<PAGE> 1
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR MUTUAL FUNDS
3435 Stelzer Road
Columbus, OH 43219
INVESTMENT ADVISER
First American National Bank
315 Deaderick Street
Nashville, TN 37237-0401
ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
CUSTODIAN
The Bank of New York
90 Washington Street
New York, NY 10286
TRANSFER AGENT & DIVIDEND DISBURSING AGENT
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
BISYS Fund Services is the Portfolios' distributor and is unaffiliated with
First American National Bank, the Portfolios' adviser.
Investments in the Portfolios are neither guaranteed by nor obligations of First
American National Bank or any other bank and are not insured by the FDIC or any
other government agency. Investments in mutual funds involve risk, including the
possible loss of principal. This material must be preceded or accompanied by a
current prospectus.
HELPING PEOPLE PLAN
FOR A BRIGHTER FUTURE.(SM)
760002
[AMERISTAR MUTUAL FUNDS LOGO]
AMERISTAR CAPITAL
GROWTH PORTFOLIO
AMERISTAR LIMITED
DURATION INCOME PORTFOLIO
ANNUAL REPORT
AMERISTAR CORE
INCOME PORTFOLIO
AMERISTAR TENNESSEE TAX
EXEMPT BOND PORTFOLIO
DECEMBER 31, 1996
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FUND FACTS
The AmeriStar Funds provide shareholders with a variety of features to
make investing in the Portfolios easy, convenient and manageable.
<TABLE>
<S> <C> <C>
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AMERISTAR FUND FEATURES AMERISTAR FUND BENEFITS
PROFESSIONAL INVESTMENT The investment managers at First American National Bank are
MANAGEMENT experienced investment professionals who oversee the
investments in each mutual fund.
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LOW MINIMUM INVESTMENT Initial investments in the Portfolios can be as low as
$1,000.
DEDICATED CUSTOMER Account information is available from helpful
SERVICE representatives. Just call 1-800-852-0045.
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AUTOMATIC INVESTMENTS Investments can be made once or twice a month with automatic
transfers from your checking account to your Portfolio
account.
DOLLAR COST AVERAGING Dollar Cost Averaging is a means of investing by which you
invest a fixed dollar amount on a consistent basis. You
invest whether the financial markets are high or low. As a
result, you buy more shares when prices are low and fewer
when prices are high. In this way, you can achieve a lower
average cost per share.*
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AUTOMATIC WITHDRAWALS Automatic withdrawals from your Portfolio account can be
made and credited to any account you designate.
FREE EXCHANGE PRIVILEGES Shares of a Portfolio can be exchanged into shares of other
AmeriStar Portfolios at no cost.**
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REGULAR, INFORMATIVE You will receive account statements after each transaction,
STATEMENTS AND REPORTS plus regular financial reports highlighting performance and
investment strategies.
DIVIDEND REINVESTMENT Dividend income and capital gains can be reinvested
automatically in additional shares of a Portfolio.
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DAILY REDEMPTIONS Shares are redeemable each business day (at the net asset
value per share, which may be worth more or less than your
original cost, next determined after receipt of your
redemption request) by mail, telephone or bank wire.
* Dollar Cost Averaging does not assure a profit and does not protect against loss in
declining markets. You should consider your financial ability to continue your
investment program during periods of extreme share price fluctuations.
** Exchange privileges may be modified or discontinued by the Portfolios at any time.
Upon redemption, shares may be worth more or less than their original cost.
HELPING PEOPLE PLAN FOR A BRIGHTER FUTURE.(SM)
</TABLE>
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<TABLE>
<S> <C>
CHARLES WINGER
Portfolio Manager
Capital Growth
Portfolio
</TABLE>
INVESTMENT GOAL
The Portfolio seeks to provide investors with the potential to achieve long-term
capital growth by investing primarily in the equity securities of domestic
issuers whose earnings are growing faster than the economy as a whole. It
invests primarily in large U.S. companies with market capitalizations of at
least $500 million. This Portfolio is suitable for investors who are investing
for the long term and are comfortable assuming the additional risk of investing
in stocks in exchange for potentially higher total returns.
Q. DESCRIBE YOUR PERFORMANCE FOR THE YEAR.
A. For the year ended December 31, 1996, the Fund produced a total return of
22.26%.* In comparison, the unmanaged Standard & Poors 500 Stock Index, a broad
measure of stock market performance, was up 22.94%.
Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE?
A. We were overweighted in the right sectors during the year -- technology,
energy and health care. We were comfortably ahead of the market for the first
eleven months, although we gave up some performance during the month of
December. At the end of the year, there was a runup in interest rates, which
offered investors an opportunity to take profits in the areas that had the most
gains, such as oil service, technology and pharmaceuticals.
Q. WHAT AREAS OF THE MARKET WERE THE STRONGEST FOR THE PORTFOLIO?
A. Within technology, we did well with Cisco Systems (1.98% of total
investments), Intel (2.19%), Microsoft (2.19%) and Oracle Systems (1.84%). Cisco
Systems is the industry leader in networking. Intel is the premier semiconductor
manufacturer. Microsoft is the dominant software supplier, and Oracle is a
leader in systems software. These companies are all industry leaders in their
particular niche in the market. Technology companies help to improve
productivity and profitability for corporations. This is an ongoing theme, and
we expect technology to continue to outperform the market.
In health care, the pharmaceutical stocks did particularly well. They had
underperformed for the past few years, and as people became more concerned about
the economy, investors began to look for more stable growers; I think the
pharmaceutical stocks fit that bill -- consistent, good stable earnings that you
can count on for the next few years.
Those areas that underperformed the market -- papers, chemicals and steels
- -- those most sensitive to the economy, did not do well in 1996 nor do we think
they will do better in the first half of 1997. We thought the small and midcaps
would come on, but they did not as of December 31, 1996. Three names that come
to mind are Crackerbarrel (1.55%), the restaurant chain; Corrections Corp. of
America (1.19%), a prison management company; and Centocor (1.09%), which is a
biotech company. Those are three midcaps that we added to the portfolio
anticipating that they would perform well, and currently they appear to be doing
so.**
In energy, a few oil service companies, Schlumberger (1.96%) and Halliburton
(1.54%), did pretty well for us, even though we took some
1
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profits in that sector late in the quarter. As economies improve and emerge
overseas, there's going to be a need for more natural gas and oil, so the
obvious beneficiary of that trend are the oil service companies.**
Q. DESCRIBE YOUR SELECTION PROCESS.
A. Our minimum market capitalization is $500 million, and usually the stock has
a market cap of at least $1 billion, which puts us in the midcap or larger
category. We try to pick companies with price/earnings multiples that are no
more than 1 to 1.25 times the company's growth rate. If the stock's
price/earnings ratio is more than 2 times the company's growth rate, then that
would be a time to reduce our position or sell the stock. We're looking for
minimum earnings growth of 14%-15%, in which the company is an industry leader,
has a unique product or service and fits into one of several themes. Those
themes include providing productivity enhancements, taking advantage of changing
demographics, or taking advantage of a recovery in international economies.
Typically, we don't own international stocks but, rather, domestic companies
with strong international components, such as Gillette and pharmaceutical
companies. One exception is LM Ericcson (2.48%), a Swedish telecommunications
equipment manufacturer.**
Q. WHAT IS YOUR OUTLOOK FOR THE STOCK MARKET?
A. The cash flows into the market are just overwhelming the fundamentals right
now. There's a lot of money coming in from foreign investors as well, helped by
the strengthening dollar. Nevertheless, equities are at the upper end of fair
valuation, given the current level of interest rates. The risks are higher this
year than last year. But as long as the economy remains on a slow growth-low
inflation track, and barring unforeseen disruptions to our financial markets, we
feel that equities can rise in line with the expected increase in corporate
profits this year. In selecting equities for investment this year, we will be
emphasizing those companies that have pricing power for their products or
services, fill a market niche, have earnings visibility and consistency and will
be the beneficiary of changing demographics in our society.
- ---------------
* With the 3.00% sales load, the Portfolio's return was 18.53% for the period.
** The Portfolio's composition is subject to change.
2
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PORTFOLIO COMPOSITION AS OF
DECEMBER 31, 1996*
SECTOR PROFILE
The AmeriStar Capital Growth Portfolio invests in a portfolio designed to
provide capital growth by investing primarily in stocks of large,
well-capitalized U.S. companies. The Portfolio's adviser has latitude in
deciding which companies and industries provide the greatest growth potential
at any given time. The Portfolio currently invests in 10 major industry groups,
including health care, energy and consumer staples.
<TABLE>
<S> <C>
FINANCIAL SERVICES 9.6%
HEALTH CARE 16.3%
CASH 9.1%
UTILITIES 5.1%
ENERGY 8.8%
CAPITAL GOODS - IND 11.5%
CAPITAL GOODS - TECH 15.5%
CONSUMER CYCLICALS 2.7%
CONSUMER STAPLES 11.2%
CONSUMER SERVICES 10.2%
</TABLE>
TOP 10 EQUITY HOLDINGS*
<TABLE>
<CAPTION>
PERCENT OF
TOTAL ASSETS
-------------
<S> <C>
Gillette Co. ............................................... 3.17%
American International Group Inc. .......................... 2.98%
Sybron International Corp. ................................. 2.78%
Health Care & Retirement Corp. ............................. 2.62%
SBC Communications Inc. .................................... 2.59%
Eli Lilly & Co. ............................................ 2.58%
Tyco International Ltd. .................................... 2.54%
General Electric Co. ....................................... 2.52%
Columbia HCA HealthCare Corp. .............................. 2.49%
Federal National Mortgage Assoc. ........................... 2.47%
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TOTAL....................................................... 26.74%
======
</TABLE>
* The Portfolio's composition is subject to change.
3
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- --------------------------------------------------------------------------------
AMERISTAR CAPITAL GROWTH PORTFOLIO
PERFORMANCE (AS OF DECEMBER 31, 1996)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Portfolio Portfolio
Measurement Period (without sales (with sales
(Fiscal Year Covered) charge) S&P 500 Index charge)
<S> <C> <C> <C>
80 10000 10000 9717
81 9918 9508 9623
82 12104 11557 11745
83 13135 14113 12783
84 12163 14937 11840
85 15388 19440 14953
86 18271 23068 17736
87 19397 24217 18868
88 20714 28182 20142
89 26696 37030 25943
90 25194 35794 24481
91 31434 46674 30519
92 33457 50160 32500
93 34602 55124 33632
94 34491 55777 33491
95 44951 76714 43679
96 54958 94315 53396
</TABLE>
Past performance is no guarantee of future results.
- ----------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
-------------------------
WITH SALES WITHOUT SALES
CHARGE* CHARGE
---------- -------------
<S> <C> <C>
1 Year..................... 18.53% 22.26%
5 Year..................... 11.16% 11.82%
10 Year.................... 11.30% 11.64%
Since Inception (4/1/96)... 11.03% 11.23%
</TABLE>
- ----------------------------------------------------
* Reflects 3.00% Sales Charge
A hypothetical $10,000 investment made on December 31, 1980, would have been
worth $54,958 on December 31, 1996, without the sales charge and $53,396 after
taking the maximum 3% sales charge into account.
The Capital Growth Portfolio is compared to the Standard & Poor's 500 Stock
Index, a broad measure of the stock market as a whole. The index is unmanaged
and does not reflect expenses associated with a mutual fund, such as sales
charges, expenses for fund operations, management fees, portfolio transaction
costs or the cash reserves required to provide daily liquidity. The Portfolio's
performance reflects the deduction of fees for these value-added services.
The AmeriStar Capital Growth Portfolio commenced operations on April 1, 1996
through a transfer of assets from certain collective trust fund ("Commingled")
accounts managed by First American National Bank, using substantially the same
investment objective, policies and methodologies as the Portfolio. The quoted
performance of the Portfolio includes performance of the Commingled accounts for
periods dating back to 12/31/80, and prior to the Portfolio's commencement of
operations, as adjusted to reflect the expenses associated with the Portfolio.
The Commingled accounts were not registered with the Securities and Exchange
Commission and, therefore, were not subject to the investment restrictions
imposed by law on registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been adversely
affected. The performance also reflects reinvestment of all dividends and
capital-gains distributions. Past performance is not a prediction of future
results. The Portfolio's investment return and principal value will fluctuate,
so that an investor's shares, when redeemed, may be worth more or less than
their original purchase price.
4
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<TABLE>
<S> <C>
SHARON BROWN
Portfolio Manager
Tennessee Tax Exempt
Bond Portfolio
</TABLE>
INVESTMENT GOAL
The Portfolio seeks to provide investors with current income exempt from federal
and Tennessee income taxes without assuming undue risk. The Portfolio invests
primarily in investment-grade Tennessee municipal obligations and is suitable
for Tennessee residents seeking monthly interest income exempt from both federal
and Tennessee personal income taxes.(1) The Portfolio affords greater
diversification and liquidity than most investors would achieve by purchasing
municipal securities directly.
Q. HOW DID THE PORTFOLIO PERFORM DURING 1996?
A. The Portfolio produced a total return of 1.39%* for the year. In comparison,
the Portfolio's unmanaged benchmark, the Lehman Brothers Municipal 10-Year
Index, produced a total return of 4.44%. The index is a broad performance
measure of municipal bonds with 10-year maturities. As of December 31, 1996, the
Portfolio's 30-day SEC yield was 4.15%. For investors in the 36% federal income
tax bracket, that is equivalent to a taxable yield of 6.48%.
Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE?
A. News that normally would not have had much effect caused considerable one-day
movements in the municipal market. The Federal Reserve Board governors would
come out and say something provocative, and yields would shoot up in one day. A
week later, some economic data would come out that suggested that the economy
was slowing down, which is good for the bond market, and yields would fall. The
market is very sensitive as we begin the seventh year of an expansion. Although
the municipal market was volatile, prices did not change much from the beginning
to the end of the year.
Municipal bonds are yielding about 80% to 85% of Treasuries, which is within a
normal range. The tax-reform issue, which was highlighted during the
presidential campaign, is no longer a factor in the market -- making municipal
bonds attractive to high-income taxpayers.
Because Tennessee has a state income tax -- and because of the top credit
quality of Tennessee bonds, tax-free bonds issued within the state do not yield
as much as municipal bonds in some other states. As a result, Tennessee bonds
yield less than the benchmark index, which draws from a national market.
From a credit standpoint, general obligation bonds and the high-grade revenue
bonds are the best place to be with yield spreads very tight. That is, we're not
getting paid to buy lower quality bonds. As a result, more than half the
portfolio is invested in general obligation bonds. Of the ones that are not, we
own essential revenue issues such as electric, water and sewer bonds. We do own
some hospital bonds, but they are issued by the stronger primary care providers
within the area.
Q. WHAT IS YOUR OUTLOOK?
A. For the next six months, we should be in a relatively tight trading range.
Although there's still strength in the economy, the economy will likely slow
down by midyear, which is positive for the bond market. The unemployment rate is
very low,
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but the consumer is becoming overburdened. At some point, one of these is going
to win out, and we think it's going to be the latter. Meanwhile, we are
maintaining a very conservative strategy, keeping the credit quality of the
portfolio very high at AA and the duration neutral to the index.
- ---------------
* With the 3.00% sales load, the Portfolio's return was -1.70% for the period.
(1) The Fund's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
6
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PORTFOLIO COMPOSITION AS OF
DECEMBER 31, 1996*
SECTOR PROFILE
<TABLE>
<S> <C>
CASH AND CASH EQUIVALENTS 1.7%
GENERAL OBLIGATIONS 32.1%
HOUSING 2.6%
HOSPITAL 17.1%
UTILITY REVENUE 18.0%
EDUCATIONAL 9.9%
OTHER 18.6%
</TABLE>
The Portfolio invests primarily in investment-grade Tennessee municipal
obligations. The credit research team at the AmeriStar Funds and the Portfolio
Manager continuously monitor debt instruments and issuer quality to identify
fixed-income securities appropriate for the Portfolio. With an emphasis on
quality, the Portfolio seeks to generate current income that is exempt from
federal and Tennessee personal income taxes without undue risk to principal.
<TABLE>
MATURITY PROFILE QUALITY PROFILE
<S> <C> <C> <C>
0-5 years 3.4% Cash Equivalent 1.7%
5-10 years 27.7% AA 49.8%
10-15 years 24.1% AAA 48.5%
Over 15 years 44.8%
By design, the Portfolio focuses on By focusing on more general obligations
achieving an average maturity of 10 to 15 and school and "essential service" bonds,
years. By emphasizing the overall average the Portfolio Manager and the research
maturity of the Porfolio, we attempt to team provide an additional measure of
provide a high current tax-free yield while security to the Portfolio.
controlling principal value.
* The Portfolio's composition is subject to change.
</TABLE>
7
<PAGE> 10
AMERISTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
PERFORMANCE (AS OF DECEMBER 31, 1996)
<TABLE>
<CAPTION>
Portfolio Lehman Brothers Portfolio
Measurement Period (without sales Municipal (with sales
(Fiscal Year Covered) charge) 10-Year Index charge)
<S> <C> <C> <C>
3/28/94 10000 10000 9699
12/31/94 9737 10020 9444
12/31/95 11041 11805 10709
12/31/96 11195 12329 10858
Past performance is no guarantee of future results.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
-------------------------
WITH SALES WITHOUT SALES
CHARGE* CHARGE
---------- -------------
<S> <C> <C>
1-Year..................... -1.70% 1.39%
Since Inception
(03/28/94)............... 3.02% 4.16%
30-Day SEC Yield........... 4.15%
</TABLE>
* Reflects 3.00% Sales Charge
A hypothetical $10,000 investment made on March 28, 1994, the Portfolio's
inception date, would, on December 31, 1996, have been worth $11,195 without the
sales charge and $10,858 after taking the maximum 3% sales charge into account.
The Tennessee Tax Exempt Bond Portfolio is compared to the Lehman Brothers
Municipal 10-Year Index, an unmanaged index that includes municipal bonds issued
within the last five years by municipalities throughout the United States, with
maturities of at least one year, but no more than 12 years, and a credit quality
of at least Baa. In contrast, the Tennessee Tax Exempt Bond Portfolio targets
higher-quality bonds with a minimum rating of A, and at least 65% of the
Portfolio must be comprised of Tennessee issues. The Lehman Brothers index does
not reflect expenses associated with a mutual fund such as sales charges,
expenses for fund operations, management fees, portfolio transaction costs or
the cash reserves required to provide daily liquidity. The Portfolio's
performance reflects the deduction of fees for these value-added services.
Total return figures include changes in share price, reinvestment of dividends
and capital gains distributions, if any. The service contractors are currently
waiving a portion of their fees; without such waivers the 30-day SEC yield would
have been 3.90%. This voluntary waiver may be terminated or modified at any
time, which would reduce the Portfolio's performance.
Some investors may be subject to the federal alternative minimum tax and to
certain state and local taxes. Past performance is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
8
<PAGE> 11
<TABLE>
<S> <C>
DONALD F. TURK, C.F.A.
Portfolio Manager
Limited Duration
Income Portfolio
</TABLE>
INVESTMENT GOAL
The Portfolio seeks to provide investors with current income without assuming
undue risk. It invests primarily in investment-grade, U.S. dollar-denominated
fixed-income securities of domestic and foreign issuers that generally have a
duration of under four years. This Portfolio is suitable for investors seeking
regular monthly income without undue risk to principal.
Q. HOW DID THE PORTFOLIO PERFORM DURING 1996?
A. The Limited Duration Income Portfolio produced a total return of 4.28%* in
1996. In comparison, the Merrill Lynch 1-5 Year Corporate/ Government Index, an
unmanaged benchmark, produced a total return of 4.62%. The index is a broad
performance measure of bonds with maturities in the one-to-five-year range.
When evaluating performance, it is important to distinguish total return from
yield. As of December 31, 1996, the Portfolio's 30-day SEC yield was 5.22%*, up
from 5.02% as of December 31, 1995. Total return is the sum of the yield and the
change in the Portfolio's net asset value (NAV). A bond fund's NAV typically
falls in a period of rising interest rates and typically rises in a period of
falling interest rates.
Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE?
A. The benchmark, the Merrill Lynch 1-5 Year Government/Corporate Index had a
positive return of 4.6%. The Fund's return was 4.28%, not much behind the
benchmark. We were longer than the benchmark to begin 1996, so we got hurt early
in the year and never quite caught up. On the plus side, the Treasury allocation
in the portfolio includes Ginnie Maes (Government National Mortgage
Association), which provide incremental yield, and that helped our performance,
particularly during the first seven or eight months of the year.
Q. WHAT SECTORS WERE ATTRACTIVE?
A. The financial sector became increasingly attractive, and that benefited the
portfolio considerably. Finance issues comprised only 5.5% of the index at
December 31, 1996. In contrast, we had nearly 14% of the portfolio invested in
financial companies. For example, in October, we bought bonds issued by ABN Amro
Group (2.06% of total investments). These bonds are rated Aa3 by Moody's and A
by S&P. ABN Amro Group is an enormous financial concern with $225 billion in
assets, one of the world's largest banking groups, earning $4.5 billion in net
profits in 1995. We bought this bond, due 2001, to yield 0.40% more than
Treasury bonds of comparable maturities, and it is a very fine, solid credit.
Another new issue in the portfolio is Enserch (1.04%), an integrated natural gas
company with $2 billion in sales. The noncallable bonds, rated BBB (still
investment grade) have a 7% coupon, due in 1999 and offer 0.50% over comparable
Treasury bonds. We think it's a very fine company. At year end, roughly half of
the portfolio was invested in corporate bonds.**
Q. DO YOU THINK THAT CORPORATE BONDS ARE OFFERING YOU ENOUGH EXTRA YIELD?
A. Yes, for example, a corporate credit maturing in 3 years rated A is yielding
an additional 0.30% over Treasury bonds. A BBB is typically offering about 0.35%
extra. Yes, it's a tight spread, and
9
<PAGE> 12
there are good reasons for that -- the economy is solid, corporate profits are
good, and balance sheets have improved. On the demand side, there is aggressive
bidding for American bonds, not just by U.S. money managers but also from
foreign investors, notably the Japanese. Our interest rates are at least 3
percentage points higher than Japan's. If you're a Japanese investor, your
economy is slow, your interest rates are low, the yen has weakened, and the
dollar has strengthened. The incremental yield you get out of U.S. Treasury
bonds and corporates is very attractive.**
Q. WHAT IS YOUR OUTLOOK?
A. The bond market was subjected to rapidly changing expectations throughout
1996, particularly in the fourth quarter. It seemed that each new economic
statistic released swayed investor emotions first one way and then the other.
After all was said and done, however, the long Treasury bond ended the year at
6.64%, after reaching a low of 5.95% last January.
We expect 1997 to be another year of moderate growth and low inflation, which
suggests that corporate spreads will likely remain thin. We certainly are not
going to buy 5-year corporate notes at just 0.20% above Treasury bonds. At some
point, these spreads will widen, at which point we will make a bigger commitment
to corporate bonds.
- ---------------
*With the 3.00% sales load, the Portfolio's return was 1.13% for the period.
**The Portfolio's composition is subject to change.
10
<PAGE> 13
PORTFOLIO COMPOSITION AS OF
DECEMBER 31, 1996*
SECTOR PROFILE
<TABLE>
<S> <C>
TREASURY/AGENCY 42%
FINANCIAL 14%
INDUSTRIALS 24%
CASH EQUIVALENT 4%
UTILITIES/PHONES 16%
</TABLE>
The AmeriStar Limited Duration Income Portfolio invests primarily in
investment-grade, U.S. dollar-denominated, fixed-income securities of domestic
and foreign issuers. The Portfolio is designed to provide investors with
current income without assuming undue risk. The Portfolio's adviser has
latitude in deciding how assets are invested among corporate and government
obligations. As a result, the Portfolio enjoys flexibility to make the most of
changing market conditions.
<TABLE>
<CAPTION>
MATURITY PROFILE QUALITY PROFILE
<S> <C> <C> <C>
Less than 1 year 20% BBB 6%
1-3 years 39% Cash and Cash Equivalents 4%
3-7 years 41% Treasury/Agency 42%
AAA 3%
AA 17%
A 28%
By design, the Portfolio attempts to gener- The Portfolio's research team and the Port-
ate current income without undue risk to folio Manager continuously monitor debt
principal. The chart shows that the Portfo- instruments and issuer quality to identify
lio is focused on bonds with maturities of fixed-income securities for the Portfolio.
1 to 7 years.
* The Portfolio's composition is subject to change.
</TABLE>
<PAGE> 14
<TABLE>
AMERISTAR LIMITED DURATION INCOME PORTFOLIO
PERFORMANCE (AS OF DECEMBER 31, 1996)
Merrill Lynch
Portfolio 1-5 Year Portfolio
Measurement Period (without sales Corporate & (with sales
(Fiscal Year Covered) charge) Government Index charge)
<S> <C> <C> <C>
3/28/94 10000 10000 9699
12/31/94 10042 10106 9740
12/31/95 11166 11333 10831
12/31/96 11644 11787 11294
Past performance is no guarantee of future results.
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
-------------------------
WITH SALES WITHOUT SALES
CHARGE* CHARGE
---------- -------------
<S> <C> <C>
1 Year..................... 1.13% 4.28%
Since Inception
(03/28/94)............... 4.48% 5.65%
30-Day SEC Yield........... 5.22%
* Reflects 3.00% Sales Charge
</TABLE>
A hypothetical $10,000 investment made on March 28, 1994, the Portfolio's
inception date, would, on December 31, 1996, have been worth $11,644 without the
sales charge and $11,294 after taking the maximum 3% sales charge into account.
The Limited Duration Income Portfolio is compared to the Merrill Lynch 1-5 Year
Corporate/Government Index, which reflects the performance of bonds in that
maturity range with a rating of at least Baa. The index is unmanaged and does
not reflect expenses associated with a mutual fund such as sales charges,
expenses for fund operations, management fees, portfolio transaction costs or
the cash reserves required to provide daily liquidity. The Portfolio's
performance reflects the deduction of fees for these value-added services.
Total return figures include changes in share price, reinvestment of dividends
and capital gains distributions, if any. The service contractors are currently
waiving a portion of their fees; without such waivers the 30-day SEC yield would
have been 4.97%. This voluntary waiver may be terminated or modified at any
time, which would reduce the Portfolio's performance. Past performance is not
indicative of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
12
<PAGE> 15
<TABLE>
<S> <C>
DONALD F. TURK, C.F.A.
Portfolio Manager
Core Income
Portfolio
</TABLE>
INVESTMENT GOAL
The Portfolio seeks to provide investors with current income without assuming
undue risk. It invests primarily in investment-grade, U.S. dollar-denominated
fixed-income securities of domestic and foreign issuers with maturities of any
length. This Portfolio is suitable for investors seeking regular monthly income
without undue risk to principal.
Q. HOW WOULD YOU DISTINGUISH THIS PORTFOLIO FROM THE LIMITED DURATION INCOME
PORTFOLIO?
A. Unlike the Limited Duration Income Portfolio, which typically invests in
bonds maturing within two to five years, our new Core Income Portfolio, launched
on April 1, 1996, can invest in any length maturity. Our benchmark is the
Merrill Lynch Corporate & Government Master Index, an unmanaged index that
measures bond performance and that currently has a duration of about 5.4 years.
Our standard policy is to be within 20% of that index. The new Portfolio also
includes some 30-year U.S. Treasuries as well as corporates. (Duration is a
measure of a portfolio's sensitivity to changes in interest rates. The shorter
the duration, the less likely the portfolio is to lose value when rates rise,
and vice-versa.)
Q. HOW DID THE PORTFOLIO PERFORM IN 1996?
A. For the year ended December 31, 1996, the Portfolio's total return was
1.12%.* In comparison, the Merrill Lynch Corporate/Government Bond Index
produced a total return of 2.90%. It is important to distinguish total return
from yield. As of December 31, 1996, the Portfolio's 30-day SEC yield was 5.30%.
Total return is the sum of the yield and the change in the Portfolio's net asset
value (NAV). A bond fund's NAV typically falls in a period of rising interest
rates, and typically rises in a period of falling interest rates.
Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE?
A. The Fund began during a difficult time for the bond market when interest
rates were rising. For instance, yields on 30-year Treasuries rose from 6.67% to
6.89% during the second quarter, resulting in a price decline of 2.60%. Early in
the period, the portfolio included a high proportion of bonds with lower
coupons, which do not hold up well in a period of rising interest rates. We have
since improved the Portfolio by investing in higher coupons, since a major
priority is to boost income.
Q. WHAT AREAS OF THE CORPORATE BOND MARKET WERE ATTRACTIVE?
A. We bought bonds issued by Harris Corp. (3.03% of total investments) due in
2018 that pay a 10 3/8% coupon. Harris designs, produces and markets electronic
systems. The company, with an A3 rating by Moody's and an A- by S&P, has been
retiring their higher coupon debt, as have a lot of companies. These 10 3/8s are
callable at a nice premium in 1998. We bought it to yield about 0.55% over
Treasury bonds to that call date. Other bonds in the Portfolio include GE
Capital 7.5% of 2035 (1.54%), Travelers/Aetna 6.75% of 2001 (1.31%) and Air
Products 7.80% of 2026 (4.07%). We added Fannie Maes (Federal National Mortgage
Association), 6.35% callable in 1999 (2.57%), yielding 0.38% over 5-year
Treasury bonds, which is a very good spread for a AAA-rated government agency
security. In the defense industry, we have Lockheed Martin (3.27%)
13
<PAGE> 16
bonds that mature in two years, but you have to be careful about consolidation
in that industry. You have to be careful who's going to be buying whom, and
avoid a company that is going to leverage itself so much that you wind up with a
lower quality credit.
Q. HOW WOULD YOU DESCRIBE YOUR INVESTMENT PROCESS?
A. Number one, there is a decision in terms of maturity structure. How much
interest-rate risk are we willing to take? Generally, we will invest in most
maturities. From time to time, we will accentuate one maturity group vs. another
because it has better value. Currently, we are duration neutral. The closer the
long bond gets to 7%, the more attractive it is for us to extend maturities. The
second thing that we do is look at solid or improving industries, avoiding any
industry that is deteriorating. For instance, there is more risk in the utility
industry now than a year or two ago, because some utilities are buying other
utilities in foreign countries where there are political risks. Thirdly, we want
the individual credits to be improving. IBM is one that we're viewing more
positively. They've gotten rid of losing lines, they've cut unnecessary jobs,
and they're much more competitive.**
Q. WHAT IS YOUR OUTLOOK?
A. Last year was a Goldilocks economy--not too hot and not too cold. This year,
we've got what appears to be a stronger economy, coming off real economic growth
of 3%-4% for the fourth quarter and perhaps the same in the first quarter of
1997. So the near term could be volatile for bonds. We expect the economy in the
first half of 1997 to remain strong, although there is a possibility of a
slowdown in the second half. Remember that we're in the seventh year of an
expansion, and that usually means inflationary pressures. For example, we're at
full employment, and wages and benefits are rising. People feel wealthier, so
consumer confidence could strengthen; this could cause upward inflation fears,
which would frighten the Federal Reserve Board to step on the brakes pretty
quickly, which could in turn cause a recession. Historically, we have never been
able to repeal the business cycle or these price pressures.
- ---------------
* With the 3.00% sales load, the Portfolio's return was -1.96% for the period.
** The portfolio's composition is subject to change.
14
<PAGE> 17
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION AS OF
DECEMBER 31, 1996*
- --------------------------------------------------------------------------------
SECTOR PROFILE
<TABLE>
<S> <C>
TREASURY AGENCY 42%
FINANCIAL 33%
INDUSTRIALS 22%
CASH EQUIVALENTS 4%
UTILITIES/PHONES 9%
</TABLE>
The AmeriStar Core Income Portfolio invests primarily in investment-grade,
U.S. dollar-denominated, fixed-income securities of domestic and foreign
issuers. The Portfolio is designed to provide current income without assuming
undue risk. The Portfolio's adviser has latitude in deciding how assets are
invested among corporate and government obligations. As a result, the Portfolio
enjoys flexibility to make the most of changing market conditions.
<TABLE>
<CAPTION>
MATURITY PROFILE QUALITY PROFILE
<S> <C> <C> <C>
Less than 1 year 13% Cash and Cash Equivalents 4%
1-3 years 19% Treasury/Agency 42%
3-7 years 25% AAA 6%
7-10 years 5% AA 12%
Over 10 years 38% A 27%
BBB 9%
By design, the Portfolio attempts to gener- The Portfoli's research team and the Port-
ate current income without undue risk to folio Manager continuously monitor debt
principal. The chart shows that the Portfo- instruments and issuer quality to identify
is focused on bonds with maturities of fixed-income securities for the Portfolio.
1 to 7 years and those with maturities
greater than 10 years.
* The Portfolio's composition is subject to change.
</TABLE>
15
<PAGE> 18
- --------------------------------------------------------------------------------
AMERISTAR CORE INCOME PORTFOLIO
PERFORMANCE (AS OF DECEMBER 31, 1996)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Merrill Lynch
Portfolio Corporate / Portfolio
Measurement Period (without sales Government (with sales
(Fiscal Year Covered) charge) Master Index charge)
<S> <C> <C> <C>
80 10000 10000 9711
81 10378 10700 10083
82 13777 13892 13388
83 14646 14973 14215
84 16372 17238 15909
85 19859 21000 19256
86 23274 24283 22603
87 22940 24792 22273
88 24480 26706 23760
89 27232 30478 26446
90 28946 33067 28099
91 33412 38322 32438
92 35437 41266 34380
93 38996 45829 37851
94 37579 44332 36488
95 43840 52782 42562
96 44330 54316 43024
</TABLE>
Past performance is no guarantee of future results.
- ----------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN
-------------------------
WITH SALES WITHOUT SALES
CHARGE* CHARGE
---------- -------------
<S> <C> <C>
1 Year..................... -1.96% 1.12%
5 Year..................... 5.18% 5.82%
10 Year.................... 6.32% 6.66%
Since Inception (4/1/96)... 9.54% 9.74%
30-Day SEC Yield........... 5.30%
</TABLE>
- ----------------------------------------------------
* Reflects 3.00% Sales Charge
A hypothetical $10,000 investment made on December 31, 1980, would, on December
31, 1996, have been worth $44,330 without the sales charge and $43,024 after
taking the maximum 3% sales charge into account.
The Core Income Portfolio is compared to the Merrill Lynch Corporate/Government
Master Index, which reflects the performance of bonds in that maturity range.
The index is unmanaged and does not reflect expenses associated with a mutual
fund such as sales charges, expenses for fund operations, management fees,
portfolio transaction costs or the cash reserves required to provide daily
liquidity. The Portfolio's performance reflects the deduction of fees for these
value-added services.
The AmeriStar Core Income Portfolio commenced operations on April 1, 1996
through a transfer of assets from certain collective trust fund ("Commingled")
accounts managed by First American National Bank, using substantially the same
investment objective, policies and methodologies as the Portfolio. The quoted
performance of the Portfolio includes performance of the Commingled accounts for
periods dating back to 12/31/80, and prior to the Portfolio's commencement of
operations, as adjusted to reflect the expenses associated with the Portfolio.
The Commingled accounts were not registered with the Securities and Exchange
Commission and, therefore, were not subject to the investment restrictions
imposed by law on registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been adversely
affected. The performance also reflects reinvestment of all dividends and
capital-gains distributions. The service contractors are currently waiving a
portion of their fees; without such waivers the 30-day SEC yield would have been
5.05%. Past performance is not a prediction of future results. The Portfolio's
investment return and principal value will fluctuate, so that an investor's
shares, when redeemed, may be worth more or less than their original purchase
price.
16
<PAGE> 19
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 2)
---------- -----------
<S> <C> <C>
COMMON STOCKS -- 91.0%
BANKING -- 4.1%
BankAmerica Corp............................................ 8,500 $ 847,875
Norwest Corp................................................ 27,140 1,180,590
-----------
2,028,465
-----------
BEVERAGES -- 1.7%
PepsiCo, Inc................................................ 28,460 832,455
-----------
COMPUTERS -- MAIN & MINI -- 1.5%
Hewlett Packard Co.......................................... 14,700 738,675
-----------
COMPUTER SOFTWARE -- 6.0%
Cisco Systems, Inc. (b)..................................... 15,250 970,281
Microsoft Corp. (b)......................................... 13,000 1,074,125
Oracle Systems Corp. (b).................................... 21,627 902,927
-----------
2,947,333
-----------
COSMETICS & TOILETRIES -- 3.2%
Gillette Co................................................. 20,000 1,555,000
-----------
DEFENSE -- 3.4%
Boeing Co................................................... 10,000 1,063,750
Corrections Corp. of America (b)............................ 19,000 581,875
-----------
1,645,625
-----------
ELECTRICAL EQUIPMENT -- 2.5%
General Electric Co......................................... 12,500 1,235,937
-----------
</TABLE>
Continued
17
<PAGE> 20
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 2)
---------- -----------
<S> <C> <C>
ELECTRONIC COMPONENTS -- 3.2%
Applied Materials, Inc. (b)................................. 13,500 $ 485,156
Intel Corp.................................................. 8,200 1,073,688
-----------
1,558,844
-----------
ENGINEERING & CONSTRUCTION -- 2.1%
Fluor Corp.................................................. 16,500 1,035,375
-----------
FINANCIAL SERVICES -- 4.9%
Federal National Mortgage Assoc............................. 32,500 1,210,625
First Data Corp............................................. 32,260 1,177,490
-----------
2,388,115
-----------
FOREST & PAPER PRODUCTS -- 1.9%
Kimberly Clark Corp......................................... 10,000 952,500
-----------
HEALTH CARE -- DRUGS -- 7.0%
Amgen, Inc. (b)............................................. 10,800 587,250
Centocor, Inc. (b).......................................... 15,000 536,250
Eli Lilly & Co.............................................. 17,300 1,262,900
Pfizer, Inc................................................. 12,700 1,052,512
-----------
3,438,912
-----------
HOSPITAL SUPPLY & MANAGEMENT -- 3.9%
Columbia HCA Healthcare Corp................................ 30,000 1,222,500
Healthcare Compare Corp. (b)................................ 16,450 697,069
-----------
1,919,569
-----------
HOTEL MANAGEMENT & RELATED SERVICES -- 2.3%
Promus Hotel Corp. (b)...................................... 37,935 1,123,824
-----------
HOUSEHOLD -- GENERAL PRODUCTS -- 2.1%
Newell Co................................................... 32,500 1,023,750
-----------
INSURANCE -- PROPERTY & CASUALTY -- 3.0%
American International Group, Inc........................... 13,500 1,461,375
-----------
</TABLE>
Continued
18
<PAGE> 21
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 2)
---------- -----------
<S> <C> <C>
LEISURE TIME INDUSTRY -- 1.7%
The Walt Disney Co.......................................... 11,790 $ 820,879
-----------
MANUFACTURING -- 4.6%
Service Corp. International................................. 36,000 1,008,000
Tyco International Ltd...................................... 23,505 1,242,827
-----------
2,250,827
-----------
MEDICAL EQUIPMENT & SUPPLIES -- 2.8%
Sybron International Corp. -- Wisconsin (b)................. 41,280 1,362,240
-----------
MEDICAL -- HOSPITAL MANAGEMENT SERVICES -- 2.6%
Health Care & Retirement Corp. (b).......................... 44,890 1,284,976
-----------
OIL & GAS -- 5.7%
Enron Corp.................................................. 28,000 1,207,500
Nuevo Energy Co. (b)........................................ 13,200 686,400
Union Pacific Resources Group............................... 30,500 892,125
-----------
2,786,025
-----------
PETROLEUM -- DOMESTIC -- 2.2%
Anadarko Petroleum Corp..................................... 16,350 1,058,663
-----------
PETROLEUM -- SERVICES -- 3.5%
Halliburton Co.............................................. 12,500 753,125
Schlumberger Ltd............................................ 9,600 958,800
-----------
1,711,925
-----------
RESTAURANTS -- 3.0%
Cracker Barrell............................................. 30,000 761,250
McDonalds Corp.............................................. 15,500 701,375
-----------
1,462,625
-----------
RETAIL -- SPECIALTY STORES -- 3.9%
Autozone, Inc. (b).......................................... 30,460 837,650
Walgreens Co................................................ 27,500 1,100,000
-----------
1,937,650
-----------
</TABLE>
Continued
19
<PAGE> 22
<TABLE>
<CAPTION>
SHARES OR MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 2)
---------- -----------
<S> <C> <C>
UTILITIES -- TELEPHONE -- 2.6%
SBC Communications, Inc..................................... 24,500 $ 1,267,875
-----------
TELECOMMUNICATIONS -- 2.5%
Ericsson (LM) Telephone..................................... 40,300 1,216,557
-----------
TOYS -- 0.9%
Mattel, Inc................................................. 16,890 468,698
-----------
WHOLESALE -- 2.2%
Alco Standard Corp.......................................... 20,550 1,060,894
-----------
Total Common Stocks (Cost -- $38,731,408)..................... 44,575,588
-----------
U.S. TREASURY BILLS -- 4.0%
3/6/97...................................................... 1,000,000 991,020
2/20/97..................................................... 1,000,000 992,952
-----------
Total U.S. Treasury Bills (Cost -- $1,984,370)................ 1,983,972
-----------
REGULATED INVESTMENT COMPANIES -- 5.1%
AIM Liquid Assets Money Market Fund......................... 2,270,442 2,270,442
AIM Prime Money Market Fund................................. 226,364 226,364
Dreyfus Prime Money Market Fund............................. 1 1
-----------
Total Regulated Investment Companies (Cost -- $2,496,807)... 2,496,807
-----------
TOTAL INVESTMENTS (COST -- $43,212,585)(A) -- 100.1%.......... 49,056,367
TOTAL LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.1%)......... (48,400)
-----------
NET ASSETS -- 100.0%.......................................... $49,007,967
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $49,007,967.
(a) Represents cost for financial reporting purposes and differs from cost basis
from income tax purposes by the amount of losses recognized for financial
reporting in excess of federal income reporting of approximately $24,116.
Cost for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................................... $6,288,133
Unrealized depreciation......................................................... (468,467)
----------
Net unrealized appreciation..................................................... $5,819,666
=========
</TABLE>
(b) Non-income producing security.
See Notes to Financial Statements.
20
<PAGE> 23
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $43,212,585)................... $49,056,367
Interest and dividends receivable........................................ 36,388
Deferred organization costs (Note 2)..................................... 9,811
Prepaid expenses and cash................................................ 2,486
-----------
Total assets............................................................... 49,105,052
-----------
LIABILITIES
Accrued expenses:
Advisory fees......................................................... 27,169
Administration fees................................................... 6,270
Legal and audit fees.................................................. 14,737
Custodian fees........................................................ 14,875
Registration fees..................................................... 13,260
Reports to shareholders............................................... 10,296
Transfer agent fees................................................... 10,478
-----------
Total liabilities.......................................................... 97,085
-----------
NET ASSETS................................................................. $49,007,967
==========
Shares Outstanding ($0.001 par value, 250 million shares authorized)....... 4,328,282
==========
Calculation of Maximum Offering Price Net asset value per share............ $11.32
Sales charge -- 3.0% of public offering price............................ 0.35
------
Maximum Offering Price..................................................... $11.67
======
COMPOSITION OF NET ASSETS:
Shares of common stock, at par........................................... $ 4,328
Additional paid-in capital............................................... 43,344,822
Undistributed net investment loss........................................ (2,911)
Net unrealized appreciation from investments............................. 5,843,782
Accumulated net realized losses on investment transactions............... (182,054)
-----------
Net Assets, December 31, 1996.............................................. $49,007,967
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
21
<PAGE> 24
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 1, 1996(A) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.......................................................... $ 141,905
Dividends......................................................... 248,268
----------
Total Investment Income........................................... 390,173
Expenses
Advisory fees................................................... $214,961
Administration fees............................................. 49,607
Distribution fees............................................... 82,357
Custodian fees.................................................. 20,274
Accounting fees................................................. 31,998
Transfer agent fees and expenses................................ 22,019
Legal and audit fees............................................ 19,256
Reports to shareholders......................................... 12,612
Amortization of organization expenses........................... 5,025
Directors' fees................................................. 3,730
Insurance expense............................................... 1,356
Registration fees............................................... 14,855
Other expenses.................................................. 422
--------
Total expenses before fee waivers and expenses paid by third
parties...................................................... 478,472
Less: Fee waivers............................................... (82,357)
Less: Expenses paid by third parties............................ (141)
--------
Total expenses.................................................... 395,974
----------
Net Investment Loss............................................... (5,801)
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
Net realized losses from securities transactions................ (182,054)
Net change in unrealized appreciation from investments.......... 5,843,782
----------
Net Realized and Unrealized Gains from Investments................ 5,661,728
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $5,655,927
==========
</TABLE>
- ---------------
(a) Commencement of operations.
See Notes to Financial Statements.
22
<PAGE> 25
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 1, 1996(A)
TO DECEMBER 31, 1996
--------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss................................................ $ (5,801)
Net realized losses from securities transactions................... (182,054)
Net change in unrealized appreciation from investments............. 5,843,782
-----------
Net increase in net assets resulting from operations............... 5,655,927
-----------
Portfolio Share Transactions
Net proceeds from shares subscribed................................ 47,441,776
Cost of shares redeemed............................................ (4,089,736)
-----------
Net increase in net assets from Portfolio share transactions....... 43,352,040
-----------
Total Increase....................................................... 49,007,967
NET ASSETS
Beginning of period................................................ --
-----------
End of period...................................................... $ 49,007,967
===========
SHARE TRANSACTIONS
Issued............................................................. 4,712,999
Redeemed........................................................... (384,717)
-----------
Change in shares................................................... 4,328,282
===========
</TABLE>
- ---------------
(a) Commencement of operations.
See Notes to Financial Statements.
23
<PAGE> 26
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS -- 98.1%
MUNICIPAL BONDS -- 98.1%
ARKANSAS -- 4.7%
Rogers Sales & Use Tax Revenue,
Callable 11/1/06 @ 100.............. AA/A1 6.00% 11/1/07 $ 2,030 $ 2,215,237
Arkansas State Development Finance
Authority Corrections Facilities
Revenue (MBIA)...................... AAA/Aaa 6.25 10/1/06 1,800 1,982,250
-----------
4,197,487
-----------
CONNECTICUT -- 1.2%
State Special Tax Obligation Revenue,
Series B............................ AA-/A1 6.15 9/1/09 1,000 1,087,500
-----------
GEORGIA -- 6.1%
Gwinnett County School District,
General Obligation, Series B........ AA/Aa1 6.40 2/1/07 1,000 1,115,000
Municipal Electric Authority Power
Revenue, Series A (AMBAC)........... AAA/Aaa 5.50 1/1/09 1,225 1,249,500
State General Obligation, Series E.... AA+/Aaa 6.00 7/1/04 2,730 2,979,112
-----------
5,343,612
-----------
KENTUCKY -- 1.3%
State Turnpike Authority, Economic
Development Revenue Revitalization
Projects (AMBAC).................... AAA/Aaa 6.50 7/1/07 1,000 1,125,000
-----------
MISSISSIPPI -- 1.2%
Mississippi State University,
Educational Building Corp. Revenue
(MBIA).............................. AAA/Aaa 6.00 8/1/05 1,010 1,092,062
-----------
</TABLE>
Continued
24
<PAGE> 27
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
MISSOURI -- 1.9%
Kansas City Water Revenue, Callable
12/1/06 @ 101....................... AA/Aa 5.00% 12/1/13 $ 1,765 $ 1,685,575
-----------
NEW JERSEY -- 1.3%
State Turnpike Authority Revenue,
Series C (FSA)...................... AAA/Aaa 6.50 1/1/16 1,000 1,132,500
-----------
NORTH CAROLINA -- 1.2%
Eastern Municipal Power Agency, Power
System Revenue, Series A, (MBIA).... AAA/Aaa 5.50 1/1/04 1,000 1,036,250
-----------
SOUTH CAROLINA -- 1.2%
Columbia Water & Sewer Systems
Revenue............................. AA/Aa 5.50 2/1/09 1,000 1,032,500
-----------
TENNESSEE -- 73.4%
Bristol Health & Educational
Facilities Revenue, Bristol Memorial
Hospital (FGIC)..................... AAA/Aaa 6.75 9/1/07 2,140 2,426,225
Dickson Electric System Revenue
(MBIA).............................. AAA/Aaa 6.00 9/1/08 1,040 1,116,700
Humphreys County Industrial
Development Board, Solid Waste
Disposal Revenue, E.I. DuPont
DeNemours & Co. Project, Callable
5/1/04 @ 102........................ AA--/Aa3 6.70 5/1/24 1,455 1,565,944
Johnson City Electric Revenue,
Callable 5/1/06 @ 100 (MBIA)........ AAA/Aaa 5.70 5/1/17 1,000 1,006,250
Johnson City General Obligation,
School Sales Tax Revenue, Callable
5/1/06
@ 100 (AMBAC)....................... AAA/Aaa 6.70 5/1/21 1,250 1,376,563
Johnson City Medical Center, Health &
Educational Revenue, Callable 7/1/04
@ 102 (MBIA)........................ AAA/Aaa 5.00 7/1/13 1,000 931,250
</TABLE>
Continued
25
<PAGE> 28
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
Knox County Health, Education &
Housing Facilities Board, Hospital
Facilities Revenue, Fort Sanders
Alliance Obligation, Series C,
(MBIA).............................. AAA/Aaa 7.00% 1/1/15 $ 1,500 $ 1,638,750
Knox County Health, Education &
Housing Facilities Board, Hospital
Facilities Revenue, Fort Sanders
Alliance Obligation (MBIA).......... AAA/Aaa 7.25 1/1/10 1,000 1,180,000
Knox County Health, Education &
Housing Facilities Board, Hospital
Facilities Revenue, Fort Sanders
Alliance Obligation (MBIA).......... AAA/Aaa 5.75 1/1/11 1,200 1,237,500
Knox County Health, Education &
Housing Facilities Board, Hospital
Facilities Revenue, Fort Sanders
Alliance Obligation (MBIA).......... AAA/Aaa 6.25 1/1/13 1,000 1,077,500
Knox County Health, Education &
Housing Facilities Board, Hospital
Facilities Revenue, Fort Sanders
Alliance Obligation (MBIA).......... AAA/Aaa 5.75 1/1/14 1,250 1,282,812
Lawrenceburg Electric Revenue
(MBIA).............................. AAA/Aaa 6.63 7/1/18 1,250 1,432,813
Loudon County Industrial Development
Board, Solid Waste Disposal Revenue,
Kimberly-Clark Corp. Project,
Callable 2/1/03 @ 102............... AA/Aa2 6.20 2/1/23 2,000 2,040,000
Memphis General Obligation............ AA/Aa 6.25 7/1/04 1,000 1,092,500
Memphis Electric System Revenue....... AA/Aa 6.00 1/1/05 1,600 1,734,000
Memphis Electric System Revenue Bond,
Callable 1/1/02 @ 102............... AA/Aa 4.90 1/1/11 1,225 1,168,344
Memphis General Obligation............ AA/Aa 6.00 11/1/03 1,250 1,357,812
Memphis General Obligation............ AA/Aa 6.00 11/1/05 2,465 2,689,931
Metropolitan Government Nashville &
Davidson County, General
Obligation.......................... AA/Aa 6.00 12/1/10 1,500 1,612,500
</TABLE>
Continued
26
<PAGE> 29
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
Metropolitan Government Nashville &
Davidson County, Health &
Educational Facilities Board,
Meharry Medical College (AMBAC)..... AAA/Aaa 6.00% 12/1/13 $ 2,030 $ 2,164,488
Metropolitan Government Nashville &
Davidson County, Health &
Educational Facilities Board,
Meharry Medical College Project,
Callable 6/1/09 @ 100 (AMBAC)....... AAA/Aaa 5.00 12/1/24 2,000 1,842,500
Metropolitan Government Nashville &
Davidson County, Industrial
Development Board Revenue, Multi-
Family Housing, Glastonbury, Series
A, (FNMA)........................... AAA/NR 5.45 11/1/26 1,100 1,105,500
Metropolitan Government Nashville &
Davidson County, Industrial
Development Board Revenue, Multi-
Family Housing, RIV Retreat, Series
A, (FNMA)........................... AAA/NR 5.70 11/1/26 1,000 1,002,500
Metropolitan Government Nashville &
Davidson County, Sports Authority,
Public Improvement, Stadium Project,
Callable 7/1/06 @ 101 (AMBAC)....... AAA/Aaa 5.88 7/1/21 1,000 1,022,500
Metropolitan Government Nashville &
Davidson County, Vanderbilt
University Revenue, Series A........ AA/Aa3 5.75 1/1/08 1,085 1,143,319
Metropolitan Government Nashville &
Davidson County, Water & Sewer
Revenue, (MBIA)..................... AAA/Aaa 6.00 1/1/07 1,000 1,082,500
Metropolitan Government Nashville &
Davidson County, Water & Sewer
Revenue, Callable 4/1/97 @ 102...... AAA/Aaa 6.50 4/1/03 1,000 1,098,750
Metropolitan Nashville Airport,
Revenue Bond, Series C, Callable
7/1/01 @ 102 (FGIC)................. AAA/Aaa 6.60 7/1/15 2,900 3,132,000
</TABLE>
Continued
27
<PAGE> 30
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
Rutherford County Capital Outlay,
Series A............................ AA-/Aa 6.25% 5/1/05 $ 2,000 $ 2,205,000
Rutherford County Capital Outlay,
Series A............................ AA-/Aa 6.50 5/1/06 1,250 1,406,250
Shelby County Capital Appreciation
General Obligation, Series B........ AA+/Aa 5.75* 12/1/16 2,000 642,500
Shelby County General Obligation,
Public Improvement, Series A........ AA+/Aa 5.63 6/1/08 1,000 1,041,250
Shelby County General Obligation,
Callable 3/1/01 @ 101............... AA+/Aa 5.13 3/1/18 1,015 959,175
Shelby County General Obligation,
Callable 6/1/06 @ 100............... AA+/Aa 5.88 6/1/18 1,000 1,018,750
Shelby County General Obligation,
Series A............................ AA+/Aa 6.75 4/1/04 2,000 2,245,000
Shelby County General Obligation,
Series A............................ AA+/Aa 6.75 4/1/05 1,000 1,130,000
Shelby County General Obligation,
Series A............................ AA+/Aa 5.63 6/1/05 1,000 1,058,750
Shelby County Health, Educational &
Housing Facilities Board Hospital
Revenue, Methodist Health Systems,
Inc. (MBIA)......................... AAA/Aaa 6.25 8/1/07 2,000 2,207,500
Shelby County Health, Educational &
Housing Facilities Board Hospital
Revenue, Methodist Health Systems,
Inc. (MBIA)......................... AAA/Aaa 6.25 8/1/08 2,000 2,202,500
Shelby County Public Improvement,
Series A, Callable 6/1/06 @ 100..... AA+/Aa 5.85 6/1/17 1,000 1,016,250
Shelby County Public Improvement,
Series B, Callable 11/1/06 @ 100.... AA+/Aa 5.75 11/1/21 1,000 1,006,250
State General Obligation, Series B.... AA+/Aaa 6.20 6/1/01 1,350 1,452,937
State School Board Authority Revenue,
Higher Educational Facilities,
Series A (MBIA)..................... AAA/Aaa 5.50 5/1/26 2,500 2,443,750
</TABLE>
Continued
28
<PAGE> 31
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------- ---- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TENNESSEE (CONTINUED)
Williamson County Public
Improvement......................... NR/Aa 6.25% 4/1/06 $ 1,000 $ 1,105,000
-----------
64,702,313
-----------
TEXAS -- 1.2%
San Antonio Texas Electric & Gas
Revenue, Callable 2/1/99 @ 101.5.... AA/Aa1 6.50% 2/1/12 1,000 1,046,250
-----------
VIRGINIA -- 1.2%
Arlington County Virginia, General
Obligation, Callable 8/1/04 @ 102... AAA/Aaa 6.00 8/1/14 1,000 1,055,000
-----------
WASHINGTON -- 2.2%
King County School District, Series
B................................... AA-/Aa 6.25 6/1/08 1,730 1,909,488
-----------
Total Municipal Bonds................. 86,445,537
-----------
Total Long-Term Investments
(Cost -- $85,942,668)............... 86,445,537
-----------
</TABLE>
Continued
29
<PAGE> 32
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
(000) (NOTE 2)
--------- -----------
<S> <C> <C> <C> <C> <C>
REGULATED INVESTMENT COMPANIES -- 0.6%
AIM Tax Free Money Market Fund....................................... 105 $ 104,938
Dreyfus Tax Free Money Market Fund................................... 417 417,314
-----------
Total Regulated Investment Companies (Cost -- $522,252).............. 522,252
-----------
TOTAL INVESTMENTS (COST--$86,464,920)(A) -- 98.7%.................... 86,967,789
OTHER ASSETS IN EXCESS OF TOTAL LIABILITIES -- 1.3%.................. 1,116,006
-----------
NET ASSETS -- 100.0%................................................. $88,083,795
==========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $88,083,795.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................................................. $ 774,091
Unrealized depreciation.................................................. (271,222)
---------
Net unrealized appreciation.............................................. $ 502,869
=========
</TABLE>
* Yield at issue.
AMBAC = Insured by AMBAC Indemnity Corporation
FGIC = Insured by Financial Guaranty Insurance Corp.
FSA = Insured by Financial Security Assurance
FNMA = Insured by Federal National Mortgage Association
MBIA = Insured by Municipal Bond Insurance Association
See Notes to Financial Statements.
30
<PAGE> 33
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at value (cost $86,464,920).................................. $86,967,789
Interest receivable...................................................... 1,505,605
Receivable for Portfolio shares sold..................................... 100
Deferred organization costs (Note 2)..................................... 26,123
Prepaid expenses......................................................... 603
-----------
Total assets............................................................... 88,500,220
-----------
LIABILITIES
Distributions payable.................................................... 315,324
Accrued expenses:
Advisory fees......................................................... 37,440
Administration fees................................................... 11,232
Legal and audit fees.................................................. 18,365
Other................................................................. 34,064
-----------
Total liabilities.......................................................... 416,425
-----------
NET ASSETS................................................................. $88,083,795
==========
Shares Outstanding ($0.001 par value, 250 million shares authorized)....... 8,898,615
==========
Calculation of Maximum Offering Price
Net asset value per share................................................ $ 9.90
Sales charge -- 3.0% of public offering price............................ 0.31
------
Maximum Offering Price..................................................... $10.21
======
COMPOSITION OF NET ASSETS:
Shares of common stock, at par........................................... $ 8,899
Additional paid-in capital............................................... 88,723,297
Undistributed net investment income...................................... 4,829
Net unrealized appreciation from investments............................. 502,869
Accumulated net realized losses from investment transactions............. (1,156,099)
-----------
Net Assets, December 31, 1996.............................................. $88,083,795
==========
</TABLE>
- ---------------
See Notes to Financial Statements.
31
<PAGE> 34
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................ $ 4,620,318
Dividends....................................................... 68,541
-----------
Total Investment Income......................................... 4,688,859
Expenses
Advisory fees................................................. $ 456,926
Administration fees........................................... 137,079
Distribution fees............................................. 227,838
Custodian fees................................................ 27,299
Accounting fees............................................... 66,928
Transfer agent fees and expenses.............................. 26,007
Legal and audit fees.......................................... 29,578
Reports to shareholders....................................... 6,534
Amortization of organization expenses......................... 11,706
Directors' fees............................................... 8,041
Insurance expense............................................. 8,400
Registration fees............................................. 2,794
Other expenses................................................ 1,452
----------
Total expenses before fee waivers and expenses paid by third
parties.................................................... 1,010,582
Less: Fee waivers............................................. (227,838)
Less: Expenses paid by third parties.......................... (529)
----------
Total expenses.................................................. 782,215
-----------
Net Investment Income........................................... 3,906,644
-----------
REALIZED AND UNREALIZED GAINS/LOSSES FROM INVESTMENTS
Net realized losses from securities transactions.............. (577,774)
Net change in unrealized depreciation from investments........ (2,118,918)
-----------
Net Realized and Unrealized Losses from Investments............. (2,696,692)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,209,952
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
32
<PAGE> 35
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income.................................. $ 3,906,644 $ 4,191,331
Net realized gains (losses) from securities
transactions........................................ (577,774) 1,136,490
Net change in unrealized appreciation (depreciation)
from investments.................................... (2,118,918) 6,292,185
------------- -------------
Net increase in net assets resulting from operations... 1,209,952 11,620,006
------------- -------------
Dividends to shareholders from net investment income..... (3,905,475) (4,190,548)
Distributions to shareholders in excess of net tax exempt
interest income........................................ -- (783)
------------- -------------
Total dividends and distributions........................ (3,905,475) (4,191,331)
------------- -------------
Portfolio Share Transactions
Net proceeds from shares subscribed.................... 9,672,959 12,555,177
Net asset value of shares issued to shareholders in
reinvestment of dividends........................... 187,651 196,336
Cost of shares redeemed................................ (13,224,484) (12,163,924)
------------- -------------
Net increase (decrease) in net assets from Portfolio
share transactions.................................. (3,363,874) 587,589
------------- -------------
Total Increase (Decrease)................................ (6,059,397) 8,016,264
NET ASSETS
Beginning of period.................................... 94,143,192 86,126,928
------------- -------------
End of period.......................................... $ 88,083,795 $ 94,143,192
============= =============
SHARE TRANSACTIONS:
Issued................................................. 980,116 1,291,747
Reinvested............................................. 19,014 19,813
Redeemed............................................... (1,339,773) (1,237,647)
------------- -------------
Change in shares....................................... (340,643) 73,913
============= =============
</TABLE>
- ---------------
See Notes to Financial Statements.
33
<PAGE> 36
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR LIMITED DURATION INCOME PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
----- -------- --------- -----------
<S> <C> <C> <C> <C>
LONG-TERM OBLIGATIONS -- 95.4%
U.S. TREASURY NOTES -- 20.4%
U.S. Treasury Note............................. 6.38% 7/15/99 $ 2,500 $ 2,525,150
U.S. Treasury Note............................. 6.88 7/31/99 2,100 2,143,659
U.S. Treasury Note............................. 7.75 1/31/00 1,500 1,570,125
U.S. Treasury Note............................. 6.13 5/15/98 3,000 3,015,510
U.S. Treasury Note............................. 5.88 8/15/98 4,500 4,504,725
U.S. Treasury Note............................. 6.00 8/31/97 1,000 1,003,060
U.S. Treasury Note............................. 6.63 7/31/01 2,000 2,032,500
U.S. Treasury Note............................. 6.25 10/31/01 1,250 1,251,400
U.S. Treasury Note............................. 6.13 12/31/01 2,000 1,992,760
-----------
Total U.S. Treasury Notes (Cost -- $19,878,051)................................ 20,038,889
-----------
U.S. GOVERNMENT AGENCIES -- 21.2%
Federal National Mortgage Association.......... 6.79* 2/5/97 2,000 1,989,554
Federal National Mortgage Association.......... 6.35 11/23/01 1,500 1,485,000
Federal National Mortgage Association.......... 5.12 1/22/99 750 736,103
Government National Mortgage Association:
Pool #345752................................ 7.50 6/15/09 727 740,215
Pool #358725................................ 8.00 8/15/08 1,598 1,651,158
Pool #368641................................ 7.50 4/15/09 745 758,949
Pool #376589................................ 8.50 9/15/09 1,373 1,432,909
Pool #380660................................ 8.00 11/15/09 1,605 1,658,293
Pool #392085................................ 7.50 4/15/09 836 852,062
Pool #392770................................ 8.50 12/15/09 760 792,496
Pool #392814................................ 8.50 12/15/09 1,151 1,201,436
Pool #405445................................ 8.00 4/15/10 1,963 2,028,481
Pool #407337................................ 8.00 4/15/10 1,964 2,029,340
</TABLE>
Continued
34
<PAGE> 37
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------- ----- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (CONTINUED)
Pool #423983.................... 7.50% 8/15/11 $ 2,444 $ 2,489,402
Pool #339455.................... 8.00 12/15/07 911 941,550
-----------
Total U.S. Government Agencies
(Cost -- $20,392,023).............. 20,786,948
-----------
CORPORATE BONDS -- 53.8%
BANKING -- 4.1%
ABN Amro Notes..................... A/Aa3 6.63 10/31/01 2,000 2,002,500
NationsBank Corp. ................. A+/A1 7.00 9/15/01 2,000 2,030,000
-----------
4,032,500
-----------
ENTERTAINMENT -- 1.5%
Walt Disney Co. ................... A/A2 6.38 3/30/01 1,500 1,494,375
-----------
FINANCIAL SERVICES -- 10.9%
Associates Corp. N.A. ............. AA-/Aa3 6.59 1/12/98 2,400 2,418,000
Comdisco, Inc. .................... BBB+/Baa1 7.82 2/5/97 1,500 1,502,780
General Motor Acceptance Corp. .... A-/A3 7.75 1/15/99 2,500 2,571,875
Merrill Lynch & Co. ............... AA-/Aa3 6.00 1/15/01 1,750 1,710,625
Norwest Financial Inc. ............ AA-/Aa3 6.00 8/15/97 2,500 2,504,800
-----------
10,708,080
-----------
HEALTH CARE -- 1.5%
Columbia/HCA Healthcare............ A-/A2 6.88 7/15/01 1,500 1,515,000
-----------
INDUSTRIAL GOODS & SERVICES -- 12.3%
Dayton Hudson Co. ................. BBB+/Baa1 7.50 3/1/99 2,000 2,042,500
Imperial Oil Ltd. ................. AA+/Aa2 8.75 10/15/19 3,000 3,273,750
Lockheed Martin Corp. ............. BBB+/A3 6.55 5/15/99 3,000 3,018,750
Smith Enron........................ AAA/Aaa 5.97 12/15/06 1,750 1,697,500
WMX Technologies................... A+/A1 7.13 3/22/97 2,000 2,005,420
-----------
12,037,920
-----------
PAPER PRODUCTS -- 2.1%
International Paper Co. ........... A-/A3 6.88 7/10/00 2,000 2,025,000
-----------
</TABLE>
Continued
35
<PAGE> 38
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------- ----- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
RAILROADS -- 5.1%
Southern Pacific Railroad.......... A2/BBB+ 6.90% 1/2/97 $ 1,970 $ 1,970,103
Union Pacific Railroad............. A/Aa3 6.44 1/15/98 3,000 3,015,000
-----------
4,985,103
-----------
RETAIL STORES -- 1.7%
Wal-Mart Stores, Inc. ............. AA/Aa2 5.50 3/1/98 1,700 1,693,625
-----------
TELECOMMUNICATIONS -- 7.5%
Bell Atlantic Financial Corp. ..... A+/A1 6.63 11/30/97 2,700 2,718,792
GTE, Callable 9/15/97 @ 105.13..... A-/A3 10.75 9/15/17 2,500 2,690,625
New England Telephone & Telegraph
Co. ............................ AA-/Aa2 6.25 12/15/97 2,000 2,005,000
-----------
7,414,417
-----------
UTILITIES -- ELECTRIC -- 6.1%
Central Power & Light.............. A/A2 6.00 4/1/00 2,000 1,975,000
Florida Power & Light.............. AA-/Aa3 6.20 2/2/98 2,000 2,005,000
National Rural Utility............. AA-/A1 6.09 12/15/97 2,000 2,005,000
-----------
5,985,000
-----------
UTILITIES -- GAS -- 1.0%
Enserch Corp. ..................... BBB/Baa2 7.00 8/15/99 1,000 1,013,750
-----------
Total Corporate Bonds
(Cost -- $52,488,357).............. 52,904,770
-----------
Total Long-Term Investments
(Cost -- $92,758,431).............. 93,730,607
-----------
</TABLE>
Continued
36
<PAGE> 39
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
(000) (NOTE 2)
--------- -----------
<S> <C> <C> <C> <C> <C>
REGULATED INVESTMENT COMPANIES -- 3.6%
AIM Liquid Assets Money Market Fund................................ 2,356 $ 2,355,711
AIM Prime Money Market Fund........................................ 1,158 1,158,399
-----------
Total Regulated Investment Companies (Cost -- $3,514,110)............ 3,514,110
-----------
TOTAL INVESTMENTS (COST-$96,272,541)(A) -- 99.0%..................... 97,244,717
OTHER ASSETS IN EXCESS OF TOTAL LIABILITIES -- 1.0%.................. 952,327
-----------
NET ASSETS -- 100.0%................................................. $98,197,044
==========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $98,197,044.
* Discount at Issue.
(a) Represents cost for financial reporting purposes and differs from cost basis
for federal income tax purposes by the amount of losses recognized for
financial reporting in excess of federal income reporting of approximately
$567. Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................................. $1,060,427
Unrealized depreciation................................................. (88,818)
----------
Net unrealized appreciation............................................. $ 971,609
=========
</TABLE>
See Notes to Financial Statements.
37
<PAGE> 40
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR LIMITED DURATION INCOME PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $96,272,541)................... $97,244,717
Interest receivable...................................................... 1,645,074
Receivable for Portfolio shares sold..................................... 2,295
Deferred organization costs (Note 2)..................................... 26,123
Prepaid expenses......................................................... 604
-----------
Total assets............................................................... 98,918,813
-----------
LIABILITIES
Distributions payable.................................................... 539,683
Payable for Portfolio shares redeemed.................................... 74,221
Accrued expenses and other payables:
Advisory fees......................................................... 41,924
Administration fees................................................... 12,577
Legal and audit fees.................................................. 20,019
Other................................................................. 33,345
-----------
Total liabilities.......................................................... 721,769
-----------
NET ASSETS................................................................. $98,197,044
===========
Shares Outstanding ($0.001 par value, 250 million shares authorized)....... 9,861,978
===========
Calculation of Maximum Offering Price
Net asset value per share................................................ $ 9.96
Sales charge -- 3.0% of public offering price............................ 0.31
------
Maximum Offering Price..................................................... $10.27
======
COMPOSITION OF NET ASSETS:
Shares of common stock, at par........................................... $ 9,862
Additional paid-in capital............................................... 97,239,830
Undistributed net investment income...................................... 1,644
Net unrealized appreciation from investments............................. 972,176
Accumulated net realized losses from investment transactions............. (26,468)
-----------
Net Assets, December 31, 1996.............................................. $98,197,044
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
38
<PAGE> 41
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR LIMITED DURATION INCOME PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest........................................................ $ 6,835,892
Dividends....................................................... 78,502
-----------
Total Investment Income......................................... 6,914,394
Expenses
Advisory fees................................................. $ 519,442
Administration fees........................................... 155,644
Distribution fees............................................. 258,484
Custodian fees................................................ 14,907
Accounting fees............................................... 64,858
Transfer agent fees and expenses.............................. 27,962
Legal and audit fees.......................................... 34,279
Reports to shareholders....................................... 6,836
Amortization of organization expenses......................... 11,706
Directors' fees............................................... 9,413
Insurance fees................................................ 8,905
Registration fees............................................. 7,401
Other expenses................................................ 1,573
----------
Total expenses before fee waivers and expenses paid by third
parties.................................................... 1,121,410
Less: Fee Waivers............................................. (258,484)
Less: Expenses paid by third parties.......................... (2,379)
----------
Total expenses.................................................. 860,547
-----------
Net Investment Income........................................... 6,053,847
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
Net realized gains from securities transactions............... 11,672
Net change in unrealized depreciation from investments........ (1,745,157)
-----------
Net Realized and Unrealized Losses from Investments............. (1,733,485)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 4,320,362
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
39
<PAGE> 42
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR LIMITED DURATION INCOME PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.................................. $ 6,053,847 $ 5,786,781
Net realized gains from securities transactions........ 11,672 41,880
Net change in unrealized appreciation (depreciation)
from investments.................................... (1,745,157) 4,507,231
------------ ------------
Net increase in net assets resulting from operation.... 4,320,362 10,335,892
------------ ------------
Dividends to shareholders from net investment income..... (6,053,731) (5,769,846)
Distributions to shareholders from net realized gains on
securities transactions................................ (11,672) (16,935)
Distributions in excess of net realized gains............ (38,269) --
------------ ------------
Total dividends and distributions to shareholders........ (6,103,672) (5,786,781)
------------ ------------
Portfolio Share Transactions
Net proceeds from shares subscribed.................... 25,676,365 19,098,439
Net asset value of shares issued to shareholders in
reinvestment of dividends........................... 2,714,914 2,760,916
Cost of shares redeemed................................ (31,792,677) (16,216,024)
------------ ------------
Net increase (decrease) in net assets from Portfolio
share transactions.................................. (3,401,398) 5,643,331
------------ ------------
Total Increase (Decrease)................................ (5,184,708) 10,192,442
NET ASSETS
Beginning of period.................................... 103,381,752 93,189,310
------------ ------------
End of period.......................................... $ 98,197,044 $ 103,381,752
============ ============
SHARE TRANSACTIONS:
Issued................................................. 2,575,513 1,915,053
Reinvested............................................. 272,329 276,943
Redeemed............................................... (3,194,471) (1,627,280)
------------ ------------
Change in shares....................................... (346,629) 564,716
============ ============
</TABLE>
- ---------------
See Notes to Financial Statements.
40
<PAGE> 43
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CORE INCOME PORTFOLIO
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
MATURITY AMOUNT VALUE
RATE DATE (000) (NOTE 2)
-------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY NOTES -- 23.1%
U.S. Treasury Note.......................... 6.00% 8/31/97 $ 1,000 $ 1,003,060
U.S. Treasury Note.......................... 5.88 8/15/98 2,000 2,002,100
U.S. Treasury Note.......................... 5.88 6/30/00 3,000 2,981,760
U.S. Treasury Note.......................... 7.50 5/15/02 1,500 1,587,030
U.S. Treasury Note.......................... 6.88 5/15/06 750 773,130
U.S. Treasury Note.......................... 6.75 8/15/26 600 605,322
-----------
Total U.S. Treasury Notes
(Cost -- $8,937,080).......................... 8,952,402
-----------
U.S. TREASURY BOND -- 9.1%
U.S. Treasury Bond.......................... 8.13 8/15/21 3,050 3,541,538
-----------
Total U.S. Treasury Bond (Cost -- $3,560,386)... 3,541,538
-----------
U.S. GOVERNMENT AGENCIES -- 7.0%
Federal National Mortgage Assoc............. 6.35 11/23/01 1,000 990,000
Government National Mortgage Assoc.:
Pool# 423923.............................. 7.00 9/15/11 742 745,727
Pool# 423914 CMO.......................... 7.50 8/15/11 977 995,739
-----------
Total U.S. Government Agencies
(Cost -- $2,724,289).......................... 2,731,466
-----------
MUNICIPAL BOND -- 1.8%
GEORGIA -- 1.8%
Atlanta Revenue Bond, Callable 2/1/10 @
100........................................... 6.88 2/1/21 700 702,625
-----------
Total Municipal Bond (Cost -- $662,037)......... 702,625
-----------
</TABLE>
Continued
41
<PAGE> 44
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
------ -----------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS -- 54.3%
BANKING -- 6.0%
ABN Amro Bank.................. A/Aa3 6.63% 10/31/01 $ 1,000 $ 1,001,250
First Union Corp. ............. A/A1 6.18 2/15/36 500 481,875
NationsBank Corp. ............. A/A2 7.75 8/15/15 250 257,813
Wachovia Corp. ................ AA-/A1 6.61 10/1/25 600 595,500
-----------
2,336,438
-----------
FINANCIAL SERVICES -- 18.8%
Associates Corp. N.A. ......... AA-/Aa3 7.32 1/13/03 750 775,313
Associates Corp. N.A. ......... AA-/Aa3 7.30 3/15/98 1,000 1,016,250
Comdisco....................... BBB+/Baa1 7.73 2/18/97 1,000 1,002,386
Ford Motor Credit Corp. ....... A+/A1 5.38 10/6/00 1,500 1,490,625
General Electric Capital
Corp. ........................... AAA/Aaa 7.50 8/21/35 575 591,531
General Motors Acceptance
Corp. ........................... A-/A3 7.25 5/5/99 1,000 1,021,250
Norwest Financial Corp. ....... AA-/Aa3.... 5.13 4/15/00 950 914,375
Travelers/Aetna Property &
Casualty..................... A/A2 6.75 4/15/01 500 503,125
-----------
7,314,855
-----------
HEALTHCARE -- 2.6%
Columbia HCA Healthcare........ A-/A2 7.25 5/20/08 1,000 1,021,250
-----------
INDUSTRIAL GOODS & SERVICES -- 15.4%
Air Products & Chemicals....... A/A2 7.80 6/15/26 1,500 1,567,500
Dayton Hudson Co. ............. BBB+/Baa1 6.80 10/1/01 1,000 1,005,000
Harris Corp., Callable 12/1/98
@ 105.14..................... A-/A3 10.38 12/1/18 1,050 1,165,500
Eli Lilly & Co. ............... AA/Aa3 6.57 1/1/16 475 444,719
Lockheed Martin Corp. ......... BBB+/A3 6.55 5/15/99 1,250 1,257,813
Motorola, Inc. ................ AA/Aa3 6.50 3/1/08 525 513,844
-----------
5,954,376
-----------
RAILROADS -- 1.3%
Southern Pacific Railroad...... A2/BBB+ 6.90 1/2/97 500 500,026
-----------
</TABLE>
Continued
42
<PAGE> 45
<TABLE>
<CAPTION>
S&P/MOODY'S PRINCIPAL MARKET
RATINGS MATURITY AMOUNT VALUE
(UNAUDITED) RATE DATE (000) (NOTE 2)
----------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS -- 3.9%
Bellsouth........................ AAA/Aaa 8.25% 7/1/32 $ 425 $ 436,687
GTE Corp., Callable 9/15/97 @
105.13........................ A-/A3 10.75 9/15/17 1,000 1,076,250
-----------
1,512,937
-----------
UTILITIES -- ELECTRIC -- 3.7%
Houston Light & Power Corp. ..... A-/A3 6.10 3/1/00 500 494,375
National Rural Utilities......... AA-/A1 6.09 12/15/97 925 927,312
-----------
1,421,687
-----------
UTILITIES -- GAS -- 2.5%
Smith Enron...................... AAA/Aaa 5.97 12/15/06 1,000 970,000
-----------
Total Corporate Bonds
(Cost -- $20,932,530)......... 21,031,569
-----------
SHARES
(000)
------
REGULATED INVESTMENT COMPANIES -- 3.9%
AIM Liquid Assets Money Market Fund................................... 1,371 1,371,461
AIM Prime Money Market Fund........................................... 159 159,211
-----------
Total Regulated Investment Companies (Cost -- $1,530,672)............. 1,530,672
-----------
TOTAL INVESTMENTS (COST -- $38,346,994)(A) -- 99.2%................... 38,490,272
OTHER ASSETS IN EXCESS OF TOTAL LIABILITIES -- 0.8%................... 324,988
-----------
NET ASSETS -- 100.0%.................................................. $38,815,260
===========
</TABLE>
- ---------------
Percentages indicated are based on net assets of $38,815,260.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................................... $238,263
Unrealized depreciation................................................... (94,985)
--------
Net unrealized appreciation............................................... $143,278
========
</TABLE>
CMO -- Collateralized Mortgage Obligation
See Notes to Financial Statements.
43
<PAGE> 46
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CORE INCOME PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $38,346,994)................... $38,490,272
Interest receivable...................................................... 577,564
Deferred organization costs (Note 2)..................................... 7,255
Prepaid expenses and cash................................................ 1,283
-----------
Total assets............................................................... 39,076,374
-----------
LIABILITIES
Distributions payable.................................................... 175,047
Accrued expenses:
Advisory fees......................................................... 16,229
Administration fees................................................... 4,869
Custodian fees........................................................ 15,895
Legal and audit fees.................................................. 19,414
Other................................................................. 29,660
-----------
Total liabilities.......................................................... 261,114
-----------
NET ASSETS................................................................. $38,815,260
===========
Shares Outstanding ($0.001 par value, 250 million shares authorized)....... 3,880,527
===========
Calculation of Maximum Offering Price
Net asset value per share................................................ $10.00
Sales charge -- 3.0% of public offering price............................ 0.31
------
Maximum Offering Price..................................................... $10.31
======
COMPOSITION OF NET ASSETS:
Shares of common stock, at par........................................... $ 3,881
Additional paid-in capital............................................... 38,753,628
Undistributed net investment loss........................................ (49)
Net unrealized appreciation from investments............................. 143,278
Accumulated net realized losses on investment transactions............... (85,478)
-----------
Net Assets, December 31, 1996.............................................. $38,815,260
===========
</TABLE>
- ---------------
See Notes to Financial Statements.
44
<PAGE> 47
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CORE INCOME PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 1, 1996(A) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.......................................................... $1,774,766
Expenses
Advisory fees................................................... $136,354
Administration fees............................................. 40,906
Distribution fees............................................... 67,920
Custodian fees.................................................. 12,141
Accounting fees................................................. 43,036
Transfer agent fees and expenses................................ 21,529
Legal and audit fees............................................ 23,470
Reports to shareholders......................................... 9,183
Amortization of organization expenses........................... 6,475
Directors' fees................................................. 3,436
Insurance expense............................................... 1,160
Registration fees............................................... 11,942
Other expenses.................................................. 422
--------
Total expenses before fee waivers and expenses paid by third
parties...................................................... 377,974
Less: Fee waivers............................................... (67,920)
Less: Expenses paid by third parties............................ (947)
--------
Total expenses.................................................... 309,107
----------
Net Investment Income............................................. 1,465,659
----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
Net realized losses from securities transactions................ (85,527)
Net change in unrealized appreciation from investments.......... 143,278
----------
Net Realized and Unrealized Gains from Investments................ 57,751
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $1,523,410
=========
</TABLE>
- ---------------
(a) Commencement of operations.
See Notes to Financial Statements.
45
<PAGE> 48
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CORE INCOME PORTFOLIO
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 1, 1996(A)
TO DECEMBER 31, 1996
--------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.............................................. $ 1,465,659
Net realized losses from securities transactions................... (85,527)
Net change in unrealized appreciation from investments............. 143,278
------------
Net increase in net assets resulting from operations............... 1,523,410
------------
Dividends to shareholders from net investment income................. (1,465,659)
------------
Portfolio Share Transactions
Net proceeds from shares subscribed................................ 39,728,939
Net asset value of shares issued to shareholders in reinvestment of
dividends....................................................... 754,643
Cost of shares redeemed............................................ (1,726,073)
------------
Net increase in net assets from Portfolio share transactions....... 38,757,509
------------
Total Increase....................................................... 38,815,260
NET ASSETS
Beginning of period................................................ --
------------
End of period...................................................... $ 38,815,260
============
SHARE TRANSACTIONS:
Issued............................................................. 3,978,187
Reinvested......................................................... 76,179
Redeemed........................................................... (173,839)
------------
Change in shares................................................... 3,880,527
============
</TABLE>
- ---------------
(a) Commencement of operations.
See Notes to Financial Statements.
46
<PAGE> 49
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- GENERAL
The Infinity Mutual Funds, Inc. (the "Fund") was organized as a Maryland
corporation on March 6, 1990 and is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end, management investment company.
The Fund operates as a series company currently comprising twelve portfolios.
The accompanying financial statements and notes relate to the AmeriStar Capital
Growth Portfolio (formerly the ValueStar Capital Growth Portfolio), the
AmeriStar Tennessee Tax Exempt Bond Portfolio (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) (the "Portfolios") only.
The Capital Growth Portfolio seeks to provide investors with capital growth
by investing primarily in the equity securities of domestic issuers. The
Tennessee Tax Exempt Bond Portfolio's investment objective is 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. The Limited
Duration Income Portfolio's investment objective is 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 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 Portfolios are authorized to issue two classes of shares as follows:
Investor Shares and Trust Shares. Investor Shares and Trust Shares are
substantially the same, except that Investor Shares bear the fees that are
payable under a plan adopted by the Fund's Board of Directors pursuant to Rule
12b-1 under the Act (the "Distribution Plan") at an annual rate of 0.25% of the
average daily net assets of the outstanding Investor Shares. As of December 31,
1996, the Portfolios only offer Investor Shares.
At December 31, 1996, there were 2 billion shares of the Portfolios' $0.001
par value common stock authorized, of which each Portfolio's Shares are
classified as Investor Shares (250 million shares authorized per Portfolio) and
as Trust Shares (250 million shares authorized per Portfolio).
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios in preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make esti-
47
<PAGE> 50
- --------------------------------------------------------------------------------
mates and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
A) Security Valuation:
The Portfolios' 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.
Restricted securities and securities for which market quotations are not readily
available, if any, are valued at fair value using methods approved by the Board
of Directors. Debt securities with remaining maturities of 60 days or less are
normally valued at amortized cost, which approximates market value. The
amortized cost method involves valuing a security at its cost on the date of
purchase or, in the case of securities purchased more than 60 days to maturity,
at their market value each day until the 61st day prior to maturity, and
thereafter assuming a constant amortization to maturity of the difference
between the principal amount due at maturity and such valuation.
B) Security Transactions and Investment
Income:
Security transactions are recorded on trade date. Realized gains and losses
from sales of investments are calculated on the identified cost basis. Interest
income, including accretion of discount and amortization of premium on
investments, is accrued daily. Dividend income is recorded on the ex-dividend
date.
C) Repurchase Agreements:
The Portfolios' custodian and other banks acting in a sub-custodian
capacity take possession of the collateral pledged for investments in repurchase
agreements. The underlying collateral is valued daily on a mark-to-market basis
to determine that the value, including accrued interest, exceeds the repurchase
price. In the event of the seller's default on the obligation to repurchase, the
Portfolios have the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
D) Expenses:
The Portfolios incurred certain costs in connection with their
organization. These costs were deferred and are being amortized on a
straight-line basis over five years from their commencement of operations. The
Fund accounts separately for the assets, liabilities and operations of each
Portfolio. Direct expenses of a Portfolio are charged to that Portfolio while
general Fund expenses are allocated among the Fund's respective portfolios based
on the relative net assets of each Portfolio. At December 31, 1996, deferred
organization costs were $9,811, $26,123, $26,123 and $7,255 for the Capital
Growth Portfolio, Tennessee Tax Exempt Bond Portfolio, Limited Duration Income
Portfolio and Core Income Portfolio, respectively.
E) Federal Income Taxes:
For federal income tax purposes, each Portfolio is treated as a separate
entity for the purpose of determining its qualification as a regulated
investment company under the Internal Revenue Code (the "Code"). It is the
policy of each Portfolio to meet the requirements of the Code applicable to
regulated investment companies, including the
48
<PAGE> 51
- --------------------------------------------------------------------------------
requirement that they distribute substantially all of their income to
shareholders. Therefore, no federal income tax provision is required.
At December 31, 1996, capital loss carryovers are available to offset
future net realized gains on securities transactions to the extent provided for
in the Code. Such capital loss carryover are detailed as follows:
<TABLE>
<CAPTION>
TENNESSEE
CAPITAL GROWTH CORE INCOME TAX EXEMPT
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------- ----------
<S> <C> <C> <C>
Capital Loss
Carryover...... $157,938 $85,478 $ 577,919
Expires in
year........... 2004 2004 2002
Capital Loss
Carryover...... -- -- $ 578,180
Expires in
year........... -- -- 2004
Total
Carryover...... $157,938 $85,478 $1,156,099
</TABLE>
F) Dividends and Distributions to Shareholders:
Dividends are declared daily to shareholders of record at the close of
business on the day of declaration and are paid monthly for the Tennessee Tax
Exempt Bond Portfolio, the Limited Duration Income Portfolio and the Core Income
Portfolio. Dividends are declared and paid quarterly for the Capital Growth
Portfolio. For all Portfolios, distributions of net realized gains, if any, will
be paid at least annually. Dividends and distributions are recorded on the
ex-dividend date. Distributions from net investment income and from net realized
gains are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. Timing differences relating to
shareholder distributions have been reclassified to paid-in-capital. These
differences are primarily due to deferrals of certain losses and expiring
capital loss carryovers.
G) Other:
Each Portfolio maintains a cash balance with its custodian and receives a
reduction of its custody fees for the amounts of interest earned on such
uninvested cash balances. For financial reporting purposes for the year ended
December 31, 1996, custodian fees and expenses paid by third parties were
increased by $141, $529, $2,379 and $947 for the Capital Growth Portfolio,
Tennessee Tax Exempt Bond Portfolio, Limited Duration Income Portfolio and Core
Income Portfolio, respectively. There was no effect on net investment income.
The Portfolios could have invested such cash amounts in an income producing
asset if they had not agreed to a reduction of fees and expenses under the
expense offset arrangement with its custodian.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
First American National Bank ("First American") serves as the Portfolios'
investment adviser. Effective April 4, 1996, BISYS Fund Services Limited
Partnership ("BISYS") became the Portfolios' administrator. Concord Financial
Group, Inc. (the "Distributor"), serves as the distributor of the Portfolios'
shares. BISYS and the Distributor are each a subsidiary of The BISYS Group, Inc.
As investment adviser, First American manages the investments of each
Portfolio and is responsible for all purchases and sales of each Portfolio's
investment securities. For its services, First American is entitled to receive
fees at an annual rate of 0.50% of the average daily net assets of the Tennessee
Tax Exempt Bond Portfolio, the Limited Duration Income Portfolio and the Core
Income Portfolio and 0.65% of the average daily net assets of the Capital Growth
Portfolio.
49
<PAGE> 52
- --------------------------------------------------------------------------------
As administrator, BISYS assists in supervising the operations of the
Portfolios. For its services, BISYS is entitled to receive a fee at the annual
rate of 0.15% of the average daily net assets of each Portfolio.
Pursuant to the Distribution Plan, each Portfolio pays the Distributor for
advertising, marketing and distributing Investor Shares at an annual rate of
0.25% of the average daily net assets of the outstanding Investor Shares. These
fees are used by the Distributor to pay financial institutions, including the
investment adviser, broker/dealers and other institutions, or to reimburse the
Distributor or its affiliates, for administration, distribution and shareholder
services in connection with the distribution of Fund Shares. For the year ended
December 31, 1996, the Distributor waived $82,357, $227,838, $258,484 and
$67,920 for the Capital Growth Portfolio, Tennessee Tax Exempt Bond Portfolio,
Limited Duration Income Portfolio and Core Income Portfolio, respectively.
Certain officers and Directors of the Fund are "affiliated persons" (as
defined in the Act) of BISYS or the Distributor. Each "non-affiliated" Director
receives an annual fee of $12,000 and a meeting fee of $1,500 per meeting for
services relating to all the portfolios constituting the Fund.
NOTE 4 -- SECURITIES TRANSACTIONS
For the year ended December 31, 1996, the cost of purchases and the
proceeds from sales of portfolio securities (excluding short-term investments)
were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Capital Growth
Portfolio(a)........... $ 32,621,665 $ 27,017,596
Tennessee Tax Exempt Bond
Portfolio.............. $189,130,255 $191,561,191
Limited Duration Income
Portfolio.............. $ 47,882,079 $ 54,910,417
Core Income
Portfolio(a)........... $ 38,727,160 $ 17,539,600
</TABLE>
(a) For the period commencing April 1, 1996 (commencement of operations) through
December 31, 1996.
NOTE 5 -- CONCENTRATION OF CREDIT RISK
The Tennessee Tax Exempt Bond Portfolio invests substantially all of its
assets in a non-diversified portfolio of tax-exempt debt obligations primarily
consisting of securities issued by the State of Tennessee, its municipalities,
counties and other taxing districts. The issuers' abilities to meet their
obligations may be affected by Tennessee economic, regional and political
developments.
The Tennessee Tax Exempt Bond Portfolio had the following concentrations by
sector at December 31, 1996 (as a percentage of total investments):
<TABLE>
<S> <C>
General Obligations................. 32.1%
Utilities........................... 18.0%
Health & Medical.................... 17.1%
Educational......................... 9.9%
Housing............................. 2.6%
Cash and Cash Equivalents........... 1.7%
Other............................... 18.6%
-----
100.0%
=====
</TABLE>
50
<PAGE> 53
- --------------------------------------------------------------------------------
NOTE 6 -- ACQUISITION OF AMERISTAR COMMON FUND
On March 28, 1996, the Capital Growth Portfolio and the Core Income
Portfolio acquired all of the assets and liabilities of the respective AmeriStar
Common Trust Funds. The following is a summary of shares issued, net assets
acquired, net asset value per share and unrealized appreciation as of the date
acquired:
<TABLE>
<CAPTION>
CAPITAL CORE
GROWTH INCOME
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Shares (000)................ 3,988 3,353
Net assets (000)............ 39,885 33,534
Net asset value............. 10.00 10.00
</TABLE>
NOTE 7 -- ELIGIBLE DISTRIBUTIONS (UNAUDITED)
The Fund designates the following eligible distributions paid by the
Capital Growth Portfolio for the dividends received deduction for corporations:
<TABLE>
<S> <C>
Dividend Income.................. $248,268
Dividend Income per share........ 0.0000
</TABLE>
NOTE 8 -- EXEMPT-INTEREST INCOME DESIGNATION (UNAUDITED)
The Fund designates the following exempt-interest paid by the Tennessee Tax
Exempt Bond Portfolio for the taxable year ended December 31, 1996:
<TABLE>
<S> <C>
Exempt-Interest
Distributions................ $3,848,385
Exempt-Interest Distribution
Per Share.................... 0.414
</TABLE>
The percentage break-down by State of exempt-interest is for the Tennessee
Tax Exempt Bond Portfolio's taxable year ended December 31, 1996, was as
follows:
<TABLE>
<S> <C>
Alaska............................. 0.13%
Arizona............................ 0.45%
Arkansas........................... 0.52%
Colorado........................... 0.46%
Connecticut........................ 0.34%
Georgia............................ 3.91%
Illinois........................... 0.13%
Kentucky........................... 0.86%
Louisiana.......................... 0.83%
Maryland........................... 0.73%
Michigan........................... 0.14%
Minnesota.......................... 0.31%
Mississippi........................ 0.07%
Missouri........................... 0.12%
Nevada............................. 0.87%
New Jersey......................... 0.86%
New Mexico......................... 0.34%
North Carolina..................... 0.28%
South Carolina..................... 0.86%
Tennessee.......................... 83.11%
Texas.............................. 2.10%
Virginia........................... 0.25%
Washington......................... 1.68%
Wisconsin.......................... 0.65%
------
100.00%
======
</TABLE>
51
<PAGE> 54
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
</TABLE>
- ---------------
* 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 of the Portfolio includes performance of
certain collective trust portfolio ("Commingled") accounts for the period
from December 31, 1995 to the Mutual Fund's commencement of operations on
April 1, 1996, as adjusted to reflect the expenses associated with the
Portfolio.
(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 portfolio shares purchased and sold
for which commissions were charged.
See Notes to Financial Statements.
52
<PAGE> 55
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR TENNESSEE TAX EXEMPT BOND PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994*
----------------- ----------------- ------------------
<S> <C> <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
income............................. (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)..... $88,084 $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%
</TABLE>
- ---------------
* 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 which were used to offset custodian
fees and expenses. If such credits had not occurred, the expense ratio would
h been as indicated. The ratio of net investment income was not affected.
See Notes to Financial Statements.
53
<PAGE> 56
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR LIMITED DURATION INCOME PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 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 securities
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%
</TABLE>
- ---------------
* 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.
See Notes to Financial Statements.
54
<PAGE> 57
THE INFINITY MUTUAL FUNDS, INC.
AMERISTAR CORE INCOME PORTFOLIO
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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%
</TABLE>
- ---------------
* 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 of the Portfolio includes performance of
certain collective trust portfolio ("Commingled") accounts for the period
from December 31, 1995 to the Mutual Fund's commencement of operations on
April 1, 1996, as adjusted to reflect the expenses associated with the
Portfolio.
(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.
See Notes to Financial Statements.
55
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
The Infinity Mutual Funds, Inc. - The AmeriStar Mutual Funds:
We have audited the accompanying statements of assets and liabilities of
the AmeriStar Capital Growth Portfolio (formerly the ValueStar Capital Growth
Portfolio), the AmeriStar Tennessee Tax Exempt Bond Portfolio (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), (collectively the Portfolios), including the
portfolios of investments, as of December 31, 1996, and the related statements
of operations, statements of changes in net assets and the financial highlights
for each of the periods indicated herein. These financial statements and the
financial highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included verification of securities owned as of
December 31, 1996, by confirmation with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Portfolios as of December 31, 1996, the results of their operations, the changes
in their net assets and the financial highlights for each of the periods
indicated herein, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 18, 1997
56
