fund to institute
backup withholding if the IRS determines a shareholder's TIN is incorrect or if
a shareholder has failed to properly report taxable dividend and interest income
on a Federal income tax return.
A TIN is either the Social Security number or employer identification
number of the record owner of the account. Any tax withheld as a result of
backup withholding does not constitute an additional tax imposed on the record
owner of the account, and may be claimed as a credit on the record owner's
Federal income tax return.
The Adviser believes that the Capital Growth Portfolio,
Limited Duration Income Portfolio, Core Income Portfolio and the Tennessee Tax
Exempt Bond Portfolio have qualified for the fiscal year ended December 31, 1996
as a "regulated investment company" under the Code. Each Portfolio intends to
continue to so qualify if such qualification is in the best interests of its
shareholders. It is expected that each of the Dividend Growth Portfolio, Limited
Duration Tennessee Tax Free Portfolio and Limited Duration U.S. Government
Portfolio will qualify as a "regulated investment company" under the Code so
long as such qualification is in the best interests of its shareholders.
Qualification as a regulated investment company relieves the Portfolio of any
liability for Federal income tax to the extent its earnings are distributed in
accordance with applicable provisions of the Code. Each Portfolio is subject to
a non-deductible 4% excise tax, measured with respect to certain undistributed
amounts of taxable investment income and capital gains.
You should consult your tax adviser regarding specific questions as to
Federal, state or local taxes.
PERFORMANCE INFORMATION
Capital Growth Portfolio--For purposes of advertising, performance will be
calculated on the bases of average annual total return and/or total return.
Average annual total return is calculated pursuant to a standardized formula
which assumes that an investment in the Capital Growth Portfolio was purchased
with an initial payment of $1,000 and that the investment was redeemed at the
end of a stated period of time, after giving effect to the reinvestment of
dividends and distributions during the period. The return is expressed as a
percentage rate which, if applied on a compounded annual basis, would result in
the redeemable value of the investment at the end of the period. Advertisements
of the Portfolio's performance will include the Portfolio's average annual total
return for one, five and ten year periods, or for shorter time periods depending
upon the length of time during which the Portfolio has operated.
Total return is computed on a per share basis and assumes the reinvestment
of dividends and distributions. Total return generally is expressed as a
percentage rate which is calculated by combining the income and principal
changes for a specified period and dividing by the maximum offering price per
share at the beginning of the period. Advertisements may include the percentage
rate of total return or may include the value of a hypothetical investment at
the end of the period which assumes the application of the percentage rate of
total return. Total return also may be calculated by using the net asset value
per share at the beginning of the period instead of the maximum offering price
per share at the beginning of the period.
Dividend Growth, Limited Duration Income, Core Income, Tennessee Tax
Exempt Bond, Limited Duration Tennessee Tax Free Portfolio and Limited Duration
U.S. Government Portfolios--For purposes of advertising, performance will be
calculated on several bases, including current yield, average annual total
return and/or total return. Current yield refers to a Portfolio's annualized net
investment income per share over a 30-day period, expressed as a percentage of
the net asset value per share at the end of the period. For purposes of
calculating current yield, the amount of net investment income per share during
that 30-day period, computed in accordance with regulatory requirements, is
compounded by assuming that it is reinvested at a constant rate over a six-month
period. An identical result is then assumed to have occurred during a second
six-month period which, when added to the result for the first six months,
provides an "annualized" yield for an entire one-year period.
The Tennessee Tax Exempt Bond Portfolio and Limited Duration Tennessee
Tax Free Portfolio may advertise tax equivalent yield, which is calculated by
determining the pre-tax yield which, after being taxed at a certain rate, would
be equivalent to a stated current yield calculated as described above.
Average annual total return and total return will be calculated as
described above for the Capital Growth Portfolio.
Applicable to All Portfolios--Performance will vary from time to time and
past results are not necessarily representative of future results. Investors
should remember that performance is a function of portfolio management in
selecting the type and quality of portfolio securities and is affected by
operating expenses. The fees paid pursuant to the Distribution Plan will be
borne by the Portfolios' Investor Shares and not by the Trust Shares. As a
result, at any given time, the performance of the Investor Class should be
expected to be lower than that of the Trust Class. Performance information, such
as that described above, may not provide a basis for comparison with other
investments or other investment companies using a different method of
calculating performance.
Comparative performance information may be used from time to time in
advertising or marketing each Portfolio's shares, including data from Lipper
Analytical Services, Inc., Morningstar, Inc., Bond Buyer's 20-Bond Index,
Moody's Bond Survey Bond Index, Lehman Brothers Aggregate Bond Index and
components thereof, Standard & Poor's 500 Composite Stock Price Index, the Dow
Jones Industrial Average, CDA/Wiesenberger Investment Companies Service, Mutual
Fund Values; Mutual Fund Forecaster, Mutual Fund Investing and other industry
publications.
Historical Performance Information--(Capital Growth Portfolio,
Dividend Growth Portfolio, Core Income Portfolio, Limited Duration Tennessee Tax
Free Portfolio and Limited Duration U.S. Government Portfolio only) The Capital
Growth Portfolio and Core Income Portfolio commenced operations on April 1,
1996, and the Dividend Growth Portfolio, Limited Duration Tennessee Tax Free
Portfolio and Limited Duration U.S. Government Portfolio will commence
operations, through a transfer of assets from common trust funds managed by the
Adviser, using substantially the same investment objective, policies,
restrictions and methodologies as the corresponding Portfolio. Set forth below
is historical performance information for each of the Capital Growth Portfolio
and Core Income Portfolio which includes performance of the Portfolio's
predecessor common trust fund, and for each of the other Portfolio's predecessor
common trust fund for various periods ended December 31, 1996, as adjusted to
reflect the maximum operating expenses that may be charged the Investor Class of
the respective Portfolio as set forth in the Fee Table above. The common trust
funds did not charge any expenses. This performance information is not
necessarily indicative of the future performance of a Portfolio. Because each
Portfolio will be actively managed, its investments will vary from time to time
and will not be identical to the past portfolio investments of the predecessor.
Moreover, the predecessor common trust funds were not registered under the 1940
Act and therefore were not subject to certain investment restrictions that are
imposed by the 1940 Act, which, if imposed, could have adversely affected the
common trust funds' performance. Each Portfolio's performance will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
<TABLE>
<CAPTION>
Average Annual Total Return
----------------------------------------------
Since
Inception
of Port-
1 Year 5 Years 10 Years folio*
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Capital Growth Portfolio
Maximum Offering Price........ 18.53% 11.16% 11.30% 11.03%
Net Asset Value............... 22.26% 11.82% 11.64% 11.23%
Dividend Growth Portfolio
Maximum Offering Price........ 9.53% 8.70% 10.85% N/A
Net Asset Value............... 14.68% 9.72% 11.37% N/A
Core Income Portfolio
Maximum Offering Price........ -1.96% 5.18% 6.32% 9.54%
Net Asset Value............... 1.12% 5.82% 6.66% 9.74%
Limited Duration Tennessee
Tax Free Bond Portfolio
Maximum Offering Price........ -2.44% 2.78% 4.09% N/A
Net Asset Value............... 2.17% 3.72% 4.57% N/A
Limited Duration U.S.
Government Portfolio
Maximum Offering Price........ -1.96% 4.00% 5.91% N/A
Net Asset Value............... 2.72% 4.95% 6.40% N/A
- -------------------
* Represents an annualization of the Portfolio's actual total return for
the period from April 1, 1996 to December 31, 1996.
</TABLE>
GENERAL INFORMATION
The Fund was incorporated under Maryland law on March 6, 1990, and
commenced operations on August 28, 1990.
The Fund is authorized to issue 12 billion 500 million shares of
Common Stock (with 500 million shares allocated to each Portfolio), par value
$.001 per share. Each Portfolio's shares are classified into Investor Shares
(250 million) and Trust Shares (250 million). Trust Shares, which are described
in a separate prospectus, are sold only to clients of the Adviser for their
qualified trust, custody and/or agency accounts and to clients of the Adviser's
affiliated and correspondent banks and other affiliated and non-affiliated
institutions for their similar accounts maintained at such affiliates or
institutions. As of the date of this Prospectus, Trust Shares have not been
offered. Each share has one vote and shareholders will vote in the aggregate and
not by class except as otherwise required by law. Only holders of the Investor
Shares, however, will be entitled to vote on matters submitted to shareholders
pertaining to the Distribution Plan.
Unless otherwise required by the 1940 Act, ordinarily it will not be
necessary for the Fund to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Directors or the
appointment of auditors. However, pursuant to the Fund's By-Laws, the holders of
at least 10% of the shares outstanding and entitled to vote may require the Fund
to hold a special meeting of shareholders for purposes of removing a Director
from office or for any other purpose. Shareholders may remove a Director by the
affirmative vote of a majority of the Fund's outstanding voting shares. In
addition, the Board of Directors will call a meeting of shareholders for the
purpose of electing Directors if, at any time, less than a majority of the
Directors then holding office have been elected by shareholders.
The Fund is a "series fund," which is a mutual fund divided into
separate portfolios, each of which is treated as a separate entity for certain
matters under the 1940 Act and for other purposes. A shareholder of one
portfolio is not deemed to be a shareholder of any other portfolio. For certain
matters Fund shareholders vote together as a group; as to others they vote
separately by portfolio. By this Prospectus, Investor Shares of seven of the
Fund's AmeriStar Portfolios are being offered--Capital Growth Portfolio,
Dividend Growth Portfolio, Limited Duration Income Portfolio, Core Income
Portfolio, Tennessee Tax Exempt Bond Portfolio, Limited Duration Tennessee Tax
Free Portfolio and Limited Duration U.S. Government Portfolio, each of which is
non-diversified. From time to time, other portfolios may be established and sold
pursuant to other offering documents. Prior to January 1, 1997, the AmeriStar
Portfolios were named ValueStar Portfolios, and the Limited Duration Income
Portfolio and Core Income Portfolio were named Short-Intermediate Duration Bond
Portfolio and Investment Grade Bond Portfolio, respectively.
To date, 14 portfolios have been authorized. The other portfolios are not
being offered by this Prospectus. All consideration received by the Fund for
shares of one of the portfolios, and all assets in which such consideration is
invested, belong to that portfolio (subject only to the rights of creditors of
the Fund) and will be subject to the liabilities related thereto. The income
attributable to, and expenses of, one portfolio are treated separately from
those of the other portfolios.
The Transfer Agent maintains a record of each investor's ownership and
sends confirmations and statements of account.
Shareholder inquiries may be made by writing to the Fund at 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made.
APPENDIX
Portfolio Securities
To the extent set forth in this Prospectus, each Portfolio may invest in
the securities described below.
Money Market Instruments
U.S. Treasury Securities--Each Portfolio may invest in U.S. Treasury
securities which include Treasury Bills, Treasury Notes and Treasury Bonds that
differ in their interest rates, maturities and times of issuance. Treasury Bills
have initial maturities of one year or less; Treasury Notes have initial
maturities of one to ten years; and Treasury Bonds generally have initial
maturities of greater than ten years.
U.S. Government Securities--In addition to U.S. Treasury securities, each
Portfolio may invest in securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities. Some obligations issued or guaranteed by
U.S. Government agencies and instrumentalities, for example, Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
These securities bear fixed, floating or variable rates of interest. Principal
and interest may fluctuate based on generally recognized reference rates or the
relationship of rates. While the U.S. Government provides financial support to
such U.S. Government-sponsored agencies or instrumentalities, no assurance can
be given that it will always do so, since it is not so obligated by law. Each
Portfolio will invest in such securities only when it is satisfied that the
credit risk with respect to the issuer is minimal.
Bank Obligations--Each Portfolio, except the Limited Duration U.S.
Government Portfolio, may invest in bank obligations (other than those issued by
the Adviser or its affiliates), including certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations of domestic
banks, foreign subsidiaries or foreign branches of domestic banks, and domestic
branches of foreign banks, domestic savings and loan associations and other
banking institutions. With respect to such securities issued by foreign
subsidiaries or foreign branches of domestic banks, and domestic branches of
foreign banks, a Portfolio may be subject to additional investment risks that
are different in some respects from those incurred by a fund which invests only
in debt obligations of U.S. domestic issuers. Such risks include possible future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on the securities, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
on these securities, the possible seizure or nationalization of foreign deposits
and the possible subordination of deposits in foreign branches to receivership
expenses and U.S. office deposits in the event of insolvency. See "Description
of the Portfolios--Investment Considerations and Risk Factors--Investing in
Foreign Securities."
Certificates of deposit are negotiable certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time.
Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by a Portfolio will not benefit from insurance from
the Bank Insurance Fund or the Savings Association Insurance Fund administered
by the Federal Deposit Insurance Corporation.
Bankers' acceptances are credit instruments evidencing the obligation of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include unin-
sured, direct obligations, bearing fixed, floating or variable interest rates.
Commercial Paper and other Short-Term Corporate Obligations--Each Portfolio,
except the Limited Duration U.S. Government Portfolio, may invest in commercial
paper, which consists of short-term, unsecured promissory notes issued to
finance short-term credit needs. The commercial paper purchased by the Port-
folios will consist only of direct obligations which, at the time of their
purchase, are (a) rated not lower than Prime-1 by Moody's, A-1 by S&P, F-1 by
Fitch or Duff-1 by Duff, or (b) issued by companies having an outstanding
unsecured debt issue currently rated not lower than Aa3 by Moody's or AA- by
S&P, Fitch or Duff, or (c) if unrated, determined by the Adviser to be of
comparable quality to those rated obligations which may be purchased by such
Portfolio.
Repurchase Agreements--Each Portfolio may enter into repurchase agreements,
which involve the acquisition by a Portfolio of an underlying debt instrument,
subject to an obligation of the seller to repurchase, and such Portfolio to
resell, the instrument at a fixed price usually not more than one week after its
purchase. Certain costs may be incurred by a Portfolio in connection with the
sale of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the securities by a
Portfolio may be delayed or limited. Each Portfolio will consider on an ongoing
basis the creditworthiness of the institutions with which it enters into
repurchase agreements.
Zero Coupon and Stripped Securities--Each Portfolio may invest in zero
coupon U.S. Treasury securities, which are Treasury Notes and Bonds that have
been stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Each Portfolio, except the Limited Duration U.S.
Government Portfolio, also may invest in zero coupon securities issued by
corporations and financial institutions which constitute a proportionate
ownership of the issuer's pool of underlying U.S. Treasury securities. A zero
coupon security pays no interest to its holder during its life and is sold at a
discount to its face value at maturity. The amount of the discount fluctuates
with the market price of the security. The market prices of zero coupon
securities generally are more volatile than the market prices of securities that
pay interest periodically and are likely to respond to a greater degree to
changes in interest rates than non-zero coupon securities having similar
maturities and credit qualities. The Tennessee Tax Exempt Bond Portfolio will
invest no more than 25% of the value of its net assets in zero coupon and
stripped securities.
Foreign Government Obligations; Securities of Supranational
Entities--Each Portfolio, except the Limited Duration U.S. Government Portfolio,
may invest in obligations issued or guaranteed by one or more foreign
governments or any of their political subdivisions, agencies or
instrumentalities that are determined by the Adviser to be of comparable quality
to the other obligations in which such Portfolio may invest. Such securities
also include debt obligations of supranational entities. Supranational entities
include international organizations designated or supported by governmental
entities to promote economic reconstruction or development and international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank. The percentage of a Portfolio's assets invested
in securities issued by foreign governments will vary depending on the relative
yields of such securities, the economic and financial markets of the countries
in which the investments are made and the interest rate climate of such
countries.
Floating and Variable Rate Obligations--Each Portfolio, except the
Limited Duration U.S. Government Portfolio, may purchase floating and variable
rate demand notes and bonds, which are obligations ordinarily having stated
maturities in excess of 13 months, but which permit the holder to demand payment
of principal at any time, or at specified intervals. Variable rate demand notes
include master demand notes which are obligations that permit the Portfolio to
invest fluctuating amounts, at varying rates of interest, pursuant to direct
arrangements between the Portfolio, as lender, and the borrower. These
obligations permit daily changes in the amount borrowed. Because these
obligations are direct lending arrangements between the lender and borrower, it
is not contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these obligations are not
secured by letters of credit or other credit support arrangements, the
Portfolio's right to redeem is dependent on the ability of the borrower to pay
principal and interest on demand. Such obligations frequently are not rated by
credit rating agencies and a Portfolio may invest in obligations which are not
so rated only if the Adviser determines that at the time of investment the
obligations are of comparable quality to the other obligations in which the
Portfolio may invest. The Adviser, on behalf of each Portfolio, will consider on
an ongoing basis the creditworthiness of the issuers of the floating and
variable rate demand obligations purchased by such Portfolio.
Illiquid Securities--Each Portfolio may invest up to 10% of the value of
its net assets in securities as to which a liquid trading market does not exist,
provided such investments are consistent with its investment objective. Such
securities may include securities that are not readily marketable, such as
certain securities that are subject to legal or contractual restrictions on
resale, certain privately negotiated, non-exchange traded options and securities
used to cover such options, certain mortgage-backed securities, floating and
variable rate demand obligations as to which the Portfolio cannot exercise the
related demand feature described above on not more than seven days' notice and
as to which there is no secondary market and repurchase agreements providing for
settlement in more than seven days after notice. As to these securities, the
Portfolio is subject to a risk that should the Portfolio desire to sell them
when a ready buyer is not available at a price the Portfolio deems
representative of their value, the value of the Portfolio's net assets could be
adversely affected.
Mortgage-Related Securities--(Capital Growth Portfolio, Dividend
Growth Portfolio, Limited Duration Income Portfolio and Core Income Portfolio)
Mortgage-related securities are a form of Derivative collateralized by pools of
mortgages. The mortgage-related securities in which these Portfolios may invest
include those with fixed, floating and variable interest rates, those with
interest rates that change based on multiples of changes in interest rates and
those with interest rates that change inversely to changes in interest rates, as
well as stripped mortgage-backed securities. Stripped mortgage-backed securities
usually are structured with two classes that receive different proportions of
interest and principal distributions on a pool of mortgage-backed securities or
whole loans. A common type of stripped mortgage-backed security will have one
class receiving some of the interest and most of the principal from the mortgage
collateral, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). Although
certain mortgage-related securities are guaranteed by a third party or otherwise
similarly secured, the market value of the security, which may fluctuate, is not
secured. If a Portfolio purchases a mortgage-related security at a premium, all
or part of the premium may be lost if there is a decline in the market value of
the security, whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of certain mortgage-related securities are inversely affected by
changes in interest rates. However, though the value of a mortgage-related
security may decline when interest rates rise, the converse is not necessarily
true, since in periods of declining interest rates the mortgages underlying the
security are more likely to be prepaid. For this and other reasons, a
mortgage-related security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages, and, therefore, it is not possible to
predict accurately the security's return to the Portfolio. Moreover, with
respect to stripped mortgage-backed securities, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the
Portfolio may fail to fully recoup its initial investment in these securities
even if the securities are rated in the highest rating category by a nationally
recognized statistical rating organization. During periods of rapidly rising
interest rates, prepayments of mortgage-related securities may occur at slower
than expected rates. Slower prepayments effectively may lengthen a
mortgage-related security's expected maturity which generally would cause the
value of such security to fluctuate more widely in response to changes in
interest rates. Were the prepayments on the Portfolio's mortgage-related
securities to decrease broadly, the Portfolio's effective duration, and thus
sensitivity to interest rate fluctuations, would increase. For further
discussion concerning the investment considerations involved, see "Description
of the Portfolios--Investment Considerations and Risk Factors--Fixed-Income
Securities" and "Illiquid Securities" above and "Investment Objectives and
Management Policies--Portfolio Securities--Mortgage-Related Securities" in the
Statement of Additional Information.
Asset-Backed Securities--(Capital Growth Portfolio, Dividend Growth
Portfolio, Limited Duration Income Portfolio and Core Income Portfolio)
Asset-backed securities are a form of Derivative. The securitization techniques
used for asset-backed securities are similar to those used for mortgage-related
securities. These securities include debt securities and securities with
debt-like characteristics. The collateral for these securities has included home
equity loans, automobile and credit card receivables, boat loans, computer
leases, airplane leases, mobile home loans, recreational vehicle loans and
hospital account receivables. Each of these Portfolios may invest in these and
other types of asset-backed securities that may be developed in the future.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may provide the
Portfolio with a less effective security interest in the related collateral than
do mortgage-backed securities. Therefore, there is the possibility that
recoveries on the underlying collateral may not, in some cases, be available to
support payments on these securities.
American Depositary Receipts--(Capital Growth Portfolio and Dividend
Growth Portfolio) Each of these Portfolio's assets may be invested in the
securities of foreign issuers in the form of American Depositary Receipts
("ADRs"). These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. Generally,
ADRs in registered form are designed for use in the United States securities
markets. Each of these Portfolios may invest in ADRs through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the underlying security and a depositary, whereas a depositary may
establish an unsponsored facility without participation by the issuer of the
deposited security. Holders of unsponsored depositary receipts generally bear
all the costs of such facilities and the depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts in respect of the deposited securities.
Convertible Securities--(Capital Growth Portfolio, Dividend Growth
Portfolio, Limited Duration Income Portfolio and Core Income Portfolio)
Convertible securities may be converted at a stated price within a specified
period of time into a specified number of shares of common stock of the same or
a different issuer. Convertible securities are senior to common stock in a
corporation's capital structure, but usually are subordinated to non-convertible
debt securities. While providing a fixed-income stream (generally higher in
yield than the income derivable from a common stock but lower than that afforded
by a non-convertible debt security), a convertible security also affords an
investor the opportunity, through its conversion feature, to participate in the
capital appreciation of the common stock into which it is convertible.
Warrants--(Capital Growth Portfolio and Dividend Growth Portfolio)
Each of these Portfolios may invest up to 5% of its net assets in warrants,
except that this limitation does not apply to warrants acquired in units or
attached to securities. A warrant is an instrument issued by a corporation which
gives the holder the right to subscribe to a specified amount of the
corporation's capital stock at a set price for a specified period of time.
Municipal Obligations--(Limited Duration Income Portfolio, Core Income
Portfolio, Tennessee Tax Exempt Bond Portfolio and Limited Duration Tennessee
Tax Free Portfolio) Municipal Obligations are debt obligations issued by states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, or multistate
agencies or authorities. While in general, Municipal Obligations are tax exempt
securities having relatively low yields as compared to taxable, non-municipal
obligations of similar quality, certain issues of Municipal Obligations, both
taxable and non-taxable, offer yields comparable and in some cases greater than
the yields available on other permissible investments. Municipal Obligations
generally include debt obligations issued to obtain funds for various public
purposes as well as certain industrial development bonds issued by or on behalf
of public authorities. Municipal Obligations are classified as general
obligation bonds, revenue bonds and notes. General obligation bonds are secured
by the issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from the revenue derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, but not from the
general taxing power. Industrial development bonds, in most cases, are revenue
bonds and generally do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on whose
behalf they are issued. Notes are short-term instruments which are obligations
of the issuing municipalities or agencies and are sold in anticipation of a bond
sale, collection of taxes or receipt of other revenues. Municipal Obligations
include municipal lease/purchase agreements which are similar to installment
purchase contracts for property or equipment issued by municipalities. Municipal
Obligations bear fixed, floating or variable rates of interest, which are
determined in some instances by formulas under which the Municipal Obligation's
interest rate will change directly or inversely to changes in interest rates or
an index, or multiples thereof, in many cases subject to a maximum and minimum.
Certain Municipal Obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated from the
related Municipal Obligation and purchased and sold separately. Dividends
received by shareholders of the Limited Duration Income Portfolio or Core Income
Portfolio which are attributable to interest income received by it from
Municipal Obligations generally will be subject to Federal income tax. The
Limited Duration Income Portfolio and Core Income Portfolio currently intend to
invest no more than 25% of their respective assets in Municipal Obligations.
However, this percentage may be varied from time to time without shareholder
approval.
Tender Option Bonds--(Tennessee Tax Exempt Bond Portfolio and Limited
Duration Tennessee Tax Free Portfolio) A tender option bond is a Municipal
Obligation (generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate substantially
higher than prevailing short-term tax exempt rates, that has been coupled with
the agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security holders the
option, at periodic intervals, to tender their securities to the institution and
receive the face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between the
Municipal Obligation's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such period, that
would cause the securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee, the security
holder effectively holds a demand obligation that bears interest at the
prevailing short-term tax exempt rate. The Adviser, on behalf of the Portfolio,
will consider on an ongoing basis the creditworthiness of the issuer of the
underlying Municipal Obligation, of any custodian and of the third party
provider of the tender option. In certain instances and for certain tender
option bonds, the option may be terminable in the event of a default in payment
of principal or interest on the underlying Municipal Obligations and for other
reasons. Neither of these Portfolios will invest more than 10% of the value
of its net assets in securities that are illiquid, which would include tender
option bonds as to which it cannot exercise the tender feature on not more than
seven days' notice if there is no secondary market available for these
obligations.
Ratings--Debt securities which are rated Baa by Moody's are considered
medium grade obligations; they are neither highly protected nor poorly secured,
and are considered by Moody's to have speculative characteristics. Debt
securities rated BBB by S&P are regarded as having adequate capacity to pay
interest and repay principal, and while such debt securities ordinarily exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt securities in this category than in higher rated
categories. Fitch considers the obligor's ability to pay interest and repay
principal on debt securities rated BBB to be adequate; adverse changes in
economic conditions and circumstances, however, are more likely to have an
adverse impact on these debt securities and, therefore, impair timely payment.
Debt securities rated BBB by Duff are considered to have below average
protection factors but still considered sufficient for prudent investment.
Securities rated Ba by Moody's are judged to have speculative elements;
their future cannot be considered as well assured and often the protection of
interest and principal payments may be very moderate. Securities rated BB by
S&P, Fitch or Duff are regarded as having predominantly speculative
characteristics and, while such obligations have less near-term vulnerability to
default than other speculative grade debt, they face major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The ratings of Moody's, S&P, Fitch and Duff represent their opinions as to
the quality of the obligations which they undertake to rate. Ratings are
relative and subjective and, although ratings may be useful in evaluating the
safety of interest and principal payments, they do not evaluate the market value
risk of such obligations. Although these ratings may be an initial criterion for
selection of portfolio investments, the Adviser also will evaluate such
obligations and the ability of their issuers to pay interest and principal. The
Portfolios will rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, the Adviser
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, the quality of the
issuer's management and regulatory matters.
Investment Company Securities--Each Portfolio, except the Limited
Duration U.S. Government Portfolio, may invest in securities issued by other
investment companies which principally invest in securities of the type in which
such Portfolio invests. Under the 1940 Act, a Portfolio's investment in such
securities currently is limited to, subject to certain exceptions, (i) 3% of the
total voting stock of any one investment company, (ii) 5% of such Portfolio's
total assets with respect to any one investment company and (iii) 10% of such
Portfolio's total assets in the aggregate. Investments in the securities of
other investment companies will involve duplication of advisory fees and certain
other expenses.
Investment Techniques
Short-Selling--(All Portfolios) Each Portfolio may make short sales
"against the box," a transaction in which the Portfolio enters into a short sale
of a security which it owns. The proceeds of the short sale will be held by a
broker until the settlement date at which time the Portfolio delivers the
security to close the short position. The Portfolio receives the net proceeds
from the short sale. At no time will any of these Portfolios have more than 15%
of the value of its net assets in deposits on short sales against the box. It
currently is anticipated that each of these Portfolios will make short sales
against the box for purposes of protecting the value of its respective net
assets.
Call and Put Options on Specified Securities-- (Capital Growth
Portfolio and Dividend Growth Portfolio) Each of these Portfolios may invest up
to 5% of its total assets, represented by the premium paid, in the purchase of
call and put options in respect of specific securities in which the Portfolio
may invest. Each of these Portfolios may write covered call and put option
contracts to the extent of 15% of the value of its net assets at the time such
option contracts are written. A call option gives the purchaser of the option
the right to buy, and obligates the writer to sell, the underlying security at
the exercise price at any time during the option period. Conversely, a put
option gives the purchaser of the option the right to sell, and obligates the
writer to buy, the underlying security at the exercise price at any time during
the option period. A covered call option sold by the Portfolio, which is a call
option with respect to which the Portfolio owns the underlying security, exposes
the Portfolio during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or to
possible continued holding of a security which might otherwise have been sold to
protect against depreciation in the market price of the security. A covered put
option sold by the Portfolio exposes the Portfolio during the term of the option
to a decline in price of the underlying security. A put option sold by the
Portfolio is covered when, among other things, cash or liquid securities are
placed in a segregated account with the Fund's custodian to fulfill the
obligation undertaken.
To close out a position when writing covered options, the Portfolio
may make a "closing purchase transaction," which involves purchasing an option
on the same security with the same exercise price and expiration date as the
option which it has previously written on the security. To close out a position
as a purchaser of an option, the Portfolio may make a "closing sale
transaction," which involves liquidating its position by selling the option
previously purchased. The Portfolio will realize a profit or loss from a closing
purchase or sale transaction depending upon the difference between the amount
paid to purchase an option and the amount received from the sale thereof.
Stock Index Options--(Capital Growth Portfolio and Dividend Growth
Portfolio) Each of these Portfolios may purchase and write put and call options
on stock indexes listed on national securities exchanges or traded in the
over-the-counter market to the extent of 15% of the value of its net assets. A
stock index fluctuates with changes in the market values of the stocks included
in the index.
The effectiveness of the Portfolio's purchasing or writing stock index
options will depend upon the extent to which price movements in its portfolio
correlate with price movements of the stock index selected. Because the value of
an index option depends upon movements in the level of the index rather than the
price of a particular stock, whether the Portfolio will realize a gain or loss
from the purchase or writing of options on an index depends upon movements in
the level of stock prices in the stock market generally or, in the case of
certain indexes, in an industry or market segment, rather than movements in the
price of a particular stock. Accordingly, successful use by the Portfolio of
options on stock indexes will be subject to the Adviser's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
When the Portfolio writes an option on a stock index, it will place in
a segregated account with the Fund's custodian cash or liquid securities in an
amount at least equal to the market value of the underlying stock index and will
maintain the account while the option is open or will otherwise cover the
transaction.
Futures Transactions--In General--(Capital Growth Portfolio, Dividend
Growth Portfolio, Tennessee Tax Exempt Bond Portfolio and Limited Duration
Tennessee Tax Free Portfolio) None of these Portfolios will be a commodity pool.
However, as a substitute for a comparable market position in the underlying
securities or for hedging purposes, each of these Portfolios may engage in
futures and options on futures transactions, as described below.
The commodities transactions of each of these Portfolios must constitute
bona fide hedging or other permissible transactions pursuant to regulations
promulgated by the Commodity Futures Trading Commission. In addition, none of
these Portfolios may engage in such transactions if the sum of the amount of
initial margin deposits and premiums paid for unexpired commodity options, other
than for bona fide hedging transactions, would exceed 5% of the liquidation
value of the Portfolio's total assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission, each of these Portfolios may be required to segregate cash
or high quality money market instruments in connection with its commodities
transactions in an amount at least equal to the value of the underlying
commodity.
Initially, when purchasing or selling futures contracts a Portfolio will be
required to deposit with the Fund's custodian in the broker's name an amount of
cash or cash equivalents up to approximately 10% of the contract amount. This
amount is subject to change by the exchange or board of trade on which the
contract is traded and members of such exchange or board of trade may impose
their own higher requirements. This amount is known as "initial margin" and is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Portfolio upon termination of the futures position, assuming
all contractual obligations have been satisfied. Subsequent payments, known as
"variation margin," to and from the broker will be made daily as the price of
the index or securities underlying the futures contract fluctuates, making the
long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, the Portfolio may elect to close the position by taking an
opposite position, at the then prevailing price, which will operate to terminate
its existing position in the contract.
Although each of these Portfolios intends to purchase or sell futures
contracts only if there is an active market for such contracts, no assurance can
be given that a liquid market will exist for any particular contract at any
particular time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to
the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting the relevant Portfolio to substantial losses. If it is not possible,
or the Portfolio determines not, to close a futures position in anticipation of
adverse price movements, it will be required to make daily cash payments of
variation margin. In such circumstances, an increase in the value of the portion
of the portfolio being hedged, if any, may offset partially or completely losses
on the futures contract. However, no assurance can be given that the price of
the securities being hedged will correlate with the price movements in a futures
contract and thus provide an offset to losses on the futures contract.
To the extent a Portfolio is engaging in a futures transaction as a hedging
device, because of the risk of an imperfect correlation between securities in a
portfolio that are the subject of a hedging transaction and the futures contract
used as a hedging device, it is possible that the hedge will not be fully
effective if, for example, losses on the portfolio securities exceed gains on
the futures contract or losses on the futures contract exceed gains on the
portfolio securities. for futures contracts based on indexes, the risk of
imperfect correlation increases as the composition of a Portfolio's investments
varies from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being hedged
and movements in the price of futures contracts, the Portfolio may buy or sell
futures contracts in a greater or lesser dollar amount than the dollar amount of
the securities being hedged if the historical volatility of the futures contract
has been less or greater than that of the securities. Such "over hedging" or
"under hedging" may adversely affect the Portfolio's net investment results if
market movements are not as anticipated when the hedge is established.
Successful use of futures by a Portfolio also is subject to the Adviser's
ability to predict correctly movements in the direction of the market or
interest rates. For example, if a Portfolio has hedged against the possibility
of a decline in the market adversely affecting the value of securities held in
its portfolio and prices increase instead, such Portfolio will lose part or all
of the benefit of the increased value of securities which it has hedged because
it will have offsetting losses in its futures positions. Furthermore, if in such
circumstances the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. The Portfolio may have
to sell such securities at a time when it may be disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if the
option is a put). Upon exercise of the option, the assumption of offsetting
futures positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin account
which represents the amount by which the market price of the futures contract,
at exercise, exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
Call options sold by a Portfolio with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying, or instruments the prices of which are
expected to move relatively consistently with, the instruments underlying the
futures contract. Put options sold by a Portfolio with respect to futures
contracts will be covered in the same manner as put options on specific
securities as described above.
Stock Index Futures and Options on Stock Index Futures--(Capital
Growth Portfolio and Dividend Growth Portfolio) Each of these Portfolios may
purchase and sell stock index futures contracts and options on stock index
futures contracts to the extent of 15% of the value of its net assets.
A stock index future obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the close of the last
trading day of the contract and the price at which the agreement is made. No
physical delivery of the underlying stocks in the index is made. With respect to
stock indexes that are permitted investments, each of these Portfolios intends
to purchase and sell futures contracts on the stock index for which it can
obtain the best price with consideration also given to liquidity.
Each of these Portfolios may use index futures as a substitute for a
comparable market position in the underlying securities.
Interest Rate Futures Contracts and Options on Interest Rate Futures
Contracts--(Tennessee Tax Exempt Bond Portfolio and Limited Duration Tennessee
Tax Free Portfolio) Each of these Portfolios may invest in interest rate futures
contracts and options on interest rate futures contracts as a substitute for a
comparable market position and to hedge against adverse movements in interest
rates to the extent of 15% of the value of its net assets.
To the extent the Portfolio has invested in interest rate futures contracts
or options on interest rate futures contracts as a substitute for a comparable
market position, the Portfolio will be subject to the same investment risks had
it purchased the securities underlying the contract.
Each of these Portfolios may purchase call options on interest rate
futures contracts to hedge against a decline in interest rates and may purchase
put options on interest rate futures contracts to hedge its portfolio securities
against the risk of rising interest rates. The Portfolio may sell call options
on interest rate futures contracts to partially hedge against declining prices
of portfolio securities. The Portfolio may sell put options on interest rate
futures contracts to hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contracts.
Each of these Portfolios also may sell options on interest rate
futures contracts as part of closing purchase transactions to terminate its
options positions. No assurance can be given that such closing transactions can
be effected or the degree of correlation between price movements in the options
on interest rate futures and price movements in the Portfolio's investment
securities which are the subject of the hedge.
Lending Portfolio Securities--(All Portfolios) From time to time, each
Portfolio may lend securities from its investment portfolio to brokers, dealers
and other financial institutions needing to borrow securities to complete
certain transactions. Such loans may not exceed 33 1/3% of the value of the
relevant Portfolio's total assets. In connection with such loans, each Portfolio
will receive collateral consisting of cash or U.S. Government securities which
will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. Each Portfolio can increase its
income through the investment of such collateral. Each Portfolio continues to be
entitled to payments in amounts equal to the dividends, interest and other
distributions payable on the loaned security and receives interest on the amount
of the loan. Such loans will be terminable at any time upon specified notice. A
Portfolio might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with such
Portfolio.
Forward Commitments--(All Portfolios) Each Portfolio may purchase
securities on a when-issued or forward commitment basis, which means that the
price is fixed at the time of commitment, but delivery and payment ordinarily
take place a number of days after the date of the commitment to purchase. Each
Portfolio will make commitments to purchase such securities only with the
intention of actually acquiring the securities, but the Portfolio may sell these
securities before the settlement date if it is deemed advisable. The Portfolio
will not accrue income in respect of a security purchased on a forward
commitment basis prior to its stated delivery date.
Borrowing Money--(All Portfolios) As a fundamental policy, each Portfolio
is permitted to borrow money in an amount up to 33 1/3% of the value of its
total assets. However, each Portfolio currently intends to borrow money only for
temporary or emergency (not leveraging) purposes, in an amount up to 33 1/3% of
the value of its total assets (including the amount borrowed) valued at the
lesser of cost or market, less liabilities (not including the amount borrowed)
at the time the borrowing is made. While borrowings exceed 5% of a Portfolio's
total assets, such Portfolio will not make any investments.
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR FUNDS
CAPITAL GROWTH PORTFOLIO
DIVIDEND GROWTH PORTFOLIO
LIMITED DURATION U.S. GOVERNMENT PORTFOLIO
LIMITED DURATION INCOME PORTFOLIO
LIMITED DURATION TENNESSEE TAX FREE PORTFOLIO
CORE INCOME PORTFOLIO
TENNESSEE TAX EXEMPT BOND PORTFOLIO
TRUST SHARES AND INVESTOR SHARES
PART B
(STATEMENT OF ADDITIONAL INFORMATION)
FEBRUARY 28, 1997
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
AmeriStar Portfolios listed above (each, a "Portfolio" and collectively, the
"Portfolios") of The Infinity Mutual Funds, Inc. (the "Fund"), dated February
28, 1997, as it may be revised from time to time. To obtain a copy of the
Portfolios' Prospectus, please write to the Fund at 3435 Stelzer Road, Columbus,
Ohio 43219-3035. This Statement of Additional Information relates only to the
Portfolios and not to any of the Fund's other portfolios.
First American National Bank (the "Adviser") serves as each
Portfolio's investment adviser.
BISYS Fund Services Limited Partnership ("BISYS") serves as each
Portfolio's administrator and distributor.
TABLE OF CONTENTS
PAGE
Investment Objectives and Management Policies................. B-2
Management of the Fund....................................... B-18
Management Arrangements...................................... B-21
Purchase and Redemption of Shares............................ B-25
Determination of Net Asset Value............................. B-27
Performance Information...................................... B-29
Dividends, Distributions and Taxes........................... B-31
Portfolio Transactions....................................... B-33
Information About the Portfolios............................. B-34
Custodian, Transfer and Dividend Disbursing
Agent, Counsel and Independent Auditors.................... B-36
Appendix..................................................... B-37
Financial Statements......................................... B-43
<PAGE>
INVESTMENT OBJECTIVES AND MANAGEMENT POLICIES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTIONS IN THE PORTFOLIOS' PROSPECTUS ENTITLED
"DESCRIPTION OF THE PORTFOLIOS" AND "APPENDIX."
PORTFOLIO SECURITIES
BANK OBLIGATIONS. (All Portfolios, except the Limited Duration U.S.
Government Portfolio) Domestic commercial banks organized under Federal law are
supervised and examined by the Comptroller of the Currency and are required to
be members of the Federal Reserve System and to have their deposits insured by
the Federal Deposit Insurance Corporation (the "FDIC"). Domestic banks organized
under state law are supervised and examined by state banking authorities but are
members of the Federal Reserve System only if they elect to join. In addition,
state banks whose certificates of deposit ("CDs") may be purchased by the
Portfolio are insured by the Bank Insurance Fund administered by the FDIC
(although such insurance may not be of material benefit to the Portfolio,
depending upon the principal amount of the CDs of each bank held by the
Portfolio) and are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of Federal and state laws and
regulations, domestic branches of domestic banks, among other things, are
generally required to maintain specified levels of reserves, and are subject to
other supervision and regulation designed to promote financial soundness.
Obligations of foreign branches of domestic banks, foreign
subsidiaries of domestic banks and domestic branches of foreign banks, such as
CDs and time deposits ("TDs"), may be general obligations of the parent banks in
addition to the issuing branch, or may be limited by the terms of a specific
obligation or governmental regulation. Such obligations are subject to different
risks than are those of domestic banks. These risks include foreign economic and
political developments, foreign governmental restrictions that may adversely
affect payment of principal and interest on the obligations, foreign exchange
controls and foreign withholding and other taxes on interest income. Foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank. If a domestic bank with deposits insured by the FDIC
becomes insolvent, unsecured deposits and other general obligations of such
bank's foreign branches will be subordinated to the receivership expenses of the
FDIC and such bank's domestic deposits and would be subject to the loss of
principal to a greater extent than such bank's domestic branch deposits.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal and state
regulation as well as governmental action in the country in which the foreign
bank has its head office. In addition, Federal branches licensed by the
Comptroller of the Currency and branches licensed by certain states ("State
Branches") may be required to: (1) pledge to the regulator, by depositing assets
with a designated bank within the state, a certain percentage of their assets as
fixed from time to time by the appropriate regulatory authority; and (2)
maintain assets within the state in an amount equal to a specified percentage of
the aggregate amount of liabilities of the foreign bank payable at or through
all of its agencies or branches within the state. The deposits of Federal and
State Branches generally must be insured by the FDIC if such branches take
deposits of less than $100,000.
In view of the foregoing factors associated with the purchase of CDs
and TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, or by domestic branches of foreign banks, the Adviser carefully
evaluates such investments on a case-by-case basis.
Each Portfolio may purchase CDs issued by banks, savings and loan
associations and similar thrift institutions with less than $1 billion in
assets, which are members of the FDIC, provided such Portfolio purchases any
such CD in a principal amount of not more than $100,000, which amount would be
fully insured by the Bank Insurance Fund or the Savings Association Insurance
Fund administered by the FDIC. Interest payments on such a CD are not insured by
the FDIC. No Portfolio will own more than one such CD per such issuer.
REPURCHASE AGREEMENTS. (All Portfolios) Each Portfolio may enter into
repurchase agreements. The Fund's custodian or sub-custodian employed in
connection with third-party repurchase transactions will have custody of, and
will hold in a segregated account, securities acquired by a Portfolio under a
repurchase agreement. In connection with its third-party repurchase
transactions, the Fund will employ only eligible sub-custodians that meet the
requirements set forth in Section 17(f) of the Investment Company Act of 1940,
as amended (the "1940 Act"). Repurchase agreements are considered by the staff
of the Securities and Exchange Commission to be loans by the Portfolio entering
into them. In an attempt to reduce the risk of incurring a loss on a repurchase
agreement, each Portfolio will enter into repurchase agreements only with
registered or unregistered securities dealers or banks with total assets in
excess of one billion dollars or primary government securities dealers reporting
to the Federal Reserve Bank of New York, with respect to securities of the type
in which such Portfolio may invest or government securities regardless of their
remaining maturities, and will require that additional securities be deposited
with it if the value of the securities purchased should decrease below resale
price. The Adviser will monitor on an ongoing basis the value of the collateral
to assure that it always equals or exceeds the repurchase price. Each Portfolio
will consider on an ongoing basis the creditworthiness of the institutions with
which it enters into repurchase agreements.
ILLIQUID SECURITIES. (All Portfolios) Where a substantial market of
qualified institutional buyers has developed for certain restricted securities
purchased by the Fund pursuant to Rule 144A under the Securities Act of 1933, as
amended, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Fund's Board. Because it is not
possible to predict with assurance how the market for specific restricted
securities sold pursuant to Rule 144A will develop, the Fund's Board has
directed the Adviser to monitor carefully each Portfolio's investments in such
securities with particular regard to trading activity, availability of reliable
price information and other relevant information. To the extent that, for a
period of time, qualified institutional buyers cease purchasing restricted
securities pursuant to Rule 144A, a Portfolio's investing in such securities may
have the effect of increasing the level of illiquidity in its investment
portfolio during such period.
FORWARD COMMITMENTS. (All Portfolios) Securities purchased on a
forward commitment or when-issued basis are subject to changes in value
(generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Securities purchased on a forward
commitment or when-issued basis may expose the Portfolio to risks because they
may experience such fluctuations prior to their actual delivery. Purchasing
securities on a when-issued basis can involve the additional risk that the yield
available in the market when the delivery takes place actually may be higher
than that obtained in the transaction itself. Purchasing securities on a forward
commitment or when-issued basis when the Portfolio is fully or almost fully
invested may result in greater potential fluctuation in the value of the
Portfolio's net assets and its net asset value per share.
MORTGAGE-RELATED SECURITIES. (CORE INCOME PORTFOLIO, CAPITAL GROWTH
PORTFOLIO, DIVIDEND GROWTH PORTFOLIO AND LIMITED DURATION INCOME PORTFOLIO)
GOVERNMENT AGENCY SECURITIES--Mortgage-related securities issued by
the Government National Mortgage Association ("GNMA") include GNMA Mortgage
Pass-Through Certificates (also known as "Ginnie Maes") which are guaranteed as
to the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-owned
U.S. Government corporation within the department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
GOVERNMENT RELATED SECURITIES--Mortgage-related securities issued by
the Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of the FNMA and are not backed by or entitled to the full
faith and credit of the Untied States. The FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to timely payment of principal and interest by FNMA.
Mortgage-related securities issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") include FHLMC Mortgage Participation Certificates (also
known as "Freddie Macs" or "PCs"). The FHLMC is a corporate instrumentality of
the United States created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Bank and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When the FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
PRIVATE ENTITY SECURITIES--These mortgage-related securities are
issued by commercial banks, savings and loan institutions, mortgage bankers,
private mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by pools
created by non-governmental issuers often is supported partially by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. There can be no assurance
that the private insurers or mortgage poolers can meet their obligations under
the policies, so that if the issuers default on their obligations the holders of
the security could sustain a loss. No insurance or guarantee covers the
Portfolio or the price of the Portfolio's shares. Mortgage-related securities
issued by non- governmental issuers generally offer a higher rate of interest
than government-agency and government-related securities because there are no
direct or indirect government guarantees of payment.
STANDARD & POOR'S DEPOSITARY RECEIPTS. (Capital Growth Portfolio and
Dividend Growth Portfolio) These securities, commonly referred to as "spiders,"
represent an interest in a fixed portfolio of common stocks designed to track
the price and dividend yield performance of the Standard & Poor's 500 Index or
the Standard & Poor's MidCap 400 Index, as the case may be.
MUNICIPAL OBLIGATIONS. (Core Income Portfolio, Limited Duration Income
Portfolio, Limited Duration Tennessee Tax Free Portfolio and Tennessee Tax
Exempt Bond Portfolio) The term "Municipal Obligations" generally includes debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Municipal Obligations may be
issued include refunding outstanding obligations, obtaining funds for general
operating expenses and lending such funds to other public institutions and
facilities. In addition, certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide for the
construction, equipment, repair or improvement of privately operated housing
facilities, sports facilities, convention or trade show facilities, airport,
mass transit, industrial, port or parking facilities, air or water pollution
control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal; the interest paid on such
obligations may be exempt from Federal income tax, although current tax laws
place substantial limitations on the size of such issues. There are, of course,
variations in the security of Municipal Obligations, both within a particular
classification and between classifications.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but which
permit the holder to demand payment of principal at any time, or at specified
intervals. The issuer of such obligations ordinarily has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders thereof. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals.
The yields on Municipal Obligations are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions in the Municipal Obligations market, size of a particular
offering, maturity of the obligation and rating of the issue. The imposition of
the advisory and administration fees, as well as other operating expenses, will
have the effect of reducing the yield to investors.
Each of the Tennessee Tax Exempt Bond Portfolio and Limited Duration
Tennessee Tax Free Portfolio may invest up to 5% of the value of its total
assets in municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations"). Lease obligations have special
risks not ordinarily associated with Municipal Obligations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation ordinarily is
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. Certain lease obligations in which
these Portfolios may invest may contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease payments in future
years unless money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the leased property in the event of foreclosure might prove
difficult. In addition, no assurance can be given as to the liquidity of certain
lease obligations. The staff of the Securities and Exchange Commission currently
considers certain lease obligations to be illiquid. The Fund's Board of
Directors has established guidelines for the Adviser to determine the liquidity
and appropriate valuation of lease obligations based on factors which include:
(1) the frequency of trades and quotes for the lease obligation or similar
securities; (2) the number of dealers willing to purchase or sell the lease
obligation or similar securities and the number of other potential buyers; (3)
the willingness of dealers to undertake to make a market in the security or
similar securities; and (4) the nature of the marketplace trades, including the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer.
Each of the Tennessee Tax Exempt Bond Portfolio and Limited Duration
Tennessee Tax Free Portfolio will purchase tender option bonds only when it is
satisfied that the custodial and tender option arrangements, including the fee
payment arrangements, will not adversely affect the tax exempt status of the
underlying Municipal Obligations and that payment of any tender fees will not
have the effect of creating taxable income for the Portfolio. Based on the
tender option bond agreement, each of these Portfolios expects to be able to
value the tender option bond at par; however, the value of the instrument will
be monitored to assure that is valued at fair value.
RATINGS OF MUNICIPAL OBLIGATIONS. Subsequent to its purchase by a
Portfolio, an issue of rated Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Portfolio.
Neither event will require the sale of such Municipal Obligations by the
Portfolio, but the Adviser will consider such event in determining whether the
Portfolio should continue to hold the Municipal Obligations. To the extent that
the ratings given by Moody's, S&P or Fitch for Municipal Obligations may change
as a result of changes in such organizations or their rating systems, the
Portfolio will attempt to use comparable ratings as standards for its
investments in accordance with the investment policies contained in the relevant
Portfolio's Prospectus and this Statement of Additional Information. The ratings
of Moody's, S&P and Fitch represent their opinions as to the quality of the
Municipal Obligations which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings may be an initial criterion for selection of
portfolio investments, the Adviser also will evaluate these securities and the
creditworthiness of the issuers of such securities based upon financial and
other available information.
The average distribution of investments (at value) in Municipal
Obligations by ratings for the fiscal year ended December 31, 1996, computed on
a monthly basis, for the Tennessee Tax Exempt Bond Portfolio was as follows:
Moody's Standard
Investors Fitch Investors & Poor's
Service, Inc. Service, L.P. Ratings Group Percentage
("MOODY'S") ("FITCH") ("S&P") OF VALUE
Aaa AAA AAA 58.73%
Aa AA AA 41.27%
----
100%
MANAGEMENT POLICIES
OPTIONS TRANSACTIONS. (Capital Growth Portfolio and Dividend Growth
Portfolio) Each of the Capital Growth Portfolio and Dividend Growth Portfolio
may engage in options transactions, such as purchasing or writing covered call
or put options. The principal reason for the Portfolio writing covered call
options is to realize, through the receipt of premiums, a greater return than
would be realized on its portfolio securities alone. In return for a premium,
the writer of a covered call option forfeits the right to any appreciation in
the value of the underlying security above the strike price for the life of the
option (or until a closing purchase transaction can be effected). Nevertheless,
the call writer retains the risk of a decline in the price of the underlying
security. Similarly, the principal reason for writing covered put options is to
realize income in the form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that the Portfolio may receive may be adversely affected as new
or existing institutions, including other investment companies, engage in or
increase their option- writing activities.
Options written ordinarily will have expiration dates between one and
nine months from the date written. The exercise price of the options may be
below, equal to or above the market values of the underlying securities at the
time the options are written. In the case of call options, these exercise prices
are referred to as "in-the-money," "at-the-money" and "out-of-the- money,"
respectively. The Portfolio may write (a) in-the-money call options when the
Adviser expects that the price of the underlying security will remain stable or
decline moderately during the option period, (b) at-the-money call options when
the Adviser expects that the price of the underlying security will remain stable
or advance moderately during the option period and (c) out-of-the-money call
options when the Adviser expects that the premiums received from writing the
call option plus the appreciation in market price of the underlying security up
to the exercise price will be greater than the appreciation in the price of the
underlying security alone. In these circumstances, if the market price of the
underlying security declines and the security is sold at this lower price, the
amount of any realized loss will be offset wholly or in part by the premium
received. Out-of-the- money, at-the-money and in-the-money put options (the
reverse of call options as to the relation of exercise price to market price)
may be utilized in the same market environments that such call options are used
in equivalent transactions.
So long as the Portfolio's obligation as the writer of an option
continues, it may be assigned an exercise notice by the broker-dealer through
which the option was sold, requiring it to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying security against payment
of the exercise price. This obligation terminates when the option expires or the
Portfolio effects a closing purchase transaction. The Portfolio can no longer
effect a closing purchase transaction with respect to an option once it has been
assigned an exercise notice.
While it may choose to do otherwise, the Portfolio generally will
purchase or write only those options for which the Adviser believes there is an
active secondary market so as to facilitate closing transactions. There is no
assurance that sufficient trading interest to create a liquid secondary market
on a securities exchange will exist for any particular option or at any
particular time, and for some options no such secondary market may exist. A
liquid secondary market in an option may cease to exist for a variety of
reasons. In the past, for example, higher than anticipated trading activity or
order flow, or other unforeseen events, at times have rendered certain clearing
facilities inadequate and resulted in the institution of special procedures,
such as trading rotations, restrictions on certain types of orders or trading
halts or suspensions in one or more options. There can be no assurance that
similar events, or events that otherwise may interfere with the timely execution
of customers' orders, will not recur. In such event, it might not be possible to
effect closing transactions in particular options. If, as a covered call option
writer, the Portfolio is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise or it
otherwise covers its position.
The Portfolio intends to treat options in respect of specific
securities that are not traded on a national securities exchange and the
securities underlying covered call options written by the Portfolio as illiquid
securities.
Each of these Portfolios will purchase options only to the extent
permitted by the policies of state securities authorities in states where shares
of the Portfolio are qualified for offer and sale.
STOCK INDEX OPTIONS. (Capital Growth Portfolio and Dividend Growth
Portfolio) Each of the Capital Growth Portfolio and Dividend Growth Portfolio
may purchase and write put and call options on stock indexes to the extent of
15% of the value of its net assets. Options on stock indexes are similar to
options on stock except that (a) the expiration cycles of stock index options
are monthly, while those of stock options are currently quarterly, and (b) the
delivery requirements are different. Instead of giving the right to take or make
delivery of a stock at a specified price, an option on a stock index gives the
holder the right to receive a cash "exercise settlement amount" equal to (i) the
amount, if any, by which the fixed exercise price of the option exceeds (in the
case of a put) or is less than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied by (ii) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
times a specified multiple. The writer of the option is obligated, in return for
the premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. (Capital Growth
Portfolio, Dividend Growth Portfolio, Tennessee Tax Exempt Bond Portfolio and
Limited Duration Tennessee Tax Free Portfolio) Upon exercise of an option, the
writer of the option delivers to the holder of the option the futures position
and the accumulated balance in the writer's futures margin account, which
represents the amount by which the market price of the futures contract exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. The potential loss related to the
purchase of options on futures contracts is limited to the premium paid for the
option (plus transaction costs). Because the value of the option is fixed at the
time of sale, there are no daily cash payments to reflect changes in the value
of the underlying contract; however, the value of the option does change daily
and that change would be reflected in the net asset value of the Portfolio.
FUTURE DEVELOPMENTS. Each Portfolio may take advantage of
opportunities in the area of options and futures contracts and options on
futures contracts and any other derivative investments which are not presently
contemplated for use by such Portfolio or which are not currently available but
which may be developed, to the extent such opportunities are both consistent
with its investment objective and legally permissible for the Portfolio. Before
entering into such transactions or making any such investment, the Portfolio
will provide appropriate disclosure in its prospectus.
LENDING PORTFOLIO SECURITIES. To a limited extent, each Portfolio may
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value of
the securities loaned. By lending its portfolio securities, a Portfolio can
increase its income through the investment of the cash collateral. For purposes
of this policy, each Portfolio considers collateral consisting of U.S.
Government securities to be the equivalent of cash. From time to time, a
Portfolio may return to the borrower or a third party which is unaffiliated with
the Fund, and which is acting as a "placing broker," a part of the interest
earned from the investment of collateral received for securities loaned.
The Securities and Exchange Commission currently requires that the
following conditions must be met whenever portfolio securities are loaned: (1)
the Portfolio must receive at least 100% cash collateral from the borrower; (2)
the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Portfolio must be
able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions payable on the loaned securities, and any increase in market
value; (5) the Portfolio may pay only reasonable custodian fees in connection
with the loan; and (6) while voting rights on the loaned securities may pass to
the borrower, the Fund's Board of Directors must terminate the loan and regain
the right to vote the securities if a material event adversely affecting the
investment occurs. These conditions may be subject to future modification.
INVESTMENT CONSIDERATIONS AND RISK FACTORS
INVESTING IN TENNESSEE MUNICIPAL OBLIGATIONS. (Tennessee Tax Exempt
Bond Portfolio and Limited Duration Tennessee Tax Free Portfolio) Investors in
the Tennessee Tax Exempt Bond Portfolio and Limited Duration Tennessee Tax Free
Portfolio should consider carefully the special risks inherent in such
Portfolios' investment in Tennessee Municipal Obligations. These risks result
from the financial condition of the State of Tennessee. The following
information constitutes only a brief summary, does not purport to be a complete
description, and is based on information drawn from official statements relating
to securities offerings of the State of Tennessee (the "State") and various
local agencies, available as of the date of the Statement of Additional
Information. While the Fund has not independently verified such information, it
has no reason to believe that such information is not correct in all material
respects.
In 1978, the voters of the State of Tennessee approved an amendment to
the State Constitution requiring that (1) the total expenditures of the State
for any fiscal year shall not exceed the State's revenues and reserves,
including the proceeds of debt obligations issued to finance capital
expenditures and (2) in no year shall the rate of growth of appropriations from
State tax revenues exceed the estimated rate of growth of the State's economy.
In the past the Governor and the General Assembly have had to restrict
expenditures to comply with the State Constitution.
The Constitution of the State of Tennessee requires a balanced budget.
As required by law, the legislature enacted a balanced budget for fiscal year
1994-95. Beginning January 1, 1994, the State of Tennessee received a waiver
from the Federal government to replace Medicaid with the new program, TennCare.
TennCare was implemented to help control the increasing cost of health care and
to provide insurance coverage not only to previous Medicaid eligible individuals
but also to uninsured Tennesseans. Due principally to inaccurate funding
assumptions with respect to TennCare program, the fiscal ended June 30, 1995 had
an estimated budgetary shortfall of $126 million.
Despite the budgetary concerns caused by the costs associated with
implementing TennCare, the economic outlook for Tennessee remains favorable. The
State's economic diversity has improved substantially over the last eleven
years. Investments announced in new and expanding business exceeded $1 billion
in each of those years and exceeded $2 billion in the last two years. The $3.2
billion in announced capital investments in 1989 was the single largest year and
exceeded the $2.78 billion in 1985 when Saturn Corporation chose Tennessee for
its plant site. This growth created 23,800 new jobs in Tennessee for the year
ended June 1994.
The Tennessee General Assembly enacted a balanced budget for fiscal
year 1994-95. The budget included a two percent salary increase for State
employees, public higher education employees and teachers in the public school
system effective on July 1, 1994, and another two percent salary increase
effective on October 1, 1994. The revenue estimates were officially revised at
March 1 when the budget for the fiscal year 1995-96 was presented to the General
Assembly.
Actual revenue collections for fiscal year 1994-95 through January
1995 reflected increases of 9.68% for the sales tax and 17.45% for the combined
excise tax and franchise tax. Total growth in collections, excluding the health
services tax, is 9.07%. Expenditures for TennCare (a recently implemented
managed care program for Tennessee's poor and uninsured, under a Medicaid
waiver), the housing of state prisoners, institutional operating costs in
prisons, the children's plan and some other services were in excess of the
original budgeted amounts for fiscal year 1994-95. Supplemental appropriations
were accommodated within the revised revenue estimates and a proposal to use
one-time reserves. The recommended budget for 1995-96 continues the funding of
improvements in the Basic Education Program for public schools and begins
funding teacher salary equalization. It funds TennCare and the Administration's
proposed crime legislation. The revenue estimates for fiscal year 1995-96
assumed a 6.3% growth in the sales tax, and a 5.0% growth in the excise and
franchise taxes. The assumed growth in all collections by the Department of
Revenue is 5.08%. The Revenue Fluctuation Reserve was reduced to $101.4 million
at June 30, 1994 due to accrued liabilities in the children's plan and other
programs. The new budget maintains the reserve at $101.4 million for fiscal
years 1994-95 and 1995-96.
On March 22, 1993, the Tennessee Supreme Court affirmed a lower court
decision that funding for the pubic school system in Tennessee is
unconstitutional because citizens in more affluent school districts receive
greater educational funding. The case was remanded to the trial court for
further proceedings with respect to the State's providing additional funding to
less affluent school systems. After substantial subsequent litigation, the
Tennessee Supreme Court issued on February 16, 1995, an opinion approving the
State's plan set forth in the Educational Improvement Act of 1992 with the
modification that the plan should also include a provision to equalize teachers'
salaries in the same way that other expenditures were to be equalized under the
program. The result of this decision may be that the State must provide
additional funding to less affluent school systems. Currently, the general
obligation ratings for the State are Aaa by Moody's, AA+ by S&P and AAA by
Fitch.
LOWER RATED SECURITIES. (Capital Growth Portfolio and Dividend Growth
Portfolio) Each of the Capital Growth Portfolio and Dividend Growth Portfolio is
permitted to invest in securities rated not lower than Ba by Moody's or BB by
S&P, Fitch or Duff & Phelps Credit Rating Co. ("Duff"). Such securities, though
higher yielding, are characterized by risk. See "Description of the
Portfolios--Investment Considerations and Risk Factors--Lower Rated Securities"
in the Prospectus for a discussion of certain risks and the "Appendix" for a
general description of Moody's, S&P, Fitch and Duff ratings. Although ratings
may be useful in evaluating the safety of interest and principal payments, they
do not evaluate the market value risk of these securities. The Portfolio will
rely on the Adviser's judgment, analysis and experience in evaluating the
creditworthiness of an issuer.
Investors should be aware that the market values of many of these
securities tend to be more sensitive to economic conditions than are higher
rated securities and will fluctuate over time. These securities are considered
by S&P, Moody's, Fitch and Duff generally to be predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation and generally will involve more credit risk than
securities in the higher rating categories.
Companies that issue certain of these securities often are highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such
issuers generally is greater than is the case with the higher rated securities.
For example, during an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of these securities may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be affected adversely by
specific corporate developments, forecasts, or the unavailability of additional
financing. The risk of loss because of default by the issuer is significantly
greater for the holders of these securities because such securities generally
are unsecured and often are subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Portfolio anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. To the extent a
secondary trading market for these securities does exist, it generally is not as
liquid as the secondary market for higher rated securities. The lack of a liquid
secondary market may have an adverse impact on market price and yield and the
Portfolio's ability to dispose of particular issues when necessary to meet its
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Portfolio to obtain accurate market quotations for purposes of valuing its
securities and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable, objective data may be
available.
These securities may be particularly susceptible to economic
downturns. It is likely that an economic recession could disrupt severely the
market for such securities and may have an adverse impact on the value of such
securities. In addition, it is likely that any such economic downturn could
adversely affect the ability of the issuers of such securities to repay
principal and pay interest thereon and increase the incidence of default for
such securities.
Each of these Portfolios may acquire these securities during an
initial offering. Such securities may involve special risks because they are new
issues. The Portfolio does not have any arrangement with any persons concerning
the acquisition of such securities, and the Adviser will review carefully the
credit and other characteristics pertinent to such new issues.
The credit risk factors pertaining to lower rated securities also
apply to lower rated zero coupon securities. Such zero coupon securities carry
an additional risk in that, unlike securities which pay interest throughout the
period to maturity, the Portfolio will realize no cash until the cash payment
date unless a portion of such securities are sold and, if the issuer defaults,
the Portfolio may obtain no return at all on its investment. See "Dividends,
Distributions and Taxes."
INVESTMENT RESTRICTIONS
Each Portfolio has adopted investment restrictions numbered 1 through
8 as fundamental policies. These restrictions cannot be changed, as to a
Portfolio, without approval by the holders of a majority (as defined in the 1940
Act) of such Portfolio's outstanding voting securities. Investment restrictions
numbered 9 through 14 are not fundamental policies and may be changed by vote of
a majority of the Fund's Directors at any time. No Portfolio may:
1. Invest in commodities, except that each Portfolio may purchase and
sell options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
2. Purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs, but each Portfolio may purchase
and sell securities that are secured by real estate or issued by companies that
invest or deal in real estate.
3. Borrow money, except that the Portfolio may borrow up to 33-1/3% of
the value of its total assets. For purposes of this investment restriction, a
Portfolio's entry into options, forward contracts, futures contracts, including
those relating to indexes, and options on futures contracts or indexes shall not
constitute borrowing.
4. Make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each Portfolio
may lend its portfolio securities in an amount not to exceed 33-1/3% of the
value of its total assets. Any loans of portfolio securities will be made
according to guidelines established by the Securities and Exchange Commission
and the Fund's Board of Directors.
5. Act as an underwriter of securities of other issuers, except to the
extent the Portfolio may be deemed an underwriter under the Securities Act of
1933, as amended, by virtue of disposing of portfolio securities, and except
that the Tennessee Tax Exempt Bond Portfolio, Limited Duration Tennessee Tax
Free Portfolio, Limited Duration Income Portfolio and Core Income Portfolio each
may bid separately or as part of a group for the purchase of Municipal
Obligations directly from an issuer for its own portfolio to take advantage of
the lower purchase price available.
6. Invest more than 25% of its assets in the securities of issuers in
any single industry, provided that, in the case of the Tennessee Tax Exempt Bond
Portfolio and Limited Duration Tennessee Tax Free Portfolio, there shall be no
such limitation on the purchase of tax exempt municipal obligations and, in the
case of each Portfolio, there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
7. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act), except to the extent the activities permitted in Investment
Restriction Nos. 1, 3, 10 and 11 may be deemed to give rise to a senior
security.
8. Purchase securities on margin, but each Portfolio may make margin
deposits in connection with transactions in options, forward contracts, futures
contracts, including those relating to indexes, and options on futures contracts
or indexes.
9. Invest in the securities of a company for the purpose of exercising
management or control, but each Portfolio will vote the securities it owns as a
shareholder in accordance with its views.
10. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with respect
to options, forward contracts, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
11. Purchase, sell or write puts, calls or combinations thereof,
except as may be described in the Portfolios' Prospectus and this Statement of
Additional Information.
12. Purchase securities of any company having less than three years'
continuous operations (including operations of any predecessors) if such
purchase would cause the value of the Portfolio's investments in all such
companies to exceed 5% of the value of its total assets.
13. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 10% of the value of the Portfolio's net assets would be
so invested.
14. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
For purposes of Investment Restriction No. 6, industrial development
bonds, where the payment of principal and interest is the ultimate
responsibility of companies within the same industry, are grouped together as an
"industry."
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction.
The Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of shares of a Portfolio in certain
states. Should the Fund determine that a commitment is no longer in the best
interest of the Portfolio, and its shareholders, the Fund reserves the right to
revoke the commitment by terminating the sale of such Portfolio's shares in the
state involved.
MANAGEMENT OF THE FUND
Directors and officers of the Fund, together with information as to
their principal business occupations during at least the last five years, are
shown below. Each Director who is an "interested person" of the Fund, as defined
in the 1940 Act, is indicated by an asterisk.
DIRECTORS OF THE FUND
*WILLIAM B. BLUNDIN, PRESIDENT AND CHAIRMAN OF THE BOARD OF
DIRECTORS. An employee of BISYS Fund Services, Inc.,
BISYS' general partner. Mr. Blundin also
is an officer of other investment companies administered by
BISYS or its affiliates. He is 58 years old and
his address is 125 West 55th Street, New York, New York 10019.
NORMA A. COLDWELL, DIRECTOR. International Economist and
Consultant; Executive Vice President of Coldwell
Financial Consultants; Trustee and Treasurer of
Meridian House International (International Education
and Cultural Group); Member of the Board of Advisors
of Meridian International Center and Emerging Capital
Markets, S.A. (Montevideo, Uruguay); formerly, Chief
International Economist of Riggs National Bank, Washington,
D.C. She is 70 years old and her address is 3330 Southwestern
Boulevard, Dallas, Texas 75225.
RICHARD H. FRANCIS, DIRECTOR. Former Executive Vice President
and Chief Financial Officer of Pan American World
Airways, Inc. (currently, debtor-in-possession under
the U.S. Bankruptcy Code), March 1988 to October 1991;
Senior Vice President and Chief Financial Officer of
American Standard Inc., 1960 to March 1988. Mr.
Francis is a director of Allendale Mutual Insurance
and The Indonesia Fund, Inc. He is 63 years old and
his address is 40 Grosvenor Road, Short Hills, New
Jersey 07078.
WILLIAM W. McINNES, DIRECTOR. Private investor. From July 1978
to February 1993, he was Vice-President--Finance and
Treasurer of Hospital Corp. of America. He is also a
director of Gulf South Medical Supply and Diversified
Trust Co. He is 47 years old and his address is 116
30th Avenue South, Nashville, Tennessee 37212.
ROBERT A. ROBINSON, DIRECTOR. Private investor. Since 1991,
President Emeritus, and from 1968 to 1991, President
of The Church Pension Group, NYC. From 1956 to
1966, Senior Vice President of Colonial Bank &
Trust Co. He is also a director of Mariner
Institutional Funds, Inc., Mariner Tax-Free
Institutional Funds, Inc., UST Master Funds, UST
Master Tax Exempt Funds, H.B. and F.H. Bugher
Foundation, Morehouse-Barlow Co. Publishers, The
Canterbury Cathedral Trust in America, The Living
Church Foundation and Hoosac School. He is 70
years old and his address is 2 Hathaway Common, New
Canaan, Connecticut 06840.
OFFICERS OF THE FUND
JEFFREY C. CUSICK, VICE PRESIDENT AND ASSISTANT SECRETARY. An
employee of BISYS Fund Services, Inc. since
July 1995, and an officer of other investment companies
administered by BISYS or its affiliates. From September
1993 to July 1995, he was Assistant Vice President and,
from 1989 to September 1993, he was Manager--Client
Services, of Federated Administrative Services. He is 37
years old and his address is 3435 Stelzer Road, Columbus,
Ohio 43219.
WILLIAM TOMKO, VICE PRESIDENT. An employee of BISYS Fund
Services, Inc. and an officer of other investment
companies administered by BISYS or its
affiliates. He is 37 years old and his address is
3435 Stelzer Road, Columbus, Ohio 43219.
MARTIN R. DEAN, TREASURER. An employee of BISYS Fund Services,
Inc. since May 1994, and an officer of other
investment companies administered by
BISYS or its affiliates. Prior thereto, he
was a Senior Manager of KPMG Peat Marwick LLP. He
is 32 years old and his address is 3435 Stelzer
Road, Columbus, Ohio 43219.
GEORGE O. MARTINEZ, SECRETARY. Senior Vice President
and Director of Legal and Compliance Services with
BISYS Fund Services, Inc. since April 1995, and an officer of
other investment companies administered by BISYS
or its affiliates. Prior thereto, he was Vice President and
Associate General Counsel with Alliance Capital Management,
L.P. He is 36 years old and his address is 3435 Stelzer Road,
Columbus, Ohio 43219.
ROBERT L. TUCH, ASSISTANT SECRETARY. An employee of BISYS Fund
Services, Inc. since June 1991, and an officer of
other investment companies administered by BISYS
or its affiliates. From July 1990 to
June 1991, he was Vice President and Associate
General Counsel with National Securities Research
Corp. Prior thereto, he was an Attorney with the
Securities and Exchange Commission. He is 44 years
old and his address is 3435 Stelzer Road, Columbus,
Ohio 43219.
ALAINA METZ, ASSISTANT SECRETARY. An employee of BISYS Fund
Services, Inc. and an officer of other investment
companies administered by BISYS or its
affiliates. She is 28 years old and her address is
3435 Stelzer Road, Columbus, Ohio 43219.
For so long as the Distribution Plan described in the section
captioned "Management Arrangements--Distribution Plan" remains in effect, the
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the 1940 Act, will be selected and nominated by the Directors who are not
"interested persons" of the Fund.
Directors and officers of the Fund, as a group, owned less than 1% of
any Portfolio's shares of common stock outstanding on February 21, 1997.
The Fund does not pay any remuneration to its officers and Directors
other than fees and expenses to those Directors who are not directors, officers
or employees of the Adviser or Administrator or any of their affiliates. The
aggregate amount of compensation paid to each such Director by the Fund for year
ended December 31, 1996 was as follows:
<PAGE>
Total Compensation
Aggregate From Fund
Name of Compensation from and Fund Complex
Board Fund* Paid
Member to Board Member
Norma A. Coldwell $18,000 $18,000
Richard H. Francis $18,000 $18,000
William W. McInnes $18,000 $18,000
Robert A. Robinson $18,000 $18,000
- -------------
* Amount does not include reimbursed expenses for attending Board
meetings, which amounted to $13,000 for all Directors as a group.
MANAGEMENT ARRANGEMENTS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "MANAGEMENT
OF THE PORTFOLIOS."
INVESTMENT ADVISORY AGREEMENT. The Adviser provides investment
advisory services pursuant to the Investment Advisory Agreement (the
"Agreement") dated February 15, 1994 with the Fund. As to each Portfolio, the
Agreement is subject to annual approval by (i) the Fund's Board of Directors or
(ii) vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of such Portfolio, provided that in either event the continuance also
is approved by a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund or the Adviser, by vote cast in person at a
meeting called for the purpose of voting on such approval. The Agreement was
last approved by the Fund's Board of Directors, including a majority of the
Directors who are not "interested persons" of any party to the Agreement, at a
meeting held on February 11, 1997. As to each Portfolio, the Agreement is
terminable without penalty, on 60 days' notice, by the Fund's Board of Directors
or by vote of the holders of a majority of such Portfolio's shares, or, on not
less than 90 days' notice, by the Adviser. The Agreement will terminate
automatically, as to the relevant Portfolio, in the event of its assignment (as
defined in the 1940 Act).
As compensation for the Adviser's services, the Fund has agreed to pay the
Adviser a monthly investment advisory fee at the annual rate of .50 of 1% of the
value of Limited Duration Income Portfolio's, Core Income Portfolio's, Tennessee
Tax Exempt Bond Portfolio's, Limited Duration Tennessee Tax Free Portfolio's and
Limited Duration U.S. Government Portfolio's average daily net assets and .65%
of 1% of the value of the Capital Growth Portfolio's and Dividend Growth
Portfolio's average daily net assets. For the period March 28, 1994
(commencement of operations) through December 31, 1994 and for the fiscal years
ended December 31, 1995 and 1996, $193,049, $491,561 and $519,442, respectively,
was payable by the Limited Duration Income Portfolio, and $326,848, $463,502 and
$456,926, respectively, was payable by the Tennessee Tax Exempt Bond Portfolio
pursuant to the Agreement. The Adviser waived $49,660 and $55,056 of such fees
payable for the period ended December 31, 1994 by the Limited Duration Income
Portfolio and Tennessee Tax Exempt Bond Portfolio, respectively, resulting in
net fees being paid to the Adviser of $143,389 by the Limited Duration Income
Portfolio and $271,792 by the Tennessee Tax Exempt Bond Portfolio during the
fiscal period ended December 31, 1994. For the period April 1, 1996
(commencement of operations) through December 31, 1996, $214,961 was payable by
the Capital Growth Portfolio and $136,354 was payable by the Core Income
Portfolio pursuant to the Agreement.
ADMINISTRATION AGREEMENT. BISYS provides certain administrative services
pursuant to the Administration Agreement (the "Administration Agreement") dated
April 25, 1996 with the Fund. As to each Portfolio, the Administration Agreement
will continue until April 25, 2001 and thereafter is subject to annual approval
by (i) the Fund's Board of Directors or (ii) vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of such Portfolio, provided
that in either event the continuance also is approved by a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of the
Fund or BISYS, by vote cast in person at a meeting called for the purpose of
voting such approval. The Administration Agreement was last approved by the
Fund's Board of Directors, including a majority of the Directors who are not
"interested persons" of any party to the Administration Agreement, at a meeting
held on February 11, 1997. As to each Portfolio, the Administration Agreement is
terminable without penalty, at any time if for cause, by the Fund's Board of
Directors or by vote of the holders of a majority of such Portfolio's
outstanding voting securities, or, on not less than 90 days' notice, by BISYS.
The Administration Agreement will terminate automatically, as to the relevant
Portfolio, in the event of its assignment (as defined in the 1940 Act).
As compensation for BISYS' services as administrator, the Fund has agreed
to pay BISYS a monthly administration fee at the annual rate of .15 of 1% of the
value of each Portfolio's average daily net assets. For the period March 28,
1994 (commencement of operations) through December 31, 1994 and for the fiscal
years ended December 31, 1995 and 1996, $57,915, $147,468 and $155,644,
respectively, was payable to BISYS or the Portfolios' predecessor administrator
during such periods by the Limited Duration Income Portfolio and $98,054,
$139,051 and $137,079, respectively, was payable to BISYS or the Portfolios'
predecessor administrator by the Tennessee Tax Exempt Bond Portfolio pursuant to
the Administration Agreement. The Portfolios' administrator waived $13,997 and
$16,134 of such fees payable for the period ended December 31, 1994 by the
Limited Duration Income Portfolio and Tennessee Tax Exempt Bond Portfolio,
respectively, resulting in net fees being paid of $43,918 by the Limited
Duration Income Portfolio and $81,920 by the Tennessee Tax Exempt Bond Portfolio
during the fiscal year ended December 31, 1994. For the period April 1, 1996
(commencement of operations) through December 31, 1996, $49,607 was payable by
the Capital Growth Portfolio and $40,906 was payable by the Core Income
Portfolio pursuant to the Administration Agreement.
DISTRIBUTION AGREEMENT. BISYS acts as the exclusive distributor of each
Portfolio's shares on a best efforts basis pursuant to a Distribution Agreement
(the "Distribution Agreement") dated February 11, 1997, with the Fund. Shares
are sold on a continuous basis by BISYS as agent, although BISYS is not obliged
to sell any particular amount of shares. No compensation is payable by the Fund
to BISYS for its distribution services.
For the period March 28, 1994 (commencement of operations) through December
31, 1994 and for the fiscal years ended December 31, 1995 and 1996, BISYS did
not retain any amounts from sales loads on shares of any Portfolio.
DISTRIBUTION PLAN. (Applicable only with respect to the Investor Shares)
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange Commission under
the 1940 Act provides, among other things, that an investment company may bear
expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Fund's Directors have adopted such a plan (the
"Distribution Plan") with respect to the Investor Shares pursuant to which each
Portfolio pays BISYS for advertising, marketing and distributing Investor Shares
at an annual rate of .25% of the value of such shares. The Fund's Directors
believe that there is a reasonable likelihood that the Distribution Plan will
benefit each Portfolio and the holders of its Investor Shares. In some states,
certain institutions effecting transactions in Investor Shares may be required
to register as dealers pursuant to state law.
A quarterly report of the amounts expended under the Distribution Plan, and
the purposes for which such expenditures were incurred, must be made to the
Directors for their review. In addition, the Distribution Plan provides that it
may not be amended to increase materially the costs which holders of the
Investor Shares may bear for distribution pursuant to the Distribution Plan
without approval of such shareholders and that other material amendments of the
Distribution Plan must be approved by the Board of Directors, and by the
Directors who are neither "interested persons" (as defined in the 1940 Act) of
the Fund nor have any direct or indirect financial interest in the operation of
the Distribution Plan or in the related Distribution Plan agreements, by vote
cast in person at a meeting called for the purpose of considering such
amendments. The Distribution Plan and related agreements are subject to annual
approval by such vote of the Directors cast in person at a meeting called for
the purpose of voting on the Distribution Plan. The Distribution Plan was last
so approved on February 11, 1997. The Distribution Plan is terminable at any
time by vote of a majority of the Directors who are not "interested persons" and
who have no direct or indirect financial interest in the operation of the
Distribution Plan or in the Distribution Plan agreements or by vote of the
holders of a majority of the Investor Shares. A Distribution Plan agreement is
terminable without penalty, at any time, by such vote of the Directors, upon not
more than 60 days' written notice to the parties to such agreement or by vote of
the holders of a majority of the Portfolio's Investor Shares. A Distribution
Plan agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
For the fiscal year ended December 31, 1996, BISYS waived receipt of
$260,479 payable by the Limited Duration Income Portfolio, $219,645 payable by
the Tennessee Tax Exempt Bond Portfolio, $78,236 payable by the Capital Growth
Portfolio, and $64,587 payable by the Core Income Portfolio with respect to
Investor Shares pursuant to the Distribution Plan.
EXPENSES. All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by others. The expenses
borne by the Fund include: organizational costs, taxes, interest, brokerage fees
and commissions, if any, fees of Directors who are not officers, directors,
employees or holders of 5% or more of the outstanding voting securities of the
Adviser, BISYS, or any of their affiliates, Securities and Exchange Commission
fees, state Blue Sky qualification fees, advisory and administration fees,
charges of custodians, transfer and dividend disbursing agents' fees, certain
insurance premiums, industry association fees, auditing and legal expenses,
costs of maintaining corporate existence, costs of independent pricing services,
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of calculating the net asset value of
each Portfolio's shares, costs of shareholders' reports and corporate meetings,
costs of preparing and printing certain prospectuses and statements of
additional information, and any extraordinary expenses. Expenses attributable to
a Portfolio are charged against the assets of that Portfolio; other expenses of
the Fund are allocated among the Portfolios on the basis determined by the Board
of Directors, including, but not limited to, proportionately in relation to the
net assets of each Portfolio.
PURCHASE AND REDEMPTION OF SHARES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTIONS IN THE PORTFOLIOS' PROSPECTUS ENTITLED "HOW TO BUY
SHARES" AND "HOW TO REDEEM SHARES."
TERMS OF PURCHASE. The Fund reserves the right to reject any purchase
order and to change the amount of the minimum investment and subsequent
purchases in the Portfolios.
SALES LOADS. (Applicable to Investor Shares Only) The scale of sales
loads applies to purchases of Investor Shares made by any "purchaser," which
term includes an individual and/or spouse purchasing securities for his, her or
their own account or for the account of any minor children, or a trustee or
other fiduciary purchasing securities for a single trust estate or a single
fiduciary account trust estate or a single fiduciary account (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Internal Revenue Code of 1986, as
amended (the "Code")) although more than one beneficiary is involved; or a group
of accounts established by or on behalf of the employees of an employer or
affiliated employers pursuant to an employee benefit plan or other program
(including accounts established pursuant to Sections 403(b), 408(k) and 457 of
the Code); or an organized group which has been in existence for more than six
months, provided that it is not organized for the purpose of buying redeemable
securities of a registered investment company and provided that the purchases
are made through a central administration or a single dealer, or by other means
which result in economy of sales effort or expense.
Set forth below are examples of the method of computing the offering price
of the Investor Shares. The examples assume a purchase of Investor Shares of the
indicated Portfolio aggregating less than $100,000 subject to the current
schedule of sales charges set forth in the Portfolios' Prospectus at a price
based upon the net asset value of the Portfolio's Investor Shares on December
31, 1996:
LIMITED DURATION INCOME PORTFOLIO:
Net Asset Value per Share $ 9.96
Per Share Sales Charge - 3.00%
of offering price (3.09% of
net asset value per share) $ 0.31
-------
Per Share Offering Price to
the Public $ 10.27
=======
TENNESSEE TAX EXEMPT BOND PORTFOLIO:
Net Asset Value per Share $ 9.90
Per Share Sales Charge - 3.00%
of offering price (3.09% of
net asset value per share) $ 0.31
-------
Per Share Offering Price to
the Public $ 10.21
=======
CAPITAL GROWTH PORTFOLIO:
Net Asset Value per Share $ 11.32
Per Share Sales Charge - 3.00%
of offering price (3.09% of
net asset value per share) $ 0.35
-------
Per Share Offering Price to
the Public $ 11.67
=======
CORE INCOME PORTFOLIO:
Net Asset Value per Share $ 10.00
Per Share Sales Charge - 3.00%
of offering price (3.09% of
net asset value per share) $ 0.31
-------
Per Share Offering Price to
the Public $ 10.31
=======
REOPENING AN ACCOUNT. An investor may reopen an account with a minimum
investment of $100 without filing a new Account Application during the calendar
year the account is closed or during the following calendar year, provided the
information on the old Account Application is still applicable.
STOCK CERTIFICATES; SIGNATURES. Any certificate representing Portfolio
shares to be redeemed must be submitted with the redemption request. Written
redemption requests must be signed by each shareholder, including each holder of
a joint account, and each signature must be guaranteed. Signatures on endorsed
certificates submitted for redemption also must be guaranteed. The Fund's
Transfer Agent has adopted standards and procedures pursuant to which
signature-guarantees in proper form generally will be accepted from domestic
banks, brokers, dealers, credit unions, national securities exchanges,
registered securities associations, clearing agencies and savings associations,
as well as from participants in the New York Stock Exchange Medallion Signature
Program, the Securities Transfer Agents Medallion Program ("STAMP") and the
Stock Exchanges Medallion Program. Signature-guaranties may not be provided by
notaries public. If the signature is guaranteed by a broker or dealer, such
broker or dealer must be a member of a clearing corporation and maintain net
capital of at least $100,000. Guarantees must be signed by an authorized
signatory of the guarantor and "Signature-Guaranteed" must appear with the
signature.
REDEMPTION COMMITMENT. Each Portfolio has committed itself to pay in
cash all redemption requests by any shareholder of record, limited in amount
during any 90-day period to the lesser of $250,000 or 1% of the value of such
Portfolio's net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission. In the case of requests for redemption in excess of such amount, the
Board of Directors reserves the right to make payments in whole or in part in
securities or other assets in case of an emergency or any time a cash
distribution would impair the liquidity of the Portfolio to the detriment of the
existing shareholders. In this event, the securities would be valued in the same
manner as the Portfolio is valued. If the recipient sold such securities,
brokerage charges would be incurred.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or
the date of payment postponed (a) during any period when the New York Stock
Exchange is closed (other than customary weekend and holiday closing), (b) when
trading in the markets the Portfolio normally utilizes is restricted, or when an
emergency exists as determined by the Securities and Exchange Commission so that
disposal of the Portfolio's investments or determination of its net asset value
is not reasonably practicable, or (c) for such other periods as the Securities
and Exchange Commission by order may permit to protect the Portfolio's
shareholders.
DETERMINATION OF NET ASSET VALUE
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "HOW TO BUY
SHARES."
GENERAL. Expenses and fees, including the advisory fee and fees paid
by Investor Shares pursuant to the Distribution Plan, are accrued daily and
taken into account for the purpose of determining the net asset value of
Portfolio shares.
CAPITAL GROWTH PORTFOLIO AND DIVIDEND GROWTH Portfolio. Each of these
Portfolio's securities, including covered call options written by the Portfolio,
are valued at the last sale price on the securities exchange or national
securities market on which such securities primarily are traded. Securities not
listed on an exchange or national securities market, or securities in which
there were no transactions, are valued at the average of the most recent bid and
asked prices, except in the case of open short positions where the asked price
is used for valuation purposes. Bid price is used when no asked price is
available. Any assets or liabilities initially expressed in terms of foreign
currency will be translated into dollars at the midpoint of the New York
interbank market spot exchange rate as quoted on the day of such translation by
the Federal Reserve Bank of New York or if no such rate is quoted on such date,
at the exchange rate previously quoted by the Federal Reserve Bank of New York
or at such other quoted market exchange rate as may be determined to be
appropriate by the Adviser. Debt securities maturing in 60 days or less
are carried at amortized cost, which approximates value, except
where to do so would not reflect accurately their fair value, in which case such
securities would be valued at their fair value as determined under the
supervision of the Board of Directors. Any securities or other assets for which
recent market quotations are not readily available are valued at fair value as
determined in good faith by the Fund's Board of Directors.
Restricted securities, as well as securities or other assets for which
market quotations are not readily available, or are not valued by a pricing
service approved by the Board of Directors, are valued at fair value as
determined in good faith by the Board of Directors. The Board of Directors will
review the method of valuation on a current basis. In making their good faith
valuation of restricted securities, the Directors generally will take the
following factors into consideration: restricted securities which are, or are
convertible into, securities of the same class of securities for which a public
market exists usually will be valued at market value less the same percentage
discount at which purchased. This discount will be revised periodically by the
Board of Directors if the Directors believe that it no longer reflects the value
of the restricted securities. Restricted securities not of the same class as
securities for which a public market exists usually will be valued initially at
cost. Any subsequent adjustment from cost will be based upon considerations
deemed relevant by the Board of Directors.
CORE INCOME PORTFOLIO, LIMITED DURATION INCOME PORTFOLIO AND LIMITED
DURATION U.S. GOVERNMENT PORTFOLIO. Each of these Portfolio's investments are
valued each business day using available market quotations or at fair value as
determined by one or more independent pricing services (collectively, the
"Service") approved by the Board of Directors. The Service may use available
market quotations, employ electronic data processing techniques and/or a matrix
system to determine valuations. The Service's procedures are reviewed by the
Fund's officers under the general supervision of the Board of Directors.
TENNESSEE TAX EXEMPT BOND PORTFOLIO AND LIMITED DURATION TENNESSEE TAX
FREE PORTFOLIO. Each of these Portfolio's investments are valued by the Service.
When, in the judgment of the Service, quoted bid prices for investments are
readily available and are representative of the bid side of the market, these
investments are valued at the mean between the quoted bid prices (as obtained by
the Service from dealers in such securities) and asked prices (as calculated by
the Service based upon its evaluation of the market for such securities). Other
investments (which constitute a majority of the Portfolio's securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of: yields or prices of municipal bonds of comparable
quality, coupon, maturity and type; indications as to values from dealers; and
general market conditions. The Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. The Service's
procedures are reviewed by the Fund's officers under the general supervision of
the Board of Directors.
PERFORMANCE INFORMATION
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "PERFORMANCE
INFORMATION."
The Limited Duration Income Portfolio's yield, with respect to Investor
Shares, for the 30-day period ended December 31, 1996 was 5.32%. The Tennessee
Tax Exempt Bond Portfolio's yield, with respect to Investor Shares, for the
30-day period ended December 31, 1996 was 4.11%. The Core Income Portfolio's
yield, with respect to Investor Shares, for the 30-day period ended December 31,
1996 was 5.14%. Each Portfolio's yield reflects the absorption of certain
expenses and/or waiver of fees, without which the yield for the 30-day period
ended December 31, 1996 would have been 4.78% for the Limited Duration Income
Portfolio, 3.84% for the Tennessee Tax Exempt Bond Portfolio, and 4.87% for the
Core Income Portfolio. Current yield is computed pursuant to a formula which
operates as follows: The amount of the Portfolio's expenses accrued for the
30-day period (net of reimbursements) is subtracted from the amount of the
dividends and interest earned by the Portfolio during the period. That result is
then divided by the product of: (a) the average daily number of shares
outstanding during the period that were entitled to receive dividends, and (b)
the maximum offering price per share on the last day of the period less any
undistributed earned income per share reasonably expected to be declared as a
dividend shortly thereafter. The quotient is then added to 1, and that sum is
raised to the 6th power, after which 1 is subtracted. The current yield is then
arrived at by multiplying the result by 2.
Based upon a combined 1996 Federal and Tennessee income tax rate of
41.865%, the Tennessee Tax Exempt Bond Portfolio's tax equivalent yield for the
30-day period ended December 31, 1996 was 6.80%. Absent the expense absorption
and fee waiver then in effect, the Portfolio's tax equivalent yield for such
period would have been 6.52%. Tax equivalent yield is computed by dividing that
portion of the current yield (calculated as described above) which is tax exempt
by 1 minus a stated tax rate and adding the quotient to that portion, if any, of
the yield of the Portfolio that is not tax exempt.
The tax equivalent yield quoted above represents the application of the
highest Federal and State of Tennessee marginal personal income tax rates
presently in effect. For Federal personal income tax purposes, a 39.60% tax rate
has been used. For Tennessee personal income tax purposes, a 6.00% tax rate has
been used. For the fiscal period ended December 31, 1996, 74% of the
Tennessee Tax Exempt Bond Portfolio's assets were invested in Tennessee
Municipal Obligations, which reduced the effect of the State's tax rate to
1.56%. The tax equivalent figure, however, does not include the potential effect
of any local (including, but not limited to, county, district or city) taxes,
including applicable surcharges. In addition, there may be pending legislation
which could affect such stated tax rates or yield. Each investor should consult
its tax adviser, and consider its own factual circumstances and applicable tax
laws, in order to ascertain the relevant tax equivalent yield.
The average annual total return for the one-year period ended December 31,
1996 and for the period from March 28, 1994 (commencement of operations) through
December 31, 1996 for Investor Shares was 1.13% and 4.48%, respectively, for the
Limited Duration Income Portfolio, and -1.70% and 3.02%, respectively, for the
Tennessee Tax Exempt Bond Portfolio. Average annual total return is calculated
by determining the ending redeemable value of an investment purchased with a
hypothetical $1,000 payment made at the beginning of the period (assuming the
reinvestment of dividends and distributions), dividing by the amount of the
initial investment, taking the "n"th root of the quotient (where "n" is the
number of years in the period) and subtracting 1 from the result. A Class's
average annual total return figures calculated in accordance with such formula
assume that in the case of the Investor Class the maximum sales load has been
deducted from the hypothetical initial investment at the time of purchase.
The Limited Duration Income Portfolio's and Tennessee Tax Exempt Bond
Portfolio's total return, with respect to Investor Shares, for the period March
28, 1994 (commencement of operations) through December 31, 1996 was 12.88% and
8.58%, respectively. The Capital Growth Portfolio's and Core Income Portfolio's
total return, with respect to Investor Shares, for the period April 1, 1996
(commencement of operations) through December 31, 1996 was 9.80% and 0.99%,
respectively. Total return is calculated by subtracting the amount of the
maximum offering price per share at the beginning of a stated period from the
net asset value per share at the end of the period (after giving effect to the
reinvestment of dividends and distributions during the period), and dividing the
result by the maximum offering price per share at the beginning of the period.
Total return also may be calculated based on the net asset value per share at
the beginning of the period of Investor Shares. In such cases, the calculation
would not reflect the deduction of the sales load with respect to Investor
Shares, which, if reflected, would reduce the performance quoted. Based on net
asset value per share, the total return for the Limited Duration Income
Portfolio and Tennessee Tax Exempt Bond Portfolio for the period from March 28,
1994 (commencement of operations) through December 31, 1996 was 16.44% and
11.95%, respectively, and for the Capital Growth Portfolio and Core Income
Portfolio for the period from April 1, 1996 (commencement of operations) through
December 31, 1996 was 13.19% and 3.90%, respectively.
The Dividend Growth Portfolio, Limited Duration Tennessee Tax Free
Portfolio and Limited Duration U.S. Government Portfolio had not commenced
operations as of December 31, 1996, and, therefore, no performance data for such
Portfolios is provided.
From time to time, advertising materials for a Portfolio may refer to
or discuss current or past business, political, economic or financial
conditions, such as U.S. monetary or fiscal policies and actual or proposed tax
legislation. In addition, from time to time, advertising materials for a
Portfolio may include information concerning retirement and investing for
retirement, average life expectancy and pension and social security benefits.
DIVIDENDS, DISTRIBUTION AND TAXES
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "DIVIDENDS,
DISTRIBUTIONS AND TAXES."
The Adviser believes that the Capital Growth Portfolio,
Limited Duration Income Portfolio, Core Income Portfolio and Tennessee Tax
Exempt Bond Portfolio have qualified as a "regulated investment company" under
the Code for the fiscal year ended December 31, 1996. It is expected that the
Dividend Growth Portfolio, Limited Duration Tennessee Tax Free Portfolio and
Limited Duration U.S. Government Portfolio will qualify as regulated investment
companies under the Code. Each Portfolio intends to continue to so qualify if
such qualification is in the best interests of its shareholders. To qualify as a
regulated investment company, the Portfolio must pay out to its shareholders at
least 90% of its net income (consisting of net investment income from tax exempt
obligations and net short-term capital gain), must derive less than 30% of its
annual gross income from gain on the sale of securities held for less than three
months, and must meet certain asset diversification and other requirements.
Qualification as a regulated investment company relieves the Portfolio from any
liability for Federal income taxes to the extent its earnings are distributed in
accordance with the applicable provisions of the Code. The term "regulated
investment company" does not imply the supervision of management or investment
practices or policies by any government agency.
Any dividend or distribution paid shortly after an investor's purchase
may have the effect of reducing the aggregate net asset value of his shares
below the cost of his investment. Such a distribution would be a return on
investment in an economic sense although taxable as stated in "Dividends,
Distributions and Taxes" in the Prospectus. In addition, the Code provides that
if a shareholder holds shares for six months or less and has received a capital
gain dividend with respect to such shares, any loss incurred on the sale of such
shares will be treated as a long-term capital loss to the extent of the capital
gain dividend received.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gains and losses. However, a portion of the gain or loss
realized from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial futures and options, and certain
preferred stock) may be treated as ordinary income or loss under Section 988 of
the Code.
Under Section 1256 of the Code, gain or loss realized by the Portfolio
from certain financial futures and options transactions (other than those taxed
under Section 988 of the Code) will be treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. Gain or loss will arise upon the
exercise or lapse of such futures and options as well as from closing
transactions. In addition, any such futures or options remaining unexercised at
the end of the Portfolio's taxable year will be treated as sold for their then
fair market value, resulting in additional gain or loss to the Portfolio
characterized in the manner described above.
Offsetting positions held by a Portfolio involving financial futures
and options may constitute "straddles." Straddles are defined to include
"offsetting positions" in actively traded personal property. The tax treatment
of straddles is governed by Section 1092 of the Code, which, in certain
circumstances, overrides or modifies the provisions of Sections 988 and 1256. If
the Portfolio was treated as entering into straddles by reason of its futures or
options transactions, such straddles could be characterized as "mixed straddles"
if the futures or options transactions comprising such straddles were governed
by Section 1256. The Portfolio may make one or more elections with respect to
"mixed straddles." Depending upon which election is made, if any, the results to
the Portfolio may differ. If no election is made, to the extent the straddle
rules apply to positions established by the Portfolio, losses realized by the
Portfolio will be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle rules, short-term capital loss
on straddle positions may be recharacterized as long-term capital loss, and
long-term capital gain may be recharacterized as short-term capital gain.
Investment by a Portfolio in securities issued or acquired at a
discount, or providing for deferred interest or for payment of interest in the
form of additional obligations could under special tax rules affect the amount,
timing and character of distributions to shareholders by causing such Portfolio
to recognize income prior to the receipt of cash payments. For example, the
Portfolio could be required to accrue a portion of the discount (or deemed
discount) at which the securities were issued each year and to distribute such
income in order to maintain its qualification as a regulated investment company.
In such case, the Portfolio may have to dispose of securities which it might
otherwise have continued to hold in order to generate cash to satisfy these
distribution requirements.
Ordinarily, gains and losses realized from portfolio transactions will
be treated as capital gain or loss. However, all or a portion of the gain
realized from the disposition of market discount bonds will be treated as
ordinary income under Section 1276 of the Code. A market discount bond is
defined as any bond purchased by a Portfolio after April 30, 1993, and after its
original issuance, at a price below its face or accredited value. In addition,
all or a portion of the gain realized from engaging in "conversion transactions"
may be treated as ordinary income under Section 1258. "Conversion transactions"
are defined to include certain forward, futures, option and "straddle"
transactions, transactions marketed or sold to produce capital gains, or
transactions described in Treasury regulations to be issued in the future.
PORTFOLIO TRANSACTIONS
GENERAL. Transactions are allocated to various dealers by the
Portfolios' investment personnel in their best judgment. The primary
consideration is prompt and effective execution of orders at the most favorable
price. Subject to that primary consideration, dealers may be selected to act on
an agency basis for research, statistical or other services to enable the
Adviser to supplement its own research and analysis with the views and
information of other securities firms. No brokerage commissions have been paid
to date, except as noted below.
To the extent research services are furnished by brokers through which
the Portfolio effects securities transactions, the Adviser may use such
information in advising other funds or accounts it advises and, conversely, to
the extent research services are furnished to the Adviser by brokers in
connection with other funds or accounts the Adviser advises, the Adviser also
may use such information in advising the Portfolios. Although it is not possible
to place a dollar value on these services, if they are provided, it is the
opinion of the Adviser that the receipt and study of any such services should
not reduce the overall expenses of its research department.
CAPITAL GROWTH PORTFOLIO AND DIVIDEND GROWTH Portfolio. Brokers also
are selected because of their ability to handle special executions such as are
involved in large block trades or broad distributions, provided the primary
consideration is met. Large block trades may, in certain cases, result from two
or more clients the Adviser might advise being engaged simultaneously in the
purchase or sale of the same security. Portfolio turnover may vary from year to
year, as well as within a year. It is anticipated that in any fiscal year, the
turnover rate for each of these Portfolios generally should be less than 100%.
Higher turnover rates are likely to result in comparatively greater brokerage
expenses. The overall reasonableness of brokerage commissions paid is evaluated
by the Adviser based upon its knowledge of available information as to the
general level of commissions paid by other institutional investors for
comparable services.
When transactions are executed in the over-the-counter market, the
Adviser will deal with the primary market makers unless a more favorable price
or execution otherwise is obtainable.
The Fund's Board of Directors has determined, in accordance with
Section 17(e) of the 1940 Act and Rule 17e-1 thereunder, that any portfolio
transaction for the Portfolio may be executed by certain brokers that are
affiliates of the Adviser when such broker's charge for the transaction does not
exceed the usual and customary level.
For the period April 1, 1996 (commencement of operations) through December
31, 1996, the Capital Growth Portfolio paid total brokerage commissions of
$88,860, none of which was paid to affiliates of the Adviser or BISYS. There
were no gross spreads or concessions on principal transactions for the period.
CORE INCOME PORTFOLIO, LIMITED DURATION INCOME PORTFOLIO, TENNESSEE
TAX EXEMPT BOND PORTFOLIO, LIMITED DURATION TENNESSEE TAX FREE PORTFOLIO AND
LIMITED DURATION U.S. GOVERNMENT PORTFOLIO. Purchases and sales of portfolio
securities usually are principal transactions. Portfolio securities ordinarily
are purchased directly from the issuer or from an underwriter or market maker.
Usually no brokerage commissions are paid by the Portfolio for such purchases
and sales. The prices paid to underwriters of newly-issued securities usually
include a concession paid by the issuer to the underwriter, and purchases of
securities from market makers may include the spread between the bid and asked
price.
INFORMATION ABOUT THE PORTFOLIOS
THE FOLLOWING INFORMATION SUPPLEMENTS AND SHOULD BE READ IN
CONJUNCTION WITH THE SECTION IN THE PORTFOLIOS' PROSPECTUS ENTITLED "GENERAL
INFORMATION."
Each Portfolio share has one vote and, when issued and paid for in
accordance with the terms of the offering, is fully paid and non-assessable.
Shares have no preemptive, subscription or conversion rights and are freely
transferable.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted under the provisions of the 1940 Act or applicable state law or
otherwise, to the holders of the outstanding voting securities of an investment
company, such as the Fund, will not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each portfolio affected by such matter. Rule 18f-2 further provides that a
portfolio shall be deemed to be affected by a matter unless it is clear that the
interests of each portfolio in the matter are identical or that the matter does
not affect any interest of such portfolio. However, the Rule exempts the
election of directors from the separate voting requirements of the Rule.
Each Portfolio will send annual and semi-annual financial statements
to all its shareholders.
As of February 21, 1997, the following shareholders owned of record
5% or more of the indicated Portfolio's outstanding shares:
Percent of
Total Investor
NAME AND ADDRESS SHARES
OUTSTANDING
AMERISTAR CAPITAL GROWTH PORTFOLIO:
First American National Bank 97.06%
Attn: AmeriStar Investment Management and Trust
800 First American Center
Nashville, TN 37237
AMERISTAR CORE INCOME PORTFOLIO: 95.03%
First American National Bank
Attn: AmeriStar Investment Management and Trust
800 First American Center
Nashville, TN 37237
LIMITED DURATION INCOME PORTFOLIO:
First American National Bank 94.42%
Attn: AmeriStar Investment Management and Trust
800 First American Center
Nashville, TN 37237
TENNESSEE TAX EXEMPT BOND PORTFOLIO:
First American National Bank 98.77%
Attn: AmeriStar Investment Management and Trust
800 First American Center
Nashville, TN 37237
A shareholder who beneficially owns, directly or indirectly, more than
25% of a Portfolio's voting securities may be deemed a "control person" (as
defined in the 1940 Act) of the Portfolio.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT, COUNSEL
AND INDEPENDENT AUDITORS
The Bank of New York, 90 Washington Street, New York, New York 10286, acts
as custodian of each Portfolio's investments. BISYS Fund Services Ohio, Inc., an
affiliate of BISYS, 3435 Stelzer Road, Columbus, Ohio 43219, acts as the Fund's
transfer and dividend disbursing agent (the "Transfer Agent"). Under the
transfer agency agreement with the Fund, the Transfer Agent maintains
shareholder account records for the Fund, handles certain communications between
shareholders and the Fund and pays dividends and distributions payable by the
Fund. For these services, the Transfer Agent receives a monthly fee compiled on
the basis of the number of shareholder accounts it maintains for the Fund during
the month, and is reimbursed for certain out-of-pocket expenses. Neither The
Bank of New York nor BISYS Fund Services Ohio, Inc. has any part in determining
the investment policies of any Portfolio or which securities are to be purchased
or sold by a Portfolio.
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New
York 10038-4982, as counsel for the Fund, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares of Common Stock being sold pursuant to the Portfolios'
Prospectus.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154,
independent auditors, have been selected as each Portfolio's auditors.
<PAGE>
APPENDIX
Description of certain ratings assigned by Standard & Poor's Ratings
Group ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors
Service, L.P. ("Fitch") and Duff & Phelps Credit Rating Co. ("Duff"):
S&P
BOND RATINGS
AAA
Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A
Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payment.
S&P's letter ratings may be modified by the addition of a plus (+) or
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
COMMERCIAL PAPER RATING
The designation A-1 by S&P indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are denoted with a
plus sign (+) designation. Capacity for timely payment on issues with an A-2
designation is strong. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's
BOND RATINGS
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category. The
modifier 1 indicates a ranking for the security in the higher end of a rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates a ranking in the lower end of a rating category.
COMMERCIAL PAPER RATING
The rating Prime-1 (P-1) is the highest commercial paper rating
assigned by Moody's. Issuers of P-1 paper must have a superior capacity for
repayment of short-term promissory obligations, and ordinarily will be evidenced
by leading market positions in well established industries, high rates of return
on funds employed, conservative capitalization structures with moderate reliance
on debt and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers (or relating supporting institutions) rated Prime-2 (P-2) have
a strong capacity for repayment of short-term promissory obligations. This
ordinarily will be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch
BOND RATINGS
The ratings represent Fitch's assessment of the issuer's ability to
meet the obligations of a specific debt issue or class of debt. The ratings take
into consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA
Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+.
A
Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB
Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds and, therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
Plus (+) and minus (-) signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
Although the credit analysis is similar to Fitch's bond rating
analysis, the short-term rating places greater emphasis than bond ratings on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+
EXCEPTIONALLY STRONG CREDIT QUALITY. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1
VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2
GOOD CREDIT QUALITY. Issues carrying this rating have a satisfactory
degree of assurance for timely payments, but the margin of safety is not as
great as the F-1+ and F-1 categories.
Duff
BOND RATINGS
AAA
Bonds rated AAA are considered highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A
Bonds rated A have protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB
Bonds rated BBB are considered to have below average protection
factors but still considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as
likely to meet obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes. Overall
quality may move up or down frequently within the category.
Plus (+) and minus (-) signs are used with a rating symbol (except
AAA) to indicate the relative position of a credit within the rating category.
COMMERCIAL PAPER RATING
The rating Duff-1 is the highest commercial paper rating assigned by
Duff. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
<PAGE>
FINANCIAL STATEMENTS
The Portfolios' Annual Report to Shareholders for the fiscal year ended
December 31, 1996 is a separate document supplied with this Statement of
Additional Information, and the financial statements, accompanying notes and
report of independent auditors appearing therein are incorporated by reference
in this Statement of Additional Information.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A of the Registration Statement:
Financial Highlights.
Included in Part B of the Registration Statement:
Statements of Investments.*
Statements of Assets and Liabilities.*
Statements of Operations.*
Statements of Changes in Net Assets.*
Notes to Financial Statements.*
Reports of KPMG Peat Marwick LLP, Independent
Auditors.*
- -------------------------
* Incorporated by reference to the Registrant's Annual
Report to Shareholders.
(b) Exhibits:
(1) (a) Articles of Incorporation are incorporated by
reference to Exhibit (1) of the Registration
Statement on Form N-1A, filed on March 29,
1990.
(b) Articles of Amendment are incorporated by
reference to Exhibit (1)(b) of Pre-Effective
Amendment No. 3 to the Registration
Statement on Form N-1A, filed on June 22,
1990.
(c) Articles Supplementary dated October 16,
1990 are incorporated by reference to
Exhibit(1)(c) of Post-Effective Amendment
No. 3 to the Registration Statement on Form
N-1A, filed on October 25, 1990.
(d) Articles Supplementary dated January 9, 1992
are incorporated by reference to Exhibit
(1)(d) of Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A,
filed on January 17, 1992.
(e) Articles Supplementary dated February 15,
1994 are incorporated by reference to Exhibit
(1)(e) of Post-Effective Amendment No. 22 to
the Registration Statement on Form N-1A,
filed on February 10, 1994.
(f) Articles of Amendment are incorporated by
by reference to Exhibit (1)(f) of Post-
Effective Amendment No. 26 to the
Registration Statement on Form N-1A,
filed on April 30, 1996.
(g) Articles Supplementary dated February 24,
1997.
(2) By-Laws are incorporated by reference to Exhibit
(2) of Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-1A, filed on June
22, 1990.
(4) Specimen copies of stock certificates are
incorporated by reference to Exhibit (4) of Post-
Effective Amendment No. 6 to the Registration
Statement on Form N-1A, filed on June 7, 1991.
(5) (a)(i) Amended Investment Advisory Agreement
between the Registrant and BEA
Associates is incorporated by reference
to Exhibit (5)(b)(i) of Post-Effective
Amendment No. 15 to the Registration
Statement on Form N-1A, filed on
August 19, 1992.
(a)(ii) Investment Advisory Agreement between
the Registrant and Mitchell Hutchins
Asset Management Inc. is incorporated by
reference to Exhibit (5)(b)(iii) of
Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A,
filed on June 7, 1991.
(a)(iii) Investment Advisory Agreement
between Registrant and First
American National Bank.
(a)(iv) Investment Advisory Agreement
between the Registrant and BEA
Associates is incorporated by
reference to Post-Effective
Amendment No. 25 to the Registration
Statement on Form N-1A, filed on May
1, 1995.
(b)(i) Sub-Investment Advisory Agreement among
Registrant, First American National Bank
and Barnett Banks and Trust Company,
N.A. is incorporated by reference to
Post-Effective Amendment No. 22 to the
Registration Statement on Form N-1A,
filed on February 10, 1994.
(c) Administration Agreement between
Registrant and BISYS Fund Services
Limited Partnership dated April 25,
1996, as revised February 11, 1997.
(6) (a) Distribution Agreement between
Registrant and BISYS Fund Services
Limited Partnership dated February 11,
1997.
(b)(i) Form of Plan Agreement, with respect to
Registrant's Correspondent Cash Reserves
Money Market Portfolio and Correspondent
Cash Reserves Tax Free Money Market
Portfolio, is incorporated by
reference to Exhibit (6)(b) of Post-
Effective Amendment No. 6 to the
Registration Statement on Form N-1A,
filed on June 7, 1991.
(b)(ii) Form of Distribution Plan Agreement,
with respect to Registrant's BEA Short
Duration Portfolio is incorporated by
reference to Exhibit (6)(b)(iv) of Post-
Effective Amendment No. 15 to the
Registration Statement on Form N-1A,
filed On August 19, 1992.
(b)(iii) Distribution Plan Agreement, with
respect to Registrant's AmeriStar
Portfolios.
(8) (a) Custody and Fund Accounting Agreement
with The Bank of New York is
incorporated by reference to
Exhibit (8)(a) of Pre-Effective
Amendment No. 3 to the Registration
Statement on Form N-1A, filed on June
22, 1990.
(b) Form of Foreign Sub-Custodian
Agreement is incorporated by
reference to Post-Effective
Amendment No. 22 to the Registration
Statement on Form N-1A, filed on
February 10, 1994.
(9) (a) Special Management Services Agreement
among the Registrant, Mitchell Hutchins
Asset Management Inc. and Concord
Holding Corporation is incorporated by
reference to Exhibit (9) of Post-
Effective Amendment No. 6 to the
Registration Statement on Form N-1A,
filed on June 7, 1991.
(b) Form of Shareholder Services Agreement
is incorporated by reference to
Exhibit (5)(e) of Pre-Effective
Amendment No. 3 to the Registration
Statement on Form N-1A, filed on
June 22, 1990.
(c) Shareholder Services Plan with respect
to Registrant's AmeriStar Prime Money
Market and U.S. Treasury Money Market
Portfolios is incorporated by reference
to Post-Effective Amendment No. 22 to
the Registration Statement on Form N-1A,
filed on February 10, 1994.
(11) Consent of Independent Auditors.
(15) (a) Plan of Distribution pursuant to Rule
12b-1, with respect to Registrant's
Correspondent Cash Reserves Money Market
Portfolio and Correspondent Cash
Reserves Tax Free Money Market Portfolio,
is incorporated by reference to Exhibit
(15) of Post-Effective Amendment No. 6
to the Registration Statement on Form
N-1A, filed on June 7, 1991.
(b) Distribution Plan pursuant to Rule
12b-1, with respect to Registrant's BEA
Short Duration Portfolio, is
incorporated by reference to
Exhibit (15)(c) of Post-Effective
Amendment No. 15 to the Registration
Statement on Form N-1A filed on
August 19, 1992.
(c) Distribution Plan pursuant to Rule
12b-1, with respect to Registrant's
AmeriStar Portfolios.
(16) Computations of Performance Information
are incorporated by reference to Post-
Effective Amendment No. 25 to the
Registration Statement on Form N-1A,
filed on May 1, 1995.
(17) Financial Data Schedules are
incorporated by reference to
Registrant's Annual Report on Form N-SAR
filed on or about February 27, 1997.
(18) (i) Rule 18f-3 Plans for Registrant's BEA,
CCR and AmeriStar
Portfolios are incorporated by
reference to Post-Effective Amendment
No. 25 to the Registration Statement on
Form N-1A, filed on May 1, 1995.
(ii) Rule 18f-3 Plan for Registrant's
AmeriStar Non-Money Market Portfolios.
Other Exhibit: (i) Certificate of Corporate Secretary is
incorporated by reference to Other
Exhibit of Pre-Effective Amendment
No. 3 to the Registration Statement
on Form N-1A, filed on June 22,
1990.
(ii) Powers of Attorney are incorporated by
reference to Pre-Effective Amendment No.
1 and Post-Effective Amendment No. 8 to
the Registration Statement on Form
N-1A, filed on May 23, 1990 and November
15, 1991, respectively.
Item 25. Persons Controlled By or Under Common Control
with Registrant
Not applicable.
Item 26. Number of Holders of Securities
(1) (2)
Number of Record
Holders as of
Title of Class December 31, 1996
Common Stock, par value
$.001 per share
Alpha Government
Securities Portfolio 130
BEA Short Duration Portfolio
--Client Shares 24
--Service Shares 0
--Investor Shares 0
Correspondent Cash Reserves
Money Market Portfolio
--Retail Shares 43,277
--Institutional Shares 0
Correspondent Cash Reserves Tax
Free Money Market Portfolio
--Retail Shares 43,277
AmeriStar Prime Money Market Portfolio
--Trust Shares 0
--Investor Shares 28
AmeriStar Capital Growth Portfolio
--Trust Shares 0
--Investor Shares 5
AmeriStar Core Income
Portfolio
--Trust Shares 0
--Investor Shares 5
AmeriStar Limited
Duration Income Portfolio
--Trust Shares 0
--Investor Shares 6
AmeriStar Tennessee Tax Exempt
Bond Portfolio
--Trust Shares 0
--Investor Shares 8
AmeriStar U.S. Treasury Money
Market Portfolio
--Trust Shares 0
--Investor Shares 12
AmeriStar Dividend Growth Portfolio
--Trust Shares 0
--Investor Shares 0
AmeriStar Limited Duration U.S.
Government Portfolio
--Trust Shares 0
--Investor Shares 0
AmeriStar Limited Duration Tennessee
Tax Free Portfolio
--Trust Shares 0
--Investor Shares 0
Item 27. Indemnification
Reference is made to Article SEVENTH of the Registrant's Articles
of Incorporation filed as Exhibit 1 to the Registration Statement, filed on
March 29, 1990, and to Section 2-418 of the Maryland General Corporation Law.
The application of these provisions is limited by Article VIII of the
Registrant's By-Laws filed as Exhibit 2 to Pre-Effective Amendment No. 3 to the
Registration Statement, filed on June 22, 1990, and by the following undertaking
set forth in the rules promulgated by the Securities and Exchange Commission:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
Reference also is made to the Distribution Agreement filed as
Exhibit 6(a) hereto.
Item 28(a). Business and Other Connections of Investment
Adviser and/or Sub-Investment Adviser
(i) Registrant is fulfilling the requirement of this Item 28(a)
to provide a list of the officers and directors of BEA Associates, the
investment adviser of the Registrant's BEA Short Duration Portfolio and Alpha
Government Securities Portfolio, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by BEA Associates or those of its officers and directors during the past two
years, by incorporating by reference the information contained in the Form ADV
filed with the SEC pursuant to the Investment Advisers Act of 1940 by BEA
Associates (SEC File No. 801-37170).
(ii) Registrant is fulfilling the requirement of this Item 28(a)
to provide a list of the officers and directors of Mitchell Hutchins Asset
Management Inc., the investment adviser of the Registrant's Correspondent Cash
Reserves Money Market Portfolio, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by Mitchell Hutchins Asset Management Inc. or those of its officers and
directors during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by the Mitchell Hutchins Asset Management Inc.
(SEC File No. 801-13219).
(iii) First American National Bank, the investment adviser of the
Registrant's AmeriStar Portfolios, is a wholly-owned subsidiary of First
American Corporation, a registered bank holding company. To the knowledge of the
Registrant, none of the directors or executive officers of First American
National Bank, except those described below, are or have been, at any time
during the past two years, engaged in any other business, profession, vocation
or employment of a substantial nature, except that certain directors and
executive officers of First American National Bank also hold or have held
various positions with bank and non-bank affiliates of First American National
Bank, including First American Corporation.
<TABLE>
<CAPTION>
Principal Occupation or
Other Employment of a
Position with Substantial
Name Adviser Nature
<S> <C> <C>
Samuel E. Beale, III Director President and Chief
Executive Officer of
Morrison Restaurants,
Inc.
Dennis C. Bottorff Director and President and Chief
Chief Executive Executive Officer of
Officer First American
Corporation
Earnest W. Deavenport, Jr. Director Group Vice President of
Eastman Kodak Company
Reginald D. Dickson Director President Emeritus of
INROADS, Inc.
T. Scott Fillebrown Director Private Investor
James A. Haslam, II Director President and Chief
Executive Officer of
Pilot Corporation
Martha R. Ingram Director Director of Public
Affairs of Ingram
Industries, Inc.
Walter D. Knestrick Director Chairman of the Board
of Walter Knestrick
Contractor, Inc.
Gene C. Koonce Director President and Chief
Executive Officer of
United Cities Gas
Company
James R. Martin Director Chairman and Chief
Executive Officer of
PlastiLine, Inc.
William O. McCoy Director Vice Chairman of the
Board of BellSouth
Corporation
Dale W. Polley Director, Vice Vice Chairman and Chief
Chairman and Administrative Officer
Chief of First American
Administrative Corporation
Officer
Toy F. Reid Director Retired Executive Vice
President of Eastman
Kodak Company
Roscoe R. Robinson Director Vice Chancellor for
Health Affairs of
Vanderbilt University
Medical Center
James F. Smith Director Chairman of the Board
of First American
Corporation
Cal Turner, Jr. Director Chairman and Chief
Executive Officer of
Dollar General
Corporation
David K. Wilson Director Chairman of the Board
of Cherokee Equity
Corporation
Toby S. Wilt Director President of TSW
Investment Company
William S. Wire, II Director Chairman of the Board
of Genesco, Inc.
James C. Armistead, Jr. Executive Vice None
President
John W. Boyle, Jr. President, None
Corporate Bank
R. Booth Chapman Executive Vice None
President
Emery F. Hill Executive Vice None
President
Dennis J. Hooks Executive Vice None
President
Rufus B. King Executive Vice None
President
John W. Logan Executive Vice None
President
Robert A. McCabe, Jr. President, None
General Bank
Robert E. McNeilly, Jr. President and None
Chief Executive
Officer, First
American Trust
Company, N.A.
Martin E. Simmons Executive Vice None
President,
General Counsel
and Corporate
Secretary
Terry S. Spencer Executive Vice None
President
Jonn W. Smithwick Executive Vice None
President
M. Terry Turner Executive Vice None
President
Alexander P. Waddell, IV Senior Vice None
President and
Treasurer
</TABLE>
Item 29. Principal Underwriters
(a) Other investment companies for which Registrant's principal
underwriter (exclusive distributor) acts as principal underwriter or exclusive
distributor:
AFBA Five Star Shares
ARCH Funds
AMCORE Vintage Funds
Ernst World Funds
Fountain Square Funds
HSBC Funds
KeyFunds
MarketWatch Funds
MMA Praxis Funds
Pacific Capital Funds
Pegasus Funds
Republic Funds
Riverside Funds
Summit High Yield Fund
(b) The information required by this Item 29(b) regarding each director or
officer of BISYS Fund Services Limited Partnership is incorporated by reference
to Schedule A of Form BD filed by Concord Financial Group, Inc. pursuant to the
Securities Exchange Act of 1934 (SEC File No. 8- 32480).
Item 30. Location of Accounts and Records
1. BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
2. The Bank of New York
90 Washington Street
New York, New York 10015
3. BEA Associates
One Citicorp Center, 58th Floor
153 East 53rd Street
New York, New York 10022
4. Concord Financial Group, Inc.
125 West 55th Street
11th Floor
New York, New York 10019
5. First American National Bank
315 Deaderick Street
Nashville, Tennessee 37238
6. Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(b) Registrant hereby undertakes
(1) to file a post-effective amendment, using financial
statements which need not be certified, within four to six months from the
effective date of Registrant's 1933 Act registration statement with respect
to the Registrant's AmeriStar Dividend Growth, Limited Duration U.S.
Government and Limited Duration Tennessee Tax Free Portfolio;
(2) to call a meeting of shareholders for the purpose of voting
upon the question of removal of a Director or Directors when requested in
writing to do so by the holders of at least 10% of the Registrant's outstanding
Common Stock and in connection with such meeting to comply with the provisions
of Section 16(c) of the Investment Company Act of 1940 relating to shareholders
communications;
(3) to furnish each person to whom a prospectus is delivered with
a copy of its most current annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 27th day of February, 1997.
THE INFINITY MUTUAL FUNDS, INC.
(Registrant)
By: /s/ William B. Blundin*
WILLIAM B. BLUNDIN President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/William B. Blundin* President (Principal
WILLIAM B. BLUNDIN Executive Officer) and
Chairman of the
Board of Directors
/s/Martin R. Dean* Treasurer (Chief
MARTIN R. DEAN Financial and
Accounting Officer)
/s/Richard H. Francis* Director
RICHARD H. FRANCIS
/s/Norma A. Coldwell* Director
NORMA A. COLDWELL
/s/William W. McInnes* Director
WILLIAM W. McINNES
/s/Robert A. Robinson* Director
ROBERT A. ROBINSON
*By:/s/Robert L. Tuch February 27, 1997
Robert L. Tuch
Attorney-in-fact
<PAGE>
THE INFINITY MUTUAL FUNDS, INC.
Post-Effective Amendment No. 31 to
Registration Statement on Form N-1A under
the Securities Act of 1933 and
the Investment Company Act of 1940
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
Page
(1)(g) Articles Supplementary
(5)(a)(iii) Investment Advisory Agreement
(5)(c) Administration Agreement
(6)(a) Distribution Agreement
(6)(b)(iii) Distribution Plan Agreement
(11) Consent of Independent Auditors
(15)(c) Distribution Plan
(18)(ii) 18f-3 Plan
EXHIBIT (1)(g)
ARTICLES SUPPLEMENTARY
THE INFINITY MUTUAL FUNDS, INC., a Maryland corporation having its
principal office in the State of Maryland at 32 South Street, Baltimore,
Maryland (hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The aggregate number of shares of Common Stock that the Corporation
has authority to issue is increased by one billion (1,000,000,000) shares and
such additional shares shall be classified as follows:
AmeriStar Limited Duration U.S. Government Portfolio
Trust Shares -- 250 million shares
Investor Shares -- 250 million shares
AmeriStar Limited Duration Tennessee Tax Free Portfolio
Trust Shares -- 250 million shares
Investor Shares -- 250 million shares
SECOND: The shares of each such Portfolio (a "Portfolio") as so classified
by the Corporation's Board of Directors shall have the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption set forth in Article FIFTH
of the Corporation's Articles of Incorporation and shall be subject to all
provisions of the Articles of Incorporation relating to stock of the Corporation
generally, and to the following:
(1) As more fully set forth hereinafter, the assets and
liabilities and the income and expenses of each class of
Common Stock of each Portfolio shall be determined
separately from those of each other and from those of any
other class of the Corporation's stock and, accordingly,
the net asset value, the dividends and distributions
payable to holders, and the amounts distributable in the
event of liquidation of the Corporation to holders of
shares of the Corporation's stock may vary from class to
class. Except for these differences, differences with
respect to voting powers set forth in the Articles of
Incorporation, and certain other differences hereinafter
set forth, each such class of Common Stock of each
Portfolio shall have the same preferences, conversion and
other rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of
redemption as each other class of Common Stock of the
Portfolio.
(2) Assets of each Portfolio belonging to each of
its classes of Common Stock shall be invested in
the same investment portfolio.
(3) As to each Portfolio, the dividends and
distributions of investment income and capital gains
with respect to each such class of Common Stock of the
Portfolio shall be in such amounts as may be declared from
time to time by the Board of Directors, and such dividends
and distributions may vary between such classes of a
Portfolio (and between such classes and any other class of
the Corporation's stock) to reflect differing allocations
of the expenses of the Corporation between the classes and
any resultant differences between the net asset values per
share of the classes, to such extent and for such purposes
as the Board of Directors may deem appropriate. The
allocation of investment income, capital gains, expenses
and liabilities of the Corporation among such classes of
each Portfolio and any other class of the Corporation's
stock shall be determined by the Board of Directors in a
manner that is consistent with applicable law.
(4) Except as may otherwise be required by law,
all holders of shares of a Portfolio shall vote as a
single class except that the holders of each such class
of Common Stock of each Portfolio shall have,
respectively, (i) exclusive voting rights with respect to
any matter submitted to a vote of stockholders that
affects only holders of such class, including, without
limitation, the provisions of any distribution plan
adopted by the Corporation pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (a "Plan"),
applicable to their respective classes and (ii) no voting
rights with respect to the provisions of any Plan
applicable to another class of stock of the Corporation or
with regard to any other matter submitted to a vote of
stockholders that does not affect holders of such class of
Common Stock.
THIRD: Immediately before the increase in the aggregate number of shares as
set forth in Article FIRST hereto, the Corporation was authorized to issue
eleven billion five hundred million (11,500,000,000) shares of Common Stock, all
of which were of a par value of one tenth of one cent ($.001) each, of which one
billion (1,000,000,000) shares were classified as shares of the Alpha Government
Securities Portfolio, one billion (1,000,000,000) shares were classified as
shares of the Alpha Prime Portfolio, one billion (1,000,000,000) shares were
classified as shares of the BEA Short Duration Portfolios of which five hundred
million (500,000,000) shares (marketed as "BEA Client Shares") were generic
shares of Common Stock of such Portfolio, two hundred and fifty million
(250,000,000) shares were classified as BEA Service Shares and two hundred and
fifty million (250,000,000) shares were classified as BEA Investor Shares, two
billion five hundred million (2,500,000,000) shares were classified as shares of
the Correspondent Cash Reserves Money Market Portfolio of which one billion
(1,000,000,000) shares were classified as Institutional Shares and one billion
five hundred million (1,500,000,000) shares (marketed as "Retail Shares") were
generic shares of Common Stock of such Portfolio, one billion (1,000,000,000)
shares were classified as shares of the Correspondent Cash Reserves Tax Free
Money Market Portfolio, five hundred million (500,000,000) shares were
classified as shares of the AmeriStar Capital Growth Portfolio of which two
hundred and fifty million (250,000,000) shares were classified as Trust Shares
and two hundred and fifty million (250,000,000) shares were classified as
Investor Shares, five hundred million (500,000,000) shares were classified as
shares of the AmeriStar Dividend Growth Portfolio of which two hundred and fifty
million (250,000,000) shares were classified as Trust Shares and two hundred and
fifty million (250,000,000) shares were classified as Investor Shares, five
hundred million (500,000,000) shares were classified as shares of the AmeriStar
Core Income Portfolio of which two hundred and fifty million (250,000,000)
shares were classified as Trust Shares and two hundred and fifty million
(250,000,000) shares were classified as Investor Shares, five hundred million
(500,000,000) shares were classified as shares of the AmeriStar Limited Duration
Income Portfolio of which two hundred and fifty million (250,000,000) shares
were classified as Trust Shares and two hundred and fifty million (250,000,000)
shares were classified as Investor Shares, five hundred million (500,000,000)
shares were classified as shares of the AmeriStar Tennessee Tax Exempt Bond
Portfolio of which two hundred and fifty million (250,000,000) shares were
classified as Trust Shares and two hundred and fifty million (250,000,000)
shares were classified as Investor Shares, seven hundred fifty million
(750,000,000) shares were classified as shares of the AmeriStar Prime Money
Market Portfolio of which three hundred and seventy-five million (375,000,000)
shares were classified as Trust Shares and three hundred and seventy-five
million (375,000,000) shares were classified as Investor Shares, seven hundred
and fifty million (750,000,000) shares were classified as shares of the
AmeriStar U.S. Treasury Money Market Portfolio of which three hundred and
seventy-five million (375,000,000) shares were classified as Trust Shares and
three hundred and seventy-five million (375,000,000) shares were classified as
Investor Shares, and one billion (1,000,000,000) shares were unclassified.
FOURTH: As hereby increased and classified, the total number of shares of
stock which the Corporation has authority to issue is twelve billion five
hundred million (12,500,000,000) shares of Common Stock, all of which are of a
par value of one tenth of one cent ($.001) each, of which one billion
(1,000,000,000) shares are classified as shares of the Alpha Government
Securities Portfolio, one billion (1,000,000,000) shares are classified as
shares of the Alpha Prime Portfolio, one billion (1,000,000,000) shares are
classified as shares of the BEA Short Duration Portfolios of which five hundred
million (500,000,000) shares (marketed as "BEA Client Shares") are generic
shares of Common Stock of such Portfolio, two hundred and fifty million
(250,000,000) shares are classified as BEA Service Shares and two hundred and
fifty million (250,000,000) shares are classified as BEA Investor Shares, two
billion five hundred million (2,500,000,000) shares are classified as shares of
the Correspondent Cash Reserves Money Market Portfolio of which one billion
(1,000,000,000) shares are classified as Institutional Shares and one billion
five hundred million (1,500,000,000) shares (marketed as "Retail Shares") are
generic shares of Common Stock of such Portfolio, one billion (1,000,000,000)
shares are classified as shares of the Correspondent Cash Reserves Tax Free
Money Market Portfolio, five hundred million (500,000,000) shares are classified
as shares of the AmeriStar Capital Growth Portfolio of which two hundred and
fifty million (250,000,000) shares are classified as Trust Shares and two
hundred and fifty million (250,000,000) shares are classified as Investor
Shares, five hundred million (500,000,000) shares are classified as shares of
the AmeriStar Dividend Growth Portfolio of which two hundred and fifty million
(250,000,000) shares are classified as Trust Shares and two hundred and fifty
million (250,000,000) shares are classified as Investor Shares, five hundred
million (500,000,000) shares are classified as shares of the AmeriStar Core
Income Portfolio of which two hundred and fifty million (250,000,000) shares are
classified as Trust Shares and two hundred and fifty million (250,000,000)
shares are classified as Investor Shares, five hundred million (500,000,000)
shares are classified as shares of the AmeriStar Limited Duration Income
Portfolio of which two hundred and fifty million (250,000,000) shares are
classified as Trust Shares and two hundred and fifty million (250,000,000)
shares are classified as Investor Shares, five hundred million (500,000,000)
shares are classified as shares of the AmeriStar Limited Duration U.S.
Government Portfolio of which two hundred and fifty million (250,000,000) shares
are classified as Trust Shares and two hundred and fifty million (250,000,000)
shares are classified as Investor Shares, five hundred million (500,000,000)
shares are classified as shares of the AmeriStar Limited Duration Tennessee Tax
Free Portfolio of which two hundred and fifty million (250,000,000) shares are
classified as Trust Shares and two hundred and fifty million (250,000,000)
shares are classified as Investor Shares, five hundred million (500,000,000)
shares are classified as shares of the AmeriStar Tennessee Tax Exempt Bond
Portfolio of which two hundred and fifty million (250,000,000) shares are
classified as Trust Shares and two hundred and fifty million (250,000,000)
shares are classified as Investor Shares, seven hundred fifty million
(750,000,000) shares are classified as shares of the AmeriStar Prime Money
Market Portfolio of which three hundred and seventy-five million (375,000,000)
shares are classified as Trust Shares and three hundred and seventy-five million
(375,000,000) shares are classified as Investor Shares, seven hundred and fifty
million (750,000,000) shares are classified as shares of the AmeriStar U.S.
Treasury Money Market Portfolio of which three hundred and seventy-five million
(375,000,000) shares are classified as Trust Shares and three hundred and
seventy-five million (375,000,000) shares are classified as Investor Shares, and
one billion (1,000,000,000) shares are unclassified.
FIFTH: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
SIXTH: The Board of Directors of the Corporation increased the total number
of shares of Common Stock the Corporation has authority to issue pursuant to
Section 2-105(c) of the Maryland General Corporation Law, classified the
increased shares pursuant to authority provided in the Corporation's charter.
The undersigned Vice President acknowledges these Articles Supplementary to
be the corporate act of the Corporation and states that to the best of his
knowledge, information and belief the matters and facts set forth in these
Articles, with respect to authorization and approval, are true in all material
respects and that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, The Infinity Mutual Funds, Inc. has caused these
Articles Supplementary to be signed and filed in its name and on its behalf by
its Vice President and witnessed by its Secretary on February 24, 1997.
THE INFINITY MUTUAL FUNDS, INC.
By:______________________________
Jeffrey C. Cusick,
Vice President
Witness:
George O. Martinez, Secretary
EXHIBIT (5)(a)(iii)
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement made as of February 15, 1994, and revised as
of February 11, 1997, between THE INFINITY MUTUAL FUNDS, INC., a Maryland
corporation having its principal office and place of business at 125 West 55th
Street, New York, New York 10019 (herein called the "Fund"), and FIRST AMERICAN
NATIONAL BANK, a national banking association having its principal office and
place of business at First American Center, 315 Deaderick Street, Nashville,
Tennessee 37238-0035 (herein called the "Adviser").
WHEREAS, the Fund is an open-end, management investment company, registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund intends to employ BISYS Fund Services Limited Partnership
(the "Administrator") to act as the Fund's administrator; and
WHEREAS, the Fund desires to retain the Adviser to provide investment
advisory services and other services to the Fund's portfolios set forth on
Schedule 1 attached hereto, as such may be revised from time to time (each, a
"Series"; the provisions herein shall apply severally to each Series), and the
Adviser is willing to furnish such services upon the terms and conditions herein
set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Fund hereby appoints the Adviser to act as investment adviser to
each Series for the period and on the terms set forth in this Agreement. The
Adviser accepts such appointment and agrees to furnish the services herein set
forth for the compensation herein provided.
(b) In the event that the Fund establishes one or more portfolios, other
than those set forth on Schedule 1 hereto, and with respect to which the Fund
desires the Adviser to act as investment adviser hereunder, the Fund shall
notify the Adviser in writing. If the Adviser is willing to render such services
under this Agreement it shall notify the Fund in writing whereupon such
portfolio shall become a Series hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Series currently named in Schedule
1, except to the extent that said provisions (including those relating to the
compensation payable to the Adviser) are modified with respect to such Series in
writing by the Fund and the Adviser.
2. DELIVERY OF DOCUMENTS.
The Fund has furnished the Adviser with copies properly certified or
authenticated of each of the following:
(a) The Fund's Articles of Incorporation and any amendments
and supplements thereto (as presently in effect and as from time to
time amended or supplemented, herein called the "Charter");
(b) The Fund's By-laws and any amendments thereto;
(c) Resolutions of the Fund's Board of Directors
authorizing the appointment of the Adviser and approving
this Agreement;
(d) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act"), and under the 1940
Act most recently filed with the Securities and Exchange Commission
(the "Commission");
(e) The Fund's Notification of Registration on Form
N-8A under the 1940 Act as filed with the Commission; and
(f) The Fund's current Prospectuses and Statements of
Additional Information of the Series (as presently in
effect and as from time to time amended and supplemented, herein called
individually the "Prospectus" and collectively the "Prospectuses").
The Fund promptly will furnish the Adviser with copies of all amendments of or
supplements to the foregoing, if any.
3. SERVICES OF ADVISER.
Subject to the supervision of the Fund's Board of Directors, the Adviser
will provide a continuous investment program for each Series, including
investment research and day-to-day management with respect to such Series'
assets. The Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Series. The Adviser will
provide the services rendered by it under this Agreement in accordance with the
investment criteria and policies established from time to time for a Series by
the Fund, such Series' investment objective, policies and restrictions as stated
in its Prospectus and resolutions of the Fund's Board of Directors. The Fund
wishes to be informed of important developments materially affecting a Series'
portfolio and the Adviser agrees to furnish to the Fund from time to time such
information as the Adviser may believe appropriate for this purpose. The Adviser
shall be permitted to employ one or more sub-investment advisers (each a
"Sub-Adviser") to provide the day-to-day management of the investments of the
Series.
4. OTHER COVENANTS.
The Adviser agrees that it will:
(a) comply with all applicable rules and regulations
of the Securities and Exchange Commission in performing its
duties as investment adviser for the Series and, in addition, will
conduct its activities under this Agreement in accordance with other
applicable federal and state law;
(b) review and analyze on a periodic basis each
Series' portfolio holdings and transactions;
(c) provide, or cause to be provided, to the Board of
Directors of the Fund such reports, statistical data and
economic information as may be reasonably requested in
connection with the Adviser's services hereunder;
(d) use the same skill and care in providing such
services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;
(e) place orders pursuant to its investment determinations for
the Series either directly with the issuer or with any broker or
dealer. In executing portfolio transactions and selecting brokers or
dealers, the Adviser will use its best efforts to seek on behalf of the
Series the best overall terms available. In assessing the best overall
terms available for any transaction, the Adviser shall consider all
factors that it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of
the commission, if any, both for the specific transaction and on a
continuing basis. In evaluating the best overall terms available, and
in selecting the broker-dealer to execute a particular transaction, the
Adviser also may consider the brokerage and research services (as those
terms are defined in Section 28(e) of the Securities Exchange Act of
1934) provided to the Series and other accounts over which the Adviser
or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized, subject to the prior approval
of the Fund's Board of Directors, to pay to a broker or dealer who
provides such brokerage and research services a commission for
executing a portfolio transaction for any of the Series which is in
excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if, but only if, the Adviser
determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer as viewed in terms of that particular
transaction or in terms of the overall responsibilities of the Adviser
to the Series. In addition, the Adviser is authorized to take into
account the sale of the Fund's Shares in allocating purchase and sale
orders for portfolio securities to brokers or dealers (including
brokers and dealers that are affiliated with the Adviser or the Fund's
principal underwriter), provided the Adviser believes that the quality
of the execution and the commission are comparable to what they would
be with other qualified firms. In no instance, however, will portfolio
securities be purchased from or sold to the Adviser, the Fund's
principal underwriter or any affiliated person of either the Fund, the
Adviser, or the principal underwriter, acting as principal in the
transaction, except to the extent permitted by the Securities and
Exchange Commission and other applicable federal and state laws and
regulations;
(f) maintain historical tax lots for each portfolio
security held by the Series;
(g) transmit trades to the Fund's custodian for
proper settlement; and
(h) prepare a quarterly broker security transaction
summary and monthly security transaction listing for each
Series.
5. SERVICES NOT EXCLUSIVE.
The services furnished by the Adviser hereunder are deemed not to be
exclusive, and the Adviser shall be free to furnish similar services to others
so long as its services under this Agreement are not impaired thereby. To the
extent that the purchase or sale of securities or other investments of the same
issuer may be deemed by the Adviser to be suitable for two or more Series,
investment companies or accounts managed by the Adviser, the available
securities or investments will be allocated in a manner believed by the Adviser
to be equitable to each of them. It is recognized and acknowledged by the Fund
that in some cases this procedure may adversely affect the price paid or
received by a Series or the size of the position obtained for or disposed of by
a Series.
6. BOOKS AND RECORDS.
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Adviser hereby agrees that all records which it maintains for the Series are the
property of the Fund and further agrees to surrender promptly to the Fund any of
such records upon the Fund's request. The Adviser further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the 1940 Act.
7. EXPENSES.
Except as otherwise stated in this section 7, the Adviser shall pay all
expenses incurred by it in performing its services and duties as investment
adviser and shall pay all fees of each Sub-Adviser in connection with such
Sub-Adviser's duties in respect of the Fund. All other expenses incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by others. The expenses to be borne by the Fund include,
without limitation, the following: organizational costs, taxes, interest,
brokerage fees and commissions, if any, fees of Directors who are not officers,
directors, employees or holders of 5% or more of the outstanding voting
securities of the Adviser, any Sub-Adviser or the Administrator, or any of their
affiliates, Commission fees, state Blue Sky qualification fees, advisory and
administration fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees, auditing
and legal expenses, costs of maintaining corporate existence, costs of
independent pricing services, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
calculating the net asset value of the Series' shares, costs of shareholders'
reports and corporate meetings, costs of preparing and printing certain
prospectuses and statements of additional information, and any extraordinary
expenses.
8. COMPENSATION.
In consideration of services rendered pursuant to this Agreement, the Fund
will pay the Adviser on the first business day of each month the fee at the
annual rate set forth opposite the Series' name on Schedule 1 attached hereto,
based upon the value of the Series' average daily net assets for the previous
month. Such fee as is attributable to a Series shall be a separate charge to
such Series and shall be the several (and not joint or joint and several)
obligation of the Series. Fees hereunder shall be payable with respect to a
Series commencing on the date of the initial public sale of such Series' shares.
The Adviser agrees to accept such fee from the Fund as full compensation for the
services provided and expenses assumed by it pursuant to this Agreement, and
acknowledges that it shall not be entitled to any further compensation from the
Fund in respect of the same.
Net asset value shall be computed on such days and at such time or times as
described in the Prospectus. Upon the commencement or any termination of this
Agreement after the first day or before the end of any month, as the case may
be, the fee for such part of a month shall be pro-rated according to the
proportion which such period bears to the full monthly period and, in the case
of any termination, shall be payable upon the date of termination of this
Agreement.
For the purpose of determining fees payable to the Adviser, the value of
each Series' net assets shall be computed in the manner specified in the Charter
for the computation of the value of the Series' net assets.
Notwithstanding anything to the contrary herein, if in any fiscal year the
aggregate expenses of a Series, exclusive of taxes, brokerage, interest on
borrowings and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including investment advisory and
administration fees, exceed the expense limitation of any such state having
jurisdiction over such Series, the Fund may deduct from the fees to be paid
hereunder, or the Adviser will bear, to the extent required by state law, that
portion of such excess which bears the same relation to the total of such excess
as the Adviser's fee hereunder bears to the total fee otherwise payable for the
fiscal year by the Series pursuant to this Agreement and the Fund's
Administration Agreement. Such deduction or payment, if any, will be estimated
daily, and reconciled and effected or paid, as the case may be, on a monthly
basis.
9. LIMITATION OF LIABILITY.
The Adviser shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except that the Adviser shall be liable to the Fund for
any loss resulting from willful misfeasance, bad faith or gross negligence on
its part in the performance of the Adviser's duties or from its reckless
disregard of its obligations and duties under this Agreement. Any person, even
though also an officer, director, partner, employee or agent of the Adviser, who
may be or become an officer, Director, employee or agent of the Fund, shall be
deemed, when rendering services to the Fund or to a Series, or acting on any
business of the Fund or of a Series (other than services or business in
connection with the Adviser's duties as investment adviser hereunder) to be
rendering such services to or acting solely for the Fund or such Series and not
as an officer, director, partner, employee or agent or one under the control or
direction of the Adviser even though paid by the Adviser.
10. TERM.
As to each Series, this Agreement shall continue until the date set forth
opposite such Series' name on Schedule 1 attached hereto (the "Reapproval
Date"), and thereafter shall continue automatically for successive annual
periods ending on the day of each year set forth opposite the Series' name on
Schedule 1 attached hereto (the "Reapproval Day"), provided such continuance is
specifically approved as to a Series at least annually by (a) the Fund's Board
of Directors or (b) vote of a majority (as defined in the 1940 Act) of such
Series' outstanding voting securities, provided that in either event its
continuance also is approved by a majority of the Fund's Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. As to each Series, this Agreement may be terminated without
penalty, on 60 days' written notice to the Adviser (which notice may be waived
in writing by the Adviser), by the Fund's Board of Directors or by vote of the
holders of a majority of such Series' shares or may be terminated without
penalty, upon not less than 90 days' written notice to the Fund (which notice
may be waived in writing by the Fund), by the Adviser. This Agreement also will
terminate automatically, as to the relevant Series, in the event of its
assignment (as defined in the 1940 Act).
11. USE OF NAME.
The parties hereto agree that (i) in the event of the termination of this
Agreement, the Adviser shall have the right to require the Fund, within 30 days
of such termination, to delete from the Series and its name, the word
"AmeriStar" and (ii) the Adviser or any affiliate of the Adviser shall have the
right to grant to other investment companies that it may sponsor or advise the
use of the word "AmeriStar" in the name of such investment company.
12. MISCELLANEOUS.
(a) AMENDMENTS. No provision of this Agreement may
be changed, waived, discharged or terminated, except by an
instrument in writing signed by the party against whom an
enforcement of the change, waiver, discharge or termination
is sought.
(b) CONSTRUCTION. The captions in this Agreement are
included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise
affect their construction or effect. If any provision of
this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. Subject to the provisions of
Section 10 hereof, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors
and shall be governed by New York law; PROVIDED, HOWEVER, that nothing
herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation of the Commission thereunder.
(c) NOTICE. Any notice or other instrument in
writing, authorized or required by this Agreement to be
given to the Fund shall be effective upon actual receipt by
the Fund, or on the fourth day after the postmark if such notice or
other instrument is mailed via first class postage prepaid, at its
office at the address first above written, or at such other place as
the Fund may from time to time designate in writing. Any notice or
other instrument in writing, authorized or required by this Agreement
to be given to the Adviser shall be effective upon actual receipt by
the Adviser, or on the fourth day after the postmark if such notice or
other instrument is mailed via first class postage prepaid, at its
office at the address first above written, or at such other place as
the Adviser may from time to time designate in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE INFINITY MUTUAL FUNDS, INC.
By:
William B. Blundin,
President and Chairman of the Board
Attest:
George O. Martinez,
Secretary
FIRST AMERICAN NATIONAL BANK
By:
Attest:
<PAGE>
SCHEDULE 1
Annual Fee as
a Percentage of
Average Daily Reapproval Reapproval
Name of Series Net Assets Date Day
AmeriStar Capital
Growth Portfolio .65 of 1% December 31, 1997 December 31
AmeriStar Core Income
Portfolio .50 of 1% December 31, 1997 December 31
AmeriStar Dividend
Growth Portfolio .65 of 1% December 31, 1997 December 31
AmeriStar Limited
Duration Income
Portfolio .50 of 1% December 31, 1997 December 31
AmeriStar Limited
Duration Tennessee Tax
Free Portfolio .50 of 1% December 31, 1998 December 31
AmeriStar Limited
Duration U.S. Government
Portfolio .50 of 1% December 31, 1998 December 31
AmeriStar Prime Money
Market Portfolio * December 31, 1997 December 31
AmeriStar Tennessee
Tax Exempt Bond
Portfolio .50 of 1% December 31, 1997 December 31
AmeriStar U.S.
Treasury Money
Market Portfolio .25 of 1% December 31, 1997 December 31
As Revised: February 11, 1997
- --------
* The Fund has agreed to pay the Adviser a monthly fee at the annual rate of .25
of 1% of the Series' average daily net assets less any amounts paid by the Fund
to Barnett Capital Advisors, Inc. as the Series' sub-investment adviser.
<PAGE>
EXHIBIT (5) (c)
ADMINISTRATION AGREEMENT
Administration Agreement made as of April 25, 1996, and revised as of
February 11, 1997, between certain portfolios of THE INFINITY MUTUAL FUNDS,
INC., a Maryland corporation having its principal office and place of business
at 125 West 55th Street, 11th Floor, New York, New York 10019 (herein called the
"Fund"), and BISYS FUND SERVICES LIMITED PARTNERSHIP, an Ohio limited
partnership having its principal office and place of business at 3435 Stelzer
Road, Columbus, Ohio 43219-3035 (herein called "BISYS").
WHEREAS, the Fund is an open-end, management investment company, registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
consisting of, among others, the portfolios set forth on Schedule 1 hereto, as
such Schedule may be revised from time to time (each, a "Series");
WHEREAS, the Fund intends from time to time to employ certain entities (in
addition to those named below), some of which may be affiliated with BISYS, to
provide services to one or more Series (each, a "Service Provider");
WHEREAS, the Fund employs Concord Financial Group, Inc. and, in the future,
an affiliate of such entity (the "Distributor") to act as distributor for each
Series' shares of common stock, par value $.001 per share (the "Shares");
WHEREAS, the Fund, in respect of the Series, previously had employed an
affiliate of BISYS as its administrator; and
WHEREAS, the Fund desires to retain BISYS as its Administrator to provide
it with administrative services with respect to each Series, and BISYS is
willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Fund has delivered to BISYS copies of each of the following documents
and will deliver to it all future amendments and supplements thereto, if any:
(a) The Fund's Articles of Incorporation and all
amendments and supplements thereto (as presently in effect and as from
time to time amended or supplemented, herein called the "Charter");
(b) The Fund's By-laws (as presently in effect and as
from time to time amended, herein called the "By-laws");
(c) Resolutions of the Board of Directors of the Fund
authorizing the execution and delivery of this Agreement;
(d) The Fund's Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act on Form
N-1A most recently filed with the Securities and Exchange Commission (the
"Commission") relating to the Shares, and all subsequent amendments or
supplements thereto (the "Registration Statement");
(e) The Fund's Notification of Registration under the
1940 Act on Form N-8A as filed with the Commission; and
(f) The Fund's current Prospectuses and Statements of
Additional Information pertaining to the Series (as presently in effect and as
from time to time amended and supplemented, herein called the "Prospectus").
II. ADMINISTRATION
1. APPOINTMENT OF ADMINISTRATOR. The Fund hereby appoints BISYS as its
Administrator for each of the Series on the terms and for the period set forth
in this Agreement and BISYS hereby accepts such appointment and agrees to
perform the services and duties set forth in this Section II for the
compensation provided in this Section. The Fund understands that BISYS now acts,
and that from time to time hereafter BISYS may act, as administrator of various
investment companies or fiduciary for other managed accounts, and the Fund has
no objection to BISYS' so acting. In addition, it is understood that the persons
employed by BISYS to assist in the performance of its duties hereunder will not
devote their full time to such services and nothing herein contained shall be
deemed to limit or restrict the right of BISYS or any affiliate of BISYS to
engage in and devote time and attention to other businesses or to render
services of whatever kind or nature.
2. SERVICES AND DUTIES.
(a) As Administrator, and subject to the supervision and control of the
Fund's Board of Directors, BISYS will provide office facilities, equipment,
statistical and research data, clerical, accounting and bookkeeping services,
internal compliance services relating to accounting and legal matters, and
personnel to carry out all administrative services required for operation of the
business and affairs of the Series, other than those management, investment
advisory and sub-advisory functions which are to be performed by certain Service
Providers pursuant to their respective agreements with the Fund, the services of
the Distributor, those services to be performed by the Fund's custodian and
transfer agent, and those services normally performed by the Fund's legal
counsel and independent auditors. BISYS' responsibilities include without
limitation the following services:
(1) Providing a facility to receive purchase and
redemption orders via toll-free IN-WATTS telephone lines;
(2) Providing for the preparing, supervision and
mailing of confirmations for all purchase and redemption orders;
(3) Providing and supervising the operation of an
automated data processing system to process purchase and redemption
orders received by the Distributor (BISYS assumes responsibility for
the accuracy of the data transmitted for processing or storage);
(4) Overseeing the performance of the Fund's custodian
and transfer agent;
(5) Making available information concerning each
Series to its shareholders; distributing written communications to each
Series' shareholders such as periodic listings of each Series'
securities, annual and semi-annual reports, and the Prospectus and
supplements thereto; and handling shareholder problems and calls
relating to administrative matters; and
(6) Providing and supervising the services of
employees ("relationship coordinators") whose principal responsibility
and function shall be to preserve and strengthen each Series'
relationships with its shareholders.
(b) BISYS shall assure that persons are available to
receive redemption requests to the Fund's transfer agent as promptly
as practicable.
(c) BISYS shall assure that persons are available to
receive orders accepted for the purchase of Shares to the transfer
agent as promptly as practicable.
(d) BISYS shall participate in the periodic updating
of the Prospectus and shall accumulate information for and, subject
to approval by the Fund's Treasurer and legal counsel, coordinate the
preparation, filing, printing and dissemination of reports to the Series'
shareholders and the Commission, including but not limited to annual reports and
semi-annual reports on Form N-SAR, notices pursuant
to Rule 24f-2 and proxy materials.
(e) BISYS shall pay all costs and expenses of
maintaining the offices of the Fund, wherever located, and shall arrange for
payment by the Series of all expenses payable by the Series.
(f) BISYS, after consultation with legal counsel for
the Fund, shall determine the jurisdictions in which the Shares shall be
registered or qualified for sale and, in connection therewith, shall be
responsible for the maintenance of the registration or qualification of the
Shares for sale under the securities laws of any state. Payment of share
registration fees and any fees for qualifying or continuing the qualification of
the Series shall be made by the Series.
(g) BISYS shall provide the services of certain
persons who may be appointed as officers of the Fund by the Fund's
Board of Directors.
(h) BISYS shall oversee the maintenance by the Fund's
custodian and transfer agent of the books and records of the Fund required
under the 1940 Act in connection with the performance of the Fund's agreements
with such entities, and shall maintain, or provide for the maintenance of, such
other books and records (other than those required to be maintained by the
Service Providers) as may be required by law or may be required for the proper
operation of the business and affairs of the Series. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, BISYS agrees that all such books
and records which it maintains, or is responsible for maintaining, for the
Series are the property of the Fund and further agrees to surrender promptly to
the Fund any of such books and records upon the Fund's request. BISYS further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
said books and records required to be maintained by Rule 31a-1 under said Act.
(i) BISYS shall prepare the Series' federal, state and
local income tax returns.
(j) BISYS shall prepare and, subject to approval of
the Fund's Treasurer, disseminate to the Fund's Directors the Fund's and each
Series' quarterly financial statements and schedules of investments, and shall
prepare such other reports relating to the business and affairs of the Fund and
each Series (not otherwise appropriately prepared by the Service Providers, the
Fund's legal counsel or its independent auditors) as the officers and Directors
of the Fund may from time to time reasonably request in connection with the
performance of their duties.
(k) BISYS shall assist with the coordination of the
provision of investment management, advisory and sub-advisory services by
the Service Providers to the Series, and shall provide other administration
assistance to said entities as required to carry out the business and operations
of the Series.
(l) BISYS shall recommend, implement and monitor all
specialized services and programs that are necessary or appropriate in
order for the Series to serve properly the investment needs of the
fiduciary accounts investing in their Shares.
(m) In performing its duties as Administrator for the
Series, BISYS will act in conformity with the Charter, By-laws and Prospectus
and with the instructions and directions of the Board of Directors of the Fund
and will conform to and comply with the requirements of the 1940 Act and all
other applicable federal or state
laws and regulations.
3. SUBCONTRACTORS. It is understood that BISYS may from time to time employ
or associate with itself such person or persons as BISYS may believe to be
particularly fitted to assist in the performance of this Agreement; provided,
however, that the compensation of such person or persons shall be paid by BISYS
and that BISYS shall be as fully responsible to the Fund for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
4. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise stated in this
subsection 4, BISYS shall pay all expenses incurred by it in performing its
services and duties as Administrator. All other expenses incurred in the
operation of the Fund will be borne by the Fund, except to the extent
specifically assumed by others. The expenses to be borne by the Fund include,
without limitation, the following: organizational costs, taxes, interest,
brokerage fees and commissions, if any, fees of Directors who are not officers,
directors, employees or holders of 5% or more of the outstanding voting
securities of any Service Provider or BISYS, or any of their affiliates,
Commission fees, state Blue Sky qualification fees, management, advisory,
sub-advisory, administration and other shareholder services fees, charges of
custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, industry association fees, auditing and legal expenses, costs of
maintaining corporate existence, costs of independent pricing services, costs
attributable to investor services (including, without limitation, telephone and
personnel expenses), costs of calculating the net asset value of the Series'
shares, costs of shareholders' reports and corporate meetings, costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing shareholders (unless
otherwise provided pursuant to a plan adopted in accordance with Rule 12b-1
under the 1940 Act), and any extraordinary expenses.
5. COMPENSATION. In consideration of services rendered pursuant to this
Agreement, the Fund will pay BISYS on the first business day of each month the
fee at the annual rate set forth opposite each Series' name on Schedule 1
hereto, based upon the value of each Series' average daily net assets for the
previous month. Net asset value shall be computed on such days and at such time
or times as described in the Prospectus. The fee for the period from the date of
the commencement of the initial public sale of each Series' shares to the end of
the month during which such sale shall have been commenced shall be pro-rated
according to the proportion which such period bears to the full monthly period,
and upon any termination of this Agreement before the end of any month, the fee
for such part of a month shall be pro-rated according to the proportion which
such period bears to the full monthly period and shall be payable upon the date
of termination of this Agreement.
For the purpose of determining fees payable to BISYS, the value of each
Series' net assets shall be computed in the manner specified in the Charter for
the computation of the value of each Series' net assets.
Notwithstanding anything to the contrary herein, if in any fiscal year the
aggregate expenses of any Series, exclusive of taxes, brokerage, interest on
borrowings and (with the prior written consent of the necessary state securities
commissions) extraordinary expenses, but including the management, investment
advisory, sub-advisory and administration fees, exceed the expense limitation of
any such state having jurisdiction over the Series, the Fund may deduct from the
fees to be paid hereunder, or BISYS will bear, to the extent required by state
law, that portion of such excess which bears the same relation to the total of
such excess as BISYS' fee hereunder bears to the total fee otherwise payable for
the fiscal year by the Series pursuant to this Agreement and the Fund's
management, investment advisory and sub- advisory or similar agreements. BISYS'
obligation is limited to the amount of its fees hereunder. Such deduction or
payment, if any, will be estimated daily, and reconciled and effected or paid,
as the case may be, on a monthly basis.
6. CONFIDENTIALITY. BISYS will treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund
and each Series' prior or present shareholders or those persons or entities who
respond to inquiries concerning investment in a Series and, except as provided
below, will not use such records or information for any other purpose other than
for the performance of its responsibilities and duties with regard to the Series
which now exist or which may be added in the future. Any other use by BISYS of
the records and information referred to above may be made only after prior
notification to and approval in writing by the Fund. Such approval shall not be
unreasonably withheld and may not be withheld where (i) BISYS may be exposed to
civil or criminal contempt proceedings for failure to divulge such information;
(ii) BISYS is requested to divulge such information by duly constituted
authorities; or (iii) BISYS is so requested by the Fund.
III. LIMITATION OF LIABILITY
BISYS shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of BISYS' duties or from its
reckless disregard of its obligations and duties under this Agreement. Any
person, even though also an officer, director, partner, employee or agent of
BISYS, who may be or become an officer, Director, employee or agent of the Fund,
shall be deemed, when rendering services to the Fund or to any Series, or acting
on any business of the Fund or of any Series (other than services or business in
connection with BISYS' duties as Administrator hereunder) to be rendering such
services to or acting solely for the Fund or Series and not as an officer,
director, partner, employee or agent or one under the control or direction of
BISYS even though paid by BISYS.
IV. TERM
As to each Series, this Agreement shall continue until the date set forth
opposite such Series' name on Schedule 1 hereto (the "Reapproval Date"), and
thereafter shall continue automatically for successive annual periods ending on
the day of each year set forth opposite the Series' name on Schedule 1 hereto
(the "Reapproval Day"), provided such continuance is specifically approved as to
the Series at least annually by (a) the Fund's Board of Directors or (b) vote of
a majority (as defined in the 1940 Act) of such Series' outstanding voting
securities, provided that in either event its continuance also is approved by a
majority of the Fund's Directors who are not "interested persons" (as defined in
the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. As to each Series,
this Agreement is terminable without penalty, at any time if for "cause," by the
Fund's Directors or by vote of holders of a majority of such Series' shares or,
upon not less than 90 days' written notice to the Fund, by BISYS. This Agreement
also will terminate automatically, as to the relevant Series, in the event of
its assignment (as defined in the 1940 Act). "Cause" shall mean a material
breach by BISYS of its obligations under this Agreement which shall not have
been cured within 30 days after the date on which BISYS shall have received
written notice setting forth in detail the facts alleged to give rise to the
breach.
V. MISCELLANEOUS
1. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the party
against whom an enforcement of the change, waiver, discharge or termination is
sought.
2. CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Article IV hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law; PROVIDED,
HOWEVER, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation of the Commission thereunder.
3. NOTICE. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its office at the
address first above written, or at such other place as the Fund may from time to
time designate in writing. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to BISYS shall be sufficiently given
if addressed to BISYS and mailed or delivered to it at its office at the address
first above written, or at such other place as BISYS may from time to time
designate in writing.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below as of the day and
year first above written.
THE INFINITY MUTUAL FUNDS, INC.
By:______________________________
William B. Blundin,
President and Chairman of the Board
Attest:________________________
George O. Martinez,
Secretary
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:___________________________
Attest: ________________________
<PAGE>
SCHEDULE 1
Annual Fee as
a Percentage of
Average Daily
Name of Series Net Assets Reapproval Date Reapproval Day
AmeriStar Capital
Growth Portfolio .15 of 1% April 25, 2001 April 25
AmeriStar Core
Income Portfolio .15 of 1% April 25, 2001 April 25
AmeriStar Dividend
Growth Portfolio .15 of 1% April 25, 2001 April 25
AmeriStar Limited
Duration Income
Portfolio .15 of 1% April 25, 2001 April 25
AmeriStar Limited
Duration Tennessee
Tax Free
Portfolio .15 of 1% April 25, 2001 April 25
AmeriStar Limited
Duration U.S.
Government
Portfolio .15 of 1% April 25, 2001 April 25
AmeriStar Prime
Money Market
Portfolio .10 of 1% April 25, 2001 April 25
AmeriStar Tennessee
Tax Exempt Bond
Portfolio .15 of 1% April 25, 2001 April 25
AmeriStar U.S.
Treasury Money
Market Portfolio .10 of 1% April 25, 2001 April 25
Alpha Government .13% of assets December 31, 1997 December 31
Securities less than $200
Portfolio million
.12% of assets
from $200 million
to less than $300
million
.11% of assets
from $300 million
to less than $350
million
.10% of assets
$350 million and
over
BEA Short Duration
Portfolio .12 of 1% December 31, 1997 December 31
Correspondent Cash .10 of 1% December 31, 1997 December 31
Reserves Money
Market Portfolio
Correspondent Cash .10 of 1% December 31, 1997 December 31
Reserves Tax Free
Money Market
Portfolio
As Revised: February 11, 1997
EXHIBIT (6)(a)
DISTRIBUTION AGREEMENT
Distribution Agreement made as of February 11, 1997 between THE INFINITY
MUTUAL FUNDS, INC., a Maryland corporation having its principal office and place
of business at 125 West 55th Street, 11th Floor, New York, New York 10019
(herein called the "Fund"), and BISYS FUND SERVICES LIMITED PARTNERSHIP, an Ohio
limited partnership having its principal office and place of business at 3435
Stelzer Road, Columbus, Ohio 43219-3035 (herein called the "Distributor").
WHEREAS, the Fund is an open-end, management investment company and is so
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and consisting of the portfolios set forth on Schedule 1 hereto, as such
Schedule may be revised from time to time (each, a "Series"); and
WHEREAS, the Fund desires to retain the Distributor as distributor for
certain Series' shares of common stock, par value $.001 per share (the
"Shares"), and the Distributor is willing to render such services;
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Fund has delivered to the Distributor copies of the following documents
and will deliver to the Distributor all future amendments and supplements
thereto, if any:
(a) The Fund's Articles of Incorporation and all amendments and supplements
thereto (as presently in effect and as from time to time amended or
supplemented, herein called the "Charter");
(b) The Fund's By-laws (as presently in effect and as from time to time
amended, herein called the "By-laws");
(c) Resolutions of the Board of Directors of the Fund authorizing the
execution and delivery of this Agreement;
(d) The Fund's Registration Statement under the Securities Act of 1933, as
amended (the "1933 Act"), and the 1940 Act on Form N-1A most recently filed with
the Securities and Exchange Commission (the "Commission") relating to the
Shares, and all subsequent amendments or supplements thereto (the "Registration
Statement");
(e) The Fund's Notification of Registration under the 1940 Act on Form N-8A
as filed with the Commission; and
(f) The Fund's current Prospectuses and Statements of Additional
Information of the Series (as presently in effect and as from time to time
amended and supplemented, herein called individually the "Prospectus" and
collectively the "Prospectuses").
II. DISTRIBUTION
1. APPOINTMENT OF DISTRIBUTOR. The Fund hereby appoints the Distributor as
principal distributor of the Series' Shares and the Distributor hereby accepts
such appointment and agrees to render the services and duties set forth in this
Section II.
2. SERVICES AND DUTIES.
(a) The Fund agrees to sell through the Distributor, as agent, from time to
time during the term of this Agreement, Shares of the Series (whether authorized
but unissued or treasury shares, in the Fund's sole discretion) upon the terms
and at the current offering price as described in the applicable Prospectus. The
Distributor will act only in its own behalf as principal in making agreements
with selected dealers or others for the sale and redemption of Shares, and shall
sell Shares only at the offering price thereof as set forth in the applicable
Prospectus. The Distributor shall devote its best efforts to effect the sale of
Shares of each Series, but shall not be obligated to sell any certain number of
Shares.
(b) In all matters relating to the sale and redemption of Shares, the
Distributor will act in conformity with the Fund's Charter, By-laws and
Prospectuses and with the instructions and directions of the Fund's Board of
Directors and will conform to and comply with the requirements of the 1933 Act,
the 1940 Act, the regulations of the National Association of Securities Dealers,
Inc. and all other applicable Federal or state laws and regulations. In
connection with the sale of Shares, the Distributor acknowledges and agrees that
it is not authorized to provide any information or make any representation other
than as contained in the Fund's Registration Statement or Prospectuses and any
sales literature specifically approved by the Fund.
(c) Unless the Fund has adopted with respect to the Series a plan pursuant
to Rule 12b-1 under the 1940 Act which provides otherwise, the Distributor will
bear the costs and expenses of (i) printing and distributing to prospective
investors copies of any Prospectus (including any supplement thereto) and annual
and interim reports of the Series (after such items have been prepared and set
in type by the Fund) which are used in connection with the offering of Shares of
a Series; and (ii) preparing, printing and distributing any other literature
used by the Distributor in connection with the sale of the Shares; PROVIDED,
HOWEVER, that the Distributor shall not be obligated to bear the expenses
incurred by the Fund in connection with the preparation and printing
Prospectuses used for regulatory purposes and for distribution to existing
shareholders.
(d) All Shares of the Series offered for sale by the Distributor shall be
offered for sale to the public at a price per Share (the "offering price") equal
to (i) their net asset value (determined in the manner set forth in the Fund's
Charter and then-current Prospectuses) plus, (ii) a sales charge (if any) which
shall be the percentage of the offering price of such Shares as set forth in the
Fund's then-current Prospectuses. The offering price, if not an exact multiple
of one cent, shall be adjusted to the nearest cent. If a sales charge is in
effect, the Distributor shall have the right to pay a portion of the sales
charge to broker-dealers and other persons who have sold shares of the Series.
Concessions by the Distributor to broker- dealers and other persons shall be set
forth in either the selling agreements between the Distributor and such broker-
dealers and persons or, if such concessions are described in the then-current
Prospectuses, shall be as so set forth. No broker- dealer or other person who
enters into a selling agreement with the Distributor shall be authorized to act
as agent for the Fund in connection with the offering or sale of its Shares to
the public or otherwise. The Fund reserves the right to reject any order but
will not do so without reasonable cause.
(e) If any Shares sold by the Distributor under the terms of this Agreement
are redeemed or repurchased by the Fund or by the Distributor as agent or are
tendered for redemption within seven business days after the date of
confirmation of the original purchase of said Shares, the Distributor shall
forfeit the amount (if any) above the net asset value received by it in respect
of such Shares, provided that the portion, if any, of such amount (if any)
re-allowed by the Distributor to broker-dealers or other persons shall be
repayable to the Fund only to the extent recovered by the Distributor from the
broker-dealer or other person concerned. The Distributor shall include in the
forms of agreement with such broker-dealers and persons a corresponding
provision for the forfeiture by them of their concession with respect to Shares
sold by them or their principals and redeemed or repurchased by the Fund or by
the Distributor as agent (or tendered for redemption) within seven business days
after the date of confirmation of such initial purchases.
3. SALES AND REDEMPTIONS.
(a) The Fund shall pay all costs and expenses in connection with the
registration of the Shares under the 1933 Act, and all expenses in connection
with maintaining facilities for the issue and transfer of the Shares and for
supplying information, prices and other data to be furnished by the Fund
hereunder, and all expenses in connection with preparing, printing and
distributing any Prospectus, except as set forth in subsection 2(c) of Section
II hereof.
(b) The Fund shall execute all documents, furnish all information and
otherwise take all actions which may be reasonably necessary in the discretion
of the Fund's officers in connection with the qualification of the Shares for
sale in such states as the Distributor may designate to the Fund and the Fund
may approve, and the Fund shall pay all fees which may be incurred in connection
with such qualification. The Distributor shall pay all expenses connected with
its qualification as a dealer under state or Federal laws and, except as
otherwise specifically provided in this Agreement, all other expenses incurred
by the Distributor in connection with the sale of the Shares as contemplated in
this Agreement. It is understood that certain advertising, marketing,
shareholder servicing, administration and/or distribution expenses to be
incurred in connection with the Shares may be paid as provided in any plan which
may be adopted by the Fund in accordance with Rule 12b-1 under the 1940 Act.
(c) The Fund shall have the right to suspend the sale of Shares of any
Series at any time in response to conditions in the securities markets or
otherwise, and to suspend the redemption of Shares of any Series at any time
permitted by the 1940 Act or the rules of the Commission.
(d) The Fund reserves the right to reject any order for Shares.
(e) No Shares shall be offered by either the Fund or the Distributor under
any of the provisions of this Agreement and no orders for the purchase or sale
of Shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the Registration Statement shall be suspended under any of the
provisions of the 1933 Act, or if and so long as a Prospectus as required by
Section 10 of the 1933 Act is not on file with the Commission; provided,
however, that nothing contained in this sub-paragraph shall in any way restrict
or have any application to or bearing upon the Fund's obligation to repurchase
any Shares from any shareholder in accordance with the provisions of the Charter
or Prospectuses.
4. CONFIDENTIALITY. The Distributor will treat confidentially and as
proprietary information of the Fund all records and other information relative
to the Fund and each Series' prior or present shareholders or those persons or
entities who respond to inquiries concerning investment in a Series and, except
as provided below, will not use such records or information for any other
purpose other than for the performance of its responsibilities and duties with
regard to the Series which now exist or which may be added in the future. Any
other use by the Distributor of the records and information referred to above
may be made only after prior notification to and approval in writing by the
Fund. Such approval shall not be unreasonably withheld and may not be withheld
where (i) the Distributor may be exposed to civil or criminal contempt
proceedings for failure to divulge such information; (ii) the Distributor is
requested to divulge such information by duly constituted authorities; or (iii)
the Distributor is so requested by the Fund.
III. LIMITATION OF LIABILITY
The Distributor shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund or any Series in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the Distributor's part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
director, partner, employee or agent of the Distributor, who may be or become an
officer, director, employee or agent of the Fund, shall be deemed, when
rendering services to the Fund or to any Series, or acting on any business of
the Fund or of any Series (other than services or business in connection with
the Distributor's duties as distributor hereunder), to be rendering such
services to or acting solely for the Fund or a Series and not as an officer,
director, partner, employee or agent or one under the control or direction of
the Distributor even though paid by the Distributor.
IV. INDEMNIFICATION
1. FUND REPRESENTATIONS. The Fund represents and warrants to the
Distributor that at all times the Registration Statement and Prospectuses will
in all material respects conform to the applicable requirements of the 1933 Act
and the rules and regulations thereunder and will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation or warranty in this subsection shall apply to statements or
omissions made in reliance upon and in conformity with written information
furnished to the Fund by, or on behalf of, and with respect to, the Distributor
expressly for use in the Registration Statement or Prospectuses.
2. DISTRIBUTOR'S REPRESENTATIONS. The Distributor represents and warrants
to the Fund that it is duly organized as a Delaware corporation and is and at
all times will remain duly authorized and licensed to carry out its services as
contemplated herein.
3. FUND INDEMNIFICATION. The Fund will indemnify, defend and hold harmless
the Distributor, its several officers and directors, and any person who controls
the Distributor within the meaning of Section 15 of the 1933 Act, from and
against any losses, claims, damages or liabilities, joint or several, to which
any of them may become subject under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of, or are based upon, any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, the
Prospectuses or in any application or other document executed by or on behalf of
the Fund, or arise out of, or are based upon, information furnished by or on
behalf of the Fund filed in any state in order to qualify the Shares under the
securities or blue sky laws thereof ("Blue Sky Application"), or arise out of,
or are based upon, the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Distributor, its several officers and
directors, and any person who controls the Distributor within the meaning of
Section 15 of the 1933 Act, for any legal or other expenses reasonably incurred
by any of them in investigating, defending or preparing to defend any such
action, proceeding or claim; PROVIDED, HOWEVER, that the Fund shall not be
liable in any case to the extent that such loss, claim, damage or liability
arises out of, or is based upon, any untrue statement, alleged untrue statement,
or omission or alleged omission made in the Registration Statement, the
Prospectuses, any Blue Sky Application or any application or other document
executed by or on behalf of the Fund in reliance upon and in conformity with
written information furnished to the Fund by or on behalf of and with respect to
the Distributor specifically for inclusion therein.
The Fund shall not indemnify any person pursuant to this subsection 3
unless the court or other body before which the proceeding was brought has
rendered a final decision on the merits that such person was not liable by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties, or his reckless disregard of obligations and duties,
under this Agreement ("disabling conduct") or, in the absence of such a
decision, a reasonable determination (based upon a review of the facts) that
such person was not liable by reason of disabling conduct has been made by the
vote of a majority of a quorum of Directors of the Fund who are neither
"interested persons" of the Fund (as defined in the 1940 Act) nor parties to the
proceeding, or by an independent legal counsel in a written opinion.
The Fund shall advance attorneys' fees and other expenses incurred by any
person in defending any claim, demand, action or suit which is the subject of a
claim for indemnification pursuant to this subsection 3, so long as such person
shall: (i) undertake to repay all such advances unless it is ultimately
determined that he is entitled to indemnification hereunder; and (ii) provide
security for such undertaking, or the Series shall be insured against losses
arising by reason of any lawful advances, or a majority of a quorum of the
disinterested, non-party Directors of the Fund (or an independent legal counsel
in a written opinion) shall determine based on a review of readily available
facts (as opposed to a full trial-type inquiry) that there is reason to believe
that such person ultimately will be found entitled to indemnification hereunder.
4. DISTRIBUTOR'S INDEMNIFICATION. The Distributor will indemnify, defend
and hold harmless the Fund, each Series, the Fund's several officers and
Directors and any person who controls the Fund or any Series within the meaning
of Section 15 of the 1933 Act, from and against any losses, claims, damages or
liabilities, joint or several, to which any of them may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect hereof) arise out of, or are based upon,
any breach of its representations and warranties in subsection 2 hereof or its
agreements in subsection 2 of Section II of this Agreement, or which arise out
of, or are based upon, any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, the Prospectuses, any
Blue Sky Application or any application or other document executed by or on
behalf of the Fund, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, which statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Fund or any of
its several officers and Directors by or on behalf of and with respect to the
Distributor specifically for inclusion therein, and will reimburse the Fund,
each Series, the Fund's several officers and Directors, and any person who
controls the Fund or any Series within the meaning of Section 15 of the 1933
Act, for any legal or other expenses reasonably incurred by any of them in
investigating, defending or preparing to defend any such action, proceeding or
claim.
5. GENERAL INDEMNITY PROVISIONS. No indemnifying party shall be liable
under its indemnity agreement contained in subsection 3 or 4 hereof with respect
to any claim made against such indemnifying party unless the indemnified party
shall have notified the indemnifying party in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the indemnified party (or after the
indemnified party shall have received notice of such service on any designated
agent), but failure to notify the indemnifying party of any such claim shall not
relieve it from any liability which it may otherwise have to the indemnified
party. The indemnifying party will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, and if the indemnifying party elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the indemnified party. In the event the indemnifying party
elects to assume the defense of any such suit and retain such counsel, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by the indemnified party.
V. TERM
This Agreement shall continue automatically for successive annual periods
ending on December 31 of each year, provided such continuance is specifically
approved at least annually by (a) the Fund's Board of Directors or (b) vote of a
majority (as defined in the 1940 Act) of the Fund's outstanding voting
securities, provided that in either event its continuance also is approved by a
majority of the Fund's Directors who are not "interested persons" (as defined in
the 1940 Act) of any party to this Agreement, cast in person at a meeting called
for the purpose of voting on such approval. This Agreement is terminable without
penalty, on 60 days' written notice to the Distributor, by vote of a majority of
the Fund's outstanding voting securities or, as to each Series, by the Fund's
Board of Directors or, on 90 days' written notice to the Fund, by the
Distributor. This Agreement will automatically terminate, as to the relevant
Series, in the event of its assignment (as defined in the 1940 Act).
VI. MISCELLANEOUS
1. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated except by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
2. CONSTRUCTION. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Section IV hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law; PROVIDED,
HOWEVER, that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or regulation thereunder.
3. NOTICE. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its office at the
address first above written, or at such other place as the Fund may from time to
time designate in writing. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Distributor shall be
sufficiently given if addressed to the Distributor and mailed or delivered to it
at its office at the address first above written, or at such other place as the
Distributor may from time to time designate in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE INFINITY MUTUAL FUNDS, INC.
By:___________________________
William B. Blundin,
President and Chairman of the Board
Attest:_______________________
George O. Martinez,
Secretary
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.,
General Partner
By:___________________________
Attest:________________________
<PAGE>
SCHEDULE 1
NAME OF SERIES DATE ESTABLISHED
Alpha Government
Securities Portfolio April 27, 1990
AmeriStar Capital Growth Portfolio February 15, 1994
AmeriStar Core Income Portfolio February 15, 1994
AmeriStar Dividend Growth Portfolio February 15, 1994
AmeriStar Limited Duration Income
Portfolio February 15, 1994
AmeriStar Limited Duration
Tennessee Tax Free Portfolio February 11, 1997
AmeriStar Limited Duration U.S.
Government Portfolio February 11, 1997
AmeriStar Prime Money Market
Portfolio February 15, 1994
AmeriStar Tennessee Tax Exempt
Bond Portfolio February 15, 1994
AmeriStar U.S. Treasury February 15, 1994
Money Market Portfolio
BEA Short Duration Portfolio April 27, 1990
Correspondent Cash Reserves
Money Market Portfolio October 30, 1990
Correspondent Cash Reserves
Tax Free Money Market Portfolio October 30, 1990
<PAGE>
EXHIBIT (6)(b)(iii)
DISTRIBUTION PLAN AGREEMENT
with respect to Investor Shares of
the AmeriStar Portfolios of
THE INFINITY MUTUAL FUNDS, INC.
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219-3035
Gentlemen:
We wish to enter into this Agreement with you for distribution services
with respect to the Investor Shares of the AmeriStar Portfolios set forth on
Schedule 1 hereto, as such may be revised from time to time (each, a "Series"),
of The Infinity Mutual Funds, Inc. (the "Fund") of which you are the principal
underwriter as defined in the Investment Company Act of 1940 (the "Act") and the
exclusive agent for the continuous distribution of its shares.
The terms and conditions of this Agreement are as follows:
1. We agree to provide reasonable assistance in connection with the sale of
Investor Shares, which assistance may include distributing sales literature,
marketing and advertising. If we are restricted or unable to provide the
services contemplated above, we agree not to perform such services and not to
accept fees thereafter. Our acceptance of any fees hereunder shall constitute
our representation (which shall survive any payment of such fees and any
termination of this Agreement and shall be reaffirmed each time we accept a fee
hereunder) that our receipt of such fee is lawful.
2. We shall provide such office space and equipment, telephone facilities
and personnel (which may be all or any part of the space, equipment and
facilities currently used in our business, or all or any personnel employed by
us) as is necessary or beneficial for distributing, marketing or advertising
Investor Shares.
3. We agree that neither we nor any of our employees or agents are
authorized to make any representation concerning the Investor Shares, except
those contained in the then current Prospectuses and Statements of Additional
Information for the Series, copies of which will be supplied by you to us, or in
such supplemental literature or advertising materials as may be authorized by
you in writing.
4. For all purposes of this Agreement we will be deemed to be an
independent contractor, and will have no authority to act as agent for you or
the Fund in any matter or in any respect. We and our employees will, upon
request, be available during normal business hours to consult with you or your
designees concerning the performance of our responsibilities under this
Agreement.
5. In consideration of the services and facilities described herein, we
shall be entitled to receive from you, and you agree to pay to us, the fees set
forth in Exhibit A hereto. We understand that any payments pursuant to this
Agreement shall be paid only so long as this Agreement and the Distribution Plan
adopted by the Fund is in effect.
6. You reserve the right, at your discretion and without notice, to suspend
or withdraw the sale of Investor Shares of any Series.
7. We acknowledge that this Agreement shall become effective only when
approved by vote of a majority of (i) the Fund's Board of Directors, and (ii)
the Fund's Directors who are not "interested persons" (as defined in the Act) of
the Fund and have no direct or indirect financial interest in this Agreement,
cast in person at a meeting called for the purpose of voting on such approval.
8. This Agreement shall continue until the last day of the calendar year
next following the date of execution, and thereafter shall continue
automatically for successive annual periods ending on the last day of each
calendar year, provided such continuance is approved specifically at least
annually by a vote of a majority of (i) the Fund's Board of Directors and (ii)
the Fund's Directors who are not "interested persons" (as defined in the Act) of
the Fund and have no direct or indirect financial interest in this Agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. As to each Series, this Agreement is terminable without penalty, at
any time, by vote of a majority of the Fund's Directors who are not "interested
persons" (as defined in the Act) and have no direct or indirect financial
interest in this Agreement or, on not more than 60 days' written notice, by vote
of holders of a majority of the such Series' Investor Shares, or, upon 15 days'
notice, by you. Notwithstanding anything contained herein, if the Distribution
Plan adopted by the Fund is terminated by the Fund's Board of Directors, or the
Distribution Plan, or any part thereof, is found invalid or is ordered
terminated by any regulatory or judicial authority, or we fail to perform the
distribution functions contemplated by the Fund or by you, this Agreement shall
be terminable effective upon receipt of notice thereof by us. This Agreement
also shall terminate automatically, as to the relevant Series, in the event of
its assignment (as defined in the Act).
9. We understand that the Fund's Board of Directors will review, at least
quarterly, a written report of the amounts expended pursuant to this Agreement
and the purposes for which such expenditures were made. In connection with such
reviews, we will furnish you or your designees with such information as you or
they may reasonably request and will otherwise cooperate with you and your
designees (including, without limitation, any auditors designated by you), in
connection with the preparation of reports to the Fund's Board of Directors
concerning this Agreement and the monies paid or payable by you pursuant hereto,
as well as any other reports or filings that may be required by law.
10. All communications to you shall be sent to you at the address set forth
above. Any notice to us shall be duly given if mailed or telegraphed to us at
the address set forth below.
11. This Agreement shall be construed in accordance with the internal laws
of the State of New York, without giving effect to principles of conflict of
laws.
Very truly yours,
------------------------------------------
(Please Print or Type Service Organization's
Name)
------------------------------------------
Address
------------------------------------------
City State Zip Code
Date By:
Authorized Signature
<PAGE>
NOTE: Please return both signed copies of this Agreement to
BISYS Fund Services Limited Parternship. Upon
acceptance one countersigned copy will be returned for
your files.
Accepted:
BISYS FUND SERVICES LIMITED PARTNERSHIP
BY: BISYS Fund Services, Inc.
General Partner
Date By:
<PAGE>
EXHIBIT A
Distribution Plan Agreement
between
BISYS FUND SERVICES LIMITED PARTNERSHIP
and
Name of Service Organization
The Service Organization will be paid a monthly fee
at the annual rate of _____ of 1% based upon the
average daily value of Investor Shares owned by
shareholders for whom the Service Organization is the
holder of record or dealer
of record.
For purposes of determining the fees payable
hereunder, the average daily net asset value of each
Series' Investor Shares shall be computed in the
manner specified in the Fund's Articles of
Incorporation and such Series' then current
Prospectus and Statement of Additional Information.
Dated: _______________
<PAGE>
SCHEDULE 1
NAME OF SERIES
AmeriStar Capital Growth Portfolio
AmeriStar Core Income Portfolio
AmeriStar Dividend Growth Portfolio
AmeriStar Limited Duration Income Portfolio
AmeriStar Limited Duration Tennessee Tax Free Portfolio
AmeriStar Limited Duration U.S. Government Portfolio
AmeriStar Prime Money Market Portfolio
AmeriStar Tennessee Tax Exempt Bond Portfolio
AmeriStar U.S. Treasury Money Market Portfolio
EXHIBIT (11)
Independent Auditors' Consent
The Board of Directors
The Infinity Mutual Funds, Inc. -- The AmeriStar Mutual Funds:
We consent to the use of our report dated February 18, 1997, for The
AmeriStar Mutual Funds - the AmeriStar Capital Growth Portfolio (formerly the
ValueStar Capital Growth Portfolio), the AmeriStar Tennessee Tax Exempt Bond
Fund (formerly the ValueStar Tennessee Tax Exempt Bond Portfolio), the AmeriStar
Limited Duration Income Portfolio (formerly the ValueStar Short-Intermediate
Duration Bond Portfolio) and the AmeriStar Core Income Portfolio (formerly the
ValueStar Investment Grade Bond Portfolio) - as of December 31, 1996 and for the
periods indicated therein, and to the references to our firm under the headings
"Financial Highlights" in the Prospectus and "Custodian, Transfer and Dividend
Disbursing Agent, Counsel and Independent Auditors" in the Statement of
Additional Information.
KPMG Peat Marwick LLP
Columbus, Ohio
February 27, 1997
EXHIBIT (15)(c)
THE INFINITY MUTUAL FUNDS, INC.
DISTRIBUTION PLAN PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
AmeriStar Portfolios
WHEREAS, The Infinity Mutual Funds, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended ("1940 Act"), as an open-end,
management investment company, and offers for public sale distinct series of
shares of common stock, each corresponding to a distinct portfolio; and
WHEREAS, the Fund's Board of Directors (the "Board") has established as
separate series of the Fund the AmeriStar Portfolios set forth on Schedule 1
hereto, as such Schedule may be revised from time to time (each, a "Series");
and
WHEREAS, the Fund currently employs BISYS Fund Services Limited Partnership
(the "Distributor") as distributor for the shares of common stock of each
Series; and
WHEREAS, the Fund desires to adopt a Distribution Plan ("Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to each Series and, in particular, a
certain class of shares of such Series--the Investor Shares (such class being
referred to as the "Class"); and
WHEREAS, the Board, in considering whether each Series should implement
this Plan, has requested and evaluated such information as it deemed necessary
to an informed determination as to whether a written plan should be implemented
and has considered such pertinent factors as it deemed necessary to form the
basis for a decision to use assets of the Class for the purposes set forth
below; and
WHEREAS, in voting to approve the implementation of this Plan, the
Directors have concluded, in the exercise of their reasonable business judgment
and in light of their respective fiduciary duties, that there is a reasonable
likelihood that the Plan will benefit the Class and the holders of Investor
Shares;
NOW, THEREFORE, the Fund hereby adopts this Plan with respect to each
Series in accordance with Rule 12b-1 under the 1940 Act.
Section 1. The Fund shall pay the Distributor for advertising, marketing
and distributing the Investor Shares a monthly fee at an annual rate of .25 of
1% of the average daily net assets of each Series' Investor Class. The
Distributor may pay certain financial institutions, securities dealers and other
industry professionals ("Service Organizations") in respect of these services
pursuant to an agreement between the Distributor and the Service Organization
("Plan Agreement"). The Fund's administrator and the Series' investment adviser
or sub- investment adviser and their affiliates are eligible to become Service
Organizations and to receive fees under this Plan. As to each Series, all
expenses incurred by such Series' Class in connection with this Plan shall be
borne entirely by the holders of such Series' Investor Shares.
Section 2. Payments to Service Organizations under paragraph 1 hereof shall
be subject to compliance by the Service Organizations with the terms of their
respective Plan Agreement with the Distributor.
Section 3. As to each Series, this Plan shall not take effect with respect
to such Series' Class unless it first has been approved by a vote of the then
sole holder of such Series' Investor Shares.
Section 4. As to each Series, this Plan shall become effective with respect
to the Class on the date the public offering of such Series' Investor Shares
commences, and shall continue for a period of one year from such effective date,
unless earlier terminated in accordance with the terms hereof. Thereafter, this
Plan shall continue automatically for successive annual periods, provided such
continuance is approved annually by the Board, including a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of the
Fund and who have no direct or indirect financial interest in the operation of
this Plan or in any Plan Agreement (the "Independent Directors"), pursuant to a
vote cast in person at a meeting called for the purpose of voting on the
continuance of this Plan.
Section 5. The Board shall be provided with and shall review, at least
quarterly, a written report of the amounts expended with respect to each Series
under this Plan and the purposes for which such expenditures were made. Such
report shall include any amounts paid to Service Organizations and the purposes
for which such payments were made.
Section 6. As to each Series, this Plan may be terminated at any time by
vote of the Board, by vote of a majority of the Independent Directors, or by
vote of the holders of a majority (as defined in the 1940 Act) of such Series'
outstanding Investor Shares.
Section 7. As to any Series, this Plan may not be amended to increase
materially the payments provided for in paragraph 1 hereof unless such amendment
is approved by vote of the holders of a majority (as defined in the 1940 Act) of
such Series' Investor Shares, and no material amendment to this Plan affecting a
Series shall be made unless approved in the manner provided for approval and
annual renewal in Section 4 hereof.
Section 8. While this Plan is in effect, the selection and nomination of
those Directors who are not "interested persons" (as defined in the 1940 Act) of
the Fund shall be committed to the discretion of the Directors who are not
interested persons of the Fund.
Section 9. The Fund shall preserve copies of this Plan (including any
amendments thereto) and any related agreements and all reports made pursuant to
Section 5 hereof for a period of not less than six years from the date of this
Plan, the first two years in an easily accessible place.
Dated: February 15, 1994
As Revised: February 11, 1997
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SCHEDULE 1
NAME OF SERIES DATE ESTABLISHED
AmeriStar Capital Growth Portfolio February 15, 1994
AmeriStar Core Income Portfolio February 15, 1994
AmeriStar Dividend Growth Portfolio February 15, 1994
AmeriStar Limited Duration Income February 15, 1994
Portfolio
AmeriStar Limited Duration Tennessee
Tax Free Portfolio February 11, 1997
AmeriStar Limited Duration U.S.
Government Portfolio February 11, 1997
AmeriStar Tennessee Tax February 15, 1994
Exempt Bond Portfolio
As Revised: February 11, 1997
EXHIBIT (18)(ii)
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR NON-MONEY MARKET FUNDS
RULE 18F-3 PLAN
Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"), requires that the Board of an investment company desiring to offer
multiple classes pursuant to said Rule adopt a plan setting forth the separate
arrangement and expense allocation of each class, and any related conversion
features or exchange privileges.
The Board, including a majority of the non-interested Board members, of The
Infinity Mutual Funds, Inc. (the "Fund"), on behalf of each series of the Fund
listed on Schedule A attached hereto (each, a "Portfolio") which offers multiple
classes, has determined that the following plan is in the best interests of each
class individually and the Portfolio as a whole:
(a) CLASS DESIGNATION: Portfolio shares shall be divided into Investor
Shares and Trust Shares.
(b) DIFFERENCES IN SERVICES: The services offered to shareholders of each
Class shall be substantially the same, except that TeleTrade, Right of
Accumulation, Letter of Intent, Automatic Investment Plan, Directed Distribution
Plan, Automatic Withdrawal Plan and Reinstatement Privilege shall be available
only to holders of Investor Shares.
(c) DIFFERENCES IN DISTRIBUTION ARRANGEMENTS: Investor Shares of each
Portfolio shall be offered with a front- end sales charge, as such term is
defined under Rule 2830 of the Conduct Rules of the National Association of
Securities Dealers, Inc., and shall be charged an annual distribution fee under
a Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act. The
amount of the sales charge and the amount of the fees under the Distribution
Plan pertaining to the Investor Shares are set forth on Schedule B hereto.
Trust Shares shall be offered at net asset value with no front-end sales
charge. Trust Shares shall be offered exclusively to clients of First American
National Bank for their qualified trust, custody and/or agency accounts and to
clients of affiliated and correspondent banks of First American National Bank or
certain other institutions for their similar accounts maintained at such
affiliates or institutions.
(d) EXPENSE ALLOCATION. The following expenses shall be allocated, to the
extent practicable, on a Class-by- Class basis: (a) fees under the Distribution
Plan; (b) printing and postage expenses related to preparing and distributing
materials, such as shareholder reports, prospectuses and proxies, to current
shareholders of a specific Class; (c) Securities and Exchange Commission and
Blue Sky registration fees incurred by a specific Class; (d) the expense of
administrative personnel and services as required to support the shareholders of
a specific Class; (e) litigation or other legal expenses relating solely to a
specific Class; (f) transfer agent fees identified by the Fund's transfer agent
as being attributable to a specific Class; and (g) Board members' fees incurred
as a result of issues relating to a specific Class.
Dated: April 26, 1995
Revised: February 11, 1997
<PAGE>
SCHEDULE A
AmeriStar Capital Growth Portfolio
Investor Shares and Trust Shares
AmeriStar Core Income Portfolio
Investor Shares and Trust Shares
AmeriStar Dividend Growth Portfolio
Investor Shares and Trust Shares
AmeriStar Limited Duration Income Portfolio
Investor Shares and Trust Shares
AmeriStar Limited Duration Tennessee Tax Free Portfolio
Investor Shares and Trust Shares
AmeriStar Limited Duration U.S. Government Portfolio
Investor Shares and Trust Shares
AmeriStar Tennessee Tax Exempt Bond Portfolio
Investor Shares and Trust Shares
<PAGE>
SCHEDULE B
FRONT-END SALES CHARGE--INVESTOR SHARES--The public offering price for
Investor Shares shall be the net asset value per share of that Class plus a
sales load as shown below:
Total Sales Load
-----------------------------
As a % of As a % of
offering net asset
price per value per
share share
Amount of Transaction ------------------ ------------------
Less than $100,000.................... 3.00 3.09
$100,000 to less than $250,000........ 2.50 2.56
$250,000 to less than $500,000........ 2.00 2.04
$500,000 to less than $750,000........ 1.50 1.52
$750,000 to less than $1,000,000...... 1.00 1.01
$1,000,000 and above.................. 0.25 0.25
AMOUNT OF DISTRIBUTION PLAN FEES--INVESTOR SHARES--.25 of 1% of the value
of the average daily net assets of the Investor Shares class.
